Strategic Agreement withTERRA

Telefonica SA
13 February 2003



                              ANTONIO ALONSO UREBA

                               General Secretary

                    And Secretary of the Board of Directors

                               TELEFONICA S.A.




Telefonica SA, as provided in article 82 of the Spanish Stock Market Act (Ley
del Mercado de Valores) hereby reports the following


                               Significant event


On February 12th 2003 , Telefonica and Terra have signed a Strategic Alliance
Master Agreement that substitutes the Strategic Agreement of May 16th, 2000 to
which the company Bertelsmann was also party.


In addition, Telefonica, Terra, Lycos and Bertelsmann have signed an agreement
based on preferred relationships, which will allow the parties to continue
exploring opportunities for the mutual provision of communication, development
and content services in the online market.


The signing of the new Strategic Agreement between Telefonica and Terra
responds, on the one hand, to the changes experienced in the Internet business,
particularly the development of broadband services; and, on the other hand, the
need to adapt the range of products and services offered by Terra Lycos Group
under the May 2000 Agreement to the abovementioned new conditions and the
specific needs of the Telefonica Group in those markets in which operates.


The Strategic Agreement takes full advantage of Telefonica Group's capacity as
broad- and narrowband and access provider, along with the Terra Lycos Group's
capacity as portal, aggregator, supplier and manager of fixed telephony internet
content and services in the household, small office/home office (SOHO) and-when
agreed-small and medium enterprise (SME) markets. The aim of the Strategic
Agreement is to take advantage of synergies and the creation of value for both
Groups.


This Strategic Agreement has been concluded for a period of six years ending
December 31st, 2008 and shall automatically be renewed on an annual basis
thereafter, unless expressly terminated by the parties.


The main characteristics of the Master Agreement can be summarised as follows:


Strengthening of the Terra Lycos Group as:


  • Exclusive provider of the essential portal elements, use of the brand,
    aggregator of broad- and narrowband Internet content and services aimed at
    household, SOHO and-when agreed-SME segments in the Internet access and
    connectivity services offered by companies belonging to Telefonica Group.


  • Preferred supplier of audit, consultancy, management and maintenance
    services for the Telefonica Group's country portals.


  • Exclusive provider of online training services for Telefonica Group's
    employees.


  • Preferred supplier of comprehensive online marketing services for the
    companies of Telefonica Group.


The companies of Telefonica Group guarantee to acquire a minimum amount of
online advertising space from the companies of Terra Lycos Group.


Terra Lycos Group shall be Telefonica Group's exclusive provider of wholesale
Internet access and connectivity services under most favoured customer
treatment, allow by regulations.


Outsourcing by the companies of Terra Lycos Group to the Telefonica Group
companies of the management of all or part of the service and/or operation of
the network access elements for providing Internet access to its household, SOHO
and-when agreed-SME clients, under most favoured customer treatment, allow by
regulations.


The companies of Terra Lycos Group shall be Telefonica Group's exclusive
provider of advanced network services and platforms necessary for developing
services offered to household, SOHO and-when agreed-SME clients in both broad
and narrowband, under most favoured customer treatment, allow by regulations.




Throughout its term, the Strategic Agreement guarantees Terra Lycos Group a
generation of at least 78.5 million euro per year in value, which represents the
difference between the revenues from the services provided under the Strategic
Agreement and the costs and capital expenditure directly associated to those
revenues. This Strategic Agreement defines a new relationship model between the
two companies that makes better use of their respective capacities to boost the
Internet-based growth of both companies.

                                                       Madrid, 13 February 2003.



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