AGM Calling & Proposals

Telefonica SA
14 March 2008





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



                               SIGNIFICANT EVENT



Further to the notice sent on February 27th, 2008 and because of the official
calling of the Annual General Shareholders' Meeting of the Company to be held on
April 21st and 22nd, 2008, at first and second call respectively, the full text
of the official announcement of the calling of the Annual General Shareholders'
Meeting, together with the proposals to be submitted for approval at the
Meeting, are enclosed to this report.

The aforesaid proposals together with the additional information, are available
to shareholders, for examination, at the Company's registered office.
Additionally, these documents will be accessible on - line via de Company's
website: (www.telefonica.es)

We hereby highlight that the time for the Annual General Shareholders' Meeting
to be held, has been changed to 13.00 p.m.





Madrid, March 14th, 2008
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OFFICIAL CALLING

                                TELEFONICA, S.A.

                      Annual General Shareholders' Meeting


                   By decision of the Board of Directors of TELEFONICA, S.A.,
        the shareholders are hereby called to the Annual General Shareholders'
        Meeting, to be held in Madrid, at the premises of Casa de Campo,
        Pabellon de Cristal, Avenida de Portugal, s/n, at 13 p.m. on April 22nd
        2008 on second call, if the legally required quorum is not reached and
        therefore the Meeting cannot be held on first call on April 21st 2008 at
        the same place and time, according to the following



                                     AGENDA




        I. Examination and approval, if appropriate, of the Individual Annual
        Accounts, of the Consolidated Financial Statements (Consolidated Annual
        Accounts) and of the Management Report of Telefonica, S.A. and its
        Consolidated Group of Companies, as well as of the proposed allocation
        of profits/losses of Telefonica, S.A. and of the management of its Board
        of Directors, all with respect to the Fiscal Year 2007.

        II. Re-election, ratification, and appointment, if appropriate, of
        Directors:

                II.1 Re-election of Mr. Jose Fernando de Almansa Moreno-Barreda.

                II.2 Ratification of the interim appointment of Mr. Jose Maria
                Abril Perez.

                II.3 Ratification of the interim appointment of Mr. Francisco
                Javier de Paz Mancho.

                II.4 Ratification of the interim appointment of Ms. Maria Eva
                Castillo Sanz.

                II.5 Ratification of the interim appointment of Mr. Luiz
                Fernando Furlan.

        III.  Authorization to acquire the Company's own shares, either directly
        or through Group Companies.

        IV. Reduction of the share capital through the cancellation of shares of
        treasury stock, excluding creditors' right to object, and amendment of
        the article of the By-Laws relating to the share capital.

        V. Appointment of the Auditors of the Company for the Fiscal Year 2008.

        VI. Delegation of powers to formalize, interpret, cure and carry out the
        resolutions adopted by the shareholders at the General Shareholders'
        Meeting.


                After the presentation of the items included in the Agenda, the
        General Shareholders' Meeting will be informed about the amendment to
        the Board Regulations pursuant to Section 115 of the Securities Market
        Act. A Report will be presented explaining the subjects included in the
        Management Report pursuant to Section 116.bis, of the Securities Market
        Act.



            SUPPLEMENT TO THE CALL TO GENERAL SHAREHOLDERS' MEETING


                    Pursuant to the provisions of Section 97.3 of the Companies
        Act, shareholders representing at least five percent of the share
        capital may request the publication of a supplement of this call to the
        General Shareholders' Meeting, including one or more items in the
        Agenda. This right must be exercised by means of verifiable notice
        (which will include the corresponding documents evidencing shareholder
        status) that must be received at the Company's registered office (Gran
        Via, numero 28, planta 12(a), Madrid, codigo postal 28013, to the
        attention of the General Secretary and Secretary of the Board of
        Directors) within five days of the publication of this call to Meeting.



  PARTICIPATION OF A PUBLIC NOTARY IN THE ANNUAL GENERAL SHAREHOLDERS' MEETING


                    The Board of Directors has resolved to request the presence
        of a Public Notary to draw up the minutes of the Meeting, pursuant to
        Section 114 of the Companies Act in connection with Sections 101 and 103
        of the Regulations of the Commercial Registry.



                          RIGHT TO RECEIVE INFORMATION


                    In connection with Items I and IV on the Agenda, and
        pursuant to the legal terms, it is stated for the record that
        shareholders have the right to examine and obtain at the Company's
        registered office, or to request the Company to send them, immediately
        and free of charge, a copy of the following documents:
              • Individual Annual Accounts, Consolidated Financial Statements
                (Consolidated Annual Accounts) and Management Report of
                Telefonica, S.A. and its Consolidated Group of Companies, the
                corresponding audit reports and the proposed allocation of
                profits/ losses of Telefonica, S.A.

              • Proposed reduction in share capital as set forth in Item IV on
                the Agenda, together with the mandatory Directors' Report.


                                Furthermore, the following documents are made
            available to the shareholders at the Company's registered office:
              • The text of the proposed resolutions relating to all other
                items on the Agenda.

              • Brief description of the professional profile for each of the
                Directors included in the proposed resolution under Item II on
                the Agenda.

              • Full text of the Regulations of the Board of Directors.

              • Report referred to Section 116. bis of the Securities Market
                Act.

              • Report on the Director's Remuneration Policy for the Fiscal
                Year 2007.

              • Annual Report on Corporate Governance for the Fiscal Year
                2007.




                         All of the documents set forth above will be available
            electronically on the Company's website (www.telefonica.es).



                        Pursuant to Section 112.1 of the Companies Act, the
            shareholders may, until the seventh day prior to the date on which
            the General Shareholders' Meeting is scheduled to be held by
            completing the form posted on the Company's website for such
            purpose, or by postal correspondence sent to the Company's
            registered office (Gran Via, numero 28, planta 11(a), Madrid, codigo
            postal 28013, to the attention of the Oficina del Accionista
            (Shareholder Office)), request such information or clarifications as
            they deem necessary, or ask such questions as they deem appropriate,
            regarding the matters included on the Agenda or about the
            information available to the public that has been provided by
            Telefonica, S.A. to the National Securities Market Commission since
            May 10, 2007, i.e., the date on which the last General Shareholders'
            Meeting was held.



               RIGHT TO ATTEND THE MEETING IN PERSON OR BY PROXY




                    The right to attend the General Shareholders' Meeting hereby
        called applies to shareholders that hold at least 300 shares registered
        in their name in the corresponding book-entry registry five days in
        advance of the date on which the Meeting is to be held and who provide
        evidence thereof by means of the appropriate attendance card or by
        producing a certificate issued by any of the depositaries participating
        in the Sociedad de Gestion de los Sistemas de Registro, Compensacion y
        Liquidacion de Valores (Securities Registration, Clearing and
        Liquidation Systems Management Company) (IBERCLEAR) or by any other
        means allowed under applicable Law.

                    Any shareholder having the right to attend the General
        Shareholders' Meeting may be represented thereat by another person, who
        need not be a shareholder. A proxy may be granted by using the
        proxy-granting form printed on the attendance card or by any other means
        allowed by Law. The documents containing proxies for the General
        Shareholders' Meeting must set forth the instructions regarding the
        manner of voting, provided that, where no express instructions are
        given, the representative will vote in favor of the proposed resolutions
        submitted by the Board of Directors regarding the matters on the Agenda,
        and will vote against of those resolutions that are not included in the
        Agenda that might be put to the vote at the Meeting.

                    If the proxy-granting form does not set forth a specific
        person to whom the shareholder grants the proxy, such proxy will be
        deemed granted in favor of the Chairman of the Board of Directors of the
        Company or of such other person as may replace him as Chairman of the
        General Shareholders' Meeting. In the event that, in accordance with the
        foregoing, the representative is involved in a conflict of interest upon
        voting on any of the proposals, whether or not included in the Agenda,
        which are put to the vote at the General Shareholders' Meeting, the
        proxy will be deemed granted to the Secretary of the General
        Shareholders' Meeting in his capacity as a shareholder having the right
        to attend.

                    Shareholders who do not hold the minimum number of shares
        required to attend may grant a written proxy in respect thereof in favor
        of another shareholder having the right to attend, or come together with
        other shareholders that are in the same situation such that they reach
        the required number of shares and grant a written proxy to one of such
        shareholders.



                                DATA PROTECTION


                    The personal data that shareholders send to the Company in
        order to attend, grant proxy or vote at the Shareholders' Meeting, or
        the data provided by the entities where those shareholders have
        deposited their shares, via de legal entity that registers the book
        entries, Iberclear, shall be used only by Telefonica, S.A. to draw up,
        complete and monitor the existing shareholder list. Likewise, those data
        shall be included into a computer file owned by Telefonica, S.A. whose
        purpose is sending to shareholders any information related to their
        investment and any other advantage in the sectors of telecommunications,
        IT, tourism, culture, insurance, financial and home assistance that may
        derive from their status of shareholders. Each shareholder will have a
        period of 30 days within the General Shareholders' Meeting holding date
        to oppose to the data processing (by calling toll free at 900 111 004).
        The shareholder's approval will be deemed granted for this purpose once
        this period is over. The right of access, rectification, cancellation
        and opposition to the data processing may be exercised by postal
        correspondence by attaching a copy of the Identity Card addressed to the
        attention of the Telefonica, S.A. Shareholder Office located in Distrito
        C, Ronda de la Comunicacion, Edificio Oeste 2, Planta baja 28050 Madrid.








                         HOLDING OF THE MEETING ON SECOND CALL

Shareholders are advised that, based on experience from previous years, the General
Shareholders' Meeting is expected to be held on second call, at 13 p.m. on April 22nd
2008, at the place indicated above.

       ENTRANCE AT THE RECINTO FERIAL DE LA CASA DE CAMPO-PABELL ON DE CRISTAL

        Entrance at the Paseo de Extremadura: Puerta del Angel or Main Entrance

                          Metro Station 'Lago', lines 6 and 10




        FOR ANY ADDITIONAL INFORMATION, SHAREHOLDERS MAY CONTACT TELEFONICA'S
        SHAREHOLDER OFFICE BY CALLING TOLL-FREE AT 900 111 004, FROM 9:00 A.M.
        TO 7:00 P.M., MONDAY THROUGH FRIDAY.



                            Madrid, 14th March 2008

                  General Secretary and Secretary of the Board


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FULL TEXT OF THE PROPOSALS



                      ANNUAL GENERAL SHAREHOLDERS' MEETING

                     OF 'TELEFONICA, S.A.' - YEAR 2008 -



    PROPOSED RESOLUTIONS SUBMITTED BY THE BOARD OF DIRECTORS TO THE GENERAL
                             SHAREHOLDERS' MEETING



                                                              21 / 22 April 2008



Proposal regarding Item I on the Agenda: Examination and approval, if
appropriate, of the Individual Annual Accounts, of the Consolidated Financial
Statements (Consolidated Annual Accounts) and of the Management Report of
Telefonica, S.A. and its Consolidated Group of Companies, as well as of the
proposed allocation of profits/losses of Telefonica, S.A. and of the management
of its Board of Directors, all with respect to Fiscal Year 2007.



         A. To approve the Individual Annual Accounts (Balance Sheet, Profit and
            Loss Statement and Notes), the Consolidated Financial Statements
            -Consolidated Annual Accounts- (Balance Sheet, Income Statement,
            Cash Flow Statement, Statement of Recognized Income and Expense, and
            Notes), and the Management Reports of Telefonica, S.A. and its
            Consolidated Group of Companies for the Fiscal Year 2007 (ended
            December 31 of such year), as drawn up by the Board of Directors of
            the Company at its meeting on February 27, 2008, as well the
            management performed by the Board of Directors of Telefonica, S.A.
            during such Fiscal Year.

            In the Individual Annual Accounts, the Balance Sheet as of December
            31, 2007 reflects assets and liabilities in the amount of 83.159
            million Euros each, and the Profit and Loss Account as of the end of
            the fiscal year reflects positive results of 6.620 million Euros.

            In the Consolidated Financial Statements (Consolidated Annual
            Accounts), the Balance Sheets as of December 31, 2007 reflect
            assets, and equity and liabilities in the amount of 105.956 million
            Euros each, and the Income Statement as of the close of the Fiscal
            Year reflects positive results of 8.908 million Euros.

         B. To approve the following Distribution of Telefonica, S.A's Profit
            from Financial Year 2007:

                    To use the profit obtained by Telefonica, S.A. in Financial
                    Year 2007, adding up to €6,619,861,136.05 as follows:
                      • €1,651,746,290.95 to pay an interim dividend (fixed
                        sum of €0.35 gross per share for the total of
                        4,773,496,485 shares comprising the Company's share
                        capital, with the right to receive it. The said dividend
                        was fully paid out on November 14th 2007).

                      • A maximum of €1,909,398,594.00 to pay a final dividend
                        (maximum amount to be distributed equal to €0.40 gross
                        per share for the total of 4,773,496,485 shares
                        comprising the Company's share capital).

                      • The remaining profit (a minimum of €3,058,716,251.10)
                        to the Voluntary Reserve.


            The payment of the final dividend shall be made on May 13th, 2008
            through the Entities participating in 'Sociedad de Gestion de los
            Sistemas de Registro, Compensacion y Liquidacion de Valores, S.A.'
            (IBERCLEAR), the Spanish securities registrar, clearing and
            Settlement Company.

            The gross amounts paid shall be subject, where appropriate, to the
            withholdings required by the applicable legislation from time to
            time.





        Telefonica has submitted to the UK Listing Authority a copy of the
        following documents:
          • Account Auditor's Report, Annual Accounts and Management Report of
            'Telefonica, S.A.', all for the 2007 financial year.
          • Account Auditor's Report, Annual Accounts and Management Report of
            the Consolidated Group of Companies, all for the 2007 financial
            year.

        These documents will shortly be available for inspection at the UK
        Listing Authority's Document Viewing Facility, which is situated at:


        Financial Services Authority

        25 The North Colonnade

        Canary Wharf

        London

        E14 5 HS


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Proposal regarding Item II on the Agenda: Re-election, ratification and
appointment, if appropriate, of Directors:

II.1 To re-elect as an external Director Mr. Fernando de Almansa Moreno-Barreda,
appointing him for a new period of five years.

II.2 To ratify the interim appointment as a Director of the Company, as
previously approved by the Board of Directors, of Mr. Jose Maria Abril Perez,
appointing him as a proprietary Director for a period of five years, pursuant to
the provisions of Law and the By-Laws.

Mr. Jose Maria Abril Perez was appointed as a Director on an interim basis by
resolution of the Board of Directors on July 25th, 2007 to fill the vacancy
produced by the resignation of Mr. Gregorio Villalabeitia Galarraga.

II.3 To ratify the interim appointment as a Director of the Company, as
previously approved by the Board of Directors, of Mr. Francisco Javier de Paz
Mancho, appointing him as an independent Director for a period of five years,
pursuant to the provisions of Law and the By-Laws.

Mr. Francisco Javier de Paz Mancho was appointed as a Director on an interim
basis by resolution of the Board of Directors on December 19th, 2007 to fill the
vacancy produced by the resignation of Mr. Enrique Used Aznar.

II.4 To ratify the interim appointment as a Director of the Company, as
previously approved by the Board of Directors, of Ms. Maria Eva Castillo Sanz,
appointing her as an independent Director for a period of five years, pursuant
to the provisions of Law and the By-Laws.

Ms. Maria Eva Castillo Sanz was appointed as a Director on an interim basis by
resolution of the Board of Directors on January 23rd, 2008 to fill the vacancy
produced by the resignation of Mr. Antonio Viana-Baptista.

II.5 To ratify the interim appointment as a Director of the Company, as
previously approved by the Board of Directors, of Mr. Luiz Fernando Furlan,
appointing him as an independent Director for a period of five years, pursuant
to the provisions of Law and the By-Laws.

Mr. Luiz Fernando Furlan was appointed as a Director on an interim basis by
resolution of the Board of Directors on January 23rd, 2008 to fill the vacancy
produced by the resignation of Mr. Maximino Carpio Garcia, previously filled by
Mr. Manuel Pizarro Moreno, whom resigned on January 23rd 2008.

Furthermore, the ratification of any interim appointments of Directors that may
have been approved by the Board of Directors since the call to the General
Shareholders' Meeting and the meeting event will be proposed, if applicable.
--------------------------------------------------------------------------------




Proposal regarding Item III on the Agenda: Authorization to acquire the
Company's own shares, either directly or through Group Companies.

     A. To authorize, pursuant to the provisions of Sections 75 et. seq. and the
        first additional provision, paragraph 2, of the current Spanish
        Companies Act (Ley de Sociedades Anonimas), the derivative acquisition,
        at any time and as many times as deemed appropriate, of Telefonica,
        S.A.'s own fully paid-in shares -either directly or through any
        subsidiaries it controls- by purchase or by any other legal means of
        consideration.

        The minimum acquisition price or consideration shall be equal to the par
        value of the shares acquired, and the maximum price or consideration
        shall be equal to the listing price of the shares acquired on an
        official secondary market at the time of acquisition.

        Such authorization is granted for a period of 18 months from the date of
        this Meeting and is made expressly subject to the limitation that at no
        time may the nominal value of the Company's shares acquired through the
        use of this authorization, added to those already possessed by
        Telefonica, S.A. and any of its controlled subsidiaries, exceed 5
        percent of the share capital thereof at the time of acquisition, and the
        limitations established by the regulatory authorities in the markets
        where shares of Telefonica, S.A. are admitted for listing must also be
        respected.

        It is expressly stated for the record that the authorization to acquire
        the Company's own shares may be used in whole or in part for the
        acquisition of shares of Telefonica, S.A. that it must deliver or
        transfer to administrators or employees of the Company or companies
        within its Group, either directly or as a result of the exercise by them
        of options, all within the framework of duly approved compensation
        systems linked to the listing price of the Company's shares.

     B. To authorize the Board of Directors, upon the broadest terms possible, to
        exercise the authorization covered by this resolution and to carry out
        the other provisions hereof, and such powers may be delegated by the
        Board of Directors to the Executive Commission, the Executive Chairman
        of the Board of Directors, the Chief Operating Officer, or any other
        person that the Board of Directors expressly authorizes for such
        purpose.

     C. To rescind the unutilized portion of the authorization granted under item
        III of the Agenda of the Company's General Shareholders' Meeting of May
        10th, 2007.


--------------------------------------------------------------------------------





Proposal regarding Item IV on the Agenda: Reduction of the share capital through
the cancellation of shares of treasury stock, excluding creditors' right to
object, and amendment of the article of the By-Laws relating to the share
capital.



     A. To reduce the share capital of the Company by the amount of 68,500,000
        euros, by means of the cancellation of 68,500,000 shares of the
        Company's treasury stock, which were previously acquired in reliance on
        the authorization previously granted by the shareholders at the General
        Shareholders' Meeting, within the limits established in Sections 75 et
        seq. and in additional provision 1, paragraph 2, of the Spanish
        Companies Act. Accordingly, Article 5 of the By-Laws regarding the
        amount of the share capital is hereby amended and shall henceforth read
        as follows:

        'Article 5.- Share capital

                1. The share capital is 4,704,996,485 euros, divided into
                4,704,996,485 common shares of a single series, with a par value
                of one euro each, fully paid in.

                2. The shareholders at the General Shareholders' Meeting may,
                complying with the requirements and within the limits legally
                established for such purpose, delegate to the Board of Directors
                the power to increase the share capital.'

        The reduction of the share capital is made with a charge to
        discretionary reserves, cancelling the corresponding amount of the
        restricted reserve mentioned in Section 79.3 of the Spanish Companies
        Act, and funding a reserve due to capital reduction in the amount of
        68,500,000 euros (an amount equal to the par value of the cancelled
        shares) which may only be used complying with the same requirements as
        those established for the reduction of the share capital, pursuant to
        the provisions of item 3 of Section 167 of the Spanish Companies Act.
        Accordingly, as provided therein, the creditors of the Company shall not
        have the right to object mentioned in Section 166 of the Spanish
        Companies Act in connection with the capital reduction resolved to be
        made.

        The reduction does not involve a return of contributions, since the
        Company itself is the owner of the cancelled shares. The purpose of the
        reduction will thus be to cancel the shares of treasury stock.

        It is stated for the record, in order to comply with the provisions of
        Section 289.1 of the Spanish Companies Act, that the consent of the
        Bondholders Syndicates (Sindicatos de Obligacionistas) for the
        outstanding issues of debentures and bonds is not required since the
        capital reduction resolved to be made does not reduce the original ratio
        between the sum of capital plus reserves and the amount of the
        debentures pending repayment.

     B. To authorize the Board of Directors, within one year from the date of
        adoption of this resolution, to determine the other matters that have
        not been expressly established in this resolution or that are a result
        hereof, and to adopt the resolutions, take the actions and execute the
        public or private documents that may be necessary or appropriate for the
        full implementation of this resolution including, without limitation,
        the publication of the legally required notices, the making of the
        appropriate applications and the giving of the appropriate notices
        required to delist the cancelled shares; such powers may be delegated by
        the Board of Directors to the Executive Commission, the Executive
        Chairman of the Board of Directors, the Chief Operating Officer, or to
        any other person expressly authorized by the Board of Directors for such
        purpose.


    SEE ANNEX A : Reports of the Board of Directors on Item IV of the Agenda.

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Proposal regarding Item V on the Agenda: Appointment of the Auditors of the
Company for the Fiscal Year 2008.

    According to the proposal made by the Audit and Control Committee, the Board
of Directors submits the following resolution to the approval of the General
Shareholders' Meeting

    Appoint Ernst & Young, S.L. as Auditor for the accounts of Telefonica, S.A.
and its' Consolidated Group of Companies for the Fiscal Year 2008. Ernst &
Young, S.L. is registered in Madrid, at Plaza Pablo Ruiz Picasso, 1, and its tax
code is B-8970506.
--------------------------------------------------------------------------------




Proposal regarding Item VI on the Agenda: Delegation of powers to formalize,
interpret, cure and carry out the resolutions adopted by the Shareholders at the
General Shareholders' Meeting.

To jointly and severally authorize the Executive Chairman, the Chief Operating
Officer, the Secretary and the Deputy Secretary of the Board of Directors, such
that, without prejudice to any other delegations included in this foregoing
resolutions and any powers-of-attorney to convert existing resolutions into
public instruments, any of them may formalize and execute the foregoing
resolutions, with the power for such purpose to execute the public or private
documents that are necessary or appropriate (including those of interpretation,
clarification, correction of errors and the curing of defects) for the most
correct performance thereof and for the registration thereof, to the extent
required, with the Commercial Registry (Registro Mercantil) or any other Public
Registry.

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ANNEX A: Report of the Board of Directors on Item IV of the Agenda.



REPORT OF THE BOARD OF DIRECTORS OF TELEFONICA, S.A. REGARDING THE PROPOSED
REDUCTION OF THE SHARE CAPITAL THROUGH THE CANCELLATION OF SHARES OF TREASURY
STOCK, EXCLUDING CREDITORS' RIGHT TO OBJECT, AND AMENDMENT OF THE ARTICLE OF THE
BY-LAWS RELATING TO THE SHARE CAPITAL, WHICH IS TO BE SUBMITTED TO THE
SHAREHOLDERS FOR APPROVAL AT THE ORDINARY GENERAL SHAREHOLDERS' MEETING (ITEM IV
ON THE AGENDA).



1. PURPOSE OF THE REPORT


                    Item IV of the Agenda for the Ordinary General Shareholders'
        Meeting of Telefonica, S.A., called for April 21 and 22, 2008, includes
        a proposal - which is submitted to the shareholders for approval at the
        General Shareholders' Meeting - regarding a reduction of the share
        capital by an amount equal to the par value of certain shares of the
        Company treasury stock that are to be cancelled, and the amendment of
        the article of the By-Laws relating to the share capital.

                    In order for the Board to be able to submit the
        above-mentioned proposal for the reduction in share capital and the
        amendment of the By-Laws for approval at the General Shareholders'
        Meeting, it is mandatory, pursuant to the provisions of Section 164.1
        and Section 144.1.a) of the applicable Spanish Companies Act (Ley de
        Sociedades Anonimas), that the Board of Directors prepare a report
        providing the rationale for the proposal, inasmuch as the approval of
        such proposal and the implementation thereof necessarily entail an
        amendment of Article 5 of the By-Laws regarding the amount of share
        capital and the number of shares into which it is divided.



2. RATIONALE FOR THE PROPOSAL


                    Within the framework of the shareholder compensation policy
        established by the Company, the Board of Directors believes it advisable
        to reduce the share capital by an amount equal to the par value of
        certain shares held as treasury stock, through the cancellation of such
        shares, in order to increase earnings per share, which will thus benefit
        the shareholders.

                    If the resolution providing for the reduction of the share
        capital contemplated in this report is adopted, Article 5 of the By-Laws
        of the Company would be amended to set forth the new amount of the share
        capital and the new number of outstanding shares into which such amount
        is divided (after deducting the shares of treasury stock acquired by the
        Company and whose cancellation is proposed).

                    In order to expedite the implementation of this resolution,
        it is further proposed that the shareholders at the General
        Shareholders' Meeting authorize the Board of Directors to implement such
        resolution (with the power to delegate, in turn, to the Executive
        Commission, the Executive Chairman of the Board of Directors, the Chief
        Operating Officer or to any other person expressly authorized by the
        Board of Directors for such purpose) within a time limit of one year
        from the date of adoption of such resolution, without needing to first
        consult with the shareholders at a General Shareholders' Meeting

                    In addition, it is deemed appropriate, in order to provide
        for greater ease of implementation and as permitted by Section 167.3 of
        the Consolidated Text of the Spanish Companies Act, not to apply the
        right of creditors to object provided for in Section 166 of such
        Consolidated Text, and to allocate the amount of the par value of the
        cancelled shares to a reserve for repurchases of share capital, which
        may only be used complying with the same requirements as those
        established for a reduction in the share capital.

                    Based on these premises, it is proposed to the shareholders
        at the General Shareholders' Meeting to reduce the share capital by the
        amount of 68,500,000 euros by cancelling 68,500,000 shares of the
        Company's treasury stock (representing approximately 1.435% of the
        current share capital of the Company) and to authorize the Board of
        Directors to implement such resolution within a period of one year.



3. PROPOSED RESOLUTION SUBMITTED TO THE SHAREHOLDERS FOR APPROVAL AT THE
ORDINARY GENERAL SHAREHOLDERS' MEETING


            The resolutions that the Board of Directors proposes to the
        shareholders for approval at the Ordinary General Shareholders' Meeting
        in connection with this matter are the following:


         A. To reduce the share capital of the Company by the amount of
            68,500,000 euros, by means of the cancellation of 68,500,000 shares
            of the Company's treasury stock, which were previously acquired in
            reliance on the authorization previously granted by the shareholders
            at the General Shareholders' Meeting, within the limits established
            in Sections 75 et. seq. and in additional provision 1, paragraph 2,
            of the Spanish Companies Act. Accordingly, Article 5 of the By-Laws
            regarding the amount of the share capital is hereby amended and
            shall henceforth read as follows:

               'Article 5.- Share capital
             1. The share capital is 4,704,996,485 euros, divided into
                4,704,996,485 common shares of a single series, with a par value
                of one euro each, fully paid in.

             2. The shareholders at the General Shareholders' Meeting may,
                complying with the requirements and within the limits legally
                established for such purpose, delegate to the Board of Directors
                the power to increase the share capital.'


            The reduction of the share capital is made with a charge to
            discretionary reserves, cancelling the corresponding amount of the
            restricted reserve mentioned in Section 79.3 of the Spanish
            Companies Act, and funding a reserve due to capital reduction in the
            amount of 68,500,000 euros (an amount equal to the par value of the
            cancelled shares) which may only be used complying with the same
            requirements as those established for the reduction of the share
            capital, pursuant to the provisions of item 3 of Section 167 of the
            Spanish Companies Act. Accordingly, as provided therein, the
            creditors of the Company shall not have the right to object
            mentioned in Section 166 of the Spanish Companies Act in connection
            with the capital reduction resolved to be made.

            The reduction does not involve a return of contributions, since the
            Company itself is the owner of the cancelled shares. The purpose of
            the reduction will thus be to cancel the shares of treasury stock.

            It is stated for the record, in order to comply with the provisions
            of Section 289.1 of the Spanish Companies Act, that the consent of
            the Bondholders' Syndicates (Sindicatos de Obligacionistas) for the
            outstanding issues of debentures and bonds is not required since the
            capital reduction resolved to be made does not reduce the original
            ratio between the sum of capital plus reserves and the amount of the
            debentures pending repayment.

         B. To authorize the Board of Directors, within one year from the date of
            adoption of this resolution, to determine the other matters that
            have not been expressly established in this resolution or that are a
            result hereof, and to adopt the resolutions, take the actions and
            execute the public or private documents that may be necessary or
            appropriate for the full implementation of this resolution
            including, without limitation, the publication of the legally
            required notices, the making of the appropriate applications and the
            giving of the appropriate notices required to delist the cancelled
            shares; such powers may be delegated by the Board of Directors to
            the Executive Commission, the Executive Chairman of the Board of
            Directors, the Chief Operating Officer or to any other person
            expressly authorized by the Board of Directors for such purpose.

                                                       Madrid, February 27, 2008







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