Re Agreement - Press Release

Telefonica SA
8 March 2002


PRESS RELEASE


TELEFONICA MOVILES, SUBSIDIARY OF TELEFONICA,S.A., AGREES TO THE PURCHASE OF 65%
OF PEGASO AND ITS SUBSEQUENT INTEGRATION INTO TELEFONICA MOVILES MEXICO


  • Telefonica Moviles, subsidiary of Telefonica S.A., will become the
    second-largest Mexican cellular telephony operator with over two million
    active customers under management.

  • The acquisition of Pegaso will allow Telefonica Moviles to provide its
    products and services throughout Mexico, a potential market of 100 million
    people and the region's leading economy.

  • Mexico is a strategic market for Telefonica Moviles because of its high
    growth potential, favourable competitive situation, and economic stability
    arising from its close correlation to the US economy and the
    investment-grade rating given it by credit agencies.


Madrid, 8 March 2002.- Telefonica Moviles has signed letter of intent with all
the shareholders of the Mexican mobile telephone operator Pegaso to acquire the
65% of its equity capital which is in the hands of non-Mexican shareholders. As
a result of this agreement, Telefonica Moviles will become Mexico's
second-largest cellular operator, with over two million active customers. It
also strengthens the company's position in Latin America and in NAFTA, extending
its presence in the region.

The operation is still subject to the signing of the definitive contracts and
has to satisfy certain requirements, including obtaining the relevant approvals
from the Mexican regulatory and anti-trust authorities.

Telefonica Moviles will acquire 65% of Pegaso's equity capital from Sprint, Leap
Wireless and other financial investors for $70.5 million (Euros 81 million).
Pegaso's total value has been set at $1.360 billion (Euros 1.560 billion).

The Burillo Group, headed by Alejandro Burillo Azcarraga, will not sell its 35%
interest in Pegaso, remaining as a core shareholder, contributing its knowledge
of the Mexican market.

Subsequently, both Telefonica Moviles and the Burillo Group will increase
Pegaso's capital in order to strengthen its financial structure and capacity for
future expansion.

The agreement in principle envisages that, once the operation has been approved
by the Mexican authorities, Telefonica Moviles and Grupo Burillo will integrate
their subsidiaries Telefonica Moviles Mexico and Pegaso into a new company. As a
result, Telefonica Moviles will own between 90% and 92% of the new entity,
depending on the size of the capital increase mentioned above, and the Burillo
Group will hold the other 8% to 10%.

The new entity will have eleven board members, nine of whom will be appointed by
Telefonica Moviles. The Burillo Group will appoint the first non-executive
president of the new company and a deputy general manager.

Mexico's second largest mobile telephony operator

This transaction makes Telefonica Moviles Mexico's second largest cellular
operator, as the new entity will begin operations with over two million
customers. The operation also improves prospects for Telefonica Moviles'
mid-term EBITDA growth.

At year-end 2001, Telefonica Moviles Mexico, which operates in the north of the
country, had over 1.2 million active customers. Pegaso has close to 800,000
customers, according to the customer reporting criteria used by Telefonica
Moviles which are significantly more rigorous than those generally used in
Mexico.

Acquiring Pegaso will expand Telefonica Moviles' Mexican operations resulting in
the implementation of a nationwide strategy, as it will have a new network which
offers significant growth potential and is fully compatible with that of
Telefonica Moviles Mexico.

In this way, Telefonica Moviles will consolidate and rationalise the Mexican
market based on a profitable growth model and strong financial flexibility. The
new entity will have an extensive retail network of over 3,500 points of sale.

All these factors will make it easier to exploit economies of scale and
synergies in terms of brand, handset logistics, IT systems, network deployment
and service roll-out, accelerating growth and profitability.

The acquisition of Pegaso will allow Telefonica Moviles to extend its operations
in the Mexican mobile telephony market which is a very attractive market given
its low penetration rate (officially 21% and an estimated 16% in a country of
100 million people) and strong growth potential.

The ability to provide products and services in Mexico City, the country's
capital, implies immediate access to a potential market of over 20 million
people and to a large number of corporate customers. The latter is a market
segment in which Telefonica Moviles has proved to have a significant competitive
edge as a result of its experience in developing added-value products and
services.


Technological capacity and complementary business

Pegaso's frequency spectrum is also compatible with Telefonica Moviles'. Pegaso
has a 30MHz spectrum on the 1900 MHz band in the country's main towns and cities
and uses CDMA technology in a 100%-digitalized network, the same technology as
Telefonica Moviles uses in Mexico.

Pegaso operates in twelve of Mexico's main centres of population: Mexico City,
Monterrey, Tijuana, Guadalajara, Cuernavaca, Toluca, Chapala, Saltillo,
Ensenada, Mexicali, Nuevo Laredo and Reynosa.

Telefonica Moviles (MC/NYSE: TEM) is one of the world's leading mobile telephony
companies. It has more than 30 million customers under management in 14
countries and a potential market of over 514 million inhabitants. In 2001
Telefonica Moviles reported Euros 8.411billion in operating revenue, Euros 3.333
billion in EBITDA and net earnings of Euros 893 million.


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