Telefonica's Board Decisions

Telefonica SA
18 December 2002


Madrid, December 18, 2002

Board of Directors approves a far-reaching shareholder compensation policy,
including two new bonus share issues


TELEFONICA WILL PROPOSE TO GENERAL MEETING A DIVIDEND DISTRIBUTION OF 0.25
EUROS PER SHARE


Luiz Fernando Furlan leaves the Board after being named Minister of Development,
Industry and Commerce of Brazil

Madrid, December 18th.- The Board of Directors of Telefonica, S.A. decided at
its meeting today to bring a proposal before the Company's Annual General
Meeting to declare a gross dividend of 0.25 euros per share with a charge to
unrestricted reserves.

With this decision, Telefonica fulfils the promise announced this past July 24th
to resume paying out dividends as a means of directly compensating its
shareholders, ending the suspension of dividend distributions implemented in
1998.

In addition, the Board of Directors has adopted the relevant resolutions to
initiate the two new bonus share issues approved at the most recent general
meeting, held this past April 12th.

The Telefonica Board of Directors is therefore implementing a broad package of
shareholder compensation measures with the goal of allowing shareholders to
participate in the efficiency improvements and increased cash flow generated in
recent years.

The new share issues will be made with a charge to unrestricted reserves, each
for the same amounts, equal to 2% of the share capital. The first will be
carried out in January 2003, with the issue of 97,213,225 new ordinary shares of
the Company, to be freely distributed amongst shareholders at a ratio of one new
share for each 50 shares held at that time.

The second increase, which will involve 99,157,490 new shares (a further 2% of
the share capital as it stands after the addition of the shares from the first
capital increase), is planned for February and March 2003 and, in all events,
prior to the next Annual General Meeting of Shareholders.

Luiz Fernando Furlan, new member of the Brazilian cabinet

During the Telefonica Board of Directors meeting, the Company's Chairman and the
rest of the Board members congratulated Luiz Fernando Furlan on being named to
the office of Minister of Development, Industry and Commerce of Brazil. The
appointment has led him to tender his resignation from the Telefonica Board.

Furlan was named to his seat on the Telefonica Board on December 20, 2000 and
his appointment as independent director was one of the first changes made in the
Board of Directors at the proposal of the Chairman, Cesar Alierta. Over the last
two years, Luiz Fernando Furlan has made a decisive contribution to the
internationalization of Telefonica, which looks to Brazil as one of its main
sources of growth.

A 56 year old Brazilian, Luiz Fernando Furlan is one of the leading
representatives of the Brazilian business community. He currently chairs the
Sadia Group, one of the leaders of the Brazilian food industry, and is Deputy
Chairman of the Sao Paulo Industrial and Business Federation (FIESP). Prior to
his appointment as Minister in the new government of Brazil, which will take
effect on January 1, 2003, he served as member of the Boards of Director of
Telefonica, S.A., Pnamco (largest Coca-Cola bottler in Latin America), IBM Latin
America and ABN Amro Bank. He is also President of the Forum of Mercosur leaders
and is a member of the World Economic Forum's consultative committee and of the
INSEAD International Council.



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