Stock Dividend-Prior Communic

Telefonica SA
25 February 2003



                              PRIOR COMMUNICATION








Antonio Alonso Ureba, holder of identity card no. 50.291.681 - L, acting on
behalf of TELEFONICA, S.A. (hereinafter the 'Company' or 'Telefonica') in his
capacity as General Secretary and Secretary of the Board of Directors, hereby
declares before the Spanish National Securities Market Commission ('Comision
Nacional del Mercado de Valores'):


 I. That the Company's General Ordinary Shareholders' Meeting held on April 12th,
    2002 resolved to carry out two successive capital increases to be charged to
    freely disposable reserves, in an amount equivalent to 2% of the share
    capital of the Company subscribed and paid- in each, through the issue of
    new shares that will be freely allocated to the shareholders at a ratio of
    one new share for every fifty old shares held.


    The General Ordinary Shareholders' Meeting also resolved to delegate to the
    Board of Directors the power (which in turn may be sub- delegated in whole
    or in part to its Standing Committee and/or in any of the Director with
    delegated powers) to set the dates on which the aforementioned capital
    increases may be executed and to specify the conditions for the capital
    increases that have not been provided for in the Meeting.


    The first of these capital increases charged to freely disposable reserves
    and the subject of the abridged Prospectus verified by the Spanish National
    Securities Market Commission on January 16th, 2003, was declared executed by
    the Standing Committee of the Board of Directors held on February 12th, 2003
    and was registered on the Mercantil Register ('Registro Mercantil') on
    February 18th, 2003. The Company have iniciated the procedures necessary for
    the shares derived from this capital increase to be listed.


II. That, under said authorization, the Company's Board of Directors, at its
    meeting held on January 29th, 2003 resolved to delegate to its Standing
    Committee the aforementioned power.


III. That the Standing Committee of the Board of Directors, at its meeting held
    on February 12th, 2003, resolved to execute the resolution referred to in
    paragraph I regarding the first of these capital increases and set the
    amount for the second capital increase at Euros 99,157,490, through the
    issue of 99,157,490 ordinary shares, of the same series and carrying the
    same rights as those currently outstanding, of a nominal value of one (1)
    euro each and represented by book entries



IV. That, by means of this document, and by virtue of that stated in article 26
    of the Stock Market Law 24/1988 of July 28 (modified by Law 37/1998 of
    November 16), and articles 5.2.a), 8.1 and 9 of Royal Decree 291/1992 of
    March 27, regarding Issues and Public Sale Offers of Securities (modified by
    Royal Decree 2590/1998, December 7), the mandatory Prior Communication
    regarding the increase in the Company's share capital is presented, and the
    main characteristics of this are stated below:






1.     Issuer


The issuer of the shares derived from the aforementioned capital increase is
TELEFONICA S.A., with its registered head office in Madrid, Gran Via 28 and
C.I.F. A-28/015865, registered in the Madrid Mercantile Register, volume 12,534,
sheet 21, Section 8 of the book of Companies, page M-6164, registering 1359.


2.     Nature and characteristics of the securities to be issued and the amount
of the issue


The securities issued in the capital increase are ordinary Telefonica shares,
with a nominal value of one Euro each, of the same series, and with the same
rights as those Telefonica shares currently outstanding, and represented by book
entries.


The new shares issued by virtue of this capital increase will entitle holders to
receive the entire amount of the dividends distributed from the time of the
ending of the free allocation period.


The capital increase will be entirely charged to the Company's freely disposable
reserves, in the ratio of one (1) new share for every fifty (50) Company shares
currently outstanding, and this increase will be based on the balance duly
audited by the Company's auditors for the year ended December 31, 2001.


The number of shares derived from the capital increase (99,157,490 shares) will
be equal to 2% of the Company 's subscribed and paid- in capital stock at the
time of the beginning of the free allocation period, as established in the
Shareholders Meeting 's resolution referred to in Point I. The shares will be
issued at par, that is with an issue price of one (1) euro per share.


The Company will apply for the listing of these shares on the four Spanish Stock
Exchanges and in the Spanish Automated Quotation System ('Sistema de
Interconexion Bursatil' - 'Mercado Continuo'), as well as their listing on the
foreign securities exchanges where the Company's outstanding shares are already
listed and their inclusion in the Stock Exchange Automated Quotation System
(SEAQ International), subject to the regulations governing said stock markets.


3.     Group of subscribers to whom the issue will be offered


All those Company shareholders who, at the end of the working day previous to
the beginning of the free allocation period referred to in paragraph 4, were
registered as such, will be entitled to receive one (1) new share for every
fifty (50) old ones held. The free allocation rights will be transferable during
this period under the same conditions as the shares from which they derive.


For the purposes of that stated in the previous paragraph, every natural or
legal person, who, at the end of the aforementioned day, is registered as a
holder of the Company's shares at the registries of the member-entities of the
Spanish Settlement and Clearance Service (SCLV) will be considered a Telefonica
shareholder.


4.     Allocation procedure


The free allocation rights may be exercised during a fifteen-day period which
will begin on the working day subsequent to the publication of the announcement
of the capital increase in the Official Gazette of the Mercantile Register
('Boletin Oficial del Registro Mercantil')


As the share capital increase is charged to reserves, no expenses or commissions
will be charged by the Issuer for the allocation of the new shares.
Notwithstanding, the member- entities ('entidades adheridas') of the SCLV may
apply, in accordance with the current legislation in force, the commissions and
expenses for the allocation of the shares and for the trading of the free
allocation rights.


5.     Entities participating in the issue


All the member-entities of the SCLV, in the course of their normal activity,
will participate in the allocation of the shares from this capital increase.


6.     The Issue's Prospectus


Telefonica shall present the corresponding abridged Prospectus on the Issue
corresponding to this capital increase, in order for this to be verified and
registered by the Spanish National Securities Market Commission, in accordance
with that stated in article 5.2.d) of Royal Decree 291/1992.






In witness thereof,


IT IS REQUESTED that the Spanish National Securities Market Commission on
acknowledging the filing of this Prior Communication relative to the capital
increase on reserves, admits it and, after having completed the required
formalities, proceeds to register it in the appropriate Registry.


Madrid, Februay 25th, 2003






TELEFONICA, S.A.

p.p.






Mr. Antonio Alonso Ureba

General Secretary and Secretary of the Board of Directors





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