Ezequiel Nieto, Head of Investor Relations Santiago Fernandez Valbuena, Chief Financial Officer Peter Erskine, Chairman and CEO of O2

Luis Prota, Morgan Stanley David Wright, JP Morgan Robert Grindle, Dresdner Kleinwort Wasserstein Brian Rusling, Cazenove Terence Sinclair, Citigroup Bosco Ojeda, UBS Warburg Maria Rotondo, Grupo Santander John Karidis, Man Securities Mark Cardwell, Sandford C. Bernstein & Co. Jonathan Dann, Bear Stearns & Co. Jesus Romero, Merrill Lynch

Ezequiel Nieto, Head of Investor Relations: Thank you, good afternoon, ladies and gentlemen and welcome to Telefónica’s conference call to discuss 2006 first quarter results. I’m Ezequiel Nieto, Head of Investor Relations. Before proceeding, let me mention that this document contains financial information and data reported under IFRS. The financial information contained in this document has been prepared under the International Financial Reporting Standards. This financial information is unaudited and, therefore, is subject to potential future modifications. This presentation may contain announcements and constitute forward-looking statements, which are not guarantees of future performance and involve risks and uncertainties. And actual results may differ materially from those in the forward-looking statements as a result of various factors. We invite you to read the complete disclaimer enclosed in the first page of this presentation, which you will find in our website. I encourage you to review our publicly available disclosure documents filed with the relevant securities markets regulators. If you do not have a copy of the relevant press release and the slides, please contact Telefónica’s Investor Relations team in Madrid by dialing the following telephone number: 3491-584-4713. Now, let me turn the call over to our Chief Financial Officer, Mr. Santiago Fernandez Valbuena, who will be leading this call. Santiago Fernandez Valbuena, Chief Financial Officer: Thank you, Ezequiel. Good afternoon, ladies and gentlemen, and thank you all for attending Telefónica’s 2006 first quarter results conference call. As it is customary in all our calls, you will have the opportunity to ask questions directly to our members of the Executive Committee during the Q&A session, as I have today here with me Julio Linares, our General Manager for Coordination, Business Development and Synergies; Jose Maria Alvarez-Pallete, our Head of Wireline in Latin America; Luis Lada, the Chairman of Telefónica Espana; Antonio Viana, Chairman of Telefónica Móviles; and Peter Erskine, who is the Head of O2 who is connected from London. Let us now start the analysis of our first quarter performance with a summary of the P&L. On Slide #1, consolidated revenues grew by more than 45% year-on-year to end just above the €12 billion mark. The incorporation of Cesky Telecom and O2 since July ’05 and February ’06, respectively has added close to €2.3 billion to an already very solid underlying performance of all businesses. Organic sales growth stood at 8.9% year-on-year, well ahead of our peer group. Operating income before D&A reached almost €4.7 billion for the period, which is equivalent to a 37% annual increase. Cesky Telecom and O2 were contributing around €760 million to total operating income before D&A, with an organic growth that is some 6%. January through March operating income exceeded €2.5 billion, up 34% in nominal terms, or close to 14% organically. As a proxy to cash flow generation, operating cash flow ended close to €3.4 billion, equivalent to a 26% nominal increase compared to the first quarter of 2005. In organic terms, operating cash-flow growth stood just below 8%. Please notice the positive contribution of our foreign exchange across the P&L, which has added between 6 and 9 percentage points to the underlying performances of our operating income and revenue respectively. On slide number #4, you can see that as in past quarters, our management of non-operating results is leading top-line growth to be fully transferred to net income. January through March net profit totaled €1.2 billion, nearly 40% above the last year’s figure, and more than 5 percentage points above operating income growth. All things considered, the first quarter of ’06 and earnings per share has reached almost €0.27, or close to a 44% annual increase on IFRS terms. After our recent acquisitions, taking on board not only Cesky Telecom and O2 but also the BellSouth Latin American properties, Telefónica has reached a new dimension, rebalancing its business portfolio for the benefit of a higher diversification. This is apparent in slide #5. First, we have increased our exposure to the high growth mobile market. Our operating income before D&A exposure to pure mobile has grown from 35% to 42% -- I’m sorry, from 29% to 42% in the last 12 months, with a fixed line operating income before D&A exposure dropping 12 percentage points to just below 50%. And second, we are reducing our exposure to a single market. On an OIBDA basis, exposure to Spain has dropped from 63% to 47% since March ’05. We firmly believe that current Group persistence and geographic mix has improved our risk profile, allowing us to run a more balanced portfolio of high growth and high cash generative assets. The value of this diversification best emerges when reviewing the contribution to organic growth per business line, as we do in slide #6. At the Group level, actively managing skills and diversity to exploit business opportunities such as convergence and extract the full value of synergies are our top priorities. A priority whose successful execution adds value to the management of operations at the local level that is fully focused on financial performance. The mobile business ranks first in terms of contribution to revenue growth, representing close to 2/3rd of consolidated organic sales growth. As opposed to set the trends, the Spanish and Latin American Wireline divisions are contributing positively to consolidated organic top-line growth. At the operating income before D&A level, the negative contribution of Telefónica Latin America is totally related to the capital gains accounted for the sale of Infonet last year. Excluding this impact, the contribution of our Wireline properties in LatAm would have been a positive 0.7 percentage point, and operating income before D&A growth would have been well balanced between fixed and mobile. Turning to profitability in slide #7, we can show that we are keeping a strong hold on costs diverging our efforts to broadband and mobile expansion. Operating expenses grew by close to 12% organically in the first quarter of ’06, keeping its downward trend since June last year. Telefónica Móviles and Telefónica O2 represented close to 2/3rd of the total costs organic growth. Group operating income before D&A margin got to 39%, with the aggregate Wireline Spain and Latin America at a solid 43%. Mobile margin remained affected by subscriber growth and competition to end the quarter close to 32%. Let’s now move to slide #8 to a brief review of operating cash flow. Total CapEx reached around €1.3 billion in the first quarter, 76% above last year’s comparable figure. Nominal investments were heavily influenced by ForEx and changes in consolidation, which would leave organic CapEx growth at just 2%. Please bear in mind that the first quarter trends in CapEx cannot be extrapolated for the full year because of high seasonality. Operating cash flow increased by close to 26% year-on-year, to almost €3.4 billion at the end of March, with all subsidiaries showing their strong cash flow generation profile. And now before starting the overview of our major businesses, please turn to slide #9 nine for an update on our guidance. All metrics we have guided on are fully in line with year-end targets. After adjustments for guidance calculation, growth in revenues, operating income before D&A, and operating income, we are close to 36%, 28.5%, and 27% respectively. And now let me walk you through the operating and financial performances of our major divisions, starting with Telefónica de Espana. In slide #10, we start with Telefónica de Espana’s review, which we can see that internet and broadband clearly stood out as the major drivers of revenue growth, adding more than 4 percentage points to Group sales growth, and offsetting totally the negative contribution of traditional voice and access revenues. The strong performance of internet and broadband together with solid IT and data service revenues and the Easter positive effect are the drivers behind the 3.3% revenue growth, all seen at the Group level in the first quarter of 2006. It is worth highlighting the growing weight of internet and broadband revenues over total sales, which now represent more than 19% of brand company revenues, or around 4 percentage points ahead of the first quarter ’05 figures. Turning to costs, operating expenses were reduced by 0.4% year-on-year, offset by a lower redundancy provision in 2006, a tight management of commercial and supply expenses, and reduced interconnection costs on the back of lower mobile termination rates. Excluding the positive effect of the lower redundancy provisions, operating expenses would have increased by 1.3%. Operating income, adjusted for guidance calculations increased by more than 7% on an annual basis, or more than 2 percentage points related to lower redundancy provisions. Operating income before D&A margin before redundancy provisions reached the 46% mark, stable, year-on-year. We do expect operating income before D&A growth to trend down towards guidance as new provisions are accounted for in the coming quarters, commercial activity picks up after a seasonally mild first quarter and Easter effect, balances off during the second quarter. Slide #11 represents the evolution of our traditional voice and access businesses through the review of their main operating metrics. Starting with the fixed telephony access market, the latest free connection Freedom campaign, which has run from the end of February to early March, almost offset the number of lines lost this quarter. As a consequence, the company lost just 27,000 lines in the first quarter of this year, a figure that compares very favorably with the 71,000 lines that were fully unbundled by competitors this quarter. As opposed to previous quarters, most competitors are now choosing full unbundling, as their preferred option to approach the client. In the January to March period, 63% of unbundled local loops minutes were assigned under the full unbundling model compared to the 24% rate recorded in 2005 on average. With regard to pre-selection, pre-selected lines were reduced by 87,000 in the quarter, close to the number of lines recovered in the whole of 2005. The dynamism of full unbundling together with the success of the company’s win-back campaigns, are the two factors driving the cut in pre-selected lines. In terms of traffic, the Spanish voice market was flattish on an annual basis for the first time in three years, with Telefónica de Espana’s outgoing post minutes dropping by less than 1% in the first quarter, or well below the 7% cuts suffered last year. The positive trend in traffic is just a reflection that a broad adoption of flat rates, double-play and triple-play bundles is reducing the relevance of traffic as a metric to model voice revenues. And finally, for a review of the progress on broadband, Telefónica de Espana’s operations, we turn to slide #12. Telefónica de Espana’s commitment to develop the Spanish broadband market through product innovation, enhanced service quality, commercial promotions and active advertising are clearly paying off. Domestic Internet Broadband market registered record high net adds ending the quarter with close to 5.5 million accesses. The company has retained a strong market position closing March with over 3 million retail accesses, and increasing its estimated market share in less than 100 basis points to just about 55%. The success of our duos and trios, or our double and triple play commercial offerings are proving to be a major driver of the increase in broadband penetration. Currently, 54% of Telefónica de Espana’s internet and broadband retail connections have signed to double play or triple play bundles. The expansion of bundles, together with direct prices, discounts, and promotions have pushed connectivity ARPU down 10%. This impact has been partly offset by the encouraging take-up of value-added services, limiting retail ARPU shortfall to just under 5%. Nevertheless, this ARPU reduction has been more than compensated by the boost in the customer base, leading retail broadband revenues to grow at a healthy 40%. Imagenio is the key value-added service that we are pushing to develop and counter the decrease in connectivity ARPU. Imagenio IPTV offering registered 43,700 net adds in the first quarter of the year, to reach 250,000 clients by the end of March, or a 7% estimated share of the Spanish pay TV market. We continue to actively work and exploit Imagenio’s full functionalities, having recently reached an agreement with Lucent and to improve the service content quality having closed a deal recently with Warner to benefit from its library of movies. Please turn now to slide #13 for a review of our Wireline operations in Latin America. Telefónica Latin America consolidated revenues beat the €2.3 billion mark in the first three months of the year, 6.1% above last year’s comparable figure in constant currency terms. This growth rate will soar to 30.6%, thanks to the positive performance of local currencies against the dollar, particularly the Brazilian real and the Chilean peso. All operators are contributing positively to organic sales growth with solid internet and data to revenues across countries, adding to the performance of traditional fixed. Telesp in Brazil remains as our major contributor to revenue growth by far, representing close to 2/3rd of the division’s top-line expenditure. With regard to individual top-line trends, all local operations are keeping solid revenue performances this quarter. Revenues for Telesp and TASA grew in the 7% to 8% range, combining a push for new services with the still dynamic traditional business. And both Telefónica Chile and Telefónica del Peru have seen their growth profiles accelerating to levels close to 3% each, despite strong competition and challenging regulatory environments. Broadband has become a distinctive catalyst for growth in the region, as we show in the next slide. The company has reached almost 2.4 million retail internet broadband connections in Latin America at the end of March, 53% above last year’s figure. More than half of these connections are operated by our Brazilian subsidiary, Telesp. The expansion of retail broadband connections resulted in very healthy growth in broadband revenues across all countries. As such, TASA in Argentina registered a 50% annual increase in broadband revenues in local currency terms, while the rest of the companies were pushing broadband sales up between the 37% rate posted by Telefónica del Peru, and the 45% rate as recorded by Telefónica Chile. On aggregate, Telefónica Latin America’s broadband revenues grew above 40%. In addition to firmly complement traditional voice revenues in Brazil and Argentina, broadband, increasing traction, is being of particular importance for those operators whose traditional voice and data businesses are pressured the most, such as Chile and Peru. In both cases, internet and broadband revenues are fully offsetting the weakness of traditional sales. Customers higher efficiencies through local and regional management remains a top priority as slide #15 highlights. Despite the rapid commercial push to drive broadband penetration and pre-traditional revenue streams to higher segmentation, new packages and value-added services, total operating expenses went up by just 6% in constant currency terms, in line with the rate of revenue growth. Consolidated operating income, before D&A, ended the quarter close to €1 billion, up almost 4% year-on-year in constant currency terms, a figure fully in line with guidance. Foreign exchange rates added slightly more than €180 million to constant currency revenue performance, pushing operating income before D&A nominal growth rate to 27%. In terms of profitability, Telefónica Latin America reached a 43% operating income before D&A margin for the January to March period, excluding capital gains, which is equivalent to a 1 percentage point drop year-on-year. It is worth mentioning that personnel restructuring programs have been accounted for in Brazil and Chile this first quarter. Excluding these charges, OIBDA margin would have ended close to 44.5%, which is above last year’s adjusted figure. Let’s now move to slide #16 for a review of our major businesses in the new Telefónica O2 that the new Telefónica O2 is made up, starting with the U.K. and Germany, which continued to show a strong momentum amid a rising competitive environment. In the U.K., first quarter net service revenues grew by close to 17% year-on-year, driven by a sustained solid customer and ARPU growth. The year-on-year comparison also reflected Easter falling in April, than last year it fell in March. A total of 359,000 new subscribers were added in the first three months of the year, 51% of which signed a contract, pushing the client base above 16 million, almost 14% ahead of March ’05 figure. The success of the company’s value proposition aimed at acquisition and retention of customers and revenue growth pushed quarterly gross adds up by 29% annually, and cut 12 month blended volume churn by 6%. Blended monthly ARPU increased by close to 5% year-on-year, driven by a better client mix, a 14% growth in minutes of use, and the 8% rise in data ARPU. It is worth mentioning that subscriber acquisition costs for both prepaid and contract remains stable, despite the company’s strong commercial performance. In Germany, the company continued to trade well, with net service revenues growing at a 12.5 annual rate, as the push on customers compensated ARPU weakness. Gross additions remained at the same level as the first quarter last year, despite renewed competitive pressure, helping the company add a total of 330,000 new clients from January to March 2006, and reach a total of more than 10 million subscribers. 51% of total clients were on contract at the end of March, 4 percentage points below first quarter ’05 level. This rather worse mix combined with the 17% cut in termination rates suffered in December ’04 and ’05 and pricing pressure, driven by competition, are the three main factors behind the 14% annual reduction in blended monthly ARPU. In any case, O2 Germany continues to run first by ARPU and most German wireless operators. Despite ARPU contraction, positive trends are starting to emerge in the German market whose potential consolidation as the year progresses will impact the company’s financials positively. First, minutes of use grew by 5% year-on-year, driven by new unlimited offerings. And second, the trend of declining blended ARPU has begun to stabilize on a monthly basis. The future direction of this trend should be clearer in the next three to four months of trading. Turning quickly to Cesky Telecom’s performance in slide #18, you can see that revenues topped the €500 million mark in the first quarter, stable in local currency. Operating income before D&A increased close to 1% in local currency terms to exceed €250 million with a January to March OIBDA margin of 48.9%, close to half a percentage point above last year’s comparable figure. The transformation of Cesky Telecom’s business model, with an increasing focus on broadband, new data and value-added services for both fixed and mobile, and the benefits of its integration into the Telefónica Group are being clearly transferred to its financials. In the fix broadband market, Cesky Telecom added 64,000 new connections this first quarter, a remarkable figure once the Christmas campaign has ended that doubles the average quarterly run-rate recorded in the first half of last year. Broadband revenues jumped by almost 50% year-on-year. In the mobile field, contract clients increased by 43.5% due primarily to prepaid to contract migrations, pushing total subscribers up by 8.5%. Mobile sales ended the quarter 6.5% above first quarter 2005 figures. Now, I would like to give you a brief update on the progress of the O2 integration in slide #19 before entering to financial expenses and cash flow. Cross-company teams are progressing as planned, and we are already executing joint initiatives that will yield tangible benefits for the Group across markets shortly. With regard to the alignment of processes and systems, it is worth mentioning that cash pooling has been centralized already, that we have combined our presence in Brussels into a single office, and that we have fully agreed on the brands to be used for O2 markets. And turning now to business initiatives, progress has been made at all levels. First, for mobile, joint meetings with suppliers at the CEO level have already been held while handset portfolios, prices, and leading edge devices are being harmonized. On roaming, you will have seen our ad yesterday on “My Europe”, a comprehensive set of low-cost roaming price plans for our European customers. This kind of proposal is good value for customers, will stimulate roaming traffic and is a tangible benefit of our enhanced size and scale. Second, O2 is already taking control over Telefónica Deutschland in Germany and Telefónica de Espana is actively supporting O2’s convergent ADSL mobile forthcoming offers. In addition, we are currently analyzing the appropriate options to profit from the Genion experience as an alternative to fixed in other countries. Third, on international traffic, O2 is about to route international traffic via Telefónica International Wholesale Services. And finally, O2 is effectively managing Cesky Telecom after the appointment of Peter Erskine and Jaime Smith as Chairman of Cesky Telecom Supervisory Board and Member of O2’s Executive Committee respectively. Now, on slide #20, we present changes in average data financial expenses relative to the first quarter of ’05. Average total net debt has risen 68% or €19 billion from the first quarter of ’05 as payments for mainly Cesky and O2 were completed. As a result, and you can see in the top chart, interest expense is up 36% to slightly over €500 million this quarter. The explanation for the wide difference between the changing debt, up 2/3rd and the changing interest expense, up only 1/3rd comes from the increased weight of euro and the sterling denominated debt since last year. This move, together with our active foreign exchange management activities has resulted in a 100% basis points decrease in the average effective cost of servicing the debt. On slide #21, we’re reporting cash flow and our debt position, which at the end of the first quarter of ’06, you can see that Telefónica’s total stood with a financial debt level of €53.5 billion, or 2.8 times trailing OIBDA. I would like to highlight that our free cash-flow generation ability proceeds undisturbed at a €1.8 billion at quarterly base in the first quarter of ’06. If you now look at the bottom right chart, you can see that our total debt level, including guarantees and cash commitments was €56.78 billion at the end of the first quarter, or approximately three times trailing OIBDA. As you know, we have a strong commitment to bring that number down to 2.5 times over the medium-term. Let me add that as free cash flow continues to be generated at the current pace, and debt has slightly peaked, there is a fair chance that this ratio will be the high water mark for a long time in our company. Finally, to recap, let me say, on slide #22, first half financial performance has been solid across the P&L, with organic top-line growth remaining robust in the high single digit range. Second, the first quarter of ’06 key financial metrics fell comfortably within year-end guidance for all of our businesses. Third, we are now a much more diversified Group after the recent acquisitions, enhancing the stability of our growth profile, which remains a reference in the sector. Fourth, O2 has retained its strong momentum within Telefónica, growing service revenues at double-digit rates in both the U.K. and Germany. Fifth, our Wireline operations remain industry benchmarks in terms of growth and profitability with a clear leadership in broadband. And finally, we continue to focus on local and regional management to provide further efficiencies and sustained margins. Before turning to the Q&A, let me remind you all that you have an opportunity to meet us in person in our Investor Day to be held on 25th and 26th of May in Valencia. I do hope to be able to see you there and to discuss with us the sector opportunities as well as our own positioning and expectations of long-term performance. Thank you very much, and now we are ready and happy to take your questions. Ezequiel Nieto, Head of Investor Relations: Hello, operator, we are ready to take questions.

Q - Luis Prota: Yes, hello. I have a couple of questions. First of all, I would like to get your view on the likelihood and foreseeable timetable for the disposal of Endemol and Sogecable, plus the potential acquisition of the 5% stake in China Netcom. And my second question is regarding the words from the chairman -- on the recent words, I think that that was when the Colombian acquisition -- on having stopped the global investment program. I wonder if you could elaborate a bit on what it really means, for how long this is going to be the case, and also considering the lack of financial flexibility now, and the fact that you don’t have full control over the timing of all the theoretical potential acquisitions, whether you would be considering to issue shares if the opportunity arises. Thank you. A - Santiago Fernandez Valbuena: Okay, thanks for your questions. There are a number of things which are acquisition related, and I think those are best -- happen to be best answered in the context of our next Investor Day, where I think you will be able to get, or gather sufficient information to make up your own mind. On the more specific things, you know we have still pending in China, the completion of our China investment. The Sogecable stake has been cut down, as a consequence of the partial takeover bid, and we are happy with the -- we have said that we are happy with the 16% in change percent that we now hold. And we have reiterated, I think almost on a quarterly basis that Endemol is still part of our strategic map. And, therefore, in due course, we would like to be able to dispose of it, but there is no urgent need, or no specific plan, or timetable to complete that. So, I guess that all acquisition related questions will probably best find a better home in the context of our Investor Day. A - Ezequiel Nieto: Thank you. Q - Luis Prota: Sorry, if I can followup, did you mention something that I was missing, what you were discussing on Germany, you were saying something like if consolidation happens later in the year, the financials for the company will improve or something like that. What do you mean by consolidation? A - Santiago Fernandez Valbuena: Oh, I was thinking of the operating trends. Germany is now under a severe pressure from the pricing field, and therefore, we would expect that in the next three or four months, the trend will become clearer, so we do not think that it is going to be diving south for the remainder of the year. And is of course remains to be seen when and at what level it will stabilize. It has nothing whatsoever to do with corporate consolidation, which may be part of your interest. Q - Luis Prota: Yeah – definitely, thanks very much. A - Ezequiel Nieto: Thank you, Luis. Next question please.

The next question comes from David Wright from JP Morgan in London. Please go ahead with your question, sir. Q - David Wright: Hello, yes, I have a couple of questions I was going to ask about acquisitions but I guess that looks like it can wait. Just on O2, we’ve obviously had some data given this morning. It would be very useful if we could get an idea of maybe the U.K. and German margins. And I think you mentioned as well, and it was mentioned in the statement, that you saw signs of German ARPU stabilizing. Should that lead us to believe we could be expecting a flat Q2 ARPU quarter-on-quarter? Thank you. A - Santiago Fernandez Valbuena: I think these questions are obviously going to be best answered by Peter. Peter, are you on the line? A - Peter Erskine: Yes, I am. Frankly, the only guidance we give on margins is that we are on for the guidance we’ve given in the year-end. As you know, we’ve said the U.K. would grow 6% to 9% this year, on broadly stable margins, Germany low double-digit on broadly stable margins, and that looks still to be where we are. As far as the ARPU, again, very difficult to forecast, the good news is, as you know, we’re well ahead of the others. And so yesterday T-Mobile reported a 10% drop in their ARPU, and indeed their revenue has gone backwards by about 3% or 4%. We’re down about 10%, but because of the momentum we’re growing 12%, I think we will have to see what the ARPUs look like, and then obviously report them at the end of the second quarter. Q - David Wright: Okay, can I just follow up, should we – moving forward should we expect disclosure of U.K. and German margins in the O2 business or will we only receive a Group margin? A - Peter Erskine: Well, at the moment we’re only reporting two months, but I think at the half year we will give greater clarity on the margins. Q - David Wright: But the service revenue was a three month blended year-on-year, right? A - Peter Erskine: Yes, it was. Q - David Wright: Okay, thank you. A - Ezequiel Nieto: Thank you, next question please.

The next question comes from Robert Grindle from Dresdner. Mr. Grindle, you can go ahead, sorry. Q - Robert Grindle: Yeah, hi there. Is that 1% reduction in the average effective debt service rates that you saw in Q1 likely to be repeated for the full year? And my second question is, when will the accountants have worked out to be amount of acquired intangible amortization on the acquisition of O2, and is there any steer yet at this stage as to what the impact might be? Thanks. A - Santiago Fernandez Valbuena: Okay, let me start with the second part. We have had technically until January of next year to complete the work on the so-called purchase price allocation work, which is very painstaking, very detailed work to allocate between intangibles and goodwill the difference between the book value and the acquisition value of O2. This is of course a major issue and the numbers involved are significant, and therefore we will do as thorough a work as we can. We will reply to this by the end of the year, so that we can provide you some idea, some guidance, as to what the final result is going to be, along with Q3 results. This is not a commitment, this is an intention, and certainly by full year numbers, it will have to be ready, so it will. In terms of the average effective cost of servicing the debt, there are two main components: one which is very stable, which is going to structurally become lower, and it is the more European currency composition, and therefore the lower cost. It is not very likely that we will be able to sustain as low a number as the one we have produced this quarter, as a consequence of other non-interest related revenues or expenses, most notably the marking to market of our liability provisions for the pre-retirement programs and other FX related effects. So, the number is certainly going to be lower than it was last year, but it is very challenging to expect it to be as low as it has been in this particular quarter. Q - Robert Grindle: Thanks very much, that’s very clear. A - Ezequiel Nieto: Thank you very much. Next question please.

Next question comes from Brian Rusling from Cazenove in London. Please go ahead with your question sir. Q - Brian Rusling: Yeah, good afternoon gentlemen. Just one further try on the O2 margins to the extent that, if we look at slide #6 that shows the organic growth rates and you look at the organic growth in TelefónicaO2 Group revenues and then OIBDA, we can see a very, very different trend, which suggests that the margins came under significant pressure. Is that the right interpretation of slide #6? Second question is, Santiago, can you explain why in Telefónica Móviles cash flow, they paid €929 million tax cash payments and you only got €303 million in your accounts? Third question Telefónica Deutschland, why did the ADSL line base fall in the first quarter? Hello. A - Ezequiel Nieto: Hello. Peter, do you want to take the other part? A - Peter Erskine: Yes, the only reason we didn’t report the margins is that it’s only two months. There is nothing there untoward. I can understand your probing around on the back of T-Mobile’s U.K. margin yesterday collapsing, and suffice to say that, actually, the margins were quite respectable. If we had revealed then we wouldn’t be shocked and they are totally in line with the year where we delivered the guidance. And rather than try and unpick chart #6, I think you should take that message. You know the kind of margins we get in the U.K. and they were there or thereabouts. You know the kind of margins we get in Germany and, despite the declining ARPU that we’ve obviously got to watch, they were in sensible shape. A - Santiago Fernandez Valbuena: Just to add on what Peter just explained, you may want to take into account that on the slide #6, the perimeter is slightly different from the old O2 Group as it includes now Cesky Telecom and, therefore, it’s not obvious how to derive the margins from this. And then on the tax issue, we probably can give you better details later on but you may want to remember that the better part of cash tax payments from Telefónica Móviles is adding to Telefónica’s consolidated tax group, so that may help explain why these sizes are relatively different. So, the way it works in a tax consolidated group in Spain is that Telefónica Group acts as a collector of tax payments and, therefore, a large chunk of those tax payments do not get paid into the IRS in Spain, but get paid into the Telefónica tax pool and then indirectly into the bank. That is only valid for taxes due in Spain. Of course, Telefónica Móviles has now extended and is already making significant profits in some Latin American geographies, most notably Venezuela, where all the profits and the tax rates are significant. But we would like to get back to you with further details. On the number of clients lost in Telefónica Deutschland, there is one client that we lost which means that, as you know, Telefónica Deutschland wasn’t on the ADSL market, and therefore, no retail has been shipped for the time being and the loss of one customer, one large wholesale customer in a relatively limited number of clients makes that explanation possible. A - Ezequiel Nieto: Thank you. Next question please.

Next question comes from Terence Sinclair from Citigroup. Please go ahead sir. Q - Terence Sinclair: Hi there. Two questions, one on Spanish broadband and one Genion, and I think you talked about M&A. Broadband, you’ve – just looking at voice, overall now you’ve got 3.5 million customers in Spain on bundled products if I read this press release correctly, of a total access point of 31. Can you tell us what kind of ARPUs you’re getting on customers with bundled products and excluding, as well, the broadband element? And I wanted to ask a question on O2 Germany. I don’t think, Peter, I heard you mention Genion on this call and I wonder if the lower Genion sales were occurring -- were anything to do with the 14% ARPU fall you just reported? A - Santiago Fernandez Valbuena: Do you want to start Peter? A - Peter Erskine: Yes, sure. Terry, Genion’s is going on well. In fact, we launched it at the Hanover CeBIT. We’re going on to 3G. So, Genion’s continuing to sell. No, it’s just -- basically, what’s happened in Germany is that E-Plus has done 50 MVNOs, or they claim they will. That brought prices down quite materially. I think it’s a short-term strategy. I mean despite 700,000 customer net adds, their revenues were up fairly small amount, but they’re doing it. And we’re all waiting for the price elasticity to happen. The minutes of use are tickling up but, obviously, we would expect about a year out, and it’s about nine months out since the prices came down, that the elasticity will start to kick-in although, obviously, we don’t bank on it. So no, it’s not Genion, it’s just quite frankly a very competitive market. You saw yesterday T-Mobile reported minus 3% revenue growth. Voda have yet to report. We’ve still got the best ARPU. It’s relatively down by a similar percent to T-Mobile and E-Plus. I think they are actually down more and we’re very confident we’ve got momentum because we’re winning share. And we’re confident that, in fact, in time elasticity plus data will drive ARPU in the right direction but we’re watching it at the moment. We think it might be plateauing, we’ll know more over the coming months. A - Santiago Fernandez Valbuena: Regarding your questions about the ARPU for the double and triple plays in Spain, you know that it’s running very fast so the evolution changes very rapidly, so we will provide a range of ARPU that in the last quarter was at the level of 45 to 50 for the dual play, up from 55 to 60 for the trios, the tri-play customers. Q - Terence Sinclair: And just one last. Do you believe that the number of mobile customers is going to accelerate or decelerate from here? A - Santiago Fernandez Valbuena: I take it. The rate is decelerating as, of course, in terms of percentage, but is growing quite rapidly. Q - Terence Sinclair: Thanks. A - Ezequiel Nieto: Thank you. Next question please.

Next question comes from Bosco Ojeda from UBS London. Please go ahead with your question. Q - Bosco Ojeda: Are European operator taking some preemptive measures on the side of Voice over IP, and I wonder if you could give us some update of the performance in Spain, whether you see much traction, and about the timing of that sort of traction? And the second question, we also heard some comments from the O2 management about moving into fixed line as you’re doing now in Germany. And I was wondering if you could give us some color on that front, whether that would be organic expansion or are you thinking also on non-organic and whether that could be sizeable or not? Thank you.

Well, regarding the Voice over IP in your first question, you know that the traction for the Voice over IP in Spain is quite limited, in fact it’s not an issue for us, because we are so concentrated in promoting to double the bundles of line and traffic that there is not incentive for the Voice over IP in the residential market where it is concentrated clearly in PC-to-PC calls. According with our estimation, the Voice over IP represents almost 6% of our -- in terms of minutes, and 8% in terms of lines that could use other IP. Most of them are in the business sector where we are very active at getting the Voice over IP solutions in our offers. A - Santiago Fernandez Valbuena: Thank you. Peter, will you take the second question? A - Peter Erskine: So, as far as DSL and a bit more color as you say, I think we had said around about last July that we were very interested in moving into that space. Two reasons really. In Germany, still some 84% of the voice minutes are over the fixed network and also, obviously, customers need to keep a DSL line in their home in order to access high speed data. And in the U.K., still something like 69% of the fixed voice minutes -- sorry, of the voice minutes are over fixed. We said we wanted to get into that space and, obviously, the marriage with Telefónica has given us some fantastic gifts. In Germany, we now have Telefónica Deutschland and we launched some services at CeBIT of bundles that will hit the customer in the autumn. In Cesky, we’ve inherited a fantastic business that is in the process of bringing fixed and mobile together. And then in the U.K. we’re reviewing all options. We believe we probably should enter the DSL market. We’ll obviously learn a lot from the other countries, but as to whether we do it organically, build it ourselves, do a wholesale deal or whatever, we’re just reviewing all options as we speak. Q - Bosco Ojeda: Thank you. A - Ezequiel Nieto: Thank you. Next question please.

The next question comes from Maria Rotondo from Santander in Madrid. Please go ahead with your question. Q - Maria Rotondo: Hello. If we turn to Telefónica Latin America, I would like to understand a little bit more, or a little bit better, the early retirement program you are implementing now, because in the first quarter we had provisions but I don’t think they have been quantified. So if you could explain the reach of the early retirement program in the first quarter, how many employees, the cost involved and also if you plan to go on with this internal program during the year, you have some kind of targets no? And also on Telefónica Latin America I would be interested to know if you are considering any kind of combined offer with Spain, in Móviles in Spain, we have started with combined offers for Latin America, for I think it’s Colombia, Ecuador and I just wanted to have more light on that. Thank you very much. A - Santiago Fernandez Valbuena: Thanks for the question Maria. The amount involved in the early retirement programs in Latin America is roughly in the neighborhood of €36 million this quarter. The total amount of people living in the neighborhood of roughly 1,000 persons in the different countries. We have not provided so far detailed accounts, and we do not see for the time being any further efforts this year, though we will keep exploring any possibility. And in terms of the bundled offers, we are working very closely with Telefónica Móviles in Latin America, exploring those options and we will keep you updated probably in the next investor conference in Valencia. Q - Maria Rotondo: Okay, thank you very much. A - Ezequiel Nieto: Thank you, Maria. Next question please.

Next question comes from John Karidis from Man Securities in London. Please go ahead with your question. Q - John Karidis: Thank you very much. Good afternoon to you. Just two questions please. If I recall, O2 Group had off balance sheet lease commitments of about £1.4 billion, are these commitments included in the Telefónica Group net debt figure? And secondly, as far as the treasury stock is concerned, is it right to assume that all the shares that you have in treasury now will be used to buy in the Telefónica Móviles minority and, nevertheless, from that point on you’re still committed to spend €6 billion on a buyback to benefit the Telefónica shareholders? A - Santiago Fernandez Valbuena: Yes, thanks for your question. On the net debt figure, we have net financial debt commitments. Those are mostly guarantees and pre-retirement benefits that we have previously accounted for, but we do not have operating leases as part of that caption. We, of course, monitor that and are perfectly aware of the size, value and treatment of those operating leases, but they are not reported on the net debt plus commitments figure that I have mentioned. And on the use of treasury shares that we announced, -- when we announced, negotiated and signed the merger deal with Telefónica Móviles that our shares in treasury will be used to the extent necessary to fulfill that merger. Our expectation today is that the amount of shares in treasury, which is roughly or just below the legal limit, legal 5% limit as we announced a couple of weeks ago, will be just about enough if not exactly enough to pay for those 4 by 5 exchange ratio that has already been announced. We have committed to complete, that is, to do the remaining part of the €6 billion until the end of ’07. This is what we’ve done so far. Q - John Karidis: Right. So, can I ask, the off balance sheet lease commitments of O2 U.K., am I right in assuming they are about £1.4 billion? A - Santiago Fernandez Valbuena: I don’t have those exact figures with me right now. Maybe, as we speak, they are slightly higher than that but we will have to double check on those. Certainly, we are perfectly aware of the new liability, both on and off balance sheet, but I don’t have the full figures in front of me right now. Maybe -- I don’t know if Peter has those numbers? A - Peter Erskine: Yes, I think it is still around that amount. I think I want to take a bit of the mystique out here, it’s quite normal for a mobile company, certainly in the countries we operate to have this. It’s just an exposure to do with the ongoing amount of money you would have to pay for those sites in committed rentals etc., but yes, the amount is about what you said, about £1.2 billion to £1.4 billion. Q - John Karidis: That’s great. Thanks very much. A - Ezequiel Nieto: Thank you. Next question please.

The next question comes from Mark Cardwell from Sandford C. Bernstein. Please go ahead with your question. Q - Mark Cardwell: Thank you very much. I guess two subjects. First of all on the IPTV and Imagenio, can you give us a sense for what you think a realistic TV share is over, say, the next three or four years? You talked about having 7% today of the TV market. And is there a conflict of interests with your ownership in Sogecable that at some point you will have to get rid of the 16% you said you were happy with? That’s the first question. And second question on the fixed line business, obviously turning in very strong results compared to most of Europe. I’m trying to understand why you think voice declines are not happening more quickly and do you believe that unbundling is going to accelerate from here, or the run rate that we have now seem about constant to you? A - Peter Erskine: Regarding, Sogecable, of course, there is no conflict of interests. We are a partner in Sogecable. At the same time we are developing our Imagenio. The long-term share of IPTV -- market share we will provide in Valencia but, nevertheless, we think that we had penetration of the pay TV market in Spain, not replacement. It’s not a matter of replacement but increase the market as a whole. Your second question was regarding the -- Q - Mark Cardwell: The fixed line business and really what you think the key drivers are that are keeping your voice from declining faster and your line substitutions are growing more quickly? A - Peter Erskine: Yes, I think that, perhaps, say there is some matter that is -- only could be explained because the socio-economic evolution in Spain, there is a lot of immigrants. The population is growing very fast. There is one of the reasons why our international traffic is growing. So, we are losing market share but it’s partially compensated by the growing population and the usage of the phones. Regarding the ULL, of course, it’s a very accelerating a little bit but at the pace that we forecast. You could compare the quarter-by-quarter but it’s at a reasonable level for the time being. A - Ezequiel Nieto: Thank you. Next question please.

The next question comes from Jonathan Dann from Bear Stearns in London. Please go ahead with your question sir. Q - Jonathan Dann: Hello. Two questions following up on the last comment, if you -- do you have an estimate of what the total voice market in Spain is doing in terms of growth? So, do you think you’re gaining or losing market share? And my second question is, when can we expect some announcements about the size or the timing of synergies in Spain between Telefónica Móviles and Telefónica? A - Peter Erskine: Well, regarding synergies, that is a specific topic that will be addressed in Valencia by Julio Linares team. Regarding the voice market share, in fact, it is stable in the recent months. In some segments, we are increasing our share, due to the -- mainly to our offer of duos and trios. For that segment we are losing market share but not much. We consider that our market share is stable. Q - Jonathan Dann: Thank you. A - Ezequiel Nieto: Thank you. Next question please.

The next question comes from Jesus Romero from Merrill Lynch in London. Please go ahead with your question sir. Q - Jesus Romero: Yeah, I have a question on the Spanish mobile market. You had a very strong quarter in terms of retail net adds, I think it was 65%. Do you think that number is sustainable and that number has been that high because you’ve taken a cut in prices? Or could you give us a better idea on what the sustainable level of weakened market share we can expect for the next three quarters? And then, one more question on unbundling. We’ve seen a significant increase in the mix between full unbundling and share access. What do you think the trend there would be for the rest of the year? Thank you. A - Peter Erskine: Well, we don’t think that that market share is sustainable. It was a matter of the last two quarters but as we entered in a period of the second and third quarter, perhaps, the growth will be lower, relative lower, perhaps a little bit bigger than the same period last year. And we think that we maintain, more or less, our present market share, more or less in the level of 55%. And regarding the unbundling, of course, the trend is to move to full unbundling. It is the trend that we experienced in the last quarter. And we think that it will be continued because most of the offers are also bundles in the Spanish market. We are competing not on program but in bundles of voice and program and internet access. A - Ezequiel Nieto: Thank you. Next question please.

We have no more questions. I’ll hand the conference back to you sir. Ezequiel Nieto, Head of Investor Relations: Thank you. Right, there are no further questions. Let me thank you all ladies and gentlemen for having attended Telefónica ’s first quarter results conference call. We will state again that you are cordially invited to join us in Valencia in about two weeks’ time. Thanks a lot and you have a good weekend.

Ladies and gentlemen, thank you for your participation today. This concludes today’s conference. You may now disconnect your lines. Thank you.