Merger Plan of Terra and TEF

Telefonica SA
24 February 2005




    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

    The Board of Directors of both Telefonica, S.A. and Terra Networks, S.A.
have each adopted, at their meetings held today, a Merger Plan for the
acquisition of Terra Networks, S.A. by Telefonica, S.A., with the termination,
through dissolution without liquidation, of the former company, and the en bloc
transmission of all of its assets to the latter company, which, through
universal succession, will acquire the rights and obligations of Terra Networks,
S.A.

    The exchange ratio for the shares of the entities participating in the
merger, which was determined on the basis of the real value of the corporate
assets and liabilities of Telefonica, S.A and Terra Networks, S.A., will be the
following: Two (2) shares of Telefonica, S.A., each having a par value of one
euro (€1), for every nine (9) Terra Networks, S.A. shares, each having a par
value of two euros (€2).

    In accordance with article 226 of the Mercantile Registry Regulation in
force, a copy of the Merger Plan shall be filed at the Madrid Mercantile
Registry, a copy of which is included in the present Significant Event as Annex
1.

    Likewise, it is hereby included as Annex 2, the Press Release that shall be
distributed by the Company today.




    Madrid, February 23rd 2005.



                                   ANNEX - 1


                                          MERGER PLAN

                                              OF

                                      TELEFONICA, S.A.

                                              and

                                     TERRA NETWORKS, S.A.


                           Madrid, February 23, 2005



For the purposes of the provisions of Articles 234, 235 and related articles of
the Corporations Law, as approved by Royal Legislative Decree No. 1564/1989, of
December 22 (hereinafter referred to as the 'Corporations Law'), the
undersigned, in their capacity as members of the Boards of Directors of
TELEFONICA, S.A. (hereinafter referred to as 'TELEFONICA') and TERRA
NETWORKS, S.A. (hereinafter referred to as 'TERRA'), have drawn up the present
merger plan (hereinafter referred to as the 'Merger Plan' or the 'Plan'), which
shall be submitted for approval of the shareholders at their respective general
shareholder meetings pursuant to the provisions of Article 240 of the
above-mentioned Law. The contents of such Plan are as follows.


                                 1. INTRODUCTION

1.1 Reasons for the merger


    Like many other Internet companies, TERRA has evolved within the context of
    a strategic model based on a separation between the telecommunications
    business and the business of providing Internet services (ISP).
    Notwithstanding other prior circumstances, it has recently (more
    specifically, during the last twelve months) become manifestly obvious, in a
    clear and distinct manner, that an irreversible crisis is affecting the
    traditional model of the pure Internet service provider, and that, in
    parallel, a new model based on the operational integration of the telephone
    and Internet businesses has appeared in the telecommunications market. The
    root of these changes lies in the emergence, development, and blossoming of
    broadband technology applied to Internet access, which has led to the
    blurring - especially in the last year, during which its penetration and
    growth have accelerated exponentially - of the traditional line of
    separation between the above-mentioned businesses.


      • The explosion of broadband technology has, in effect, created a new
        dynamic in the supply market, with which synchronization can only be
        obtained based on a complete interweaving of the network functions and
        the provision of services, or, put another way, the integrated
        management of the connectivity, access, and service layers. In this
        scenario, Internet access providers need to become communications
        operations in order to compete in the market. For such reason, they must
        either invest in network infrastructure (which could compromise their
        viability, given the time required for the maturation of the investment
        and the high capital cost of addressing it), or else become fully
        integrated with network operators, who already have the necessary
        infrastructure and technical and human resources.


      • Moreover, on the demand side, today's customer is not content with
        Internet access alone. Users' preferences are becoming increasingly
        oriented toward integrated offerings (voice, images, Internet access,
        etc.), for which it is necessary to hold a position as operators who can
        offer all of the services that the market demands, and thereby compete
        with other entities that are able to provide all of these services to
        the end customer.


      • In addition, the technological evolution of the services - the rapid
        increase in connection speeds, the technical complexity needed to
        provide high-quality audiovisual content, the required interoperability
        of the various elements of the offering (e-mail, messaging, voicemail,
        content consumption, etc.) - demands increasingly greater capabilities,
        scale, and resources in order to stay competitive in a market that is
        growing in size but whose offerings are constantly changing.

    All of this explains the activities of the competing groups aimed at making
    bandwidth the center or core of their strategy, and, consequently, at
    combining the telephone and Internet businesses. The most recent examples
    are the mergers of France Telecom and its Internet subsidiary Wanadoo, and
    of Deutsche Telekom and T-Online, the latter of which is about to be
    completed.

    The proposed merger of TELEFONICA and TERRA, as describe in this Plan,
    obeys the same logic. In fact, the Boards of Directors of both companies
    believe that this path must be taken in order to have any guarantee of
    success in dealing with the challenges posed by the development of the
    industry, technological change, and customers' new needs. It is thus
    intended to create a customer-oriented business segment able to offer
    customers integrated solutions within the telecommunications market.

    Therefore, the merger is viewed as a strategic imperative of the highest
    order, and as an outstanding opportunity for mutual advantage. The
    shareholders of both TERRA and TELEFONICA will benefit from it. In terms
    of summarizing the most essential aspects, it can be stated that the
    integration of the businesses resulting from the merger will make it
    possible:

    a) To strengthen the competitive positioning of TERRA and TELEFONICA in
    the above-referenced markets, which will translate into an increase in
    customers and an expanded share of the market. This is the case because of
    (i) the greater capacity of the unified firm to respond to the integrated
    offerings of competitors; (ii) the better position for creating new services
    that optimize the use of the TELEFONICA's network capabilities (which is
    critical for services with a need for greater bandwidth, greater security,
    etc.) and that integrate them fully into the service provided to the end
    customer; (iii) the strengthening of the offering made to the market,
    combining the positive attributes of the TELEFONICA and TERRA brand
    names, which in turn will make it possible to strengthen the leadership of
    the combined company; (iv) the greater scale of operations, which will make
    it possible to undertake innovative projects that would now be more
    difficult to undertake; and (v) the greater leveraging of the commercial
    resources of the two companies, e.g., proprietary channels, third-party
    channels, joint advertising, etc.

    b) To make better use of current customer bases, through (i) the ability to
    define and implement a global strategy based on customer segments, beyond
    the current product-based vision; (ii) increased penetration; (iii) an
    increase in the loyalty of existing customers, by reducing churn rates
    through the packaged sale of services; (iv) increased cross-sales of
    services; and (v) the resulting increase in per-customer earnings.

    c) To minimize costs and optimize investments, through (i) the integrated
    management of networks and platforms (provision of services, billing, CRM/
    customer service, etc.), with the additional benefit of greater quality for
    the end customer, through end-to-end management; (ii) the rationalization of
    investments that are particularly relevant, given the growing needs for an
    ability to manage new services that are broadband intensive; (iii) the total
    elimination of duplication in the development of new services; (iv) the
    streamlining of corporate structures, eliminating duplications and thereby
    improving management and increasing efficiency; and (v) an increased ability
    to achieve synergies in the purchases of contents and services.

    d) To facilitate the exploitation of the opportunities for growth in new
    markets, using broadband Internet access as an offering that is more
    attractive and competitive than fixed-base telecommunications (a factor that
    is particularly relevant in terms of the expansion of the Brazilian market).

    e) To develop a single strategy of promoting and creating businesses in the
    e-commerce field and general gateways for access to information and
    advertising, as a result of the major growth of broadband Internet access in
    all markets.

1.2 STRUCTURE OF THE TRANSACTION


    The legal structure selected for the integration of the businesses is - as
    noted above - a merger pursuant to the terms of Articles 233 et. seq. of the
    Corporations Law. The planned merger will take place specifically through
    the acquisition of TERRA (the acquired company) by TELEFONICA (the
    acquiring company), with the termination, through dissolution without
    liquidation, of the former company, and the en bloc transmission of all of
    its assets to the latter company, which, through universal succession, will
    acquire the rights and obligations of TERRA. As a result of the merger,
    TERRA shareholders will receive an exchange of shares of TELEFONICA,
    pursuant to the terms specified below.

    The merger of TERRA with the parent company of the TELEFONICA Group has
    notable advantages. The most pertinent ones consist of ensuring liquidity
    for TERRA's shareholders (inasmuch as, in exchange, they will receive shares
    of TELEFONICA, which probably are the most liquid ones on the Spanish
    market), and simplifying the implementation of the transaction, because once
    the merger has been completed, it will be easier to undertake the process of
    reallocating the assets of TERRA within the TELEFONICA Group.


          2. IDENTIFICATION OF THE ENTITIES PARTICIPATING IN THE MERGER

2.1 TELEFONICA (the Acquiring Company)


    TELEFONICA, domiciled in Madrid, at calle Gran Via, 28, which was
    incorporated for an indefinite time by means of an notarial instrument
    executed before Mr. Alejandro Rosello Pastor, a Madrid Notary, on April 19,
    1924, at entry No. 141.

    TELEFONICA is registered with the Commercial Registry of Madrid, in Book
    12.534, Folio 21, Page M-6.164.

    TELEFONICA's Taxpayer ID number is A-28.015.865.

2.2 TERRA (the Acquired Company)


    TERRA, domiciled in Barcelona, at calle Nicaragua, 54, which was
    incorporated for an indefinite time as TELEFONICA COMUNICACIONES
    INTERACTIVAS, S.A. by means of a notarial instrument executed before Mr.
    Jose Antonio Escartin Ipiens, a Madrid Notary, on December 4, 1998, at entry
    No. 5,276 in his notarial register, which changed its name to the current
    name by means of an instrument dated October 1, 1999, drawn up before Mr.
    Francisco Arriola Garrote, a Madrid Notary, and recorded under entry No.
    1,269 in his notarial register, and which moved to its current domicile by
    resolution adopted at the Ordinary General Shareholders' Meeting held on
    June 8, 2000, which resolution was converted into a public instrument before
    Mr. Nicolas Ferrero Lopez, a Notary of Pozuelo de Alarcon, on August 3,
    2000, and recorded under entry No. 2,893 in his notarial register.

    TERRA is registered with the Commercial Registry of Barcelona, in Book
    32.874, Folio 165, Page B-217.925.

    TERRA's Taxpayer ID number is A-82.196.080.


                            3. MERGER EXCHANGE RATIO


    The exchange ratio for the shares of the entities participating in the
    merger, which was determined on the basis of the real value of the corporate
    assets and liabilities of TELEFONICA and TERRA, will be as described
    below (with no supplemental cash compensation):

        Two (2) shares of TELEFONICA, each having a par value of one euro
        (€1), for every nine (9) TERRA shares, each having a par value of two
        euros (€2).

    The determination of the exchange ratio took into consideration the
    dividends that both companies are expected to distribute, to which reference
    is made in Section 8 below.

    Morgan Stanley & Co. Limited, as TELEFONICA's financial advisor for this
    transaction, has expressed to the company's Board of Directors in its
    fairness opinion that the agreed-upon exchange ratio is equitable for
    TELEFONICA's shareholders. For their part, Lehman Brothers International
    (Europe), Spain Branch, and Citigroup Global Markets Limited, as TERRA's
    financial advisors for this transaction, have expressed to the latter
    company's Board of Directors in their fairness opinion that the agreed-upon
    exchange ratio is equitable for TERRA's shareholders other than its majority
    shareholder, TELEFONICA.


                            4. MERGER BALANCE SHEETS

    For the purposes set forth in Article 239.1 of the Corporations Law, the
    balance sheets for the merger shall be deemed to be the balance sheets of
    TELEFONICA and TERRA as of December 31, 2004. Such balance sheets have
    been prepared on the date hereof by the respective Boards of Directors, and
    will be verified by the auditors of both companies and submitted for the
    approval of the shareholders at the General Shareholders' Meetings of each
    of the companies that must decide on the merger, prior to the adoption of
    the merger resolution itself.

                     5. PROCEDURE FOR THE EXCHANGE OF SHARES


    The procedure for the exchange of shares of TERRA for shares of
    TELEFONICA shall as follows:


         a. Once the merger has been approved at the General Shareholder Meetings
            of both companies, the corresponding Information Memorandum has been
            verified, if required, by the Comision Nacional del Mercado de
            Valores (the Spanish National Securities Commission) (hereinafter,
            the 'CNMV'), and the merger deed has been recorded with the
            Commercial Registry of Madrid (after having been evaluated by the
            Commercial Registry of Barcelona), the TERRA shares will be
            exchanged for TELEFONICA shares.

         b. The exchange will take place beginning on the date indicated in the
            announcements to be published in the Official Bulletin of the
            Commercial Registry, in one of the widely-circulated daily
            newspapers in Madrid and Barcelona, and, if necessary, in the
            Official Bulletins of the Spanish stock exchanges. A financial
            institution shall be appointed to act as an Agent for such purpose,
            and such institution shall be named in the above-mentioned
            announcements.

         c. The exchange of the TERRA shares for TELEFONICA shares will take
            place through participants in Sociedad de Gestion de los Sistemas de
            Registro, Compensacion y Liquidacion de Valores, S.A. (Securities
            Registration, Clearing, and Liquidation Systems Management Company,
            Inc.) (Iberclear) that are depositaries thereof, in accordance with
            the procedures established for the book-entry system, pursuant to
            the provisions of Royal Decree No. 116/1992, of February 14, and
            with the application of the provisions of Article 59 of the
            Corporations Law, to the extent applicable.

         d. Shareholders who hold shares representing a fraction of the number of
            TERRA shares designated as the exchange ratio may purchase or
            transfer shares in order to exchange them in accordance with such
            exchange ratio. Notwithstanding the foregoing, the companies
            participating in the merger may establish mechanisms for the purpose
            of facilitating the implementation of the exchange for those TERRA
            shareholders who own a number of shares that is not a multiple of
            nine (9), including the designation of a Fractional Agent.


         e. As a result of the merger, the TERRA shares will become null and
            void.


    It is noted for the record that, as of the date of this Plan, TELEFONICA
    is the holder of four hundred thirty-six million, two hundred five thousand,
    four hundred nineteen (436,205,419) TERRA shares, representing seventy-five
    point eighty-seven percent (75.87%) of its share capital. Pursuant to the
    provisions of Article 249 of the Corporations Law and of the regulations
    governing treasury stock, the shares of TERRA controlled by TELEFONICA
    will not be exchanged for shares of TELEFONICA.

    In addition, it is noted for the record that TERRA holds seven million
    (7,000,000) of its own shares in treasury, which shares were earmarked for
    redemption following the amendment of the hedging system for the following
    stock option plans: (i) the TERRA stock option plan approved at the General
    Shareholders' Meeting of TERRA on October 1, 1999, as amended by resolutions
    approved at the General Shareholders' Meetings held on June 8, 2000 and on
    June 7, 2001, and as further developed by the Board of Directors of TERRA,
    and (ii) stock option plans resulting from the assumption by TERRA of the
    LYCOS INC. stock option plans as approved at the General Shareholders'
    Meeting of TERRA on June 8, 2000, and as amended by the General
    Shareholders' Meeting held on June 7, 2001, and as further developed by the
    Board of Directors. The above-mentioned seven million (7,000,000) shares
    will neither be part of the exchange, in compliance with the provisions of
    Article 249 of the Corporations Law and similar provisions, although,
    following the registration of the merger, TELEFONICA will succeed TERRA
    as the entity bound by such plans, which will be amended in accordance with
    the exchange ratio established in this Plan. So as to avoid prejudice to the
    interests of the beneficiaries of said plans, TELEFONICA will establish,
    if necessary, mechanisms to ensure the that due attention will be given to
    the commitments assumed by TERRA in connection with the above-mentioned
    stock option plans.


                     6. INCREASE IN TELEFONICA'S CAPITAL


    If necessary, TELEFONICA will increase its share capital by the exact
    amount needed to make the exchange for TERRA shares in accordance with the
    exchange equation established in this Merger Plan.

    The increase will be carried out through the issuance of a precise number of
    shares, each having a nominal value of one euro (€1), belonging to the same
    single class and series as the current TELEFONICA shares, as represented
    by book-entry accounts, with the application, in any event, of the
    provisions of Article 249 of the Corporations Law. In particular, the TERRA
    shares held by TELEFONICA will not be exchanged, and will be redeemed.

    The maximum amount of the capital increase to be carried out by
    TELEFONICA pursuant to the established exchange ratio may be reduced
    through the delivery to TERRA shareholders of old shares held in
    TELEFONICA's treasury.

    The difference between the net book value of the assets and liabilities
    received by TELEFONICA by virtue of the merger covered by this Plan and
    the par value of the new shares issued by TELEFONICA - adjusted, if
    necessary, by the proportion represented by the new shares of the total
    shares delivered in exchange - shall be treated as issuance premium.

    Both the par value of such shares and the corresponding issuance premium
    shall be entirely paid-up as a result of the en bloc conveyance of the
    corporate assets and liabilities of TERRA to TELEFONICA, which, through
    universal succession, shall acquire the rights and obligations of TERRA.


   7. DATE FROM WHICH THE SHARES DELIVERED IN EXCHANGE WILL CARRY THE RIGHT TO
                         PARTICIPATE IN CORPORATE EARNINGS


    The shares which may be issued by TELEFONICA in connection with the
    capital increase mentioned in Section 6 above, shall entitle their owners to
    participate in the corporate earnings obtained by TELEFONICA starting on
    January 1, 2005.

    Previously existing TELEFONICA shares and shares delivered or issued in
    connection with the exchange will participate, with equal rights in
    proportion to the par value of each share, in distributions made after the
    merger deed is recorded with the Commercial Registry.


                                  8. DIVIDENDS


    For the preparation of this Merger Plan and the determination of the
    exchange ratio indicated in Section 3 above, the Boards of Directors of
    TELEFONICA and TERRA took into consideration the following
    dividend-payment plans:
     a. TELEFONICA plans to make the following distributions:
         i. Payment of an interim dividend based on the earnings for the fiscal
            year ending December 31, 2004, which will be paid on May 13, 2005.
            This dividend was announced by the board of directors at its meeting
            held on January 26, 2005. On the date hereof, the Board of Directors
            has resolved to set the amount of such dividend at 0.23 Euros per
            share.

            As indicated in Section 7 above, TERRA shareholders who become
            TELEFONICA shareholders as a result of the merger will not
            benefit from such dividend. This was therefore taken into
            consideration in determining of the exchange ratio.
        ii. The distribution of TELEFONICA's treasury stock, at the ratio of
            one share of treasury stock for each twenty-five shares owned by the
            shareholder, charged against the reserve for issuance premium. The
            proposal for such distribution plan was approved by the Board of
            Directors at its meeting held on November 24, 2004. The
            effectiveness of the distribution is subject to the corresponding
            approval by the shareholders at the Ordinary General Shareholders'
            Meeting of TELEFONICA. The payment is expected to be made during
            the days following the meeting and, in any event, before the merger
            of TELEFONICA and TERRA is recorded with the Commercial Registry.

            TERRA shareholders who become TELEFONICA shareholders as a result
            of the merger will not benefit from such distribution. This was
            therefore taken into consideration in the determination of the
            exchange ratio.
        iii. The payment of a dividend with a charge against the reserve for
            issuance premium, which should be paid on November 11, 2005. The
            proposal for this dividend was announced by the Board of Directors
            at its meeting held on November 24, 2004. The effectiveness of the
            distribution is subject to the corresponding approval by
            shareholders at the Ordinary General Shareholders' Meeting of
            TELEFONICA. The exact amount of such dividend is expected to be
            0.27 Euros per share.

            Unlike the provisions for dividends described above in subsections
            (i) and (ii), this dividend will be received by both the
            TELEFONICA shareholders and the TERRA shareholders who become
            TELEFONICA shareholders as a result of the merger. This was
            therefore not taken into consideration in the determination of the
            exchange ratio.
     b. TERRA expects to pay a dividend in the amount of 0.60 Euros per share,
        with a charge against the 'Reserve for Shares Issuance Premium' account.
        The proposal for such distribution was approved by the Board of
        Directors at its meeting held on February 23, 2005. The effectiveness of
        the distribution is subject to the corresponding approval by the
        shareholders at the Ordinary General Shareholders' Meeting of TERRA.
        Payment is expected to be made during the days following the meeting
        and, in any event, before the merger of TELEFONICA and TERRA is
        recorded with the Commercial Registry.

        Only the shareholders of TERRA will benefit from such distribution. This
        was therefore taken into consideration in the determination of the
        exchange ratio.


                 9. DATE OF THE ACCOUNTING EFFECTS OF THE MERGER


    January 1, 2005 is hereby established as the date from which the TERRA
    transactions shall be deemed for accounting purposes to have taken place on
    behalf of TELEFONICA.


                               10. SPECIAL RIGHTS


    There are no special TERRA shares. Nor are there any owners of special
    rights other than the shares, except for those belonging to the
    beneficiaries (employees, officers, and directors of the companies in the
    TERRA Group) of TERRA; stock option plans mentioned in the Section 5 above
    of this Plan. Following the implementation of the merger, TELEFONICA will
    succeed TERRA as the entity bound by such plans. TERRA stock option rights
    shall be automatically converted into TELEFONICA stock option rights,
    upon the terms resulting from the exchange ratio established in this Plan.
    All references to TERRA or, as applicable, to LYCOS INC. or to LYCOS
    VIRGINIA in such option plans shall be deemed to be made to TELEFONICA
    starting on the date of registration of the merger.

    The TELEFONICA shares that are delivered to the TERRA shareholders
    pursuant to the merger contemplated in this Plan shall not give the holders
    thereof any special rights whatsoever.


           11. BENEFITS EXTENDED TO DIRECTORS AND INDEPENDENT EXPERTS


    No benefits of any type shall be extended to the directors of any of the
    entities participating in the merger, or to the independent expert who
    participates in the merger process.


                              12. TAX REGULATIONS


    The planned merger shall be governed by the tax regulations set forth in
    Chapter VIII of Title VII, and by the second supplemental provision of the
    Consolidated Text of the Corporate Income Tax Law, as approved by Royal
    Legislative Decree No. 4/2004.

    For this purpose, and pursuant to the provisions of Article 96 of the
    above-mentioned Consolidated Text, the merger transaction will be reported
    to the Government Inspection Office in the manner established by the
    regulations.


                          13. BYLAW/CHARTER AMENDMENTS


    TELEFONICA's Board of Directors shall submit for the approval of the
    shareholders at the General Shareholders' Meeting of TELEFONICA wherein
    the merger is approved, the bylaw/charter amendments that pertain to this
    Merger Plan and such other amendments that the Boards of Directors of
    TELEFONICA and TERRA mutually decide upon.


                     14. APPOINTMENT OF INDEPENDENT EXPERT


    Pursuant to the provisions of Article 236 of the Corporations Law, the
    directors of TELEFONICA and TERRA shall ask the Commercial Registry of
    Madrid to appoint a single independent expert for the preparation of a
    single report on this Merger Plan and on the assets and liabilities
    contributed by TERRA to TELEFONICA as a result of the merger.


                       15. ADMINISTRATIVE AUTHORIZATIONS


    The effectiveness of the planned merger shall be subject to the provision of
    notices and the acquisition of the applicable relevant authorizations and
    registrations in Spain and in the other jurisdictions in which both
    companies are present.

Pursuant to the provisions of Article 234 of the Corporations Law, the directors
of TELEFONICA and TERRA whose names appear below have signed and, through
their signature, approved, this Merger Plan, in the form of four (4) original
specimens, of identical form and content, which were approved by the Boards of
Directors of TELEFONICA and of TERRA on February 23, 2005.




                      BOARD OF DIRECTORS OF TELEFONICA

__________________________                              _____________________

Mr.  Cesar Alierta Izuel                                Mr. Isidro Faine Casas

___________________________________                     ___________________________

Mr.  Fernando de Almansa Moreno-Barreda                 Mr.  Jesus Maria Cadenato Matia

__________________________                              _____________________

Mr.  Maximino Carpio Garcia                             Mr.  Carlos Colomer Casellas

__________________________                              _____________________

Mr.  Alfonso Ferrari Herreo                             Mr.  Gonzalo Hinojosa Fernandez de Angulo

__________________________                              _____________________

Mr.  Miguel Horta e Costa                               Mr.  Luis Lada Diaz

__________________________                              __________________________

Mr. Antonio Massanell Lavilla                           Mr. Mario E. Vazquez

__________________________

Mr. Antonio Alonso Ureba

It is noted for the record that the Directors Antonio Viana-Baptista and Enrique
Used Aznar have abstained from participating in the deliberations and voting on
the merger plan because it was believed that they are subject to a potential
conflict of interest. For this reason their signatures do not appear in this
document. In addition, it is noted for the record that the Directors Pablo Isla
Alvarez de Tejera, Gregorio Villalabeitia Galarraga, J. Antonio Fernandez Rivero
and Jose Fonollosa Garcia did not attend the meeting at which this Merger Plan
was approved, with the first of them being represented by Cesar Alerta Izuel and
the remaining three being represented by Jesus Maria Cadenato Matia. For this
reason, their signatures also do not appear in this document.




                          BOARD OF DIRECTORS OF TERRA


__________________________                           __________________________

  Mr.  Joaquin Faura Battle                          Mr.  Francisco Moreno de Alboran y de Vierna

__________________________                           _____________________

Mr.  Fernando Labad Sasiain                          Mr. Enrique Used Aznar

__________________________                           _____________________

Mr.  Luis Bassat Coen                                Mr.  Alfonso Merry del Val Gracie

__________________________                           _____________________

Mr.  Carlos Fernandez-Prida Mendez-Nunez             Mr.  Jose Alfonso Bustamante Bustamante

__________________________

Mr.  Luis Badia Almirall



It is noted for the record that all the Directors appointed as per indication of
Telefonica, S.A., that is, Mr. J. Alfonso Bustamante Bustamante, Mr. Enrique
Used Aznar and Mr. Fernando Labad Sasiain have abstained from attending and
participating in the deliberations of the Board of Directors of Terra Networks,
S.A. on the merger plan and, consequently, have not signed it,  because it was
believed that they are subject to a potential conflict of interest.  For this
reason the signatures of Mr. J. Alfonso Bustamante Bustamante, Mr. Enrique Used
Aznar and Mr. Fernando Labad Sasiain do not appear in this document.

In addition, it is noted for the record that D. Luis Bassat Coen, who could not
attend this meeting of the Board of Directors at which this Merger Plan was
approved, because of illness, has also abstained from participating in the
deliberations in relation to it, because it was believed that he is subject to a
potential conflict of interest.  For this reason his signature does not appear
in this document.




                                   ANNEX - 2

                                                                  Nota de Prensa

                                                                   Press Release



23/02/05



Terra Networks has requested to distribute a dividend in cash of 0.60 euros per
share

THE BOARDS OF DIRECTORS OF TELEFONICA AND TERRA APROVE THE MERGER PLAN OF
BOTH COMPANIES



    Madrid, February 23rd 2005.- In the context of the negotiations that Terra
Networks, S.A. is holding with Telefonica, S.A. leading to a probable merger
between the two companies, the Board of Directors of Terra Networks, S.A. has
proposed to Telefonica, S.A. the distribution to Terra Networks, S.A.'
shareholders, as an additional element of profitability, and as a dividend in
cash, the aggregate amount of 340,764,907 euros.


    This distribution, which will be charged against Additional Paid-in Capital
Reserve of Terra Networks, S.A. represents an additional 0.60 euros per share to
the exchange ratio pursuant to the merger.


    The Board of Directors of Telefonica, S.A. has accepted the proposal of
Terra Networks, S.A. and, in consequence, both Boards of Directors have approved
the Merger Plan.


Para mas informacion / For further information
Direccion de Comunicacion Corporativa                                                   Tel: [phone]
Press Office                                                                            Fax: [phone]
Gran Via, 28 - 3(a) Planta                                                       e-mail: [e-mail]
28013 - MADRID                                                                    http://www.telefonica.es/saladeprensa


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