possible merger TEF-TEM

Telefonica SA
17 March 2006



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





                               SIGNIFICANT EVENT



The Executive Committee of TELEFONICA, S.A., at its meeting held today March
17th, 2006, has resolved to ratify the start of negotiations aimed at achieving
a possible merger between TELEFONICA, S.A. (as acquiring company) and
TELEFONICA MOVILES, S.A. (as acquired company), as was announced to the
markets yesterday. Today TELEFONICA .S.A. has issued the relevant invitation
to TELEFONICA MOVILES to begin the negotiations.



As was indicated in yesterday's report of significant event, the exchange ratio
proposed by TELEFONICA, S.A. as basis for negotiations is 4 shares of
TELEFONICA, S.A. of 1 Euro nominal value each for every 5 shares of
TELEFONICA MOVILES, S.A of 0,5 Euro nominal value each. It is likewise
repeated that should the transaction proceed in accordance with the proposed
terms, the Board of Directors of TELEFONICA S.A will propose to its General
Shareholders' Meeting an increase of its share capital of a maximum of
261,320,118 shares, deducting, if applicable, the number of shares owned as
treasury stock by TELEFONICA S.A .



Telefonica likewise reports that the proposed operation will not affect the
share buyback programme planned for 2007.



Madrid, March 17th , 2006




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