3rd Quarter Results 2006 Pt 2

Telefonica SA
15 November 2006

PART 2


RESULTS BY BUSINESS LINES

Telefonica O2 Europe

The results of Telefonica O2 Europe for the period ended 30 September 2006
comprise the results of the O2 Group for the 8 month period ended 30 September
2006 and the results of Telefonica O2 Czech Republic and Telefonica Deutschland
for the 9 month period ended September 2006. The results of O2 Group comprise
the results of O2 UK, O2 Germany, O2 Ireland and O2 Airwave for the 8 month
period ended 30 September 2006. It also includes the results of be* from 1 July
2006 and Decision Focus from 1 August 2006. At the end of September 2006, the
contribution of Telefonica O2 Europe to Telefonica Group revenues was 9,434.3
million euros, and operating income before depreciation and amortisation (OIBDA)
reached 2,798.2 million euros.

Telefonica O2 Europe CapEx for the period ended 30 September 2006 amounted to
1,675.2 million euros. For the 8 month period ended 30 September 2006, O2 Group
capital expenditure totalled 1,483.1 million euros.

During the quarter the major strategic and operational highlights were:

  • The launch of the O2 brand in the Czech Republic, replacing the existing
    Cesky Telecom and Eurotel brands. At the same time, a range of new products
    was launched under the O2 brand, including O2 TV, an IPTV service based on
    the Imagenio platform developed by Telefonica.
  • Telefonica O2 Slovakia, a wholly owned subsidiary of Telefonica O2 Czech
    Republic, was awarded a 20 year licence to operate GSM and UMTS networks in
    Slovakia. This new operation is an organic expansion of the existing
    business in the Czech Republic and will take advantage of synergies in areas
    such as network and back office functions. The Slovak business will use the
    O2 brand and commercial launch is expected in the first quarter of 2007
  • O2 Germany launched its DSL offer. O2 is the only provider of integrated
    communication services in Germany to offer mobile, fixed voice and fixed
    internet services. O2 DSL customers get one monthly bill, backed by a single
    customer service number and competitive monthly charges. Customers can
    choose from three different DSL packages and will receive a discount if they
    are also a mobile contract customer of O2.
  • 'High roamer' tariff launched as part of My Europe. After the end of the
    quarter O2 UK, in conjunction with movistar in Spain, launched a new 'high
    roamer' service aimed at frequent travellers, which removes charges when
    receiving calls abroad. The 'high roamer' service has also been introduced
    by O2 Telefonica Czech Republic and complements the first offering under My
    Europe, which was launched in the summer and offers holidaymakers reduced
    flat-rate voice roaming rates throughout the EU across all networks.

O2 Group

O2 UK

Third quarter net service revenue grew by 14.9% year on year and for the eight
months to September reached a total of 2,785 million pounds, an increase of
15.0% compared to the same period last year, driven by continued strong customer
and ARPU growth.

OIBDA margin for the eight months to September 2006 was 27.6%, reflecting the
current high level of customer growth. O2 UK will continue to prioritise growth,
where higher value customers can be acquired, for the rest of this year. OIBDA
for the eight months to September 2006 was 837 million pounds.

The quarter again saw tough competition in the market, but the business
continued to perform well and achieved 15% growth in total gross additions year
on year. A total of 524,000 net new customers were added in the quarter, taking
the base to 17.338 million, maintaining year on year growth at 15%. This figure
excludes the Tesco Mobile customer base.

A total of 208,000 net new contract customers were added in the quarter, driven
by higher gross additions as well as lower churn. At the end of the period
contract customers made up 35.1% of the total base, compared to 34.7% in the
same period last year. 12 month rolling contract ARPU of 515 pounds was down 2
pounds quarter on quarter, but 2 pounds ahead of the third quarter last year.
12-month rolling contract churn was 24%, compared to 30% for the same period
last year, the fifth consecutive quarter of decline, reflecting the ongoing
strategy of rewarding customer loyalty.

A total of 316,000 net new pre-pay customers were added in the quarter, again
driven by higher gross additions as well as lower churn. 12 month rolling
pre-pay ARPU of 142 pounds was 7 pounds higher than the third quarter last year
and 2 pounds higher than the previous quarter.

O2 UK's blended 12 month rolling ARPU of 272 pounds was 7 pounds higher than the
third quarter last year, and 1 pound higher than the previous quarter,
reflecting the continued growth in data ARPU coupled with broadly flat voice
ARPU.

O2 UK's own channels accounted for a growing percentage of total gross
connections in the quarter, reaching 61%. O2 UK also completed the acquisition
of The Link's 293 stores during the quarter which, after disposals and the
re-branding of selected locations, will grow O2's retail channel to around 400
stores. Customer acquisition costs (SAC) were stable at a blended level.

Quarterly monthly minutes of use were up 11% year on year to 175 minutes a
month, driven by propositions such as 50% extra minutes on 18 month contacts and
O2 Long Weekends.

12 month rolling data ARPU of 83 pounds was 9 pounds higher than the same period
last year and 2 pounds higher than the previous quarter.

CapEx in the eight months to September (excluding capex related to the
acquisition of be*and The Link) was 350 million pounds, with continued
expenditure on rolling out coverage of the 3G network as well as investment in
the existing 2G network to ensure a high level of service.

O2 UK launched a number of new products and services during the quarter, aimed
at acquisition and retention of customers and revenue growth. These included:

  • 'My Europe' roaming tariff, offering holidaymakers a reduced flat-rate
    voice roaming rates across the European Union. Using the free opt-in
    service, O2 customers are charged a flat rate of 35 pence per minute to make
    or receive a call within the EU, regardless of the mobile network used, at
    any time.
  • The 'Long Weekends' promotion, offering free on net calls from Saturday to
    Monday for new and existing O2 Pay and Go customers and free calls to any
    network in the UK for new Pay Monthly and upgrading customers.
  • 'Be Heard' campaign, promoting the 24/7 availability of UK based business
    advisors for Business customers, as well as a new Best for Business tariff
    'Unlimited Off-Peak', offering free calls to all UK mobiles and fixed lines
    during evenings or weekends.
  • Two new own brand devices, ICE and Jet. Jet is a tri-band, low-cost
    handset with a simplified user interface, offering 540 hours of standby time
    and 9.9 hours of talk time, beating its nearest competitor by over 67%.




   O2 UK
   SELECTED OPERATING DATA
   Unaudited figures
                                                     2006                      2005                     2006
                                          September          % Chg       September  December         March      June
   Cellular customer (thousands)           17,337.7           14.9        15,086.0  15,980.9      16,340.6  16,814.3
       Prepaid                             11,255.8           14.2         9,858.3  10,479.2      10,654.4  10,940.5
       Contract                             6,081.9           16.3         5,227.7   5,501.6       5,686.2   5,873.8
                                                 3Q          % Chg              3Q        4Q            1Q        2Q
   MOU (minutes)                                175           10.8             158       165         162.0       169
   ARPU (EUR)                                  34.0            1.7            33.4      33.3          32.3      33.1
       Prepaid                                 17.9            4.5            17.1      17.2          16.8      17.3
       Contract                                63.9          (1.0)            64.5      63.7          61.6      62.7
   Data ARPU                                   10.6           12.5             9.4      10.0           9.8      10.0
   % non-P2P SMS over data revenues           13.1%       0.7 p.p.           12.4%     12.2%         12.5%     13.3%

   Note: MOU and ARPU calculated as monthly quarterly average.





O2 Germany

Service revenue grew by 6.1% in the third quarter, and for the eight months to
September reached a total of 2,033 million euros, an increase of 8.1% compared
to the same period last year, driven by the continued growth of the customer
base, which partly offset ARPU weakness in the German market. Third quarter
service revenue was reduced by almost 4% due to the termination rate cut in
December 2005.

OIBDA margin for the eight months to September was 24.2%, higher than expected
mainly due to the slower rate of post-pay gross additions. OIBDA for the eight
months to September 2006 was 531 million euros.

In this competitive environment, O2 Germany continued to trade well. A total of
294,000 net new customers were added in the quarter, taking the base to 10.629
million, 19% higher than at the same time last year. Over the last 12 months
there has been a rapid growth in the pre-pay customer base, resulting in pre-pay
customers making up over 50% of the total base for the first time. The Tchibo
Mobile customer base grew to 772,000 by the end of the quarter.

O2 Germany added a total of 96,000 net new contract customers in the quarter. 12
month rolling contract ARPU of 481 euros was 7 euros lower than the previous
quarter, and 35 euros lower than the same quarter last year. This reflected the
impact of the approximately 17% termination rate cuts in December 2004 and 2005,
as well as increasing competition in the German market and the introduction of
new customer offers.

A total of 198,000 net new pre-pay customers were added in the quarter. 12 month
rolling pre-pay ARPU of 111 euros was 6 euros lower than the previous quarter
and 22 euros lower than the third quarter last year, reflecting the impact of
the termination rate cuts, increasing competition, the growth in multiple SIM
ownership and the consequent lower minutes of use..lower minutes of use.

Blended 12 month rolling ARPU is expected to remain the highest in the German
market at 299 euros, down from 308 euros in the previous quarter and 343 euros
in the same quarter last year. This trend reflects the ongoing impact of the
termination rate cuts, the higher proportion of pre-pay customers in the total
base, and the increasingly competitive market environment. Termination rate cuts
reduced 12 month rolling ARPU in the quarter by approximately 13 euros. However,
average monthly ARPU in the third quarter rose 1 euro quarter on quarter to 25
euros. Customer acquisition costs (SAC) were stable at a blended level, but fell
by around 20% year on year.

Quarterly monthly minutes of use grew by 5% year on year, to 124 minutes, driven
by new propositions such as Genion flat rate. O2 Germany now has a total of 3.8
million Genion customers (72% of the post-pay base), with 51% of all new
post-pay customers opting for Genion.

12 month rolling data ARPU was 70 euros, 1 euro less than the previous quarter
and 9 euros lower than the same period last year due to the higher number of
lower spending pre-pay users in the base. Non-SMS data users grew 23% compared
to the same period last year.

CapEx in the eight months to September was 745 million euros, with continued
expenditure on both the 3G and 2G networks.

O2 Germany launched a number of new products and services during the quarter,
including:

  • 'My Europe' roaming tariff, offering holidaymakers a reduced flat-rate
    voice roaming rates across the European Union until the end of the year.
    Using the free opt-in service, O2 customers are charged a flat rate of 59
    cents per minute to make or receive a call within the EU, regardless of the
    mobile network used, at any time.
  • O2 Loop Alltime. From 1 August until 27 November the cent per minute rate
    has been reduced from 39 cents to 25 cents. Customers who top up 30 euros a
    month can enjoy a rate of 15 cents instead of the previous 19 cents per
    minute for all calls to fixed lines, mobiles and voicemail, as well as SMS
    at 12 cents per message.
  • O2 Communication Centre. The Communication Centre enables customers to
    save data such as phone numbers, notes and calendar items to a secure area
    on the O2 Germany website. If the customer changes handset or it is lost or
    stolen, the data can be easily downloaded and restored. E-mail can also be
    accessed via WAP Push or MMS.
  • O2 ICE - own branded 3G handset featuring MP3 player, 1.3 megapixel camera
    and one button access to the O2 Music Shop. A 512 MB Micro SD card is also
    included, which can store around 500 songs. The O2 ICE costs 9.99 euros on a
    24 month Genion contract with Genion flatrate.
  • 'Bonus World', a new bonus program for O2 Genion or Active customers
    running from 1 September until 27 November. By participating in surveys and
    through using their phone customers can earn bonus points that can be traded
    in for free calls, free SMS and other special offers.


   O2 GERMANY
   SELECTED OPERATING DATA
   Unaudited figures
                                                     2006                      2005                     2006
                                          September          % Chg       September  December         March      June
   Cellular customer (thousands)           10,628.9           18.8         8,946.9   9,768.8      10,099.0  10,335.3
       Prepaid                              5,340.7           25.5         4,254.6   4,798.9       4,986.9   5,143.3
       Contract                             5,288.0           12.7         4,692.3   4,970.0       5,112.1   5,192.1
                                                 3Q          % Chg              3Q        4Q            1Q        2Q
   MOU (minutes)                                124            5.1             118       124         127.0       128
   ARPU (EUR)                                  25.3         (11.1)            28.5      26.5          24.1      24.2
       Prepaid                                  9.0         (16.8)            10.8      10.4           9.2       8.9
       Contract                                41.7          (5.3)            44.0      41.4          38.6      39.1
   Data ARPU                                    5.8          (9.4)             6.4       6.1           5.9       5.4
   % non-P2P SMS over data revenues           21.4%       0.4 p.p.           21.0%     21.7%         23.0%     21.5%

   Note: MOU and ARPU calculated as monthly quarterly average.

O2 Ireland

Service revenue fell by 1.7% in the third quarter due to termination rate
regulation, increasing competition and the introduction of new customer offers.
The termination rate cut of RPI minus 11% in January impacted third quarter
service revenue growth by approximately 2%. For the eight months to September
service revenue reached a total of 601 million euros, an increase of 2.0%
compared to the same period last year, driven by a higher customer base.

In a competitive market O2 Ireland traded well, with gross connections at a
similar level to the previous quarter and net contract additions at a higher
level than in the third quarter last year. 4,000 net new customers were added in
total during the quarter, taking the total base to 1.603 million customers, 2.1%
higher than at the same time last year.

O2 Ireland added a total of 16,000 net new contract customers in the quarter. 12
month rolling ARPU of 1,040 euros was 35 euros lower than the third quarter last
year and 23 euros lower than the previous quarter, reflecting the impact of the
termination rate regulation.

Pre-pay 12 month rolling ARPU was 356 euros, down 3 euros on the same period a
year ago and 4 euros compared to the previous quarter.

Blended ARPU of 545 euros was reduced by approximately 10 euros due to the
termination rate cuts, and was 6 euros lower than the same quarter last year and
down 6 euros quarter on quarter.

Quarterly monthly minutes of use increased by 9% year on year, mainly due to the
ongoing success of usage stimulation promotions such as 1 cent weekends on
pre-pay.

12 month rolling data ARPU was 116 euros, 3 euros higher than the third quarter
last year and 1 euro lower than the previous quarter. Non-SMS data users grew by
45% year on year.

In addition O2 Ireland launched a number of pricing initiatives and services
during the quarter. These included:

  • 'Free Fiver Fridays' - a 3 month promotion launched on June 1, giving
    pre-pay customers 25% extra free when they topped up €20 on a Friday using
    an AIB or Bank of Ireland ATM facility, by text, or online.
  • Double minutes for 6 months on all Active Life plans for new customers and
    upgrades.
  • Trial of a new device repair programme - Swap Out Service (SOS) - in six
    O2 stores. Customers are given an immediate replacement handset if they have
    a faulty device which is within its warranty period.

O2 Ireland also continued to promote the following offers:

  • 1 cent calls and texts at weekends for Speakeasy customers was extended
    until 25 February 2007.
  • 20% extra inclusive calls & texts every month for life on all online
    postpay tariffs - Online Active life, Online Easy life and Online Text life.
  • 'My Europe' roaming tariff, offering holidaymakers a reduced flat-rate
    voice roaming rates across the European Union. Using the free opt-in
    service, O2 customers are charged a flat rate of 59 cents per minute to make
    or receive a call within the EU, regardless of the mobile network used, at
    any time.




  O2 IRELAND
  SELECTED OPERATING DATA
  Unaudited figures
                                                        2006                       2005                   2006
                                             September           % Chg      September  December        March     June
  Cellular customer (thousands)                1,603.0             2.1        1,569.8   1,601.8      1,593.0  1,598.6
      Prepaid                                  1,134.9           (1.1)        1,147.7   1,173.2      1,154.0  1,146.9
      Contract                                   468.1            10.9          422.1     428.6        439.0    451.7
                                                    3Q           % Chg             3Q        4Q           1Q       2Q
  MOU (minutes)                                    241             8.6            222       224        220.0      237
  ARPU (EUR)                                      45.2           (4.5)           47.3      46.1         44.6     45.8
      Prepaid                                     29.8           (4.9)           31.3      30.5         28.9     29.4
      Contract                                    83.5           (8.3)           91.0      88.1         87.1     88.2
  Data ARPU                                        9.9             1.0            9.8       9.6          9.5      9.5
  % non-P2P SMS over data revenues               18.4%        9.6 p.p.           8.8%     11.8%        13.8%    15.6%

  Note: MOU and ARPU calculated as monthly quarterly average.

O2 Airwave

O2 Airwave continues to perform well, making good progress on delivering the
Airwave service to new customers and securing additional contracts, and remains
a valuable part of the group. Following the successful conclusion of contract
negotiations to equip all Fire and Rescue Services across Wales and Scotland
with a resilient and secure voice and data communications service, as announced
in the second quarter, Airwave signed a 10 year contract with the Scottish
Ambulance Service, worth almost 50 million pounds, to use the Airwave service.
The Welsh Ambulance Service is expected to finalise contract negotiations in the
near future.

The rollout of Airwave to Ambulance Trusts in England is progressing well with 3
Ambulance Trusts now at Ready for Service (RFS) - this marks completion of the
first key milestone in the Ambulance Programme.

During the quarter Airwave acquired Decision Focus, the world's leading provider
of TETRA radio management applications with a proven track record of success
with public safety customers. Its market leading capabilities in radio and
mobile asset management and TETRA fleet mapping make it a valuable addition to
Airwave. Decision Focus also has a strong process consulting capability and
provides process redesign and implementation services to a wide range of
customers over a number of sectors, helping them reduce costs and improve
operational effectiveness. Decision Focus has approximately 80 customers
throughout the UK and worldwide, the majority of whom operate solely in public
safety.

Airwave now has over 200,000 users on the network and is supplying service to
over 200 public safety and other organisations.

FINANCIAL TARGETS

Financial targets for O2 Group are detailed below:

O2 UK: Given the continued high rate of growth in the customer base, O2 UK's
service revenue growth is now expected to be in the range 14% - 15% for the 11
months ended 31 December 2006. Given this higher rate of growth, and the
increasingly competitive nature of the UK market, OIBDA margin for the 11 months
ended 31 December 2006 is now expected to be around one percentage point lower
than for the comparable period last year.

O2 Germany: O2 Germany's service revenue growth is now expected to be in the
high single digits for the 11 months ended December 2006, from low double digits
previously. OIBDA margin for the 11 months ended December 2006 is expected to be
stable, as previously guided .

CapEx: Capital expenditure for the O2 group, excluding acquisitions, is expected
to be in the middle of the range 2.0 - 2.3 billion euros for the 11 months ended
December 2006.





RESULTS BY BUSINESS LINES

Telefonica O2 Europe

TELEFONICA O2 CZECH REPUBLIC

Telefonica O2 Czech Republic contribution to Telefonica Group revenues in the
first nine months of 2006 amounted to 1,592.5 million euros. In local currency,
and taking into account other recurring revenues, this represents an increase of
0.6% year-on-year (2.0% year-on-year up in the third quarter alone).

Consolidated operating expenses showed a decrease in local currency of 1.1%
year-on-year in the first nine months of 2006. The Group's operating income
before depreciation and amortization (OIBDA) amounted to 778.8 million euros, a
year-on-year increase of 4.1% in local currency, while growth in the third
quarter alone was 2.0%. As a result, OIBDA margin was 48.9% in the first nine
months of 2006 (49.6% in the third quarter alone), compared to 47.2% margin in
the same period of 2005.

Total CapEx for Telefonica O2 Czech Republic Group in the first nine months
amounted to 141.9 million euros, an increase of 26.0% year-on-year in local
currency, on the back of higher investments in the growth areas of the business
(such as ADSL, IPTV and broadband mobile networks), and the payment for the
mobile license in Slovakia, which became effective on 7 September.

Cumulative operating free cash flow (OIBDA-CapEx) to September 2006 stood at
636.9 million euros, 0.2% year-on-year higher in local currency than in the same
period last year.

After the merger of Cesky Telecom and Eurotel into Telefonica O2 Czech Republic
as of 1 July, all inter-company transactions between fixed and mobile became
intra-company. As a result, the financial results of the fixed and mobile
segments for the nine months of 2006, as well as the comparable results from the
same period of 2005 are disclosed excluding inter-segment revenues and costs.
However, mobile ARPU calculation includes the full amount of revenues (including
revenues from fixed line business).

Fixed Line Business

Revenues in the fixed line business amounted to 790.5 million euros for the
first nine months, a decrease of 4.8% year-on-year in local currency, reflecting
the continuous shift from traditional telephony services to Internet, data and
other value added services, which accounted for 27.1% of total revenues, 1.1
percentage points higher than in the same period last year.

Revenues from traditional access fell by 7.8% year-on-year in local currency,
primarily due to the 15.5% decline in the number of fixed telephony accesses to
reach 2.5 million accesses at the end of September, once 'incoming only lines'
have been excluded from the calculation. The rebalancing of residential monthly
fees from 1st May impacted positively on this revenue stream, with the rate of
decline slowing to 1.7% in the third quarter alone, compared to a decline of
7.8% in the second quarter.

Revenues from traditional voice services (voice traffic and interconnection)
declined by 7.1% year-on-year in local currency. Revenues from voice traffic
declined by 13.3% year-on-year in local currency, as a result of lower voice
traffic generated by end customers in the first nine months of 2006, which
decreased by 5.8 % year-on-year. However, the unification of local and long
distance rates effective as of 1st April helped long distance traffic to
increase by 2.8% in the first nine months of 2006. Interconnection revenues
increased by 2.5% year-on-year in local currency in the first nine months of
2006, mainly due to the growth in revenues from international operators, as a
result of higher international transit traffic.

Revenues from Internet and Broadband services registered a year-on-year increase
of 7.0% in local currency. Revenues from narrowband Internet services fell by
48.9% in local currency, showing a limited downside potential, and were more
than offset by the increase in revenues from broadband services (up 48.8%
year-on-year).

The total number of retail Internet broadband accesses at the end of September,
2006 amounted to 363,900 (which represents 85,3% of the whole ADSL base),
showing a net gain of 138,199 accesses in the first nine months of the year,
more than 1.4 times the net gain achieved in the same period of last year.

On 1st September, Telefonica O2 Czech Republic launched its IPTV offer under the
O2 TV brand name. The product is based on the Imagenio platform, and as of the
end of September had 2,806 customers.

Revenues from data services showed a 4.4% year-on-year decrease in local
currency as the decrease in revenues from leased lines (-11.1%) was partially
offset by the increase in revenues from virtual private networks based on
broadband IP connectivity solutions (+6.0%).

Operating expenses of the fixed line business fell by 3.2% year-on-year in local
currency. Supplies expenses grew by 6.7% year-on-year in local currency.
Interconnection costs decreased slightly by 1.0% year-on-year in local currency,
cost of goods sold went down by 16.2% year-on-year in local currency and showed
a similar development to equipment sales, while other supplies increased by
44.5% year-on-year in local currency.

Personnel costs, including headcount reduction costs, were down by 10.4%
year-on-year in local currency in the first nine months of 2006. External
services (subcontracts) expenses recorded an 3.2% year-on-year decrease, with a
60.5% increase in marketing and sales expenses related to new ADSL offers and
higher marketing spending related to the re-branding project, launched on 1st
September 2006. Other external services including consultancy went down by 31.8%
year-on-year in local currency.

OIBDA in the fixed line business amounted to 382.1 million euros in the first
nine months of 2006, a 2.5% year-on-year increase in local currency.

CapEx for the Telefonica O2 Czech Republic fixed line business in the first nine
months of 2006 amounted to 65.5 million euros, a 28.0% year-on-year increase in
local currency, largely due to the accelerated broadband rollout.



Mobile Business

Revenues for the first nine months of 2006 in the mobile segment increased by
5.9% year-on-year in local currency to reach 801.9 million euros.

The total number of cellular accesses increased by 6.0% year-on-year to reach
4.8 million at the end of September, 2006. Net additions for the first nine
months amounted to 84,000, with a net loss of 10,000 customers in the third
quarter as a result of the old NMT system users who were disconnected at the end
of June and had not migrated to GSM by the end of September. Further migration
of prepaid customers to postpaid tariffs, has lead to a 28.4% year-on-year
increase in the number of contract customers who at the end of September totaled
1.8 million, or 37.4% of the total customer base compared with 30.9% at the end
of September 2005. The blended monthly average churn rate stood at 1.5% for the
first nine months of the year, the same as in the same period of last year.

Revenues from voice services (monthly fees, customer and interconnection
traffic) increased in the first nine months by 3.7% in local currency, with the
increase in revenues from monthly fees (+9.0% year-on-year), driven by the
larger contract customer base, and helped by the 1.2% year-on year increase in
traffic revenues as a result of traffic stimulation activities. Total mobile
traffic grew by 18.0% year-on-year, reflecting an increased average MOU per
subscriber and the increase of incoming traffic (MOU per customer blended
resulted in 102 minutes in the first nine months, up from 94 minutes in the same
period of last year).

In the first nine months of 2006, blended ARPU registered a 0.6% year-on-year
decrease in local currency to reach 17.8 euros on the back of contract ARPU
dilution caused by customer migration from the prepaid to the contract segment.

Revenues from Value Added services increased by 9.7% in local currency, with the
non-SMS blended data ARPU as a percentage of data ARPU reaching 40%, compared
with 38% for the same period last year.

The number of customers using the Data Express service (CDMA-based broadband
internet access service) reached 89,000, an increase of 19,000 in the first nine
months. This, together with the 7.7% increase in the number of customers using
the Data Nonstop service (GPRS-based internet access service), which stood at
71,000 at the end of September, led to a year-on-year increase in revenues from
Internet and Data of 26.2% in local currency.

Revenues from equipment (including connection fees) showed a 5.9% year-on-year
increase in local currency.

Operating expenses increased by 0.7% year-on-year in local currency, mainly as a
result of a 6.6% increase in supplies expenses (costs of goods sold,
interconnection and roaming and other supplies), partially offset by a 19.8%
reduction in local currency in personnel expenses which were impacted by one-off
items in the second quarter of 2005.

Operating income before depreciation and amortization (OIBDA) totaled 395.2
million euros for the first nine months of 2006, a 11.9% increase in local
currency.

CapEx for the mobile business amounted to 72.1 million euros for the first nine
months of the year, a 17.5% year-on-year increase in local currency, primarily
due to investment made in the mobile broadband networks.




  TELEFONICA O2 CZECH REPUBLIC
  SELECTED OPERATING DATA CELLULAR BUSINESS
  Unaudited figures
                                                         2006                     2005                    2006
                                              September         % Chg       September  December        March     June
  Cellular customer (thousands)                 4,759.7           6.0         4,488.9   4,676.0      4,695.0  4,770.2
      Prepaid (1)                               2,978.3         (4.0)         3,101.3   3,130.4      3,051.8  3,043.1
      Contract                                  1,781.3          28.4         1,387.6   1,545.6      1,643.2  1,727.1
                                                     3Q         % Chg              3Q        4Q           1Q       2Q
  MOU (minutes)                                     102           8.5              94        97         96.0      102
  ARPU (EUR)                                       18.3           4.7            17.5      17.5         17.1     17.9
      Prepaid                                       8.6         (0.3)             8.6       8.3          7.9      8.4
      Contract                                     34.9         (8.9)            38.3      36.8         34.8     34.8
  Data ARPU                                         3.8           8.6             3.5       3.8          3.7      3.7
  % non-P2P SMS over data revenues                43.0%      2.4 p.p.           40.6%     40.2%        39.1%    38.7%

  Note: MOU and ARPU calculated as monthly quarterly average.

  (1) 13 month active customer base.

FINANCIAL TARGETS

The financial outlook for Telefonica Czech Republic in 2006 is:

  • Group revenues guidance in local currency maintained: reach the same
    amount as in 2005
  • OIBDA guidance in terms of year-on-year growth in local currency upgraded
    from flat to around 2%
  • CapEx level for the full year confirmed in the region of 225 million euros



RESULTS BY BUSINESS LINES

Telefonica O2 Europe

Telefonica Deutschland

Telefonica Deutschland revenues in the third quarter amounted to 66.0 million
euros, 3.6% lower than in the same period last year, and reached a total of
219.2 million euros for the first nine months of 2006, a year-on-year increase
of 5.2%. This was primarily due to a significant increase in revenues from voice
services that offset the decline in revenues from the Internet narrowband
wholesale business. Voice revenues in the first nine months of 2006 amounted to
69.8 million euros, an increase of 112% compared to the first nine months of
2005, representing 3.4 billion minutes carried by the Telefonica Deutschland IP
network and positioning the company as the leader in the German VoIP wholesale
market. Third quarter voice revenues were 24.1 million euros, an increase of 63%
on the same period last year and representing 1.2 billion minutes. In the third
quarter voice revenues surpassed revenues from the Internet narrowband wholesale
business for the first time.

Although competition in the German broadband access retail market remained
intense, the total number of equivalent ADSL lines in service increased to about
450,000 at the end of the third quarter of 2006. Telefonica Deutschland
continues to provide services to nearly all the major ISPs in Germany,
maintaining its strong market position. In September 1&1, one of Germany's major
ISPs, successfully launched its Video-On-Demand service using Telefonica's
infrastructure.

Telefonica Deutschland registered a negative operating income before
depreciation and amortization (OIBDA) of 25.2 million euros in the first nine
months of 2006, compared to positive OIBDA of 1.1 million in the first nine
months of 2005, mainly due to start up losses relating to its nationwide ULL
rollout. By the end of September over 40% of households were covered, with a
target of 60% by the end of the second quarter next year.




  O2 GROUP
  CONSOLIDATED INCOME STATEMENT
  Unaudited figures (Euros in millions)
                                                                                           February - September
                                                                                                                 2006
  Revenues                                                                                                    7,635.0
  Internal expenditure capitalized in fixed assets (1)                                                          132.7
  Operating expenses                                                                                        (5,666.6)
  Other net operating income (expense)                                                                         (46.3)
  Gain (loss) on sale of fixed assets                                                                          (10.2)
  Impairment of goodwill and other assets                                                                         0.0
  Operating income before D&A (OIBDA)                                                                         2,044.6
  Depreciation and amortization                                                                             (1,265.0)
  Operating income (OI)                                                                                         779.5

  (1) Including work in process.


  TELEFONICA O2 CZECH REPUBLIC
  SELECTED FINANCIAL DATA
  Unaudited figures (Euros in millions)
                                                                  January - September            July - September
                                                                  2006   2005        % Var     2006   2005      % Var
  Revenues                                                     1,592.5  509.4         n.c.    543.5  509.4        6.7
  Operating income before D&A (OIBDA)                            778.8  252.7         n.c.    269.8  252.7        6.8
  OIBDA margin                                                   48.9%  49.6%   (1.4 p.p.)    49.6%  49.6%   0.1 p.p.

  Note: In 2005 Telefonica O2 Czech Republic includes the results from July


 TELEFONICA DEUTSCHLAND
 SELECTED FINANCIAL DATA
 Unaudited figures (Euros in millions)
                                                         January - September                July - September
                                                         2006   2005        % Chg        2006    2005         % Chg
 Revenues                                               219.2  208.2          5.2        66.0    68.5         (3.6)
 Operating income before D&A (OIBDA)                   (25.2)    1.1         c.s.      (15.5)   (3.8)          n.m.
 OIBDA margin                                         (11.5%)   0.5%  (12.1 p.p.)     (23.5%)  (5.6%)   (18.0 p.p.)


 TELEFONICA O2 EUROPE
 ACCESSES
 Unaudited figures (Thousands)
                                                          2006                    2005                    2006
                                                  September      % Chg      September  December        March      June
     Final Clients Accesses                        37,566.3       10.9       33,865.3  35,730.1     36,361.9  37,055.8
         Fixed telephony accesses (1)               2,598.3     (15.7)        3,080.4   3,021.6      2,971.4   2,894.9
         Internet and data accesses                   564.6     (10.1)          628.0     613.5        596.5     572.7
             Narrowband                               178.6     (58.6)          431.2     366.9        292.4     224.3
             Broadband                                373.9      103.8          183.4     233.7        291.5     335.9
             Other                                     12.1      (8.9)           13.3      12.8         12.6      12.5
         Cellular accesses                         34,400.7       14.1       30,156.9  32,095.0     32,794.0  33,588.2
         Pay TV                                         2.8       n.m.            0.0       0.0          0.0       0.0
     Wholesale Accesses (2)                           620.0        9.5          566.2     597.3        573.0     527.2
 Total Accesses                                    38,186.3       10.9       34,431.5  36,327.4     36,934.8  37,583.0

 (1) PSTN (including Public Use Telephony) x1; ISDN Basic access x1; ISDN Primary access; 2/6 Access x30. Company's
 accesses for internal use included.
 (2) Includes T. Deutschland connections resold on a retail basis.
 Note: Cellular accesses, Fixed telephony accesses and Broadband accesses include MANX customers.


  TELEFONICA O2 EUROPE
  CONSOLIDATED INCOME STATEMENT
  Unaudited figures (Euros in millions)
                                                                                            January - September
                                                                                                                 2006
  Revenues                                                                                                    9,434.3
  Internal expenditure capitalized in fixed assets (1)                                                          161.9
  Operating expenses                                                                                        (6,733.9)
  Other net operating income (expense)                                                                         (53.8)
  Gain (loss) on sale of fixed assets                                                                           (8.8)
  Impairment of goodwill and other assets                                                                       (1.5)
  Operating income before D&A (OIBDA)                                                                         2,798.2
  Depreciation and amortization                                                                             (2,477.5)
  Operating income (OI)                                                                                         320.7

  (1) Including work in process.

  Note: Telefonica O2 Europe includes O2 Group (February-September), Telefonica O2 Czech Republic y T. Deutschland.



RESULTS BY BUSINESS LINES

Others Business

Atento Group

Operating revenues for the Atento Group continued their growth trend of the
first half of the year to total 758 million euros in the third quarter of the
2006, equivalent to a 24.6% growth compared to the prior year. The progress of
Group revenues was due to the increased activity by its main clients, primarily
in Brazil, Mexico, Venezuela, Chile and Spain, as well as the addition of new
clients in all countries, except for Puerto Rico.

The ratio of revenues generated by clients outside the Telefonica Group
increased by 1.5 percentage points year on year from 46.7% as of the end of
September 2006. The main clients which contributed to this growth are:

  • In Brazil: Increased activity primarily in the financial sector with Banco
    IBI, Badresco, Itau, Redecard and Microsoft as well as the addition of new
    clients such as Sky and Banco Santander.
  • In Mexico, greater activity with BBVA, in Telecobranza services, US
    Airways, BAT, Hipotecaria, Seguros Zodiaco and Finanzia and the
    incorporation of new clients (Sony, Master Card, Metlife, SAP and Volaris).
  • In Spain, the 012 Catalonia Services, Repsol, Agencia Estatal de
    Administracion Tributaria and BBVA.
  • In Venezuela, growth with the CANTV Group (primarily Movilnet).
  • In Chile, growth of activity with VTR and Interamericana.

In terms of the geographic distribution of revenues, Brazil accounted for 38.7%
and Spain for 29.9% of the total, 1.1 percentage points below September 2005
figure. Atento Mexico continued with its significant growth rate to stand at
9.9% of revenues compared with 8.4% the previous year. Chile represented 6.2%
compared with 5.9% twelve months ago and Venezuela totalled 3.7% in comparison
with 2.2% in September 2005, leading to greater diversification in the
geographic distribution of revenues.

Operating expenses grew 23.9% year-on-year to 654 million euros in the first
three quarters of the year, due to increased personnel expenses (+26.1%) as a
result of the Group's growth in activity.

The OIBDA of the Atento Group totalled 102.3 million euros, equivalent to a
23.9% year-on-year increase generated by the growth in activity and by savings
in structural costs. In terms of profitability, the OIBDA margin stood at 13.5%,
0.1 percentage points below last year figure. In relation to OIBDA
contributions, Atento Brasil amounted to 43.9% with 44.9 million euros. The
remaining operations contributing most to the consolidated OIBDA were Mexico
with 13.1% (13.4 million euros), Chile with 9.9% (10.1 million euros), Venezuela
with 7.8% (8.0 million euros), Spain with 7.4% (7.6 million euros) and Peru with
6.4% (6.5 million euros).

The operating result through September amounted to 81.3 million euros,
representing a year-on-year growth of 31.3%.

CapEx through September 2006 contributed 19.2 million euros in comparison with
24.2 million euros during the same period of 2005, primarily focusing on Brazil,
Mexico, Venezuela and Spain.

Operating free cash flow (OIBDA - CapEx) improved in relation to the figure
accumulated through September 2005 by 24.7 million euros to stand at 83.1
million euros, as a result of the increased operating results and lower
investments.

In terms of operations, the Atento Group had 43,851 positions in place at 30th
September 2006, 18.7% more than one year ago. The average number of occupied
positions for 2006 stood at 34,520. Productivity stood at 77.1%, 3.5 percentage
points below last year's figure.




 ATENTO GROUP
 CONSOLIDATED INCOME STATEMENT
 Unaudited figures (Euros in millions)
                                                          January - September               July - September
                                                           2006      2005   % Chg         2006        2005    % Chg
 Revenues                                                 758.0     608.6    24.6        249.7       220.4     13.3
 Internal expenditure capitalized in fixed assets (1)       0.0       0.0    n.s.          0.0         0.0     n.m.
 Operating expenses                                     (654.0)   (527.9)    23.9      (210.0)     (189.8)     10.6
 Other net operating income (expense)                     (1.6)       1.9    c.s.        (1.9)         0.5     c.s.
 Gain (loss) on sale of fixed assets                      (0.1)     (0.0)    n.m.        (0.1)         0.0     c.s.
 Impairment of goodwill and other assets                    0.0       0.0    n.m.          0.0         0.0     n.m.
 Operating income before D&A (OIBDA)                      102.3      82.6    23.9         37.8        31.1     21.6
 Depreciation and amortization                           (21.1)    (20.7)     1.9        (7.0)       (7.0)    (0.1)
 Operating income (OI)                                     81.3      61.9    31.3         30.8        24.0     27.9

 (1) Including work in process.



RESULTS BY BUSINESS LINES

Others Business

Content and Media Business

The Contents and Media business ended the third quarter of 2006 with a net
turnover (revenues) of 1,124.9 million euros, 28.0% up on the amount achieved in
the same period of the previous year. This increase is due to the improved
results from the main lines of business, particularly Endemol.

Operating income before depreciation and amortization (OIBDA) in the
January-September period amounted to 270,1 million euros, compared with the
167.1 million euros earned in the same period of 2005. This significant growth
in 2006 was primarily due to the revenues from the sale of part of the Sogecable
stake by the Telefonica Group in the take-over bid launched by the Prisa Group.

Endemol NV

Endemol N.V. ('Endemol') a global leader in television and other audiovisual
entertainment, announced that the sound performance in the first half-year of
2006 continued into the third quarter of 2006. The company has enjoyed growth in
all genres and most of its territories.

The overall financial outlook for 2006 remains good. Turnover is expected to
grow organically by more than 15% (previous guidance 11-13%). EBITDA as a
percentage of turnover is expected to remain within the earlier indicated 15-17%
range.

Game shows on the rise

The very sound performance Endemol has enjoyed in the first three quarters of
the year has been strongly fuelled by the success of Deal or No Deal. The show
has enjoyed excellent popularity in most of the 45 territories where it has been
produced so far this year, the most significant examples being the US and the
UK. The success of DOND triggered an increasing demand for game shows worldwide.
This has had a very positive effect for Endemol, helping the company to close a
number of deals in several territories for other game shows. These include 1 vs.
100, a revamped format from Endemol's library, and new formats Show me the Money
and Set for Life. The format 1 vs. 100, for instance, is already sold in 15
territories, and is likely to roll out further in the near future thanks to its
very successful debuts in the USA on NBC and in the UK on BBC ONE. The show's
mid-October launch on NBC scored the highest 18-49 rating for any non-sports
Friday telecast on any network since January 2005. NBC ordered 10 additional
episodes just after its launch. On BBC ONE the show has been achieving very
strong ratings, peaking at 7.4 million viewers and a 33.6% share.

ATCO

The advertising market in Argentina (Capital and Gran Buenos Aires regions)
increased by 11.6% over the first nine months of the year in relation to that of
the previous year. This can be compared with the 21.5% increase recorded in the
same period of 2005, which reflected the market recovery recorded over 2004 in
2005.

In this favourable market context, Telefe reaffirmed its position as leader,
obtaining 39.4% of the total audience during the first six months of 2006 -
compared with the 38.6% recorded in the same period of the previous year -
followed by Canal 13, its main competitor, with an average share of 29.5%. The
market share accumulated by Telefe through September 2006 stood at 41.8%, the
same as that achieved in the same period of 2005 and, once again, followed by
Canal 13 with 37.6%.


  CONTENT AND MEDIA BUSINESS
  CONSOLIDATED INCOME STATEMENT
  Unaudited figures (Euros in millions)
                                                              January - September               July - September
                                                             2006       2005       % Chg        2006     2005   % Chg
  Revenues                                                1,124.9      878.7        28.0       349.8    276.9    26.3
  Internal expenditure capitalized in fixed assets (1)        0.4        0.0        n.s.         0.1      0.0    n.s.
  Operating expenses                                    (1,006.6)    (727.4)        38.4     (306.4)  (230.4)    33.0
  Other net operating income (expense)                        8.8        8.4         4.2         4.1      6.4  (35.7)
  Gain (loss) on sale of fixed assets                       142.7        7.5        n.m.         0.0      0.2    n.m.
  Impairment of goodwill and other assets                   (0.1)      (0.1)        61.0         0.0      0.0    n.m.
  Operating income before D&A (OIBDA)                       270.1      167.1        61.6        47.6     53.0  (10.3)
  Depreciation and amortization                            (21.2)     (20.5)         3.6       (7.3)    (6.4)    15.1
  Operating income (OI)                                     248.8      146.7        69.7        40.3     46.7  (13.8)

  (1) Including work in process.

ADDENDA

Companies included in each Financial Statement

Based on what was indicated at the start of this report, the results breakdown
of Telefonica Group are detailed according to the business in which the Group
has a presence. The main differences between this view and the one that would
apply attending to the legal structure, are the following

  • Telefonica O2 Europe results up to September 30th 2006 include O2 Group
    results from February 1st 2006 to September 30th 2006, and Telefonica O2
    Czech Republic and Telefonica Deutschland results from January 1st 2006 to
    September 30th 2006. As of September 2005 include Telefonica O2 Czech
    Republic for the three months July 1st 2006 to September 30th 2006 and the
    Telefonica Deutschland results for the nine months January 1st 2006 to 30th
    September 2006. Telefonica Group 69.4% stake in Telefonica O2 Czech Republic
    is legally dependent upon Telefonica S.A.
  • Telefonica, S.A. directly participates in the share capital of Endemol
    Entertainment Holding, N.V., which has been included in Content and Media
    Business. The results from the Sogecable S.A. stake have been also assigned
    to Content and Media Business, including the portal divestiture that took
    place in the first quarter, even though a part of the investment is legally
    dependent upon Telefonica, S.A.
  • Telefonica Holding Argentina, S.A. holds a minority stake of Atlantida de
    Comunicaciones, S.A. (ATCO) which, for those purposes, is considered to be
    part of Telefonica de Contenidos, consolidating 100% share capital of ATCO
    in the Content and Media Business.
  • Telefonica International Wholesale Services Group (TIWS) financial results
    has been assigned to Telefonica Latinoamerica Group, even though is legally
    dependent upon Telefonica, S.A. (92.5%) and Telefonica Data Corp (7.5%).
  • Terra Networks Espana S.A. has merged with Telefonica de Espana S.A. with
    economic effects from January 1st 2006. The 2005 results also has been
    assigned to the Telefonica de Espana Group for this presentation. Maptel
    Networks, S.A.U. and Azeler Automocion, S.A. have been included in
    Telefonica de Espana Group although as of September 30th 2006, are directly
    participated by Terra Networks Asociadas, S.L, which are legally dependent
    upon Telefonica, S.A.
  • Latin American companies formerly dependent upon Terra Group have been
    legally transferred to Telefonica International, S.A. during the second half
    of 2005, although the results have been assigned to Telefonica Latinoamerica
    Group from the beginning of 2005.

ADDENDA

Key Holdings of the Telefonica Group and its Subsidiaries detailed by business
lines


TELEFONICA GROUP                                   TELEFONICA DE ESPANA GROUP
                                        % Part                                                 % Part
Telefonica de Espana                    100.00     Telyco                                      100.00
Telefonica Moviles (1)                  100.00     Telefonica Telecomunic. Publicas            100.00
Telefonica Latinoamerica                100.00     Telefonica Soluciones Sectoriales           100.00
Telefonica de Contenidos                100.00     T. Soluciones de Informatica y              100.00
Atento Group                             91.35     Comunicaciones de Espana
Telefonica O2 Europe                    100.00     Nota: Terra Networks Espana and Telefonica Empresas Espana has been
                                                   absorbed by merger with Telefonica de Espana
(1) Telefonica Moviles has been absorbed by 
Telefonica S.A.

  TELEFONICA LATINOAMERICA GROUP                   TELEFONICA MOVILES GROUP
                                        % Part                                                 % Part
  Telesp                                 87.95    Telefonica Moviles Espana                    100.00
  Telefonica del Peru (1)                98.19    Brasilcel (1)                                 50.00
  Telefonica de Argentina                98.03    TCP Argentina                                100.00
  TLD Puerto Rico                        98.00    T. Moviles Peru                               98.40
  Telefonica Chile (2)                   44.89    T. Moviles Mexico                            100.00
  Terra Networks Peru                    99.99    TM Chile                                     100.00
  Terra Networks Mexico                  99.99    T. Moviles El Salvador                        99.08
  Terra Networks USA                    100.00    T. Moviles Guatemala                         100.00
  Terra Networks Guatemala              100.00    Telcel (Venezuela)                           100.00
  Terra Networks Venezuela              100.00    T. Moviles Colombia                          100.00
  Terra Networks Brasil                 100.00    Otecel (Ecuador)                             100.00
  Terra Networks Argentina               99.99    T. Moviles Panama                             99.99
  Terra Networks Chile                  100.00    T. Moviles Uruguay                           100.00
  Terra Networks Colombia                99.99    Telefonia Celular Nicaragua                  100.00
  Telefonica Data Colombia              100.00    Telefonica Moviles Chile                     100.00
  Telefonica Empresas Brasil             93.98    Group 3G (Germany)                            57.20
  Telefonica Data Argentina              97.92    IPSE 2000 (Italy) (2)                         45.59
  Telefonica USA (3)                    100.00    3G Mobile AG (Switzerland)                   100.00
  T. Intern. Wholesale Serv. (TIWS) (4) 100.00    Medi Telecom                                  32.18
  Colombia Telecommunications            50.00    Mobipay Espana                                13.36

  (1) Telefonica Empresas Peru has been absorbed 
  by T.del Peru as of May 1st 2006.               Mobipay Internacional                         50.00
  (2) CTC has changed its name.                   T. Moviles Soluciones y Aplicac. (Chile)     100.00
  (3) Change its name. Before it was Telefonica 
  Data USA                                        Tempos 21                                     43.68
  (4) Telefonica, S.A. owns 92.51% y Telefonica 
  DataCorp owns 7.49%.                            (1) Joint Venture which fully consolidates Telergipe Celular, S.A.,
                                                  Telebahia Celular, S.A., Telest Celular, Telerj Celular,
  Note: Telefonica Empresas Brasil has been       Celular CRT, Global Telecom, Telesp Celular and TeleCentro Oeste
  absorbed by Telesp                              Part., S.A. through participation at Vivo Participacoes (62.77%).
                                                                                                                        
                                                  (2) Additionally, Telefonica Group holds a 4.08% of IPSE 2000 through
                                                  Telefonica DataCorp.
                                                                                                                        
                                                  Note: Radiocomunicaciones Moviles SA (Argentina) has been absorbed by
                                                  Moviles Argentina

 TELEFONICA DE CONTENIDOS GROUP                   TELEFONICA O2 EUROPE
                                        % Part                                                 % Part
 Telefe                                 100.00    O2 UK                                        100.00
 Endemol (1)                             99.70    O2 Gemany                                    100.00
 Telefonica Servicios de Musica         100.00    O2 Ireland                                   100.00
 Telefonica Servicios Audiovisuales     100.00    Manx                                         100.00
 Hispasat                                13.23    Airwave                                      100.00

 (1) Ownership held by Telefonica S.A. Endemol 
 Holding NV is the parent company of Endemol 
 Group and owns 75% of                            Be                                           100.00
 Endemol NV, company quoted in the Amsterdam 
 Stock Exchange.                                  Telefonica O2 Czech Republic (1)              69.41

                                                  (1) Company owned through Telefonica S.A.

                                                  Note: Telefonica Deutschland absorbed by O2 Germany

   ATENTO GROUP                                   OTHER PARTICIPATIONS
                                        % Part                                                 % Part
   Atento Teleservicios Espana, S.A.    100.00     Lycos Europe                                 32.10
   Atento Brasil, S.A.                  100.00     Sogecable (1)                                16.80
   Atento Argentina, S.A.               100.00     Portugal Telecom (2)                          9.84
   Atento de Guatemala, S.A.            100.00     China Netcom Group (3)                        5.00
   Atento Mexicana, S.A. de C.V.        100.00     BBVA                                          1.07
   Woknal (Uruguay)                     100.00     Amper                                         6.10
   Centro de Contacto Salta             100.00     Telepizza (4)                                 4.33
   Mar de Plata Gest y Contactos, S.A.  100.00     (1) Telefonica de Contenidos, S.A. holds 15.67% and Telefonica, S.A. 
                                                   holds 1.13%.
   Atento Peru, S.A.C.                   99.46     (2) Telefonica Group's effective participation. Telefonica Group 
                                                   participation would be 9.96% if we exclude the
   Atento Chile, S.A.                    77.95     minority interests.
   Atento Maroc, S.A.                   100.00     (3) Ownership held by Telefonica Latinoamerica
   Atento El Salvador, S.A. de C.V.     100.00     (4) Telepizza has been sold in September 2006.



ADDENDA

Significant Events

  • On November 12th, 2006, Telefonica reached an agreement to acquire through
    its wholly-owned subsidiary Telefonica Internacional, S.A.U. or any of its
    affiliates, an 8% stake in PCCW Limited ('PCCW'), the Hong Kong
    telecommunications operator, from Fiorlatte Limited ('Fiorlatte'), a company
    100% owned by Mr. Francis P.T. Leung. Mr. Francis P.T. Leung agreed on July
    9th 2006 to acquire a 22.65% stake in PCCW from Pacific Century Regional
    Developments Limited ('PCRD'). On completion of such transaction, Telefonica
    will acquire the aforementioned 8% of the PCCW shares. Completion is
    expected on or before the first half of January 2007.


    Telefonica and China Network Communications Group Corporation ('CNC'), which
    currently owns approximately 19.94% of the issued share capital of PCCW,
    have entered into an agreement whereby, once Telefonica has acquired the 8%
    of PCCW, Telefonica and CNC would transfer their respective interests in
    PCCW into a special purpose vehicle ('SPV') which will hold a combined
    27.94% stake in PCCW, becoming the largest individual shareholder of PCCW.

  • On November 10th, 2006, Telefonica, S.A., distributed an interim dividend
    from 2006 net income, of a fix gross amount of 0.30 euros for each
    outstanding share with the right to receive dividends of the Company.
  • On October 13th, 2006, Telefonica and BBVA made public in relationship
    with the Framework Agreement stablished in 2000, that once the agreed
    projects have been implemented as suggested by the course of business in
    each case, both companies considered that, at present, the factors which
    justified the presence of a representative of Telefonica on the Board of
    Directors of BBVA no longer apply, and the latter will therefore shortly
    cease to form part of that Board.


    BBVA holds a significant stake in the share capital of Telefonica, and has
    two proprietory Directors on the Board of Directors of such company; this
    situation will persists in accordance which BBVA's shareholding. On the
    other hand, Telefonica retains its current holding in the share capital of
    BBVA.

  • On September 19th, 2006, the position of the treasury shares of
    Telefonica, S.A., was 47,080,408 shares representing 0,957% of the share
    capital of the company.
  • On July 28th, 2006, it was the last day of trading for shares of
    Telefonica Moviles on the Spanish stock exchanges and of Telefonica Moviles
    American depositary shares ('Telefonica Moviles ADSs') on the New York Stock
    Exchange. In accordance with the above, on Monday, July 31, 2006, after the
    execution by IBERCLEAR of the settlements that are customary in these types
    of transaction, holders of Telefonica Moviles shares that are beneficiaries
    of the exchange received the Telefonica shares delivered in the exchange.


    In order to satisfy the merger exchange, Telefonica delivered treasury
    shares to the shareholders of Telefonica Moviles pursuant to the exchange
    ratio fixed in the Merger Plan of four (4) shares of Telefonica, each having
    a par value of one (€1) euro, for every five (5) shares of Telefonica
    Moviles, each having a par value of fifty (€0.50) euro cents, without any
    additional cash compensation.



ADDENDA

Changes to the Perimeter and Accounting Criteria of Consolidation

In the period January-September of 2006, the main changes have occurred in the
consolidation perimeter were the following

Telefonica Group

  • On the 31st of October 2005, Telefonica, S.A. announced a Binding Offer
    for the purchase of all the shares in the UK company O2 plc. Once the
    Binding Offer ended and the procedure began for the mandatory sale of O2
    shares according to the UK Law, by September Telefonica held 100% of the
    shares forming the capital of this company that, as of 7th March this year,
    were no longer listed on the London Stock Exchange. The acquisition cost for
    the buyout of O2 Group was 26,127.71 million euros (17,882.37 million
    sterling pounds). Telefonica Group financial statements include the results
    from O2 Group since February 1st, 2006. The company has been included in the
    consolidation perimeter of the Telefonica Group using the full integration
    method.
  • The subsidiary company Comet, Compania Espanola de Tecnologia, S.A., made
    a capital increase of 0.23 million euros in February this year through an
    increase in the par value of existing shares. In March Comet made another
    capital increase. Both were fully subscribed and paid up by its sole
    shareholder Telefonica. The company continues to be included in the
    consolidation perimeter of the Telefonica Group using the full integration
    method.
  • On the 29th July 2006, the merger contract, relating to Telefonica, S.A.'s
    absorption of Telefonica Moviles, S.A., was filed in the Madrid Mercantile
    Register. In order to cover the merger, 4 shares of Telefonica, S.A. with a
    nominal value of 1 euro, were exchanged for 5 shares of Telefonica Moviles,
    S.A. with nominal value of 0.5 euros. Telefonica handed over 244,344,012 of
    their own shares in treasury stock to Telefonica Moviles, S.A. shareholders
    which represented, approximately, 7.08% of the capital stock. The merger
    also bore extraordinary dividends of a total of 0.435 euros per share, which
    when added to the dividend of 0.205 euros, related to the 2005 results, made
    a total of 0.64 euros gross per share, which was paid on 21st July. The
    acquired company, Telefonica Moviles, S.A., which was consolidated by the
    global integration method, was removed from perimeter of consolidation.
  • During the month of July, Telefonica, S.A. dealt with the takeover bid
    formulated by Yell Group Plc, relating to 100% of the shares of Telefonica
    Publicidad e Informacion, S.A. (TPI), and accepted Yell's offer for the
    216,269,764 shares, representing 59.905% of the company's share capital,
    which Telefonica owned.


    After the sale and under the 'Results for discontinued operations' heading
    in Telefonica Group's consolidated results account, the result from the
    disposal are included as well as the results from the TPI Group up to the
    30th June of the present financial year. In addition, and for comparison
    purposes, the consolidated financial statements have been modified for the
    Telefonica Group in the 2005 financial year to present the TPI Group results
    under the same heading.

Telefonica de Espana Group

  • In February, the Spanish company Telefonica Cable, S.A. acquired 15% of
    the share capital of Telefonica Cable Galicia, S.A. Through this purchase,
    Telefonica Cable became the sole shareholder of the company. The company
    continues to be included in the consolidation perimeter of the Telefonica
    Group using the full integration method.
  • In June, Telefonica Cable, S.A. took over its subsidiary company Sociedad
    General de Cablevision Canarias, S.A.U. Following this operation, the
    company taken over was removed from the Telefonica Group perimeter of
    consolidation in which it was included using the full integration method.
  • In the month of July, Telefonica de Espana, S.A. absorbed Terra Networks
    Espana, S.A. and Telefonica Data Espana, S.A. Both companies, which were
    included in Telefonica Group's consolidation perimeter using the full
    integration method, have been removed from it.
  • In the month of July, Telefonica de Espana, S.A. paid 36.5 million euros
    for 51% of the capital stock in the Spanish company Iberbanda, S.A. The
    company has been included in the Telefonica Group consolidation perimeter
    using the full integration method.
  • In the month of July, the Guatemalan company Telefonica Sistemas
    Ingenieria de Productos Guatemala, S.A went into liquidation. The company,
    which was included in the Telefonica Group's consolidation perimeter by the
    full integration method, has now been removed from it.

Telefonica Latinoamerica Group

  • The Brazilian company Santo Genovese Participacoes Ltda., a holding
    company that owned all of the capital stock of the Brazilian Atrium
    Telecomunicacoes Ltda., was liquidated during the first quarter of 2006
    after taking over its subsidiary Atrium. Both companies, which were included
    in the consolidated accounts of the Telefonica Group using the full
    integration method, have been removed from the consolidation perimeter.
  • In April, Telefonica Internacional, S.A. purchased 50% plus one share in
    the Colombian company Colombia de Telecomunicaciones, S.A. ESP by tender for
    289 million euros. The company has been included in the perimeter of
    consolidation of the Telefonica Group using the full integration method.
  • Telefonica del Peru, S.A.A. took over its subsidiary Telefonica Empresas
    Peru, S.A.A. in June. The company, which was included in the financial
    statements of the Telefonica Group using the full integration method, has
    been removed from the perimeter of consolidation.
  • On the 29th of July this current financial year, the Brazilian company,
    Telecomunicacoes de Sao Paulo, S.A. (Telesp), absorbed its subsidiary
    Telefonica Data Brasil Holding. The company, which was included in the
    perimeter of consolidation using the full integration method, has now been
    removed from it.
  • As a consequence of amortizing its treasury stock, which Telesp did during
    the first quarter of the financial year, and the purchase of the Telefonica
    Data Brazil minority shareholders and their later merger with Telesp, the
    percentage of Telefonica Group's participation in Telesp's capital has
    increased to 87.95%. The company continues to be included in Telefonica
    Group's consolidation perimeter by the full integration method.
  • The Mexican companies Katalyx Mexico S.A. de C.V. and Telefonica Empresas
    Mexico S.A. de C.V., wholly-owned subsidiaries of the Telefonica
    Internacional Group, were sold in 2006. Both companies, which were included
    in the financial accounts of the Telefonica Group using the full integration
    method, have been removed from the perimeter of consolidation.

Telefonica Moviles Group

  • On the 22nd of February 2006, the Shareholders' Meetings of Telesp Celular
    Participacoes S.A. ('TCP'), Tele Centro Oeste Celular Participacoes S.A.,
    ('TCO'), Tele Sudeste Celular Participacoes S.A. ('TSD'), Tele Leste Celular
    Participacoes, S.A. ('TBE') and Celular CRT Participacoes S.A. ('CRTPart')
    approved corporate restructuring in order to exchange TCO shares for TCP
    shares to become a wholly-owned TCP subsidiary and the take-over of TSD, TBE
    and CRT Part by TCP.
  • In June 2006 VIVO Paticipacoes made a capital increase by asset
    contribution for a total of 194 million reais. Once the capital increase was
    completed, Brasilcel, N.V. stake in VIVO Participacoes stood at 62.77%.
  • In June 2006 Telefonica Moviles Group increased its participation in
    Telefonica Moviles Peru (TMP), from 98.03% to 98.40%, through the buyout of
    minorities. The company continues to be included in the consolidation
    perimeter of the Telefonica Group using the full integration method.
  • During the financial year, the El Salvadorian company, Telefonica Moviles
    El Salvador Holding, S.A. de C.V., acquired 2,220 shares in Telefonica
    Moviles El Salvador, S.A. de C.V., also from El Salvador, increasing their
    participation in this company to 99.08%. The company continues to be
    included in the Telefonica Group consolidation perimeter through the full
    integration method.
  • The Argentinean company, Telefonica Moviles Argentina, S.A., has absorbed
    Compania de Radiocomunicaciones Moviles, S.A., Radio Servicios, S.A. and
    Compania de Telefonos del Plata, S.A, which are also Argentinean companies.
    After this operation, these companies were removed from the consolidation
    perimeter, where they had been included using the full integration method.

Telefonica O2 EUROPE

  • During the first half of the year, the Czech company Eurotel Praha, spol.
    s r.o. (Eurotel) was taken over by its parent company Telefonica O2 Czech
    Republic, a.s. to give the new integrated operator Telefonica O2 Czech
    Republic, a.s.. Following this operation, Eurotel, which was included in the
    financial statements of the Telefonica Group using the full integration
    method, was removed from the perimeter of consolidation.
  • In June, O2 UK Ltd. purchased 100% of the British internet service
    provider Be Un Limited (Be). The operation involved a total payment of 50
    million pounds sterling (approximately 73.5 million euros). Be is now
    included in the perimeter of consolidation using the full integration
    method.
  • During the third quarter of the 2006 financial year, the Telefonica, O2
    Czech Republic, a.s., subsidiary company, Telefonica O2 Slovakia, s.r.o.,
    obtained the third mobile telephone licence in Slovakia. The Slovenian
    company is included in Telefonica Group's perimeter of consolidation by the
    full integration method.
  • In the month of October, the British group, O2, acquired the remaining 60%
    of the share capital in the British company The Link Stores, Ltd. With this
    acquisition, the Telefonica Group now controls all of this company. The Link
    Stores, Ltd., which was included by the equity method until the month of
    September, will now be consolidated by the full integration method from the
    month of October.

ATENTO group

  • In March, the Argentinean company Atento Mar del Plata, S.A. was set up
    (later called Mar de Plata Gestiones y Contactos, S.A.) with a share capital
    totalling 0.05 million Argentinean pesos. The company has been included in
    the Telefonica Group's financial statement by the full integration method.
  • In April, the Argentinean company Atento Salta, S.A. was set up (later
    called Centro de Contacto Salta, S.A.) with capital stock totalling 0.05
    million Argentinean pesos. The company has been included in Telefonica
    Group's financial statements by the full integration method.
  • In May, Atento Chile Holding purchased the percentage shareholding of
    Publiguias Chile in Atento Chile, S.A. Following this operation, the
    shareholding of the Atento Group in Atento Chile increased from 69.99% to
    71.16%. The company continues to be included in the perimeter of
    consolidation of the Telefonica Group using the full integration method.
  • In June, Atento, N.V. purchased the 100% shareholding in the Uruguayan
    company Woknal, S.A., with an initial share capital of 0.4 million uruguayan
    pesos, around 0.01 million euros. The company has been included in the
    financial statements of the Telefonica Group by the full integration method.

TELEFONICA CONTENIDOS group

  • In March, Prisa launched a partial take-over bid for the 20% of Sogecable,
    S.A. The Telefonica Group sold shares representative of 6.57% of the
    company's share capital, reducing its stake from 23.83% to 17.26%. Later in
    March, Sogecable made a capital increase although without Telefonica Group
    taking part, thus diluting its stake in the company's share capital to the
    present 16.84%. In April, Sogecable once again increased its capital to
    cover the options plans for company directors, executives and managers and
    turned Class B and series B2005 callable shares into ordinary Class A
    shares, leading to another decrease in the Telefonica Group shareholding,
    currently standing at 16.80%. Telefonica Group continues consolidating
    Sogecable into the financial statements by the equity method.
  • The Telefonica de Contenidos Group sold all of its shares held in the
    Argentine company Patagonik Film Group, S.A. in May 2006. The company, which
    was included in the financial statements of the Telefonica Group using the
    equity method, has been removed from the perimeter of consolidation.
  • Andalucia Digital Multimedia, S.A. made a capital increase with the
    participation of Telefonica de Contenidos, S.A., which subscribed enough
    shares to enable it to increase its shareholding to 24.20%. The company
    continues to be included in the consolidation perimeter of the Telefonica
    Group using the full integration method.





DISCLAIMER

This document contains statements that constitute forward looking statements in
its general meaning and within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements appear in a number of places in this
document 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 activity and situation relating to the Company.
The forward-looking statements in this document can be identified, in some
instances, by the use of words such as 'expects', 'anticipates', 'intends',
'believes', and similar language or the negative thereof or by forward-looking
nature of discussions of strategy, plans or intentions.

Such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties, and other important factors that could cause
actual developments or results to differ materially from those expressed in our
forward looking statements.

Analysts and investors are cautioned not to place undue reliance on those
forward looking statements which speak only as of the date of this presentation.
Telefonica 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 Telefonica'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 as well as periodic filings
filed with the relevant Securities Markets Regulators, and in particular with
the Spanish Market Regulator.

The financial information contained in this document has been prepared under
International Financial Reporting Standards (IFRS). This financial information
is unaudited and, therefore, is subject to potential future modifications.



                                        For additional information, please
                                        contact.

                                        Investor Relations

                                        Gran Via, 28 - 28013 Madrid (Spain)

                                        Phone number:

                                        [phone]

                                        Fax number:

                                        [phone]

                                        Email address:

                                        Ezequiel Nieto -
                                        [e-mail]

                                        Diego Maus - [e-mail]

                                        Dolores Garcia - [e-mail]

                                        Isabel Beltran - [e-mail]

                                        [e-mail]

                                        www.telefonica.es/accionistaseinversores



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