Stock Options Scheme

Telefonica SA
3 November 1999



Over the past few days information has been published in the Spanish press
regarding the management retribution system 'The Stock Options Scheme',
introduced in 1997 for the management members of the Telefonica Group.  This
information has only glossed over the surface and has not given sufficient
details specifying the objectives and amounts involved which could give rise to
misunderstandings.

Therefore, as Telefonica has always believed in transparency regarding its
activities, the Company would like to clarify any misconception that has arisen.

1.  Once the Company had been totally privatized, coinciding with the
liberalization of the sector, Telefonica, S.A.'s Board of Director decided that
the top management's retribution scheme should be updated in order to achieve
the following objectives:

-  To bing the Company's schemes into line with those of other multinationals
both within and outside the sector.

-  To encourage executive loyalty within an open and highly competitive market.

-  To bring the interests of the Company's top management into line with those
of Telefonica's shareholders.

The aforementioned scheme is based on the taking up of call options of the
Company's shares by which the amount received by the members of the top team
will depend on efficiency of this team as this is directly linked to the share's
price.

This scheme was approved by the Appointments and Retributions Committee and
Board of Telefonica, S.A. at the meeting held on February 26th 1997 and the
Spanish Securities Market Commission was duly informed on March 20th 1997.  This
information has also since been published in subsequent annual report and
official prospectus.

2.  This scheme therefore grants the Group's 100 most important management
members a specific number of call options of Telefonica S.A. shares directly
linked with the individual's degree of responsibility.  Half of these call
options were granted at the trading price of the shares at the moment of the
introduction of this scheme, and the other half carried a 50% increase over this
price although all the options mature three years from the concession date.

The scheme obliges the management member to hold shares in the Company in
proportion with the number of call option granted until maturity.

Consequently, the retribution that the management member will derive from this
scheme, will entirely depend on the performance reflected by the shares's
trading price over the aforementioned 3-year period, which therefore means that
if the share price does not rise, the individual is not entitled to any payment.

3.  In order to hedge the economic risk arising from this scheme, Telefonica
S.A., has received the corresponding coverage from two financial entities, with
a total cost to the Company of Pesetas 2.7 billion, Pesetas 933 million for each
year of the scheme, as stated in the Annual Reports published since the date of
the launching of this scheme.

Therefore, since the signing of these hedging agreements, this scheme will have
no effect whatsoever on the Company's profit and loss accounts, as the amounts
to which each executive is entitled at maturity will be paid in their entirety
by the aforementioned financial entities.

4.  These options are held by Telefonica not by its management members.  At
maturity the management members will be entitled to the gains as deferred salary
retributions, with Telefonica withholding the necessary fiscal amounts.