exchange of shares Terra-TEF

Telefonica SA
14 February 2005



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


The Executive Committee of Telefonica S.A., in its meeting held February 9th
2005, agreed to propose to Terra Networks S.A. the starting of negotiations
leading potentially to merge both companies. The proposal under the terms of the
negotiation fixes an exchange ratio of 2 shares of Telefonica S.A. of 1 Euro
nominal value each for 9 shares of Terra Networks S.A. of 2 Euro nominal value
each.

                                                   Madrid, February, 14th , 2005


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