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Safe Harbour

Safe Harbour.

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Safe Harbour

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  1. Safe Harbour This presentation contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this presentation and include statements regarding the intent, belief or current expectations of the customer base, estimates regarding future growth in the different business lines and the global business, market share, financial results and other aspects of the activities and situation relating to the Company . Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward looking statements as a result of various factors. Analysts are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation. Telefónica undertakes no obligation to release publicly the results of any revisions to these forward looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Telefónica´s business or acquisition strategy or to reflect the occurrence of unanticipated events. Analysts and investors are encouraged to consult the Company´s Annual Report on Form 20-F as well as periodic filings made on Form 6-K, which are on file with the United States Securities and Exchange Commission.

  2. A value growth company

  3. OBJECTIVES FOR THESE TWO DAYS • Share with you the fundamentals that explain our current performance and position us for future growth • Convey our project for continued superior earnings performance • Give you the opportunity to know and interact with our top management team • Understand your perspectives on the company and provide relevant and helpful factual information about the Group and our businesses

  4. A VALUE GROWTH COMPANY Solid value based on fundamentals: large client base, strong operational skills, unmatched intangibles, balanced and flexible business structure Superior EBITDA and strong financial position Addressing major open issues: UMTS, Regulation, Acquisitions Management priorities that translate into superior earnings growth

  5. A MARKET WITH MORE THAN 500 MILLION POTENTIAL CUSTOMERS... SPAIN MEXICO • Wireline: TdE: 100% • Wireless: TME • Internet • Access nº 1 • Portal: nº1 VENEZUELA • Wireless: • Bajacel: 100% • Movitel: 90% • Norcel: 100% • Cedetel: 100% • Internet: • Access: nº 2 • Portal: nº 1 • Wireline: CANTV 6.4% • More than 65 million customers currently being served • Positive growth outlook • Strong cultural and economic links BRAZIL • Wireline: TeleSP 86.6% • Wireless: • Teleleste Cel: 10.8% • TeleSudeste: 81.6% • CRT 43.4% • Internet: • Access: nº2 • Portal: nº2 PERU • Wireline: • T de Perú: 93.2% • Wireless: TdPerú: 91% • Internet: • Access: nº 1 • Portal:nº 1 CHILE ARGENTINA • Wireline and wireless: • CTC: 43.6% • Internet • Access:nº 1 • Portal: nº 1 • Wireline: TASA: 97.9% • Wireless: TASA Móviles 96% • Internet • Portal: nº3

  6. GDP Growth (%) Average 2002-2004 2000 2001 USA EUROSpain Brazil Argentina Mexico Chile Peru 4.9 3.4 4.1 4.2 -0.2 6.9 5.4 4.0 2.0 2.9 3.2 4.2 2.9 4.5 5.2 2.5 3.0 3.2 3.4 4.4 4.5 5.2 6.2 4.7 …WITH GROWTH POTENTIAL Source: Telefónica estimates; OVUM; Pyramid; Forrester; IDC; US Census Bureau

  7. LATIN AMERICA REMAINS A LARGE GROWTH OPPORTUNITYUSD billion 24 19 Telecoms market growth opportunity 2001-2005 Latin America* Telecoms market current size 2000 Spain * Current GDP Latam aprox. 1,790 USD billion x 34% GDP growth in 5 years x 4% of GDP in telecoms Source: IDC; Dataquest; WEFA-WMM

  8. EVERY GROWTH PROJECT MUST BE BASED ON CLIENTS... Growth in customer base Growth in usage of current services Dimensions of growth Growth in new services

  9. …AND TELEFONICA IS UNIQUELY POSITIONED: STRONGGROWTH IN OUR CUSTOMER BASE AND EXCELLENT PROSPECTS 10.8% 39.7 2000 penetration Managed fixed clients (millions) 35.8 LatAm USA Europe Wireline penetration Wireless penetration Internet penetration 1999 2000 13% 13% 3% 68% 41% 50% 61% 63% 23% 48.8% Managed cellular clients (millions) 23.0 15.5 1999 2000 Internet access clients (millions) 370% 6.1 1.3 1999 2000

  10. WE HAVE ACHIEVED STRONG OPERATIONAL SKILLS...Productivity Europe Latam Lines/employee Lines/employee (year 2000) 500 790 493 TdE 420 582 573 516 469 TI • 362 416 385 340 DT • 289 248 238 • 262 BT 260 FT • 250 180 Telecom Argentina Brasil Telecom 1996 1997 1998 1999 2000 Telmex** Telemar* CANTV TeleSp TASA CTC TdP * As of June 2000 ** As of July 2000 Source: Telefónica

  11. …AND A STRONG COMPETITIVE POSITION 93.7% combined market share in wireline operations 50.4% combined market share in wireless operations 90% total market share of corporate customers where we operate as incumbents

  12. A SUCCESSFUL TRACK RECORD OF “TURN AROUNDS” From dateof acquisition To date 6,407 338 58% 10,596 790 66% TeleSP (acquired Aug. 98) • LIS (‘000) • Number of lines/employee • EBITDA/revenues 1,696 78 38% 4,327 408 60% TASA (acquired Nov. 90) • LIS (‘000) • Number of lines/employee • EBITDA/revenues

  13. UNMATCHED INTANGIBLES • Market knowledge • Operational knowledge • Successfully applied in different geographies Knowledge Brand • Strong image, high awareness everywhere • One umbrella brand in natural markets Reputation • Credibility • Recognized execution capabilities Relationships • Government, regulatory bodies, administrations • Corporate distribution, suppliers Talent • Competent, experienced and action oriented management team

  14. TELEFONICA HAS A BALANCED BUSINESS STRUCTURE... BUSINESS TELEFÓNICA’S POSITION Basic service • Large, addressable client base: >500 M in our core markets + 300M elsewhere • Broad offering provides flexibility to better serve customer demands Wireline in Latam Wireline in Spain Mobility Broadband Wireline in Latam Wireline in Spain Internet Content

  15. … AND A FLEXIBLE ORGANIZATION Others Wireline in Spain Wireline in Latam • Natural owner of the businesses • Operating flexibility to better serve customer demands • Increased management accountability • High potential for capturing synergies • Not considering pure spin-offs • Further IPO’s based on strategic opportunities to unlock value

  16. A VALUE GROWTH COMPANY Solid value based on fundamentals: large client base, strong operational skills, unmatched intangibles, balanced and flexible business structure Superior EBITDA and strong financial position Addressing major open issues: UMTS, Regulation, Acquisitions Management priorities that translate into superior earnings growth

  17. TELEFONICA ACHIEVED STRONG PERFORMANCE IN YEAR 2000...2000 Financial Highlights Million 2000 % Change Revenues (€) EBITDA (€) Net income (€) EPS (€) Wireline customers Wireless customers Internet access customers 28,485.5 11,918.8 2,504.8 0.67 42.3 24.9 6.1 24.1 9.5 38.8 18.5 10.1 48.9 370.0

  18. BEST FINANCIAL BALANCE AMONG PEERS... € 12 Bn. EBITDA 2000 €26.9 Bn. Net debt 12/2000 €80 Bn. Market Cap. 26/02/2001 … with full control and access to the highest diversified cash flow in the industry 1 1999 EBITDA breakdown 10.9 47 12 40 1 2000 EBITDA breakdown 36 19 44 11.9 TdE T. Móviles T. Latam T.Data

  19. EBITDA WILL CLEARLY EXCEED CAPEX REQUIRED FOR ORGANIC GROWTH EBITDA Total Capex Capex (ex-UMTS) 1999 2000 2004

  20. WE HAVE FOLLOWED A RATIONAL AND CONSERVATIVE FINANCIAL POLICY • Equity-funded acquisitions (€30.4 bn in 2000) • New organization optimizes cost of capital Net debt/EBITDA Net debt (€ Bn) EBITDA (€Bn) Telefónica 2.4 26.9 12.0 Deutsche Telekom 4.5 65.3 14.5 France Telecom 56.5 10.9 5.2 British Telecom 47.0 10.1 4.7 23.4 3.3 7.1 KPN Analysts consensus estimates

  21. 09/99 12/99 03/00 06/00 09/00 12/00 03/01 FT AA+ BT BT BT FT AA KPN KPN KPN KPN FT FT AA- DT DT DT A+ FT FT A BT BT BT Vodafone Vodafone Vodafone BT Vodafone Vodafone Vodafone KPN KPN FT DT DT DT DT A- Vodafone KPN BBB+ A SOLID FINANCIAL POSITIONEvolution of ratings (S&P) Pursue an upgrade in rating from current levels of A+ Telefónica Telefónica Telefónica Telefónica Telefónica Telefónica Telefónica

  22. WE ARE ABLE TO ADDRESS SIMULTANEOUSLY PROFITABILITY AND GROWTH Strong earnings stream more than covers funding required for organic growth Telefónica is a value growth company Strong financial position gives us flexibility to capture new growth opportunities

  23. A VALUE GROWTH COMPANY Solid value based on fundamentals: large client base, strong operational skills, unmatched intangibles, balanced and flexible business structure Superior EBITDA and strong financial position Addressing major open issues: UMTS, Regulation, Acquisitions Management priorities that translate into superior earnings growth

  24. UMTS IN GERMANY We are working hard to deliver 1. Customers from day 1 2. An efficient network 3. An effective organization • We are emphasizing the commercial front: negotiating with potential partners, exploring options • Negotiating shared infrastructure arrangements and roaming and interconnection agreements • CEO and management team appointed. Remaining ramp-up process on track To date, we have not earned investors’ credibility • We remain confident that there is an opportunity for value creation in Germany, the market with the largest growth potential in Europe • We commit to update you on our progress

  25. OUR REGULATORY APPROACH • First objective: maintain open communication and active dialog with regulators in every country where we operate • Spain: • Wireline: last building blocks of regulatory model settled (unbundling of local loop and price cap) and tariff rebalancing will follow • Wireless: likely review of unsustainable spectrum fee in light of industrywide implications • Brazil: accelerated compliance with ANATEL objectives as a mean to capture other growth opportunities • Argentina and Chile: We have weathered major regulatory crises. We learned the lessons and we are committed at the highest level to manage situation (ULL, number portability)

  26. Consolidation at parent level No to “merger of equals” Receptive, if strategically complementary Will not turn our backs to opportunities to absorb underperforming complementary assets Consolidation at Business Line level ACQUISITIONS AND VENTURES JV with Portugal Telecom in Brazilian mobile market Selective Complementing our competitive position Accretive Acquisition of Motorola’s wireless assets in Mexico Increasing EBITDA

  27. A VALUE GROWTH COMPANY Solid value based on fundamentals: large client base, strong operational skills, unmatched intangibles, balanced and flexible business structure Superior EBITDA and strong financial position Addressing major open issues: UMTS, Regulation, Acquisitions Management priorities that translate into superior earnings growth

  28. MANAGEMENT PRIORITIES Continue improving results in consolidated businesses 1 Continue expansion in Latin America 2 “Achieve sustained superior earnings growth” Drive developing businesses towards profitability leveraging the Group 3 Continue business building 4 Capture inter-business and Group synergies

  29. IN SUM, TELEFONICA IS A VALUE GROWTH COMPANY • Unmatched fundamentals • Strong financial position • Recognition of open issues • A clear plan forward Continued superior earnings growth

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