possible merger TEF-TEM

Telefonica SA
16 March 2006

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





                               SIGNIFICANT EVENT





With regard to TELEFONICA MOVILES, S.A., in which TELEFONICA S.A. has,
directly and indirectly, an interest of 92.46% of its share capital,
TELEFONICA S.A would like to inform hereby of its intention to submit a
proposal to negotiate a possible merger between both companies to TELEFONICA
MOVILES, S.A. Board of Directors.



TELEFONICA, S.A. intends to propose an exchange ratio of four shares of
TELEFONICA, S.A. for each five shares of TELEFONICA MOVILES, S.A.
Nonetheless, this exchange ratio will be subject to the valuation analysis of
both companies, which will be submitted to their respective Boards of Directors
on the meetings to be held on March 27th, 2006 (TEM) and on March 29th 2006
(TEF).



Should the transaction proceed in accordance with the proposed terms, the Board
of Directors of TELEFONICA S.A will propose to its General Shareholders'
Meeting an increase of its share capital of a maximum of 261,320,118 shares,
deducting, if applicable, the number of shares owned as treasury stock by
TELEFONICA S.A at the moment of such capital increase.



As of today, TELEFONICA S.A owns approximately 3.9% of its share capital as
treasury stock.



Madrid, March 16th , 2006




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