Stock Dividend-Prior Communic

Telefonica SA
19 December 2002

                              PRIOR COMMUNICATION



Joaquin de Fuentes Bardaji, holder of identity card no. 50.407.969 - L, acting
on behalf of TELEFONICA, S.A. (hereinafter the 'Company' or 'Telefonica') in
his capacity as Vice -Secretary of the Board of Directors, hereby declares
before the Spanish National Securities Commission:


        I.      That the Company's General Ordinary Shareholders' Meeting held
        on April 12th, 2002 resolved to carry out two successive capital
        increases to be charged to freely disposable reserves, in an amount
        equivalent to 2% of the share capital of the Company subscribed and
        paid- in each, through the issue of new shares that will be freely
        allocated to the shareholders at a ratio of one new share for every
        fifty old shares held.


        The General Ordinary Shareholders' Meeting also resolved to delegate to
        the Board of Directors the power (which in turn may be sub- delegated in
        whole or in part to its Standing Committee and/or in any of the Director
        with delegated powers) to set the dates on which the aforementioned
        capital increases may be executed and to specify the conditions for the
        capital increases that have not been provided for in the Meeting.


        II     That, under said authorization, and considering the convenience
        to execute the first of these capital increases, the Board of Directors,
        at its meeting held on December 18th, 2002, resolved to execute the
        resolution referred to in the previous paragraph and set the amount for
        the capital increase at Euros 97,213,225, through the issue of
        97,213,225 ordinary shares, of the same series and carrying the same
        rights as those currently outstanding, of a nominal value of one (1)
        euro each and represented by book entries




        III.     That, by means of this document, and by virtue of that stated
        in article 26 of the Stock Market Law 24/1988 of July 28 (modified by
        Law 37/1998 of November 16), and articles 5.2.a), 8.1 and 9 of Royal
        Decree 291/1992 of March 27, regarding Issues and Public Sale Offers of
        Securities (modified by Royal Decree 2590/1998, December 7), the
        mandatory Prior Communication regarding the increase in the Company's
        share capital is presented, and the main characteristics of this are
        stated below:


        1.     Issuer


        The issuer of the shares derived from the aforementioned capital
        increase is TELEFONICA S.A., with its registered head office in
        Madrid, Gran Via 28 and C.I.F. A-28/015865, registered in the Madrid
        Mercantile Register, volume 12,534, sheet 21, Section 8 of the book of
        Companies, page M-6164, registering 1359.






        2.     Nature and characteristics of the securities to be issued and the
        amount of the issue


        The securities issued in the capital increase are ordinary Telefonica
        shares, with a nominal value of one Euro each, of the same series, and
        with the same rights as those Telefonica shares currently outstanding,
        and represented by book entries.


        The new shares issued by virtue of this capital increase will entitle
        holders to receive the entire amount of the dividends distributed from
        the time of the ending of the free allocation period referred to in
        paragraph 4 below.


        The capital increase will be entirely charged to the Company's freely
        disposable reserves, in the ratio of one (1) new share for every fifty
        (50) Company shares currently outstanding, and this increase will be
        based on the balance duly audited by the Company's auditors for the year
        ended December 31, 2001.


        The number of shares derived from the capital increase (97,213,225
        shares) will be equal to 2% of the Company 's subscribed and paid- in
        capital stock at the time of the beginning of the free allocation
        period, as established in the Shareholders Meeting 's resolution
        referred to in Point I. The shares will be issued at par, that is with
        an issue price of one (1) euro per share.


        The Company will apply for the listing of these shares on the four
        Spanish Stock Exchanges and in the Spanish Automated Quotation System
        (Mercado Continuo), as well as their listing on the foreign securities
        exchanges where the Company's outstanding shares are already listed and
        their inclusion in the Stock Exchange Automated Quotation System (SEAQ
        International), subject to the regulations governing said stock markets.


        3.     Group of subscribers to whom the issue will be offered


        All those Company shareholders who, at the end of the working day
        previous to the beginning of the free allocation period referred to in
        paragraph 4, were registered as such, will be entitled to receive one
        (1) new share for every fifty (50) old ones held. The free allocation
        rights will be transferable during this period under the same conditions
        as the shares from which they derive on the Spanish Stock Exchanges of
        Madrid, Barcelona, Bilbao and Valencia through the Automated Quotation
        System.


        For the purposes of that stated in the previous paragraph, every natural
        or legal person, who, at the end of the aforementioned day, is
        registered as a holder of the Company's shares at the registries of the
        member-entities of the Spanish Settlement and Clearance Service (SCLV)
        will be considered a Telefonica shareholder.


        4.     Allocation procedure


        The free allocation rights may be exercised during a fifteen-day period
        which will begin on the working day subsequent to the publication of the
        announcement of the capital increase in the Official Gazette of the
        Mercantile Register.


        As the share capital increase is charged to reserves, no expenses or
        commissions will be charged by the Issuer for the allocation of the new
        shares. Notwithstanding, the member- entities of the SCLV may apply, in
        accordance with the current legislation in force, the commissions and
        expenses for the allocation of the shares and for the trading of the
        free allocation rights.


        5.     Entities participating in the issue


        All the member-entities of the SCLV, in the course of their normal
        activity, will participate in the allocation of the shares from this
        capital increase.




        6.     The Issue's Prospectus


        Telefonica shall present the corresponding abridged Prospectus on the
        Issue corresponding to this capital increase, in order for this to be
        verified and registered by the Spanish National Securities Commission,
        in accordance with that stated in article 5.2.d) of Royal Decree 291/
        1992.




        In witness thereof,


        IT IS REQUESTED that the Spanish National Securities Commission
        (Comision Nacional del Mercado de Valores) on acknowledging the filing
        of this Prior Communication relative to the capital increase on
        reserves, admits it and, after having completed the required
        formalities, proceeds to register it in the appropriate Registry.


        Madrid, December 18, 2002




        TELEFONICA, S.A.

        p.p.


        Mr. Joaquin de Fuentes Bardaji

        Vice -Secretary of the Board of Directors






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