Corporate Governance Report

Telefonica SA
27 February 2003



In line with national and international standards of management quality and
transparency



The Telefonica board of directors approves the first Corporate Governance Report



The report details the individual compensation of each board member, while
contributing to transparency and handing the oversight and authority to limit
this remuneration to the general meeting of shareholders.



The board of directors of the company in its meeting held yesterday approved the
first Corporate Governance Report of Telefonica, a pioneer among large Spanish
companies. This report shows the different measures taken by Telefonica to apply
new national and international standards aimed at improving the quality and
transparency of corporate management.


The report details the individual compensation of each board member. It also
increases transparency by including a commitment to publish this remuneration
every year in the company's annual report. In addition, the board of directors
has decided that the general meeting of shareholders-as the company's most
senior representative body-should control and set the amount of this
compensation.


This report provides an account of the actions in 2002 of the board of
directors, its related committees-including the audit committee, as also
regulated by the new Spanish Financial Act ( Ley Financiera). This report bears
further testimony to the commitment of the company-made by the chairman of
Telefonica, Cesar Alierta, during the last general meeting-to consolidate best
practice in corporate governance.


Since then, Telefonica has embarked on different corporate governance
initiatives that place it in the vanguard for complying with several
institutions' various recommendations (including the Aldama and Olivencia
Commissions, the New York Stock Exchange Corporate Business-NYSE, Round Table
and the Hampel, Cadbury and Greenbury reports) that have been established
nationally and internationally to strengthen transparency, ethics and security
in corporate governance.


Accordingly, in June 2002 Telefonica carried out a wide-reaching reorganisation
of board committees, in order to comply with recommendations that these
responsibilities be charged to independent directors.


Later, last October the company approved a new Internal Code of Conduct and its
corresponding compliance programme, applicable to board members, managers and
employees. It aims to strengthen controls on confidential operations and
potential conflicts of interest.


Lastly, on 11 November 2002 the board of directors approved demanding financial
reporting and oversight rules that is intended to accelerate the application of
the Sarbanes-Oxley Act on good corporate governance.


Furthermore, in accordance with the report published yesterday by the board,
Telefonica has now provided itself with the necessary mechanisms to achieve
effective governance bodies-reflecting the multinational character of the group-
as well as measures on the supervision and transparency of information provided
to board members and to individual and institutional shareholders. Accordingly,
one of the four chapters into which this first Corporate Governance Report is
divided focuses specifically on examining the company's relations with
shareholders, regulators, markets and auditors.




                                                     Madrid, February 27th ,2003


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