Stake in Telecom Italia

Telefonica SA
30 April 2007



28/04/07

Creating a consortium, now the largest shareholder in the Italian operator with
23.6% of the capital

TELEFONICA, MEDIOBANCA, GENERALI, INTESA SANPAOLO AND BENETTON UNITE TO TAKE A
STAKE IN TELECOM ITALIA

  • The company, presided over by Cesar Alierta, will have two board members and
    an indirect participation of 10% in Telecom Italia

          Madrid, 28 April 2007.- The Board of Directors of Pirelli, in an
extraordinary meeting held today, and Edizione (Benetton Group), have agreed to
sell their stakes in Olimpia, principal shareholder of Telecom Italia, to a
consortium made up of Telefonica, the group's industrial partner, the insurance
company Generali, the banks Mediobanca and Intesa Sanpaolo, and Benetton
(partially reinvesting in the consortium). The operation is subject to the
mandatory authorisations.

          The new consortium, in which Telefonica holds 42.3% of the shares,
will have a 23.6% participation in Telecom Italia's capital (18% indirectly
through Olimpia and 5.6% directly), thus becoming the largest shareholder of the
Italian operator. The other members of the consortium have the following
shareholdings: Generali (28.1%), Mediobanca (10.7%), Intesa Sanpaolo (10.7%) and
Benetton (8.2%).

          The new company starts out with a capital structure of 5,145 million
euro, representing a 2,314 million euro investment for Telefonica. An additional
capital increase of 900 million euro is foreseen in which Telefonica will have
the right to subscribe for new shares on a pro-rata basis, in accordance with
its current participation.

          The agreement enables Telefonica to enter Telecom Italia's Board with two
members, a number proportionate to its 10% economic interest in the company. In
the new company, Telefonica will have the right of first refusal on the sale of
shares, as well as veto rights in certain decisions related to share ownership
changes, dividend policy and divestitures.

          This operation enables Telefonica to both strengthen its relationship with
Telecom Italia, with whom it has entered into cooperation agreements in Germany,
and to reinforce its position in Europe and Latin America. Nonetheless, the two
companies (Telefonica and Telecom Italia) will be managed separately and
independently and it is foreseen that both Telefonica and the board members it
appoints will abstain from participating and voting in meetings of the relevant
corporate bodies whose purpose is to consider business decisions related to
countries in which both companies have a presence.

          As a result of meetings with the Italian operator, Telefonica and Telecom
Italia foresee the generation of synergies which would give rise to costs
savings for both companies.

          This investment in no way alters Telefonica's commitment to the markets
with respect to limiting its financial investments this year to a net total of
1,500 million euro.

Shareholder Structure


      Mediobanca               Generali                 Intesa                 Benetton                 Telefonica
           |     10.7%             |    28.1%              |    10.7%              |    8.2%               |    42.3%
           |                       |                       |                       |                       |
           |                       |                       |                       |                       |
           V                       V                       V                       V                       V
                  ___________________________________________________________________________________
                                                                  New Company
                                                                            
                  ___________________________________________________________________________________
                           |                 100%                                       |
                           |                                                            |
                           |                                                            |
                           V                                                            |
                    ________________                                                    |
               |        Olimpia         |                                               |
                    ________________                                                    |
                                                                                        |
                           |                  18%               _______                 |                 5.6%
                           |                                   | 23.6% |                |
                           |                                    _______                 |
                           V                                                            V
                  ___________________________________________________________________________________
                                                 Telecom Italia
                                                                             
                  ___________________________________________________________________________________



ANNEX:

Newco investment:

100% Olimpia (2.82 euros/share)                            4,118 Million euros
5.6% in TI (2.53 euros/share)                              1,897 Million euros

Total                                                      6,015 Million euros

Newco sources of funds:

Telefonica                                                 2,314 Million euros
Mediobanca (in kind)                                       522 Million euros
Generali (in kind)                                         1,375 Million euros
Intesa                                                     522 Million euros
Benetton                                                   412 Million euros

Total equity                                               5,145 Million euros

Net debt 1                                                 870 Million euros

Total sources                                              6,015 Million euros


For further information, please contact:

                         Investor relations
                         Telf: ([phone] - ([phone]
                         Ezequiel Nieto                     [e-mail]
                         Dolores Garci                      [e-mail]
                         Diego Maus                         [e-mail]



1   To be reduced through a potential capital increase of up to 900 Million
    Euros to be executed in the 6 months following the completion of the deal.


                      This information is provided by RNS
            The company news service from the London Stock Exchange