Dividend Policy 2003-2006

Telefonica SA
10 October 2003


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


                               SIGNIFICANT EVENT


During the Third Investor Conference held in Madrid on October 9th and 10th,
Telefonica's Executive Chairman has announced that the Company expects to
generate a free cash- flow of more than 27 billion euros during the period
2003-2006.

In the first place, this free cash-flow will be allocated to meet its already
announced commitment to pay a yearly dividend of 0.40 euros per share during the
next three years, according to the terms agreed upon by the Board of Directors
in its meeting held on July 23rd 2003; and secondly, to contain the financial
liabilities and other commitments, all of which may amount to an aggregate of
15.3 billion euros.

With respect to the remaining cash-flow exceeding the abovementioned 15.3
billion euros, Telefonica's Executive Chairman has announced the Company's
additional commitment to dedicate a minimum of 4 billion euros to the
acquisition of treasury stock over the period 2003-2006, strengthening its
shareholder remuneration policy.

The execution schedule of these share buy-backs will be conditioned to both the
pace of cash-flow generation and to the share price level, all subject to any
applicable limitations established by law, regulation and by the Company's
Bylaws.


                                                     Madrid, October 10th , 2003


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