Ezequiel Nieto - Head of IR Santiago Fernandez Valbuena - CFO Julio Linares - General Manager for Coordination, Business Development and Synergies Jose Maria Alvarez-Pallete - Chairman and CEO, Latin America Antonio Viana-Baptista - Chairman and CEO, Moviles Peter Erskine - Chairman and CEO, O2

Jesus Romero - Merrill Lynch Guy Peddy - Deutsche Bank Brian Rusling - Cazenove Luis Prota - Morgan Stanley Andrew Hogley - Lehman Brothers Robert Grindle - Dresdner Kleinwort Wasserstein Mathieu Robilliard - BNP Paribas Terence Sinclair - Citigroup David Wright - J.P. Morgan Luigi Minerva - HSBC Bosco Ojeda - UBS James McKenzie - Fidentiis Cheryl Akavi James Ratzer - New Street Research Sergio Cruz - Pyramid Research

Good afternoon, ladies and gentlemen, and welcome to today's Telefonica's January to September 2006 Results Presentation Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). I would now like to hand over to today's chairperson, Mr. Ezequiel Nieto. Please begin your meeting, and I will be standing by. Thank you.

Thank you. Good afternoon, ladies and gentlemen. Welcome to Telefonica's conference call to discuss 2006 third quarter results. Before proceeding, let me mention that this document contains financial information and data reported under IFRS. Financial information contained in this document has been prepared under International Financial Reporting Standards. This financial information is unaudited, and therefore is subject to potential future modifications. This presentation may contain announcements that constitute forward-looking statements, which are not warranties 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 included in the first page of this presentation, which you will find also in our website. We encourage you to review our publicly available disclosure documents filed with the relevant securities market regulators. If you do not have a copy of our relevant press release and slides, please contact Telefonica’s Investor Relation team in Madrid by dialing the following telephone number 34-91-584-4713. Now, let me turn the call over to our Chief Financial Officer, Mr. Santiago Fernandez Valbuena, who will be leading this conference call.

Thank you, Ezequiel, and good afternoon, ladies and gentlemen, and welcome to Telefonica's 2006 Third Quarter Results Conference Call. I'm glad to have with me here today Julio Linares, our General Manager for Coordination, Business Development and Synergies; Jose Maria Alvarez-Pallete, Head of Latin America; Antonio Viana-Baptista, Head of Spain; and Peter Erskine, Head of O2’s European operations, who is connected from London. Telefonica is keeping its distinctive growth profile in the sector at the closing of September, with consolidated revenues growing by more than 43% year-on-year to reach almost EUR 39 billion. Operating income before D&A topped EUR 14.6 billion, up close to 36% annually. Organic growth for both metrics stood at a very healthy 7.5%, unparalleled in the European context. Operating income exceeded the EUR 7.4 billion mark for the period equivalent to 24.5% annual nominal growth rate, which translates into 6.2% organic increase. Operating cash flow ended the period close to EUR 9.6 billion, or 26% increase year-on-year in nominal terms, or 8.4% up on a purely organic basis. For a review of net profit key drivers, please turn to slide number 4. January to September net income reached almost EUR 5.2 billion, 59% above last year's figure. Please notice, that the discontinued operations caption is including EUR 1.6 billion net of taxes, which correspond to the capital gains following TPI sale and that close to EUR 640 million are being added to the depreciation and amortization line once we have concluded the allocation of O2’s purchase price. I will run you through the basics of O2’s PPA later on during this call. Earnings per share for the nine months ended in September reached EUR 1.091, 64% above last year's figure. Underlying EPS was up close to 23% year-on-year. Now strength and reliability of our financial performance puts in to value the company's diversification, which is drawn in slide number five. Latin America, a region with above average growth potential and Europe, which is keeping a strong momentum, are gradually increasing their weight over consolidated financials and represented already close to 60% and 54% of group sales in OIBDA at the end of September respectively. Turning to profitability, we present those numbers in slide number 6. The expansion of the cost base is trending down, despite stronger commercial activity, leading to a 1.4 percentage point acceleration in organic OIBDA growth since the beginning of the year. Group operating income before D&A margin stood at almost 38%, driven by the healthy 43.7% margin posted by our Wireline division on aggregate. In organic terms, OIBDA margin remained flat year-on-year at 38%, up 1 percentage point compared to the level achieved at the end of June. Operating cash flow remained solid across operations, as presented in slide number 7. Capital expenditures exceeded just the EUR 5 billion mark in the first nine months of the year, and that is equivalent to a 6% annual organic growth. More than 70% of our CapEx efforts have been channeled to growth projects. All major subsidiaries retained a solid cash flow profiles, posting annual increases in the mid to high teens for Telefonica Latin America and Telefonica Moviles. Turning to guidance updates in slide number 8. We are increasingly confident of our ability to excel by year-end. It is worth mentioning that all metrics are comfortably meeting the targets we set at the beginning of the year. As such, and taking into consideration our expectations for the various divisions, we are updating our financial objectives as follows. First, we are upgrading revenue growth from the original 34% to 37% to above 37%. Second, we reinforce our OIBDA growth target as we commit to end the year at the high-end of public guidance in the 26% to 29% range. Finally, we reiterate operating income guidance that we project will continue to grow between 26% and 30%. Let us start the review of individual operations, which does not [show total] Spain, where commercial activity across businesses is driving superior growth. Regarding domestic fixed, we continue to witness a further slowdown in traditional fixed line erosion coupled with a strong broadband uptake that consolidates our market share. Revenue growth is clearly ahead of the peer group and the strength of OIBDA is second basis to upgrade guidance. On domestic mobile, third quarter customer growth remained attractive driven by gross adds and churn containment. Service revenues are growing inline with customer expansion and renewed commercial efforts and pricing pressure are not depressing profitability, which remains a benchmark in Europe. For additional details on the performance of Telefonica de Espana, please turn to slide number 10. Both the Internet and broadband businesses, and data and IT services stood as major drivers of the company's ongoing business transformation, posting a 27% and 7.5% annual growth rate in the first nine months of the year respectively. Total group revenues increased 1.7% year-on-year well ahead peer group performance and totally inline with 2006 targets. Business transformation aims to proactively increase the value of our subscriber base and push overall ARPU for customer up, as showed in slide number 11. Total ARPU ended September, 4% above last year's figure led by three key levers that we managed actively. First, heavily promoting double and triple-play products, which we've closed 1.2 million new packages sold in the January through the September period. Second, increasing broadband appeal through VAS, value added services, with an average of spending up over EUR 7 per customer on top of broadband connectivity. And third, increasing the usage of the traditional access with more than 260,000 voice flat rates sold since the beginning of 2006. We are successfully managing current competitive pressures in the fixed business as presented in slide number 12. Within the context of the 1.8% total market growth year-on-year, lines lost in the third quarter decreased by 25%, thanks to the positive impact of the latest free connection fee campaign, that we ran in mid-September. Since the start of 2006, Telefonica de Espana lost close to 157,000 lines, which is flattish compared to last year's comparable figure. ULL keeps growing, although 60% of ULL net adds were churning from our wholesale offering. Regarding traffic, the decline in outgoing voice minutes continued to be limited by flat rates and bundles, falling just 1.5% annually. Traffic per minute is losing its significance as an operating metric, as around 47% of third quarter national traffic revenues are already on flat rates. The pressures on the traditional fixed are being fully offset by our lead in broadband, as we present in slide number 13. The company has captured almost 700,000 net new ADSL subscribers in the first nine months of this year, 34% above last year's figure. Market share remains stable at 55%. In the Pay TV business, Imagenio is a clear driving force of market performance, having captured more than 35% of third quarter net additions. Imagenio already represents 8% of the Pay TV market at the end of September. Before turning to our Spanish mobile business, let's review domestic fixed profitability in slide number 14. Despite robust top line growth, operating expenses were down more than 3% annually with cost contention across the board. OIBDA adjusted for guidance went up 8.6% year-on-year, equivalent to a very healthy 4% underlying growth rate and well ahead of our regional guidance. We are confident to beat our initial target, and thus we are raisin OIBDA guidance to higher than 5%. This new guidance will exclude any future provision for redundancies corresponding to the 2007 tranche, the company may decide to record in the fourth quarter of this year. Let's now continue with mobile operations in Spain in slide number 15. Telefonica Moviles Espana's operating performance has been characterized by strong commercial activity and very positive churn. Third quarter net adds increased by 45% year-on-year, adding 365,000 customers to a total base that has grown by more than 7% annually. The increase in contracts in corporate accounts remained healthy. On top of strong gross adds, the company's performance in number portability continue to improve with Telefonica Moviles in Spain showing the greatest progress in the year to reach a positive balance of 63,000 clients in the third quarter. Additionally, the company was capable of keeping contracts under 1% in the third quarter, to push blended churn down to 1.75% in the first nine months of this year. In the next slide we present the drivers of domestic mobile revenue performance. Total revenues reached close to EUR 2.5 billion for the July to September period, up 5.1% year-on-year. Cumulative revenues through September increased by 3.7%, inline with 2006 guidance. The company posted a very positive 7.1% growth in customer revenues, the rate fully aligned with customer expansion. The robust growth in outgoing service revenues more than offset lower income in roaming-in revenues. On the roaming side, the joint initiatives as My Europe, are helping us to limit the impact of Amena being partner with France Telekom. In addition to solid time growth, usage in outgoing voice and data ARPU remained strong as we can see in slide number 17. The first nine months of the year, outgoing MOU showed 5.9% increase year-on-year, which translated into 1.2% growth of outgoing ARPU to reach close to EUR 23. Incoming ARPU was down 9.5% annually under pressure due to interconnection rate cuts. As such, blended voice ARPU ended the period virtually unchanged at EUR 33. Data ARPU reached EUR 4.4, equivalent to 1.9% growth rate, driven by higher revenues from data connectivity and content. Now, P2P SMS data revenues continue to increase, amounting already to 43% of total data revenues for the first nine months of this year. We now have more than 785,000 3G customers with more than 145,000 PC cards. In slide number 18, we briefly review OIBDA growth. Nine months OIBDA exceeded EUR 3.1 billion, up 1.1% versus last year despite higher commercial activity. OIBDA margin reached 47% in the third quarter, and 45.5% for the full reported period. We will now move to Europe, where we are successfully managing mobile growth opportunities. We see the revenue turning around of our fixed line franchise. Starting with our European mobile properties, I would like to highlight UK's strong momentum first, led by an increasing customer and ARPU growth. In Germany, O2 is posting above average service revenue growth and continue to gain market share despite lower commercial activity. Finally, enhanced value proposition from Telefonica O2's collaboration are being presented to clients, such as My Europe. Turning to the Czech subsidiary, its turnaround is a tangible reality with positive growth rates for both sales and operating income before D&A. DSL and mobile continued as major engines for growth, with synergies acting as an additional support for financial performance. Our O2 UK performance is summarized in slide number 20. Under a very dynamic competitive environment, service revenue continued to excel after growing at 15% year-on-year, pushed by customer growth and ARPU expansion. February through September OIBDA margins stood just below 28%. From a commercial perspective, gross adds were up 15% on an annual basis in the third quarter, with 12 months rolling churn contracted by high percentage points year-on-year to end at 28%. In terms of usage, ARPU increased by around 2.5%, thanks to a better mix, the 11% pickup in minutes of use and [growth rate] of ARPU. Please turn now to slide number 21 for a review of O2 Germany 8 months' results. February through September service revenues were up 8% year-on-year with a higher subscriber base, being partially offset by pressures from ARPU. Eight months margins attained 24%. The company has traded well the operating level to meet competitive pressures for a total of 18 -- I am sorry, 19% annual growth in the total base. Blended churn remained broadly stable despite the growing contribution of prepay, that represented more than 50% of the base. ARPU declined by close to 13% annually, affected by the change in mix and pricing pressure. Our commercial strategy to adapt to market trends has led us to rebalance original targets in the UK and Germany as we present in slide number 22. In the UK, we will prioritize acquisition and retention as we expect to continue capturing value clients as we have done throughout the year. As such, we have great service revenues for the second quarter in a row this time to a new range of 14% to 15% for the 11 months ending December. Consequent to this focus on growth, we expect OIBDA margin to fall by 1 percentage point from last year's comparable figure. In Germany, service revenue growth has decelerated quarter-on-quarter. On the one hand, ARPU has been under pressure by a change in mix, competition and termination rate cuts, and on the other hand, we have been deliberately less active in the markets so far this year, in anticipation of new tariffs and our DSL launch. Therefore, we now expect service revenues to grow at high-single digit rates this year, below our initial low-double digit guidance. We keep our forecast of stable margin unchanged, because of O2 Germany's plans to increase marketing expenses in the last quarter to regain momentum, particularly for refreshing mobile tariffs and promoting the newly launched DSL offering. Moving to the Czech Republic in the slide number 23. We can see that revenues in OIBDA were up 2% each in the third quarter, led by mobile and retail broadband, which is a clear turnaround since takeover. Integration is on track. Renewed pricing and products are being launched into the O2 brand, and the first convergent products are out, including IPTV. As you may know, the company upgraded OIBDA growth target from flat to around plus 2% when presenting results last October 27. Revenue guidance has been kept unchanged at flat year-on-year. Please turn now to slide number 24 to end the operating review of our businesses with Latin America fixed and mobile. On the fixed side, we are developing broadband in all countries, gradually positioning double and triple-play products to drive top line growth for all operators. Additionally, we are reinforcing local and regional management strength and profitability. The mobile side, regional service revenues keep growing inline with client expansion with margins progressing. And cash flow generation remained very solid, doubling annually. The more detailed analysis of our fixed Latin American business is outlined in slide number 25, starting with broadband. Telefonica Latin America's retail broadband connections grew 48% year-on-year, with net additions accelerating on a quarterly basis. Consolidated broadband revenues rise by close to 33% annually. Broadband connectivity and value added services are the drivers behind top line growth. The aggregate of Internet, broadband, data and IT accounted for three-fourths of the 3.5% organic revenue growth of this division. Efficiency measures are paying off as shown in slide number 26. OIBDA margin, excluding capital gains in Columbia Telecom, exceeded the 45% mark, 1.6 percentage points ahead of last year's comparable figure. Additionally, the focus on cost contention is reducing operation expenses growth from the 6% posted in the first quarter this year to below 4% for the nine months ended September. Thus, Group underlying OIBDA margin has improved more than 2 percentage points from the first quarter figure. Local operators are successfully balancing growth and profitability, as the slide number 27 summarizes, being able to improve their margins even if revenues have slowed. With the exception of Argentina, due to a stronger activity enforcing retail tariffs, all fixed subsidiaries improved profitability between 1 and 2.7 percentage points in the last 12 months. Moving to guidance, nine months revenues came below target, mainly due to Telesp's sales growth reduced speed. The low inflation in Brazil implied a zero tariff adjustment for Telesp, pressing down revenue performance. As such, we expect consolidated revenues to grow this year around the low end of the guidance range. On the contrary, adjusted OIBDA grew at 7% year-on-year clearly above guidance. We expect 2006 final rate of growth to reach the high end of the tree to 5% of regional objective. Moving to our mobile operations in Latin America in slide number 28, let me highlight first the 20% annual growth in service revenue in cost and due returns, which is fully aligned with the rise in the customer base. Outgoing service revenues increased by a sound 29.2% year-on-year. Robust revenue performance has been coupled with a greater increase in OIBDA, allowing us to expand margins by 2.7 percentage points, despite higher commercial activity, and as a result operating cash flow more than doubled nine months 2005 figure reaching more than EUR 765 million. Let me start slide number 29 with Brazil. Our ongoing initiatives to enhance our competitive position are showing their first results. Among these measures that range from reducing the loss of value clients to improving the quality of our call centers, I would like to comment two of the most relevant in terms of enhancing the loss position. First, a series of initiatives to reduce fraud, which have allowed us to tap cloning cases by 84%. And second, the launch of new tariff schemes for pre-paid, that have led to a 6.6% increase in minutes of use and a change in ARPU trend. From a financial perspective, third quarter service revenues grew 3.2% annually, limiting OIBDA productions to 6.8%. Let me now show you the positive performance of our operations in Mexico in slide number 30. Net additions in churn continue to trend positively. Commercial activity has yielded strong results, leading us to capture growth to 1.1 million new clients through the beginning of the year, 1.7 times above last year's figure. And churn for the nine months to September improved by 1.6 percentage points, to hit the 3.7% level with contract churn falling below 2% for the first nine months of the year. Despite solid client expansion, MOU was up 36% year-on-year backed by the launch of new commercial plans, pushing annual ARPU to grow at 8%. The combination of both, growing base and the uplift of ARPU, was behind the 26% annual increase in service revenues. Strong top line performance has led to OIBDA breakeven in the third quarter. Let's briefly review now other major wireless operations in the region, starting with Venezuela. 200,000 net additions were registered in third quarter, 69% year-on-year leading to a 51% customer growth. Client expansion and [this from] ARPU have driven the 50% annual rise in service revenues. OIBDA grew by 44% on an annual basis to reach a marginal 40%, slightly below last year's level due to higher commercial activity. Turning to Columbia, we are slowing down commercial activity to guarantee quality growth. Net adds amounted to almost 1.7 million in the first nine months of this year, with the stronger focus on contract, which represented 26% of total new connections. Service revenue increased 6% when compared to last year's, influenced by the rapid growth of the customer base, low usage and interconnection rate cuts. OIBDA margin improved 3.2 percentage points to reach 14.5%. With regard to wireless in Argentina in slide number 32, we managed to add 1.8 million new subscribers in the first nine months of '06, 9.4% above last year. Total customer base increased by 37%. Service revenues increased by 33% in local currency, a similar pace than in past quarters. The sound top line performance, coupled with all acquisition costs, translate to a 112% OIBDA increase in local currency, with margins expanding almost 9 percentage points to 24%. Finally, in Chile, we have increased our customer base by 7%, keeping the focus of our commercial actions on the contract segment, which represented 20% of our base at the end of September. Service revenue growth was robust at 21% on the back of strong ARPU performance. OIBDA grew 15% annually with margins almost stable for the last 12 months. And now before reviewing financial expenses and debt, I would like to give you an update on synergies and which are presented in slide number 33. Business cooperation has led to generate close to EUR 717 million of synergies at the end of September, which is inline with the strategic plans. 81% were related to regional management and business integration, and 16% have emerged from the incorporation of the latest acquisitions, namely, O2, Cesky Telecom and Columbia Telecom. If we focus on O2, more than 50% of synergies are being driven by handset and network procurement. with 33% coming from roaming initiatives. In addition to already identified projects, we are exploiting new areas of collaboration that will yield substantial benefits, such as insurance management, development of mobile data and the rollout of ADSL offering in O2's geographies. We will now turn to the next slide on liability management. We are happy to report that only a fraction of the 88% increase in average debt has been reflected in interest expense, which have risen 45% over the first nine months of '06. Foreign exchange management in '06 is hitting our target, but is not adding to financial income as much as it did in '05, when over EUR 200 million were recorded. Even taking this affect into account and debt service unit cost is down 140 basis points to 4.7%. However, we expect this figure to drive slightly upwards to the 5% area by year end. Our overall financial debt load has come down 2.8 billion in this quarter, reaching 52.2 billion at the end of '03 -- at the end of the third quarter, I am sorry. On 12 months trailing adjusted OBIDA, this would mean the debt to OIBDA ratio of 2.6 times or 2.8 times when adding pre-retirement commitments. Thus, showing progress towards our deleverage target of falling below 2.5 times in the medium term. We would caution on extrapolating this trend, as Q3 recorded the inflow of proceeds from TPI sale and did not include yet the $0.30 per share dividend, roughly EUR 1.3 billion that was paid last Friday. On the progress of our share buyback program, we held 51 million shares in treasury at the end of the third quarter. During the fourth quarter, we have continued to purchase an additional roughly 10 million shares, getting to 1.24% of outstanding shares now held in treasury. Before concluding, let me introduce the estimated impacts of O2's purchase price allocation in slide number 36. I would like to remind you that this impacts our preliminary and unaudited. Goodwill arising from the transaction was EUR 16 billion on the basis of O2's book value as of January 31. EUR 8.1 billion, or roughly 50%, of original goodwill was allocated to intangible assets, in particular licenses, clients, brand names and contract. After fiscal adjustments, final accounted goodwill exceeded just the EUR 10 billion figure. The average life of assets we have allocated goodwill to, has been calculated to be around 10 years. As such, O2's February to September P&L in our consolidated accounts had an impact of close to EUR 640 million of additional amortizations, which are related to the PPA. Total impact in net income came close to EUR 450 million for the above mentioned period. We estimate an annual impact on net income of around EUR 600 million per year for the next five years. To sum up, first, financial results stay -- set a benchmark with high single digit organic revenues and OBIDA growth leveraging the value of diversification. Second, our performance sets the basis for reinforcing our guidance commitments for the full year. Third, sales growth flows to our bottom line with EPS up 64% year-on-year. Fourth, group margins are resilient despite strong commercial activity, benefiting from both cost optimization and tangible synergies. Fifth, we are now pushing commercial activity and developing broadband in Spain to get a superior growth profile. Sixth, we are growing high value businesses amidst strong competition in Latin America with a focus on profitability. And finally, we are successfully managing mobile growth opportunities and rapidly turning around fixed in Europe. Now, thank you very much and now we stand ready to take your questions.

Thank you. Our first question comes from Jesus Romero. Please go ahead announcing your name and your company name. Thank you. Jesus Romero - Merrill Lynch: Hello, Jesus Romero from Merrill Lynch in London. I have three questions. The first one, could you tell us how many employees you expect to sign up for the early retirement plan in Q4 for Telefonica Espana? Second, could you give us an update on O2 Germany, maybe for next year on how your area sale plans are going in both Germany and the UK? And third, regarding team Brazil, do you think that a regulator could allow you to have control of both team Brazil and Vivo? And if that's the case, would you consider that acquisition? Thank you. Jose Maria Alvarez-Pallete: Thank you for the question, Jesus. Let me answer on the two Brazil thing. It's anybody's guess what the regulator might say. Brazil is enriched with a number of different players. And at this point, we are in no position to speculate as to what the regulator might or might not think. Antonio Viana-Baptista: Jesus, this is Antonio Viana. Regarding the question you had on the number of people to leave the company for the fourth quarter until September 30th in Telefonica Espana, we have -- that people that have joined the [array] of 1,237, and the forecast for the end of the year is that this number will reach for the whole year 1,460. Okay. Jesus Romero - Merrill Lynch: Yes, okay.

Thank you our next --

Peter, you will answer the third question please? We seem to have lost the connection. We'll try and get that all later on. Please operator, go ahead with the next question please.

Thank you. Our next question comes from the line Guy Peddy. Please go ahead and announce your name and your company name. Guy Peddy - Deutsche Bank: Yes, good afternoon, gentlemen. It's Guy Peddy from Deutsche Bank. I just wanted a follow-on to Jesus's question. Of the 230 people you are looking to get rid of in Q4 based on the mathematics, I think, you just gave us, you are still going to be running at just over EUR 300,000 provision for those. And on the second question related to headcount, are you still planning to invite 3,000 -- sorry about the background noise, about 3,300 people to queue in the early retirement for 2007? And again, is that going to be costing you another 300,000 per person? And my second question more for Santiago. Given the outlook in Germany, clearly a lot more tough of O2, especially given the two downgrades to guidance, and the fact that competition seems to be picking up, pricing seems to be coming down quicker, mobile termination rate cut seems to be bigger, and the fact that Vodafone this morning decided to take fair value adjustments on their asset. Is that something that you are considering as well for your O2 business as you go through the fair value assessment of your goodwill? Thank you.

Hello, it's Peter Erskine. Can you here me?

Yes. Peter, could you answer the question from the previous?

Yes, of course, two questions, they are not regarding DSL and our plans for Germany and the UK. Today in Germany, we cover about 40% of the country -- the population and we will be at 60% by the end of quarter two. And we have actually in the three weeks launched one bill to our mobile customers, so that they can buy DSL from us and pay on the same bill as mobile. In the UK, you all know we bought the B acquisition about two months ago, and that had 15% population coverage. We have already built that to 30%. We will be launching round about the middle of next year and would expect to have about 70% of the population covered in the UK by the end of next year. Now the next gentlemen's question regards Germany. I think first of all, yes, we saw Voda took an impairment this morning. We took about two to three years ago, so that sort of Voda without being too smart catching up, so we see no need to do that. I think regarding your -- I think you actually said two changes to guidance, wrong, sir. Our revenue guidance, we have changed to single digit, but we hold constant that -- constant margin with last year. And we are actually in the process now with launching some new tariffs inline with the fact that our [Guinean] product, which has been a big piece of our success, we are effectively re-launching a new tariff, timed for now we have launched DSL in that country. So, we are actually looking forward to some renewed energy out there in quite a challenging market.

Okay. Antonio will answer your questions. Antonio Viana-Baptista: Yes, related to your question on the earlier retirement program. As I said before, we expect to reach 1,468 this year. If we reach this number, that would mean than in order to complete the 15,000 early retirements that are incorporated in the program, next year we will need to have early retirements of 300 -- 3,723. The average cost is on the range of EUR 310,000 per head basically. Okay. The guidance, just to verify, the guidance that we are giving in terms of EBITDA being higher than 5%, has incorporated the cost of early retirements in order to reach the 1,468 until the end of this year. Should we anticipate any of the early retirements from 2007, that additional cost would come in 2007, and not in 2006 -- pardon, and not in 2007.

Thank you. Next question please. Operator, next question please.

Thank you. Our next question comes from the line of Brian Rusling. Please go ahead announcing your name and your company. Brian Rusling - Cazenove: Yes, good afternoon, gentlemen. This is Brian Rusling from Cazenove. A couple of questions. The first one is, Santiago, in reference to -- in May, you gave guidance that you were going to double the EPS, the headline EPS of Telefonica by 2009. Today you've said that there's going to be a purchase price amortization of 600 million a year. Does that doubling of EPS still stand including the extra 600 million net income impact? Second question is on Spanish fixed line, when will we hear whether you take advantage of the ability to increase the monthly rental by 2% for 2007 for the Spanish fixed line vehicle. Is that going to be sort of January? What do we hear about the earlier? And then, final question, in Brazil, with reference to your negotiations on buying the cable TV operation, can you give us some sort of sense of the order of magnitude of how much cash that will involve?

Let me answer the question on the doubling of the EPS. We projected (inaudible) to arise by 2009 and that includes everything that we could possibly foresee at that point, which includes purchased price allocation and amortization charges, that we have just announced today that will start. So, for your avoidance of doubt, our doubling EPS target thus includes the amortization of goodwill. Antonio Viana-Baptista: On the increase of the monthly rate in Spain, that will take place on the 1st of January, the 2% increase. Jose Maria Alvarez-Pallete: On the DVR, on the Brazil cable unit we have not disclosed the price yet, and the transaction is still subject to approval, and therefore we are not disclosing that information yet. Brian Rusling - Cazenove: Thank you.

Next question please.

Thank you. Our next question comes from Luis Prota. Please go ahead, announce your name and company. Luis Prota - Morgan Stanley: Yes, hello. This is Luis Prota from Morgan Stanley, Madrid. I have two questions. The first one is on the Spanish broadband. Looking at your impressive 68% share of net additions this quarter, I wonder if you could give us some light on, why you think that clients are choosing Telefonica, despite the very aggressive focus they market on. Now that we are already in mid November, if you could share with us how the fourth quarter is going? And the second question is on Venezuela, the market is looking more mature now with high penetration already. But, do you expect the fourth quarter to come back to higher growth on margins tomorrow again or growth potential is somehow limited from this level and margins are going to remain above 40%?

Okay, Luis, regarding the share of net adds that we are having on the broadband, I think that there are two clear issues. The first one is, the quality of service that we are offering, in a sense that we are delivering the quality that we are promising to our clients, in terms of speed, in terms of quality of implementation. After that, the fact that we have a very broad catalog of value added services that we include together with the broadband offer like antivirus security and maintenance fee. And I believe those are the reasons. On the -- question on how the fourth quarter is going, we can't complaint, but we are ready to top up the business. So, I prefer having that discussion probably in February. Jose Maria Alvarez-Pallete: Hi, it's Maria Alvarez-Pallete speaking on the Venezuelan question. For the time being, we are not seeing any signs of decelerating in the Venezuelan market, which is looking to me very solid. And I must [approve] that revenue services are totally inline with the annual net adds. For the time being we are going to be [spend the time] of deceleration in the Venezuelan market. Luis Prota - Morgan Stanley: Okay. Thank you.

Thank you, Luis. Next question please.

Thank you. Our next question comes from Andrew Hogley. Please go ahead, announce your name and company. Andrew Hogley - Lehman Brothers: Good afternoon, gentlemen. Andrew Hogley from Lehman Brothers. Two quick questions, if I may. First of all, could you explain some of the rationale behind the 8% stake you took in PCCW this week? And secondly, have you yet seen anything from Xfera ahead of their likely launch in December that gives you any concerns over the next couples of quarters in the Spanish mobile markets? Thank you. Jose Maria Alvarez-Pallete: Yes, Jose Maria Alvarez-Pallete speaking again on the PCCW question. We see that as a wonderful opportunity, our type of the China Netcom's (inaudible) had unique opportunity of growing and exploring (inaudible) the IPTV sale and orders. So, for us it's a matter of going further on our China Netcom collaboration, and we're seeing -- this transaction opens new areas of collaboration, especially in the IPTV sale. Antonio Viana-Baptista: And on the Spanish mobile market, we're very happy with the result of net adds that we achieved in the third quarter. I think it's a very good sign in terms of the quality of our client base and the way we are expanding our client base and getting more and more results on the contract customers. We look forward to see what Xfer is really to do in this market. Obviously, it is going to be a dynamic market on the Christmas season, and as a consequence we are well prepared in advance with very attractive handsets to sell to our customers. We also expect new MVNOs to come upfront in this period. And I can tell you that we have reached a global and general agreement. There are some minor issues to fine tune with (inaudible) in order to launch their MVNO. Andrew Hogley - Lehman Brothers: Thank you.

Thank you. Our next question comes from the line of Robert Grindle. Please go ahead, announce your name and company. Robert Grindle - Dresdner Kleinwort Wasserstein: Yeah, hi. Robert Grindle from Dresdner Kleinwort here. Is it possible to get an update on Peru as the Congress there seems to have been making things a bit tougher for you recently? And just on the O2 intangibles, is it possible to say how much of the 8 billion of the intangibles is allocated to the O2 brand and over what lifetime that is amortized? Thanks very much. Jose Maria Alvarez-Pallete: Yes. Thanks for the question. On the -- Jose Maria Alvarez-Pallete on Peru question. As you know, the government of Peru rejected the low degree, and as a result there is no further dictation on the table. And we are continuously talking with the government and with the regulator in order to see areas of collaboration and improvement in the telecommunication landscape in Peru. So, for the time being there is no tension at all. We are talking with them. We are looking in order to see what is the framework for next year. We keep expanding our services. We keep fulfilling our commitments with (inaudible) issues. So, no news on that front.

Okay. Robert, on O2 intangible issue, as you have very rightly pointed out, the gross number is about 8 billion. The brand names, well, this is too working in progress not fully audited, but roughly we are talking about 20% of the O2 brand value in this item. On the lifetime, it varies by assets, as you know the intangibles are basically made up of clients, brand names and licenses. Licenses are taken as their contract expiry dates, sometimes short, sometimes longer. Brand names, we have said, a 10-year view. This is much more judgmental than other items. And clients, which I am sure, is one of the most difficult parts to elicit, of course, vary country by country. But there is a factor to be taken into account, which I am taking about, money weight and not physical weight. Therefore, contract customers, which tend to have much, much lower churn rates than the others are much more valuable, and therefore carry a much more significant weight this average lifetime of the total client portfolio. If you want to factor those numbers in, I do not have the final number. Robert Grindle - Dresdner Kleinwort Wasserstein: If I could have a follow-up on that. And if the average life of the intangibles is 10 years, are you then therefore amortizing over a shorter period, the five years, just to get it all over and done with, is that the idea? Is the full amount amortized over five years?

No, it isn’t. It is amortized over the average life of the assets. Of course, different assets are amortized over different periods. But all of them are amortized with an average of 10 years. Robert Grindle - Dresdner Kleinwort Wasserstein: Okay. Thanks so much.

Thank you. Next question please.

Thank you. Our next question comes from the line of Mathieu Robilliard. Please go ahead announcing your name and company. Mathieu Robilliard - BNP Paribas: Good afternoon. Mathieu Robilliard of BNP Paribas, a few questions please. First in terms of your guidance, does the new guidance include the provision reversal at Telesp for the PIS/COFINS all item? That’s the first question. Second question on O2, the EBITDA margin guidance for the UK for the full year suggests that EBITDA margin will increase in Q4 versus what has been done in the first nine months for the year. And I was wondering what was behind that? And that’s about it, thank you.

On the first question about the guidance on the EBITDA PIS/COFINS in Telesp was included, it is yes, it is included in the guidance.

As far as the UK, the Denmark and it's quite right. We -- in business in the last quarter slightly better margin at year end, slightly ahead of the first three quarters of the year.

Okay. Next question please.

Thank you. Our next question comes from Terence Sinclair. Please go ahead and announce your name and company. Terence Sinclair - Citigroup: Hi, good afternoon. This is Terence Sinclair from Citigroup. Two questions. First of all, I wonder if you could talk a little bit about margin trends in fixed Latin America, regarding that’s the high end of the range. And when I look at Argentina -- no forget, Argentina. But Chile, Brazil, Peru, I am seeing cost growth that's at least as fast as revenue growth. And the second thing, I wonder if you could comment on whether you would welcome market consolidation whereby American Movile buys Team Brazil? Jose Maria Alvarez-Pallete: On the margins in Latin America, yes, we have trended here even if you were to exclude the PIS/COFINS issue in Brazil, and we are committed to keep doing that for the rest of the year. We have -- we are doing our significant effort in cost control, in spite of the fact that we are having less intense and less robust revenue top line. So, yes, we are committed to maintaining the strength for the remaining part of the year in all the operation. In fact, only one that is -- the one that is suffering relatively more is Argentina, but we have shown a very solid top line growth. And on the consolidation in Brazil, again, we -- sorry, but we are not going to speculate about that, because we don’t know what is going to happen. So, we don’t know yet what is going to be the final outcome that is. Terence Sinclair - Citigroup: Thank you.

Thank you, Terry. Next question please.

Thank you. And it comes from the line of David Wright. Please go ahead announce your name and company. David Wright - J.P. Morgan: Yes, David Wright from J.P. Morgan in London. Firstly for Santiago, obviously we had some more confirmation of the tax legislation that was initially bonded around, at the beginning of summer, which accelerates I understand the 30% tax rate for 2008. If you could help us understand the impact on your P&L, because obviously there are various give backs on international tax, etcetera. So, maybe some impact analysis there, and again how that would figure within your guidance. And then for Antonio, I guess in Spain, just to maybe understand and I hope this hasn’t been asked before, I had some problems with the line. Just to understand the shift in the competitive nature of the market in Q4, because I think we can assume Q3 was fairly lackluster on the part of France Telecom's assets. But given their re-brand, are you noticing a step up in your acceleration, are you noticing a step up in churn perhaps? Just your sense of how that is progressing versus as I said a very quite Q3? Thank you.

Okay, David, now the tax issue, you are right that we mentioned in Valencia that we expected tax rate of corporate in Spain to come down. This indeed seems to be the case, but it is not fully enacted yet. When it is, we will fully record it in our books. It looks like the direction is one we anticipated but the timing is going to be one to two years earlier. This is obviously good news, and good news as it will happen earlier and it will happen to the full extent that we anticipated and that basically means that pre-tax cash flows are now going to be taxed at a lower rate. And therefore, the cash flows available for other things, including investors, are going to be more valuable. There are other negative effects which are one-offs, and that had to do with net present value of our tax yields. Those are of course negligible, relative to the overall size, and we will have to take them into account when the full bill in enacted. And that we do not know yet when it will happen. It may happen before the end, it maybe this year, it might more likely happen at the beginning of next year. We will keep you fully updated and when we give the guidance will try and give full disclosure of those impacts. David Wright - J.P. Morgan: But obviously the guidance assumed your original 30% by 2010-2011 not by the 2008.

The rise of the guidance anticipated the tax cut to start in 2008, not to start in 2007. And therefore, we might think about changing that a little bit. But let's defer that decision until we have full information. David Wright - J.P. Morgan: I am sorry. Just to be painfully sort of clear on my side, so the original guidance was the 30% by sort of three or four years, it wasn't 30% in 2008, right?

I don’t want to get back in the question. In Valencia, we had a later coming into effect of tax bill, and it is going to come earlier. We will have to update you when we publish the full guidance for '07. David Wright - J.P. Morgan: That’s okay. Thank you. And on Spain? Antonio Viana-Baptista: David, on Spain, of course, I do not agree with you that it was a very quite Q3. I think that Q3 was extremely dynamic. You just have to compare it with Q3 of last year. I think that the good news on our side is that we have been able to contain churn at a very, very low level, and as a consequence of that we got a great share of net adds. As for the Q4, well, obviously it's going to be a more dynamic quarter, with all the Christmas campaign. Yes, we do see Orange being more active in terms of handset subsidy. Yes, we see that trend. Obviously, since we have separate distribution channels, that hurts us less than it hurts other that share the distribution network with Orange, like in the Phone House stores [already] share it with Vodafone. But, yes, we do see Orange more aggressive in terms of handset subsidy. Not particularly in terms of the broadband markets. David Wright - J.P. Morgan: Okay, thank you.

Thank you. Next question please.

Thank you. And it comes from the line of Luigi Minerva. Please go ahead, announce your name and your company. Luigi Minerva - HSBC: Yes, good afternoon. It's Luigi Minerva from HSBC. Two questions. One on PCCW again, and whether did you consider to increase your stake directly in China Netcom rather than having an option to swap your PCCW share into Netcom later on? And the second one on network sharing, probably between Vodafone and Orange, whether you foresee any change in competition, and do you have any response to that? Thank you.

Yes on the PCCW question. We have made it clear that it was a binary decision, either we will take more shares in China Netcom or (inaudible) of the amount of capital allocated to that -- strategy was fixed. So we are not going to be complimenting again an additional 5% stake, so we will contemplate the share -- the soft share at the end of the year. On the network sharing, I don’t see any major change there. What we have witnessed is some announcement from France government and Vodafone, regarding site sharing in small villages in Spain below the 5,000 inhabitants. And towards the crucial part is much more to have a better coverage in the series rather than in those areas that we may not believe that changes dramatically the scenario in terms of comparisons. Luigi Minerva - HSBC: Thank you.

Thank you. Next question please.

Thank you. Our next question comes from Bosco Ojeda. Please go ahead, announce your company name and your name please. Bosco Ojeda - UBS: Hi, good afternoon. Bosco Ojeda from UBS. Another question on your mobile strategy in Spain. I understand it has been not your priority to push for 3G handsets, and I was wondering if you foresee at some point of time a change on that front maybe for next year, or I am not sure what is the timeframe on that area. And also if I could ask just to be sure on the goodwill new generation from O2. I understand the 10 billion that the net figure, is that -- that is the part that is going to taxed, just want a confirmation. Thank you. Antonio Viana-Baptista: Okay. On the 3G handsets in Spain, what I can tell you Bosco is that, this will not be a 3G Christmas. We still see that there is a significant difference in price from 3G handsets to 2G handsets, and we do not see that customers are actively seeking to pay for that price differential, because they still see more value on getting a 2G handset with better form and function, let me say, let me put it this way. Next year, we will see depending on the offers from the handset suppliers.

Bosco, I am not sure I got the question right, but I understand that you were interested in the tax impact of the goodwill. Now, after the PPA, they remainder is the goodwill that can be amortized and is taxed in Spain under very stringent conditions. If that is what you are talking about then the number is 6 billion. Bosco Ojeda - UBS: 6 billion, okay. Thank you.

Thank you. Next question.

Okay. It comes from the line of James McKenzie. Please go ahead, announce your name and your company. James McKenzie - Fidentiis: Hi. It's James McKenzie from Fidentiis. I just wanted to -- have a couple of questions on fixed line, if possible. I think that the half year stage, Antonio, you mentioned that the regulator was dragging his feet a little bit in terms of particular commercial offers that -- for his approval of the commercial offer that you wanted to come out with an ADSL. I was just wondering if you can give us an update on how you are feeling on the regulatory situation now, if your commercial flexibility has improved and basically if you are satisfied with the regulatory situation as it stands. And secondly, just looking at the third quarter numbers, it looks like you've seen a big fall off in interconnection expenses in the fixed line, which has obviously hit your margins in the third quarter. I wonder if you have got any explanation for that. I'm certainly not aware of any big fall that would have caused that. Antonio Viana-Baptista: James, can you repeat the second part of the question please. James McKenzie - Fidentiis: Yes sure. If I looked at your interconnection expenses in Telefonica de Espana, they were falling 6.3% in the first half of the year. And that accelerated to 11% in the nine-month stage, which on my math gives you an almost 20% fall in interconnection expenses in the third quarter on a standalone basis. Now, the numbers maybe -- my numbers maybe a little bit wrong, but it does look like interconnection expenses in the third quarter fallen quite substantially and that has boosted your margins. And I was just wondering if there was any regulatory change which has caused that. Is it a one-off or is it something we can expect to be repeated going forward? Antonio Viana-Baptista: I haven’t checked the second part. I don’t see any one-off there. I see that you've got the increase in fixed to mobile traffic, but I don’t see any other reason apart from that. But I will have to check that number -- James McKenzie - Fidentiis: Okay. Antonio Viana-Baptista: And get back to you. On the regulatory situation, we got the approval for the launching of ADSL 3 megabit that we have just launched on the 12. So, that one is up and running. And we still have a couple of [fix] more pending approval from the regulator. One of them, the 512 kilobit would be very important for us in order to increase penetration for lower income households on the broadband offering, and we’re still putting some pressure there. So we still -- what we really want is that, any product that we would put up to the regulator can be approved on a speedy way and without major delays. That is our major concern and we keep on having a proactive stance with the regulatory in order to achieve that.

Thank you. Next question please.

Thank you. The next question comes from [Cheryl Akavi]. Please go ahead announce your name and company.

Yes, hi. I just wanted to see if you're still committed to the 1.5 billion net acquisition activity between now and year-end 2007?

Yes, we are.

Okay. So despite what might happen in Brazil, you are still committed to that?

Yes, first we are committed to what we said. Second, I also have to say that whatever happens in Brazil, it is not something that leaves us indifferent. So we are monitoring very closely what is going on over there.

Great. Thank you.

Thank you. Next question please.

Thank you. James Ratzer. Please go ahead, announce your name and company. James Ratzer - New Street Research: Yes, James Ratzer from New Street Research. Two questions regarding your fixed business. The first one, I was wondering if you can give us an update on your thoughts about rolling fiber out further into your network. I mean, particularly seeing Telecom Italia has recently announced plans for increasing fiber for street cabinet, is that on your agenda at the moment? Secondly, also seeing Telecom Italia propose a split between retail and wholesale activities, again, is that kind of move on your agenda at all? Thank you.

On the first issue of splitting retail and wholesale, that is not in our agenda at this moment in time. I won't make any comments regarding Telecom Italia's policy on that. On the fiber deployment, I would lead you to what we have said in Valencia, where we have explained that the total investment that we are likely to consider for deployment of fiber would be on the range of EUR 800 million for the 2006-2009 period. That would allow that probably by 2009 more than 40% of Telefonica de Espana local loops would be able to offer premium broadband supporting services that require more than 25 megabits per second. And if you add to that, the standard broadband that supports services that will require more than 10 megabits per second, you'll have more than 70% of the Telefonica de Espana local loops. That would be our target for 2009. Obviously, the conditions under which we will deploy this investment will depend on the regulatory scenario. James Ratzer - New Street Research: And can I just ask as a follow-up. Could you visit the scenario in which you might be able to actually shutdown some of the local exchanges as is being proposed in Holland at the moment?

Well, I can only tell you what the regulatory situation is in Spain. And under the present conditions, we are not considering that. Should the regulatory conditions change, then we will analyze the situation.

Thank you. Next question please.

Thank you. Mr. David Evans, please go ahead announce your name and company. The line of Mr. David Evans is now open. Please go ahead. He has withdrawn his question, so we continue with Sergio Cruz. Please go ahead and announce your company name and name. Sergio Cruz - Pyramid Research: Hi, this is Sergio Cruz from Pyramid Research. I have two questions regarding Latin America. The first one is related to HSBA in Latin America or 3G, your plans looking ahead in these technologies. And the second one is related to the role of television of Pay TV, VPH and IPTV in Latin America going forward. Thank you. Jose Maria Alvarez-Pallete: On the 3G strategy, we are still far ahead from taking that decision. So, I don’t think that we should be ready right now to share that with you. Still far away, we are still rolling out this network in countries, so we cannot speak what's the future on that front. And on the IPTV or on the TV offer globally speaking strategy that we have, our main intention is to become an offerer of a triple-play as soon as we've gone in each and every country. And as a result, we are trying to approach that in a very pragmatic way in providing the offer in a cheap and most speedy time to the market issue. So, again, launching triple offer as soon as possible in every single country and, again, we are very pragmatic on the technology side. Sergio Cruz - Pyramid Research: Okay. Thank you.

Okay, ladies and gentlemen, with this we bring this third quarter results Telefonica conference call to an end. We appreciate your being part especially in a very busy day. We understand from that reporting season. Thanks very much and we'll have the opportunity to talk to you again after the New Year. Thank you.

Ladies and gentlemen, thank you for your participation today. This concludes the conference and you may now disconnect all your lines. Thank you.