TEF share capital reduction

Telefonica SA
07 June 2005


                             ANTONIO J. ALONSO UREBA

                          Director, General Secretary

                   and  Secretary of the Board of Directors

                                 TELEFONICA, S.A.



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



                                SIGNIFICANT EVENT


The Board of Directors of Telefonica, S.A., at its meeting of  May 31st, 2005,
resolved to execute the resolution adopted by the company's shareholders in
their Annual General Meeting held this same date (May 31st, 2005) regarding a
capital reduction by the cancellation of own shares corresponding to the 'TIES
Program', the compensation system tied to the market price of Telefonica, S.A.
share and targeted at the non- executive employees of the Telefonica Group.



Therefore, 34,760,964 of the own shares of Telefonica, S.A. have been cancelled,
reducing the company's share capital by the sum of 34,760,964 euros. This also
means rewording Article 5 of the By-laws, relative to share capital, which now
stands at 4,921,130,397 euros, made up of an equal number of ordinary shares,
all of a single series and with a nominal value of one (1) euro per share,
totally paid in.



This share capital reduction is done with a charge to the Additional paid-in
capital Reserve, and does not involve the return of contributions as the company
itself is the owner of the cancelled shares, and the purpose of the operation is
to cancel own shares held as treasury stock.



The public deed of this share capital reduction has been registered in the 
Madrid Mercantile Registry (Registro Mercantil) on June 7th, 2005.






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