TEF Share capital reduction

Telefonica SA
29 May 2003





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






                               SIGNIFICANT EVENT




The Board of Directors of Telefonica, S.A., at its meeting of May 28th, 2003,
resolved to execute the resolution adopted by the company's shareholders in
their Annual General Meeting of April 11th, 2003 regarding a capital reduction
by the cancellation of own shares recorded as treasury stock.


The Board of Directors has therefore declared 101,140,640 of the own shares of
Telefonica, S.A. to be cancelled, reducing the company's share capital by the
sum of 101,140,640 euros. This also means rewording Article 5 of the By-laws,
relative to share capital, which now stands at 4,955,891,361 euros, made up of
an equal number of ordinary shares, all of a single series and with a nominal
value of one (1) euro per share, totally paid in.


This share capital reduction is being charged to reserves, and does not involve
the return of contributions as the company itself is the owner of the cancelled
shares, and the purpose of the operation is to cancel own shares held as
treasury stock.


To this end, pursuant to the terms of Article 167.3 of the Spanish Law of
Corporations (Ley de Sociedades Anonimas), and so as not to apply the right of
objection envisaged in article 166 thereof, a redeemed capital reserve has been
established for an amount equal to the nominal value of the cancelled shares
(101,140,640 euros), which may only be distributed under the same conditions as
those imposed for share capital reductions.


In the next few days, the Company will execute the relevant deed of capital
reduction and register it in the Mercantile Register (Registro Mercantil). In
accordance with current legislation, it will then apply for stock market
delisting of the 101,140,640 shares cancelled.


The Board of Directors of Telefonica, S.A. also agreed, at its meeting of May
28th, 2003, to formally constitute the International Affairs Committee of the
Board. The new committee will be chaired by independent outside director Mr.
Jose Fernando de Almansa Moreno-Barreda. Its remaining members will be outside
directors Mr. Alfonso Ferrari Herrero and Mr. Enrique Used Aznar (independents),
Mr. Gregorio Villalabeitia Galarraga (owner of shares in the company) and
executive director Mr. Luis Lada Diaz.


The basic mission of the International Affairs Committee will be to inform the
Board more fully about international matters with a bearing on the performance
of Grupo Telefonica.






                                                          Madrid, May 29th, 2003






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