1st Quarter Results 2007 Pt 1

Telefonica SA 16 May 2007 PART 1 OF 2 Quarterly results January-March 2007 TABLE OF CONTENTS Telefonica Group Market Size Financial Highlights Consolidated Results Financial Data RESULTS BY REGIONAL BUSINESS UNITS Telefonica Espana â€¢ Wireline Business â€¢ Wireless Business Telefonica Latinoamerica â€¢ Brazil â€¢ Argentina â€¢ Chile â€¢ Peru â€¢ Colombia â€¢ Mexico â€¢ Venezuela â€¢ Central America â€¢ Ecuador â€¢ TIWS Telefonica O2 Europe â€¢ O2 UK â€¢ O2 Germany â€¢ O2 Ireland â€¢ O2 Airwave â€¢ Telefonica O2 Czech Republic Other Companies â€¢ Atento Group ADDENDA Key Holdings of the Telefonica Group and its Subsidiaries Significant Events Changes to the Perimeter and Accounting Criteria of Consolidation The financial information contained in this document has been prepared under International Financial Reporting Standards (IFRS). This financial information is unaudited and, therefore, is subject to potential future modifications. The English language translation of the consolidated financial statements originally issued in Spanish has been prepared solely for the convenience of English speaking readers. Despite all the efforts devoted to this translation, certain omissions or approximations may subsist. Telefonica, its representatives and employees decline all responsibility in this regard. In the event of a discrepancy, the Spanish-language version prevails. These consolidated financial statements are presented on the basis of accounting principles generally accepted in International Financial Reporting Standards (IFRS). Certain accounting practices applied by the Group that conform with generally accepted accounting principles in IFRS may not conform with generally accepted accounting principles in other countries. TELEFONICA GROUP TELEFONICA GROUP ACCESSES Unaudited figures (thousands) January - March 2007 2006 % Chg Final Clients Accesses 204,503.6 184,065.3 11.1 Fixed telephony accesses (1) 42,079.0 40,808.1 3.1 Internet and data accesses 12,348.1 11,200.7 10.2 Narrowband 3,642.2 4,760.3 (23.5) Broadband (2) 8,543.5 6,263.2 36.4 Other (3) 162.3 177.1 (8.3) Cellular accesses 148,932.2 131,316.9 13.4 Pay TV 1,144.2 739.6 54.7 Wholesale Accesses 2,034.9 1,407.0 44.6 Unbundled loops 1,102.3 556.1 98.2 Shared UL 605.2 320.3 88.9 Full UL 497.2 235.8 110.9 Wholesale ADSL (4) 643.2 784.0 (18.0) Other (5) 289.3 67.0 n.m. Total Accesses 206,538.4 185,472.3 11.4 (1) PSTN (including Public Use Telephony) x1; ISDN Basic access x1; ISDN Primary access; 2/6 Access x30. Company's accesses for internal use included. (2) ADSL, satelite, optical fibre, cable modem and broadband circuits. (3) Remaining non-broadband final client circuits. (4) Includes Unbundled Lines by T. Deutschland. (5) Circuits for other operators. Note: Cellular accesses, Fixed telephony accesses and Broadband accesses include MANX customers and Telefonica Telecom. TELEFONICA GROUP Financial Highlights The most relevant factors of Telefonica Group results for the January-March 2007 period are the following: â€¢ Once again, the best combination of growth and returns among the incumbent European operators: â€¢ Eleven consecutive quarters registering growth in the basic earnings per share. In the first quarter it increased 6.1% to 0.260 euros per share. â€¢ Eleven consecutive quarters with simultaneous growth in revenues (+15.1%), OIBDA (+9.6%), OI (+15.0%) and net income (+7.7%) versus the same period last year. â€¢ Significant organic1 growth of revenues (+7.8%), OIBDA (+5.9%) and OI (+19.6%) as a result of the solid evolution of operations, ahead of peers. â€¢ Operating Cash-Flow (OIBDA-CapEx) totaled 3,718 million euros and increased 10.8% year-on-year due to the integrated management of operations, higher scale and execution of synergies: â€¢ OIBDA margin reached 37.1% in the first quarter. â€¢ Increased diversification: Telefonica Spain represented 36.6% of consolidated revenues, Telefonica Latinoamerica (14 countries) 34.1% and Telefonica O2 Europe (5 countries) 25.7%. â€¢ Successful commercial campaigns with high level of captured and loyalty of customers, surpassing total accesses the figure of 206 millions, 11.4% more than in March 2006: â€¢ Cellular accesses registered a year-on-year growth of 13.4% to 148.9 millions. â€¢ Retail Internet broadband accesses increased 36.4% to 8.5 millions. â€¢ Pay TV customers reached 1.1 million (+54.7% year-on-year). â€¢ Consolidated net income reached 1,257 million euros and grow 7.7% with respect to January-March 2006. -------------------------------------------------------------------------------- 1 Assuming constant exchange rates and including the consolidation of O2 Group, Telefonica Telecom and Iberbanda in January-March 2007. Excluding the consolidation of Telefonica O2 Czech Republic in January-March 2007. TELEFONICA GROUP Consolidated Results Telefonica Group organizational restructuring by Regional Business Units: Telefonica Espana, Telefonica Latinoamerica and Telefonica O2 Europe, in accordance with the new regional and integrated management model, defines that the companies legal structure is not relevant for the presentation of the Telefonica Group financial information. In this sense, operating results of each regional business units are presented independently of their legal structure. In line with this new structure, Telefonica Group has incorporated in Telefonica Espana and Telefonica Latinoamerica regional businesses units all the information corresponding to fixed, cellular, cable and Internet businesses. Likewise, Telefonica O2 Europe includes O2 Group results and Telefonica O2 Czech Republic results. In the caption Other companies and Eliminations Content and Media Business includes Telefonica S.A. direct stake in the share capital of Endemol Entertainment Holding, N.V. Telefonica Group results for the first quarter of 2007 once again showed Telefonica as the best combination of growth and returns in the European industry. The basic net profit per share amounted to 0.260 euros, 6.1% up year-on-year. This year-on-year growth rate in the basic net profit per share has been produced in a consecutive way since the period January-September 2004. At the same time, there was also a simultaneous year-on-year growth in revenues (+15.1%), OIBDA (+9.6%), OI (+15.0%) and net profit (+7.7%) in nominal terms. Once again, since the period January-September 2004, all of these captions in the profit and loss account have grown simultaneously every quarter to date. The constant focus on growth can be seen through the 7.8% organic1 growth in revenues during the first three months, thanks to the successful integrated management of operations, that translated in a significant growth in customers and the services usage. It is worth to highlight that the organic growth of revenues has been over 7.5% every quarter since the first quarter of 2004. Synergies obtained, cost optimisation and already achieved geographical diversification have reinforced the generation of Operating Cash Flow (OIBDA-CapEx) up to 3,718 million euros, a 10.8% increase year-on-year. The Telefonica Group continued, through a high commercial effort, to maintain high growth rates in terms of customers in markets where it operates, thus strengthening its competitive position. Hence, total accesses were in excess of 206.6 million by the end of March 2007, up 11.4% year-on-year. This variation is due mainly to cellular and broadband connections and extended product bundles that include voice, broadband and television. Telefonica Espana contributed 44.8 million to the total number of Telefonica Group accesses (+5.5%year-on-year), Telefonica Latinoamerica with 117.0 million (+14.1% year-on-year) and Telefonica O2 Europe with 39.2 million (+7.8% year-on-year). With regards to cellular business, the Telefonica Group has focused its growth efforts on the capturing, loyalty and retaining its best customers. Hence, Telefonica Group cellular accesses stood at 148.9 million by 31st March 2007, 13.4% higher than in March 2006 due to the increased growth of Telefonica Latinoamerica where they totalled 85.6 million (+15.6% year-on-year). In Spain, the total number of customers increased a remarkable 7.6% year-on-year to stand at 21.8 million in a market that now has eight operators. In Europe, customers rose to 35.9 million, 9.4% up on cellular connections in March 2006. Retail broadband internet connections exceeded 8.5 million by the end of March 2007, a year-on-year increase of 36.4% thanks to the success of the commercial campaigns developed by the Telefonica Group to encourage total market growth. The marketing of voice, broadband and television bundles continues to be launched successfully and is playing a significant role in the growth, retention and loyalty of customers. Hence, the number of retail internet broadband connections totalled 4.0 million in Spain (3.0 million one year ago), 4.0 million in Latin America (2.9 million twelve months ago) and 0.5 million in Europe (0.3 million in March 2006). The number of Pay TV customers for the Telefonica Group exceeded 1.1 million, up by 54.7% in relation to March 2006, after having launched different competitive offers in the countries where already this service is provided (Spain, Czech Republic, Peru, Chile and Colombia). Revenues for the Telefonica Group amounted to 13,747 million euros during the first three months of 2007, a year-on-year growth of 15.1%. The performance of exchange rates reduced growth rate by 2.6 percentage points in March, while changes in the perimeter of consolidation contributed with 9.8 percentage points. Eliminating both effects, the organic growth2 of revenues would stand at 7.8%, supported by the growth of Telefonica Latinoamerica and Telefonica Espana. Additionally, worth of notice are traffic trends and data growth rates. Telefonica Espana registered in January-March a figure of 5,033 million euros (36.6% of consolidated revenues), 5.5% up on the first quarter of 2006. Revenues from Wireline Business totalled 3,050 million euros, 3.6% higher than that registered during the first three months of 2006 primarily due to greater broadband revenues (+27.0% year-on-year) and to the slight increase in access revenues (+0.2% year-on-year) following the increase in the PSTN monthly fee on 1st January (+2.0% to 13.70 euros). Telefonica Espana's Wireless Business revenues reached 2,336 million euros during the first three months of 2007, 7.9% higher than those obtained during the same period of 2006 particularly due to the good performance of customer revenues (+10.0% year-on-year) because of the strong growth of the customer base, especially from contract customers, between of which is important to highlight the success of the loyalty campaigns. Telefonica Latinoamerica revenues in January-March 2007 (34.1% of total revenues) reached 4,685 million euros, a year-on-year increase of 8.5% (+12.3%3 organic growth), supported by the growth of the broadband market and the strength of the cellular market. In terms of the cellular business, growth in revenues from Mexico (+66.2% in local currency) and Venezuela (+25.4% in local currency). Among the countries with fixed and mobile businesses, Brazil totalled revenues of 1,801 million euros (contributed with 38.4% to Telefonica Latinoamerica revenues), with an increase of 2.8% in local currency in respect to January-March 2006. In Argentina, revenues cumulative to March stood at 561 million euros, 21.0% higher than the previous year in local currency, in Peru revenues reached 370 million euros (+9.7% in local currency compared with January-March 2006) and those of Chile 423 million euros (+10.0% in local currency). Telefonica O2 Europe achieved revenues of 3,534 million euros in January-March 2007 compared with the 2,409 million euros of the first quarter of 2006, when the assets of the O2 Group were included in February-March 2006 and those of Telefonica Deutschland and Telefonica O2 Czech Republic in January-March 2006. During the first quarter of 2006, Telefonica O2 Europe contributed to consolidated revenues with 25.7%. Revenues from O2 UK were 10.2% higher, in local currency, than those recorded for the first three months of 2006 thanks to the increased customer base and ARPU. Revenues from O2 Germany fell by 3.0% in relation to the January-March period of the previous year. Revenues for Telefonica O2 Czech Republic, registered a year-on-year increase of 2.6% in local currency during the first three months of the year due the growth of the cellular business (+4.8% in local currency) more than offsetting the slight drop in the fixed business (-0.1% year-on-year). Fixed business revenues has a slightly better performance than in previous quarters. Cumulative operating costs for the Telefonica Group stood at 8,828 million euros at the end of the quarter, 15.5% higher than in January-March 2006 as a result of increased commercial efforts made to capture customers and ensure their loyalty and of the changes in the accounting consolidation perimeter. Among the expenses captions: â€¢ Supplies increased by 25.3% in relation to the first quarter of 2006 (+27.6% in constant euros) to stand at 4,399 million euros. These results, in organic terms, are due to Telefonica Latinoamerica, registering higher interconnection costs in Brazil and Peru, Telefonica Espana, mainly the wireless business due to intense commercial activity and O2 UK. â€¢ Personnel expenses for the first three months of the year (1,718 million euros) increased by 4.3% in relation to the same period of the previous year (+6.4% eliminating the negative effect of exchange rates) due to the 7.9% increase in the average workforce (236,771 employees). However, excluding the Atento Group staff (109,021 employees, up 13.0% year-on-year), the average workforce would have increased by 4.0% due to the incorporation of new companies to the consolidation perimeter, despite the drop workforce following the sale of TPI and the 2003-2007 Telefonica Espana's Wireline Business Redundancy Program. â€¢ External services expenses (2,307 million euros) increased by 11.1% (+14.3% in constant euros) in comparison with January-March 2006, due mainly, in organic terms, to higher commercial and network expenses in the Telefonica Espana fixed business and the increased commercial activity of Telesp and O2 UK. As a result of the performance of the aforementioned revenues and expenses, the consolidated operating income before depreciation and amortization (OIBDA) totalled 5,106 million euros, 9.6% higher than in the same period of the previous year. The negative impact of exchange rates deducted 2.4 percentage points from the growth rate, while incorporations to the consolidation perimeter contributed with 6.1 percentage point to the growth. Therefore, excluding both effects, the organic growth rate 4would have stood at 5.9%. In terms of profitability, the OIBDA margin to March stood at 37.1%, 1.8 percentage points lower than that obtained in January-March 2006. In organic4 terms, the margin as a percentage of revenues amounted to 37.2% during the first three months of 2007 compared with 37.9% the previous year, reflecting the operating efficiency at Telefonica Group. With a contribution of 47.8% to the Telefonica Group's total consolidated OIBDA, Telefonica Espana recorded OIBDA of 2,439 million euros in the first quarter of the year, a year-on-year growth of 10.7%. In the Wireline business OIBDA (1,419 million euros) increased by 12.4% year-on-year compared with January-March 2006 and the OIBDA margin stood at 46.5% (46.1% in January-March 2006, excluding the provision for the Redundancy Program). The Wireless business OIBDA in January-March 2007 amounted to 1,027 million euros (+7.9% year-on-year) and the margin as a percentage of revenues stood at 44.0%, the same level than the previous year. OIBDA for Telefonica Latinoamerica (1,713 million euros) represented 33.6% of total OIBDA for the Telefonica Group, registering a year-on-year growth of 12.1% (+20.2% in constant euros). Organic variation would reach 14.6%5, supported by the positive contribution of Mexico (22 million euros compared with the previous year's losses) and the greater contribution of Venezuela (+39.3% year-on-year in local currency) and Argentina (+29.7% in local currency). Among the other countries, Brazil, the highest contributor to total Telefonica Latinoamerica OIBDA with 43.7%, recorded a 2.8% growth in local currency, Chile (9.6% of Telefonica Latinoamerica OIBDA) a 22.5% increase in local currency and Peru (8.4%of Telefonica Latinoamerica OIBDA) a 0.3% growth also in local currency. Telefonica O2 Europe, contributing 18.3% to the Telefonica Group's total OIBDA, obtained cumulative OIBDA of 933 million euros in January-March, compared with the figure of 756 million euros in 2006, which included the February-March period of the 02 Group and the January-March period of Telefonica O2 Czech Republic and Telefonica Deutschland. OIBDA for O2 UK and O2 Germany fell in comparison with the first quarter of 2006 by 4.6% and 5.6% respectively in local currency, partly due to increased commercial expenses and customer retention. The OIBDA margin for O2 UK for the first three months of 2006 stood at 24.0%, whereas that of O2 Germany amounted to 19.1%. In Telefonica O2 Czech Republic, OIBDA fell 2.1% year-on-year and the margin amounted to 46.6%, 2.3 percentage points down on that recorded for the first quarter of 2006 basically due to the start of operations in Slovakia. Depreciation and amortization cumulative to March reached 2,396 million euros, 4.1% up on the same period of 2006 as a result of the higher depreciation and amortization of Telefonica O2 Europe. This includes the O2 Group Purchase Price Allocation (231 million euros) and Telefonica O2 Czech Republic (39 million euros), whereas in 2006, the months of February and March were included for the 02 Group and the January-March 2006 period for Telefonica O2 Czech Republic. In organic terms6, depreciation and amortization registered a 6.3% drop, basically due to the decline in Telefonica Espana and Telefonica Latinoamerica. Operating income for the quarter amounted to 2,710 million euros, up 15.0% year-on-year to stand at 19.6% in organic terms6. The results of associated companies cumulative to March totalled 35 million euros, 60.2% up on that recorded in January-March of the previous year. This improvement is basically associated with two factors: 1) Sogecable is no longer accounting by the equity method and 2) the greater positive contribution of Portugal Telecom. Net financial results for the first quarter 2007 amounted to 768 million euros, 47.1% above those of first quarter 2006. Excluding FX results, net financial debt figures would be 751 million euros in the first quarter 2007 and 517 in the first quarter 2006. This would imply an increase of 45.1% in the adjusted net financial results in the period 2007-2006. This variation arises from two different effects. On one hand, an increase of 126 million euros as the result of a 17.2% increase in average total net debt (54,778 million euros as of 31st March 2007, including pre-retirement plan commitments). On the other hand, an increase of 107 million euros due to a lower profits in the cost associated to marked-to-market positions (64 million euros), together with the increase in the average cost of debt for the Telefonica Group due to the higher interest rates in Europe and the higher percentage of debt in Latinoamerica. The average cost calculated on average total net debt for the first quarter 2006 is 5.7% and 5.6% when excluding FX results. The net free cash flow after CapEx generated by the Telefonica Group in the first quarter 2007 totaled 950 million euros of which 744 million euros were assigned to Telefonica share buyback program and 214 million euros to commitment cancellations derived mainly from the pre-retirements plans. Financial investments for the period amounted to 200 million euros, has caused the need to increase net financial debt in 208 million euros. In the opposite side, net debt has decreased 469 million euros because of changes in the perimeter of consolidation and other effects on financial accounts, mainly due to the differential between accrued and payments. This has been translated in a decrease of 261 million euros with respect to the net financial debt of the fiscal year 2006 (52,145 million euros), reaching the net financial debt of Telefonica Group at March 2007 in 51,884 million euros. The tax rate recorded during the first three months of 2007 stood at 33.2%, amounting the tax provision to 656 million euros. However, the cash outflow for the Telefonica Group will be further reduced as negative tax bases are compensated for. The results attributed to minority interests subtract 65 million euros from the net income for the Group during the first quarter of 2007, 23.2% less than in the same period of the previous year (-84 million euros in January-March 2006). This variation is mainly due to the change of stake in Telefonica Moviles (merger with Telefonica S.A. in July 2006). As a result of all of these items, the net income for the first three months of the year amounted to 1,257 million euros, compared with the 1,167 million euros of January-March 2006 to give a year-on-year growth of 7.7%. Basic net earnings per share grew by 6.1% compared with the first quarter of the previous year to stand at 0.260 euros. Telefonica Group CapEx during the first quarter of the year amounted to 1,388 million euros, a 6.5% increase year-on-year (+8.6% in constant euros), due to greater investments in Telefonica Latinoamerica (broadband, TV and GSM) and Telefonica O2 Europe (2G and 3G networks). 74% of total investment was devoted to growth activities, 5 percentage points up on the previous year mainly due to optimisation towards broadband and the mobile business. Nevertheless, It should be noted that there is a strong cyclical component of the investments, so that this performance cannot be extrapolated to the full year. FINANCIAL TARGETS: Telefonica Group confirms financial targets7 established for 2007: â€¢ Consolidated revenues will grow between 6% and 9% in the year 2007. â€¢ OIBDA growth for the year 2007 in the 8% to 11% range. â€¢ OI growth for the year 2007 in the 14% to 20% range. â€¢ 2007 CapEx to stand below 7,814 million euros. Likewise, all financial targets for 2007 are also reiterated for Telefonica Espana, Telefonica Latinoamerica and Telefonica O2 Europe. -------------------------------------------------------------------------------- 1 Assuming constant exchange rates and including the consolidation of the O2 Group, Telefonica Telecom and Iberbanda in January-March 2006. It excludes the consolidation of Telefonica O2 Slovakia in January-March 2007. 2 Assuming constant exchange rates and including the consolidation of the O2 Group, Telefonica Telecom and Iberbanda in January-March 2006. It excludes the consolidation of Telefonica O2 Slovakia in January-March 2007. 3 Assuming constant exchange rates and including the consolidation of Telefonica Telecom in January-March 2006. 4 Assuming constant exchange rates and including the consolidation of the O2 Group, Telefonica Telecom and Iberbanda in January-March 2006. It excludes the consolidation of Telefonica O2 Slovakia in January-March 2007. 5 Assuming constant exchange rates and including the consolidation of Telefonica Telecom in January-March 2006. 6 Assuming constant exchange rates and including the consolidation of the O2 Group, Telefonica Telecom and Iberbanda in January-March 2006. It excludes the consolidation of Telefonica O2 Slovakia in January-March 2007. 7 Base reported numbers include eleven months of O2 (consolidated since February 2006), eight months of Telefonica Telecom (consolidated since May 2006), six months of Iberbanda (consolidated since July 2006), three months of start-up losses in Slovakia (operations started in February 2007), and exclude Endemol and Airwave results. 2007 guidance assumes constant exchange rates as of 2006 and exclude changes in consolidation. In terms of guidance calculation, OIBDA and OI exclude other exceptional revenues/expenses not foreseeable in 2007. Personnel Restructuring (980 million euros in 2006 and estimated 630 million euros for 2007 for Telefonica Espana: Fixed Business) and Real Estate Programs are included as operating revenues/expenses. For comparison the equivalent other exceptional revenues/expenses registered in 2006 are also deducted from reported figures. TELEFONICA GROUP Financial Data SELECTED FINANCIAL DATA Unaudited figures (Euros in millions) January - March 2007 2006 % Chg Revenues 13,747 11,946 15.1 Operating income before D&A (OIBDA) 5,106 4,657 9.6 Operating income (OI) 2,710 2,356 15.0 Income before taxes 1,977 1,856 6.5 Net income 1,257 1,167 7.7 Basic earnings per share 0.260 0.245 6.1 Weighted average number of ordinary shares outstanding 4,828.4 4,754.9 1.5 during the period (millions) Note: Figures are presented considering the Purchase Price Allocation of O2 as of February 2006. Note: For the basic earnings per share calculation purposes, the weighted average number of ordinary shares outstanding during the period have been obtained applying IFRS rule 33 'Earnings per share'. Thereby, there are not taking into account as outstanding shares the weighted average number of shares held as treasury stock during the period. TELEFONICA GROUP RESULTS BY REGIONAL BUSINESS UNITS Unaudited figures (Euros in millions) REVENUES OIBDA OPERATING INCOME January - March January - March January - March 2007 2006 % Chg 2007 2006 % Chg 2007 2006 % Chg Telefonica Espana 5,033 4,772 5.5 2,439 2,205 10.7 1,829 1,545 18.3 Telefonica Latinoamerica 4,685 4,317 8.5 1,713 1,528 12.1 872 591 47.5 Telefonica O2 Europe (1) 3,534 2,409 46.7 933 756 23.3 15 73 (80.2) Other companies and eliminations (2) 495 447 10.6 21 169 (87.8) (5) 146 c.s. Total Group 13,747 11,946 15.1 5,106 4,657 9.6 2,710 2,356 15.0 Note: Figures are presented considering the Purchase Price Allocation of O2 as of February 2006. Note: OIBDA for wireline operations in Latin America is presented after management fees. (1) Telefonica O2 Europe includes in 2006 Telefonica O2 Czech Republic (January-December), T. Deutschland (January-December) and O2 Group (February-December) (2) OIBDA and Operating Income exclude the variation in investment valuation allowances accounted by Telefonica, S.A. CAPEX BY REGIONAL BUSINESS UNITS Unaudited figures (Euros in millions) January - March 2007 2006 % Chg Telefonica Espana 426 422 1.0 Telefonica Latinoamerica 426 357 19.5 Telefonica O2 Europe (1) 493 406 21.6 Other companies and eliminations 42 118 (64.6) Total Group 1,388 1,303 6.5 Note: Group CapEx in 2006 at cumulative average exchange rate. (1) Telefonica O2 Europe includes in 2006 Telefonica O2 Czech Republic (January-December), T. Deutschland (January-December) and O2 Group (February-December) TELEFONICA GROUP CONSOLIDATED INCOME STATEMENT Unaudited figures (Euros in millions) January - March 2007 2006 % Chg Revenues 13,747 11,946 15.1 Internal exp capitalized in fixed assets (1) 153 146 5.1 Operating expenses (8,828) (7,640) 15.5 Supplies (4,399) (3,511) 25.3 Personnel expenses (1,718) (1,647) 4.3 Subcontracts (2,307) (2,075) 11.1 Bad Debt Provisions (168) (190) (11.9) Taxes (237) (216) 9.5 Other net operating income (expense) 36 60 (39.3) Gain (loss) on sale of fixed assets 6 152 (96.4) Impairment of goodwill and other assets (8) (5) 46.1 Operating income before D&A (OIBDA) 5,106 4,657 9.6 Depreciation and amortization (2,396) (2,301) 4.1 Operating income (OI) 2,710 2,356 15.0 Profit from associated companies 35 22 60.2 Net financial income (expense) (768) (522) 47.1 Income before taxes 1,977 1,856 6.5 Income taxes (656) (613) 6.9 Income from continuing operations 1,322 1,242 6.4 Income (Loss) from discontinued ops. 0 9 n.s. Minority interest (65) (84) (23.2) Net income 1,257 1,167 7.7 Weighted average number of ordinary shares 4,828.4 4,754.9 1.5 outstanding during the period (millions) Basic earnings per share 0.260 0.245 6.1 Note: 'Bad debt provisions' have been reclassified from 'Other net operating income (expense)' to 'Operating expenses'. (1) Including work in process. Note: For the basic earnings per share calculation purposes, the weighted average number of ordinary shares outstanding during the period have been obtained applying IFRS rule 33 'Earnings per share'. Thereby, there are not taking into account as outstanding shares the weighted average number of shares held as treasury stock during the period. TELEFONICA GROUP CONSOLIDATED BALANCE SHEET Unaudited figures (Euros in millions) January - March 2007 2006 % Chg Non-current assets 88,150 87,249 1.0 Intangible assets 19,540 21,810 (10.4) Goodwill 21,488 17,914 19.9 Property, plant and equipment and Investment property 32,306 33,245 (2.8) Long-term financial assets and other non-current assets 6,455 5,723 12.8 Deferred tax assets 8,361 8,557 (2.3) Current assets 18,915 18,042 4.8 Inventories 1,065 1,154 (7.7) Trade and other receivables 9,762 9,244 5.6 Current tax receivable 1,303 1,288 1.1 Short-term financial investments 1,593 1,877 (15.1) Cash and cash equivalents 3,354 4,468 (24.9) Non-current assets classified as held for sale 1,838 11 n.m. Total Assets = Total Equity and Liabilities 107,065 105,291 1.7 Equity 20,591 15,714 31.0 Equity attributable to equity holders of the parent 17,744 11,932 48.7 Minority interest 2,848 3,782 (24.7) Non-current liabilities 62,101 54,053 14.9 Long-term financial debt 50,492 41,665 21.2 Deferred tax liabilities 4,363 4,868 (10.4) Long-term provisions 6,270 6,466 (3.0) Other long-term liabilities 976 1,054 (7.4) Current liabilities 24,373 35,523 (31.4) Short-term financial debt 7,805 19,507 (60.0) Trade and other payables 8,313 8,792 (5.4) Current tax payable 2,531 2,007 26.1 Short-term provisions and other liabilities 5,176 5,218 (0.8) Liabilities associate with non-current assets classified 'held for sale' 548 0 n.m. Financial Data Net Financial Debt (1) 51,884 53,510 (3.0) Note: Figures are presented considering the Purchase Price Allocation of O2 as of February 2006. (1) Net Financial Debt = Long term financial debt + Other long term liabilities + Short term financial debt - Short term financial investments - Cash and cash equivalents - Long term financial assets and other non-current assets. TELEFONICA GROUP FREE CASH FLOW AND CHANGE IN DEBT Unaudited figures (Euros in millions) January - March 2007 2006 % Chg I Cash flows from operations 4,176 4,113 1.5 II Net interest payment (1) (1,054) (645) III Payment for income tax (439) (303) A=I+II+III Net cash provided by operating activities 2,684 3,165 (15.2) B Payment for investment in fixed and intangible assets (1,942) (1,558) C=A+B Net free cash flow after CAPEX 742 1,608 (53.9) D Net Cash received from sale of Real Estate 10 12 E Net payment for financial investment (211) (22,868) F Net payment for dividends and treasury stock (2) (749) (1,131) G=C+D+E+F Free cash flow after dividends (208) (22,379) H Effects of exchange rate changes on net financial debt (136) (527) I Effects on net financial debt of changes in consolid. and (333) 1,590 others J Net financial debt at beginning of period 52,145 30,067 K=J-G+H+I Net financial debt at end of period 51,884 53,510 (1) Including cash received from dividends paid by subsidiaries that are not under full consolidation method. (2) Dividends paid by Telefonica S.A. and dividend payments to minoritaries from subsidiaries that are under full consolidation method and treasury stock. RECONCILIATIONS OF CASH FLOW AND OIBDA MINUS CAPEX Unaudited figures (Euros in millions) January - March 2007 2006 % Chg OIBDA 5,106 4,657 9.6 - CapEx accrued during the period (1,388) (1,303) - Payments related to commitments (214) (243) - Net interest payment (1,054) (645) - Payment for income tax (439) (303) - Results from the sale of fixed assets (6) (152) - Invest. in working cap. and other deferred income and exp (1,265) (405) = Net Free Cash Flow after CapEx 742 1,608 (53.9) + Net Cash received from sale of Real Estate 10 12 - Net payment for financial investment (211) (22,868) - Net payment for dividends and treasury stock (749) (1,131) = Free Cash Flow after dividends (208) (22,379) (99.1) Note: The concept expected 'Free Cash Flow' was introduced to reflect the amount of cash flow available to remunerate Telefonica S.A. Shareholders, to protect solvency levels (financial debt and commitments), and to accomodate strategic flexibility. The differences with the caption 'Net Free Cash Flow after CapEx' included in the table presented above, are related to 'Free Cash Flow' being calculated before payments related to commitments (workforce reductions and guarantees) and after dividend payments to minoritaries, due to cash recirculation within the Group. Jan-Mar Jan-Mar 2007 2006 Net Free Cash Flow after CapEx 742 1,608 + Payments related to cancellation of commitments 214 211 - Ordinary dividends payment to minoritaries (5) (5) = Free Cash Flow 950 1,814 NET FINANCIAL DEBT AND COMMITMENTS Unaudited figures (Euros in millions) March 2007 Long-term debt 50,803 Short term debt including current 7,805 maturities Cash and Banks (3,354) Short and Long-term financial investments (3,370) (1) A Net Financial Debt 51,884 Guarantees to IPSE 2000 365 B Commitments related to guarantees 365 Gross commitments related to workforce 5,198 reduction (2) Value of associated Long-term assets (3) (735) Taxes receivable (4) (1,625) C Net commitments related to workforce 2,838 reduction A + B + C Total Debt + Commitments 55,087 Net Financial Debt / OIBDA (5) 2.54x Total Debt + Commitments/ OIBDA (5) 2.70x (1) Short term investments and certain investments in financial assets with a maturity profile longer than one year, whose amount is included in the caption 'Investment' of the Balance Sheet. (2) Mainly in Spain. This amount is detailed in the caption 'Provisions for Contingencies and Expenses' of the Balance Sheet, and is the result of adding the following items: 'Provision for Pre-retirement, Social Security Expenses and Voluntary Severance', 'Group Insurance', 'Technical Reserves', and 'Provisions for Pension Funds of Other Companies'. (3) Amount included in the caption 'Investment' of the Balance Sheet, section 'Other Loans'. Mostly related to investments in fixed income securities and long-term deposits that cover the materialization of technical reserves of the Group insurance companies. (4) Net present value of tax benefits arising from the future payments related to workforce reduction commitments. (5) Calculation based on 12 months accumulated OIBDA, including Telefonica O2 Czech Republic, O2 and Telefonica Telecom. TELEFONICA GROUP EXCHANGES RATES APPLIED P&L and CapEx (1) Balance Sheet (2) Jan - Mar 2007 Jan - Mar 2006 % Var March 2007 March 2006 USA (US Dollar/Euro) 1.311 1.202 1.332 1.210 United Kingdom (Sterling/Euro) 0.671 0.686 0.680 0.696 Argentina (Argentinean Peso/Euro) 4.057 3.685 4.129 3.730 Brazil (Brazilian Real/Euro) 2.763 2.637 2.731 2.629 Czech Republic (Czech Crown/Euro) 28.028 28.600 28.000 28.595 Chile (Chilean Peso/Euro) 708.215 632.911 717.875 636.943 Colombia (Colombian Peso/Euro) 2,915.452 2,724.796 2,873.563 2,770.083 El Salvador (Colon/Euro) 11.468 10.520 11.653 10.591 Guatemala (Quetzal/Euro) 10.074 9.169 10.245 9.217 Mexico (Mexican Peso/Euro) 14.433 12.727 14.758 13.255 Nicaragua (Cordoba/Euro) 23.735 20.740 24.263 21.004 Peru (Peruvian Nuevo Sol/Euro) 4.180 4.018 4.240 4.069 Uruguay (Uruguayan Peso/Euro) 31.899 29.124 32.097 29.292 Venezuela (Bolivar/Euro) 2,816.901 2,583.979 2,865.330 2,604.167 (1) These exchange rates are used to convert the P&L and CapEx accounts of the Group foreign subsidiaries from local currency to euros. (2) Exchange rates as of 31/03/07 y 31/03/06. RESULTS BY REGIONAL BUSINESS UNITS Telefonica Espana Results for Telefonica Espana Group, corresponding to the first quarter of 2007, have shown good growth trend driven by strong commercial activity in all areas of business In the first months of 2007 Telefonica Espana consolidated its competitive position in the market, the wireless business as well as the wireline business, reaching a total number of 44.8 million accesses, 5.5% more than in March 2006. Revenues have grown by 5.5% in the first quarter of the year, standing at 5,033 million euros, and OIBDA by 10.7% to reach 2,439 million euros, with the margin standing at 48.5% Telefonica Espana Group's CapEx rose to 426 million euros, which translates as an operating cash flow (OIBDA-CapEx) of 2,013 million euros for the quarter. With regards to Telefonica Espana Wireline Business the following are particularly noteworthy: â€¢ The strong revenue growth during the first quarter of the year, (+3.6%), due to the steady increase in Broadband revenues and improved performance of Access and Voice revenues. â€¢ The maintaining of Telefonica's leading position in the Broadband Internet Access market, with an estimated market share of 56%, presenting the market a 30.1% year-on-year growth. â€¢ The growing participation of Imagenio in the pay TV market, with an estimated share of net adds close to 44% in the quarter, and reaching 418,618 pay TV clients at March end. â€¢ The deceleration in the loss of fixed telephony lines, with lines falling 1.2%. year-on-year, that positively stands out within the European context. â€¢ The rise in the total number of accesses, 3.5% year-on-year, reaching 22.9 million. With regards to Telefonica Espana Wireless Business the following are particularly noteworthy: â€¢ Sound growth in service revenues (+7.0% vs. first quarter of 2006). â€¢ The maintaining of the commercial drive, with high activity level resulting in a net gain of 367.715 subscribers, primarily focusing on contract customers. â€¢ The churn contention, with an improvement in the contract segment of 0.2 percentage points vs. previous year, which stands at 1.1% as a result of an increasing focus on customer loyalty. â€¢ The positive year-on-year growth trend in total client base, 7.6% as opposed to 6.3% registered in the first quarter of 2006, exceeding 21.8 million clients, highlighting the good performance of the contract segment (+13.4%). RESULTS BY REGIONAL BUSINESS UNITS Telefonica Espana WIRELINE BUSINESS Revenues grew 3.6% during the first quarter of 2007 to stand at 3,050 million euros. â€¢ Traditional access revenues, which reached a figure of 697 million euros, have grown 0.2%, breaking the falling trend of the previous year (-2.1% in 2006), due to the 0.27 euros rise of PSTN line monthly fee effective as of January 1st 2007, to stand at 13.70 euros. The fixed telephony market in Spain has experienced an estimated growth of 2.2% from March 2006 to March 2007 , maintaining the acceleration experienced in previous quarters, which represents a distinguishing aspect in relation to the main European markets. Telefonica Espana's fixed telephony accesses experienced a quarterly net reduction of 29,595 lines, supported by the positive results of the free subscription fee campaign. Fixed telephony accesses stood at 15,920,272 by the end of the first quarter of 2007 after falling 1.2% vs. same time of year 2006; such decrease positively stands out within the European context. Estimated fixed telephony market share for Telefonica Espana stood at 82%, maintaining a similar downward trend to that of the previous year. â€¢ Traditional voice service revenues and in particular outgoing voice traffic revenues, with drops of 4.5% and 5.9% respectively, have considerably slowed down the decreasing trend during the first quarter due to various reasons: The good performance of international traffic, whose revenues grew 13.5%; the slow down in the decrease of revenues from Intelligent Network; and the 3.7% rise last March 1st, 2007, of national traffic tariffs not associated with flat rates. Slowdown in the decrease of traffic revenues shows the improved development of traffic minutes in the Spanish market, with an estimated growth of 0.4% in the first quarter of the year vs. first quarter 2006. The high growth of Telefonica Espana Wireline Business' traffic, both international traffic at +14.0%, and domestic long distance (interprovincial) at +10.3%, the latter being strongly driven by the flat rates associated with the Duo and Trio bundles, are particularly noteworthy. The wireline traffic market share of Telefonica Espana is estimated at 65% for the quarter. Furthermore, the total number of pre-selected lines at the end of March 2007 totalled 1,876,988, representing a reduction of 29,531 lines in the first quarter. Internet and Broadband service revenues rose to 675 million euros in the first quarter of the year, a growth of 22.3% in relation to the same period the previous year. According to our estimates, the fixed Broadband Internet access market in Spain reached 7.1 million connections by the end of March, registering net adds of close to 0.4 million connections during the quarter (0.5 million in the first quarter of 2006). Telefonica's retail Internet Broadband net additions amounted to 250,094 accesses in the first quarter, to reach 3,992.746 total accesses by the end of March, 31.2% up year-on-year. Telefonica maintained its leading position in the Broadband market with an estimated market share of 56%. It is important to highlight that close to 75% of Telefonica Espana's retail Broadband accesses have Internet connectivity service within some kind of double or triple-play bundle. Unbundled loops growth maintained its high level of dynamism of the previous year during the first quarter of 2007. Quarterly net additions were 132,211 loops, of which 66% corresponded to migrations from Telefonica Espana's wholesale ADSL service. The total number of unbundled loops reached 1,071.217 units by March with a growing share in the Broadband market, estimated at 15%. Of the total number of unbundled loops, 56.5% are shared access loops, a percentage that has remained fairly stable over previous quarters. The wholesale ADSL service continues to be affected by migrations to unbundled loops. Thus, in the first quarter of the year a loss of 24,678 connections was registered, leaving a total of 561,740 accesses by March end, 20.5% lower vs. same month of 2006. Telefonica's pay TV clients totalled 418,618 by the end of March, 67.3% more than at the end of March 2006, with the estimated pay TV market share growing to the 11% level. Net adds during the first quarter were 35,591 clients, which according to the Company's estimates represented a 44% share of market net adds. The total number of Duos and Trios bundles -driving the growth of Internet Broadband connections, voice flat rates and Imagenio- stood at 3,063,935 units by the end of March 2007, having grown 11.5% during the first quarter of 2007. â€¢ Data and IT service revenues reached, 375 million euros overall, with retail data services showing an acceleration in revenue growth. Operating expenses for Telefonica Espana Wireline Business reached 1,671 million euros in the first quarter of the year, a year-on-year reduction of 3.1% due to lower workforce restructuring provision during the quarter, null in comparison to the 95 million euros registered in the first quarter of 2006. Excluding this effect, operating expenses would have grown 2.5%. The growth of expenses in the first quarter is mainly due to growth of supplies expenses, mainly equipment purchases for resale and contents for Imagenio, as well as the growth of external services. Personnel costs, excluding the impacts of the redundancy provisions and the actuarial review of 2006/2007, showed a drop of 0.3%. The impact of lower workforce restructuring provision during the first quarter of 2007 was also reflected in OIBDA, which rose to 1,419 million euros, a growth of 12.4%. Excluding specific effects, such as those arising from the Redundancy Programme, Real Estate Programme and subsidies among others, OIBDA growth would have stood at 4.7%. The OIBDA margin in the first quarter of 2007 reached 46.5%, 3.7 percentage points above that registered during the same period the previous year. Excluding the impact of the Redundancy Programme and the actuarial review in both years, the margin would have seen an improvement of 0.4 percentage points to total 46.5%. RESULTS BY REGIONAL BUSINESS UNITS Telefonica Espana WIRELESS BUSINESS During the first quarter of the year, the Spanish wireless market presented an environment of increased competitiveness, with 8 operators in the market and the total number of lines surpassing 48 million by March 2007, with an estimated penetration of over 106% (+7 percentage points vs. the first quarter in 2006). Nevertheless, Telefonica Espana's wireless business net adds during the first quarter of 2007 reached 367,715 clients, a similar figure to the first quarter of 2006 (386,824), pushed by the contract segment, which posted net additions of 386,973. Thus, in the first quarter of the year, the commercial activity has remained in line with the same quarter of the previous year, reaching virtually 3 million commercial actions that helped to end with a customer base in excess of 21.8 million clients (+7.6% vs. the first quarter 2006). It is worth mentioning the good performance of Telefonica Espana's wireless business contract segment, which showed an annual growth of 13.4%, representing more than 57% of the total base, 3 percentage points up on the previous year. Also worth highlighting are the positive results reached in portability, a positive balance of 3,614 lines during the first quarter of 2007, driven by the excellent performance in the contract segment, with net adds of 78,067 lines in the first quarter, more than doubling the one achieved in the first quarter of 2006, and reflecting, once again, the company's focus on high value customers. Churn also played a key role in the solid commercial results of Telefonica Espana's wireless business. This metric stood at 1.8% during the first quarter of the year, slightly down in relation to the same period of 2006 (-0.1 percentage points). It is worth noting the drop in contract churn in this quarter in comparison to the first quarter of 2006, which reached 1.1% (-0.2 percentage points). Handset upgrades (+7.4% vs. first quarter of 2006) contributed once more, towards the good churn performance. In terms of usage, the minutes carried by the company network during the first quarter of the year grew by 13% in relation to the same period of 2006, surpassing 15,400 million minutes. On-net traffic recorded a 16% growth during the first quarter of 2007 compared with the same period of the previous year, due to the promotion of 'Free Weekends in 2007', part of the Christmas campaign. Hence, the MoU in the first quarter of 2007 amounted to 160 minutes (+4.3% in relation to the same period in 2006). Voice ARPU reached 27.0 euros during the first quarter, a reduction of 1.4% in relation to the same period in 2006, affected by the cut in interconnection tariffs in October 2006, and to a lesser extent by the impact of the Christmas promotion, valid until the start of April, which is reflected in the slight fall of outgoing voice ARPU in the first quarter of 2007 (- 0.4%) in relation to the first quarter of 2006. Data ARPU recorded a growth of 5.8% in relation to the same period in 2006, reaching 4.6 euros. This performance was driven by a growth in connectivity revenues (+71%) and content data revenues (+19%). It is worth noting that the company has already commercialized close to 1.5 million 3G devices and has over 125,000 clients subscribed to semi-flat rate data bundles such as the 1Gb, 5Gb and 30 Mb, which contributed towards the good performance of data ARPU. Interpersonal communication only represented 54% of data ARPU, corresponding the remaining to connectivity and content services. Hence, total outgoing ARPU in the first quarter rose 0.6% to reach a total ARPU of 31.7 euros, a slight fall of 0.5% in relation to the first quarter of 2006. With respect to the financial results: â€¢ Revenues rose 7.9% during the first quarter of 2007, reaching 2,336 million euros, driven by the good performance of customer revenues. It is worth noting that since the 1st of January 2007 there has been a change in the way of accounting pre-pay sales and top-up commissions which change from being registered as minor revenues to being added to costs and the registering of revenues/costs of portability transit routing which are now registered for the net amounts. The net effect of this change is neutral at OIBDA level, though the operating revenues would have grown 7.7% excluding the impact of the mentioned changes. Aspects worth mentioning by type of revenue are: â€¢ Handset sales revenues rose to 304 million euros during the first quarter of 2007, a growth of 14.3% in relation to the same period the previous year. â€¢ Service revenues grew by 7.0% reaching 2,032 million euros. Excluding the impact of the accounting changes mentioned above, growth of service revenues would have stood at 6.7%. This good performance of service revenues was driven by the progress of customer revenues, which reached 1,637 million euros, a growth of 10.0% in relation to the previous year, as a result of a strong year-on-year customer base growth (+7.6%), particularly in the contract segment (+13.4%), and increased data usage. Excluding the impact of the accounting changes already mentioned, customer revenues would have grown by 8.4%. â€¢ Interconnection revenues declined 3.2%. If the impact for the accounting change is excluded, the interconnection revenues would have grown by 1.5%, due to a lower cut in the interconnection rates in the fourth quarter of 2006 in comparison to previous years. â€¢ Roaming revenues fell 20.4%, due to reduced roaming wholesale prices. â€¢ Operating costs reached 1,328 million euros in the first quarter of 2007, a growth of 7.7% in relation to the first quarter of 2006, driven by increased commercial activity related to handsets (+5.0%) and higher network management, marketing and advertising costs. â€¢ OIBDA for the first quarter of 2007 rose to 1,027 million euros, a growth of 7.9% in relation to the first quarter the previous year, due to the strong revenue performance. Therefore, the OIBDA margin stood at 44.0%. TELEFONICA ESPANA ACCESSES Unaudited figures (thousands) 2006 2007 March June September December March % Chg Final Clients Accesses 41,178.5 41,476.8 41,951.0 42,620.8 43,115.8 4.7 Fixed telephony accesses (1) 16,108.5 16,019.7 15,978.1 15,949.9 15,920.3 (1.2) Internet and data accesses 4,542.9 4,534.6 4,648.8 4,842.0 4,963.2 9.3 Narrowband 1,437.4 1,254.0 1,177.7 1,040.5 916.0 (36.3) Broadband (2) 3,042.7 3,220.1 3,411.3 3,742.7 3,992.7 31.2 Other (3) 62.8 60.4 59.8 58.8 54.4 (13.3) Cellular accesses 20,276.8 20,655.0 21,019.7 21,446.0 21,813.7 7.6 Prepaid 9,231.9 9,261.2 9,290.7 9,303.0 9,283.8 0.6 Contract 11,044.9 11,393.8 11,729.0 12,142.9 12,529.9 13.4 Pay TV 250.3 267.5 304.4 383.0 418.6 67.3 Wholesale Accesses 1,260.4 1,369.3 1,406.5 1,531.8 1,640.8 30.2 Unbundled loops 546.7 678.3 774.8 939.0 1,071.2 95.9 Shared UL 320.3 386.0 438.5 527.7 605.2 88.9 Full UL 226.4 292.3 336.3 411.3 466.0 105.9 Wholesale ADSL 706.4 684.4 625.2 586.4 561.7 (20.5) Other (4) 7.3 6.6 6.5 6.4 7.8 7.1 Total Accesses 42,438.9 42,846.0 43,357.5 44,152.6 44,756.6 5.5 (1) PSTN (including Public Use Telephony) x1; ISDN Basic access x1; ISDN Primary access; 2/6 Access x30. Company's accesses for internal use included. (2) ADSL, satelite, optical fibre, cable modem and broadband circuits. (3) Leased lines. (4) Wholesale circuits. TELEFONICA ESPANA CONSOLIDATED INCOME STATEMENT Unaudited figures (Euros in millions) January - March 2007 2006 % Chg Revenues 5,033 4,772 5.5 Internal exp capitalized in fixed assets (1) 51 52 (2.5) Operating expenses (2,652) (2,627) 0.9 Other net operating income (expense) 15 3 n.m. Gain (loss) on sale of fixed assets (1) 8 c.s. Impairment of goodwill and other assets (8) (3) 148.8 Operating income before D&A (OIBDA) 2,439 2,205 10.7 Depreciation and amortization (611) (659) (7.3) Operating income (OI) 1,829 1,545 18.3 Note: 'Bad debt provisions' have been reclassified from 'Other net operating income (expense)' to 'Operating expenses'. (1) Including work in process. TELEFONICA ESPANA: WIRELINE BUSINESS SELECTED FINANCIAL DATA Unaudited figures (Euros in millions) January - March 2007 2006 % Chg Revenues 3,050 2,944 3.6 OIBDA 1,419 1,263 12.4 OIBDA margin 46.5% 42.9% 3.7 p.p. CapEx 292 315 (7.2) TELEFONICA ESPANA: WIRELINE BUSINESS SELECTED REVENUES DATA Unaudited figures (Euros in millions) January - March 2007 2006 % Chg Traditional Access (1) 696.8 695.6 0.2 Traditional Voice Services 1,192.9 1,248.9 (4.5) Domestic Traffic (2) 736.6 782.7 (5.9) Interconnection (3) 227.2 231.6 (1.9) Handsets sales and others (4) 229.2 234.7 (2.3) Internet Broadband Services 675.1 551.9 22.3 Narrowband 29.3 43.5 (32.6) Broadband 645.8 508.3 27.0 Retail (5) 562.6 420.3 33.9 Wholesale (6) 83.2 88.0 (5.5) Data Services 281.6 267.0 5.5 IT Services 93.9 77.8 20.7 Note: Telefonica de Espana parent company's operating revenues includes Terra Espana's revenues as of the first quarter 2006. (1) Monthly and connection fees (PSTN, Public Use Telephony, ISDN and Corporate Services) and Telephone booths surcharges. (2) Local and domestic long distance (provincial and interprovincial) traffic, Intelligent Network Services, Special Valued Services, Information Services (118xy), bonusses and others. (3) Includes revenues from fixed to fixed incoming traffic, fixed to mobile incoming traffic, and transit and carrier traffic. (4) Managed Voice Services and other businesses revenues. (5) Retail ADSL services and other Internet Services. (6) Includes Megabase, Megavia, GigADSL, and local loop unbundling. TELEFONICA ESPANA: WIRELESS BUSINESS SELECTED FINANCIAL DATA Unaudited figures (Euros in millions) January - March 2007 2006 % Chg Revenues 2,336 2,166 7.9 OIBDA 1,027 952 7.9 OIBDA margin 44.0% 43.9% 0.0 p.p. CapEx 135 108 25.4 TELEFONICA ESPANA: WIRELESS BUSINESS SELECTED REVENUES DATA Unaudited figures (Euros in millions) January - March 2007 2006 % Chg Service Revenues 2,032 1,900 7.0 Customer Revenues 1,637 1,489 10.0 Interconnection 346 357 (3.2) Roaming - In 38 48 (20.4) Other 11 6 83.6 Handset 304 266 14.3 TELEFONICA ESPANA: WIRELESS BUSINESS SELECTED FINANCIAL DATA Unaudited figures 2006 2007 March June September December March % Chg Cellular customer (thousands) 20,276.8 20,655.0 21,019.7 21,446.0 21,813.7 7.6 Prepaid 9,231.9 9,261.2 9,290.7 9,303.0 9,283.8 0.6 Contract 11,044.9 11,393.8 11,729.0 12,142.9 12,529.9 13.4 1Q 2Q 3Q 4Q 1Q % Chg MOU (minutes) 153 156 158 157 160 4.3 Prepaid 66 64 71 66 74 12.7 Contract 227 231 228 228 224 (1.4) ARPU (EUR) 31.8 33.0 33.9 33.0 31.7 (0.5) Prepaid 15.7 16.4 17.6 15.9 14.9 (4.9) Contract 45.5 46.6 46.9 45.7 44.3 (2.7) Data ARPU 4.4 4.2 4.6 5.0 4.6 5.8 %non-P2PSMS over data revenues 43.6% 42.5% 43.9% 45.3% 48.1% 4.5 p.p. Note: MOU and ARPU calculated as monthly quarterly average. RESULTS BY REGIONAL BUSINESS UNITS Telefonica Latinoamerica In accordance with the Group's new structure, Telefonica Latinoamerica's results include Telefonica Group's fixed line and cellular operators' results in the Latin American region. Furthermore, figures for the Telefonica Latinoamerica Group also include the results of Telefonica Telecom, from the 1st of May 2006. On a yearly basis, the currencies of all the countries in which Telefonica Latinoamerica operates have suffered a depreciation in relation to the euro, which has had a negative impact of 8.1 percentage points on both revenue and OIBDA growth. Telefonica Latinoamerica reached revenues of 4,685 million euros during the first quarter of 2007, 8.5% up on the same quarter of 2006 in current euros. In constant euros, revenue growth has increased 16.6%, of which Telefonica Telecom contributed 4.3 percentage points. Of the countries contributing most towards growth in constant currency, with the exception of Colombia due to change in the perimeter of consolidation, Mexico is particularly noteworthy with 3.3 percentage points, followed by Venezuela (+2.7 percentage points) and Argentina (+2.5 percentage points). On the other hand, in absolute terms, Brazil continues to be Telefonica Latinoamerica's greatest contributor with 38.4%, followed by Argentina (12.0%) and Venezuela (11.1%). Operating income before depreciation and amortization (OIBDA) stands at 1,713 million euros, recording a growth of 12.1% in current euros. Telefonica Latinoamerica's OIBDA growth rose to 20.2% in constant euros, with a contribution of 5.6 percentage points from Telefonica Telecom. With regards to other countries (excluding Colombia due to change in the perimeter of consolidation), the main contributor to OIBDA growth was Venezuela with 4.9 percentage points, followed by Argentina (+3.6 percentage points) and Mexico (+3.3 percentage points), the latter driven by the positive contribution of the operations in the Aztec country, in comparison to the operational losses recorded in the first quarter of 2006. In absolute terms, Brazil is Telefonica Latinoamerica's greatest OIBDA contributor with 43.7%, followed by Venezuela (14.1%) and Argentina (12.7%). CapEx for the Telefonica Latinoamerica Group stood at 426 million euros by the end of March, a year-on-year growth of 19.5%, allocated mainly for the expansion of broadband, television and the development of GSM networks. By the end of March, Telefonica Latinoamerica had reached an operating cash flow (OIBDA-CapEx) of 1,287 million euros, a growth of 9.9% in current euros. At the close of the first quarter of 2007, the Telefonica Latinoamerica Group managed 117.0 million accesses, 14.1% up on 2006, thanks to the increase in cellular clients, a year-on-year growth of 15.6%, exceeding 85.6 million, due mainly to the high growth rates registered in practically all countries, particularly Argentina (+32.5% year-on-year), Mexico (+42.1%) and Venezuela (+36.2%). Also contributing positively to the total growth in Latin American accesses, was the incorporation of Telefonica Telecom, which contributed 2.3 million fixed telephony accesses and 94,300 retail broadband Internet connections. Fixed telephony accesses reached 23.8 million, 9.1% more than in March 2006, driven by the previously highlighted incorporation of Telefonica Telecom, and by the growth of fixed telephony accesses in Peru (+6.0% year-on-year). The Group's retail Internet broadband accesses continued their strong growth trend exceeding 4.0 million accesses, a growth of 38.1% year-on-year, thanks to commercial efforts carried out by all operators. With regards to pay TV, Telefonica Latinoamerica manages more than 700,000 clients with operations in Peru, Chile and Colombia. BRAZIL Telefonica Latinoamerica registered revenues of 1,801 million euros in Brazil, a growth in local currency of 2.8% in comparison to the same period of the previous year, meanwhile operating income before depreciation and amortisation (OIBDA) rose to 749 million euros, showing a year-on-year growth in local currency of 2.8%, thanks to the significant improvement in Vivo's results. CapEx recorded in the first quarter of the year rose to 170 million euros, 23.9% up in local currency, with respect to the same period of the previous year, driven by greater investment carried out by Telesp. From an operating point of view, Telefonica Latinoamerica managed 44.6 million accesses in Brazil by the end of March, 2.5% down on March 2006, as a consequence of the adjustment of Vivo's customer base made in the second quarter of 2006, as well as the downturn in Telesp's fixed telephony accesses. TELESP At the end of March Telesp managed 15.6 million accesses, 0.3% less than in March 2006, due to a reduction in the number of fixed line accesses, affected by the strong growth in the cellular business registered in the country. Fixed line accesses stood at 12.0 million (-2.7% year-on-year) of which approximately 19% were pre-pay lines or lines with consumption limits. In 2007 broadband market recorded a strong growth, above 45%, compared to the first quarter of 2006. Telesp kept 54% of this growth, increasing its Internet retail broadband accesses, to achieve 1.7 million accesses (+29.3% year-over-year). With the aim of reinforcing our competitive position and increasing our product portfolio, at the end of 2006 a commercial agreement with TVA was signed to make bundled offers of ADSL+TV. These offers have contributed with more than ten thousand new Speedy customers in the first quarter of the year. In the same way, a commercial alliance was established with DTHi, digital satellite TV services operator, to make bundled offers of ADSL+TV. These offers have contributed with more than 17,000 broadband customers in the first three months of the year. After having received a DTH licence from Anatel, the company expects to launch a Digital TV offer by Telefonica in the following months. Telesp's total voice traffic amounted to 16,829 million minutes, a year-on-year decline of 6.1%, due mainly to the drop in local traffic (-9.5% year-on-year), on a lower plant in service and lower usage per line. The operator is offsetting this behaviour with a higher sale of traffic bundles, which reduce the negative effect of the tariff readjustment of July 2006 and the contraction of the market due to the cellular telephony expansion. Long distance traffic also dropped (-5.4% year-on-year) , mainly inter-state, as a consequence of the market contraction (-16.1% year-on-year) and in spite of the growth in market share. From a regulatory point of view, it is worth highlighting that from the 1st of January the fixed network interconnection tariff was reduced by 20%, in line with the guidelines of the concession contract, effective since January 2006, and on the 13th of February resolution 458, which establishes timescales for call termination charges (TU-RL), came into effect setting a reduction of 30% during the off-peak time period. On the other hand, Telesp received a license to operate satellite television services (DTH) from ANATEL in the middle of March. It is also worth noting that the migration process of invoicing by minutes instead of pulses started in themiddle of March and is expected to be completed by the end of July. Telesp's revenues reached 1,359 million euros during the first quarter of 2007, a decrease of 0.3% in local currency in relation to the first quarter of 2006. This slight deterioration in revenue levels was due to the drop in traditional business revenues (-1.5% in local currency), influenced by the negative readjustment of tariffs in July 2006 (-0.38% in local tariffs and -2.73% in long distance tariffs), the loss in basic telephony billable lines, and the 20% reduction in local interconnection tariffs in January. On the other hand, the increase in Broadband revenues (+15.2% in local currency) contributed positively, driven by accesses growth, that allowed for a 12.2% year-on-year Internet revenue increase (narrowband + broadband), and raised it's weight in the company's total revenues from 8.2% in the first quarter of 2006, to 9.2% in the same period in 2007. Operating expenses showed year-on-year growth of 4.1% in local currency, mainly due to the higher cost of external services (+8.3% in local currency, due to a higher commercial activity). On top of that, the company, that has implemented a process of migrating billing systems, has recorded an increase in the provision for bad debtors (+45.1% in local currency), resulting in a provision for bad debts of 3.3% over revenues. Personnel costs (-6.3% in local currency) showed the benefits of workforce restructuring programmes carried out in March 2006 and February 2007. Supply costs rose 1.4% in local currency, in spite of the 20% reduction in local interconnection tariffs, due mainly to increased SMP traffic. Telesp's operating income before depreciation and amortization (OIBDA) rose to 601 million euros in the first quarter, 0.3% higher than that registered in the same period the previous year in local currency, helped by the sale of assets. OIBDA margin stood at 44.2%, 0.2 percentage points higher than the same period in 2006. Cumulative CapEx in March rose to 127 million euros, 48.8% up on that registered during the same period in 2006 in local currency, explained by greater investment in broadband and pay TV, as well as a substantial rise in the costs associated with cable theft. Thus, operating cash flow (OIBDA-CapEx) stood at 473 million euros. VIVO Vivo's results during the first quarter confirm the positive trend initiated during the previous year, strengthening the work carried out on two fronts: the improvement of client satisfaction and profitable growth. Additionally, during the first quarter, actions defined by the business plan showed positive results with the reduction of more than 95% in the number of cloning cases in relation to the same period the previous year, as well as the integration of billing systems and the pre-pay platform. It is worth highlighting the commercial launch of the GSM network in both segments (contract and pre-pay) and at national level, which will facilitate a stronger competitive position for the company. The GSM launching was well received by the market, accounting for 16% of the total subscriptions during the period. Additionally, Vivo is the only operator offering solutions using two technologies, offering the CDMA/EVDO technology as the best data solution on the market. Vivo's customer base stood at 29.0 million clients (-3.7% vs. 1Q06) in a market with an estimated penetration of 56%, a growth of 5 percentage points from the first quarter of 2006, maintaining the slowdown in growth of the market observed in previous quarters. Vivo's commercial activity encompassed 2.2 million adds during the first quarter, slightly down on the previous two quarters, which is remarkable given the lack of large commercial campaigns between January and March. Subscriptions increased 13.2%, in relation to the same quarter in 2006. Pre-pay traffic promotions and improved contract segment capacities, due to the launch of the new 'Vivo Escolha' plans (more than 20% of the contract base), led to a substantial improvement of the market's perception regarding the company's commercial offer. Gross contract subscriptions rose 34% in relation to the first quarter the previous year, improving the weighting contract segment to 19.5% of the total customer base. 'Vivo Escolha' plans are a new, simpler and more flexible concept of contract plans that, as well as including base minutes to any destination, also allow the client to personalize their plan through additional bundles, in terms of profile, on-net minutes, SMS, long distance or roaming. Regarding financial results, total revenues during the quarter rose to 526 million euros (+10.9% in local currency in relation to the same period in 2006). Service revenues grew 13.2% vs. 2006 in local currency, mainly due to higher interconnection revenues (+27.6%), as a consequence of the removal of the Bill & Keep rule. Excluding this impact, service revenues during the quarter would have fallen 1.4% in local currency. Particularly noteworthy was the good progress of results in the pre-pay segment, with an ARPU increase of 24%, driven by good results of traffic incentive campaigns, which translated into an improvement in outgoing traffic revenues of 20%. During the first quarter, operating income before depreciation and amortization (OIBDA) reached 149 million euros, 14.3% higher than the same period in 2006 in local currency. It is also worth mentioning the containment of commercial costs due, in part, to the contribution of GSM subscriptions in the total number of subscriptions with handsets, as well as the strong cost reduction regarding bad debt as a consequence of the control in fraud and cloning cases. OIBDA margin stood at 28.3%, with an improvement of approximately 1 percentage point in relation to the same period the previous year. Without taking into account the impact of the Bill & Keep rule, OIBDA growth would have been 12.8%, and the margin would have stood at 31.5%. ARGENTINA Telefonica Latinoamerica's business performance in Argentina continued to show strong growth in both the cellular and fixed line businesses during the first quarter of the year. Revenues rose 21.0% in local currency, reaching 561 million euros while operating income before depreciation and amortization (OIBDA) increased by 29.7% to achieve 217 million euros. Telefonica manages 17.5 million accesses in Argentina as a consequence of its market positioning - where it is leader in the broadband market exceeding 588.000 connections - and in the cellular market with 11.8 million customers and over 80% market penetration. CapEx during the first quarter of 2007 rose to 41 million euros. TELEFONICA DE ARGENTINA Telefonica de Argentina (TASA) managed 5.7 million accesses by the end of March of 2007 (+3.4% in relation to the same period of the previous year), thanks to the year-on-year increase in fixed line accesses (+1.6%) standing at 4.6 million, and the strong growth in the retail Internet broadband connections (+69.7%), which exceeded 588.000. Total voice traffic rose slightly in comparison to the first quarter of 2006. Local traffic fell a slight 3.8%, affected by the lower fixed-fixed traffic which was partly compensated for by the good performance of the fixed-mobile traffic. The growth of long distance traffic (+2.1%), along with the good performance of interconnection traffic (+11.3%) and the Intelligent Network (+63.0%) offset the decrease in public telephony traffic, affected by the expansion of the mobile business. Revenues for the fixed line business rose to 247 million euros, a growth of 14.9% in local currency, based on the traditional business revenues growth (+10.9%) and Internet and broadband business (+43.4%). Sales growth was impacted by the changes in the accounting criteria for international termination costs, effective from September. These were accounted as operating expenses and no longer netted from the line of revenues, as of the 1st of January 2006. Excluding this effect in 2006, total revenue increase would have been 11.5% in local currency. Traditional business revenues would have grown by 7.0% excluding the impact of the international termination costs thanks to the good performance of the local-minutes bundles, interconnection traffic coming from the cellular operators and renting of transmission facilities. The growth of revenue bundles was driven by the launch of the flat rate call tariff during 2006, and by the re-definition of the bundles at the end of 2006. Revenues for the Internet and broadband business, with a year-on-year rise of 43.4% in local currency, represented already 13.4% of total revenues and reflected the expansion of broadband, whose revenues grew 62.1% in relation to the same period of the previous year, compensating for the drop in narrowband revenues. The good performance of broadband was driven by strong commercialization of voice and broadband bundles (DUO) during the last quarter of 2006, which totalled 64,300 users. Data business and IT continued to show strong progress (+14.9% in local currency) as a consequence of point-to-point circuits, satellite services and turnkey projects. Operating expenses presented a growth of 16.0% in local currency (9.7% excluding the impact of the reclassification of the international termination costs) in relation to the first quarter of 2006. This was due to higher costs (+17.1% in local currency), particularly higher payroll costs and workforce restructuring expenses as well as supply expenses, which excluding the impact of the reclassification of the international termination costs would have grown 19.9% in local currency, affected by the rise of interconnection costs and a higher number of equipment purchases for sale. The ratio of bad debt provision to revenues remained below 1% thanks to good recovery management and to the larger volume of pre-pay and consumption control plant, which remained at around 30% of the total lines. TASA reached an operating income before depreciation and amortization (OIBDA) of 119 million euros in the first quarter of the year, an increase of 11.9% in local currency. CapEx stood at 27 million euros, 3.7% down in local currency in relation to the first quarter of 2006, with practically half of that allocated for the development of broadband and new businesses. The operating cash flow (OIBDA-CapEx) of the fixed line business in Argentina reached 92 million euros. TEM ARGENTINA During the first quarter of 2007 the Argentinean cellular market continued its notable growth. Thus, penetration reached 82%, a growth of more than 4 percentage points during the first quarter of the year and 22 percentage points above the level registered in March of 2006. Net adds during the first quarter of 2007 reached 613,581 customers, 5.9% higher than the one obtained in the first quarter of 2006, based on a slight growth in gross adds, in comparison to the first quarter of 2006 (6.5%) and, to a larger extent, on the good performance of churn which stood at 1.9%(-0.5 percentage points vs the first quarter of 2006). The company closed the quarter with 11.8 million customers, a total customer base increase of 32.5% compared to March 2006. GSM customers already accounted for 77% of the total customer base (+19 percentage points in relation to March of 2006). Revenues maintained the good performance shown in previous quarters, totalling 337 million euros, an increase of 26.0% in local currency, in comparison to the first quarter of 2006. Service revenues grew 26.5% in local currency in relation to the same period in 2006, due once again to the strong performance of outgoing revenues, and in particular of the pre-pay revenues. The growth of revenues, along with reduced unit commercial costs and lower operating costs, have allowed the operating income before depreciation and amortization (OIBDA) to rise 60.8% in local currency, reaching 98 million euros in the first quarter of the year. OIBDA margin stood at 29.0%, up 6.3 percentage points on the previous year. CapEx for the first quarter of 2007 rose to 14 million euros, with an operating cash flow (OIBDA-CapEx) of 84 million euros. CHILE By the end of the quarter, Telefonica Latinoamerica managed 8.7 million accesses in Chile, 5.5% up on March of the previous year, mainly on an 8.1% growth in cellular customers and a slight increase in fixed line clients (+0.8% year-on-year). The notable growth in broadband connections (+52.9%), and the launch of satellite TV services, during the second quarter of 2006, offset the fall in fixed line telephony. Consolidated revenues registered a cumulative growth of 10.0% in local currency during the first quarter, reaching 423 million euros, thanks to the good progress of the cellular business in the country. Meanwhile, consolidated operating income before depreciation and amortization (OIBDA) rose to 164 million euros, 22.5% more in local currency than the previous year, with positive contributions from both cellular and fixed line businesses. From an investment point of view, CapEx for Telefonica Latinoamerica in Chile rose to 78 million euros, 44.2% more in local currency in relation to the same quarter of 2006. TELEFONICA CHILE In year-on-year terms, Telefonica Chile has successfully increased the number of accesses it manages (+0.8%), reaching 2.9 million, in spite of strong competition in the Chilean market and the extraordinary drop in pre-pay lines registered the previous year. The Triple Play strategy has compensated for the decrease registered in fixed lines (-9.5% year-on-year reaching 2.2 million, affected by adjustments to the pre-pay portfolio carried out the previous year) with increased broadband and television connections through the sale of Duo and Trio (double and triple) bundles. At the end of March 2007, Telefonica Chile maintained its position as clear leader of the Chilean fixed line market (by number of accesses) with an estimated total market share of 67%. Telefonica Chile also maintained its position as Chile's leading broadband provider, with an estimated market share of 49%, reaching 528,200 retail Internet broadband connections (+52.9% year-on-year). With regards to the digital satellite TV business (DTH), Telefonica Chile continued to increase its client base, reaching 129,100 by the close of the quarter, consolidating its position as the number two operator by customers in the Chilean market, with a share of approximately 11.5%. During the first months of 2007, Telefonica Chile continued defending its share of revenues in the most competitive market in the region, with a high penetration in the cellular business. In terms of revenues, the trend of previous quarters has been maintained in 2007, with strong growth in new businesses (mainly broadband and pay TV), which compensated for reduced results in traditional telephony business. By the end of March, cumulative revenues rose to 235 million euros, practically the same levels registered during the first quarter of 2006 (-0.1% in local currency). It is worth highlighting the growth in Internet and broadband revenues (narrowband + broadband + TV), which grew 75.3% in local currency above the first quarter of 2006,figure due to the growth in retail broadband Internet connections and the launch of satellite TV in June 2006. Thus, these revenues contributed 16.5% to company sales, in comparison with a 9.5% contribution during the first quarter of 2006. Revenues for traditional telephony businesses fell 7.6% in local currency, impacted by the loss of lines, reducing their contribution to company revenues to 77.3% (6.9 percentage points down on the same quarter of 2006). Meanwhile, data and IT revenues jointly fell 1.4% in local currency. Telefonica Chile's operating expenses registered a year-on-year drop of 4.6% in local currency, positively impacted by the cost associated to the workforce restructuring programme carried out during the first quarter of 2006. Supply costs grew slightly (+0.3% in local currency), due to the costs associated with the Television business (mainly satellite capacity and content) compensating for lower interconnection costs, as a result of the reduction in registered traffic. Personnel costs (excluding the workforce restructuring costs) fell slightly (-0.4% in local currency), due to the necessary recruitment of new employees to insource certain activities in accordance with the new Chilean Subcontracting Law, despite the reduction done in 2006. External service costs showed a growth of 18.3% in relation to those cumulative to March 2006 due to the increase in advertising campaign costs (mainly for TV products, Duo and Trio), customer services costs, network mantainance and sales commissions. Costs associated with debt recovery registered a drop of 4.4% year-on-year in local currency, standing at 3.0% over revenues. Cumulative operating income before depreciation and amortization (OIBDA) during the first quarter of 2007 rose to 93 million euros, 13.8% higher than the same period in the previous year. Telefonica Chile's cumulative CapEx reached 36 million euros during the first quarter of 2007, 37.7% higher than the same period the previous year in local currency, due mainly to the TV project, growth of broadband and projects for service quality improvement of. Operating cash flow (OIBDA - CapEx) reached 57 million euros during the first three months of the year. TEM CHILE In Chile, the strong level of competition has driven the growth of the mobile market, reaching an estimated penetration of 84% in March 2007, more than 10 percentage points up in relation to March of the previous year. Telefonica Moviles Chile, maintained its leading market position, reaching 5.8 million clients by the end of the first quarter, driven mainly by GSM gross adds, with 78% of their customer base using this technology. Contract clients (1.3 million, +33% year-on-year) drove total client base to an cumulative growth in the year of 8.1%, which was reflected in the net adds of 87,000 customers during the first quarter (+46% in relation to the same period of 2006). Revenues showed year-on-year growth of 20.7% in local currency, reaching 209 million euros. Service revenues grew 18.0% in local currency during the first quarter of 2007 in relation to the same period of 2006, which reflected the positive ARPU (+8.4% in relation to the same period of 2006) and MoU performance (98 minutes, +15.3% year-on-year), driven mainly by the GSM migration process and plans upgrades, as well as, the sale of minutes bundles and SVAs. Operating income before depreciation and amortization (OIBDA), with a cumulative growth of 35.7% in local currency, reached 72 million euros, reaping the benefits of good performance of revenues and higher cost efficiency. The cumulative OIBDA margin reached 34.2% during the first quarter of 2007, 3.8 percentage points above those obtained during the first quarter of 2006 thanks to higher efficiency and despite increased commercial efforts associated with the technology migration and increased market aggresiveness. PERU Revenues rose to 370 million euros during the first quarter of 2007, 9.7% higher in local currency than the one registered during the same period the previous year,. The growth of revenues is explained mainly by the good performance of outgoing revenues in the cellular business and the growth of Internet and broadband revenues in the fixed line business. Operating income before depreciation and amortization (OIBDA) stood at 144 million euros, growth of 0.3% in local currency in relation to the first quarter of 2006, thanks to the significant improvement of results in the cellular business which compensated for the downturn in the fixed line business. On the other hand, investment carried out in Peru during the first quarter of 2007 rose to 29 million euros, 3.6% higher in local currency than the one registered during the same period of 2006. Amongst projects which combine fixed line and cellular businesses, it is worth highlighting the launch during March of the IRIS project (fixed wireless telephony). By the end of March, Telefonica Latinoamerica managed 9.3 million accesses in Peru, a year-on-year growth of 33.7%, thanks to strong growth in cellular clients (+53.9% year-on-year ), which rose to 5.7 million. To a lesser extent, fixed line accesses (+6.0% year-on-year) and retail broadband Internet connections (+38.3% year-on-year ) also contributed positively. TELEFONICA DEL PERU Telefonica del Peru registered a growth in accesses of 11.0% reaching a total of 3.6 million, thanks to the success of the commercial campaigns made. The good performance of fixed line accesses (+6.0% year-on-year reaching 2.5 million), retail broadband Internet connections (+38.3% year-on-year, reaching 497,676) and TV accesses (+18.2% year-on-year reaching 561,098 clients: 530,781 for cable TV and 30,317 for satellite TV) was also maintained. Voice traffic showed important growth with respect to the same period of the previous year (+5.0% year-on-year), due to increased local traffic in both fixed-fixed and fixed-to-mobile, and interconnection traffic, mainly in incoming international calls, which compensated for the drop recorded in public telephony as a consequence of increased competition, informal public telephone centres and the notable growth in mobile penetration in Peru. During the first quarter of the year, the company fulfilled the terms established in the agreement signed with the Peruvian government in December 2006, highlighting: i) the reduction in monthly fee (up to 29%) benefiting 1.5 million clients, ii) the new public payphone tariff, iii) extension of phone-card expiry dates and iv) the creation of five new per-second plans. It is worth highlighting the launch of fixed wireless telephony (on the 15th of March) which extended fixed line telephony coverage in the country. Revenues rose to 266 million euros during the first quarter (-1.2% in local currency). Traditional business revenues decreased by 6.1% in local currency due to the drop in public telephony revenues (-21.7% in local currency) impacted by the substitution of fixed to mobile traffic and competition growth. Lower revenues were also registered in monthly fees on the application of tariff reductions agreed with the government. On the other hand, Internet and broadband revenues (narrowband + broadband + TV) continued to drive the company's revenue growth, showing a year-on-year increase of 22.1% in local currency (contributing 22.8% to total revenues, 4.3 percentage points more than in the same period of 2006), as a consequence of good performance in broadband (+28.2% in local currency) and television (+17.2% in local currency) revenues, thanks to the strong commercial activity carried out in both businesses. Data revenues grew 2.4%, and IT revenues dropped 17.8% in local currency, due to the reduced number of projects (2006 saw general elections in Peru which generated important projects with ONPE, The Peruvian National Office of Electoral Processes). Operating costs grew 4.2% in local currency with respect to the previous year, due mainly to the increase in supply costs (+11.9% in local currency) as a consequence of increased interconnection costs (mainly due to higher fixed-to mobile and international long distance traffic, as well as to the inclusion of international termination rates into operating costs, which during the first three quarters of 2006 were registered as lower revenues), and to a lesser extent to the higher costs of external services (+1.8% in local currency), on increased security costs aimed at reducing cable theft and higher sales commissions due to increased commercial activity in broadband, TV and traditional services. On the contrary, personnel costs decreased 2.1% in local currency due to a reduced workforce following the sale of TUMSAC in 2006, while insolvency provision fell 9.4% in local currency, standing at 1.2% over revenues, due to the increased percentage of pre-pay or consumption limited clients (around 60%). Operating income before depreciation and amortization (OIBDA) stood at 107 million euros, 9.3% down in local currency on the same period in 2006 as a consequence of reduced revenues, the growth of operating costs and increased labour and tax contingencies. OIBDA margin stood at 40.1%, 3.7 percentage points lower than that registered in March 2006. CapEx fell 9.2% in local currency, standing at 15 million euros, while operating cash flow (OIBDA-CapEx) reached 91 million euros. TEM PERU During the first quarter of 2007, the Peruvian cellular market maintained the strong dynamism shown throughout the previous year. Thus, penetration registered a growth of more than 13 percentage points in relation to March 2006, surpassing 35%. The company's greater commercial aggressiveness is reflected in the positive net adds (533,800), more than double the one obtained in the first quarter of the previous year (+136%). Telefonica Moviles Peru's total customer base rose to 5.7 million clients (+53.9% in comparison to March 2006), 54% of which in GSM. Good usage performance continued, particularly in pre-pay, due to the success of promotional campaigns based on doubling or tripling top-up values. This was reflected in the fact that unit usage increased once again during this quarter, raising the total MoU (85 minutes) 20% in relation to the first quarter of 2006 and 9% in relation to the fourth quarter of 2006, while ARPU grew 3.9% year-on-year in local currency. Cumulative revenues reached 133 million euros in March 2007, increasing 41.7% in local currency with respect to the same quarter of the previous year. Particularly noteworthy was the good performance of service revenues which grew 53.9% year-on-year in local currency, mainly due to the growth in outgoing pre-pay revenues (+182.8% in relation to the first quarter of 2006 in local currency), significantly above the average customer base growth, with usage continuing to show elasticity to traffic promotions. Revenue growth and improved operational efficiency, in spite of increased commercial activity, has driven an operating income before depreciation and amortization (OIBDA) growth increase of 43.3% in local currency in relation to the first quarter the previous year. The margin rose to 28.2% during the quarter (+0.3 percentage points in relation to the first quarter of 2006). COLOMBIA During the first quarter of 2007, revenues from fixed and mobile businesses reached 352 million euros, of which approximately 50% correspond to Telefonica Telecom, which began to be consolidated into Telefonica Group in May 2006. Operating income before depreciation and amortization (OIBDA) by the end of March 2007 totalled 100 million euros, Telefonica Telecom contributing 76.7% after the cellular business was negatively impacted by customer technology migration from TDMA/CDMA to GSM. Hence, the OIBDA margin stood at 28.3% during the first quarter. TELEFONICA TELECOM1 Telefonica Telecom total accesses reached 2.3 million (7.2% year on year) by the end of March 2007, highlighting the strong development of Broadband that recorded a 384% growth in relation to the same period of the previous year to amount a total of 94,300 connections by the end of March 2007. Revenues for the fixed telephony business stood at 167 million euros, equivalent to a decline of 1.2% in local currency, as a result of fixed-mobile substitution which, in turn, affected local traffic (-13.3%). The internet business registered a strong revenue growth rate (+82.1%) in local currency in relation to the previous year reflecting the operator's focus on these services, increasing the contribution in relation to total revenues from 3.5% in March of 2006 to 6.5% in March of 2007. The extensive growth in the number of Broadband users (+384%) offsets the decline in the narrowband business (-15.1%) that was affected by customer migration to Broadband. The company maximized the result of this impact by extending its coverage to new cities and municipalities while strengthening its position in areas where it holds a dominant position. Furthermore, the broadband business was driven by successful marketing of speed upgrades in the business and internet segment for business customers. The Satellite TV product was launched at the beginning of the year and proved to be key to compete in new markets supporting the sale of PSTN lines and Broadband connections as well as to encourage customer loyalty. In the first quarter of the year, Telefonica Telecom recorded an operating income before depreciation and amortization (OIBDA) of 76 million euros, equivalent to an 8.6% growth in local currency in relation to the first quarter of 2006, mainly due to lower expenses and to its increased focus on Broadband, which recorded an 181.7% growth in revenues. -------------------------------------------------------------------------------- 1 T. Telecom was not consolidated into Telefonica's Group accounts during the first quarter of 2006. The published variations are calculated using proforma figures for the first quarter of 2006. -------------------------------------------------------------------------------- TEM COLOMBIA The Colombian cellular market totalled 28 million customers, a 67% penetration rate. Compared with the last quarter of 2006, the total size of the market increased by 0.3 million customers, considerably below the market growth of the first quarter of 2006 (+3.1 million customers). This lower commercial competitiveness together with the rebound in churn rate associated with low value customers from the aggressive campaigns launched in 2006 led to a negative net gain of 214,500 customers over the period. The total customer base stood at 7.5 million customers (+10.7% year-on-year), with 68% of the base on GSM (+7.9 percentage points compared with the fourth quarter of 2006). Revenues totalled 195 million euros by the end of March 2007, reflecting a growth rate of 5.8% in local currency. Service revenues grew 9.7% in relation to the first quarter of 2006. Operating income before depreciation and amortization (OIBDA) amounted to 23 million euros by the end of March 2007, a decline of 33.0% in local currency compared to the first quarter of 2006, due to accelerated customer migrations from TDMA/CDMA to GSM by high value customers, which should lead to an improved TDMA/CDMA churn in forthcoming months. Therefore, the margin recorded a decline of 6.9 percentage points in relation to the first quarter of 2006 to stand at 11.9% over the year (18.8% in the first quarter of 2006). MEXICO During the first quarter of 2007, Telefonica Moviles Mexico, increased significantly its commercial activity, year-on-year, as a result of the initiatives developed during 2006, aimed to improve its distribution network, customer service processes and network quality, and the higher market dynamism and the extension of the Christmas campaign till March 2007. By March 2007, estimated penetration in the Mexican market reached 55% (+9 percentage points vs. March 2006) maintaining the growth trend. Telefonica Moviles Mexico's customer base exceeded 9.3 million customers by the end of March 2007 (of which 542,400 thousand were contract customers) a growth of 42.1% in relation to the first quarter of 2006. This good performance of the customer base was due to the good acceptance of the latest promotions, mainly in the pre-pay segment, and the extension until March 2007 of the Christmas traffic campaign. Gross adds reached 1.6 million customers in the first quarter of 2007, 57% higher than those registered during the same period of previous year. It is important to highlight that the level of gross adds reached during the first quarter is significantly higher than the one registered during the third quarter of 2006, and only 11% lower than the one achieved in the last quarter of 2006 during which the Christmas campaign was in place. The improvement in the quality of the gross adds during the last quarters, allowed churn to continue its positive trend, standing at 2.9% in the first quarter of 2007 (in comparison to 4.2% in the first quarter of 2006 and 3.5% for the whole year 2006). Thus, net adds during the first quarter reached 766,336 customers, more than tripling the one obtained in the first quarter of 2006. The good performance of gross adds came along with strong growth in traffic, especially outgoing and on-net, as a result of the new commercial offers launched, the continued traffic promotions within the operator network and the implementation of the national calling party pays service. Hence, the MoU during the first quarter of 2007 rose to 116 minutes, more than doubling the usage of the first quarter of 2006. This improvement is reflected in ARPU, which increased 25.8%, reaching 135.1 Mexican pesos. As a result of the company's strong commercial performance, revenues in the first quarter of 2007 rose to 315 million euros, showing a growth of 66.2% in local currency in relation to the same period in 2006. Service revenues maintained the positive trend of previous quarters (+66.4% year-on-year), ahead of customer base growth reflecting the higher quality and usage of the customer base. The good performance of service revenues was driven by the improvement in outgoing revenues (+85.7% in local currency), backed by the increase in on-net traffic. Incoming revenues (+55.3% local currency) have shown positive performance driven by the launch of the national calling party pays service. Operating income before depreciation and amortization (OIBDA) for the first quarter showed the good evolution of both revenues and improved efficiency. Intense commercial activity during the first quarter did not prevent OIBDA from reaching 22 million euros, compared with OIBDA losses of 25 million euros during the same period in 2006. CapEx for the first quarter of 2007 rose to 38 million euros, which along with the positive OIBDA performance, fully flowed to Operating Cash Flow (OIBDA-CapEx), which during the first quarter of 2007 reduced losses to 16 million euros. VENEZUELA During the first quarter 2007 Telefonica Moviles Venezuela's total customer base reached 9.1 million clients (+36.2% in relation to March 2006), registering a net gain of 274,000 lines. Overall the market continued to show strong dynamism, leading to penetration of approximately 72%, more than 20 percentage points growth year-on-year. In the third week of January 2007 the GSM network was launched providing services both to pre-pay and contract segments. The Valentine's Day campaign in February was the first to fully market GSM handsets. Throughout the month of March the range of telephone offers was widely extended. The market reacted favorably, leading to a 10.9% increase in subscriptions during the quarter in relation to the previous year, reaching 860,000, of which almost half were GSM. Churn stood at 2.3% in the quarter, due, in part, to the strong commercial activity registered during the Christmas campaign. Service revenues grew 35.9%, in line with customer base growth. ARPU progress (+0.2%, in local currency in comparison to the first quarter of 2006), remained stable in spite of strong competition and increased cellular penetration in the Venezuelan market. The success of commercial campaigns, particularly in pre-pay segment (handset and top-up promotions) contributed to this performance. Thus, revenues during the quarter rose to 520 million euros (+25.4% vs. 2006 in local currency), affected mainly by the price reductions in handsets throughout 2006 as a consequence of increased market dynamism. Operating income before depreciation and amortization (OIBDA) reached 242 million euros, 39.3% higher than the previous year in local currency, thanks to the growth in revenues previously mentioned and the reduction of costs of handsets with GSM technology. OIBDA margin stood at 46.5%, a growth of 4.7 percentage points in comparison to the previous year. CENTRAL AMERICA During the first quarter of 2007, Telefonica Centroamerica (Panama, Guatemala, El Salvador and Nicaragua) heavily increased its commercial activity. At March 2007, the estimated penetration of the Central American market reached 51% (up 15 percentage points on March 2006). The Telefonica Centroamerica customer base surpassed the 4 million mark by the end of March 2007 (of which 226,689 corresponded to fixed wireless customers and 342,820 to contract customers), a 28.2% growth in relation to the first quarter of 2006. The strong performance of the customer base is supported by the effectiveness of commercial campaigns carried out during this first quarter and increased presence in the market through the opening of points of sale. Thus, net gain in the first quarter amounted to 183,594 customers. At an operating level, the heavy growth of traffic must once again be underlined, particularly outgoing traffic. Hence, the MoU for the first quarter of grew 7.3% higher than the same period the previous year. As a result of the good commercial performance of the company, revenues for the first quarter of 2007 totalled 147 million euros, 25.1% higher than the same period of 2006 in constant terms. Service revenues maintained the positive trend of previous quarters (up 26.1% year on year), basically in line with growth of the customer base. This good performance in service revenues is supported by the development of outgoing revenues (+36.9% in constant terms), to improved on-net traffic and to incoming revenues (+22.8% in constant terms), mainly due to the growth in the pre-pay customer base. The increased commercial activity during this first quarter has not prevented Operating income before depreciation and amortization (OIBDA) from reaching 47 million euros, 26.5% higher than that of the same period the previous year, in constant terms. The OIBDA margin stood at 31.7% by the end of March 2007, 0.4 percentage point improvement compared to the first quarter of 2006. ECUADOR Over the last twelve months, the market in Ecuador has recorded a strong growth reaching a penetration of 64% at the end of the first quarter 2007, equivalent to an increase of 13 percentage points compared to the first quarter of 2006. The total base of Telefonica Moviles Ecuador reached 2.5 million with more than half of the base on GSM. Cumulative revenues to end of March 2007 totalled 67 million euros, recording a decline of 4.9% in local currency compared to the same quarter the previous year. Despite this decline, it is worth mentioning the advance reached during this quarter in terms of service revenues which grew 5% in local currency when compared to the same period the previous year. Despite the year on-year decline of revenues, the stronger efficiency controlling operating expenses allowed to reach an Operating income before depreciation and amortization (OIBDA) of 16 million euros, equivalent to an annual decrease of 2.3% in local currency. OIBDA margin as of the end of March 2007 stood at 24.5%, registering an increase of 0.7 percentage points compared to the same period the previous year. TELEFONICA INTERNATIONAL WHOLESALE SERVICES Cumulative revenues for TIWS during the first quarter of 2007 maintained the strong growth trend of 2006, reaching 65 million euros (25.0% up in constant euros vs. first quarter of 2006). IP international revenues are also worth highlighting, representing more than 52% of the total showing a growth of 23.3% in constant currency. Additionally, the remaining businesses also showed positive growth: bandwidth capacity (+32.9% in constant euros), virtual private networks (+26.9% in constant euros) and satellite services (+91.2% in constant euros). Operating income before depreciation and amortization (OIBDA) reached 22 million euros (+22.0% in constant euros), driven by strong revenue growth which compensated for higher operational costs (+24.6% in constant currency), due to increased company activity. In spite of the strong performance of revenues, TIWS maintained its OIBDA margin of 34.5%, down slightly on the previous year (-0.7 percentage points). TELEFONICA LATINOAMERICA ACCESSES Unaudited figures (thousands) 2006 2007 March June September December March % Chg Final Clients Accesses 102,433.3 106,920.8 109,987.5 114,604.4 116,905.7 14.1 Fixed telephony accesses (1) 21,823.0 24,002.5 24,072.6 23,916.9 23,810.9 9.1 Internet and data accesses 6,061.0 6,206.2 6,563.3 6,723.7 6,757.6 11.5 Narrowband (2) 3,030.6 2,872.3 2,931.2 2,813.5 2,615.3 (13.7) Broadband (3) (4) 2,928.7 3,201.9 3,500.2 3,780.3 4,045.6 38.1 Other 101.7 131.9 131.8 130.0 96.7 (4.9) Cellular accesses 74,059.9 76,196.7 78,777.4 83,298.4 85,637.0 15.6 Contract 59,501.0 61,401.3 63,501.6 67,329.9 69,112.7 16.2 Prepaid 13,502.0 13,624.1 14,075.4 14,705.4 15,208.7 12.6 Fixed Wireless 1,056.9 1,171.3 1,200.4 1,263.1 1,315.5 24.5 Pay TV 489.3 515.4 574.2 665.3 700.1 43.1 Wholesale Accesses 64.5 76.8 76.0 65.9 64.6 0.1 Total Accesses 102,497.8 106,997.6 110,063.5 114,670.3 116,970.3 14.1 (1) PSTN (including Public Use Telephony) x1; ISDN Basic access x1; ISDN Primary access; 2/6 Access x30. Company's accesses for internal use included. (2) Includes narrowband ISP of Terra Brasil and Terra Colombia. (3) Includes broadband ISP of Terra Brasil, Telefonica de Argentina, Terra Guatemala y Terra Mexico. (4) Includes ADSL, optical fiber, cable modem, broadband circuits and ISP in the North part of the country. TELEFONICA LATINOAMERICA CONSOLIDATED INCOME STATEMENT Unaudited figures (Euros in millions) January - March 2007 2006 % Chg Revenues 4,685 4,317 8.5 Internal exp capitalized in fixed assets (1) 21 22 (4.3) Operating expenses (3,039) (2,845) 6.8 Other net operating income (expense) 18 38 (53.5) Gain (loss) on sale of fixed assets 29 (2) c.s. Impairment of goodwill and other assets 0 (2) n.s. Operating income before D&A (OIBDA) 1,713 1,528 12.1 Depreciation and amortization (841) (937) (10.2) Operating income (OI) 872 591 47.5 Note: 'Bad debt provisions' have been reclassified from 'Other net operating income (expense)' to 'Operating expenses'. (1) Including work in process. TELEFONICA LATINOAMERICA ACCESSES BY COUNTRIES (I) Unaudited figures (Thousands) 2006 2007 March June September December March % Chg BRAZIL Final Clients Accesses 45,756.3 44,095.7 44,484.7 44,716.9 44,599.1 (2.5) Fixed telephony accesses (1) 12,370.4 12,336.1 12,295.1 12,107.1 12,033.6 (2.7) Internet and data accesses 3,248.2 3,234.9 3,463.9 3,556.8 3,535.2 8.8 Narrowband 1,876.1 1,758.0 1,884.5 1,856.6 1,786.3 (4.8) Broadband (2) 1,307.3 1,382.4 1,485.2 1,608.2 1,690.8 29.3 Other 64.8 94.5 94.2 92.0 58.1 (10.4) Cellular accesses 30,137.7 28,524.7 28,725.7 29,053.1 29,030.3 (3.7) Prepaid 24,377.2 23,256.5 23,481.5 23,543.4 23,377.0 (4.1) Contract 5,760.5 5,268.1 5,244.1 5,509.6 5,653.2 (1.9) Wholesale Accesses 32.7 46.3 46.4 38.4 38.9 18.9 Total Accesses 45,789.0 44,142.0 44,531.1 44,755.3 44,638.0 (2.5) ARGENTINA Final Clients Accesses 14,379.8 15,034.4 15,761.5 16,809.4 17,464.1 21.4 Fixed telephony accesses (1) 4,553.1 4,586.7 4,612.4 4,636.3 4,627.9 1.6 Internet and data accesses 912.3 961.6 998.9 973.7 1,023.2 12.2 Narrowband 548.9 536.1 504.1 439.2 418.0 (23.8) Broadband (2) 346.5 408.7 477.9 517.7 588.1 69.7 Other 16.8 16.8 16.8 16.8 17.1 1.7 Cellular accesses 8,914.4 9,486.1 10,150.2 11,199.4 11,813.0 32.5 Prepaid 5,535.2 5,951.4 6,498.1 7,315.8 7,753.1 40.1 Contract 3,210.0 3,373.8 3,499.4 3,742.9 3,925.8 22.3 Fixed wireless 169.2 160.8 152.7 140.7 134.2 (20.7) Wholesale Accesses 7.3 7.2 7.2 7.3 7.6 5.1 Total Accesses 14,387.1 15,041.6 15,768.7 16,816.6 17,471.7 21.4 CHILE Final Clients Accesses 8,208.7 8,368.3 8,435.3 8,538.4 8,670.5 5.6 Fixed telephony accesses (1) 2,407.0 2,328.0 2,225.9 2,206.2 2,177.4 (9.5) Internet and data accesses 466.7 514.9 538.9 557.7 597.3 28.0 Narrowband 110.7 95.6 72.8 53.3 59.0 (46.7) Broadband (2) 345.4 409.0 456.0 494.5 528.2 52.9 Other 10.6 10.3 10.1 10.0 10.0 (5.6) Cellular accesses 5,335.0 5,514.9 5,618.1 5,680.2 5,766.8 8.1 Prepaid 4,396.0 4,501.9 4,491.6 4,507.6 4,515.7 2.7 Contract 938.9 1,013.0 1,126.5 1,172.7 1,251.1 33.2 Pay TV 0.0 10.4 52.4 94.2 129.1 n.c. Wholesale Accesses 23.9 22.8 21.9 19.9 17.6 (26.4) Total Accesses 8,232.7 8,391.0 8,457.2 8,558.3 8,688.1 5.5 (1) PSTN (including Public Use Telephony) x1; ISDN Basic access x1; ISDN Primary access; 2/6 Access x30. Company's accesses for internal use included. (2) Includes ADSL, optical fiber, cable modem and broadband circuits. TELEFONICA LATINOAMERICA ACCESSES BY COUNTRIES (II) Unaudited figures (Thousands) 2006 2007 March June September December March % Chg PERU Final Clients Accesses 6,958.8 7,423.1 7,983.8 8,710.9 9,303.2 33.7 Fixed telephony accesses (1) 2,388.2 2,434.0 2,468.2 2,498.5 2,531.2 6.0 Internet and data accesses 414.9 449.8 494.2 525.5 547.4 31.9 Narrowband 47.6 52.0 49.6 47.8 40.3 (15.3) Broadband (2) 359.8 389.3 435.7 468.5 497.7 38.3 Other 7.5 8.4 8.9 9.2 9.4 25.4 Cellular accesses 3,680.9 4,048.9 4,513.8 5,129.8 5,663.5 53.9 Prepaid 3,007.6 3,331.1 3,749.7 4,353.3 4,882.3 62.3 Contract 603.3 648.1 691.9 705.2 711.0 17.9 Fixed wireless 70.1 69.8 72.2 71.3 70.2 0.2 Pay TV 474.7 490.4 507.5 557.2 561.1 18.2 Wholesale Accesses 0.6 0.5 0.5 0.4 0.4 (30.6) Total Accesses 6,959.5 7,423.6 7,984.2 8,711.4 9,303.6 33.7 COLOMBIA Final Clients Accesses 6,820.8 9,717.9 10,094.9 10,190.0 9,995.9 46.5 Fixed telephony accesses (1) 0.0 2,210.7 2,362.6 2,359.4 2,346.5 n.c. Internet and data accesses 3.1 33.1 45.4 70.9 94.3 n.c. Narrowband 3.1 3.0 3.1 2.9 0.0 n.c. Broadband (2) 0.0 30.2 42.3 68.0 94.3 n.c. Other 0.0 0.0 0.0 0.0 0.0 n.c. Cellular accesses 6,817.8 7,474.0 7,687.0 7,759.7 7,545.2 10.7 Prepaid 5,283.6 5,721.4 5,883.5 5,960.5 5,734.6 8.5 Contract 1,534.1 1,752.7 1,803.5 1,799.2 1,810.6 18.0 Pay TV 0.0 0.0 0.0 0.0 10.0 n.c. Wholesale Accesses 0.0 0.0 0.0 0.0 0.0 n.c. Total Accesses 6,820.8 9,717.9 10,094.9 10,190.0 9,995.9 46.5 MEXICO Cellular accesses 6,559.4 6,865.6 7,443.3 8,553.2 9,319.6 42.1 Prepaid 6,189.1 6,439.0 6,950.7 8,017.8 8,775.0 41.8 Contract 369.3 425.3 490.9 533.4 542.4 46.9 Fixed wireless 0.9 1.2 1.6 2.0 2.2 137.2 Total Accesses 6,559.4 6,865.6 7,443.3 8,553.2 9,319.6 42.1 VENEZUELA Cellular accesses 6,683.3 7,820.6 8,025.9 8,826.2 9,100.3 36.2 Prepaid 5,659.0 6,665.7 6,813.6 7,520.2 7,724.2 36.5 Contract 371.7 399.2 431.6 469.4 495.4 33.3 Fixed wireless 652.7 755.7 780.7 836.6 880.7 34.9 Total Accesses 6,683.3 7,820.6 8,025.9 8,826.2 9,100.3 36.2 (1) PSTN (including Public Use Telephony) x1; ISDN Basic access x1; ISDN Primary access; 2/6 Access x30. Company's accesses for internal use included. (2) Includes Guatemala, Panama, El Salvador and Nicaragua TELEFONICA LATINOAMERICA ACCESSES BY COUNTRIES (III) Unaudited figures (Thousands) 2006 2007 March June September December March % Chg CENTRAL AMERICA (3) Fixed telephony accesses (1) 104.2 107.0 108.4 109.4 94.4 (9.4) Internet and data accesses 24.6 25.0 25.2 26.0 26.0 5.7 Broadband (2) 22.7 23.1 23.4 24.1 24.0 5.6 Others 1.9 1.9 1.9 1.9 2.0 6.9 Cellular accesses 3,102.6 3,323.0 3,564.8 3,829.5 4,042.1 30.3 Prepaid 2,670.1 2,860.7 3,078.9 3,303.1 3,472.5 30.1 Contract 270.8 280.8 295.0 315.6 342.8 26.6 Fixed Wireless 161.7 181.5 190.9 210.9 226.7 40.2 Pay TV 14.6 14.5 14.3 14.0 0.0 n.c. Total Accesses 3,246.0 3,469.6 3,712.8 3,978.9 4,162.5 28.2 ECUADOR Cellular accesses 2,328.4 2,554.7 2,393.1 2,490.0 2,481.7 6.6 Prepaid 1,948.3 2,161.7 1,984.0 2,133.0 2,116.8 8.6 Contract 377.7 390.6 406.9 355.3 363.3 (3.8) Fixed Wireless 2.4 2.3 2.2 1.7 1.6 (30.7) Total Accesses 2,328.4 2,554.7 2,393.1 2,490.0 2,481.7 6.6 URUGUAY Cellular accesses 500.4 584.4 655.4 777.3 874.6 74.8 Prepaid 434.7 511.9 569.8 675.3 761.4 75.1 Contract 65.6 72.5 85.6 102.0 113.2 72.4 Total Accesses 500.4 584.4 655.4 777.3 874.6 74.8 (1) PSTN (including Public Use Telephony) x1; ISDN Basic access x1; ISDN Primary access; 2/6 Access x30. Company's accesses for internal use included. (2) Includes ADSL, optical fiber and broadband circuits. (3) Includes Guatemala, Panama, El Salvador and Nicaragua TELEFONICA LATINOAMERICA SELECTED OPERATING DATA (I) Unaudited figures (Euros in millions) January - March 2007 2006 % Chg % Var Local Cur ----------------------------------------------------------------------------------------------------------------------- BRAZIL Revenues 1,801 1,836 (1.9) 2.8 OIBDA 749 764 (1.9) 2.8 OIBDA margin 41.6% 41.6% (0.0 p.p.) CapEx 170 144 18.3 23.9 Telesp Revenues 1,359 1,428 (4.8) (0.3) OIBDA 601 628 (4.3) 0.3 OIBDA margin 44.2% 44.0% 0.2 p.p. CapEx 127 90 42.0 48.8 Vivo Revenues 526 497 5.9 10.9 OIBDA 149 136 9.1 14.3 OIBDA margin 28.3% 27.4% 0.8 p.p. CapEx 43 53 (20.1) (16.3) ----------------------------------------------------------------------------------------------------------------------- ARGENTINA Revenues 561 511 9.9 21.0 OIBDA 217 184 17.6 29.7 OIBDA margin 37.1% 34.4% 2.7 p.p. CapEx 41 65 (36.7) (30.3) Telefonica de Argentina Revenues 247 236 4.3 14.9 OIBDA 119 117 1.6 11.9 OIBDA margin (1) 41.1% 41.2% (0.1 p.p.) CapEx 27 31 (12.6) (3.7) TEM Argentina Revenues 337 295 14.4 26.0 OIBDA 98 67 46.0 60.8 OIBDA margin 29.0% 22.7% 6.3 p.p. CapEx 14 35 (59.2) (55.1) ----------------------------------------------------------------------------------------------------------------------- CHILE Revenues 423 431 (1.7) 10.0 OIBDA 164 150 9.4 22.5 OIBDA margin 38.8% 34.9% 3.9 p.p. CapEx 78 60 28.9 44.2 Telefonica Chile Revenues 235 262 (10.4) (0.1) OIBDA 93 91 1.7 13.8 OIBDA margin 39.6% 34.9% 4.7 p.p. CapEx 36 29 23.0 37.7 TEM Chile Revenues 209 194 7.9 20.7 OIBDA 72 59 21.2 35.7 OIBDA margin 34.2% 30.4% 3.8 p.p. CapEx 42 31 33.7 49.6 ----------------------------------------------------------------------------------------------------------------------- OIBDA is presented after management fees. Data for Telefonica de Argentina include the ISP business of Advance. (1) Margin over revenues includes fixed to mobile interconnection. TELEFONICA LATINOAMERICA SELECTED OPERATING DATA (II) Unaudited figures (Euros in millions) January - March 2007 2006 % Chg % Var Local Cur ----------------------------------------------------------------------------------------------------------------------- PERU Revenues 370 351 5.5 9.7 OIBDA 144 150 (3.6) 0.3 OIBDA margin 38.9% 42.6% (3.7 p.p.) CapEx 29 29 (0.4) 3.6 Telefonica del Peru Revenues 266 279 (4.7) (1.2) OIBDA 107 122 (12.8) (9.3) OIBDA margin 40.1% 43.8% (3.7 p.p.) CapEx 15 18 (12.8) (9.2) TEM Peru Revenues 133 98 36.2 41.7 OIBDA 37 27 37.7 43.3 OIBDA margin 28.2% 27.8% 0.3 p.p. CapEx 14 12 16.5 21.2 ----------------------------------------------------------------------------------------------------------------------- COLOMBIA Revenues 352 202 74.1 86.3 OIBDA 100 37 169.2 188.1 OIBDA margin 28.3% 18.3% 10.0 p.p. CapEx 14 22 (36.4) (31.9) Telefonica Telecom (2) Revenues 167 - n.c. n.c. OIBDA 76 - n.c. n.c. OIBDA margin 45.8% - n.c. n.c. CapEx 10 - n.c. n.c. TEM Colombia Revenues 195 197 (1.1) 5.8 OIBDA 23 37 (37.4) (33.0) OIBDA margin 11.9% 18.8% (6.9 p.p.) CapEx 4 22 (83.2) (82.1) ----------------------------------------------------------------------------------------------------------------------- MEXICO (TEM Mexico) Revenues 315 215 46.6 66.2 OIBDA 22 (25) c.s. c.s. OIBDA margin 7.1% (11.8%) 18.9 p.p. CapEx 38 3 n.s. n.s. ----------------------------------------------------------------------------------------------------------------------- VENEZUELA (TEM Venezuela) Revenues 520 452 15.0 25.4 OIBDA 242 189 27.8 39.3 OIBDA margin 46.5% 41.8% 4.7 p.p. CapEx 27 14 98.0 115.8 ----------------------------------------------------------------------------------------------------------------------- CENTRAL AMERICA (3) Revenues 147 129 13.8 OIBDA 47 41 15.3 OIBDA margin 31.7% 31.3% 0.4 p.p. CapEx 18 11 59.7 ----------------------------------------------------------------------------------------------------------------------- ECUADOR (TEM Ecuador) Revenues 67 77 (12.8) (4.9) OIBDA 16 18 (10.3) (2.3) OIBDA margin 24.5% 23.8% 0.7 p.p. CapEx 4 2 61.8 76.4 ----------------------------------------------------------------------------------------------------------------------- OIBDA is presented after management fees. (2) Data for Telefonica Telecom (formerly Colombia Telecom) only include results for May-December 2006 period. (3) Includes Guatemala, Panama, El Salvador and Nicaragua TELEFONICA LATINOAMERICA SELECTED OPERATING DATA (III) Unaudited figures (Euros in millions) January - March 2007 2006 % Chg % Var Local Cur ----------------------------------------------------------------------------------------------------------------------- URUGUAY (TEM Uruguay) Revenues 24 18 36.9 50.0 OIBDA 6 4 52.1 66.6 OIBDA margin 26.5% 23.8% 2.6 p.p. CapEx 2 1 197.1 225.4 ----------------------------------------------------------------------------------------------------------------------- TIWS Revenues 65 53 21.5 25.0 OIBDA 22 19 19.5 22.0 OIBDA margin 34.5% 35.2% (0.7 p.p.) CapEx 1 2 (74.2) (74.2) ----------------------------------------------------------------------------------------------------------------------- OIBDA is presented after management fees. Data for Telefonica de Argentina include the ISP business of Advance. MORE TO FOLLOW This information is provided by RNS The company news service from the London Stock Exchange

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