Merger

Telefonica SA
2 December 1999

   MERGER OF TELEFONICA'S FIXED TELEPHONY OPERATORS IN SAO PAULO (BRAZIL)

On November 30th, the shareholders' meeting of the fixed telephony operators
controlled by Telefonica in the state of Sao Paulo, Telecommunicacoes de Sao
Paulo (Telesp), Companhia Telefonica da Borda do Campo (CTBC) and the holding
company that embodies the two, Telesp Participacoes (holding 67.31% of Telesp
and 29.01% of CTBC), approved, by a majority in the case of Telesp, and
unanimously in the case of Telesp Participacoes, a corporate restructuring
process. This process merges the three companies previously mentioned plus the
wholly-owned SP Telecom, SPT, into one single company, Telecommunicacoes de Sao
Paulo that will be responsible for all the telecommunications assets of Sao
Paulo's operating companies.

As a consequence of this restructuring, the controlling group, in which
Telefonica International SA (TISA) holds a 69.14% stake, will now hold 25.7% of
the total share capital of the new company Telecommunicacoes de Sao Paulo
(Telesp) and 54.14% of the voting capital.

The 'new Telesp' resulting from these mergers will benefit from administrative
and operating synergies, as well as witnessing an improvement in cash flow to
the tune of around $650 million over the next five years. This will therefore
mean that it will be more than capable of tackling the new competitive arena in
Brazil.