2nd quarterly results- Part 1

Telefonica SA
29 July 2003


Quarterly Results

January - June 2003


Table of Contents

Telefonica Group


        Financial Highlights

        Results

Analysis of Results By Business Line


        Fixed Line Business

            Telefonica de Espana Group

            Telefonica Latinoamerica Group

        Cellular Business

            Telefonica's Cellular Business

        Data Business, Solutions, and International Services Business

            Telefonica Data Group.

            Telefonica Soluciones

            Telefonica Wholesale International Services

        Media and Content Business

            Telefonica Contenidos

            Corporacion Admira Media

        Internet Business

            Terra-Lycos Group

        Directories Business

            Telefonica's Directories Business

        Contact Centers Business

            Atento Group

Addendum


        Companies included in each Financial Statement

        Significant Events

        Changes to the Perimeter and Accounting Criteria of Consolidation


NOTE:

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 Spain. Certain accounting practices applied by
the Group that conform with generally accepted accounting principles in Spain
may not conform with generally accepted accounting principles in other
countries.

TELEFONICA GROUP

Financial Highlights

The most relevant aspects of Telefonica Group results during the first six
months of the year are the following:


  • Net positive result of 1,425.6 million euros in the first half. In
    April-June alone, it grew 62.4% more than in January-March, due to the
    improved evolution of operations and of non-operating items.

  • Expansion of the Group's client base, especially of broadband clients,
    which reached 1.9 million, as compared with 1.0 million as of June 30th
    2002.

  • Free cash flow generation (EBITDA-Capex) in the first half of the year
    amounted to 4,423.1 million euros (+3.8% year-on-year), especially
    significant being the one acquired by the cellular business (1,641.7 million
    euros, +13.2%).

  • Slow-down in the negative impact of exchange rates on revenues and EBITDA,
    deducting 13.5 percentage points and 13.7 percentage points respectively in
    June, compared with 17.2 percentage points and 18.4 percentage points in
    March.

  • Good performance in revenues, EBITDA and Operating Profit, with
    improvements of 5.2%, 10.7% and 22.8%, respectively, without taking into
    account the effects of exchange rates and changes in the perimeter of
    consolidation.

  • Improvement in the Group's profitability, with an EBITDA margin of 43.9%,
    rising by 2.4 percentage points compared with June 2002 and by 0.3
    percentage points over the first three months of 2003. In the second
    quarter, the margin reached 44.2%, 2.2 percentage points higher than the
    same period last year.

  • Acceleration in the rate of growth of the cellular business, at both
    operating and financial level, with an annual increase in the number of
    managed clients of 47.0% and in revenues of 2.3% (-6,3% as of March).

  • Solid performance of Telefonica Latinoamerica in constant euros, with
    growths in revenues (+8.0%) and EBITDA (+7.0%) compared with the previous
    year.

  • A decrease in the consolidated net debt in the last twelve months of
    5,798.1 million euros, reaching an absolute level of 19,990.6 million euros.


Telefonica Group Results

The results obtained by Telefonica Group and the management report included in
this report are based on the actions carried out by the various business units
in the Group and which constitute the units over which management of these
businesses is conducted. This implies a presentation of results based on the
actual management of the various businesses in which Telefonica Group is
present, instead of adhering to the legal structure observed by the
participating companies.

In this sense, income statements are presented by business, which basically
implies that each line of activity participate in the companies that the Group
holds in the corresponding business, regardless of whether said holding has
already been transferred or not, even though it might be the final intent of
Telefonica, S.A. to do so in the future.

It should be emphasized that this presentation by businesses in no case alters
the total results obtained by Telefonica Group. These results are incorporated
from the date of effective acquisition of the holding.

Moreover, starting in the first quarter of 2003, the results corresponding to
the consolidation of the business lines of Data and of Broadband Capacity
Management are published in the new line of Data, Solutions, and International
Services Business, subdivided into the three following units: Data, Solutions,
and TIWS (wholesale international IP traffic and Broadband Capacity Management
business, integrating Emergia within its assets).

During the first six months of 2003, Telefonica Group obtained a net income of
1,425.6 million euros, thanks to the positive evolution of the operating and
financial results for the half-year, compared with the net loss of 5,574.2
million euros in the same period of the previous year, due mainly to the
extraordinary provisions accounted for. In addition, there was a significant
improvement in the operating results during the second quarter compared with the
previous quarter, which together with the good performance of non-operating
items, especially the financial and extraordinary results, have meant that the
net income for the second quarter (882.2 million euros) has grown 62.4% compared
with the first quarter.

The Group's fixed, cellular telephony and pay television managed client base as
of the end of June rose to 87.7 million clients, 14.8 million more than in June
2002 and 4.4 million more than the previous quarter. This quarterly growth came
about basically by incorporating Tele Centro Oeste (TCO). The total number of
clients for the Group has risen to 92.8 million (78.1 million in June 2002 and
88.5 in March 2003). ADSL connections totaled 1.9 million clients at the end of
June, with a year-on-year increase of 87.9% (1.3 million in Spain), and a net
addition in the last twelve months of almost one million accesses.

The improvement in the evolution of the businesses, together with the efficiency
in operations and control of Capex have resulted in a cash generation
(EBITDA-Capex) of 4,423.1 million euros in the first six months of the year,
equivalent to a growth of 3.8% compared with the same period of the previous
year. The net debt has in turn dropped from December 2002 by 2,542.5 million
euros, totaling 19,990.6 million euros at the close of June. On the other hand,
mention should be made of the decrease recorded for the first time since the
financial year 2001 of the negative impact of exchange rates both on revenues
and on EBITDA.

Thus, the revenues from operations of the first half of 2003 reached 13,563.3
million euros, 7.3% less than recorded in the same period of the previous year,
although there has been a slowdown in the fall over the first quarter (-12,9%)
because of the reduced effect of the exchange rate (this was 17.2 percentage
points in March compared with 13.5 percentage points in June). In this way,
revenues for the second quarter in current euros grew compared with the first
quarter by 10,0%. It is important to emphasize that, assuming constant exchange
rates and perimeter, the revenues underwent an accelerated growth rate compared
to March (+5.2% versus +4.9%), due to the higher contributions of the cellular
business (+2.8 percentage points versus +1.8 percentage points) and of
Telefonica Latinoamerica (+2.4 percentage points versus +2.2 percentage points).
Among the main operators, total revenues from operations of Telefonica Moviles
Espana (+7.8%), Telesp (+16.2% in local currency) and Telefonica Data Espana
(+7.8%) have been outstanding thanks to their solid performance.

The evolution of operating costs for the first half of the year reflected the
cost efficiency of the Telefonica Group, recording a drop of 10.9% compared with
January-June 2002 to 7,969.7 million euros. Like revenues, costs were also
affected by exchange rate fluctuations and variations in the perimeter, so that
in a homogeneous comparison, they have grown by 1.3% at a year-on-year level due
mainly to Telefonica Latinoamerica because of the development of the
long-distance business in Brazil. So there has been a slowdown in the growth
rate of the costs compared with the previous quarter (+2.3%) and the financial
year 2002 (+4.1%).

Bad debt control carried out during the last year in the Group has produced an
improvement of 0.7 percentage points of the ratio of provision of bad debts to
revenues to 1.7% accumulated as of June. This performance was explained
basically by Telefonica Latinoamerica (bad debt over revenues of 3.4%, 0.6
percentage points lower than in June 2002), reflecting the strict policies
implemented in Telefonica de Argentina, allowing them to improve the ratio by
more than 6 percentage points in this period. Telefonica de Espana Group (ratio
to revenues of 1.1%) and the cellular business (bad debt over revenues of 1.3%)
also showed an important year-on-year improvement, of 0.4 percentage points and
0.3 percentage points respectively. Compared to the first quarter of the year,
the bad debt over revenues ratio has been kept constant at 1.7%, but just as had
been announced, there has been an increase in the provision for bad debts in
Telesp of up to 4.0% (+0.2 p.p compared to June 2002 and +0.1 percentage points
over March 03) and CTC Chile to 3.6% (+1.4 percentage points compared to June 02
and +0.3 percentage points over March 03).

By geographical areas, Spain continues to increase its contribution both in the
revenues and in the Group's consolidated EBITDA, being respectively 62.4% and
71.2% as of June 2003 compared with 55.2% and 65.2% a year ago. This greater
weight was produced to the detriment of Latin America, especially Brazil,
because of the strong depreciation of the currencies in a year-on-year
comparison. In this way, the Latin American region has reduced its contribution
in revenue in a year by 6.2 percentage points to 32,2%. In the EBITDA, the trend
is very similar, Latin America representing 29.7% of the total (36.9% a year
ago). On the other hand, the devaluation of the peso meant that Argentina's
participation in the total revenues and EBITDA fell strongly in 2002, although
in the first half 2003 it remained almost unchanged compared to January-June of
the previous financial year (revenues: 4.0% -0.2 percentage points; EBITDA: 4.5%
+0.5 percentage points).

With this evolution of revenues and operating costs, the EBITDA of Telefonica
Group amounted to 5,956.0 million euros at the end of the first half, falling
2.0% compared to the same period of the previous year, thanks to the
year-on-year growth obtained in the second quarter (+3.5%), allowing to change
the year-on-year downward trend shown in the last five quarters. Excluding the
variations undergone in the exchange rate and perimeter, EBITDA grew 10.7% (with
the exchange rate deducting 13.7 percentage points and the changes in
consolidation adding 1.1 percentage points). In terms of margin over revenues,
the Group consolidated EBITDA reached 43.9% versus 41.5% and 43.6% achieved
twelve and three months ago respectively. This annual improvement can be
explained by improvement in the different lines of business (Telefonica Group
Data +13.7 percentage points, Terra Lycos +12.0 percentage points, directory
business +6.4 percentage points, Group Atento +5.4 percentage points and
cellular business +4.6 percentage points), with the exception of Telefonica
Latinoamerica (-0.8 percentage points) and Grupo Telefonica de Espana (-0.2
percentage points).

By company and in relative terms, the cellular business continues to be the one
that contributes the most growth points to the consolidated growth of the EBITDA
(4.3 p.p), for a total of 2,175.0 million euros, 13.7% higher than for the first
six months of 2002, driven by Telefonica Moviles Espana (+13.2%), the
incorporation of TCO since May and the closing of operations in Europe.

Telefonica Latinoamerica, also in relative terms, has a 8.5 percentage points
negative effect on the growth of the EBITDA for the first six months of the
year, reaching a figure of 1,411.6 million euros, which in current euros meant a
reduction of 26,8% (vs -35.3% in the first quarter), but in constant euros this
translated into an increase of 7.0%, favored by year-on-year growths in local
currency of the EBITDA of Telesp (+7.3%) and Telefonica de Argentina (+33.0%).
In absolute terms, the EBITDA of the Telefonica de Espana Group continued to be
of greater weight (37.6% of the total) in the consolidated EBITDA, recording a
decrease of 1.9% compared with the first half of 2002.

Operating profit for the first six months of the year have totaled 2,818.0
million euros, equivalent to a growth of 12.0% (+4.1% in the first quarter).
This performance was explained mainly by the improvement in the evolution of the
EBITDA (-2.0% as of June versus -7.4% as of March) and the drop of amortizations
(-11.9% as of June versus -15.0% as of March) by the exchange rate effect (+3.7%
excluding this effect as of June versus +5.2% as of March), the changes in
consolidation and the lower investments made in the Group. It is important to
emphasize that in a homogeneous comparison, in constant euros and with no
variations in the perimeter, the operating profit grew 22.8% (21.7% as of
March).

The results for associated companies for the half-year (-132.5 million euros)
reflect an improvement of 47.6% over the first half of last year, explained by
the de-consolidation in 2002 of ETI Austria and Azul TV and of Antena 3TV in
2003, smaller losses by IPSE-2000, Medi Telecom, Via Digital, Terra Lycos Group
and the improved results of Pearson.

Total net financial costs reached 296.5 million euros as of June 2003, including
a positive impact from the appreciation of the Argentinean peso of 238.4 million
euros. Excluding that effect, the financial results rose to 534.9 million euros,
which meant a drop compared to the comparable financial results for 2002 (929.5
million euros) of 42.5%. Of that percentage, 28.8 percentage points were due to
the positive result of 267.5 million euros coming from the cancellation US
dollars denominated debt, which will remain in the accounts for the year 2003
because it has already been made.

Telefonica Group's net debt, at the end of June 2003, was 19,990.6 million
euros, 4,572 million euros of this being in the Latin American companies. The
reduction of 2,542.5 million euros with respect to the consolidated debt at the
end of the 2002 financial year (22,533.1 million euros) comes from the
generation of the Group's operating cash flow of 3,006.4 million euros, of which
663.1 million euros were devoted to financial investments and 134.2 million
euros to dividend payments. Out of the total net debt reduction in the first
half, 531.4 million euros were related to the currencies movements effect on the
non-euro denominated debt, mainly due to the euro apreciation versus dollar,
partially compensated by the increase of debt of 198 million euros due to the
variations in consolidation and other factors over financial statements.

The cost of goodwill amortization in the period January-June 2003 dropped by
38.5% compared to the same period in 2002 to 212.2 million euros, significantly
improving the amortization expenses of Terra Lycos and Telefonica Data Global
following the write-offs carried out last year. The cellular business was the
only line of activity that has experienced a growth in its goodwill expense
(+9.0% year-on-year) as a result of its investments in Brazil (constitution of
Brasilcel in December 2002) and Mexico, reflected with the acquisitions of TCO
(May 2003) and Pegaso (September 2002).

The extraordinary results up as of June were 39.8 million euros, compensating
the positive results recorded in the second quarter (71.3 million euros) the
negative results for the first quarter (-31.5 million euros). The most
significant items have been: 1) the net capital gain related to real state
disposals by 120.3 million euros and 2) the reversion of the provision for
apdating to market prices 101,140,640 own shares - amortized in this quarter and
representative of 2% of share capital - and the shares in treasury stock as of
30 June (0.4% of the total share capital), which rose to 152.4 million euros. On
the other hand, extraordinary negative results have arisen, especially the costs
associated with Telefonica Latinoamerica (47.2 million euros) basically because
of fiscal and labor contingencies for the operators and updating provisions for
retirements and pre-retirements in Telefonica de Espana (67.7 million euros).

The provision for tax for the first six months of the year, as shown in the
profit and loss account (715.7 million euros), will mean a very reduced cash
outflow for the Group due to compensation of negative tax bases occurring in
previous years.

The result attributed to minority interest for the first half was negative in
75.3 million euros compared with the positive amount of 172.3 million euros of
the same period of 2002, due mainly to: i) the closing of cellular activities in
Germany, ii) the change in the criteria for consolidation of Atlanet
(consolidated by the equity method since July 2002), iii) the participation of
minority interests in the net results of Telefonica de Argentina, which have
become positive again and iv) the issue of preferred shares in December of the
previous year.

On the other hand and with regard to the Capex of the Telefonica Group, in the
first six months of the year these have risen to 1,532.9 million euros, which
represented a decrease of 15.6% compared to the same period of the previous year
(-10.3% in constant euros). All subsidiaries continued to reduce their level of
investment from the previous year, although the rate dimished in comparison to
the previous quarter, with the exception of the cellular business, which
experienced a year-on-year increase of 15.2%. This variation was explain mainly
to the acceleration in the deployment of the GSM network in Mexico. However, it
should be noted that there is a strong cyclical component to the investment, so
that this performance cannot be extrapolated to the full year.

The average workforce of the Telefonica Group as on 30 June 2003 was 151,930
people, 4.8% lower than a year ago, due basically to the cuts in personnel made
by Terra Lycos and Telefonica Latinoamerica.

With regard to the above-mentioned impact of the updating of external debt in
the Group's companies in Argentina, the consolidated accounts showed positive
impacts on the consolidated profit and loss account and in the heading
'Translation differences in consolidation' in the Shareholder Equity caption of
149.9 million euros and of 346.9 million euros in the first six months of the
financial year 2003, respectively, as a result of the appreciation of the
Argentinean peso in this period from 1US$ per 3.37 pesos (1 euro per 3.53 pesos)
to US$ 1 per 2.80 pesos (1 euro per 3.20 pesos). In the same period of the
previous year this impact was negative, at 445.7 million euros in the profit and
loss account.

As of June 30th, the exposure of the Telefonica Group in the different
Argentinean companies is 1,337.0 million euros, this amount including equity
value, goodwill and internal financing attributable to these investments (once
incorporated the losses before any fiscal effect).

The matters still not resolved, that could affect to the Group investments in
Argentina, include the necessary renegotiation with the Argentine Government of
future tariffs due to the effect of the provisions of Law 25.561. Accordingly,
although the book value of the fixed assets was maintained on the basis of
estimates based on the information currently available, neither the results of
the negotiations relating to tariff levels nor, therefore, the future sales
revenues and net cash flow can be predicted.

Given that the aforementioned circumstances had not occurred at the date of
preparation of these consolidated financial statements and that it is not
certain that they will occur, it was not possible to quantify their effect, if
any, on the consolidated financial statements as of June 30, 2003.


analysis of results by business line

FIXED LINE BUSINESS

Telefonica de Espana Group

The first half-year results of the Telefonica de Espana Group reflect the
increase in competitive pressure during the second quarter of 2003, which took
place against the background of a shrinking voice market (the estimated total
voice market was 4.3% down from the period January-June 2002) and in a highly
demanding regulatory environment, and was accompanied by an increase in both
commercial efforts and in efficiency measures to compensate for this impact. A
moderate increase in commercial expenses is expected during the second half of
the year in order to capture new opportunities for growth arising out of new
commercial initiatives, and thus lessen the effects of the competition, which
will mean that revenues and EBITDA will remain within the range we have
forecast.

In this context, at the end of the second quarter Telefonica's competitors had
gained an 8.5% share of the direct access market, resulting in a decrease of
199,358 PSTN and ISDN basic access lines in the first half of 2003. During the
second quarter 102,390 lines were lost (both PSTN and ISDN basic access lines),
once again lower than the quarterly average for 2002. However, preselected
lines, which presented a moderate increase in the first quarter, registered
strong growth over the last three months and totaled 2,066,356 at the end of
June 2003, of which 87.7% (1,811,803) were globally preselected. As a result,
the estimated market share of Telefonica de Espana in voice traffic stood at
79.5%, 1.1 percentage points lower than in the first quarter and 2.5 percentage
points lower than at the beginning of the year.

As a result of this variation, the estimated total volume of minutes processed
by the Telefonica de Espana network was 2.6% less than in June 2002 (1.8% less
in March), and stood at 71,388 million minutes. Outgoing traffic (voice +
Internet) fell by 10.6% (8.0% down in March) and, with a volume of 44,919
million minutes, accounted for 62.9% of total traffic. Outgoing voice traffic
amounted to 29,333 million minutes, 8.5% less than in the same period of the
previous year. With the exception of fixed-to-mobile and Intelligent Network
traffic, which recorded increases of 4.7% and 6.4%, respectively, the remaining
types of outgoing voice traffic decreased in comparison with the previous year.
Thus, local traffic fell by 13.0%, provincial traffic by 4.8%, DLD traffic by
7.8% and international traffic by 4.1%. The number of outgoing minutes to the
Internet amounted to 15,586 million, which represented a year-on-year decrease
of 14.2%, reflecting a sharp decline in the second quarter. Finally, incoming
traffic rose by 14.7% to 26,469 million minutes.

In the second quarter fourteen new price plans were approved and launched
(including the following: Bonos Minuto Compacto 500 plus, Bononet 7-20, Bono
Americas 120) which were initially well-received by the market. These new plans
had a smoothing effect in the decrease on the number of total plan subscribers.
Thus, at the end of the period, subscribers had signed up to a total of
3,945,573 of Telefonica de Espana's franchised plans, signifying a loss of
72,322 plans in the half year, just 782 under the March 2003 figure.

Value-Added Services continued to register positive progress, reaching the
number of active voice mailboxes in the second quarter 11,301,407 (a
year-on-year increase of 6.2%); and the number of subscribers to the Caller ID
Service had risen to 6,230,085 (up by 51.9% year on year). Noteworthy also was
the service allowing text messages to be sent from fixed line telephones, which
continued to be well received, with more than 2,395,041 messages sent by the end
of June 2003. Including text messages received by fixed line telephones from
mobile telephones (3,230,653), the total number of text messages managed during
the first half of 2003 reaches 5,625,694.

The Broadband market continued to experience strong growth. By the end of the
second quarter the number of ADSL lines stood at 1,293,566, with a net addition
in the quarter of 157,448 accesses. The net addition in the second quarter
reflected a similar growth rate to that of the first quarter of 2003: it was
18.2% up on the second quarter of 2002, while net addition in the first quarter
of 2003 was 17.9% higher than in the first quarter of the previous year. The
majority of these lines were achieved as a result of Telefonica de Espana's
success in marketing the retail ADSL service, which with the net addition of
104,438 new accesses in the second quarter totaled 846,611 accesses by June 30,
2003. This sustained growth was supported by the high rate of daily
installations and by the success among customers of the self-installation kit
(62.3% of total retail additions in the first half year).

The efforts focused on marketing broadband services on top of connectivity
continued, with the achievement of 61,015 ADSL Solutions and 28,481 Net Lan
(ADSL head-offices and remote accesses) that are fully operational.

Telefonica de Espana Group operating revenues amounted to 5,054.9 million euros
as of June 30, 2003, representing a decrease of 1.5% from those obtained in the
same period of 2002.

The operating revenues for the first half year corresponding to the Telefonica
de Espana parent company, which accounted for 96.5% of the Group's total, fell
by 1.7% due to the decrease in revenues from Traditional Services (down by 3.4%)
and Wholesale Services (down by 6.4%) which were not fully offset by the
increase in revenues from Internet and Broadband services (up by 31.8%). The
gradual rise in the percentage of total revenues accounted for by recurring
fixed revenues (monthly fees plus franchised plans and flat rates) continued,
and amounted to 52.4% as of June 30, 2003, an increase of 4.3 percentage points
since the beginning of the year.

Registering a year-on-year decrease of 3.4%, revenues from Traditional Services
stood at 3,786.6 million euros. This decrease was primarily the result of the
drop in effective revenues from voice usage, which were down by 8.7% due to the
shrinking market and the loss of market share in direct and indirect access
mentioned earlier, and to the impact of the price reductions in 2002 imposed by
the Price Cap. Conversely, revenues from client network access and network
services increased by 4.0%, due primarily to the increase in the monthly fee for
the PSTN lines, which came into effect in January 2003 (+8.0%).

Revenues from Internet and Broadband services amounted to 399.2 million euros,
31.8% higher than for the same period of 2002. This growth was due to the
increase in Broadband revenues (249.5 million euros), driven by the good
performance of the retail ADSL service and despite the continuing decline in
narrowband Internet revenues (down by 23.6% year on year), as a result of the
migration of dial-up Internet traffic to ADSL and the increase of traffic during
off-peak periods as a result of the Internet flat rates.

In addition, the revenues from Wholesale Services, which amounted to 692.4
million euros, improved their performance during the second quarter as a result
of higher growth in incoming traffic (14.7% as of June 30, as compared with
12.1% at the end of the first quarter of 2003), and were 6.4% lower than in the
first six months of 2002. The reasons for this year-on-year decrease were,
primarily, the implementation of the capacity-based interconnection model at the
National Interconnection revenues level, the fall in prices in the International
market, and also the reduction in prices in Circuits. With the recent approval
of the Reference Interconnection Offer - OIR - for 2003, the prices of
time-based interconnection are to be reduced by an average of 7.74%, while
prices for capacity-based interconnection will rise by an average of 7.33%. It
should be pointed out that during the first six months of 2003, capacity-based
interconnection traffic accounted for 56% of total fixed-to-fixed
interconnection traffic.

Telefonica de Espana Group operating expenses amounted to 2,852.1 million euros,
0.9% less than as of June 30, 2002, reflecting both the measures adopted to
improve efficiency and the evolution of supplies expenses.

Telefonica de Espana Group supplies expenses totaled 1,182.0 million euros, 7.9%
lower than in June 2002. The variation in these expenses was determined by the
decrease in interconnection expenses at Telefonica de Espana parent company
(66.6% of total supplies expenses) amounting to 6.0% as of June 30, as a result
of the lower fixed-to-mobile interconnection expenses (due to the reduction in
mobile operators' termination prices at the end of 2002), which fully absorbed
the increase that took place in fixed-to-fixed interconnection.

Telefonica de Espana Group expenses for external services & others amounted to
468,8 million euros, an increase of 6.4% on these expenses for the same period
of 2002. This increase was mainly due to the intensification of marketing
efforts at Telefonica de Espana parent company with the advertising campaigns
made.

Telefonica de Espana Group personnel expenses amounted to 1,116.2 million euros,
representing an increase of 4.5% on the same period of the previous year. Those
of the Telefonica de Espana parent company accounted for 97.9% of the total, and
were 4.8% higher, due to the double effect of the allocation of a provision
associated with the estimated increase in salaries in 2003, in accordance with
the collective agreement for 2003, and the adjustment of the 2002 salary
increase to bring pay into line with the real rate of inflation in 2002 (carried
out in the first quarter of 2003). The impact of this adjustment on personnel
expenses will gradually lessen in subsequent quarters of 2003, as was the case
in the first half of the year. Personnel expenses as of March 31, 2003,
registered an increase of 6.8%, while as of June 30, 2003, the increase amounted
to 4.8%. At the end of the first half of 2003, Telefonica de Espana had a
workforce of 40,595 employees, representing a year-on-year decrease of 0.8%.

With respect to other operating expenses, bad debt provisions at the end of June
were significantly lower (down by 29.4%) and represented 1.1% of operating
revenues.

Telefonica de Espana Group EBITDA amounted to 2,241.8 million euros as of June
30, 2003, a decrease of 1.9%. The Group's EBITDA margin stood at 44.3% (0.3
percentage points more than the margin for 2002 as a whole and 0.2 percentage
points less than the period January-June 2002). In addition, the parent
company's EBITDA margin amounted to 45.8% (0.2 percentage points lower than in
the first half of 2002 and 0.1 percentage points higher than in December 2002).

Operating profit amounted to 937.8 million euros, representing a year-on-year
increase of 0.6%, assisted by the variation in depreciation and amortization of
fixed assets in the quarter, which were 3.6% lower in the first six months of
2003.

Capex by Telefonica de Espana Group through June 2003 stood at 633.7 million
euros, representing a decrease of 15.3% from the same period of the previous
year. In this respect it should be noted that, as indicated in March, in the
year-on-year comparison the level of the Capex reduction was due to the seasonal
nature of the investments and cannot be extrapolated to the year as a whole. As
a result, Capex at the operating company aimed to transform the business,
primarily in relation to ADSL rollout and the new broadband services, accounted
for 51.7% of the total figure, while the remaining 48.3% was allocated to
investment in traditional services (PSTN, ISDN, circuits, etc.).

FCF generation at the Telefonica de Espana Group, defined as EBITDA minus CAPEX,
amounted to 1,608.1 million euros, representing an increase of 4.6%.

Telefonica Latinoamerica Group

In the first half of 2003 the Latin American currencies performed positively
against the dollar, with appreciations through June 30 of 23.0% in the Brazilian
real, 20.4% in the Argentinean peso, 2.8% in the Chilean peso and 1.2% in the
Peruvian nuevo sol.

However, on a year-on-year basis, these currencies continued to show
considerable levels of depreciation against the dollar, although they maintain a
good trend of recovery (Brazilian real -24.4% average exchange rate as of June
compared with -31.8% as of March; Argentinean peso -10.0% average exchange rate
as of June compared with -36.1% as of March; Chilean peso -1.6% closing exchange
rate in June compared with -10.3% in March; nuevo sol +1.1% closing exchange
rate in June compared with -0.9% in March). These improvements were limited by
the behavior of the euro, which continued to rise versus the dollar in the
second quarter. Thus, the average euro/dollar exchange rate for the first half
of 2003 registered year-on-year appreciation of 23.0% with respect to the same
period of 2002.

Although it was less pronounced than in the previous quarter, the negative
effect of the variation in exchange rates on the accounts of Telefonica
Latinoamerica continued to be significant in June. Thus, the Group's revenues of
2,958.7 million euros and EBITDA of 1,411.6 million euros registered
year-on-year decreases of 25.5% and 26.8%, respectively, which in constant euros
become appreciations of 8.0% and 7.0% (1.0 percentage points and 0.2 percentage
points, respectively, more than the growth as of March). The positive evolution
showed by revenues in constant euros is a reflection of the growth in local
currency achieved by the operators' revenues:

  • Telesp, +16.2% (1.9 percentage points higher than as of March) due both to
    the new long distance services and to the tariff increase in June 2002 and
    February 2003. It is noteworthy the good performance of total traffic, that
    grew 6.2% over the same period 2002.

  • Telefonica de Argentina, +12.5%, breaking the downward trend prevailing
    through March (-0.6% in local currency), as a result both of the
    improvements in plant and traffic and of reaching agreements with operators
    for mutual invoicing applying CER (inflation indexing of the wholesale
    offering), which had not been implemented in 2002. Without this effect the
    year-on-year increase would be 5.5%.

  • Telefonica del Peru, +1.4%, as a result of the increase in plant and the
    growth of broadband, although its growth was partially curbed by the
    launching of the new tariff plans and the intensification of long distance
    competition.

  • At Telefonica CTC Chile revenue performance (-10.0%) was affected by the
    change in the consolidation method applied to Sonda from September 2002;
    without this effect CTC's revenues rose by 1.1% due to the tariff increase.

The total operating expenses of Telefonica Latinoamerica stood at 1,605.2
million euros as of June 30, 2003, 24.1% less than in 2002 in current euros
(-26.3% net of interconnection expenses). In constant euros, these expenses rose
by 9.6% (+5.1% net of interconnection expenses) as a result of the increase in
expenses in local currency at Telesp (+24.0%) and TdP (+6.6%) due to increased
activity, offset in part by the falls at TASA (-8.5%) given the strict cost
control implemented since the beginning of last year and at CTC (-13.5%) due to
the change in the consolidation perimeter (excluding the effect of Sonda,
expenses grew by 3.0%, mainly due to the higher provision for bad debts).

The operating profit (579.0 million euros) registered a fall of 23.9%. Without
the exchange rate effect, however, there was a year-on-year improvement of
16.2%, 1.0 percentage points more than at March, as a result of the growth of
EBITDA in constant euros (up by 7.0%) and the scarce increase in depreciation
and amortization (+1.0% at a constant exchange rate, as compared with 1.3% in
March).

In the first half Telefonica Latinoamerica recorded negative extraordinary
results of 47.2 million euros (of which 38.6 million euros arose in the first
quarter) with the most significant items being the costs associated with the
workforce restructuring plan at Telesp (14.5 million euros), and provisions for
contingencies, mainly of a labor and tax nature, at Telesp, TASA and TdP (for a
total of 39.5 million euros), offset in part by the reversal of the provision
for the value of the Terra Lycos shares held by CTC (+4.8 million euros).

There was a significant improvement in the financial results, which increased
from -1,032.2 million euros in the first half of 2002 to +152.8 million euros in
the same period of 2003. This improvement was mainly due to the change in sign
of the exchange differences produced by the debt in dollars in Argentina, since
the appreciation of the Argentinean peso against the dollar during the first
half of 2003 produced a positive result of 195.3 million euros, compared with a
negative result of 589.2 million euros recorded in the same period of 2002 due
to the depreciation of the peso. Likewise, significant income (248.7 million
euros) was obtained from the cancellation of the debt at the holding company
denominated in dollars.

Income before taxes stood at 645.1 million euros which after deducting a tax
provision of -242.7 million euros and minority interests of -37.7 million euros
gives net income of 364.7 million euros, compared with a loss of 223.6 million
euros in the first half of 2002.

The operators' aggregate Capex amounted to 247.2 million euros, a decrease of
30.5% in constant euros (down by 39.1% in current euros). The operators'
aggregate Free Cash-Flow (EBITDA - Capex) amounted to 1,164.4 million euros, a
figure which although down by 23.5% in current euros, shows an upward trend in
constant euros, with a year-on-year improvement of 17.0% (15.9% as of March 31,
2003), reflecting both the improvement in EBITDA and the policy of
rationalization and control of CAPEX implemented by the operators.

There were 21,017,153 lines in service as of June, down year-on-year by 1.1%.
The net gain in the first half was negative, with TdP being the only operator
contributing growth (+56,327 lines). Telesp had net loss of 103,529 lines in the
first half; TASA's plant remained virtually unchanged from December 2002; at CTC
the number of lines in service fell once more during the quarter due to problems
with bad debts, and this explains the net negative gain of -136,409 in the first
six months of 2003.

The broadband business, with 567,398 ADSL and Cable Modem users, accounted for
2.6% of the equivalent lines as of June (0.5 percentage points more than in
December 2002). There was a sharp increase in the number of accesses during the
first half with the addition of 111,155 new customers (70,154 in the second
quarter), driven by the commercial efforts made by all the operators.

The headcount at the Latin American operators amounted to 22,973 employees
(24,460 including the subsidiaries consolidated in TdP), which was 10.9% less
than in 2002, following the latest plans for layoffs (CTC in October 2002 and
Telesp in March 2003).

Brazil

Telesp's long distance business from Sao Paulo continued to make positive
progress, registering an estimated market share at the end of June above 86% in
intra-state long distance, around 45% in inter-state long distance and around
40% in international long distance. In addition, Telesp began to provide long
distance services outside Sao Paulo on March 7, 2003, focusing mainly on the
corporate segment, thereby consolidating its presence nationwide.

On June 26, Anatel approved the tariff adjustment of 28.75% on average,
according to the criteria established in the local and long distance concession
contracts, to be effective on June 30. Nevertheless, as a result of a legal
decision, the readjustments are temporarily limited to the percentage of the
Consumer Price Index (CPI). Thus the average increase for the local basket is
16.42% and 14.28% for long distance. This decision is still pending of appeal
and definitive judgement, when the index to be applied to the readjustment will
be established.

The number of lines in service remained virtually unchanged with respect to
March, with a year-on-year decrease of 0.9%. Mention should be made that the
negative net gain in this quarter was lower than that of the previous quarter
(-11,000 lines, compared with -92,000 in the first quarter).

The broadband business continued to experience significant growth, with a total
of 383,167 ADSL accesses at the end of June, thereby doubling the net gain
obtained in the first quarter (33,861 new users in the second quarter compared
with 16,025 in the first quarter).

The operating revenues showed year-on-year growth of 16.2% in local currency in
the first half, driven by both the increase in long distance revenues (+68.9% in
local currency) and the higher revenues obtained in local telephony (+10.2%) as
a result of the increases in monthly fees and traffic tariffs from June 2002, as
well as by the greater fixed to mobile tariff applied since February 2003, which
made it possible to offset the 2.0% reduction in billable plant (that did not
prevent to reach a year-over-year growth of 6.2% in total traffic). Moreover,
this growth in revenues was strengthened by the expansion of broadband services
following the 54.6% increase in average ADSL plant. Aggregate expenses through
June rose by 24.0% (+17.1% excluding interconnection expenses), basically as a
result of (i) the higher level of activity due to the incorporation of the long
distance business and the broadband expansion, (ii) the price increases
affecting external services and others connected with the higher inflation rate,
(iii) the increase in the provision for bad debts (4.0% as of June 30) due to
the application of stricter provisioning policies.

With this evolution in operating revenues and expenses, in the first half of
2003 Telesp had an EBITDA of 740.1 million euros with year-on-year growth of
7.3% in local currency. EBITDA margin dropped 3.9 percentage points to 47.2% due
to the higher weighting of long distance services, with lower margins.

Extraordinary results totaled -22.2 million euros coming mainly from the cost
associated with the workforce restructuring program, which affected 1,520
employees in the semester (including 1,350 in the first quarter of 2003).

The year-on-year decline in Capex (-34.3% in local currency) has continued as of
June, partially due to the delay in the tender of some contracts and to the
rescheduling of some projects for the second half of the year. As a result of
the fall in investment and the rise in EBITDA, free cash flow (EBITDA - Capex)
amounted to 558.4 million euros, a year-on-year increase of 31.9% in local
currency.

At the end of June, Telesp had 8,281 employees, with a ratio of 1,544 lines per
employee, 21.5% higher than in June 2002.

Argentina

The Argentinean economy continued to be relatively stable, with a controlled
inflation rate (totaling 2.1% as of June) and a currency that had actually
appreciated against the dollar by 20.4% in the half year. The improved economic
environment, combined with management adapted to the situation, led to the
recovery of operating indicators that had experienced a severe decline
throughout 2002. In this context, the number of PSTN lines remained virtually
unchanged with respect to June 2002 (-0.7%). Local traffic per line and day
registered a year-on-year increase of 8.6%, driven by fixed-to-fixed traffic,
primarily prepaid traffic (+20.9% in relation to the same period of 2002). It is
also important to note the good performance of the Long Distance business, with
a 33.1% increase in revenues compared to June 2002, due to the elimination of
discounts.

As a result of the good performance of the operating variables of plant, traffic
and long distance prices, TASA's operating revenues rose by 12.5% year-on-year
in local currency, favoured by the impact of establishing agreements with
operators for mutual invoicing applying CER (inflation indexing of wholesale
offerings) retroactive to 2002. Without this effect, there would have been a
year-on-year increase in revenues of 5.5%, driven by the good performance of the
operating parameters and despite the freezing of tariffs since January 2002. In
addition, the determining factor of TASA operating profit was the aggressive
cost reduction and control policy implemented, enabling the reduction of
operating expenses by 8.5% in relation to 2002, despite the depreciation of the
peso against the dollar. Of particular note was the effective management of bad
debts with the launch of specific products into the market aimed at maximizing
debt recovery and ensuring that profitable customers are maintained. Thus, bad
debt provision as a percentage of revenues stood below 3% at the end of the
first half of 2003, in comparison with 9.0% at the end of June 2002.

The positive progress in operating variables, combined with the ongoing policy
of cost containment, enabled TASA to achieve EBITDA of 238.2 million euros in
the first half of the year, an increase in local currency of 33.0% on that of
the same period in 2002. The EBITDA margin reached 60.0%, 9.3 percentage points
higher than in June 2002. In addition, TASA continued to implement a restrictive
policy of investment, which together with the improvement in EBITDA enabled the
company to achieve a free cash flow (EBITDA - Capex) of 227.1 million euros,
31.9% more in local currency than that obtained during the same period in 2002.

At the end of June, TASA had 8,050 employees, 6.7% less than in the same period
of 2002, with a ratio of 524 lines per employee (a year-on-year increase of
6.8%).

Chile

As of June 30, CTC Chile had a plant in service of 2.6 million lines, which was
7.6% less than in June 2002 due to the disconnection of lines with bad debt
problems. Apart from that, of particular note was the growth recorded in the
number of ADSL lines versus last year: these amounted to 84,202 at the end of
June, with a net gain in the second quarter of 18,142 accesses, 52.5% higher
than the gain recorded in the first quarter. As a result of the positive
progress in ADSL lines the company's estimated access market share rose by 2
percentage points from March, to 32% at the end of June.

The long distance market continued to fall, primarily as a result of fixed to
mobile substitution. However, CTC Chile maintained its position as leader with a
market share of 38.4% in DLD and 31.7% in ILD at the end of June.

Operating revenues for the first half of the year amounted to 450.2 million
euros, 10.0% lower in local currency than for the same period of 2002, due to
the sale of a 25% stake in Sonda in September 2002. Excluding this effect,
revenues would have risen by 1.1% due to the increase in local telephony
revenues resulting from the higher tariffs and above all due to the increase in
broadband revenues resulting from the higher number of users, which compensated
for the decrease in long distance business revenues.

Operating expenses increased by 3.0% in local currency, excluding the Sonda
effect, influenced by the behavior of bad debts which at the end of June gave a
ratio of bad debt provision to revenues of 3.6%. Mention should be made that
although bad debt provision was higher than in the first quarter, it had
stabilized in May and June as a result of the management measures adopted by the
company (including a Low Call Volume Plan, stricter entry control, etc.).
Personnel expenses were 16.4% lower in local currency as a result of the staff
reduction program implemented in October 2002.

The EBITDA recorded as of June 30 stood at 195.5 million euros, 5.6% less than
for the same period of the previous year in local currency due to the effect of
the Sonda sale. Net of this effect the fall would have been only 2.1% in local
currency.

The Free Cash Flow (EBITDA - Capex) generated by CTC Chile, excluding the effect
of Sonda, in the first half amounted to 165.9 million euros, 1.5% lower than the
figure for June 2002 in local currency. This variation was the result of the
2.1% decrease recorded in EBITDA in local currency and the 12.9% increase in
CAPEX in local currency (excluding the Sonda effect) based on higher investment
in ADSL since traditional investment was down by 5.3%.

Following the last workforce restructuring program in October 2002 and the sale
of 25% of Sonda, there has been a substantial reduction (-48.2% year-on-year) in
the number of CTC employees to 3,243, with a line/employee ratio of 817 (15.4%
more than in June 2002).

Peru

In the first half of 2003 Telefonica del Peru considerably extended its range of
rate plans as a complement to the current price-cap tariff system, which has
meant a large increase in the offer of products and services for users in line
with their levels of usage, while at the same time maintaining a notable growth
rate in the company's plant in service (+5.7% year-on-year).

Operating revenues amounted to 549.9 million euros, 1.4% higher in local
currency than the figure for the same period of 2002. The main reason for this
increase was the higher volume of plant and the growth of Broadband (with a
sharp rise in plant from 15,718 ADSL and Cable Modem accesses in June 2002 to
the current figure of 54,435), which compensated for the effect of the launching
of new tariff plans and the increased competition in Long Distance (due largely
to the start of operations in April 2002 of the multicarrier dialing system).

Operating expenses increased overall by 6.6% in local currency (down to just
4.2% in the second quarter) compared with 10.3% in the first quarter. This lower
increase was due primarily to the reduction in personnel expenses (down by 7.3%
in local currency in the first half due to the lower average workforce). Bad
debt provision over revenues stood at 3.0%. This meant that the company's EBITDA
fell by 4.8% in local currency to 241.2 million euros.

TdP investments rose 6.0% year-on-year in local currency to 24.0 million euros
in the first half, reflecting the increase in broadband investment. Thus, the
free cash flow (EBITDA - capex) generated by the company during the first half
amounted to 217.2 million euros, with a fall of 5.9% in local currency.

TdP had 4,886 employees at the end of June. There was an 8.4% increase in the
workforce of the fixed telephony operator in relation to the first half of 2002
(due to the reinstatement, up to June, of 372 employees as a result of the
judgment handed down by the Constitutional Court), bringing the total to 3,292
employees with a productivity ratio of 585 lines per employee (-0.5%
year-on-year).


CELLULAR BUSINESS

Telefonica's Cellular Business

Telefonica Moviles reported solid results in the first half 2003, both at the
operating and financial level, recording net income of 778.9 million euros, vs.
the losses of 4.333.3 million euros registered in the first half 2002. Excluding
the impact of the net extraordinary provisions booked in the first half 2002,
the Group would have reported a year-over-year net income increase of 36.8% vs.
the same period 2002 (778.9 million euros vs. 569 in the first half 2002), which
shows that growth is mainly driven by the positive performance of operating
results. We would highlight the quality of these earnings, as growth was
achieved despite the negative impact of exchange rates on the contribution from
the company's Latin American operators.

Key aspects of these results are listed below:

  • Year-over-year growth in operating revenues of 2.6% in the first half 2003
    and 11.1% on a quarterly basis. Assuming constant exchange rates, and
    excluding the impact of TCO's acquisition, consolidated revenues grew 12.5%
    year-over-year.

    Also of note is the good performance of revenues at Telefonica Moviles
    Espana (TME), with year-over-year growth of 7.8%, due mainly to the rise in
    service revenues, resulting from ARPU growth - which showed a year-over-year
    increase in cumulative terms for the first time- and the increase in handset
    sales in the second quarter 2003. TME contributes 74.8% of consolidated
    Group revenues.

    Fully-consolidated Latin American operators accounted for 25.0% of Group
    revenues in the first half 2003. The performance of Latin American revenues,
    which reflects the consolidation by the full integration method of Tele
    Centro Oeste (TCO) from May 2003, was largely determined by exchange rates.
    In this sense, revenues reported by these operators in euros have declined
    6.8% vs. the same period in 2002. Excluding this impact, as well as TCO's
    incorporation to the Group's consolidation perimeter, revenues would have
    shown a 29.1% growth.

    At the end of June 2003, Telefonica Moviles active managed customer base in
    all areas of operation stood at 46.1 million (vs. 31.4 million at June
    2002).

  • Strict cost control policies. The Group reported a cut of 6.7%
    year-over-year in consolidated operating costs, reducing the weighting of
    these over operating revenues by 5.4 percentage points to 54%.

  • Group EBITDA stood at 2,127.0 million euros in the first half 2003, 14,1%
    higher than in June 2002, reflecting the advances in operating
    profitability. Excluding the negative impact of exchange rate fluctuations,
    as well as TCO's incorporation to the Group's consolidation perimeter,
    EBITDA would have shown a 20.8% growth.

    By geographical areas, Telefonica Moviles Espana's EBITDA showed a
    year-over-year increase of 13.2%. EBITDA for the Group's fully-consolidated
    Latin America subsidiaries rose 6.3% vs the same period in 2002, assuming
    constant exchange rates, and excluding TCO's incorporation to the Group's
    consolidation perimeter. However due to the exchange rate impact, in euros
    they show a 25.5% decline (-37.9% in first quarter 2003 vs. in first quarter
    2002).

    The Group reported a consolidated EBITDA margin of 45.9% in the first half
    2003, vs. 41.3% 12 months ago. This increase was largely due to the good
    performance of Telefonica Moviles Espana (+2.6 p.p. vs. Jan-Jun 02), the
    integration of TCO to the consolidation perimeter, and the closing of
    operations elsewhere in Europe in July 2002.

  • During the first half of the year, capex rose to 466.2 million euros,
    +4.8% year-over-year, boosted by the roll out of the Group's GSM network in
    Mexico. It should be pointed out that capex evolution is not uniform
    throughout the year, so this performance cannot be extrapolated to the full
    year 2003.

  • Regarding the evolution of the Cellular Business (Telefonica Moviles Group
    and Telefonica Movil Chile), the revenues totalled 4,782.8 million euros
    during the first half of the year, increased 2.3% compared to the same
    period in 2002. On the other hand, EBITDA reached 2,175.0 million euros, a
    13.7% year over year. Both figures are very positively afected by the
    inclusion of TCO from May 2003.

ESPANA

First half 2003 results reflect the consolidation of Telefonica Moviles Espana's
(TME) value creation commercial strategy, these programs have three main
pillars: customer loyalty, selective customer acquisition and usage
incentivation.

At June 2003, TME had an active customer base of almost 18.9 million, a
year-over-year increase of over 7% and in line with the Group's target of
selective customer acquisition.

Customer loyalty initiatives account for an increasing weight from the
commercial activities point of view. The following developments should be
highlighted:

  • More than 1.8 million handset upgrades in the first half 2003, +160% vs.
    the same period in 2002. This figure already accounts for 10% of the
    company's customer base.

  • In the first half 2003 there were over 500,000 prepaid to contract
    migrations, +53% year over year. This reflects the consolidation of the
    strategy aimed at increasing customer value, with contract customers
    accounting for 37.7% of the subscriber mix at June 2003, almost 5 p.p. more
    than in the first half 2002. Also of note is the importance of migrations as
    a driver for increasing usage, and results can be seen in the positive
    evolution of MOU and ARPU.

  • The company reported a monthly churn rate of 0.8% in the second quarter
    2003, slightly lower than the figure recorded in the first quarter, and
    still one of the lowest rates among the largest European operators. Once
    again, we would highlight the fact that the economic churn rate is much
    lower than the commercial churn rate.


    The loyalty strategy and the impact of migrations has also enhanced the
    increased usage of voice and data services. In this sense, TME's MOU in the
    first half 2003 stood at 111 minutes -a year-over-year increase of 9.6%-,
    and close to 116 minutes in the second quarter 2003, marking the
    consolidation of the upward trend for this ratio, boosted by the positive
    evolution of outgoing MOU (+12.2% year over year). In terms of traffic
    carried on the operator's networks, TME reported a year-over-year increase
    of 19% (18% in the first quarter 2003 vs. the same period 2002), with nearly
    18 million minutes of traffic.

    In the first half of this year, TME's ARPU stood at 28.6 euros, +1.4% year
    over year, despite the replacement of monthly fees by a minimum usage
    commitment in March 2002, recording cumulative ARPU growth for the first
    time in the company's history. The comparison of the second quarter 2003
    with the second quarter 2002 is more representative as it is not affected by
    this elimination of monthly fees: TME obtained year-over-year ARPU growth of
    circa 2.2%, which is even more striking when we consider that call
    termination rates fell by nearly 17% in the second half 2002 .

    Thus, it must be highlighted that this positive trend is already reflected
    in the performance of TME's ARPU for outgoing calls, which directly reflects
    the success of the Company's usage incentive policies.

    The increase in ARPU was underpinned by consolidated growth in data
    services. TME's data ARPU rose to over 3.5 euros in the first half 2003.
    Regarding this, we would highlight the following points:

  • In the first half 2003, 4,412 million short messages (SMS) were carried,
    13% more than in the same period last year.

    Regarding multimedia content, 400,000 multimedia handsets have been already
    sold. We would highlight the launch of the Group's own branded TSM 100 and
    TSM 400 handsets. TME offers its customers a wide range of handsets bearing
    its own TSM brand name at very competitive prices. In this way TME intends
    to reinforce customer's identification with the MoviStar brand name and
    eliminate price barriers in the rollout of new data services.

  • TME has also launched i-mode services, as part of its MoviStar e-mocion
    concept, available to both prepaid and contract customers.

    The good results of TME's commercial strategy have been accompanied by a
    steady improvement in the efficient use of resources. In this respect,
    resources assigned to customer acquisition and retention amounted to 6.9% of
    total revenues in the first half 2003 (0.4 percentage points lower than in
    the same period 2002).

    In view of all of the above, TME remains a benchmark operator in the
    European mobile telephony market in terms of profitability and stability:

  • In the second quarter 2003, operating revenues showed year-over-year
    growth of 13.5%, with first half 2003 revenues standing at 3,469.9 million
    euros, nearly 8% higher than in first half 2002, boosted by the increase in
    service revenues (+8%) and growing handset sales (+9%). Therefore TME's
    operating revenues'growth is aligned with the growth target for year 2003.

    We would highlight the positive performance of service revenues (operating
    revenues ex-handset sales), which grew at a strong rate compared to the same
    period last year (9% on a quarterly basis for the second quarter vs. 6% for
    the first quarter).

  • EBITDA in the first half 2003, stood at 1,875.9 million euros, more than
    13.2% higher than in the first half 2002. This yields an EBITDA margin of
    54.1%. The decline in the margin obtained this quarter vs. the first quarter
    2003 is due to the increase in handset sales, which do not generate
    significant margins.

  • In the first half 2003, EBITDA per customer and month was 16.7 euros one
    of the highest rates in the European sector, and consolidating a clear
    upward trend (+5% growth year over year).

mARRUECOS

At the end of June 2003 Medi Telecom had 1.8 million active customers, 33.4%
more than a year earlier, mantaining its estimated market share at over 41%.

Revenue and EBITDA again performed well in the second quarter 2003. In the first
half 2003, EBITDA was 36.5 million euros, exceeding the total EBITDA figure for
the whole of 2002. EBITDA margin was 29.0% vs 7.3% in the first half 2002.

Latinoamerica

Brasil

At the end of April 2003, the acquisition of the controlling stake in Tele
Centro Oeste Participacoes (TCO), by Brasilcel through Telesp Celular
Participacoes, took place. As a result of this acquisition, Brasilcel
consolidated its leadership in the Brazilian market, ending June 2003 with 17.5
million active customers and an average market share of close to 60% in the
regions where Brasilcel is present, despite competitors' increased commercial
aggressiveness.

Growth in the customer base from the first quarter 2003 (+27.2%; +3% excluding
TCO) reflects the significant progress of commercial activity in the second
quarter, boosted by the launch of the VIVO brand in April and the Mother's Day
and Valentine's Day campaigns.

Despite the increase in competition, especially in the Rio de Janeiro area, the
company has maintained its position in all regions where it operates, with an
estimated market share of gross adds in the markets where it is present of over
50% in the second quarter 2003. Specifically, in two of its main markets, Rio de
Janeiro and Sao Paulo, gross adds increased by 20% in the second quarter 2003vs
the previous quarter.

Total MOU in the second quarter 2003 was 97 minutes, while total ARPU was 41
reais. Comparison with first quarter 2003 and the fiscal year 2002 is distorted
by the change in prepaid revenues accounting methodology and the incorporation
of TCO to the consolidation perimeter.

As regards the Brazilian companies' contribution to the Telefonica Moviles
Group's consolidated results, it should be considered that 2003 results include
Brasilcel under proportional consolidation, while in 2002 the consolidated
results included those of the three companies controlled by Telefonica Moviles
in Brazil at that time. Accordingly, a year-on-year comparison of first half
results is not meaningful.

As for the comparison between second and first quarter 2003 results, it is
impacted by the global consolidation in Brasilcel, and subsequent proportional
consolidation in Telefonica Moviles, of TCO's results from May 1 2003. Operating
revenue shows growth of 30.9% in local currency vs first quarter 2003 (+12.4%
excluding TCO). EBITDA increased by 15.5% in local currency (-3.0% excluding
TCO).

The higher growth in operating costs than in revenues, which had already been
anticipated, was mainly due to higher commercial costs from increased commercial
activity during the April and May campaigns, the impact of advertising costs
associated with the launch of the brand as well as competitors' pressure, giving
rise to a 4.5p.p. reduction in the margin vs. first quarter 2003. As a result,
the cumulative EBITDA margin was 37.1.

Mexico

In May, Telefonica Moviles Mexico (TMM) began commercialising its GSM services,
both for contract and prepaid customers, in 5 of the country's largest cities:
Mexico City, Guadalajara, Monterrey, Tijuana and Ciudad Juarez. Recently, in
July, Telefonica Moviles Mexico announced the deployment of its GSM service in
10 new cities. As a result, TMM's GSM service is now available in 15 cities,
ahead of the original schedule for the roll-out of the network.

The launch of the new services in the second quarter 2003, together with the
Mother's Day sales campaign in May, has been reflected in an increase in
commercial activity in the quarter, boosted by the launch of Telefonica Movistar
as a single, nationwide brand. Thanks to that, net adds in the second quarter
2003 have been slightly below 110,000 customers, with over 42,000 GSM customers
acquired in little over a month of operations. At the end of June, TMM had 2.5
million customers.

Obviously, taking into account that market dynamics lead to commercial activity
being concentrated in the latter months of the year, larger volumes of net
additions will not be seen until then.

MOU in the second quarter 2003 stood at 80 minutes, while ARPU was 205 Mexican
pesos.

As for TMM's financial results it must be taken into account that a
year-over-year comparison of first half results is distorted by the
consolidation of the Pegaso Telecomunicaciones Group by the full integration
method from September 2002.

Revenue was 136 million euros in the second quarter 2003, an increase of 4.1% in
local currency vs. the previous quarter, boosted by total customer growth.
Increased commercial activity, together with the costs associated with the
launch of the new Telefonica Movistar brand, led to higher operating losses in
the second quarter 2003 (-12.2 million euros) than in the previous one.

Argentina

The reversal in the trend of the Argentine mobile market has taken place in the
second quarter 2003. After nearly a year of contraction the first signs of
growth are starting to be seen, with an estimated increase in mobile subscribers
of approximately 2%. In this context, TCP's active customers totalled 1.6
million, with a year-over-year decrease of 3% and a 4% rise vs. first quarter
2003. TCP remains in second position in the market.

In this new market scenario, TCP has carried out a number of marketing
initiatives aimed at increasing gross adds, which grew 25% vs. first quarter
2003 and stand at more than twice in first half 2003 figures vs. the same period
2002. Thus, net adds in the second quarter 2003 exceeded 61,000. Churn evolution
must also be highlighted, approaching levels recorded in Spain.

As for traffic, total minutes in the second quarter 2003 rose by 4% year over
year despite the average customer base being 5% smaller than in the latter
period, and 8% vs. first half 2002. This performance, together with higher
interconnection revenues from mobile to mobile traffic and the price increases
carried out in 2002, led to year-over-year growth in ARPU in local currency of
35.4%.

Regarding financial results, EBITDA growth in euros must be strongly
highlighted, standing 38,5% above first half 2002 figures, despite the slight
decline in revenues in euro terms and the negative impact from exchange rates.

In local currency, TCP's EBITDA in the first half 2003, registered
year-over-year growth of 89.0%, with a margin of 31% (22% margin in June 2002).
This increase derives from TCP's operating revenue growth in local currency
during the first six months of this year (+32% vs. the same period 2002),
boosted by the increase in traffic and ARPU, as well as the continuation of
initiatives aimed at improving operating efficiency.

Peru

Telefonica Moviles Peru ended June 2003 with 1.3 million active customers, with
year-over-year growth of 10.5% and maintaining its stable market leadership
position, with an estimated market share of over 52%. After the normalization of
the customer base in the first quarter 2003, the net adds trend has recovered in
this quarter, boosted by the 'Semana Movistar' commercial campaign in May and
tighter control over churn. As a result, Telefonica Moviles Peru was market
leader in terms of customer acquisition in the first half 2003.

The company's commercial strategy, focused on customer retention through loyalty
plans and handset upgrades, resulted in another quarter of growth in the
contract segment, with a 14% increase vs. first half 2002, increasing its
weighting over the customer base to 22.1% (21.5% at June 2002).

As regards results, Telefonica Moviles Peru operating revenues, in local
currency, showed a slight increase vs. the same period 2002, due mainly to
growth in service revenue in both segments, offset by lower interconnection
revenues. EBITDA recorded year-over-year growth in local currency of 12.2%,
thanks to the cost rationalisation and control policy maintained throughout the
first half 2003, with a significant reduction in SAC. Higher growth in EBITDA
compared to revenues leads to a 3.5 p.p. increase in the EBITDA margin vs. first
half 2002, to the current 37%.

Chile

Telefonica Movil, the subsidiary of Telefonica CTC Chile managed by Telefonica
Moviles, had 1.9 million active customers at the end of June 2003, vs. 1.7
million year over year (+13.7%). In the first half 2003, net adds were over
95.000 customers, with strong growth in the last three months. As regards
results, the EBITDA margin was 33%, 2 percentage points higher than in the first
half 2002.

Guatemala and El Salvador

The total customer base managed by Telefonica Moviles' operators in Guatemala
and El Salvador at the end of the second quarter 2003 was 358,526 active
customers (125.571 in Guatemala and 232.955 in El Salvador), practically stable
vs the same period last year.

As regards results, there was a significant improvement in the second quarter
2003 compared to the previous quarter, with EBITDA of 9.8 million euros vs. 3.5
million euros. As a result, cumulative EBITDA margin stood at 16.4% vs. 8.8% in
the first quarter 2003. Positive cash flow generation (EBITDA-Capex), amounting
to 8.4 million euros in the first half of this year, must also be highlighted.


DATA, SOLUTIONS, AND INTERNATIONAL SERVICES BUSINESS

TELEFONICA DATA GROUP, TELEFONICA SOLUCIONES AND TELEFONICA
INTERNATIONAL WHOLESALE SERVICES

Operating revenues of the consolidated group Telefonica Data, Telefonica
Soluciones and Telefonica International Wholesale Services for the first half of
2003 amounted to 863.4 million euros, 6.5% less than in the same period of 2002.
The main reasons for this variation were the changes in the consolidation
perimeter and the devaluation of the main Latin American currencies. Without
these two effects, revenues would have grown by approximately 13%. Taking into
account the same perimeter, the increase in revenues would have been 3.6%.

The consolidation of Atlanet by the equity method in Telefonica Data in the
first half of 2003, when in the same period of 2002 it was consolidated by the
global integration method, together with the effective inclusion of the
Telefonica Mobile Solutions results within the consolidation perimeter of
Telefonica Soluciones from April 2003, were the main factors contributing to the
change in the company's perimeter with respect to the previous year.

Consolidated EBITDA amounted to 126.7 million euros in the first half of 2003,
compared with 9.2 million euros in the first half of 2002. The EBITDA margin for
the first six months of 2003 amounted to 14.7%, 13.7 percentage points higher
than in the first half of 2002.

With an aggregate CAPEX figure at June 30, 2003 of 49.7 million euros, the
operating cash flow generated (EBITDA-Capex) amounted to 77.1 million euros as
compared with the -124.2 million euros for the same period in 2002.

TELEFONICA DATA GROUP

The Telefonica Data Group continued to place particular emphasis on the
profitable growth of its revenues and on improving the efficiency and
profitability of its operations. In this respect, mention should be made of the
overall growth of EBITDA in both Spain and Latin America, maintaining a
positive, rising profile of operating cash flow generation (EBITDA-Capex) in all
the geographical regions covered by the Telefonica Data Group.

Operating revenues of the Telefonica Data Group for the first half of 2003
amounted to 786.8 million euros, 9.6% less than in the same period of 2002.
Excluding the Atlanet revenues for 2002 and on the basis of a constant exchange
rate, revenues would have increased by approximately 11%. Taking into account
the same perimeter (excluding Atlanet in 2002), the increase in revenues would
have been 1.0%.

The main driver of this business is the provision of connectivity to corporate
customers by means of Virtual Private Network and Internet Access services,
which together are responsible for generating 88% of the operating revenues of
this line. It is also particularly noteworthy the strong generation of IP
traffic from broadband end customers of the fixed line telephony operators of
the Telefonica Group.

As a result of the efforts made to improve profitability, aggregate EBITDA
amounted to 132.0 million euros in the first half of 2003, compared with 59.2
million euros generated in the same period of 2002. The EBITDA margin of 16.8%
implies an improvement of 10 percentage points versus the same figure from the
previous year. Taking into account the same perimeter (excluding Atlanet in
2002) and if the effects of the variation in exchange rates in Latin America
were eliminated, there would have been a 6.0 percentage point improvement in the
EBITDA margin. The Group's improved capacity to generate operating cash flow was
enhanced by the 45.9% reduction in its investment spending with respect to the
first half of 2002, down to 42.2 million euros, thereby achieving a Capex/
Revenues ratio of 5.3%.

Spain

Operating revenues for the first half of 2003 amounted to 401.3 million euros,
an increase of 7.8% on those of the same period in 2002. This growth had its
basis in the Corporate Communications and Internet business, which accounted for
94.7% of total revenues and registered an increase of 8.5% on the same period of
the previous year.

In accordance with the Telefonica Data Group's mission to meet the needs of
Business customers and its strategy of conducting the integrated management of
its communication necesities, mention should be made of the signing in the first
half year of 2003 of important contracts for the outsourcing of integrated
communications with major customers such as Banesto, Banco Sabadell, La Caixa,
Bankinter, Banco Atlantico, Caja Espana, etc.

Similarly noteworthy is the fact that Telefonica Data Espana is efficiently
managing the process of controlled migration to ADSL technology of Virtual
Private Networks based on traditional access technologies, maintaining revenues
generated by connection stable.

In turn, EBITDA amounted to 112.3 million euros, giving a margin over revenues
of 28.0% in the first half of 2003. This represents growth of 35.2% and an
increase in the margin of 5.7 percentage points over the first six months of
2002. This improvement in EBITDA is the result of the increase in revenues
mentioned earlier and of the sustained policy of ongoing improvement in
operating efficiency.

With an aggregate Capex figure of 23.2 million euros as of June, 2003, the
operating cash flow generated (EBITDA-Capex) amounted to 89.1 million euros,
representing an increase of 25.9% with respect to the same period of 2002.

Latin America

In the incumbent markets of Latin America the favorable trend of previous
quarters continued with significant progress in both revenues in local currency
and in operating profitability, thereby maintaining a positive operating cash
flow.

In the first half of 2003, operating revenues in Argentina, Brazil, Chile and
Peru amounted to 160.9 million euros, 12.9% less than in the same period of
2002. Disregarding exchange rate effects, this revenue figure would have
increased 24% on that of the same period in 2002, driven by Telefonica Data
Brasil, with an increase in its local currency revenues of 29.0%, and an EBITDA
margin of 14.8% from the figure of 9.0% in the first half of 2002. The Capex/
Revenues ratio in Brazil, at 7.8%, is the highest among the operators of
Telefonica Data in Incumbent Latin America, and reflects the capture of growth
opportunities in the region, linked to the process of expansion of Telefonica
Group operations outside the area of Sao Paulo.

It is also important to highlight the positive progress made by Telefonica Data
Argentina, whose local currency revenues recorded growth of 38.1% with respect
to the same period of the previous year, thereby achieving an EBITDA margin of
17.7%, which is a reflection of the company's efficient management of the effect
that the devaluation of the peso in relation to the dollar had on contracts with
customers and suppliers denominated in dollars.

In turn, the EBITDA of the Telefonica Data Group in Incumbent Latin America rose
to 29.5 million euros, up by 38.1% with respect to the same period of the
previous year, representing an improvement in the EBITDA margin of 6.8
percentage points, up to 18.4%.

In countries on the American continent where Telefonica Data Group operates as a
newcomer, operating revenues totaled 30.3 million euros, 40.1% above those
generated in the same period of 2002. EBITDA generated during the period, in
spite of still being negative by 7.7 million euros, represented an improvement
of more than 60 percentage points in terms of margin over revenues versus the
previous year.

Europe

Telefonica Deutschland, present in the markets of Germany and the United
Kingdom, generated operating revenues of 197.6 million euros in the first half
of 2003, a decrease of 4.3% with respect to those of the first half of 2002, due
primarily to the drop in revenues from narrowband services that were still not
being offset by the growth in the broadband business.

With regard to customers, Telefonica Deutschland won a number of important
contracts in the first half of 2003, particularly noteworthy among which were
those with Microsoft Germany, already in service in narrowband access,
contributing an estimated volume of more than 4,000 million minutes per year,
Tiscali in broadband access, and Hermes with a VPN-IP network of 70-80 points
which may subsequently be joined by 400 subsidiaries. The value of the contracts
awarded to date amounts to 62 million euros, and they are expected to give rise
to additional revenues in 2003 of 43 million euros.

The EBITDA generated during the first half of 2003 amounted to 4.5 million
euros, 55,2% less than in the same period of 2002, reaching an EBITDA margin of
2.3%.

TELEFONICA SOLUCIONES

The process of restructuring and integrating the Telefonica Group companies on
which this new line of business has been set up was completed during the first
six months of 2003, which means that it will now be possible to focus management
on the development of solutions with higher added value for Business customers.

Among the most significant projects for which contracts were signed in the first
half of 2003, particularly worth highlighting are the development and
maintenance of the control tower intercommunication system and messenger systems
for AENA (Spanish Airports & Air Navigation), the maintenance of an internal
military network for the Spanish Ministry of Defense, the maintenance of the IP
network for Telefonica de Espana and support for the radio planning for Pegaso
Comunicaciones Sistemas in Mexico.

The results of the Solutions line include those of Telefonica Mobile Solutions
with effect from April 1, 2003. Thus, operating revenues amounted to 55.5
million euros in the first half of 2003, 12.3% lower than in the same period of
2002. EBITDA for the period amounted to -7.0 million euros although this figure
represented an improvement of 46.3% on that of the same period in 2002, thanks
to the efforts made to rationalize structural costs.

TELEFONICA INTERNATIONAL WHOLESALE SERVICES

Operating revenues amounted to 63.7 million euros in the first half of 2003,
which was 17.3% higher than in the same period of 2002. This good performance is
primarily due to the increase in IP International sales, concentrated
geographically in Spain and Brazil.

Operating expenses were 29.7% lower than in the same period of 2002, continuing
the downward trend resulting from the expenditure reduction policy initiated
last year. Another contributing factor was the possibility of reaching favorable
agreements for the exchange of traffic between operators on the basis of the
increased volume handled by the Telefonica Group.

EBITDA went from -33.8 million euros in the first half of 2002 to 1.8 million
euros in the first half of 2003, reflecting a trend that it is hoped will be
consolidated in the second half of the year.

In relation to the international voice business of the Telefonica Group, managed
by Telefonica International Wholesale Services, wich is consolidated within each
individual fixed telephony operator finantial accounts, it is important to
highlight the growth of more than 12% in incoming international traffic to our
countries during the first half year compared with the same period in 2002. The
management of Telefonica International Wholesale Services is offering the Group
an important reduction in international termination costs in other countries,
making it possible to increase the competitiveness of Telefonica's retail and
wholesale offerings and helping to compensate for the difficult competitive
scenario.


MEDIA AND CONTENT BUSINESS

Admira Media Group

The Admira Media Group obtained consolidated revenues of 781.7 million euros in
the first half of 2003, compared with the 478.7 million euros in the same period
of the previous year. This was mainly due to the change in the consolidation
perimeter of Antena 3 (which consolidates using the global integration method)
and to the year-on-year improvement in the business of Endemol and ATCO.
Similarly, the Group's consolidated EBITDA amounted to 127.2 million euros, up
from the 60.7 million euros of the first half of 2002.

The information about Antena 3 and its subsidiaries has been limited due to IPO
process of the Company, referred to the agreement of Annual Shareholders Meeting
of Telefonica held on April 11th, 2003, for not to interfere in such process and
avoid activities that could be considered against information disclosure of the
process, previous to the compulsory filings to the regulatory body.

Telefonica DE Contenidos

Endemol

The Endemol Group generated revenues of 399.0 million euros, which was 6.9% more
than in the first six months of 2002. By geographical region, this growth took
place primarily in the European markets, where there was a combined year-on-year
increase of 15%. The main factor contributing to this positive performance was
the consolidation of the production agreements with the leading open TV
broadcasting companies of each country (RTL Group, TF1, Mediaset, etc.), for
whom Endemol is a primary content provider, together with the constant creation
of new formats and, as we have mentioned in previous quarters, the new
multi-platform concept, giving rise to other revenues in addition to the
audiovisual production business (merchandising, telephone calls, text messaging,
content marketing on the Internet, etc.).

In EBITDA terms, the Endemol Group registered 72.6 million euros in the first
six months of 2003, 5.4% more than in the same period of the previous year. Also
noteworthy is the fact that the EBITDA margin for the first half of 2003 (18.2%)
remained similar to that of the same period of 2002.

Via Digital

The integration of Via Digital with Sogecable was complete at the end of the
first half of 2003. The final stake of Telefonica in Sogecable is 22.23%,
although its voting rights are limited to 16.38%, the same percentage as the
company's other two primary shareholders (Prisa Group and Canal+ Group).

Via Digital had 709,090 customers at the end of the first half of 2003. It had
obtained revenues of 138.4 million euros, which was 48.2% less than in the first
half of 2002. This decrease was due not only to the smaller customer base
resulting from the process of the ongoing process of improvement in the quality
of the portfolio and the fact that there was no promotional activity during the
period, but also to the inclusion in 2002 of revenues from sales to the Quiero
TV platform, which is now in the process of liquidation. Thanks to the cost
containment policy implemented by the company, EBITDA at the end of the first
six months of 2003 was negative by 85.8 million euros, representing an
improvement of 30.1% on the same period of 2002.

Corporacion Admira Media

ATCO

During the first six months of 2003 the advertising market in the Capital and
Gran Buenos Aires areas, which serve as a benchmark for the whole country,
recorded growth of approximately 104% with respect to the same period of 2002.
During the first half of the year ATCO consolidated its leadership in audience
share by achieving a share of 32.7%, against the 30.0% of its main competitor.
This good performance in terms of audience share was also reflected in the 40.7%
share of the advertising market achieved in the Capital and Gran Buenos Aires
areas, an increase of 6.4 percentage points on the same period of the previous
year, and 4.0 percentage points more than the company's main competitor.

This led to a significant improvement in operating results in the first half of
2003, with revenues of 101.1 million pesos, 73.0% higher than the figure for the
same period of the previous year, and a positive EBITDA of 8.8 million pesos, as
compared with the loss of 26.1 million pesos recorded in the first half of 2002.

INTERNET BUSINESS

Terra Lycos Group

In the first half year of 2003, the performance of Terra Lycos was affected by
the negative impact of exchange rates. In this context and in line with the
previous quarter, the company continued to promote its policy of focusing on
subscription and value-added services, offsetting partially the aforementioned
effect.

This approach has led to an increase in the company's paying customer base, with
the resulting increase in subscription revenues that contributed countering
partially the fall in revenues from online advertising and e-commerce.

In the first six months of 2003, Terra Lycos obtained operating revenues of
252.8 million euros, 21.1% less than in the same period of 2002. However, had
the same exchange rates as those prevailing in the first half of 2002 been
applied, the company would have had total revenues in the order of 320 million
euros, a figure similar to that obtained a year earlier. The revenues from the
alliance with Telefonica amounted to 43.5 million euros (57.5 million euros in
constant terms).

The company's different business areas continued to make positive progress,
especially the line of communication, portal and content services (+194.7%).
However there was still no recovery of the line relating to online advertising
and e-commerce (-61.7%). Access subscriptions now account for 40.5% of Terra
Lycos total revenues; online advertising and e-commerce account for 23.6% (a
decrease of 51% in constant euros with respect to the first half of 2002);
communication and portal services 24.4%; and other revenues, the remaining
11.5%.

By country, Spain and Brazil are the countries that accounted for the highest
percentages of revenues, at 33.1% and 28.3% respectively. The contribution from
the United States fell to 17.8%, compared with 42.8% in the first half of 2002.
The end of the agreement with Bertelsmann was the main reason for this fall. The
remaining 20.8% related to the rest of the countries in which Terra operates. As
for the revenues obtained from the agreement with Telefonica, most of them have
been originated from services provided in Spain and Latin America.

EBITDA for the first six months of 2003 stood at -36.6 million euros,
representing an EBITDA margin of -14.5%. This signified an improvement of 12
percentage points on the first half of the year 2002, as a result of the
improvement in revenue quality.

The company's focus on paying customers enabled it to achieve a total of 3.6
million subscribers in the first half of 2003, representing an increase of 59.1%
on the same period of 2002. The significant increase in ADSL access customers
during the first half of 2003 (58.8% up on the first six months of 2002) raised
the total figure for this service to 1.5 million customers, of whom nearly one
third (477,428) are broadband customers and the remaining 1.0 million are
dial-up access customers.

The rest of the paying customer base totaled 2.1 million customers who had
signed up for OBP (Open, Basic, Premium) products consisting of either
communication or portal products (OBPs + CSPs). The sharp increase in customers
of OBP products has meant that the volume of revenues from these products has
risen over the last year to 61.9 million euros (21.0 million euros in the first
half of 2002).

In addition, the first half of 2003 ended with a cash position amounting to
1,642 million euros.

As in previous quarters, Terra Lycos continued to focus efforts on establishing
new strategic agreements and on improving its products and services, as well as
on its policy for the launch of OBP products. Among the initiatives for the
period, particular mention should be made of the following: the launch by Terra
Espana of a new service, 'Terra Diagnosticador', a free tool that enables users
to perform diagnostics on their computer to identify possible problems in their
e-mail and Internet services; the offer by the financial site Quote.com of
integrated trading as a result of the new agreement reached with CyberTrader, as
well as the launch of a new version of Qcharts; the launch of 'Lycos Shopping
Search', which combines Lycos search technology with that of BizRate.com,
thereby enabling consumers to compare and buy from among millions of products,
via thousands of online stores; the joint launch by Terra Espana and Telefonica
of 'Mundo ADSL', designed to cover a broad range of communication, education and
leisure needs tailored to fit individual customer requirements; the distribution
agreement reached with Walt Disney to provide Disney Connection broadband
services to the broadband customers of Terra Lycos, which will become the first
ISP in the world to launch Disney Connection; or the launch of the 'HotBot
Quick-Search Deskbar', one of the most powerful search tools in existence, among
others.


DIRECTORIES BUSINESS

Telefonica's Directories Business

During the first half of 2003 the TPI Group's operating revenues increased by
0.8% to 192.5 million euros, despite the negative performance of exchange rates
in Latin America. The Group's EBITDA amounted to 42.5 million euros, 39.6%
higher than the figure for the same period of 2002. Net income rose 57.0% to
20.6 million euros. These results are explained by:

  • The progress made by TPI Espana, whose advertising revenues rose by 7.0%
    to 126.6 million euros. Moreover, and mainly due to the 11888 commercial
    launch, the revenues coming from telephony traffic has been more than ten
    times fold those of the previous year, reaching 6.6 million euros.

  • The good results obtained by the third printed edition of GuiaMais Sao
    Paulo, with an organic growth rate of 17.0% in local currency. In the same
    way, the negative EBITDA of TPI Brasil has been reduced by 53.7%, reaching a
    final figure of -3.8 million euros in local currency.

  • The good performance of advertising revenues at the Chilean subsidiary
    (Publiguias), which in local currency rose by 15.6%.

  • The increase in total revenues at TPI Peru (6.1% in local currency), and
    the significant improvement in EBITDA, which in turn rose by 15.4% in local
    currency.

Once again it is important to remember that the seasonal nature of revenues, due
to accounting criteria in place once each guide was actually published, make it
so that the quarterly results are not comparable or standardized, nor can they
be extrapolated to year end.

TPI Espana, that includes the revenues of Goodman Business Press, contributed
73.9% of the Group's revenues, and made a positive contribution to the Group's
EBITDA of 39.4 million euros (92.7% of total). TPI Espana revenues rose by 11.9%
to 142.3 million euros, triggered mainly by the organic growth of 5.6% and 11.4%
experienced by the Yellow Pages and the White Pages directories, respectively,
as well as by the publication of additional eleven Yellow Pages directories and
two more White Pages directories in comparison with the same period in the
previous year. In addition, it should be highlighted the strong performance
achieved by the telephony traffic product (6.6 million euros), that registered
year-on-year growth of 919.6%.

Latin America represents the remaining 26.1% of revenues and contributed 3.2
million euros to the Group's consolidated EBITDA, compared to negative EBITDA of
-6.1 million euros for the first half of 2002.

Finally, the directories business of the Telefonica Group, which includes the
Argentinean company Telinver, recorded a decline in revenues of 0.5% compared
with the same period last year, reaching 195.7 million euros, due primarily to
the depreciation of the Argentinean peso in the period. EBITDA amounted to 42.8
million euros, representing a year-on-year growth rate of 40.2%.


CONTACT CENTER BUSINESS

Atento

During the second quarter of 2003 the Atento Group continued to consolidate its
position as a leading provider of contact center services to the Spanish and
Portuguese speaking markets, focusing its efforts on strategic sectors and
customers with the aim of achieving the maximum profitability of its operations.
In this respect, the Group's 70% stake in Atento Japan was sold to the local
partner Pasona on June 16, 2003, since after two years' activity no significant
market penetration had been achieved.

Atento Group operating revenues for the first half of 2003 amounted to 241.9
million euros, 22.5% less than in the same period of 2002. This variation was
the result of both the exchange rate effect, which was responsible for a drop of
more than 20 percentage points, and of the decrease in activity and the
reduction in prices.

Customers outside the Telefonica Group continued to make a similar contribution
to total revenues as in June of the previous year. With respect to the
geographical distribution of revenues, Spain and Brazil continued to be the
countries contributing the highest volume of revenues (70.9%), although this
percentage has fallen by almost 6 percentage points over the past year as a
result of the increased contribution of other countries such as Mexico,
Venezuela and Colombia.

Operating expenses for the first half of the year amounted to 218.1 million
euros, 25.3% less than in the same period of 2002 (-8.8% less in constant
euros), due to the optimization of resources and the adjustments made to the
platform resizing in response to the fall in demand. This cost containment was
reflected in the main lines of operating expenses: supplies (-36.9%),
subcontracts (-28.6%) and personnel expenses (-22.7%).

As a result, EBITDA for the period January-June 2003 stood at 25.3 million
euros, 57.8% higher than the figure for January-June 2002 (127,5% excluding the
forex effect). At 10.5%, the aggregate EBITDA margin through June 2003
registered a 5.4 percentage point improvement on the figure for June 2002,
driven by the increase in margins mainly in Colombia, Mexico, Central America
and Venezuela. It should be pointed out, however, that this double-digit margin
has enabled the Company to gain a place among the leaders of the sector, both in
the United States and in Europe.

There was a 92.3% -98.0% in constant currency- improvement in the operating
profit for the first half year compared with the same period of 2002 (a loss of
2.1 million euros against an aggregate loss of 27.9 million euros in June 2002)
due to the 37.5% decrease in amortization and depreciation, as a result of the
degree of maturity achieved in operations and the decrease in capex.

At operating level, the Atento Group had 24,640 positions in place at the end of
the second quarter of 2003, as compared with 25,558 as of March 31, 2003 and
28,037 at the end of June 2002. This decline in the number of positions in place
is due to the closure of centers primarily in Spain and Brazil with the aim of
maximizing the return on installed capacity and increasing occupation, together
with the closure of business in Japan.

The number of occupied positions as of June 30, 2003, was 17,264, representing a
level of occupation of 76%, a decrease of 7 percentage points from June 30,
2002, largely as a result of the decline in traffic in Spain due to the
liberalization of the telephone information service. The revenue per occupied
position in the first six months of 2003 amounted to 2,255 euros, 11.4% less
than in the same period of 2002 as a result of the depreciation of Latin
American currencies in the period.

Finally, Capex as of June 30, 2003, amounted to 6.5 million euros, 41.3% less
than in the first six months of 2002, in line with the Group's policy of
platform optimization and cost reduction.


ADDENDUM

Companies included in each Financial Statement

Based on what was indicated at the start of this report, the results breakdown
of Telefonica Group are detailed according to the business in which the Group
has a presence. The main differences between this view and the one that would
apply to what had been made clear adhering to the legal structure, are the
following:

  • Telefonica, S.A. directly participates in the share capital of Endemol
    Entertainment Holding, N.V. and Antena 3 de Television, S.A., which belong
    to Admira Media Group. Furthermore, the investment in Telefonica Deutschland
    (previously Mediaways), participated through a part of the year 2002 by
    Telefonica S.A., has been included in that fiscal year results of Telefonica
    Data Group for the maintenance of the presentation of the Group results
    according to a vision of business lines.

  • Telefonica Holding Argentina, S.A. holds 26.82% of Atlantida de
    Comunicaciones, S.A. (ATCO) and 26.82% of AC Inversora, S.A. which, for
    those purposes, are considered belong to Admira Media Group, consolidating
    100% share capital of both companies.

  • In the case of Compania de Telecomunicaciones de Chile, S.A. (CTC),
    participated by Telefonica Latinoamerica, the activities of the mobile
    telephony business in Chile has already been assigned to Telefonica Moviles,
    and the activity of data transmission to Telefonica Data.

  • The activities of the data business in Brazil, participated by
    Telecomunicaciones Sao Paulo, S.A. -Telesp-, (dependent to Telefonica
    Latinoamerica), and by Telefonica Data, have been assigned to Telefonica
    Data in this presentation by business lines.

  • In the case of Telefonica de Argentina (TASA), participated by Telefonica
    Latinoamerica, the directories business (Telinver) has been assigned to the
    TPI Group, in line with our vision for the total Telefonica's directories
    business.

  • Following the agreement during the months of December 2001 and February
    2002 with Iberdrola S.A., Telefonica S.A. acquired several participations in
    both fixed and cellular companies in Brazil. These participations were
    included in the year 2002 in the fixed line business in Latinoamerica and
    cellular business until its definitive contribution to them, according to
    the presentation of Telefonica results by global business lines.

Significant Events

  • On July 25, 2003, Telefonica S.A. notified the Spanish National Securities
    Market Commission (CNMV) that it was willing to waive the condition of a 75%
    minimum acceptance level to which its public offer for the acquisition of
    Terra Networks shares was subject, taking into consideration that the
    response received will be sufficient to develop the business project pursued
    through the takeover bid. The mandatory application (and related draft
    prospectus thereof) of the offer was filed with the Spanish securities
    regulator (Comision Nacional del Mercado de Valores) on May 28, 2003.


    According to the information released by the CNMV, Telefonica obtained 33.6%
    of the shares of Terra Networks it did not already own, guaranteeing it the
    ownership of 71.97% of the company's equity capital.

    The aforementioned Offer is structured as a purchase in cash, 5.25 euros
    being paid for each share of Terra Networks, S.A.

  • During July, 2003, Telefonica Moviles Mexico has incorporated the Mexican
    towns and cities of Ensenada, Nuevo Laredo, Mexicali, Chihuahua, Reynosa,
    Cuernavaca, Toluca, Monclova, Matamoros and Saltillo into its GSM network.
    Consequently, the company's GSM network now has a potential market of over
    35 million customers in 15 cities.

  • On July 23, 2003, Telefonica's Board of Directors approved to propose to
    the Annual General Meeting of Shareholders corresponding to the fiscal year
    2003, the payment of a dividend of 0.4 euros per share. The intention is to
    maintain this same dividend for fiscal years 2004 and 2005. Also, the
    company announced not to renounce to the reductions of the share capital via
    cancellation of own shares held as treasury stock if such reductions are
    deemed appropiate.

  • On July 3, 2003, Telefonica S.A. made the first of the two cash payments
    approved at the General Shareholders' Meeting as extraordinary distribution
    to shareholders of the additional paid-in Capital Reserve, of 0.13 euros per
    share. The second payment will be made on 15 October.

  • On July 2, 2003, Telefonica de Contenidos S.A.U., subscribed the increase
    in share capital of Sogecable, S.A., whose Prospectus was approved and
    entered in the registers of the Spanish National Securities and Market
    Commission on July 1st, 2003. The subscription was effected by the
    contribution of its entire participation in DTS, Distribuidora de Television
    Digital S.A. (Via Digital). The remaining shareholders of the latter company
    also subscribed the aforementioned capital increase. Telefonica de
    Contenidos S.A.U. will in consequence, subject to the relevant registration
    and stock exchange procedures, will receive shares representing 22.227% of
    the share capital of Sogecable, S.A.

  • On June 24, 2003, Telefonica de Espana, the subsidiary of the Telefonica
    Group that is responsible for the fixed telephony business in Spain,
    presented union representatives with a proposal for the negotiation of a
    Streamlining Social Plan (Plan de Regulacion de Empleo) that guarantees the
    necessary competitiveness of the company in the new telecommunications
    market environment.

    The proposal put forward would be implemented over the next five years (2003
    /2007) and could lead to around 15,000 voluntary redundancies, at no cost to
    the Social Security System. The Social Plan contemplates procedures for the
    functional and geographical adaptation of the workforce that remains with
    the company, together with training programmes to cover the new professional
    profiles demanded by the environment.

  • On June 18, 2003, Telefonica Moviles, S.A., paid to their shareholders its
    first dividend of 0.175 euros per share. This dividend was charged against
    voluntary reserves.

  • On May 28, 2003, the Board of Directors of Telefonica, S.A., resolved to
    execute the resolution adopted by the company's shareholders in their Annual
    General Meeting of April 11th, 2003 regarding a capital reduction by the
    cancellation of own shares recorded as treasury stock.

    The Board of Directors therefore declared 101,140,640 of the own shares of
    Telefonica, S.A. to be cancelled, reducing the company's share capital by
    the sum of 101,140,640 euros. This share capital reduction is being charged
    to reserves, and does not involve the return of contributions as the company
    itself is the owner of the cancelled shares, and the purpose of the
    operation is to cancel own shares held as treasury stock.


Changes to the Perimeter and Accounting Criteria of Consolidation

In the six months period ending 30 June 2003, the following changes have
occurred in the consolidation perimeter:

Telefonica

  • Telefonica Group, acquired in January 2003, 19,532,625 shares of Antena 3
    de Television, S.A. from Banco Santander Hispano, S.A. for 117.65 million
    euros, representing 11.72% of the share capital. After this transaction,
    Telefonica Group reached a 59.24% stake in the capital of Antena 3 T.V.

  • In June, the disposal of a 25.1% holding in the capital stock of Antena 3
    de Television, S.A. to Planeta Group took place for 364 million euros. This
    sale is subject to the resolutory condition of the shares of Antena 3 de
    Television being admitted to listing on the Spanish securities market. As a
    result of this, the Company, which in the first six months of 2003 was
    integrated using the full integration method, was passed to account in the
    consolidated balance sheet of Telefonica Group using the equity method.

  • In January, the Mexican company Fisatel Mexico, S.A. de C.V. was
    incorporated with an initial share capital of 5 million Mexican pesos,
    comprising 500 shares of 100 mexican pesos each. Later, the company
    increased capital by 4.95 million mexican pesos. Telefonica Group subscribed
    all of the shares that made up the capital of the new company. The company
    was incorporated at its acquisition cost because its activity had not begun.

  • In April and May, respectively, Telefonica Capital, S.A., a wholly-owned
    subsidiary of Telefonica, S.A., set up a collective investment institution
    management company called Fonditel Gestion, Sociedad Gestora de
    Instituciones de Inversion Colectiva, S.A. and a brokerage company called
    Fonditel Valores, Agencia de Valores, S.A., subscribing to the total number
    of shares that make up the capital stock of both companies and paying in 1.5
    million euros and 3 million euros, respectively. Both companies have been
    included in the consolidation perimeter of Telefonica Group using the full
    integration method.

  • In January, Telefonica, S.A., acquired 376,000 shares in its subsidiary
    Telefonica Moviles, S.A. for the sum of 2.43 million euros. Following this
    purchase, the new percentage shareholding of Telefonica Group in its
    subsidiary is 92.44%. The company continues to be included in the
    consolidation perimeter of Telefonica Group using the full integration
    method.

  • All the capital stock of Playa de Madrid, S.A., participated by
    Telefonica, S.A. has been sold. This company, which in 2002 was integrated
    in the Telefonica Group financial statements using the full integration
    method, has been removed from the consolidation perimeter.

  • The companies Pleyade Argentina, S.A., Pleyade Peru Corredores de Seguros,
    S.A.C., TGP Brasil Corretora de Seguros e Resseguros, Ltda. and Pleyade
    Mexico, Agente de Seguros y de Fianzas, S.A. de C.V., which are all
    subsidiaries of Pleyade Peninsular, Correduria de Seguros y Reaseguros del
    Grupo Telefonica, S.A. have all been incorporated in the Telefonica Group
    financial statements using the full integration method.

  • Telefonica Ingenieria de Seguridad, S.A., a wholly-owned subsidiary of the
    Telefonica Group, took part in setting up the company Telefonica Ingenieria
    de Seguridad Mexico, S.A. de C.V., by subscribing to and paying in 0.34
    million euros relating to 65% of the new company's capital stock. The
    company has been included in the financial statements of Telefonica Group
    using the full integration method.

Telefonica de Espana Group

  • Telefonica Cable, S.A. a wholly owned subsidiary of Telefonica de Espana,
    S.A., has taken oven three of its local operator companies: Telefonica Cable
    Madrid, S.A., Telefonica Cable Ceuta, S.A. and Telefonica Cable Melilla,
    S.A. The three companies have been removed from the consolidation perimeter
    of the Telefonica Group.

  • Acquisition of 17% of the capital stock of Telefonica Cable Extremadura,
    S.A., for 0.10 million euros. With this purchase, Telefonica Group becomes
    the owner of 100% of the aforementioned company's capital stock. The company
    continues to be included in the consolidation perimeter of Telefonica Group
    using the full integration method.

Telefonica Internacional Group

  • As a result of the cancellation by US-based Infonet Services Corporation
    of its own shares, Telefonica International Group has increased its holding
    in the company from 14.32% to 14.47%. The company continues to be included
    in the financial statements of Telefonica Group using the equity method

Telefonica MOVILES Group

  • On April 25, 2003, Telesp Celular Participacoes, S.A., acquired
    77,256,410,396 ON common shares in Tele Centro Oeste Participacoes, S.A.,
    for 1,505.5 million Brazilian reales. The number of shares purchased
    represents 61.10% of total ON common shares and 20.37% of the total capital
    stock of Tele Centro Oeste Participacoes, S.A. This company is integrated in
    the consolidated financial statements of Brasilcel, which in turn are
    incorporated in the Telefonica Group using the proportioned integration
    method.

  • Telefonica Moviles, S.A. has purchased 20% of the Spanish company Terra
    Mobile, S.A., from Terra Networks, S.A., bringing its shareholding in the
    company to 100% of the capital stock. The percentage effectively held by the
    Telefonica Group in this company has increased from 81.66% to 92.44%. The
    company continues to be included in the consolidation perimeter of the
    Telefonica Group using the full integration method.

Telefonica Data Group

  • The U.S. companies Katalyx Food Service, Llc; Katalyx Sip, Llc; Katalyx
    Cataloguing, Inc; and Katalyx Construction, Inc; all of them 100%
    subsidiaries of the company Katalyx, Inc, and included in the subgroup
    Telefonica Soluciones, were liquidated. These companies, which in 2002 were
    integrated into the consolidation perimeter of Telefonica Group using the
    full consolidation method, have caused a drop in the perimeter.

  • Telefonica Data Colombia, S.A. increased its capital share in May in order
    to admit a new shareholder. As a result, the Telefonica Group percentage of
    p fell from 100% to 65%, generating a dilution gain of 1.95 million euros.
    The company continues to be included in the consolidation perimeter of the
    Telefonica Group using the full integration method.

  • Telefonica Sistemas, S.A., a wholly owned subsidiary of Telefonica
    Datacorp, S.A., the Group's parent company, purchased 100% of the Spanish
    company Telefonica Mobile Solutions, S.A. from Telefonica Moviles, S.A. in
    June for 1.13 million euros. As a result of this transaction, the Telefonica
    Group's effective shareholding rose from 92.43% to 100%. The company
    continues to be included in the consolidation perimeter of the Telefonica
    Group using the full integration method.

  • The subsidiary Telefonica Data Argentina, S.A., in which Telefonica
    Datacorp, S.A. owns a 97.92% shareholding, bought 20% of the Argentinean
    company Tyssa, Telecomunicaciones y Sistemas, S.A., which was owned by the
    Telefonica Internacional Group. As a result, Telefonica Data Argentina now
    controls 100% of Tyssa's shares. Following this transaction, the Telefonica
    Group's effective shareholding in this company fell from 98.34% to 97.92%.
    The company continues to be included in the consolidation perimeter of the
    Telefonica Group using the full integration method.

TELEFONICA DE CONTENIDOS Group

  • Telefonica de Contenidos, S.A. sold 100% of the Spanish company Famosos,
    Artistas, Musicos y Actores, S.A.U. (FAMA), which caused a negative result
    for Telefonica Group of 1.06 million euros. The company, which in 2002 was
    shown in the consolidated financial statements of Telefonica Group using the
    full consolidation method, caused a drop in the consolidation perimeter.

  • The Dutch company Fieldy, B.V. and the American company Lideres
    Entertainment Group, Inc, in which Telefonica de Contenidos holds 51% and
    49% of the capital, respectively, based on management criteria, went on to
    be recorded in the accounts of Telefonica Group at their acquisition cost.

  • As part of the process of integration of Via Digital and Sogecable, S.A.,
    in the first half of 2003, Telefonica de Contenidos, S.A. acquired shares
    representing 12.63% of the capital share of Distribuidora de Television
    Digital, S.A. (Via Digital). The shares came from a number of shareholders
    and the purchase price was 165.6 million euros. Likewise, there was a
    process to convert obligations into shares for the sum of 164.3 million
    euros and a subsequent capital increase for the sum of 949.84 million euros.
    As a result of these transactions, Telefonica de Contenidos' shareholding in
    Via Digital prior to its merger with Sogecable amounted to 96.64%. These
    acquisitions carried out in the year have been registered like long term
    investments, in compliance with the commitments entered into, they were
    intended for subsequent contribution to Sogecable, S.A.

TERRA LYCOS GRoup

  • The subsidiaries Terra Networks Uruguay, S.A., Terra Global Management,
    Inc., Bumeran Participaciones, S.L. and Emplaza, S.A., the first two
    wholly-owned, the third 84.2%-owned and the fourth 80%-owned by Terra Group,
    which in 2002 were consolidated using the full integration method, have been
    removed from the consolidation perimeter of the Telefonica Group because
    they are in the process of being dissolved.

  • The Terra Group has increased by 13% its holding in the capital stock of
    the US company One Travel.com, Inc. to 52.07%, in a transaction involving
    the disbursement of 2.73 million euros. The company, which in 2002 was
    integrated in the Telefonica Group financial statements using the equity
    method, is now incorporated using the full integration method.

  • In January 2003, an agreement was reached with BBVA for the integration of
    Uno-e Bank, S.A. in the branch of activity of consumer business of Finanzia,
    Banco de Credito, S.A. Subsequently, at an extraordinary shareholders'
    meeting of Uno-e Bank, S.A. (held on April 23, 2003), Terra Networks, S.A.
    and BBVA approved a capital increase at Uno-e Bank, S.A., which was fully
    subscribed by Finanzia Banco de Credito, S.A. (wholly-owned by BBVA) by
    means of the non-cash contribution of the branch of activity of its consumer
    business. As a result of this transaction, Terra Networks, S.A. now owns a
    33% shareholding in Uno-e Bank, S.A., instead of the 49% that it owned at
    the end of 2002, leaving from the consolidation perimeter of the Telefonica
    Group.

TPI Group

  • Telefonica Publicidad e Informacion, S.A. formed the Spanish company 11888
    Servicios Consulta Telefonica, S.A., by incorporating and paying in full the
    initial share capital, 60,000 euros. The new company was included in the
    Telefonica Group consolidated financial statements using the full
    consolidation method.

Atento Group

  • In May, Atento Teleservicios Espana, S.A. subscribed to and paid in the
    entire capital share of the newly formed company Atento Servicios Tecnicos y
    Consultoria, S.L., consisting of 3,006 shares of 1-euro face value each. The
    company has been included in the consolidation perimeter of the Telefonica
    Group using the full integration method.

  • Atento North America, Inc., a company wholly owned by Atento Holding,
    Inc., is no longer included in the consolidation perimeter of the Telefonica
    Group because it has been liquidated.

  • Atento Teleservicios Espana, S.A. has taken over its wholly owned
    subsidiary, Gestion de Servicios de Emergencia y Atencion al Ciudadano,
    S.A., which has therefore been removed from the consolidation perimeter.

  • In June, Atento Holding, Inc., the Atento Group's parent company, disposed
    of 70% of the shares it owned in Atento Pasona, Inc. This company, which in
    2002 was consolidated using the full integration method, has been removed
    from the consolidation perimeter.

DISCLAIMER

This document contains statements that constitute forward looking statements in
its general meaning and within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements appear in a number of places in this
document and include statements regarding the intent, belief or current
expectations of the customer base, estimates regarding future growth in the
different business lines and the global business, market share, financial
results and other aspects of the activity and situation relating to the Company.
The forward-looking statements in this document can be identified, in some
instances, by the use of words such as 'expects', 'anticipates', 'intends',
'believes', and similar language or the negative thereof or by forward-looking
nature of discussions of strategy, plans or intentions.

Such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties and actual results may differ materially from
those in the forward looking statements as a result of various factors.

Analysts and investors are cautioned not to place undue reliance on those
forward looking statements which speak only as of the date of this presentation.
Telefonica undertakes no obligation to release publicly the results of any
revisions to these forward looking statements which may be made to reflect
events and circumstances after the date of this presentation, including, without
limitation, changes in Telefonica's business or acquisition strategy or to
reflect the occurrence of unanticipated events. Analysts and investors are
encouraged to consult the Company's Annual Report as well as periodic filings
filed with the relevant Securities Markets Regulators, and in particular with
the Spanish Market Regulator


For additional information, please contact.

Investor Relations

Gran Via, 28     Tel: [phone]

28013 Madrid (Spain)     Fax: [phone]

Email:


        [e-mail]     www.telefonica.com/ir

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