Final Results - Part 1

Telefonica SA
28 February 2002

PART 1     

                                   Telefonica
                               Quarterly Results
                             January-December 2001


Notes: 

• The financial statements included in the report are derived from the
  conversion of line items recorded in pesetas into euros, and the partial
  amounts already recorded in that currency. This could result in small decimal
  rounding differences. 
 

GRUPO TELEFONICA: SELECTED FINANCIAL DATA 

Unaudited Data                                                                                                          
(Millions of euros)
           
                                         January-December                                                               
                                     2001        2000         % Chg                                             
Operating Earnings               31,052.6    28,485.5           9.0
EBITDA                           12,804.2    11,918.8           7.4      
Operating Income                  5,430.3     4,958.0           9.5
Pretax Income                     2,033.9     2,867.9         (29.1)           
Net Profit                        2,106.8     2,504.8         (15.9)
Net Profit per Share                 0.46        0.64         (29.0)                                                    
Average No. of Shares,                   
Millions(1)                       4,607.2     3,886.8          18.5 
                                                                                                        
(1) Average number of shares during the period. This includes capital increases
made to acquire the new capital interest in Telefonica de Argentina, Telefonica
del Peru, Telesp, Telesudeste, Endemol, ATCO, and the cellular companies
acquired from Motorola, as well as the issuance of new shares from convertible
bonds, weighted by the number of days that they have been traded, including the
bonus issues considered as of 1 of January and those charged to reserves that do
not imply a change in the ownership structure.
 
The number of shares at the end of the period was 4,671,915,885
 
Results for Grupo Telefonica
 
The management comments included in this report refer to the financial evolution
of the Telefonica Group according to the new organizational structure by
business lines. This structure was created after the completion of the tender
offers for the acquisition of the minority stakes in various Latin American
operators, given their relative high level of capital contribution in the Group.
 
In this sense, to facilitate comparisons between the results obtained by the
Telefonica Group in each business line and those for the same period of the
prior year, pro-forma income accounts were prepared for each business line.
 
These pro-forma income accounts are based on the assumption that each business
line has a stake in the companies owned by the Group in the corresponding
businesses, regardless of whether this stake has already been transferred or
not, although ultimately, Telefonica, S.A. intends to transfer it in the future.
 
Furthermore, in order to facilitate the comparison and analysis of the results
obtained by the Telefonica Group, the companies included in each business line
have been consolidated effective January 1, regardless of when certain
consolidations were actually made throughout the period. The results
corresponding to the same period of the previous fiscal year are also on a pro-
forma basis, under the same assumptions.
 
It should be noted that the assumptions considered in the preparation of these
pro-forma statements by business line do not alter in any way the overall
results of the Telefonica Group, and that such results have been incorporated as
of the date of the acquisition of each stake by the Group.
 
The telecommunications sector evolution during fiscal year 2001 must be analyzed
from the perspective of the general climate of uncertainty prevailing in the
major Western economies during the period. The initial pessimism with respect to
economic growth expectations, exacerbated after the terrorist attacks last
September 11, was reflected in the declines in the main Western stock market
indices at the end of the period. Notwithstanding these circumstances, the
European telecommunications sector evolution were affected by the following
specific factors:
 
First of all, the difficult financial situation that the main European operators
have had to face as a result of the process for awarding third generation mobile
telephone licenses during fiscal year 2000 and the end of still-pending
commitments regarding the process of sector consolidation experienced in the
preceding years. In this context, and after successive downgrades in their
credit ratings, the affected companies confronted the deterioration in their
balance sheets by selling off non-strategic assets, announcing significant
reductions in investment, and, in some cases, in capital increases. Furthermore,
the delay in the deployment of UMTS technology has contributed to the markets'
increasing lack of confidence regarding the prompt materialization of the
initial growth perspective of third generation technology for cellular
operators.
 
It is also worth mentioning the difficulties faced by alternative carriers and
data operators, that resulted from the lack of visibility of significant
investments in infrastructures, the even harder conditions on the financial
front after credit ratings were revised downward, and the crisis affecting
Internet companies, further worsening by the events of September 11.
 
With respect to Telefonica, the following are the main factors, among others, to
note regarding the fiscal year: 

1. The difficult economic situation affecting Argentina, reflected in the
   evolution of Telefonica's businesses in the country, despite the fact that
   throughout the fiscal year the Company implemented the necessary measures to
   minimize the impact of the crisis, such as: cost and investment reductions,
   financial hedge policies and stricter controls on bad debt.
 
   The devaluation announced at the beginning of January 2002 had a negative
   impact of 369.0 million euros on Telefonica's Group profit and loss account
   and lower reserves of translation differences in consolidation by 1,424.1
   million euros for the fiscal year 2001, as a result of using a 1 euro for
   1.5149 Argentinian peso (1 dollar for 1.7 pesos) exchange rate. This exchange
   rate, which conforms the most conservative accounting criteria established by
   the Spanish Accounting Regulator (ICAC) and other international accounting
   regulatory entities, was set for as the first representative exchange rate to
   be applied in the capital markets after the devaluation of the Argentinian
   peso, net of its corresponding tax effects.
 
   In addition, the last available exchange rate before preparing these
   accounting reports was 1 euro for 1.8477 pesos (1 dollar for 2.0735 pesos).
   These rates would show effects other than those already indicated in the
   consolidated profit and loss account (103.9 million euros) and in the
   'Translation differences en consolidation Reserve' section (363.2 million
   euros). These effects will be included in the first quarter of fiscal year
   2002. 

   Among the still pending issues is the required renegotiation with the
   Argentinean government of Telefonica de Argentina's future rates. This
   renegotiation will take place as a result of the issuance of Law 25.561 on
   January 6, 2002, which establishes that tariffs are denominated in pesos at
   an exchange rate of 1 peso for 1 US dollar.
 
   Likewise, the measures adopted by the Argentinean Government and the
   consequences on the Group's financial statements could cause, under certain
   circumstances, certain equity and financial imbalances, such as: negative
   equity, the inability to cover short-term foreign debt payment obligations
   due to limitations on the convertibility of the peso, the need to accelerate
   payments of financing contracts, etc.
 
   To the extent that the aforementioned circumstances have not occurred on the
   date these annual results were prepared, because their future unfold is as
   yet uncertain, we have not been able to quantify their possible impact, if
   any, on the consolidated financial statements as of December 31, 2001.
 
   At December 31, 2001, the Telefonica Group's exposure to its different
   Argentine companies increased by 3,581.9 million Euros. Included in this
   amount is the net worth corresponding to each of these investments, their
   goodwill, and their internal borrowing needs. The most significant among them
   are Telefonica de Argentina (2,585.8 million Euros), Telefonica Moviles
   Argentina (507.6 million Euros) and Grupo Admira Media in Argentina (413.7
   million Euros).
 
2. The depreciation experienced by Latin American currencies, especially the
   Brazilian real (-21.8% over the course of the year), which translated into a
   4.8 percentage point decrease in consolidated revenues and a 5.6 percentage
   point decrease in EBITDA growth.
 
3. The progress experienced in the deregulation of fixed telephony services in
   Spain, by the unbundling of the local loop, implementing number portability,
   and adjusting infrastructures to enable global preselection.
 
   Likewise significant headway has also been made in the Broadband market
   thanks to the efforts of Telefonica de Espana in ADSL, which implies a
   significant step forward in the development of the, so called
   'Information Society'. 

4. The development of the Group's businesses in Brazil, the largest market in
   Latin America. Two years ahead of schedule, Telefonica submitted the
   documents that proved its compliance with the goals established by the
   Brazilian regulator (ANATEL) for Telesp. Once certified, all Telefonica Group
   companies will be able, after obtaining the necessary authorizations, to
   start providing telecommunications services in the rest of the country. This
   will mean significant additional growth in one of the markets with Latin
   America's highest growth potential.
 
In this context it is important to note that Telefonica had the best stock
market performance among the main European incumbent operators throughout fiscal
year 2001.
 
From the operations standpoint, the significant growth seen throughout the
fiscal year in Telefonica Group main asset - its customer base - must be
mentioned. On December 31, 2001, its managed customer base in fixed and mobile
telephony and pay television reached 73.2 million customers (78.4 million
customers in total, for an annual increase of 15.0%), 9.3 million more than at
the close of 2000, which implies a growth rate of 14.6%.
 
This growth is primarily based on the increase in the number of managed
customers by Telefonica Moviles (more than 6.5 million), which increased 28.3%
during the fiscal year reaching 29.8 million at December 31, 2001. In the fourth
quarter of the fiscal year alone, the number of managed customers by Telefonica
Moviles grew by 1.9 million. This was mainly due to the acceleration in growth
in the customer base in Spain, with a figure of nearly 1.2 million customers,
and the stable growth in the Latin American customer base, with more than
520,000 new managed customers in the period.
 
It is noteworthy, the growth of 2.3 million managed fixed line customers in
Latin America (21.6 million managed customers at the end of the fiscal year),
11.7% more than in fiscal year 2000. (The total customer base at the end of the
fiscal year reached 24.3 million, 10.8% more than in fiscal year 2000, of which
more than 12.6 million were Telesp customers. Telesp showed a growth rate of
19.1% growth rate over fiscal year 2000.) 

Regarding the regional growth in Telefonica's managed customer base, Latin
America continues to be the region with the highest rate of growth, contributing
5.1 million new managed customers. This implies a 17.8% growth rate over fiscal
year 2000, whereas Spain contributed 3.6 million in the fiscal year (10.5% over
2000). Finally, it is noteworthy that the Mediterranean Basin generated 0.6
million new customers with just one country in operations. It shows the
potential growth that exists in the region.
 
From the financial standpoint, The Telefonica Group obtained a net profit of
2,106.8 million euros during fiscal year 2001, which implies a decline of 15.9%
from fiscal year 2000. This result was affected by different circumstances as
follows:
 
1. Lower capital gains from financial assets compared with those registered in
   2000. In 2000 capital gains from the sale of this assets and Telefonica
   Moviles IPO totaled 3,907.2 million euros compared to 302.1 million euros
   registered in 2001.
 
2. The inclusion on the consolidated financial statements of the Group's
   investments in Argentina, using an exchange rate of 1 euro for 1.5149 pesos
   (1 dollar for 1.7 pesos). This exchange rate is in line with the most
   conservative recommendations issued by ICAC, as the first representative
   exchange rate in the capital markets after the devaluation of the
   Argentinean peso took effect. As part of this process, both known effects on
   Telefonica Group and those susceptible to quantification have been evaluated,
   resulting in the inclusion of an effect in the profit and loss statement of
   369.0 million euros and lower translation differences in consolidation
   reserves in the amount of 1.424.1 million euros.
 
3. Lower write-offs of assets and investments, in 2001 this write-offs totaled
   1,582.0 million euros. It is noteworthy that in the last quarter of the
   fiscal year, in accordance with the most conservative accounting criteria,
   goodwill resulting from Mediaways was written down by 249 million euros as a
   consequence of a goodwill recoverability analysis performed.

4. Lower personnel restructuring charges. In 2000, the culmination of the
   personnel restructuring proceedings of Telefonica de Espana took effect, with
   a total cost of 1,265.6 million euros. In 2001, there were no additional
   costs in this regard.
 
Additionally, Telefonica Group adapted Argentinean's businesses fiscal year to
the Group's fiscal year. The process translates into inserting Telefonica Group
businesses in Argentina under their corresponding headings of the Group's profit
and loss account for the January-December 2001 period, including the October-
December 2000 quarter in nonrecurring results.
 
Notwithstanding the aforementioned nonrecurring factors, there were two other
additional factors that significantly affected the results obtained by the
Group: the depreciation of Latin American currencies and the change in the
Group's consolidation perimeter.
 
Thus, the Group's consolidated revenues reached 31,052.6 million euros, 9.0%
higher than in fiscal year 2000. This growth, which represents a slowdown
compared to the 11.2% published in September, was principally affected by the
depreciation in Latin American currencies previously mentioned. Because of the
various depreciations, Telefonica Latinoamerica's revenues fell 10.9% in the
quarter. Excluding exchange rate effects, however, Telefonica Group revenues
would have grown by 13.8%.
 
In absolute terms the companies that contributed the most to consolidated
revenues were Telefonica de Espana and Telefonica Latinoamerica, which reached
10,220.4 and 10,137.4 million euros, respectively. It is noteworthy that the
revenues of Telefonica Latinoamerica, which fell by 2.3% in annual terms, would
have increased by 7.8% if the exchange rate effect had not been considered. In
relative terms, however, the Group company that contributed the most to growth
was Telefonica Moviles, with 3.6 percentage points; followed by Admira Media,
which contributed 2.4 percentage points; whereas Telefonica de Espana and
Telefonica Latinoamerica contributed 0.1 percentage points and -1.4 percentage
points, respectively.
 
The positive evolution in revenues, together with strict control of operating
expenses, which grew by 7.5% with respect to fiscal year 2000 (2.5% excluding
both changes in exchange rate and consolidation perimeter effects), allowed
Telefonica to reach an EBITDA of 12,804.2 million euros. This represents a 7.4%
growth with respect to fiscal year 2000.
 
The EBITDA achieved casts into relief Telefonica's Group capacity to generate
high-quality positive results even in the most adverse conditions. If we were to
eliminate the effects of exchange rate variations and the changes in the
consolidation perimeter, EBITDA reported would have risen 13,361 million euros.
This is 12.1% higher than in the same period in the previous fiscal year,
compared to the 11.9% obtained during the first nine months of the fiscal year.
 
The quality of the results obtained is further reinforced when we consider that
the EBITDA growth in fiscal year 2000 (9.5%) would have been just 2.4% if we
exclude the above mentioned effects, compared to the 12.1% that would have been
obtained during this fiscal year in comparable terms.
 
This growth is even more significant if it considered that the 2001's accounts
include among other operating expenses a 34.5% increase in provisions for bad
debt over comparable provisions for fiscal year 2000 (262.7 million euros),
pursuant to the conservative criteria applied by the Company. This increase in
the provisions for uncollectables reduces by 2.2 percentages points the Group
consolidated EBITDA growth.
 
The trend toward improvement in the EBITDA margin that began at the beginning of
the fiscal year continued through the last quarter. The lag behind fiscal year
2000's margins fell to -0.6 percentage points (-1.1 percentage points in the
January-September period), once the Group reported an EBITDA of 41.2% at the end
of the fiscal year (41.8% in 2000). This improvement was possible thanks to the
cost containment effort undertaken by all the Group's business lines. These
measures translated into a general improvement in margins. Especially noteworthy
were the margins at Telefonica de Espana, which improved by 0.4 percentage
points over fiscal year 2000, and at Telefonica Moviles, which ended the fiscal
year with an EBITDA margin of 39.6, 6.5 percentage points above the figure for
2000. This improvement occurred despite the slight decrease in Telefonica
Moviles' margins during the last quarter, the result of the increased marketing
activity inherent in the Christmas campaign and the adoption of a new
centralized handset purchase model in Spain. Telefonica Moviles Espana will now
act directly in the handset market, in all its customer acquisition and
retention actions. This model will yield clear competitive advantages, both in
terms of handset purchase prices and greater ease at the point of technological
change in accordance with the Company's interests. However, the development of
this model has an apparent negative effect by causing a decrease in the EBITDA
margin. This is rooted in a significant increase in the sale of handsets with
almost no margin, but it also implies significant improvements in the cost of
both capturing and retaining customers. This will allow to obtain higher
absolute EBITDA values than what would have been achieved without the
implementation of the new handset model.
 
The main contributor to the Group's EBITDA in absolute terms is Telefonica
Latinoamerica, which totaled 5,163.0 million euros, 3.7% less than in fiscal
year 2000. This contribution, which amounts to 40.3% of the Group's consolidated
EBITDA, was achieved despite the unfavorable circumstances in the region
throughout this fiscal year, which resulted in significant depreciations in
several currencies. If we take this effect out of consideration, Telefonica
Latinoamerica's EBITDA would have grown by 6.5%.
 
Notwithstanding the contribution to the Group, the positive changes experienced
at the Latin American operators must be mentioned, especially Telesp and
Telefonica CTC Chile, which showed local currency growth in revenues and EBITDA
of 25.0% and 19.9% and 5.4% and 23.5%, respectively. Telefonica de Argentina
showed decreases in revenues and EBITDA at the end of 2000 of 8.3% and 15.4%,
which was possible thanks to the implementation of measures designed to minimize
the impact of the country's current economic crisis.
 
Telefonica de Espana achieved an EBITDA of 4,508.1 million euros, which
represents growth of 1.3% over fiscal year 2000. This growth was achieved thanks
to the reduction of operating expenses, which showed a year-on-year decrease of
3.1%, and Telefonica de Espana's strong revenues performance, which grew by
0.4%. The increases in the monthly fee and the commercial marketing effort have
together offset the successive tariff rate cuts implemented throughout the
fiscal year in order to comply with the 'price cap' scheme.
 
In relative terms, however, the greatest contributor to the Group's consolidated
EBITDA growth was Telefonica Moviles, which contributed growth of 7.4 percentage
points. Telefonica Moviles' EBITDA at the end of fiscal year 2001 reached
3,333.7 million euros, which represents a 36.0% growth over fiscal year 2000.
This growth was achieved thanks to the excellent performance of operations in
Spain and the satisfactory evolution of the Latin American operators, keeping in
mind the difficult economic and currency climate in the region.
 
Financial expenses were 2,391.1 million euros, of which 528.8 million were due
to the devaluation of Argentinean peso. Excluding this effect, financial
expenses would have been 1,862 million euros, in line with those registered in
the fiscal year of 2000. This is attributable to the average increase of 21% in
net debt during 2001, which was partially offset with a decline of 1.31 % in the
average cost of debt to 6.34%.
 
With respect to the change in the Group's net debt, Telefonica ended fiscal year
2001 with a debt of 28,942 million euros, 7.4 % higher than fiscal year 2000.
This increase is mainly derived from the cumulative financial investments of
2,700 million euros in 2001, the increase in foreign currency denominated debt
of 420 million euros, due to the dollar appreciation partially offset by the
Brazilian peso, Chilean peso, and Argentinean peso depreciation, the 480 million
euros operating cash flow generated, and changes in the perimeter of
consolidation of the different companies, which contributed with a reduction in
net debt of 700 million euros. It is also noteworthy that during the second half
of the fiscal year net consolidated debt reduced by 7.4%.
 
It is important to highlight that the acquisitions made during fiscal 2000,
which affected, basically, Terra Lycos Group, Admira Media Group and the
Telefonica Data Group, have had an impact on the Group's accounting results
because goodwill amortizations have increased by 68.1% over fiscal year 2000.
Please note, however, that during the last quarter of the fiscal year, goodwill
amortizations fell by 6.9% as a result of the extension in the amortization
period for Terra Lycos goodwill (from five to ten years), which started to be
accounted for the second half of 2001, and the write-off efforts in the last
quarter of 2000.
 
Corporate tax spending totaled 198.1 million euros, 18.2% lower than in the last
fiscal year, mainly due to the possibility to apply fiscal deductions generated
during previous fiscal years at the fiscal Group's level. These included
reversion of the reinvestment deferral of capital gains obtained in prior years.
This allowed applying that deferral as a deduction in fiscal year 2001.
 
Additionally, the positive impact derived from minority interest is noteworthy.
It changed from a negative figure of 120.6 million euros in fiscal year 2000 to
a positive 271.0 million euros for 2001. This healthy contribution, which had
already begun to slow down in the third quarter of the fiscal year, has
continued to decelerate throughout the fourth quarter as a result of decreasing
losses at Terra Lycos, improved earnings at Telefonica Moviles and TPI-Paginas
Amarillas, and the change in the criteria of consolidation of IPSE2000 into the
Group's financial statements. Till the third quarter, IPSE2000 was consolidated
by the global integration method, whereas from the fourth quarter of 2001 it has
been incorporated by the equity method. The latter method more accurately
reflects  Telefonica Moviles' participation in the Company's decision-making
procedures.
 
Finally, capex undertaken by the Group throughout the fiscal year amounted to
8,420.9 million euros, 7.9% less than that recorded in fiscal year 2000. It is
noteworthy that there was a general reduction from 2000 levels in all business
lines. The two exceptions were Telefonica de Espana, due to a considerable
effort to develop broadband and ended the fiscal year with an investment of
1,882.9 million euros, 4.4% more than in fiscal year 2000; and Telefonica Data
because of its emerging businesses in Europe and Latin America, yielding 488.5
million euros of investment at the end of the period, an annual growth rate of
25.8%.
 
Thus, the investment in Telefonica Latinoamerica amounted to 3,055.1 million
euros, 6.9% less than in fiscal year 2000, after the effort undertaken to comply
with the goals for Telesp. At Telefonica Moviles, it totaled 1,959.8 million
euros, which translates into a 11.0% reduction from 2000, based on the reduced
investment made in Spain, Brazil, and Argentina. Finally, Emergia experienced an
83.5% decrease, totaling 195.2 million euros, as a result of increased
investments made during 2000 that were reduced subsequent to the start of
operations in the second half of the fiscal year. 
 
In summary, EBITDA growth, positive evolution of debt level and the reduction in
CAPEX show Telefonica Group's cash flow generation capacity, even under a tough
environment. 
 


                                  GRUPO TELEFONICA
 

MARKET SIZE

Thousands
                            January December             %                                               %
                                                        Chg.                Weighted (*)                Chg.
                          2001             2000         00/01         Dec. 2001        Dec. 2000        00/01
Lines in Service      44,955.8         42,263.5           6.4          39,086.1         36,676.5          6.6         
In Spain              20,646.9         20,317.8           1.6          20,646.9         20,317.8          1.6    
In other countries(1) 24,308.9         21,945.7          10.8          18,439.1         16,358.7         12.7           
Cellular Customers    32,255.6         24,920.3          29.4          23,658.8         18,400.3         28.6        
In Spain              16,793.4         13,669.0          22.9          15,567.5         12,602.8         23.5   
In other countries(2) 15,462.2         11,251.3          37.4           8,091.3          5,797.5         39.6           
Pay TV Customers       1,148.1            982.5          16.9             723.8            633.4         14.3        
In Spain                 806.4            633.1          27.4             392.1            307.7         27.4    
In other countries(3)    341.7            349.4          (2.2)            331.7            325.7          1.8           
                                                           
TOTAL                 78,359.5         68,166.3          15.0          63,468.7          55,710.2        13.9        


(*) Weighted by economic interest in each of the Companies. 

(1) Lines in service: includes all lines in service at December 2000 and
December 2001 of Telefonica de Espana, Telefonica CTC Chile, Telefonica de
Argentina, Telefonica del Peru, Telesp, and CanTV.
 
(2) Cellular customers: includes all cellular customers at December 2001 of
Telefonica Servicios Moviles Espana, Medi Telecom, Telefonica Movil Chile, TCP
Argentina, Telefonica Moviles Peru, CRT Celular, TeleSudeste Celular, NewCom
Wireless Puerto Rico, Telefonica Moviles Guatemala, Telefonica Moviles El
Salvador, Telefonica Moviles Mexico, Quam, and CanTV Celular. The customers of
the Mexican companies are not included in December 2000 figures.
 
(3) Pay TV customers: includes all pay TV customers for December 2000 and
December 2001 of Via Digital and Cable Magico. 

                                                                                                                      
GRUPO TELEFONICA EARNINGS BY COMPANY 
                                                                                                                   
Unaudited data
Millions of euros                                                                         
                           Revenues                          EBITDA                          Operating Profit           
                      January-December                   January-December                    January-December           
                    2001      2000      % Chg.        2001     2000     % Chg.             2001     2000      % Chg.
G. Telefonica   10,220.4  10,182.9         0.4     4,508.1  4,448.4        1.3          1,703.7  1,547.2        10.1  
de Espana                                                                                                               
 
G. Telefonica    8,411.1   7,401.2        13.6     3,333.7  2,451.4       36.0          2,075.5  1,411.9        47.0  
Moviles
                                                                                                             
G. Telefonica   10,137.4  10,371.3        (2.3)    5,163.0  5,359.3       (3.7)         2,537.3  2,705.9        (6.2) 
Latinoamerica
                                                                                                        
G. Telefonica    1,849.7   1,123.7        64.6        23.6     75.0      (68.5)          (166.2)   (16.1)        n.s.  
Data
                                                                                                                
G. Terra-Lycos     690.0     304.0       127.0      (232.0)  (359.3)     (35.4)          (417.4)  (442.8)       (5.7) 
                                                                                                                      
G. TPI-Paginas     511.7     413.0        23.9       128.8    121.2        6.2            103.3    110.1        (6.2) 
Amarillas
                                                                                                           
G. Telefonica    1,403.1     723.9        93.8       152.5    13.6        n.s.             77.1    (35.2)       c.s.  
Media                                                                                                               

G. Atento          643.9     526.9        22.2        53.8    25.2      113.1             (35.6)   (26.0)       36.9
  
Other            1,574.8   1,668.5        (5.6)     (120.2) (267.2)     (55.0)           (336.7)  (375.7)      (10.4)
affiliates
                                                                                                          
Eliminated      (4,389.5) (4,229.9)        3.8      (207.0)   51.1      c.s.             (110.7)    78.5        c.s.  
                                                                                        
GROUP           31,052.6  28,485.5         9.0    12,804.2 11,918.8       7.4           5,430.3  4,958.0         9.5   
                                                             
 


FIXED LINE BUSINESS
 
TELEFONICA DE ESPANA GROUP
 
Throughout 2001, the fixed telephony sector in Spain has made significant
progress in implementing the measures adopted for its complete deregulation. As
a result, the end customer has benefited from a broader, cheaper, and higher-
quality offer.

In order to comply with the different regulatory requirements driven by the
newly competitive environment, the company has made a significant effort to
equip all switching centers for the full preassignment (preasignation for all
kind of calls) of Telefonica de Espana's subscribers to other operators
(1,342,854 preassigned lines at the end of the fiscal year, of which 62.9% are
fully preassigned). Likewise, joint actions have been undertaken with other
operators to enable the development of the Unboundled Local Loop Offer, whose
launch occurred at the beginning of the year (with, at the end of the fiscal
year, 27 switching centers opened giving access to 600,000 subscriber loops).
Furthermore, number portability has begun, with 95,414 numbers moved by the
close of the fiscal year.
 
It must be mentioned, therefore, that the results achieved by Telefonica de
Espana in fiscal year 2001 reflect our efficient business management and our
exploitation of growth opportunities in a more demanding and competitive market.

In accordance with the 'Price-Cap' model, there has been a 7% general reduction
in rates during the fiscal year, The basic telephone monthly fee increased by
1.2 euros in two different phases (0.6 euros in March and 0.6 euros in August).
With respect to traffic, excepting Local traffic, rates have decreased
significantly compared to fiscal year 2000. For Provincial traffic, rates fell
by 17.6%; 19.6% for Domestic Long Distance traffic; 15.7% for International
traffic and 13.3% for Fixed-to-Mobile traffic. During 2001, this maximum pricing
scheme has permitted progress towards tariff rebalancing and the strengthen of
our revenues function. We were able to increase the proportion of fixed revenues
which, at the close of the fiscal year, represented 46.6% of all, 5.3 percentage
points more than at the end of 2000. 

Traffic reached 138,580 million minutes, which represents a growth of 28.2% over
the same period in the previous fiscal year. Outgoing traffic grew 14.3%,
reaching 99,945 million minutes, principally caused by the growth in Internet
traffic (47.8%) and Provincial and International traffic (26.5% and 18.4%,
respectively). Local traffic fell by 5.0% at the end of the fiscal year. This
decrease grew out of the evolution of the market as a whole and Telefonica's
loss of market share. Fixed-to-Mobile traffic increased by 10.1%, in line with
Spain's still-evolving mobile telephone market, which has shown more moderate
growth than it experienced during 2000. Incoming traffic continues to show a
strong growth rate (87.6% year over year) due to the dynamism shown by Fixed-to-
Fixed traffic.
 
Telefonica has consolidated the sales of packaged minutes and flat rates. This
consolidation has been a determining factor in the continuing growth of customer
traffic. Thus, the number of subscribers to our local traffic Bonus plans has
climbed to 2,362,514 and the Internet Flat Rate has exceeded initial forecasts
with 459,456 plans (including the Terra Lycos flat rates). The launch of new
plans during the fiscal year, such as Plan USA 15 and the Bono Eleccion plan
(7,536 and 39,316 plans in service, respectively) have also contributed to the
general traffic growth. Following this trend, total plans sold also saw an
increase, up to 3,602,545 by the end of the fiscal year.
 
Voice mail and Caller ID activity also stands out. There were 10,058,525 active
voice mailboxes in December, and the Caller ID Service has signed up 3,484,676
subscribers, an increase of 114.0% over the same period in the previous fiscal
year.
 
Average usage has achieved 21.05 minutes per line per day, representing growth
of 26.0% with respect to fiscal year 2000. This growth was principally derived
from the increase in Internet traffic and the interconnection of fixed
Operators. 

Operating revenues for the Telefonica de Espana Group increased to 10,220.4
million euros, 0.4% over the previous fiscal year. The operating company's
revenues represent 96.2% of the total and showed growth of 2.5% over the same
period in the previous fiscal year. Revenues derived from the traditional
business stayed more or less at the same levels as in 2000 (down just 0.3%), as
a result of the tariffs reduction, the change in market share and the increase
of 1.2 euros in the basic telephone service monthly fee. This positive change,
as well as the growth in revenue derived from the Internet and Broadband (+22%)
and Wholesale businesses (+14.1%), have meant that the fiscal year closed with
growth with respect to 2000. Main drivers of this growth were ISDN, the basic
telephone monthly fee and interconnection.

Usage revenues fell by 2.5% year over year, confirming the downward trend
forecast for the last quarter, principally as a result of the long distance
tariff reductions that occurred in this period. 

Telefonica de Espana retail ADSL launch, that took place last 13th of August,
with 187,025 subscribers at the end of the year (including the transfer of
81,774 Infonegocio clients from Telefonica Data), has definitely driven the
total broadband market growth in Spain. Wholesale ADSL subscribers for
Telefonica de Espana reached 375,816 at the end of December 2001, which places
Spain at the forefront of broadband penetration in Europe, which implies a
significant step forward in the development of the so called 'Information
Society'. The average daily rate of new installations peaked in November, with
2,922 lines per day. In addition, the ADSL coverage now exceeds 16.2 million
Lines.

Telefonica de Espana Group operating expenses totaled 5,703.4 million euros,
down 3.1% from fiscal year 2000. This decrease is based on the 5.8% reduction
seen in personnel expenses, the 4% decrease in total supplies, and the control
of discretionary expenses. 

With respect to the operating company, Telefonica de Espana's operating expenses
before interconnection were 3,624.8 million euros, remaining at the same level
as in fiscal year 2000.

Telefonica de Espana's Interconnection expenses continue to show the downward
trend started in the first half of the fiscal year, ending the year with 0.5%
growth (+13.7% in the first quarter, +9.1% in the first half of the year, and
2.9% in January-September), mainly due to falling prices for fixed-to-fixed and
fixed-to-mobile interconnections.
 
The operating company's supplies and external services expenses grew by 7.3% at
the end of the fiscal year. This was principally due to the costs associated
with broadband deployment and the outsourcing cost arising from staff reductions
and increase customer service.
 
The reduction in personnel expenses at Telefonica de Espana's operating company
includes, first, a 9.7% reduction in average headcount and, second, the impact
of both the change in the CPI2000 and the salary review during 2001. Telefonica
de Espana's workface at the end of the year was 40,856, 0.8% less than in the
same period last year (337 fewer people). Productivity, measured in terms of
lines per employee, is 505.4, which is 2.5% more than in December 2000. 

With respect to its other operating expenses, the parent company saw a 52.1%
growth in traffic provisions, as a result of the increase in bad debt provisions
made during the year, intended to restructure and write-down the Public Phones
resellers business. 

Telefonica de Espana Group's EBITDA grew to 4,508.1 million euros, which
represents 1.3% growth over fiscal year 2000.

The Group's EBITDA margin was 44.1% (0.4 percentage points more than in fiscal
year 2000), while the operating company achieved a margin of 45.6%. 

Finally, Operating Profits increased to 1,703.7 million euros, which corresponds
to 10.1% growth over fiscal year 2000. This circumstance derives from the
positive changes in EBITDA and a 3.3% reduction in fixed asset depreciation, as
a part of the asset writedown undertaken in recent years.
 
The quarterly change in revenues and EBITDA in comparison to the previous fiscal
year has continued on the downward path that we anticipated in March 2001. On
the one hand, the cumulative year over year growth in revenues has been
gradually slowing throughout the fiscal year due to the application of tariff
reductions made throughout the year (January-April, August, September, and
November), greater competitive pressure, the measures put in revenues by the
regulatory authority, and the quarterly growth in revenues during fiscal year
2000 in absolute terms. For its part, EBITDA has also seen a similar change as a
result of the aforementioned revenues trend and cost control.
 
The expected operating performance for 2002 will be maintained at similar levels
of 2001 fiscal year, although its evolution during the year will be the opposite
of what experienced in the year 2001. The annual variance of revenue will be
hardest impacted during the first quarter of 2002 as a result of the cumulative
impact of the reductions in tariffs undertaken throughout 2001 and in January of
2002. The downward trend in revenues will fade throughout 2002 due to the
increasing growth of Internet and broadband, and the gradual quarterly decrease
of revenues from last year. Therefore, revenues in 2002 are expected to finish
the year at similar levels to that of last year. As a consequence of this trend
in revenues, EBITDA will have, assuming a sharp decrease in the first quarter, a
continuous improvement to finish the year at levels similar to that of last
year.
 
GRUPO TELEFONICA LATINOAMERICA 

Telefonica Latinoamerica is the Group company that operates fixed Telephony in
Latin America (Brazil, Argentina, Chile, Peru, Puerto Rico, and Venezuela) as
well as Advance (an Argentinean ISP), Cable Magico (cable TV in Peru) and Sonda
(IT services in Chile). It also includes the carrier CTI, whose mission is to
manage on an integrated basis the international traffic originating and
terminating in the US at Grupo Telefonica's Latin American operators.

Telefonica Latinoamerica's financial statements for 2001 include the effects
derived from the devaluation of the Argentinean peso, at the exchange rate of
1 euro = 1.5149 pesos (1 dollar = 1.7 pesos). In line with ICAC's conservative
recommendations as to the first representative exchange rate in the capital
markets after the effective devaluation of the Argentinean peso.
 
Furthermore, starting in January 2002, Telefonica de Argentina's and Cointel's
fiscal year will run from January to December, coinciding with that of the rest
of the Group's companies (previously income statement for 2000 includes these
companies fiscal year ran from October to September), after an extraordinary
fiscal year in 2001 of just three months (October-December 2001). Due to this
change Telefonica Latinoamerica is fifteen months of earnings for both
companies. Both companies' October-December 2000 earnings have been recorded as
an extraordinary income, whereas the results of the January-December 2001 period
have been included under their corresponding headings in the income statements,
according to its nature. 

At the end of fiscal year 2001, Telefonica Latinoamerica managed a total of 21.6
million lines in service, with a year over year growth of 11.8%, mainly due to
the 19.1% growth in Telesp's lines (with a net gain of 2.0 million lines). At
the end of September, Telesp managed to comply with the requirement established
by the Brazilian regulatory authority to be able to meet to any new installation
request within a period of less than 2 weeks. These goals imposed by Anatel for
December 2003 were already achieved in 2001. After this, in October, Telesp
submitted to Anatel all the documentation required for the regulatory authority
to be able to certify compliance with the goals.
 
At the end of December, Telefonica Latinoamerica had 26,738 employees, after a
headcount reduction of 3,555 positions since December 2000, thanks to the effort
undertaken during the fiscal year mainly in Telesp (net reduction of 2,254
employees) and CTC (net reduction of 1,108 employees). This reduction is
reflected in the 26.0% improvement in Telefonica Latinoamerica's productivity to
804 lines per employee.
 
Telefonica Latinoamerica has continued its growth effort in the broadband
market, which as allowed it to reach 245,919 customers in service, a 43.8%
growth since September, and almost 6 times the previous year's figure of
customers. It should be noted that 81% of users are from Telesp. 

The financial results of Telefonica Latinoamerica for fiscal year 2001 were
negatively affected by the depreciation of the Brazilian real (-21.8%) and the
Chilean peso (-12.4%) against the US dollar during the year, that have not been
offset by the appreciation of the US$ versus the euro (3.1%), and the economic
recession in Argentina.
 
As a result of the above mentioned factors, consolidated revenues in fiscal year
2001 showed a year-over-year reduction of 2.3%, to 10,137.4 million euros.
However, if the aforementioned exchange rate effects are not considered, the
year-over-year comparison shows an increase in revenues of 7.8%. This evolution
is due to the increase in result of Telesp's revenues, which increased by 25.0%
in local currency, in line with the significant growth in the average number of
lines, and the 5.4% increase in CTC's revenues in local currency, thanks to the
long distance revenues. Both offset the lower sales of TASA (-8,3% in local
currency) due to the worsening economic situation. 

Telefonica Latinoamerica's operating expenses showed a year-over-year increase
of 0.6% in euros over the same period in the previous fiscal year, due basically
to the increase in the activity in Telesp and to the increase in bad debts
provisions of Telefonica de Argentina, derived from the worsening economic
situation in that country, and in Telesp, after the more conservative bad debt
provision policy implemented since the second quarter of 2001, in line with the
criteria applied in the Group. 

EBITDA has shown a year-over-year decline of 3.7%, mainly because of the
aforementioned evolution in the exchange rates (in constant currency, the
company's EBITDA recorded a growth rate of 6.5%), as well as the decline in
TASA'S EBITDA, due to the competitive and economic environment in which the
company operates. 

Telefonica Latinoamerica's net income for fiscal year 2001 reached 1,274.9
million euros, 2.9 times the net income obtained in the same period in the
previous year. This positive performance was aided by the positive nonrecurrent
earnings obtained (164.6 million euros, versus a loss of 331.4 million euros in
the same period in 2000), which partially offset the negative effect of
Argentinean peso devaluation and the consequent recording of negative exchange
rate losses In the financial results. Overall, the devaluation of the
Argentinean peso has had a negative effect of 309.9 million euros on Telefonica
Latinoamerica's net income. Likewise, the increase in the stakes in Telefonica
de Argentina, Telefonica del Peru, and Telesp since mid 2000 (as a result of the
tender offers made in the last fiscal year that reduced significantly the
minority interests) had a positive effect on the year-over-year change in the
net income.

The extraordinary earnings include the capital gains from the sale of
Cablevision (256 million euros), as well as the nonrecurrent earnings derived
from recording the results of TASA's and Cointel's October-December 2000 period,
because of the above mentioned new fiscal year of both companies. These
nonrecurrent earnings offset the extraordinary expenses at Telesp and Telefonica
CTC Chile that derived from the personnel restructuring plans at those
companies.
 
Cumulative investments for 2001 were 3,055.1 million euros, with a year-over-
year reduction of 6.9%, after the investment rationalization effort undertaken
during the fiscal year, and despite the investment effort made by Telesp, in
line with its accelerated achievement of Brazilian regulatory goals, 72% of all
investment comes from Telesp, despite a 45% increase in new subscribers, the
company has managed to reduce its CAPEX measured in euros by 8.5%. 

Brazil 

Telesp's operations in 2001 were driven by the accelerated achievement of the
2003 universalization goals. Once Anatel certifies achievement of these
requirements, all of the companies of the Telefonica Group in Brazil will be
able to request new authorizations and thus expand the coverage and range of
their services to the rest of the country. 

The company ended the year with more than 12.6 million lines in service and a
penetration of 33.8% (+4.4 percentage points over December 2000). ADSL lines
reached 198,306 customers, which implies a year-over-year growth of 385%.
 
Once the effort for goal compliance ended, Telesp implemented a headcount
adjustment plan in the fourth quarter in order to adapt the company's structure
to the increasingly competitive environment, taking a step forward in the
process of transforming fixed costs into variable costs. Thus Telesp's workforce
fell by 14.2% since September, which resulted in an increase in the productivity
ratio to 1,198 lines in service per employee at the end of the year, with growth
rate of 44.5%. 

At the end of 2001 Telesp recorded an EBITDA growth of 19.9% in local currency
(-3.7% in euros). This was derived from the growth in the average lines in
service (+28% year-over-year), the 10.4% average tariff increase in local
currency that occurred in June 2001, as well as the good performance of long
distance traffic, all of which have allowed the company to record revenues of
4,343.9 million euros, with a growth rate of 25.0% in local currency (0.4% in
euros). The increase in revenues offset higher interconnection expenses (due to
higher rates and traffic), bad debts (due to the application of a more
conservative provision policy), and taxes (new taxes applicable from January
2001 that represent 1.5% of net revenues).
 
According to Brazilian accounting principles, Telesp's net earnings reached 749
million euros, which implies a growth rate of 6% in local currency, whereas due
to the depreciation of the real against the euro, the company's net income
showed a decline of 14% in euro terms. 

Argentina 

In the period of January-December 2001, TASA to faced significant changes in the
macroeconomic and regulatory environment, which considerably affected the
company's results and which may be summarized as follows: 

•  The Deregulation Decree effective since November 2000, which fostered an
increase in competition in the most profitable market niches and caused a 50%
reduction in interconnection prices.

•  Economic recession, which resulted into both a fall in consumption and an
increase in bad debt as a result of the deterioration in the payment chain. The
latter event, together with a more conservative bad debt provision policy, in
line with the one applied by other Group companies, caused the bad debt
provision ratio be reach 9.2%, or 5.1  percentage points higher than the same
period of 2000.

According to Argentinean accounting regulation, companies based in the country
cannot record the effects of the devaluation in 2001 results, given that the
devaluation occurred in January 2002. However, in Spain, given the criteria of
prudence established by ICAC, the effects of the Argentinean peso devaluation
were recognized in the 2001 results by incorporating the effects of applying the
exchange rate of 1 euro = 1.5149 Argentinean pesos (1 US$ = 1.7 pesos) to assets
and liabilities as of December 31, 2001. Therefore, without considering the
effects of the devaluation, in the period January-December 2001, TASA generated
a net income of 221.8 million pesos (248 million euros), representing a year-
over-year decline of 34.1% (-32% in euros). The earnings drop came as the result
of the lower EBITDA recorded, as well as the negative financial effects of the
increase in interest rates.
 
Despite the environment in which the business had to be managed, TASA's EBITDA
reached 1,522,9 million euros. Although this represents a decrease of 15.4% from
the previous year before in local currency (-12.8% in euros), it means that the
company continues to maintain a high EBITDA margin (51.1%, or 4.3 percentage
points less than the same period in 2000).

Higher competition, together with a negative regulatory environment and the
economic situation the country is going through, have all been reflected in
lower long distance and interconnection revenues, and in lower total revenues
(8.3% reduction in local currency). Regarding operating expenses, it should be
noted that especially in the second half of the year, and despite the
considerable increase in the bad debt provision (+102,5%), a significant expense
reduction effort allowed operating expenses to remain at a similar level to the
one of the previous year (an increase of 0.8% in local currency terms). If the
bad debt provision is not included, the expense reduction effort resulted in a
9.5% year-over-year decrease in operating expenses in local currency at the end
of the year (-6.7% in euros).
 
Among issues still pending is the required renegotiation with the Argentine
government of Telefonica de Argentina's future rates. These are subject to
change after the issuance of Law 25.561 on January 6, 2002, which establishes
that rates be denominated in pesos at an exchange rate of 1 peso = 1 US dollar.

Likewise, the measures adopted by the Argentinean Government and their
repercussion on the company's financial statements could cause, under certain
circumstances, equity and financial imbalances such as negative equity, the
inability to cover short-term foreign debt payment obligations due to
limitations on the convertibility of the peso, the need to accelerate payments
on financing received, etc. 

To the extent that the aforementioned circumstances have not occurred on the
date these annual results were prepared and, because their future behavior is so
far uncertain, we have not been able to quantify their possible impact, if any,
on the consolidated financial statements as of December 31, 2001. 

With respect to operating parameters, it is noteworthy the growth of lines in
service (+6%), which is principally due to products whose purpose is to minimize
the risk of bad debts (growth in the number of limited-consumption and prepaid
lines +66%). 

Chile 

At the end of fiscal year 2001, cumulative EBITDA showed an increase of 23.5% in
local currency over December 2000 (11.5% in euro) reaching an EBITDA margin of
42.3%, 6.2 percentage points over the previous fiscal year. Operational revenues
increased 5.4% in local currency (-4.8% in euros), thanks to higher long
distance revenues, due to the positive performance in traffic and new products
developed throughout the year (semi-flat rate products). Regarding operating
expenses, the reduction in personnel costs due to the headcount reduction made
in June, that led to a 22% reduction in the number of employees, and the cost
contention and rationalization plans that were implemented throughout the year,
permited operating expenses to fall by 5.4% in local currency in the year 
(-14.5% in euro).
 
Non-operating profit showed a positive evolution despite the extraordinary
expenses for redundancies, due principally to the positive performance of the
financial results thanks to the significant debt reduction during the year. Ail
this has allowed the company to obtain positive net income for the fiscal year
as a whole, versus the losses recorded in 2000.

Lines in service grew by 0.8% over the same period in the previous year, with
the increase in prepaid lines being noteworthy, with a year-over-year growth of
197%. Prepaid lines account for 7.8% of the company's total number of lines in
service. The recovery of the company's leadership position in the domestic long
distance market should be highlighted, having reached a 38.2% market share (+2.3
percentage points higher than in 2000) thanks to the successful launch of semi-
flat rates products in September 2000 for national long distance and in March
2001 for international long distance.
 
Peru 

At the end of fiscal year 2001, Telefonica del Peru recorded a 9.9% reduction in
EBITDA in local currency (-5.0% in euro), affected by the new regulatory
environment, with introduction of the new price cap in September 2001, leading
to a 3% reduction in rates, and a reduction in interconnection charges since
January 1. Likewise, competitive pressures have resulted in a reduction in rates
and long distance market share losses, causing long distance revenues to fall by
17.2% in local currency. Altogether, these factors caused the company's total
revenues to show a 3.1% decrease in local currency terms (+2.3% in euros). 

Despite the aforementioned competitive factors, the company has maintained an
EBITDA margin of 49.0%, 3.7 percentage points lower than the margin recorded in
2000. 

In terms of net income, the company recorded a loss, versus the positive net
income in fiscal year 2000. These losses were primarily the consequence of
adjustments made during the fiscal year after an in-depth analysis of 2001's
financial accounts, as part of the continuous process adopted by the company to
review its internal procedures and information systems, which did not require
any cash outflow. 

The 13% reduction in local currency terms in the levels of the company's CAPEX
allowed operating cash flow to increase by 1.3% over year 2000. All of this has
allowed a reduction of the financial debt (over 165 million euros).
 
It is especially noteworthy that Telefonica del Peru is undertaking a
significant effort to develop new products in line with the per capita income of
the population, mainly through the sale of prepaid and limited-consumption
products, which in practice lead to an improvement in bad debts management.
Thus, the prepaid segment now represents 32% of all lines in service, showing a
5.7 percentage point growth compared to 2000. 

TELEFONICA MOVILES GROUP 

During 2001, Telefonica Moviles obtained net combined pro-forma profit of 893.4
million euros, which implies an annual growth rate of 51.3%, or 13.7 percentage
points greater than the growth rate registered in the first nine months of the
year. The high quality on net profits stands out, inasmuch as the increase of
302.7 million euros over fiscal year 2000 includes both a large number of
extraordinary line items and the effect of the devaluation of the Argentine
peso. Excluding these effects, growth in net profit would have been 65.8%.
 
These solid results should be analyzed with an eye to factors external to the
Company that have characterized fiscal year 2001. Principal among these are the
slowing economic environment in countries where the group has significant
operations, the high levels of market penetration achieved in maturing markets
such as Spain, the Argentine crisis, and the depreciation of the major Latin
American currencies. Even in this environment, Telefonica Moviles has been able
to achieve sustained growth in operating and financial revenues, significantly
improving business profitability and reinforcing its balance sheet, thus proving
the ability of the Company to react and adapt to new market conditions, its
successes at containing costs, its further optimization of investments, and its
ability to capitalize on economies of scale. 

The following aspects should be highlighted with respect to the operating and
financial evolution of Telefonica Moviles in fiscal year 2001:
 
•  Operating revenues showed 13.6% year over year growth, an increase over the
growth achieved in the first nine months of the year. Excluding the effects of
exchange rate fluctuations, the new consolidation of Mexico, and accounting for
reward programs, the annual growth in the Group's revenues would have been
around 14.2%.

The evolution in consolidated revenues can basically be explained by the higher
revenues achieved by Telefonica Moviles Espana (+19.6%), which contributed 68%
of the Group's revenues and the exchange rate effect, which led to a decrease of
3.5 percentage points in the growth of consolidated revenues, and mainly affects
the Brazilian operators. Thus, revenues derived from Latin American operations
showed a year over year growth rate of 4.3%, which would be 14.4% excluding the
exchange rate effect. Excluding the revenues of Telefonica Moviles' operators in
northern Mexico, revenues derived from Latin American operations would have
grown by 3.6% in 2001 without forex impact. 

This revenues behavior has two sources: the increased client base for globally
consolidated operators (+28.6%, or 22.9%, if Mexican companies are excluded) and
the higher traffic in the networks - both in terms of minutes (+26,7%) and in
SMS (+178%) - which more than compensate for the lower ARPUs recorded (-14.7% on
average, in euro terms), another item affected by the exchange rate effect
described above. 

Following a trend noted from the beginning of the year, net additions in the
fourth quarter exceeded the levels achieved in prior quarters, with the increase
in net additions for Telefonica Moviles de Espana showing especially significant
increases (+52.9% vs 3Q2001 and +35.2% vs 4Q2000). Thus, the operators in which
Telefonica Moviles has an interest had 28.0 million active customers at the end
of 2001, which supposes a net gain of 6.2 million new customers during the
entire year (4.98 million, if Mexico is excluded). In December 2001, the active
customer base managed by Telefonica Moviles, which includes the customer bases
of operators in Chile and Puerto Rico, reached 29.8 million, for an annual
increase of 28.3%. 

•  Operating expenses demonstrate the excellent results of the cost
rationalization policies applied by the operators and the economies of scale
obtained, which have allowed operating expenses in the entire year to show a
growth in annual terms of only 1%. Among these, it should be noted that a large
part of the increase in personnel expenses (+56.2% versus 2000) resulted
principally from incorporating the staff of our new operators in Mexico and
Europe. Excluding personnel expenses corresponding to these operators, the year
over year increase would be 30.2%. 

•  A significant increase in the Group's operating profitability, with a marked
improvement in the EBITDA margin, which was 39.6% versus 33.1% in fiscal year
2000. The increase was even more significant in absolute values, demonstrating
the Group's ability to generate cash flow. Thus, the Group's EBITDA in 2001 was
3,333.7 million euros, with an increase of 882 million euros over fiscal year
2000, representing a year over year increase of 36%.
 
•  An annual growth in net income of 51.3%, 4.3 percentage points more than the
operating profit growth, despite the significant increase in non-operating
profit. Of special interest among the main non-operating line items is goodwill
amortization (+82.6% against comparable figures for 2000). This increase was a
result of the newly added goodwill line item derived from global integration:
first at the four non-consolidated operators in Northern Mexico (realized in the
second half of 2001) and also at Terra Mobile (starting in the fourth quarter of
the year).
 
Furthermore, net financial expenses showed an annual increase of 10.8%, which is
basically explained by the impact of the devaluation of the Argentine peso on
the Group's financial statements, which amounted to 73.1 million euros.
Excluding this effect, net financial expenses would have shown a reduction of
13.9%. 

The total impact of the incorporation of Argentinean investments in the
consolidated financial statements, as a result of the peso devaluation, reaches
296.9 million euros, of which 42.1 million euros have been incorporated in the
consolidated profit and loss account and 254.8 million euros in 'translation
differences in consolidation'. It should be also highlighted the conservative
criteria used to measure this impact, using an exchange rate of 1US$=1.7
Argentinean pesos (1 euro=1.5149 Argentinean pesos), in line with the
conservative guidance provided by the ICAC.
 
Consolidated net financial debt in the end of 2001 was 9,013,2 million euros.
Proportional net debt at December 2001 was 6,875.9 million euros, remaining more
or less stable compared to the close of 2000.
 
Likewise, the higher non-recurring negative results should be noted. These are
explained basically by the special reserves and writedown of assets undertaken,
and by the recording of TCP earnings corresponding to the October-December 2000
period as extraordinary income for fiscal year 2001 (-41.4 million euros). This
accounting shift was a result of the necessary harmonization of this operator's
fiscal year with the calendar used by all other companies in Grupo Telefonica
Moviles.
 

BUSINESS CHANGES SORTED BY GEOGRAPHIC AREA 

EUROPE AND THE MEDITERRANEAN BASIN

Spain

Telefonica Moviles Espana (TME) ended 2001 with nearly 16.8 million active
customers, a figure which is 23% greater than that achieved in December 2000. Of
the total customer base, 32% have varying contract types, while the rest are
prepaid customers. These figures imply a net year over year gain of 3.1 million
active customers. Therefore, TME has consolidated its position as a leader in
the Spanish mobile telephone market, with a market penetration of 71.5% at the
end of 2001 (calculated on a population of 41.5 million). The revitalization of
the Spanish market seen in the second half of the year should be emphasized. The
market's faster growth rate has favored TME's net gain in the second half of
2001, 64% greater than in the first half of the year. 

The healthy evolution of the customer base reflects the company's success at
containing its customer churn rate, which is especially relevant in the context
of a more mature market. In this environment, finding new customers is becoming
less and less viable as a growth possibility. Instead, the maintenance and
efficient management of the existing customer base are the key for a leading
operator. In this regard, TME's ability to adapt to this new competitive context
should be emphasized, as demonstrated by the company's showing a fourth quarter
churn rate 1.4 percentage points lower than shown in the same period last year,
and by its managing to obtain a monthly churn rate of less than 1% in the
quarter. The year over year churn rate for 2001 was 13.7%, versus 29.6% in 2000.
It deserves mention that TME has not seen appreciable differences in its churn
rates from recent quarters between the contract and prepaid segments. 

The effort made by the company to develop a highly competitive, quality product
has had a decisive influence on the improvement of the usage ratio trends. Thus,
contract customers' MOU returned to growth in the fourth quarter of the year,
showing year over year growth of 6% for all of 2001. The company's total MOU is
very close to stabilizing. In absolute terms, the company's networks handled
more than 26.7 million air minutes throughout 2001, which represent 28.2% growth
over the previous year. For its part, the data and content business continues to
increase as a proportion of all communications conducted by the company's
customers. In absolute terms, the total number of short messages handled by
TME's network in 2001 has surpassed 6,300 million, or 177% more than last year,
whereas service penetration at the end of 2001 was 56% of the customer base.
These data have contributed to causing the average monthly communications per
company customer (CPC) to increase by 21% over the figure from the previous
year, with an SMS weight greater than 36% for the entire year. The increase in
traffic flows related to the Value-Added and Content Services is also worth
noting. Thus, of the total number of SMSs handled in the last quarter of 2001,
38% were related to this type of services and applications. 

Total income billed for data services, as a whole, has passed 15% final customer
billings in the fourth quarter. This type of income saw 114% growth during all
of 2001.

As a result of ail the previously mentioned factors, generalized improvements
were recorded throughout 2001 in the revenues per customer ratios. Thus, the
ARPU for the fourth quarter of the year again showed a year over year decrease
from ARPU for the third quarter, measured against the comparable figure for the
same period last year, a circumstance that has recurred throughout 2001. Based
on this, we hope the falling year over year trend for ARPU will reverse itself
once growth in the customer base slows. 

Besides the positive trends for the main commercial and management ratios, TME
has made a major effort to contain costs and make the most of economies of
scale. A clear example of this is the change seen in the company's SAC, which
has not prevented it from active participation in the growing Spanish market and
reinforcing its competitive position throughout the period. Thus, the cumulative
SAC for all of 2001 was 36% below that of the most recent period. This
demonstrates the success of the business model initiated by TME in the first
quarter, whose most important aspect was the replacement of the traditional
generalized subsidy of handsets with a newly selective policy on acquisition
costs. Also, the weight of the resources used by the company to capture and
retain customers on corrected operating revenues (operating revenues that do not
take into account the customer retention activities affecting this line item)
fell throughout the year by 13 percentage points in comparison to 2000. 

Likewise, a centralized handset management model was introduced in December, in
which TME tries to intervene actively in the handset market in all the customer
capture and retention activities undertaken. Clear competitive advantages are
obtained through this model, both in terms of handset purchase prices and
greater ease for technological change, when in accordance with TME's interests.
However, the development of this model has apparently had a negative effect by
causing a reduction in the EBITDA margin, due to the strong increase produced by
the sale of handsets with a direct margin of practically zero. However, it also
carries significant improvements in the costs of customer capture and retention,
allowing absolute EBITDA levels to be achieved that are greater than what could
have been achieved without the implementation of this model. As an additional
effect, revenues from handset sales have increased appreciably over the previous
quarter, which compares just as favorably with other fiscal years. This effect
should be kept in mind in future quarters when analyzing the company's growth.
 
Thus, the cumulative operating revenues figure for 2001 was 5,736 million euros,
which supposes a 19.6% increase over the cumulative figure in December 2000. 

Cumulative EBITDA at December 2001 was 2,816 million euros, 57.3% greater than
that obtained in the previous year, with EBITDA recorded in the fourth quarter
of 2001 being 60.4% greater than that obtained in the same period in 2000.
Furthermore, it should be noted that the annual growth in EBITDA has exceeded
the growth recorded from operating revenues throughout 2001 by 37 percentage
points. It places into high relief the strong results from TME's policies of
spending control and resource usage optimization. The EBITDA margin over
operating revenues for the full fiscal year topped 49%, 12 percentage points
greater than last year, which makes TME one of the most profitable operators
around Europe.

Rest of Europe 

Under the name Quam, Group 3G (Telefonica Moviles' affiliate in Germany)
launched its commercial GSM/GPRS services at the end of November 2001. The new
service rests on a solid base; the attractive agreement for Germany-wide
commercial roaming signed in April 2001 with E-Plus. This agreement has allowed
the launch of GSM/GPRS services prior to the development of the UMTS network,
which will be deployed in the second quarter of the year in accordance with the
infrastructure sharing agreement signed with E-Plus.
 
After the initial difficulties of developing the launch campaign due to
technical interconnection problems with the main mobile operators in Germany,
Group 3G resumed its commercial activities at the beginning of fiscal year 2002.
Since the beginning, the operator has had a complete range of fully operational
products and services, the result of its cooperation with Telefonica Moviles, as
well as an innovative voice and data tariff structure. At the end of 2001 Group
3G had a large distribution network, with 15 of its own stores and numerous
points-of-sale, the result of agreements signed with different distributors,
including Debitel.
 
In Italy, at the end of January 2002 the partners of Ipse 2000, the consortium
in which Telefonica Moviles holds 45.6% and the winner of a UMTS mobile
telephone license, decided to implement a UMTS technologies and services-based
business model. The decision taken by Ipse 2000's Board of Directors was based
on the current market conditions in which the company finds itself. The decision
to wait for the launch of UMTS services allows the company to continue analysing
roaming and infrastructure sharing agreements that might lead to significant
improvements in IPSE 2000's business plan.
 
In the meanwhile, the company will review its activities and its management
structure so that they are in accord with the new business model. The company
will review its budget for fiscal year 2002 and adjust it to its new business
model. IPSE 2000's shareholders have agreed that the company will be financed
through loans from the shareholders. However, the reduced level of activity
prior to the commercial launch of the company's operations will substantially
reduce the project's financing needs. 

In Austria and Switzerland, we continue to await progress from agreement talks
with other operators on roaming and infrastructure sharing. Such agreements will
be necessary to evaluate the viability of launching commercial operations. 

With respect to these companies' results, in the launch phase and without
revenues in fiscal year 2001, they contributed a negative EBITDA of 90 million
euros in total, reflecting the global consolidation of the affiliates in
Germany, Austria, and Switzerland throughout the year and IPSE 2000 in the first
nine months of the year. 

Morocco 

At the end of December 2001, the active base of Medi Telecom exceeded 1.1
million customers, twice the December 2000 figure, significantly exceeding the
company's initial forecasts and increasing its estimated market share by 10
percentage points, to 38%.

Regarding Medi Telecom's financial results, on January 14 2002 the Moroccan
regulator modified the accounting for termination revenues on calls from the
incumbent operator. This prompted Medi Telecom to made a provision to adjust the
revenue accrued under this item since it began operations to this new criteria.
Up to this point, the revenue have been accrued in accordance with the initial
criteria established by the regulator. Excluding this provision, Medi Telecom
would have generated positive EBITDA, meaning that it would have achieved its
goal of reaching EBITDA breakeven in its second year of operations as
anticipated. 

LATIN AMERICA 

During 2001, a year marked by a regional economic slowdown and a significant
depreciation in some Latin American currencies against the dollar, the
Telefonica Moviles group operators adopted different strategic initiatives to
adapt themselves to the new operating environment. Thus, and keeping in mind the
external factors that were beyond the companies' control, the earnings obtained
by the Latin American affiliates in local currency are more than satisfactory. 

The customer base managed by Telefonica Moviles in December 2001 in the region
was 11.9 million customers, with an annual growth rate of 32%. In quarterly
terms, the net gain obtained in the fourth quarter was 520,000 new customers,
25% higher than in the third quarter of 2001, despite the contraction of the
customer base in Argentina. 

Brazil 

At the close of 2001 the companies managed by Telefonica Moviles in Brazil -
Telesudeste Celular, Celular CRT, and TeleLeste Celular - had a total active
customer base of 5.6 million customers, which is a 21.7% increase in fiscal year
2001. The last quarter of the year has seen a significant increase in the
commercial activity, typical of the promotional Christmas period, with the
highest quarterly gain achieved in the fiscal year, with more than 336,000 new
customers (+42% over 3Q01). 

Throughout fiscal year 2001, the contract segment has seen favorable growth,
with a growth rate of 3.4% over December 2000, versus the negative trend shown
in the previous fiscal year. Segment-specific improvements resulted from the
initiatives launched by operators to increase customer retention rates, among
which the introduction of 'reward programs' stands out. 

From a financial standpoint, revenues on joint-operator operations globally
consolidated, TeleSudeste Celular and Celular CRT showed an annual increase of
10.4% in local currency. The increased revenues generated in the fiscal year
were caused by an increase in the operators' customer base (+22% on joint
operations), but was flattened in part by the fewer ARPUs recorded (-9.4% in
local currency). Despite this year over year drop, it must be stressed that the
rate of decrease on ARPUs slowed throughout the year and remained stable in the
last quarter. The change in the ARPU is more or less similar to that shown in
the MOU, whose decrease is primarily rooted in the addition to the customer base
of new prepaid customers with lower unit consumption. 

The joint EBITDA of TeleSudeste Celular and Celular CRT in local currency,
figured after management expenses, showed a year over year growth rate of 7
percentage points greater than the earnings growth rate, which was 17.5%. The
EBITDA margin reached 37.2%, which implies an increase of more than 2 percentage
points over fiscal year 2000. The change in these variables is especially
significant in the context of the significant depreciation of the Brazilian real
against the dollar, with a direct impact on handset costs, and therefore, on
unit customer capture costs (SAC). SAC increases were partially offset by the
companies' efforts to improve the operating efficiency. In quarterly terms,
fourth quarter 2001's EBITDA margin was 30.1%, slightly lower than that of the
previous quarter, as a result of the heightened commercial activity described
above. The lower EBITDA margin offsets the decreases in SAC seen during the last
two months of 2001.
 
Regarding progress on the joint venture with Portugal Telecom throughout 2001,
different initiatives have materialised that will allow a rapid integration of
both companies' operations in Brazil as soon as the regulatory approvals
required to establish the joint venture are granted. 

Mexico 

The total active customer base of Telefonica Moviles Mexico in December 2001 was
1.2 million customers versus 1.1 million at the end of the third quarter of the
year, which represents quarterly growth of 9.9%, exceeding the net gain recorded
in this last quarter by more than 150% of that obtained in the third quarter of
the year. It is worth noting that the accounting criteria used for Telefonica
Moviles Mexico's customer base are significantly more rigorous than those
usually followed in Mexico. 

It should be highlighted that the contract segment has maintained its fraction
of the total customer base (20.4%) despite the net gain seen in the prepaid
segment during our Christmas campaign. Thus, the contract segment represents 36%
of cumulative net gain in the year. 

The efforts made by the company in the area of customer retention since the
present management of Telefonica Moviles' took control in March 2001 have been
reflected in a clear improvement in churn ratios. Rates have maintained the
downward trend of previous quarters, reducing churn rates in December 2001 down
3.4 percentage points from the data at the beginning of the fiscal year. 

Furthermore, the commercial launch of the Telefonica Movistar brand in October
has allowed an orderly migration and unification of the four previously existing
brands into a single brand, thus improving the positioning of the four
operators. These four operators have taken advantage of the Christmas campaign
to better communicate the attributes of the brand. Results were quite
satisfactory, as is shown by the change in net gains. 

The centralization and harmonization of the information systems since the start
of 2002 will mean one more milestone in the company's series of actions
undertaken to improve operating efficiency, after the rationalization in
staffing levels, the important improvements in the year-end productivity ratios
(-40%) were attained since Telefonica Moviles assumes the management of the
operators. 

Regarding local currency financial results of Telefonica Moviles operators in
northern Mexico in the second half of 2001, it is note worth the 17% increase in
the operating revenues in the fourth quarter in relation to the third one. This
evolution is explained both by the growth in the customer base and by the larger
ARPUs recorded during the period (+8% in local currency). In this regard it
should be noted that the ARPUs at Telefonica Moviles Mexico are the highest in
the Mexican market (280 mexican pesos at the end of 2001).
 
The increase in quarterly revenues was not reflected in EBITDA due to the
greater commercial activity recorded in the period and the increase in
advertising expenses, as a result of the Christmas campaign and the
implementation of a unique brand for all operators. As a result, the EBITDA
margin in the second half of the year was 3.7%. 

Argentina 

In fiscal year 2001, TCP's operational and financial evolution was marked by the
country's macroeconomic environment. Slower growth in the cellular market
throughout the fiscal year, but more significantly in the second half of the
year, has caused a contraction in the number of mobile telephone users in the
country during the quarter ending in December, with market penetration rates
falling back to levels last seen in March (19%). This trend, a result of reduced
business activity and standardization of the prepaid customer base at some
operators, was reflected in TCP's active customer base, which at the end of 2001
was 1.8 million customers, more or less stable with respect to December 2000.
However, TCP continued to be the number two operator in the Argentine market as
measured by the number of users served, with an estimated market share of 25%.
Likewise, it should be noted that despite the deterioration in the country's
economic situation, changes in traffic levels have been favorable. Thus, in the
period from October to December 2001, traffic has remained at the same levels as
in the preceding quarter. 

Throughout the year, the company has undertaken various initiatives designed to
adjust its cost structure to the reality of the operating environment. In this
regard, we highlight the reduction in customer acquisition costs - both from the
cuts in handset subsidies and in traffic promotions - as well as the advances
achieved in productivity, which attained a ratio of 1,430 connections per
employee versus 930 in 2000. Furthermore, we have clamped down on bad debt,
which have not varied significantly in recent months, thanks to a skew towards
the prepaid segment of the market, which in December 2001 represented 66% of
TCP's total customer base. 

With respect to the company's local currency financial results in January-
December year 2001, operating earnings showed a year over year decrease of 9%,
basically explained by the lower traffic volumes handled throughout the year,
the reduction in interconnection rates, and fewer handset sales. In quarterly
terms, earnings for the fourth quarter of the year fell by 7.4% against the
previous quarter, mostly as a result of stagnation in the customer base. It
should be noted that revenues derived from providing mobile communications
services remained at the same level as in the third quarter of the year, shored
up by an increase in the sales of prepaid traffic.
 
With respect to the change in operating expenses, they showed a strong reduction
of more than 30% in local currency over the entire year. In quarterly terms,
fourth quarter operating expenses fell by 66.2% against the same period in 2000.
The cost reduction is a result of both the cost containment effort started by
the company and of the slowing rate of activations. These have yielded a
reduction in costs for labor, advertising investments, and network related
costs. 

As a result of the change in earnings and strong cost containment, TCP's EBITDA
in 2001 showed a decrease just above 1% in local currency, a consequence of the
reduction in earnings. TCP's EBITDA finished at 15% of total earnings, more than
1 percentage point greater than that achieved in December 2000. 

Peru 

Telefonica Moviles Peru closed 2001 with an active customer base of 1,087,152,
which implies an annual increase of 21.0%, with an increase in net gains of 7%
from the third quarter to the fourth. During the entire year, Telefonica Moviles
Peru retained its leadership in the Peruvian market, with an estimated market
share of 61.9% and an estimated net gain share of 39.7%, despite the increase in
the number of competitors since the beginning of the year. 
 
At the end of 2001, the prepaid segment represented 79.4% of the customer base
(+3.5 percentage points over the close of 2000). However, it is important to
note the positive change in the contract segment, which in the last three months
has recorded an increase of 6.7% over the previous quarter, showing growth of
3.5% for the year as a whole.
 
During the final quarter of 2001, the range of products and services offered to
the corporate segment has grown, thereby reinforcing the company's segment-
specific competitive position and obtaining a 66% increase in the number of
corporate customer connections. Likewise, customer retention campaigns have
intensified, allowing the achievement of a significant reduction in customer
loss, especially contract customers.

Regarding the economic results, dollar-denominated operating revenues showed an
annual growth rate of 8.5% over 2000, based on growth in the customer base,
which offset the lower ARPUs recorded during the fiscal year due to changes in
the customer mix and rate cuts necessitated by greater competitive pressure.
However, the positive change in ARPU in the last quarter of the year should be
noted, which showed slight growth over the previous quarter. 

The strong increase in commercial activity during 2001, with a significant
effort toward marketing, sales, and customer retention in the face of greater
competitive pressure, has been reflected in the EBITDA margins, which during the
full year were 32.3%, slightly below those achieved in 2000. However, the clear
trend of an improving margin since the beginning of the year should be noted.
Thus, the EBITDA margin in the fourth quarter of 2001 was 34.1% versus the 28.1%
recorded in the first quarter of the year. The EBITDA increase came despite the
greater net gain posted in the last quarter, which is more than 2.5 times
greater than that of the January-March 2001 period. In absolute dollar terms,
the company's EBITDA for 2001 as a whole, fell by 3.6% due to the commercial
efforts.

Chile 

Telefonica Movil, a company affiliated with Telefonica CTC Chile and managed by
Telefonica Moviles, closed 2001 with a customer base of 1.57 million active
customers, showing an annual increase of 28.2%. 

In the financial area, the favorable evolution in the EBITDA margin stands out,
reaching 29% in the fourth quarter of 2001, compared to a margin of 10% in the
same period of 2000 and a 38% in the third quarter of 2001. The change from the
third to fourth quarters was caused by an increase in the net gain (+38%). 

Guatemala and El Salvador 

At the end of 2001 Telefonica Moviles' operators in Guatemala and El Salvador
had a combined customer base of 395,397 active customers, showing an annual
increase of 6%, in line with the moderate growth seen in the mobile telephone
market in both countries.

Operating revenue generated by the two Telefonica Moviles affiliates in this
region, in euros, showed a 3% increase with respect to 2000. 

Overall EBITDA was 26.8 million euros, both companies having obtained positive
EBITDA. The EBITDA margin for all of 2001 was 13.5%, showing a significant
improvement over the beginning of the year, when these operators' EBITDA went
negative due to the economic situation in these countries. 

HORIZONTAL BUSINESSES 

In December, Terra Mobile announced the reorientation of its business model
toward the evolving technology of mobile telephony. This strategy will translate
into major cost reductions, greater exploitation of synergies, and the
concentration of activities in the most significant markets (Spain, Germany, and
the United Kingdom). All of this has implied a negotiated staffing reduction of
50% to adjust their headcount to the new environment, a process which ended
satisfactorily in fiscal year 2001.

Terra Mobile ended fiscal year 2001 with more than 5.8 million registered users,
which implies 98% growth since December 2000. 

Due to the changes in Terra Mobile's shareholder base, this company has been
consolidated under the global integration accounting method, contributing a
negative EBITDA of 15.9 million euros since the fourth quarter of the year. The
company estimates that as a result of its new business model, the expected
losses for 2002 will be significantly lower. 

Following the interruption of the operations in Scandinavia in the fourth
quarter of 2001 a partial write down of the goodwill obtained in the acquisition
of lobox was done proportionally to the assets in that region in a total amount
of 3.3 million euros. 

With respect to the rest of the horizontal businesses and the companies that
comprise them, Mobipay Espana, Mobipay International, and m-Solutions, the
results recorded in 2001, both in terms of revenues and EBITDA, have not been
significant nor have they had a material impact on the Group's accounts. 


DATA BUSINESS 

TELEFONICA DATA GROUP 

Grupo Telefonica Data consolidated its international presence throughout 2001,
having completed the segregation of its corporate customer service from
incumbent fixed telephony operators in Brazil, Argentina, Peru, and Chile. This
is also the first fiscal year with twelve months of operations in the expansion
markets, as alternative carriers in America and Europe, consolidated in the
profit and loss account.

As a result of this expansion process, Telefonica Data recorded operational
revenues of 1,849.7 million euros, 64.6% over last year. It is important to
highlight the significant growth of revenues of higher margin services
(Internet, Hosting and IP Solutions), which represented at the fourth quarter
48% of the total revenues.

The group's consolidated EBITDA reached 23.6 million euros, down 68.5% compared
to fiscal year 2000. Additionally, EBITDA margin is 1.3%. This evolution is
explained by the costs associated with consolidating and the start up of
operators in the expansion markets, the difficult economic situation and its
influence on the decisions of corporations to invest in technology, lower
earnings from International Services due to a lower-than-expected volume of
international IP traffic, and the downward trend in rates. 

Finally, as a result of the acquisition of the German company Mediaways in
January 2001 due to the implementation of agreements reached in May 2000, and an
analysis performed on the recoverability of Mediaways' goodwill, a 249 million
euro writedown was executed in the last quarter of the fiscal year. 

Incumbent Markets 

Revenues coming from countries where Grupo Telefonica is present in fixed
telephony service as an incumbent operator (Spain, Brazil, Argentina, Chile, and
Peru) reached 1,227.8 million euros, 23% higher than in the same period last
year. It is important to emphasize the quality of these revenues that come from
the data market primarily serving end-customers. 

In Spain, operational revenues in 2001 reached 797.2 million euros, up 14.1%
from fiscal year 2000. Earnings from Hosting services now represent nearly 3% of
revenues. Hosting, Internet services and Spain's Telefonica Sistemas together
account for nearly 38% of total earnings.

The EBITDA reached 155.5 million euros, up 0.6% from fiscal year 2000. The
EBITDA margin was 19.5%, 2.6 percentage points lower than the level published in
fiscal year 2000. From an revenues standpoint, this was caused by the maturity
of the business. From the cost standpoint, it was derived mainly from the
restructuring of the direct business customer service units for Large Customers
and the development of new services.
 
Revenues from the four countries in America (Argentina, Brazil, Chile and Peru)
reached 430.6 million euros, up 42.3% compared to fiscal year 2000. 

Regarding EBITDA, it rose to 30.6 million euros, up 105.5% compared to the same
period last fiscal year, improving the earnings margin from 5% to 7%.

Of particular importance in the Latin American region is the positive evolution
in the Brazilian operations, where revenues grew more than 102%, reaching 128.8
million euros and obtaining a positive EBITDA margin of 3.7% versus the negative
margin of 3.5% of last year. The consolidation of Telefonica Data Brasil as the
main communication service provider to companies in Sao Paulo state, together
with the revenues increase from value-added services (30% from IP, Hosting and
solutions versus 12% last year), form an excellent starting point for the
Brazilian unit's strategy of expanding its operations to the rest of the
countries and leveraging its efforts to further integrate with the Emergia and
Banco Itau networks (acquired during fiscal year 2001).

In the case of Argentina, despite the economic recession and consequent
commercial stagnancy, Telefonica Data Argentina achieved revenues of 170.9
million euros, up 36% compared to fiscal year 2000. The EBITDA margin rose to a
positive 6.3% versus the negative margin of 4% from last year. The effects of
the monetary devaluation that took place at the start of 2002 have already been
recorded into 2001 results. 

Expanding Markets 

In those countries where Telefonica Data has entered as an alternative carrier,
in the Americas as well as in Europe, the revenues reached in 2001 totaled 642
million euros and now represent more than 34% of the Total Sales of Grupo
Telefonica Data's operations.

In Europe, Telefonica Data offers a global portfolio of services to all range of
companies, although special emphasis has been placed on the high-growth
Pyme/Soho sector throughout fiscal year 2001. Revenues from Europe excluding
Spain (including Germany, Austria, Italy and the United Kingdom) reached 598.2
million euros, contributed mainly by the activities in Germany and Italy.

The EBITDA margin in the expanding markets in Europe has been -5.4% as a result
of the economic effort needed to consolidate the expansion of the network,
launch new services, and new customer acquisition.

In Germany, revenues from mediaWays reached 436 million euros, including the
revenue from narrowband service launched in the United Kingdom in June 2001.
Revenues for the unit group 37% compared to fiscal year 2000 (when mediaWays did
not belong to Telefonica Data Group). 

In Italy, the country's geographic coverage has been completed, and revenues
reached 140 million euros during the fiscal year. This shows a clear trend of
growth in volume (revenues of the month of December were twice the figure for
January). At the same time, value-added services grew significantly as a
proportion of the company's revenues, becoming 36% of the total.

As for the deployment of the Network in Europe, it should be mentioned that at
fiscal year's end, Telefonica Data had more than 302,000 connections between
switched and dedicated connections, over 19,000 ADSL lines and 410 points of
presence (POPS).

As for its markets in the Americas, Telefonica Data is present in Colombia,
Mexico, Uruguay, and Puerto Rico as a new operator and has its largest Data
Center in Miami, USA. Revenues accrued from these countries in the fiscal year
achieved 43.8 million euros, up 82% compared to last year.
 
The negative contribution to the Group's EBITDA from this market reached 30.2
million euros. This was due to startup activities, the economic effort needed to
capture new customers, the downward trend in Internet companies, and slowed
economic activity in the US.

As for the network's expansion into new markets in the Americas, at the end of
fiscal year 2001, it had 76 points of presence (POPS), 1,078 switched ports, and
8,450 dedicated ports.

International Network
 
During fiscal year 2001, a significant effort was made in the deployment of the
international network. Thus, by the end of the year there were 29 points of
presence (POPS) in 17 countries, which enables Telefonica Data, along with
Telefonica's own network connectivity, to provide services to multinational
corporations both within Europe and Latin America and between the two regions. 

MEDIA BUSINESS 

ADMIRA MEDIA GROUP
 
During fiscal year 2001, Telefonica Media Group became known as Grupo Admira
Media, in order to better establish a group culture and identity. It positioned
itself as a market leader in creating, packaging, and distributing contents in
traditional and multi-platform media.
 
As we emphasized in our reports throughout the year, two clearly differentiated
factors have affected the analysis of Grupo Admira Media's earnings; the change
experienced in its consolidation sphere throughout the fiscal year 2000 and the
crisis in the advertising markets and economy of Argentina.
 
Regarding the changes in the consolidation sphere, it is important to highlight
the incorporation of ATCO, in which holdings were increased throughout the year
from 26.8% to 100%. ATCO was fully consolidated through the global integration
method since May 2000, while Endemol entered the consolidation sphere through
the same method in August 2000. During the last quarter of the fiscal year
however, the figures have been harmonized. The merging of the mentioned above
companies has led to a very significant change in the profile of consolidated
earnings and EBITDA Admira's Group.
 
In relation to the second factor above mentioned, it should be emphasized that
Admira Media's accounts were affected, on the one hand, by the economic slowdown
in the major Western economic powers, which translated itself into a revenue
drop from the advertising market, and, on the other hand, by the serious
economic crisis in Argentina, which affected the performance of assets by the
Group in that country. In addition, the impact of the devaluation of the peso
versus the dollar that took place at the beginning of January, at the exchange
rate of 1 euro = 1.5149 pesos (1 dollar = 1.7 pesos). According to the most
prudent advice issued by the ICAC, the devaluation effects were registered by
Admira Group in the accounts under the heading 'Financial Results', and amounted
to 17.6 million euros.
 
During the fiscal year 2001, the Admira Media Group has obtained consolidated
earnings totaling 1,403.1 million euros, which is nearly twice the earnings the
Group obtained during the same period last year. These changes in earnings,
along with the more moderate growth in costs, has allowed the Group's
consolidated EBITDA at the end of 2001 to total 152.5 million euros, compared to
the EBITDA of 13.6 million euros attained last year. The fourth quarter of the
year leads to the consolidation of a positive EBITDA trend that began in the
last quarter of 2000, by showing an EBITDA of 70.3 million euros versus 37.4
million euros from the same period last year. These changes in the EBITDA
occurred without any effect on the consolidation sphere, a demonstration of
Admira's management efficiency.
 

It is important to stress that this evolution was possible in a very adverse
economic situation, which was reflected in the advertising market slump since
the begin of the year and which was exacerbated by the September 11 attacks. The
deterioration in the advertising market led, on one hand, to a decrease in the
earnings generated by the television companies that form part of the Admira
Group and, on the other hand, to a slowdown in the television production, since
the production companies were pressed to reduce the price of programming amid a
softening advertising environment.
 
For the first time in the Group's history, operating profit at the end of the
fiscal year were positive, totaling 77.1 million euros, compared to the 35.2
million euros at the end of the last fiscal year.
 
PROGRAMMING BUSINESS

ENDEMOL

Fiscal year 2001 saw Endemol become a world leader in the creation of
entertainment content, thanks to the success of some of its programs (Big
Brother, Star Academy, ...). It currently has over 400 programs that are
distributed in over 20 countries. Its primary focus of activity is in Europe,
where its main markets are Holland, Spain, France, the United Kingdom, Italy,
and Germany.
 
As for its international expansion, Endemol has continued to strive for
leadership in countries where Grupo Telefonica has a market foothold but where
Endemol has not yet been active. In this sense, the agreements reached with two
media groups in Latin America - TV Globo in Brazil and Grupo Televisa in Mexico
- are noteworthy. These agreements will create joint companies dedicated to both
the production of programming for distribution in those countries and the
purchase and distribution of the already existing Endemol own programming. Under
these agreements, Edemol's presence in Latin America increases substantially.
 
From the financial standpoint, during fiscal year 2001 Endemol's consolidated
revenues reached 914.3 million euros, up 62.8% from last year. This growth,
which has been maintained at the same level as was published in the third
quarter, should be considered as very positive, taking into account the
difficult macroeconomic environment and the aforementioned fall in the
advertising markets of the major countries where the company does business.
 
As a result of the welcome changes in earnings, the accumulated EBITDA for the
year reached 150.7 million euros, up 51.1% compared to last year.
 

BROADCAST TELEVISION AND RADIO BUSINESS

ANTENA 3
 
Throughout 2001, two clearly differentiated factors have conditioned Antena 3's
performance.  On one hand, the deterioration of the advertising market in Spain
during the year, leading to a year over year 8% drop. On the other hand, the
aggressive strategy adopted by TVE consistent to increase the time allocated for
commercials led to a simultaneous price cut in order to increase its market
share.

In this context, Antena 3 offered a grid of quality programming, different from
the rest of its competitors, which enabled it to maintain the best ratio between
advertising market share and audience share, achieving at the end of the fourth
quarter a ratio between the both above mentioned shares of 1.34 versus 1.30 for
the same period last year.

 
In terms of audience, Antena 3 TV has become the third most widely watched
network in the country with a 20.5% share, behind TVE-1 y Tele5 (24.7% and
21.0%, respectively), 1 percentage point below the level recorded for the same
period last year, decreasing the difference with Tele5, which accumulates a loss
of 1.3 percentage points during the same period.
 
Despite these efforts, the revenues generated by Antena 3 have been affected,
ending the year at 532.4 million euros, a drop of 11.3% compared to the same
period last year.
 
This reduction in revenues, coupled by scant flexibility in operating costs, led
to a 42.7% decrease in the EBITDA at the end of the period, compared to the 2000
figure. The EBITDA totaled 112.2 million euros.
 
In coming quarters, Antena 3's strategy will continue to focus on offering
quality primetime programming, with special emphasis on its own in-house
contents, less expensive programming, and repeat its own programming formats
during non-primetime hours, which will allow for higher audience shares and will
allow it to strengthen the company's competitive position.
 
ATCO

The drop in the Argentine advertising market over the first nine months of the
year increased during the fourth quarter, because of the worsening economic
crisis in the country. This instability led the advertising market to experience
its maximum point of deterioration in December, falling 51% compared to the same
month last year.
 
In terms of advertising market share, Telefe continues to be the leading
network, with a 43% market share. The levels attained at the network are based
on the average audience share for the period, up to 40.6% or 15.1 percentage
points above its closest rival, Canal 13, and 2 percentage points better than
the share it had during the same period last year.
 
In spite of the network's positive behavior from an operational standpoint, the
crisis in Argentina has prevented this efficient operating performance from
being reflected in the company's financial earnings. In spite of all this,
operational earnings totaled 237.3 million euros at the end of the year, down
23.6% in local currency compared to the same period last year. Despite efforts
to do so, cost reductions failed to fully compensate the drop in revenues.
However, the costs reduction to 25% below year 2000 levels and accelerated as
ATCO applied even stricter control policies over the quarter, a measure to
confront the difficult situation existing in the country.
 
As a result of the changes in revenues and expenses, the EBITDA for the year
totaled a negative 2.1 million euros, representing an improvement over the
negative 4.4 million euros seen in 2000. 

ONDA CERO RADIO

Although to a lesser extent than in the broadcast television, the Spanish radio
market was influenced throughout 2001 by the drop in the Spanish advertising
market and by the aggressive strategy displayed by TVE. In this sense, the radio
advertising market shrank 2% in the year versus initial expectations of 4%
growth.

Despite the market situation, it is need to emphasize Onda Cero's excellent
ability to attract audiences throughout the year, becoming the second most
listened-to station in the national radio market, with more than 2,771,000
listeners, a 18.2% increase over the end of year 2000. This growth was achieved
thanks to the station's appealing offerings, currently including some of Spain's
most popular stars.

The increased number of listeners has enabled Onda Cero to take a very
significant quantitative leap in terms of earnings, totaling 70.8 million euros,
up 28.1% compared to fiscal year 2000. This growth in earnings has translated
into an improvement in the EBITDA for the year, totaling a negative 5.9 million
euros compared to negative 15.1 million euros for the same period last year.

It should be emphasized that throughout the year Onda Cero continued to increase
its broadcast network, thanks to agreements with Radio Blanca and Radio Espana.

PAY TELEVISION AND DISTRIBUTION BUSINESS 

VIA DIGITAL
 
Throughout fiscal year 2001, the main pay TV networks in Spain adopted a clear
strategy to fight to increase market share through aggressive advertising
campaigns to capture customers. This aggressiveness affected the financial
earnings of the companies. This fact worsened throughout the whole year because
of the problem that Canal Satelite Digital has been facing with card piracy, a
situation that has yet to be solved.
 
In this context, Via Digital ended the year with a net gain of 173,320
subscribers, yielding a customer base of 806,379 subscribers, up 27.4% for the
year. Taking into account the size of the Spanish cable television market
(806,379 subscribers), the market share Via Digital would have would be 27.4%.
 
From the financial standpoint, operational earnings totaled 272.3 million euros,
up 27.8% compared to last year. These earnings, however, should lead to
significant growth in fiscal year 2002 as a result of the wide customer base Via
Digital has acquired.
 
The effort to keep spending under control made throughout the year led to an
increase in operating expenses of just 4.5%.
 
As a result of the changes in spending and revenues, the EBITDA improved 12.1%
over the previous fiscal year, totaling a negative of 262.7 million euros versus
a negative of 299 million euros in the fiscal year 2000.
 
INTERNET BUSINESS
 
TERRA-LYCOS GROUP
 
During the last quarter of 2001, and as a result of the events of last September
11, economic activity in the main countries where Terra Lycos operates has
slowed even further.
 
In this negative macroeconomic scenario, Terra Lycos had already started in the
last quarter to adapt its business model by focusing on its two main revenue
sources: access and media. The OBP model (Open, Basic, Premium) is the result of
this change in Terra Lycos' business strategy. For both the access and portal
segments of the business, its purpose is to generate earnings based on the
subscription and pay-per-view/use models. Having an access business in most of
the countries where Terra Lycos operates allows that access service to be
packaged with portal services and content, facilitating the implementation of
the OBP model. As an example of this strategy, in October Terra-Lycos launched
'ADSL Plus' in Spain.  This plan consists of a package where a full range of
value-added services (virtual hard disk, domain, and a self-install package) is
added to pure connectivity (128K upload and 256K download), together with a
multimedia area reserved on the portal for Terra-Lycos customers only. This
launch in Spain, together with the leadership that Terra Lycos exercises in the
broadband market in one of its main markets, Brazil, has allowed it to end 2001
with 233,000 broadband subscribers, which implies a growth of 60,000 subscribers
during the last quarter and 197,000 for all of fiscal year 2001.
 
In cumulative operating figures for the end of the fiscal year, total
subscribers for Spain and Latin America reached 4.4 million, 30% of which
classify as pay customers, compared to 24% in December 2000. During the fiscal
year, 305,000 new pay customers were added, 65,000 of which were obtained during
the last quarter.
 
The audience, measured by the number of pages views, reached nearly 500 million
per day, which implies 4% growth with respect to the previous quarter and 42% in
twelve months. Furthermore, the unique users figure for the entire Group was 111
million in December.
 
From the financial standpoint, cumulative operating revenues throughout the
fiscal year reached 690.0 million euros, 22% higher than proforma revenues form
the same period of the previous fiscal year, considering Lycos since January
2000. Broken down by business segment, the media business has been most affected
by the current economic difficulties, showing growth of only 4% compared with
the same period in the previous fiscal year, while revenues from access
increased by 76% in the same period.  This growth shows that the Internet
continues to be a sector in full-scale development, achieving attractive growth
rates, even during times of economic deceleration. Referring to the fourth
quarter, revenues of 163.4 million euros were obtained, as a result of the
worsening situation after the terrorist attacks last September 11. As previously
indicated, this situation has affected the revenues of the media business. 
Nonetheless, thanks to the diversification of revenues this decrease has been
partially compensated by a significant 25% increase in access revenues, versus
the same period of last year.
 
The geographic and functional diversification in revenue gives stability to
Terra Lycos' revenue function in the most adverse of circumstances. Thus, 64% of
revenues stem from the media business, while the remaining 36% come from the
access business. This distribution of the revenues structure has held steady
through the entire fiscal year.
 
Cumulative media revenues for the year have increased to 448 million euros,
while for the quarter they reached 106 million euros. Revenues from access
reached 245 million euros for the fiscal year and 60 million euros for the
quarter.
 
From a geographic standpoint, 49% of revenues were generated in Spain and Latin
America (Spain, Brazil, and Mexico contributed 95% of revenues in this region),
51% of total revenues came from the US.
 
Furthermore, Terra Lycos continues in its trend of improved margins that began
in the third quarter of 2000, thanks to the processes put in place to reduce and
control costs and to improve the company's efficiency. Thus, cumulative EBITDA
margin for the fiscal year was -33%, i.e. an improvement of 21 basis points with
respect to 2000, whereas for the quarter it was -25%, which supposes an
improvement of 6 basis points in just three months.
 
With respect to the expansion strategy deployed by Terra Lycos, during the first
nine months of the fiscal year, the acquisitions of Iberwap (a company
specialized in selling digital map services and contents), Raging Bull (a
leading financial community in the US), Opinion Minders (a company that performs
online market studies) and Uno-e (an online 'supermarket' of which Terra Lycos
controls 49% and BBVA the remaining 51%) were completed.
 
With respect to the acquisitions executed in the quarter, in the month of
October, Terra Lycos acquired Decompras.com, a leading e-commerce company in
Mexico.
 
During the last quarter of the fiscal year, Terra Lycos has continued to launch
new products and form strategic alliances. It is worth mentioning the agreement
with CheckM8, a leading technological developer that automates and optimizes the
creation and publication of advanced content and advertising formats. In Spain,
as part of Terra Lycos' strategy for developing its business model, an email
marketing tool was launched on a segmented base of 2.5 million people, as well
as the first open broadband online gaming platform (Open) which has become paid
(Premium) in February 2002.
 
In the US, one standout development is the launch of a facelift for the Lycos
portal, which will harmonize with the rest of the group, going from the
'directory' concept to a more modern 'new media' concept.  Likewise, Lycos
Radio, an Internet radio model with music and interviews, was launched in
October.
 
DIRECTORIES BUSINESS

TELEFONICA'S DIRECTORIES BUSINESS
 
During fiscal year 2001, not only the companies that are already consolidated in
TPI Group's accounting were included under this heading, but also those other
ones that are in the process of integration (Telinver in Argentina and TPI
Peru), to provide an integrated view of Telefonica Group's Directory business.

This year, TPI Group exceeded forecasts announced by the company in August in
terms of revenues and EBITDA. This positive performance has been sustained
through solid organic growth, a significant improvement on margins in Spain and
consolidation and progress in our Latin American position.
 
TPI Group revenues grew by 24% to reach the figure of 511.7 million euros,
driven by the growth of operations in Latin America and by the excellent showing
on advertising revenues in Spain (+9.8% greater than those of fiscal year 2000),
which contrasts with the weak behavior of the advertising sector during the
fiscal year.
 
TPI Espana's growth is fundamentally due to positive revenues activity in the
publishing business, which represents 94.4% of TPI Espania's total advertising
revenues. Throughout 2001, a total of 64 Yellow Pages editions were published, 2
more than in 2000, due to the now-separate business and residential directories
for the capital Madrid and the city of Seville. Yellow Pages revenues grew by
7.3% on a book-to-book basis, including an increase in average revenues per
customer of 10.4% and a 2.8% decline in the number of customers. White Pages
advertising saw 5.4% growth, including a 19.2% increase in the average revenue
per customer and an 11.6% fall in the number of customers. Furthermore, Internet
business revenues multiplied by 2.15 times to totaled 16.8 million euros. This
is the result of wide market acceptance of these products and the double
strategy of packaging the product with the Yellow Pages and supporting the sales
force specializing in the Internet. Total number of Internet customers reached
245,000 by the end of the fiscal year, 4 times as many as the figure registered
in 2000. Advertising revenues from the Talking Yellow Pages reached 3.1 million
euros, which implies 27.3% growth, reaching a total of more than 246,000
customers, nearly 4 times the number for 2000.
 
Latin America already represents more than 24.4% of TPI Group revenues, before
consolidating Argentine and Peruvian assets, totaling 125.2 million euros.
 
In Brazil, revenues reached 53.8 million euros, of which 42.7% referred to the
first multiplatform edition of the Yellow Pages (GuiaMais) in the cities of Sao
Paulo, Guarulhos, Riberao Preto, and Curitiba, leading to a 20% market share in
the city of Sao Paulo. Of these revenues, 7% and 3%, come from the Internet and
Talking Yellow Pages, respectively. 

In Chile, Publiguias has published a total of 10 Yellow Pages and White Pages
directories, contributing 71.4 million euros, including 3% growth in the number
of customers, which has now surpassed 57,600.
 
TPI Group EBITDA increased to 128.8 million euros, which implies 6.2% growth
over fiscal year 2000. This growth would have been 31.3% if it had not included
the effect of Telefonica's revenues from the sale of White Pages advertising,
which amounted to 23.1 million euros in 2000. We also point out TPI Espana's
330-basis points improvement in its EBITDA margin, which compensated the effect
mentioned above. Furthermore, the renegotiation of a new contractual framework
between Publiguias and Telefonica CTC during this fiscal year has allowed
Publiguias' EBITDA margin to increase from 7.4% in 2000 to 29.9% in 2001.
 
Finally, it is worth mentioning the closing of the sale of 100% of Telefonica
del Peru's directory business for $31.2 million will be in February. This 
business will be fully consolidated into TPI, starting at the beginning of 
fiscal year 2002.
 
The Telefonica group's directory businesses that have not yet been integrated
into TPI, Telinver, and TPI Peru together contribute negatively to EBITDA by 2.7
million euros. It is noteworthy that Telinver in Argentina, although it
subtracted 4.5 million euros from the EBITDA of Grupo Telefonica's directories
business, has still realized an improvement of more than 70% over the company's
operating earnings in 2000 (-15.1 million euros).
 
CALL CENTER BUSINESS
 
ATENTO
 
During fiscal year 2001, Atento's business activity has focused on maintaining
the leadership position in customer service outsourcing through multichannel
platforms or 'Contact Centers'.
 
The following were the main achievements for this management model in all of 
fiscal year 2001:
 
1. The careful selection and maintenance of contracts with strategic customers,
   allowing us to create durable and high value-added relationships
 
2. Achievement of greater operational management efficiency to improve the
   company's margins
 
3. Stronger control of spending capex, focused on the profitability of
   operations 

The firm's attainment of operational excellence is reflected in Atento
Colombia's obtaining the ISO 9002 Certificate, which is added to those
previously achieved in Argentina, Brazil, Chile, Spain, Guatemala, El Salvador,
Peru, and Puerto Rico.
 
As part of the cooperation agreement between BBVA and Telefonica, the bank
transferred ownership of telephone customer service to Atento Espana and the
provision of telephone banking and telemarketing services in all the other
countries where the bank has a presence.
 
From the operational standpoint, at the end of fourth quarter 2001, Atento had
29,561 positions (22.6% more than on December 31, 2000), serviced by 47,737
people. Usage levels at the centers reached 80%, 6 percentage points less than
in the fourth quarter of 2000. Higher usage levels have grown out of increased
service automation and lower average usage in the centers where operations have
been launched in the fiscal year (Mexico, Japan, and Venezuela). 

Despite the competitive environment in which Atento undertakes its operations,
average monthly revenues per position occupied in fiscal year 2001 reached 2,568
euros, 0.8% lower than that of fiscal year 2000, owing principally to the start
of new operations. However, in the last quarter of the fiscal year, average
monthly revenues per position occupied reached 2,638 euros, 1.6% higher than the
same period in 2000, due to the operating improvement in services and the
increase in the profitability of existing capacity.

From the financial point-of-view, Atento obtained revenues of 643.9 million
euros during fiscal year 2001, which implies 22.2% growth with respect to 2000.
Of special note are the increasing contributions to growth evidenced in
countries where new operations have been established, mainly Mexico and
Argentina, as well as in already established countries, principally Spain,
Brazil, and Chile.
 
Throughout the fiscal year, Atento increased its customer base, surpassing 500
before the end of the fiscal year, thereby increasing its leadership, especially
in the telecommunications, financial, services, and consumer segments.
 
Revenues derived from outside Telefonica Group market continued to increase
their contribution to total revenues, representing 33% of the total at the end
of the fiscal year, 2.3 percentage points more than at the close of 2000. This
improvement was possible mainly because of the establishment of new commercial
relationships with large customers, especially in Brazil and Spain, as well as
new operations in Venezuela and Japan in which Telefonica Group has no presence.
 
EBITDA reached 53.8 million euros, 113.1% more than in the same period last
year, the EBITDA margin being 8.4%, or 3.6 percentage points more than in the
same period in the preceding fiscal year. This improvement was fundamentally
achieved through the formalization of new contracts outside the Telefonica
Group, by implementing the cost reduction plan and improving productivity during
the fiscal year.
 
BROADBAND CAPACITY MANAGEMENT BUSINESS 

EMERGIA
 
Fiscal year 2001 was a key year for Emergia, which became the first submarine
cable company to start operations in Latin America. This anticipation has
allowed it to consolidate its leadership position in the region by maintaining a
high performance level of operations and formalizing new commercial agreements
in an increasingly competitive market. In this regard, it should be pointed out
that during the last quarter of the year, new agreements were signed with major
European and Latin American operators in the amount of 97.3 million euros, which
will be included in Emergia's accounts throughout the life of the contracts.
 
Finally, it should be clarified that from an accounting standpoint, Emergia has
adopted the most conservative accounting practice for registering capacity swap
agreements. These capacity swap agreements are reported in a footnote to the
Balance Sheet without generating any significant earnings result, either
positive or negative, or any change in assets and/or liabilities. The total
value of the swapped capacity is never accounted as revenues.
 
From the financial standpoint, 4Q01 revenues reached 7.7 million euros, while
cumulative revenues in the fiscal year reached 14.3 million euros. EBITDA showed
a loss of 14.4 million euros for the last quarter, whereas cumulative figure
showed a loss of 60.3 million euros.
 
With respect to development of services, in November the first tests of
broadband television transmissions among the US, Chile, and Argentina were
performed successfully. Likewise, the first connectivity proposals were
presented to transmit television signals between Miami, Latin America, and
Spain. 

COMPANIES INCLUDED IN EACH FINANCIAL STATEMENT 

• Telefonica, S.A. directly participates in the share capital of Endemol
  Entertainment Holding, N.V. and Mediaways GmbH Internet Services, S.A., which
  have been considered into Admira Media Group, SA and Telefonica Data, S.A.,
  respectively.
 
• Furthermore, Telefonica, S.A. has participated directly in CEI Citicorp
  Holdings until May 2001, when it was contributed to Telefonica Latinoamerica.
  For the purposes of this report, the 50% stake held by this company in Cointel
  was consolidated within Telefonica Latinoamerica (Telefonica Internacional,
  S.A.) from the first of January, which, in turn, holds 52.88% of the capital 
  of Telefonica de Argentina (TASA). Also, CEI holds 26.82% of Atlantida de
  Comunicaciones, S.A. (ATCO) and 26.82% of AC Inversora, S.A. which, for the
  purposes of the pro-forma financial statements, are 100% consolidated in 
  Admira Media Group

• With respect to the acquisitions made by Telefonica, S.A. in fiscal 2000 in
  the share capital of Telefonica de Argentina, Telecomunicacoes de Sao Paulo,
  S.A. (Telesp) and Telefonica del Peru, S.A.A., the contribution of these 
  stakes to Telefonica Latinoamerica, Telefonica Moviles, S.A. y Telefonica 
  Data, S.A. was assumed as of the beginning of the year, in the proportion in 
  which each of these, after the spin-off carried out, consolidate the business 
  which the Latin American companies carry out in fixed telephony, mobile 
  telephony and data transmission, respectively.
 
• In the case of Company de Telecomunicaciones de Chile, S.A. (CTC), in which
  Telefonica Latinoamerica has a stake, although its process of separation has 
  not yet started, its data transmission activity has already been assigned to
  Telefonica Data. On the other hand, Telefonica Latinoamerica does not include
  the mobile telephony business, carried out by Telefonica Movil (Startel), with
  pro-forma presentation of results exclusively for the fixed telephony business
  in Latin America.
 
• With regard to the businesses that remain consolidated within TASA and
  Telefonica del Peru under Telefonica Latin America, via the previously 
  mentioned reorganization, we note that these companies will continue to 
  include their respective directories activities which have also been added on 
  a proforma basis to the TPI Group, in line with our vision for Telefonica's 
  directories business.
 
SIGNIFICANT EVENTS
 
• On February 11, 2002, TPI Paginas Amarillas acquired 100% of Telefonica del
  Peru's directory business for 34.3 million euros. TPI Peru is currently the
  leading publisher of directories in the Peruvian market with a market share of
  80%.  This acquisition will provide more than 31 million euros to the
  consolidated earnings of Grupo TPI Paginas Amarillas.

• On February 4, 2002, Telefonica Data announced the purchase of 100% of
  HighwayOne Germany GmbH, one of the principal xDSL technology broadband 
  service providers to corporate customers in Germany. Its range of services 
  includes broadband Internet access, traditional voice services, and 
  value-added services (VPNs, firewall solutions, web hosting, managed email
  services, etc.).  With this acquisition, Telefonica Data and mediaWays have 
  complemented their commercial strategy in Germany based on the provision of 
  integrated communications solutions over IP.
 
• On January 11, 2002, the Board of Directors of Admira Media named Luis Abril
  as Chairman of the Group, replacing Juan Jose Nieto.
 
• On January 8, 2002, Terra Mobile announced the reorientation of its operating
  and business model toward a range of products, services, and application
  developments that takes better advantage of the synergies with mobile 
  telephony networks and implies a significant cut in costs. In this regard, it
  has focused its European activities in the Spanish, German, and British 
  markets, because these have a larger user base and greater medium- and 
  long-term growth potential. It will also implement a development strategy for
  the Latin American mobile telephony market based on its current activities in 
  Brazil. Telefonica Moviles has revised its shareholding structure, a 
  consequence of two factors;  a  model relating more closely to the evolving 
  technology of mobile telephony networking and the importance to the company of 
  developing new applications for the mobile Internet. Thus, Telefonica Moviles 
  now controls 80% (previously 50%) and Terra Lycos 20% (previously 49%).
 
• On January 1, 2002, Telefonica de Espana lowered the price per minute of its
  interprovincial rates by 19.63%, and provincial rates from Monday through 
  Friday by 14.68% during business hours (8:00 a.m. to 8:00 p.m.). During other 
  days and times, the price per minute suffered a reduction of 4.95% for 
  interprovincial calls and 8.12% for provincial calls. The launch of new 
  discount plans ('Provincial', 'At Home', and '5 Stars') was also announced.
 
• On December 7, 2001, Telefonica and Microsoft signed a strategic agreement to
  collaborate on the development of technological activities and initiatives
  toward the promotion and marketing of products and services. The agreement 
  will be effective in all countries where Telefonica Group operates.
 
• On December 3, 2001, Telefonica Moviles and Mitsui&Co signed a global
  cooperation agreement, through which the Japanese company will provide
  Telefonica Moviles with content and mobile applications for the Internet. The
  multimedia content provided by Mitsui&Co are based on downloadable sound and
  video technology for high-speed 2.5G and 3G mobile networks.  It will also
  provide applications designed for B2B and B2C services.

 
• On November 29, 2001, the Managing Committee of Telefonica S.A.'s Board of
  Directors approved the naming of Alberto Horcajo as chairman of Atento Holding,
  replacing Rafael Hernandez. Until that time, he had held the position of
  managing director of Transportes Azkar.
  
• On November 22, 2001, Group 3G held the commercial launch of its services in
  Germany under the Quam brandname, with a broad range of products and services
  and a distribution network that covers the entire country. Prior to the launch
  it had opened stores in Munich, Berlin, and Hamburg and began contracting with
  customers in 15 of its own stores and at more than 2,000 points-of-sale around
  the country. Furthermore, users can contract Quam's products on Debitel's
  commercial network, which has approximately 5,000 points-of-sale. After 
  December 12, Quam temporarily suspended the active marketing of its products 
  and services in view of the practices carried out by D1 and D2, although it 
  has already reestablished these services.
 

CHANGES TO THE SPHERE AND ACCOUNTING CRITERIA 
OF CONSOLIDATION 

Telefonica Group
 
As part of Telefonica Group business reorganization plan by lines of business,
Telefonica Moviles, S.A., Telefonica Datacorp, S.A, and Telefonica
Internacional, S.A. held several capital increases throughout the present fiscal
year. In consideration for such increases, Telefonica S.A. delivered as non-
monetary payment the shares that it directly held in the share capital of
Telefonica de Argentina, S.A., Telefonica del Peru, S.A.A. and Telecomunicacoes
de Sao Paulo, S.A. (TELESP).
 
- On January 25, 2001, Telefonica Moviles, S.A. held one of the capital
  increases agreed upon by the General Shareholders Meeting of October 26, 2000,
  in the amount of 87,432,000 euros. Telefonica S.A. paid for all the new shares
  through a contribution of shares of the Argentine company Telefonica de
  Argentina, S.A. (TASA) representing 15.09% of its share capital. Currently,
  Telefonica Moviles holds 97.93% of the share capital of Telefonica Moviles
  Argentina, S.A., which in turn holds 100% of Telefonica Comunicaciones
  Personales, S.A.
 
- On March 7, 2001, Telefonica Moviles Intercontinental, S.A. received official
  notification of the granting of the UMTS license in Switzerland for a period 
  of 15 years and the amount of 32,508,000 euros. The company holding the 
  license, 3G Mobile AG, was then consolidated using global integration method.
 
- Telefonica DataCorp, S.A. received shares representing the share capital of
  Telefonica de Argentina and Telefonica del Peru, which represented 97.92% of 
  the Argentine company Advance, S.A., and 93.22% of the Peruvian company 
  Telefonica Data Peru, S.A.A., as well as the assets and liabilities assigned 
  to the data business belonging to Telefonica de Argentina and Telefonica del 
  Peru.
 
- Telefonica Internacional, S.A. received shares representing the share capital
  of Telefonica de Argentina and Telefonica del Peru determined as a function of
  the value of the fixed telephone and related assets and liabilities belonging 
  to Telefonica de Argentina and Telefonica del Peru.
 
- Telefonica International, S.A. received 306,211,253,813 shares representing
  61.96% of the share capital of the Brazilian company Telesp.
 
These contributions did not modify the consolidation methodology with respect 
to the prior fiscal year.
  
Telefonica, S.A. acquired 4,713,015 shares in the company Terra Networks, S.A.,
for the amount of 53.96 million euros. With these purchases, Telefonica Group's
interest in the aforementioned company amounts to 37.63%. The company continues
to be included in the consolidated financial statements of Telefonica Group
using the global integration method.
 
In January 2001, Telefonica, S.A. acquired 100% of Mediaways, GmbH Internet
Services in the amount of 1,473.08 million euros from the German company
Bertelsmann, A.G. The company has been included in Telefonica Group's
consolidated accounts using the global integration method.  Likewise, in
December 2001, Telefonica, S.A. took part in a capital increase undertaken by
this company in the amount of 62.5 million euros. 

In fiscal year 2001, Telefonica, S.A. acquired a total of 8,289,305 shares of
Telefonica Moviles, S.A., in the amount of 68.68 million euros. Telefonica
Group's interest in the aforementioned companies totals 92.70%. The company
continues to be included in Telefonica Group's consolidated financial statements
under the global integration method.
 
In February, Telefonica S.A. established a 100%-owned affiliate company
Telefonica Gestion de Servicios Compartidos, S.A., paying in all the initial
capital of the aforementioned company, 60,000 euros. In December the
aforementioned company increased its capital by 2 million euros subscribed and
fully paid in by its parent company. The company has been included in the
consolidated financial statements of Telefonica Group using the purchase method.
 
In June, Telefonica, S.A. increased its share capital by 122,560,575 shares with
a par value of 1 euro each and a premium over par of 4.5 euros per share. As
consideration for this capital increase, Telefonica received as a non-cash
contribution from Motorola certain investments in the mobile telephony business
in Mexico: 100% of the share capital of Corporacion Integral de Comunicacion,
S.A. de C.V.; 100% of the share capital of Grupo Corporative del Norte, S.A.;
79% of the share capital of Telefonia Celular del Norte, S.A. de C.V. (the
remaining 21% was contributed directly through the acquisition of 100% of
Corporacion Integral de Comunicacion, S.A. de C.V.); 73.81% of the share capital
of Celular de Telefonia, S.A. de C.V. (the remaining 26.19% was contributed
indirectly through the acquisition of 100% of Grupo Corporative del Norte, S.A.
de C.V,); 100% of Baja Celular Mejicana, S.A. de C.V.; 0.00001% of the share
capital of Baja Celular Servicios Compartidos, S.A. de C.V. (the remaining
99.99999% was contributed indirectly through the acquisition of 100% of Baja
Celular Mexicana, S.A. de C.V.); 0.00001% of the share capital of Tamcel, S.A.
de C.V. (the remaining 99.99999% was contributed indirectly through the
acquisition of 100% of Baja Celular Mexicana, S.A. de C.V.); 22% of the share
capital of Movitel del Noroeste, S.A. de C.V. (the remaining 68% was contributed
indirectly through the acquisition of 100% of Tamcel, S.A. de C.V.); 22% of the
share capital of Moviservicios, S.A. de C.V. (the remaining 68% was contributed
indirectly through the acquisition of 100% of Tamcel, S.A. de C.V.) and 22% of
the share capital of Movicelular, S.A. de C.V. (the remaining 68% was
contributed indirectly through the acquisition of 100% of Tamcel, S.A. de C.V.).
In addition and supplementarily to this transaction, Telefonica contributed
12.33 million euros in cash. In July these interests were contributed to
Telefonica Moviles, S.A., which increased its share capital by 203 million
shares, which were fully subscribed to by Telefonica, S.A.  The valuation of the
interests acquired on the date of the transaction was 2,173.74 million euros.
The companies were included in Grupo Telefonica's consolidated financial
statements using the global integration method.
 
In August, Telefonica acquired 51,987 shares of Endemol Entertainment Holding,
N.V, (Endemol), in the amount of 2.06 million euros, a transaction that
generated a consolidation goodwill of 1.86 million euros. With this transaction
Grupo Telefonica obtained a 99.35% interest in Endemol's capital. The company
continues to be included in Grupo Telefonica's consolidated financial statements
using the global integration method.
 
In September, Telefonica, SA, acquired 114,500 shares of the affiliated company
Telefonica Publicidad e lnformacion, S.A. (T.P.I.) in the amount of 0,36 million
euros, a transaction that generated a consolidation goodwill of 0,32 million
euros. With this transaction, Telefonica gained a 59.9% interest in T.P.I.'s
capital. The company continues to be included in Grupo Telefonica's consolidated
financial statements using the global integration method.
 
Telefonica, S.A. and Iberdrola, S.A. reached an agreement by virtue of which the
Company acquired all the shareholdings that Grupo Iberdrola held in the
Brazilian operators in which both were, directly or indirectly, shareholders.
These were acquired by Telefonica, S.A., using shares of the Company itself as
payment, pursuant to the following exchange ratios: 

•  A 3.48% interest in the share capital of SP Telecomunicacoes Holding, S.A.,
the majority shareholder of  Telecomunicacoes de Sao Paulo, S.A. (Telesp) for
6,638,157 shares of Telefonica, S.A.

•  A 7% interest in the share capital of TBS Celular Participacoes, S.A., the
majority shareholder of Celular CRT Participacoes, S.A., for 1,493,902 shares of
Telefonica, S.A.

•  A 7% interest in the share capital of Sudestecel Participacoes, S.A., the
majority shareholder of Tele Sudeste Celular Participacoes, S.A., for 3,693,775
shares of Telefonica, S.A.

•  A 62.02% interest in the share capital of Iberoleste Participacoes, S.A., the
majority shareholder of Tele Leste Celular Participacoes, S.A., for 6,526,736
shares of Telefonica, S.A.

•  A 0.66% interest in the share capital of Celular CRT Participacoes, S.A., for
634,541 shares of Telefonica, S.A.

Likewise pending execution within the framework of this agreement is the
acquisition of 3.38% of the share capital of Tele Leste Celular Participacoes,
S.A, for 783,736 shares of Telefonica, S.A., once the prior regulatory
authorizations have been obtained.

Telefonica, S.A. paid in 248.05 million euros to fully subscribe to the capital
increase held by its 100%-held subsidiary Telefonica Datacorp, S.A.U., in order
to implement the agreement between Grupo Telefonica and Banco Itau of Brazil for
the provision of services to the bank through the management of its corporate
Telecommunications network.
 
Telefonica Publicidad e Informacion

Goodman Business Press, S.A, acquired during fiscal year 2000, was included in
Grupo Telefonica's consolidated financial statements in the present fiscal year
using the global integration method.
 
As a result of the above, Goodman's 100%-owned subsidiary, Cernet, a company
dedicated to designing webpages, has also been included in the consolidated
financial statements of the present fiscal year using the global integration
procedure. Buildnet, S.A., in which Telefonica Publicidad e lnformacion, S.A.
holds a 46.35% interest and Goodman a 51.24% interest, was consolidated using
the global integration method in fiscal year 2001 (in the fiscal year 2000 it
was valued using the equity method).

Terra Networks Group 

Terra Networks, S.A. participated in the establishment of the Spanish company
Azeler Automocion, S.A. with an initial capital of 8.41 million euros, 50%
subscribed to and paid in by Terra Networks, S.A. The company has been
consolidated in Grupo Telefonica's consolidated financial statements using the
equity method.
 
Also during fiscal year 2001, Terra Networks established 100% of Terra Networks
Financial Services USA LLC., and Terra Networks Caribe, paying in 2.12 and 1.29
million euros, respectively. The two companies were included in Grupo
Telefonica's consolidated financial statements using the global integration
method. In order to reorganize the interests in Spain of its associated
companies, Terra Networks, S.A. established Terra Networks Asociadas, S.L., with
an initial share capital of 3,005 euros, having subscribed to and paid in all
such share capital. It also participated with a 50% interest in the
establishment of Iniciativas Residenciales en Internet, S.A, ('ATREA,' a real
estate portal). The initial investment was 1.2 million euros. The company has
been included in Grupo Telefonica's consolidated financial statements at its
purchase cost. 

Inversis Valores y Bolsa, Sociedad de Valores S.A, (formerly Electronic Trading
System Valores, S.A,), was sold for 4,500 euros. The company, which was included
on the Group's consolidated financial statements at its purchase cost, has been
removed from those statements. 

Maptel Networks, S.A.U., which in fiscal year 2000 was accounted for at its
purchase cost, was included in Grupo Telefonica's consolidated financial
statements in fiscal year 2001 using the global integration method.
 
In virtue of the agreements reached with Banco Bilbao Vizcaya Argentaria, S.A.
(BBVA) in August of the 2001 fiscal year, Terra Networks, S.A. acquired 49% of
the capital of Uno-e Bank, S.A,, paying out 160.43 million euros in the
transactions, which generated a consolidation goodwill of 130.25 million euros
on Grupo Telefonica's consolidated financial statements. The company has been
included in Grupo Telefonica's consolidated financial statements using the
equity method. 

Telefonica Internacional Group 

During the 2001 fiscal year Telefonica Internacional. S.A. sold 35.86% of the
capital it held in the Argentine company Cablevision, S.A., obtaining capital
gains of 255.92 million euros. The company has been removed from Grupo
Telefonica's consolidated financial statements. 

Telefonica Internacional, S.A. acquired the 10% additional capital of Telefonica
Peru Holding, S.A., paying out 220.76 million euros in the transaction, which
generated consolidation goodwill of 46.27 million euros. With this acquisition,
Telefonica Internacional is now the sole shareholder of the aforementioned
company. The company continues to be included in Grupo Telefonica's consolidated
financial statements using the global integration method.

Throughout the 2001 fiscal year and after the authorization of the Brazilian
regulator ANATEL, Telefonica Internacional has executed a share purchase option
from BBVA, for its interest in Sao Paulo Telecomunicacoes Holding, S.A., the
holding company of Telesp Participacoes, S.A. This transaction has caused an
increase in the capital of SPT Holding of 0.5292%, paying out 80.10 million
euros in the transaction. The company continues to be included in Grupo
Telefonica's consolidated financial statements using the global integration
method.

The parent Telefonica Internacional has effected increases in its interest in
the affiliates Telefonica de Peru, Telefonica de Argentina, Telesp and CEI
Citicorps Holdings, for the aforementioned capital contributions made by
Telefonica, S.A. A capital reduction was executed in the latter company through
the return of contributions to the remaining shareholders in order to hold
99,96% of the share capital.

Telefonica Moviles Group 

Ipse 2000, S.p.A., has been valued since October 1, 2001, using equity method,
more appropriate pursuant to the Article 11.2.b of Royal Decree 1815/1991, dated
December 20, which approved the standards for the preparation of annual
accounts, inasmuch as since the aforementioned date the exercise of rights by
the rest of shareholders has increased, which has given rise to restrictions
which substantially hinder the management of Ipse 2000 by the Group. The Spanish
company MoviPay International, S.A., a 50% subsidiary and reflected in Grupo
Telefonica Moviles' consolidated financial statements in fiscal year 2000 at its
purchase cost, is in the present fiscal year consolidated using the equity
method. 

Admira Media Group 

In January, Grupo Endemol acquired the remaining 50% of the capital of Endemol
France for 159.3 million euros. With this acquisition Grupo Endemol became the
sole shareholder of that company. The company was included in Grupo Telefonica's
consolidated financial statements using the global integration method.
 
Purchased shares from small shareholders of Antena 3 de TV, for a total of 1.79
million euros, increasing the interest percentage to 47.51%. The company
continues to be included in Grupo Telefonica's consolidated financial statements
using the capital equity method. 

In April, Grupo Admira Media, S.A. acquired 100% of Famosos, Artistas, Musicos y
Actores, S.A. (FAMA), formerly owned by Antena 3 de Television, S.A. The total
cost of the transaction was 6.21 million euros, generating consolidation
goodwill of 3.25 million euros. The company was included in Grupo Telefonica's
financial statements using the global integration method. Capital increase in
Rodven of 11.12 million euros. In fiscal year 2001, the company was included in
Grupo Telefonica's consolidated financial statements using the global
integration method. 

In September, Grupo Admira Media, S.A. acquired 47.5% of Tick Tack Ticket, S.A.,
paying out 6.01 million euros in the transaction, which generated consolidation
goodwill of 4.15 million euros for Grupo Telefonica. The company was included in
the consolidated financial statements using the equity method.
 
Telefonica Datacorp Group 

On January 16, Telefonica Data Mexico (formerly Optel) increased its capital by
16,992,251 shares, which were all acquired by Telefonica Data Holding. On March
6, it increased its capital by 16,743,904, with Telefonica Data Holding
acquiring 5,228,385 shares and T. Datacorp 11,515,519 shares. After these
increases, Telefonica Data Mexico's capital is 241,738,667.8 Mexican pesos and
the capital structure is as follows:
 
T. Data Holding Mexico 45.66% 
T.Data Holding 11.88% 
T. Datacorp 37.11% 

The Spanish company Telefonica Data Caribe, S.A., a 100% owned subsidiary of
Grupo Telefonica DataCorp, had a 50% interest in the establishment of Telefonica
Data Cuba, paying out 0,1 million euros during the transaction. The company was
included in Grupo Telefonica's consolidated financial statements at its purchase
cost. 

Telefonica de Espana Group 

In March, all the shares of Telefonica Sistemas de Informacion Geografica, S.A.
which was a 100%-owned subsidiary of Telefonica de Espana, S.A.U., were sold to
Telecomunicaciones Sistemas de Ingenieria de Productos S.A., for 1.38 million
euros, generating a profit on Grupo Telefonica's consolidated accounts of 5.02
million euros. The company, which was included in Grupo Telefonica's
consolidated financial statements using the global integration method, has been
removed from those statements.
 
Last August Telyco Maroc, S.A., in which Telyco S.A.U. holds a 53.988% interest,
was established with an initial share capital of 0.601 million euros, whose
corporate purpose is the promotion, sale and distribution in Morocco of
equipment, systems and in general all types of products related to
telecommunications. 

Atento Group 

In June, Atento Chile, S.A. increased its capital by 3,338,287 shares with a par
value of 1,000 pesos each, an increase that was fully subscribed to by the
Chilean companies Compania de Telecomunicaciones de Chile, S.A, (CTC), a company
in which Grupo Telefonica indirectly has a 43.643% interest through 3,049,998
shares and is included in Grupo Telefonica's consolidated financial statements
using the global integration method; Compania de Telefonos de Chile
Transmisiones Regionales, S.A. through 52,732 shares; Telefonica Empresas CTC
Chile, S,A. through 106,474 shares and Sociedad Impresora y Comercial Publigulas,
S.A. through 129,083 shares. 

After this transaction, Grupo Atento has decreased its interest in Atento Chile
from 99.99% to approximately 70%, whereas the other companies outside that group
now hold 29.99% of that company's share capital. Atento Chile continues to be
included in Grupo Telefonica's consolidated financial statements using the
global integration method. 

Emergia Group 

In December, the affiliated company Emergia Holding, N.V. established the
company Emergia Hispana, S,A., with a share capital of 60,000 euros, subscribed
and fully paid in by its parent company. The company has been included in Grupo
Telefonica's consolidated financial statements using the global integration
method. 

                      This information is provided by RNS
            The company news service from the London Stock Exchange


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