María García-Legaz – Head of Investor Relations Santiago Fernández Valbuena – Chief Strategy Officer José María Álvarez-Pallete – Head of Telefónica Latin America Matthew Key – Head of Telefónica Europe Julio Linares – Chief Operating Officer Guillermo Ansaldo – Head of Telefónica España

Tim Boddy – Goldman Sachs Georgios Ierodiaconou – Citigroup Paul Marsch – Berenberg Bank David Wright – Deutsche Bank Justin Funnel – Credit Suisse Guy Peddy – Macquarie Research Ivón Leal – BBVA Research Will Milner – Arete Research Luis Prota – Morgan Stanley Torsten Achtmann – JP Morgan James Ratzer – New Street Research Javier Borrachero – Kepler Capital Markets

Ladies and gentlemen, thank you for standing by. Welcome to Telefónica’s January to March 2011 Results Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, today’s conference is being recorded. I would now like to pass you over to Ms. María García-Legaz, Head of Investor Relations. Please go ahead. María García-Legaz: Good afternoon, ladies and gentlemen, and welcome to Telefónica’s conference call to discuss January-March 2011 results. I am María García-Legaz, Head of Investor Relations. Before proceeding, let me mention that this document contains financial information that has been prepared under International Financial Reporting Standards. This financial information is unaudited. This presentation may contain announcements that constitute forward-looking statements, which are not guarantees of future performance and involve risk and uncertainties and that certain 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 the presentation, which you will find on our website. We encourage you to review our publicly available disclosure documents filed with the relevant securities market regulators. If you don’t have a copy of the relevant press releases and the slides, please contact Telefónica’s Investor Relations team in Madrid by dialing the following telephone number: 34-91-482-8700. Now, let me turn the call over to our Chief Strategy Officer, Mr. Santiago Fernández Valbuena, who will be leading this conference call. Santiago Fernández Valbuena: Good afternoon ladies and gentlemen and thank you for attending Telefónica’s first quarter results conference call. Today I have with me Julio Linares, our Chief Operating Officer; Guillermo Ansaldo, Head of Telefónica España; José María Álvarez-Pallete, Head of Telefónica Latin America; Matthew Key, Head of Telefónica Europe; and Miguel Escrig, our Chief Financial Officer. During the question-and-answer session, you will have the opportunity to ask questions directly to any of them. Q1 results proves the solid start for 2011, with a performance that is totally in line with our expectations and therefore affirms our full-year guidance. Our high diversification continues to drive our results, bolstering top line growth and sustained our best in class profitability. The exposure to Latin America and especially to Brazil drives our superior growth profile, now accounting for 45% of our sales and OIBDA. On the other hand, data offered to fully monetize the ramp up in data adoption has led to a 19% year-on-year organic growth in mobile data revenue. As we explained at the beginning of the year 2011 must change in our commercial strategy with an increased focus on value and certainly chasing volume. In parallel, we continue to enter our networks and platforms to meet customer demand. Please turn now to slide number three to review the first quarter of 2011 major financial metrics. Reported year-on-year growth rates are positively impacted by changes in consolidation, mainly the full consolidation of Vivo and ForEx. Nevertheless, performance in organic terms remains solid. Revenue grew steadily by over 10% in nominal terms and 1.4% year-on-year in organic terms. OIBDA reached close to €5.6 billion, up 9% in reported terms with a slight organic decrease. As a result, we continue to post a robust OIBDA margin at 36.1%, showing a limited erosion year-on-year. Operating cash flow exceeded the €4 billion mark in the quarter with a 4.9% year-on-year decline in organic terms impacted by a different pace of capital execution versus a year ago. Net income reached €1.6 billion, declining 1.9% year-on-year despite a strong growth in OIBDA. This is explained by several factors. D&A increased year-on-year mainly driven by the full consolidation of Vivo and the recognition of €86 million in the quarter, due to the amortization of Vivo’s purchase price allocation. Please notice that total PPA increased 13% year-on-year. In organic terms, D&A was pretty flat. Profit from associates also drove net income down, mainly as a result of TT’s deconsolidation from the second half of 2010 and the lower contribution from China Unicom year-on-year. On top of these impacts, profit attributable to minority interest dragged €110 million from net profit in this quarter, mainly due to change of consolidation of Vivo and a very strong performance of its earnings. As a result, earnings per share reached €0.36 or 1.5% down year-on-year. Excluding the impact from the purchase price allocation, EPS would stand at €0.421, 0.2% up versus the first quarter of 2010. On slide number five, we detailed our value oriented customer base and revenue growth drivers, stressing the benefits of our growth diversification. Growth in the first three months of the year was underpinned by the continued expansion of our mobile base on the back of strong growth in the contract segment, which accounted for close to 60% of net adds in the quarter and already represents one-third of our base. By regions, Telefónica LatAm continues to be our key growth engine, which combined with the solid performance posted by Telefónica Europe outpaced the decline in Telefónica España. By services, we continue to revamp our revenue mix increasing our exposure to the fastest growth businesses. Broadband services including fixed and mobile (inaudible) connectivity already account for 25% of our sales, with a strong growth from these services offsetting the lower contribution from traditional voice services. I’d also like to highlight a very positive performance of organic revenue growth excluded MTR cuts, which would stand at 2.4%. Smartphone demand and data usage continue to pose a strong momentum especially in Europe. Total mobile broadband penetration has reached 12% of our total mobile base or up two percentage points, versus December. The significantly higher figure for both Telefónica Europe and Telefónica España. The increased customer base in our data tariffs with pricing launched across markets help lead to a remarkable 19% year-on-year organic growth in data revenues, in line with a growth recorded in the previous quarter driven by the 36% increase in non peer-to-peer SMS revenues. On the hot topic about SMS cannibalization, it is true that there is a growing adoption of messaging applications among our customers, but thanks to the right of tariff plans we are being able to monetize new usage patterns and therefore we are strongly growing our total data revenues. And let me stress that peer-to-peer SMS revenues are growing 5% year-on-year in organic terms. What is key for us and for the industry as a whole is that we are generating more revenues. The split by content really depends on the type of bundles and revenue allocation criteria that each player applies and therefore on the different commercial policies of each company. Turning to slide number 7, Telefónica continue to post a very healthy OIBDA margin in the first quarter despite the increased efforts to boost confront and smartphone penetration, which drove commercial costs up and higher network cost. This performance highlights the benefits of further cost savings initiatives, our scaling efficiency gains derived from our integrated management model with tangible savings from global projects. By region, I’d like to mention the good margin at Telefónica Europe and a pretty flattish year-on-year performance in Telefónica LatAm, which partially offset the margin erosions suffered in Spain. Before turning to the regions, let me stress that the first quarter results are in line with our full year outlook and as we anticipated last February, growth rates will accelerate in coming quarters as the guidance is back-end loaded. Let’s now move to our operations in Spain, where the trading conditions continue to be tough, with this strong pressure oriented completion and no recovery in voice usage patterns. In this country, our strategy has focused on value with limited commercial activity in this quarter. However, it is relevant to highlight that negative revenue trends seem to be easing, but we need additional quarters to confirm this trend. In the first quarter, we posted sequential improvements in revenue across businesses mainly driven by better data growth. Cost remains virtually frozen with personnel expenses being the only item rising year-on-year due to impact of 2010 CPI. As we announced, we are working to have a more flexible labor framework and we have just held the key cost meeting negotiations with the unions. Now, labor costs continue to decline despite the negative effects in commercial cost of the increasing rate of smartphones on our sales. Our permanent focus on efficiency does not mean that we give up future growth. We are investing to continue enhancing our quality versus peers, expanding mobile broadband capacity and coverage, and progressively rolling out fiber and ADSL. In the coming quarters you should expect some slowdown on CapEx growth because of different execution path versus 2010. Slide 10, adds more color to this performance by business. In wireless, MSR continue under strong pressure but there is a sequential improvement driven by outgoing mobile service revenue on the back of a double-digit growth in data revenues. Regarding ARPU there are two different realities. On the one hand the continued increased price competition in voice is settling for lower prices but no necessity scrubbing outgoing voice down. On the other hand the data ARPU is starting to gain momentum on the strong mobile broadband revenues. In the wireline business there is similar reading, voice is not recovering and broadband continues to strongly affected by competition. Nevertheless we have recorded a good performance in data in tier revenues and both areas in which to be competitive you have to rely on differentiated quality infrastructure. So, all in all we do not see big changes in competitive dynamics in Spain but we continue to rely on our differential capabilities to defend our value leadership. Moving to slide number 11 to review our Latin American operations. You can see that in the first quarter we grow our customer base by 8% year-on-year on the back of double digit growth across different services with the exception of fixed access, which remains stable. This is a remarkable performance in the region. They show there is a strong growth or some of our services is not cannibalizing others. And I’d also say that 20% of our mobile customers has a contract and 44% of the net adds recorded in the quarter were also contract. Regarding financial metrics, I would like to highlight the strong acceleration in growth in Brazil, which has become Latin America’s main growth engine. On top of that we continued to deliver a consistent performance in the southern region. On the other hand the weakness in Mexico was the lower contribution for regional projects have made several impacted of our results. If we were to exclude these initiatives in both years, organic growth will ramp up from 2010. And we have been able to deliver top line growth, maintaining our solid profitability in contrast with the market trends which in this quarter in OIBDA margin of 36.2%. Turning to the next slide, let’s look at revenue breakdown by business. Wireless accounts for almost two thirds of our revenues and keeps growing at double digit. The fixed business although at lower pace also posted an outstanding 3% organic growth year-on-year. Outgoing mobile service revenue recorded a very good 13% year-over-year organic increase driven by the combination of an expanding customer base and ARPUs with mobile data being clearly the key growth engine. The market performance in outgoing voice contribution also should be mentioned. Data revenues accelerated their growth pace in the first quarter, thanks to the increased penetration of broadband and Pay TV services. This led to a ramp up in these revenue streams to double-digit growth rates. Please turn now to slide 13 to review our outstanding performance in Brazil. Two quarters we increased our stake in VIVO, it is evident that the improvement in the operating and financial performance of the company, which has been accompanied by better results from our wireline business. We continue to lead the wireless market where we are further increasing our contract market share leveraging a best-in-class data network. In TELESP, despite weather factors affecting its commercial activity in the first quarter, has continued to accelerate its transformation and the fixed broadband revenues. Nevertheless it is worth to highlight our intense commercial TV offer with positive net ads for the second consecutive quarter. Q1 total revenue growth in organic terms almost doubled the growth rate posted in 2010. While for the first time in the last five quarters we are expanding our margins in Brazil on a year-on-year basis. All this despite the fact that synergies generation year-to-date has been limited. As a consequence first quarter organic OIBDA growth reached 12% and consolidated OIBDA margins stood at 36%. Clearly our Brazilian operations are outperforming market peers as mobile service revenue is showing. I’ll finish with Latin American operations slide 14, let me just make two comments. In Mexico, operating income remains similar to the previous quarter. We continue recording sound performance in the contract segment where the weekly sales in prepaid brought down revenues and OIBDA. There are some initial sense of improvement in commercial activity. Gross ads grew 17% year-on-year and profit is growing sequentially for the second quarter in a row. But we need more time to see a recovery of the business here. In the southern region, our operations posted solid top line growth showning an acceleration in the first quarter with some OIBDA margin expansion on the back of higher margins in Chile and Peru. In summary, very good in Latin America benefiting again from our diversification in Brazil continues to post stellar performance. Let’s now turn to slide number 15 where we show that Telefónica Europe delivered strong financial performance in the first quarter of 2011 as it continued to implement its value over volume strategy especially focusing on mobile broadband while also driving growth from new business areas. Mobile broadband penetration continues to accelerate reaching 27% of the total mobile base at the end of March of 2011. This coupled with improving quality mix led to a total organic revenue up 4% excluding MTR cuts with no non peer-to-peer SMS contributing close to three percentage points. OIBDA was 6% year-on-year in organic terms due to profitable data growth and continued efficiencies across the business. As a result OIBDA margin increased one percentage point on March 2010 in organic terms exceeding 26%. From a network deployment perspective we are progressing well on our investment program thus helping solid cash flow generation. Telefónica U.K., slide 16 shows, cautiously took the decision not to change volumes this quarter, but to continue generating value from the best quality customer base in a competitive market, particularly at the lower value end. Despite lower upgrades contract churn remains a stable at market linear 1.1% furthering proving that Telefónica has the right focus in the U.K. market. Contract smartphone handset sales were 82% of sales and upgrades in the quarter, increasing their penetration of total addressable base to 33%. This together with encouraging trends in the adoption of tier data types from new and existing customers, led to a solid 10% year-over-year data revenue growth, which fully offset voice revenue performance, driving total revenue growth of 5%. OIBDA margin increased 2 percentage points to 27%, mainly as a result of the lower trading activity we’ve had this quarter, but also due to our consistent approach to maximize customer life time value. Our CapEx evolution in the first quarter does not (inaudible) and we highlight here the tangible benefits we are having from the spectral reform in the 900 MHz band with limited additional investments. Let’s now turn to slide number 17 to review our operations in Germany. In the first quarter of the year the company posted solid commercial activity. Contract net adds were strong and accounted for 67% of total net adds in the quarter banked by the successful adoption of mobile broadband and further improvements in churn. Mobile broadband penetration continues to rise to 22%. These results show the benefits from the investments in spectrum and the company’s focus on value. In parallel the prepay segment recorded solid growth from the broadband channels. We have finalized the integration of HanseNet resulting further cross-selling opportunities ahead of us. The good commercial performance is reflected in the financials. Total mobile revenues at MTRs (inaudible) to 4% driven by the robust evolution of data revenues, which already represent 39% of mobile service revenue. The strength in non peer-to-peer in net revenues continued with growth accelerating to 32% year-over-year. Also note that Hanse sales were strongly due to “My Handy” model, which actually decouples sums at subsidies from service revenues. OIBDA margin remains stable year-on-year despite the commercial focus on contract, thanks to the company’s efforts and efficiency with the restructuring program commenced in 2010, expected to generate further benefits from the second quarter. Turning to slide 18, I would like to highlight that we have reduced net financial debt up to 1.4 billion euros from December 2010, which has allowed an improvement on the leverage ratio of 0.08 points to 2.42 times OIBDA including commitments as of the end March. The decrease in financial [debt] is explained mainly by operating free cash flow, bigger interest payments versus accrual interest, the FX translation of non-euro debt and positive mart-to-market on cash flow hedges with no impacts on the P&L. Financial expenses are now to 579 million euros with a marginal FX P&L. Taking into account the total average days in the period of 55.6 million euros, the effective cost has been 4.23%. In the coming quarters we expect an increase on the effective cost driven mainly by outstanding (inaudible) rates in the long-term and our expected increase of short-terms rates. It’s also to highlight and the fact that we have restored Telefónica’s average net debt live over six years after a temporary deviation inline with our commitment. This was achieved, thanks to our balance financing activity year-to-date in the bond and the bank market with the latest refinancing of 4 billion euros on the Vivo’s acquisition facility initially maturing in 2013. Now to recap, Telefónica has started 2011 delivering a solid performance as we capitalize on our execution skills and diversification, outpacing the continued weakness of our operations in Spain. We have a clear commercial strategy focused on value rather on pure value with the special buyers towards mobile broadband. Top line continues to grow at healthy rates in organic terms underpinned by Telefónica Latam in mobile data revenues, but we have posted a very good level of profitability. At the same time, our strong cash flow generation is combined with the balance sheet spend. Finally, let me reiterate again our 2011 targets as we full interact to meet them. Thank you very much for you attention. And now we are ready to take your questions.

(Operator Instructions) The first question comes from Tim Boddy from Goldman Sachs. Please go ahead with your question. Tim Boddy – Goldman Sachs: Yes, thanks for question. I wanted to ask a couple of questions on Latam, first of all in Mexico. I was wondering if you could add a little color (inaudible) challenges you are facing in Mexico and to the turnaround plan you have in place. That would be very helpful, I guess, just particularly in the prepay market the pressure is felt. And then secondly, in the UK, just a question around, obviously, we saw a slowdown in growth this quarter as you optimized value and the margin overseas is very strong. How do you see your strategy going forward, is it sustainable to continue on the (inaudible). Thank you. José María Álvarez-Pallete: Thanks for your question. On Mexico, during the first quarter we still had a good performance basically because we are still facing the same issue that we had at the end of the previous quarter. You know that in the second quarter of 2010 and the third quarter of 2010 we have eliminated some promotions for data traffic on macro recharges, betting on a moderate behavior from the market. In fact, it has happened, and therefore we have been reinstalling our promotion micro recharges and the impact on the market. We went back, we started on traffic promotions, and we made a significant and consistent move from the first created pensioning commercial expenses that are partly explaining the good performance of the ADA in this first quarter as we have not seen that revenues flowing through the P&L. It started to happen at the end of March, and we have some good signs in April, but it still too soon to say. With that as well, we developed a significant network in growing our 3G network in Mexico, one we have the spectrum that we needed, and we aim to have a similar cover of our main competitor in 3G by the end of this year, and the most significant part of the Mexican market, and that has been creating some tension as well in expenses during the first quarter of 2011. But we think that this will mitigate one of the most significant disadvantages that we have in the Mexican market, which is coverage. We have slowed down our migration effort from prepaid to postpaid, we will have a multi-year picture of the soundness of our database. We have restarted that migration process at the end of March, I mean April, and we’re expecting to have some result. And as a summary, the economy is taking longer than estimated. We have some initial positive signs like good level of commercial activity, gross ads were at 60% year-on-year, outgoing MoU is down 19% year-on-year in the quarter, but during the month of March it was 31% higher than during the month of February. We have been able to sustain our market share in spite of all those difficulties and the contract customers are already reaching 8% of the total customer base. So in summary, we acknowledge that we have a weak performance in this first quarter. We have been accelerating some decisions for both commercially and in our deployment, we expect those decisions to have a significant hit in the coming quarters that should help us to accelerate the turnaround.

Hi, Jim, it’s Matthew here. Let me pick up the question. From a strategy perspective, we believe we launched a strategy in the UK, and we would never change value when we don’t think it’s there. The reality is the market in the U.K., the industry has been very quiet over the first quarter. No real change in that trend coming into the second quarter and we do see a very high level of competition where some tariffs that are being sold by some of our competitors we certainly wouldn’t want to do, because we think that might be value destroying. From an OBIDA growth perspective, what you certainly shouldn’t be doing is building in sort of the 14% year-on-year growth through into the second quarter. Let me give you just a bit of color on that. The two key drivers in the first quarter, 30 upgrades, as Santiago said, the 24% lower year-on-year, which clearly gives us a benefit in the quarter from an OBIDA perspective. Three things driving that, it’s the benefit of the 24-month contracts that we started doing about 18 months ago, which we said we will get the benefit with prolonged customer life, it’s a little bit about the economic environment, people not wanting to commit to a new two-year contract. And thirdly, I think there has been a lack of clear differentiation from a handset driver perspective in the market. The last segment that I should mention is termination rates. In the U.K., in quarter one, we got a one-off benefit of about 12 million. The way the termination rates work in the UK is you have a blended rate over the termination rate period. Our competitors in the market actually over indexed on their revenue last year, so in effect, we have to reduce their rates in quarter one, which gave us a cost of sales upside. In addition, in quarter two, we clearly have to a make MTR cut on the first of April, which will hit us by a similar amount in quarter two. Tim Boddy – Goldman Sachs: Great. And thank you very much.

Thanks.

The next question comes from Georgios Ierodiaconou from Citigroup. Please go ahead with your question. Georgios Ierodiaconou – Citigroup: Yes, good afternoon. I have two questions, please. The first one is regarding the full year guidance you gave in Madrid for 2% to 4% OBIDA growth. Looking at the first two years, you did less than one, this year best-case scenario is around 2%, probably lower. So that means you will meet 5% to 6% at least next year in order to get to the bottom end of that guidance. Is it still valid and if that’s the case, kindly give us some color on to what’s going to drive the OIBDA acceleration next year? And my second question is on the domestic mobile strategy, when First Telecom reported results, they reported higher commercial expenses and as you can know that, that’s something that could continue. I believe during the Investor Day, you can have that potential to reduce subscriber acquisition cost. Do you think that would be possible if Orange and may be some of the other competitors remain aggressive from subsidies? Thank you.

This is Julio Linares. Regarding your first question, I have to refer to debt pay downs that we provided in London in our last Investors Conference. And as you know there we refer to OIBDA margin and we talk about our priorities with a limited (inaudible) and thus the reference for our OIBDA margin guidance today.

This is Guillermo Ansaldo taking up the second question regarding the domestic mobile market. Yes London as I mentioned our strategy is to, along the next three years to gradually move from the commercial expenditure mobile from peer acquisition marked to retention. And that’s a greater movement depends obviously on the different movements of the market and is also segmented across different type of client customers. So we have started to do so. Obviously, we’ve got to keep an eye on the market and we are very pragmatic and we are already doing that trying to protect the customers that have the largest customer life value and in order to produce the better value for the company. María García-Legaz: Next question please.

The next question comes from Paul Marsch from Berenberg Bank. Please go ahead with your question. Paul Marsch – Berenberg Bank: I’ve got two questions. Firstly on SMS trends. In Spain SMS ARPU seems to have fallen significantly from last year’s level of about €1.80 for calendar months through €1.60 in the first quarter. Now looking back at last year’s first quarter there was a similar fall in the first quarter from the €2 level. And I am just wondering what the reason is for that reduction that seems to happen each first quarter. Last year it was then stable through the rest of the year. And then just following on from that there is a clear reversal of SMS ARPU in the UK and also in Germany with SMS reversing from year-over-year growth in Q4 to year-over-year declines in Q1. And I’m just wondering if you can may be cast some lights on that given some of the concerns that have been raised by other operators at Smartphones and instant messaging or cannibalizing SMS traffic and revenues?

Let me see if I understand the question regarding SMS. Obviously, SMS, overall revenue are up as following because of the overall microeconomic conditions and some trends based on different activity in different substitutes. However, when you take into account SMS -- premier SMS, the premier SMS which makes put some noise in the series quarter-on-quarter was affected by the level of affectivity of contracts on behalf from the market and also in changes and regulation last year. So, that’s places some noise. So the trend is similar this quarter to the other one as you mentioned before. And there is no particular thing that happens in one quarter, it varies from quarter-to-quarter depending on change of the regulation which happened more than one year ago, so that’s mace some noise in the comparison and some trends in their market that is basically the same path and there is no news there.

Hi, Paul its Matthew let me pick up your SMS point. Let me talk about the UK because I know there was some questions around the level of activity. Your underline question in terms of are we seeing a shift to pay messaging, absolutely not. We’re not including the UK market things like BlackBerry Messenger, Facebook, et cetera been around for a while. And our estimate per customer year-on-year is actually up 16%. I think what you might be looking at is the ARPUs on SMS. Recognizing quarter one, we had a voluntary reduction in termination rates on SMSs across all the networks. We took the termination right down from 3 to 2. No way to our impact it actually offset in cost of sales because we get the benefit on the other side so that may be what you’re looking at but we’re certainly seeing no shift in customer behavior to short messaging. Paul Marsch – Berenberg Bank: That’s great. Thank you. Julio Linares López: This is Julio Linares. Just to give you some more information at group level, our SMS revenue are growing, year-on-year comparison basis 5%. Our mobile data ARPU is increasing year-on-year ratio is 9.3% and then because of that our mobile data revenues are growing at almost 19%. So, that’s the result that we see today as you see quite positive. Regarding the future we believe that we will be able to keep good growth based on our current strategy basically through our tier pricing on bundling strategy. Paul Marsch – Berenberg Bank: Thank you. María García-Legaz: Next question please.

The next question comes from David Wright from Deutsche Bank. Please go ahead with your question. David Wright – Deutsche Bank: Hello guys, its David, couple of questions. First of all you saw very strong growth in the data and IT revenues in Spain and I think that offset a lot of the pressure in traditional. I’m just wondering to what extent we should expect that to continue certainly this quarter both at that kind of run rate throughout year, is that valid. And then secondly, I guess the question for Matthew. You chose to step away from the high street in the UK because of the perception of lower activity and a little more competition. Can you just give us an update on sort of what you are seeing so far in Q2? Is the consumer still standing back? Are you guys still standing back. Thanks?

Hi, David, this is Guillermo. Yes, fixed data as I understand they are talking about fixed data. It had some very healthy growth during the first quarter. You guys are taking into account that this is the fixed business or part of that activity is linked to sales to mobile operators and now we are all mobile operator, so the net is positive but it is not as impressive in December. That is a good trend but is affected by that intercompany activity. And in IT, it’s an activity that has a positive growth but has as it is booked projects and there is a lot of volatility quarter-over-quarter. So we see a positive pipeline, a very healthy pipeline in IT but because they get accounted, some quarters are higher than others because the away projects are finished and accepted and booked.

Hi, David, as for as the UK high street is concerned, nothing significantly different, I don’t think in our experience in terms Q2 versus Q1 to date. I don’t think we stepped away completely from the high street. We stepped away from where we didn’t see there was value. Where we think we can drive value, we are still there. Just to reiterate my point on upgrades, significantly lower upgrades. I’d be worried if I saw that churn increasing but our postpaid churn is still market leading as you can see at 1.1%. Our upgrades probably will kick up a little at the end of quarter two as we saw to unwind from the first 24-month contracts that we wrote two years ago. So the short answer is no significant change in Q2 trends. David Wright – Deutsche Bank: Okay, thanks guys. María García-Legaz: Next question please.

The next question comes from Justin Funnel from Credit Suisse. Please go ahead with your question. Justin Funnel – Credit Suisse: Thank you, three questions please (inaudible). María García-Legaz: Justin, we could not here you well. Can you repeat your question please? Justin Funnel – Credit Suisse: In the UK business, very quite core volumes. Volumes fell about 10% sequentially. Just wondering Matt if you could talk about that? Is that the economy or is that some cannibalization of (inaudible) data? Secondly, can you discuss a bit more smartphone appetite in LatAm outside your Brazil business, so we’re starting to enjoy some (inaudible) smartphones in the wider LatAm region? Thank you. Santiago Fernández Valbuena: Hi, Jeff, let me pick up the first one. I think the question was around call volumes and I guess particularly minutes of use. The first thing is just be careful not just to look at prepaid, look at consolidated number because there is trend in the market of high-end prepaid customers moving to postpaid. Having said that, when you look at the combined number, yes, minutes of use quarter one on quarter one per customer down about 9%. But I think as I said to Paul’s question, the flip side of that is our SMS per customer quarter one on quarter one is up 16%. The other thing I would say is we are seeing some optimization of bundle usage and the level of minutes outside bundle and in fact the level of text outside bundle reducing a little bit in quarter one. If you strip out the minutes of use and strip out the MTRs and look at customer spend, no significant difference there in the trends from Q4 to Q1, both sort of minus 2.5, minus 2.8, a very little movement on that. So in summary, minutes of use per customer, yes, it’s down; SMS, more than offsetting the movements. There is optimization, but customer spend trends not significantly changing. José María Álvarez-Pallete: To your question on the smartphones in Latin America, yes, we are seeing an acceleration, a pickup in the number and the activity in the market. In fact, in terms of the smartphone growth, we have probably around 120% increase year-on-year. We have basically reached a level of – in the neighborhood of 5% smartphone of our total volume of total customer. And in fact we are seeing a significant activity and a significant increase in activity as the prices of their smartphones are heading down. We are already approaching our level of close to $100, which is where we think the market is going to be accelerating even more. If you judge upon the impact of all these efforts jointly with them, in the region we have been increasing our total broadband access in the region by more than 83% year-on-year and that is where you’re going to have the data on revenue. Data revenue is posting a very solid 32% year-on-year growth and we think this is a very sound trend and as the prices of the smartphones should be heading down this trend should accelerate. And on top of that, I’m trying to link this question with the previous one on non-SMS revenues, 52% of revenues – of data revenues are coming from non-SMS related. So very solid trend accelerating and volume should be very relevant in the next quarter. Justin Funnel – Credit Suisse: Okay, thank you. María García-Legaz: Next question, please?

The next question comes from Guy Peddy from Macquarie. Please go ahead with your question. Guy Peddy – Macquarie Research: Yeah, good afternoon team. Just a quick question on Spain. In the presentation, Santiago, you mentioned that Spanish trend seems to be stabilizing, but you’d like to see a few more quarters before you got a confirmation of trend. What do you actually looking for to see a more positive environment going forward and what are the key things you are going to be measuring? Thank you.

Hi, Guy, this is Guillermo, I would take it. Yes, as Santiago mentioned, we saw a better performance in the top line in this quarter compared to the last one in several business lines and in the overall numbers. But looking at consumer trends and the overall dynamics of the market, we need to confirm this trends in the following quarters. Remember, the third full quarter last year was better than the fourth one, the fourth one was weaker. This is as better, so it looks like we are in a situation where quarter-by-quarter and also month-by-month we’ll have some volatility. And the consumer trends depending on the amount and on the news that they have overall, there are some changes in consumption patterns. And as you know, there is a very intense competitive dynamic in the market. So we’ll need to wait in our opinion another quarter to have a clear trend going forward. María García-Legaz: Next question, please?

The next question comes from Ivón Leal from BBVA. Please ask your question. Ivón Leal – BBVA Research: Hello, good afternoon everybody. Couple of questions on Latin America. The first thing, José María, I don’t know if you could explain us what is happening to MTRs in Mexico? I think there has been a recent ruling, which really will drive implementation of capital decision to decrease MTRs by 60% between American mobile and smaller operators in the market. I don’t know how this is going to affect your MTRs and how it’s eventually going to affect in the long-term America mobile competitive position in the market. That’s the first one. And the second one, I don’t know if you could update us on the Telesp Vivo integration synergies? José María Álvarez-Pallete: : This Supreme Court decision forces all players to apply this change, if in spite of the different legal processes initiated by both Telcel and ourselves. As you know, we are a net interconnection revenue company, we have more interconnection revenues on OIBDA than expenses, and our main counterparty is Telmex. We have an agreement in place with Telmex, at an initial prices of 0.95 to 0.85, and therefore everything is going to be depending on what is going to be the reaction of Telmex to this new rolling. : In the long run, I think that even though this decrease is too drastic and too fast, it would set up a new competitive environment with our net prices, are going to be more affordable for the new entrance for the ones that have a lower market share including ourselves. So in the long run, we think this is going to be positive from a competitor standpoint. In the short run, it’s going to be tough to identify because again the drop is too drastic and too fast. I am taking the Telesp and Vivo question. We were trying to advance [to you] in London after two quarters in a row that involve in both units together we are very positive on the synergies that we are able to achieve. Once the legal process has been completed and the new registration chart has been announced and communicate, we are really accelerating our plans. During the first quarter of 2011, we have already accomplished significant insight and that’s why we affirm that the €2.3 billion to €2.7 billion met the range that we have shared with you that we announced at the time of the transaction. We think this our minimal range. The sceneries are identified around three main dealers in terms of the offered, the joint offer, the first one is a very intensive joint offer in the corporate segment that we already ready to go and that we are already sharing with our customers. We are already analyzing our fixed for inside and outside to help to accelerate growth in revenues and to be more efficient in terms of deployment of the more traditional network such as voice. In terms of plus on efficiency, the inter-company, you know that we have these long distance growth the 15 that we share among VIVO and TELESP with zero margin for TELESP. Now we can be much more efficient because we are as well eliminating inter-company indirect taxation in network, during network planning and transmission. Again we are taking advantage of all units inside and outside São Paulo datacenter we are advancing. We are working very intensively in doing the brand convergence towards VIVO, generating more synergies in terms of commercial expenses and distribution. We are extending the contracts that they have with Telefónica in the remainder part of Latin America to VIVO and that’s why we have been gaining some significant success in terms co-branded cards and financial services. I am trying to quantify a little bit all those efforts, we have had 57,000 more contracts with small and medium companies. We have been generate more than 100 million reais in the first quarter of this year from savings in network and transmission, 10 million reais in terms of tower maintenance on IT suppliers. More than 70 million reais in new products and services. And just expanding the read back terms in three weeks in VIVO we have been able to reach 1.2 million new customers new services. So all in all very optimistic. That’s why we have been accelerating the reorganization effort in Brazil. María García-Legaz: Next question please.

The next question comes from Will Milner from Arete Research. Please go ahead with your question. Will Milner – Arete Research: Thanks very much. Just one question on Spain. Firstly, the broadband revenue trend obviously pretty disappointing going back 10%. Clearly, I guess you’re still suffering from competitors offering discounts on DSOs to their mobile customers. I guess the question is if those offers don’t change, if they continue to be in place in the market what will you change in your commercial approach to address the back book issue. I think you did put a similar offer in place during the quarter. I’m just wondering if there is any positive signs from that would arrest the decline in that trend. And then a second question just picking up on Matthew’s earlier point that he made what is the percentage of revenues in the UK that come from out of bundle minutes usage and out of bundle SMS usage. And perhaps also that if you have those figures for Spain as well that will be quite useful? Thanks

Yes, it is Guillermo. Regarding your question in rate of the broadband, yes, of course there is, as in previous quarters, very aggressive competition in the broadband market with aggressive promotion offers. However, on the other side, the last April 7 (inaudible) has been in force. So we have to start seeing some moves in the competition that are either increases in some charges or slowing them on some of the promotions. It’s too early to see a trend, but we are starting to see some logical reason to just be in air. So this is not a change in trend, but it’s something that is near the market and we need to keep an eye on that. We have done less promotions in the first quarter than in previous quarters, because we want to understand in a better way and more deeper where are we creating value and where we’re not. So (inaudible) on the other side, we need to see if this increase in the wholesale prices take the shape of the dynamics.

Hi, it’s Matthew. On your out of bundle question, I think as I said customers certainly optimizing and managing very carefully around their asset bundle percentage and you would have seen recently we just increased our per minute and per text rate as a bundle. The actual number as a bundle is single-digit on both numbers, so both less than 10% on both out of bundle voice and out of bundle SMS. Will Milner – Arete Research: Sorry, that’s on usage. Okay. (Inaudible)

I don’t know, let us take it off-line and come back to you. Will Milner – Arete Research: Okay, thanks a lot.

The next question comes from Luis Prota from Morgan Stanley. Please go ahead with your question. Luis Prota – Morgan Stanley: Yes, hello. I have two questions. The first one is on Spain, and sorry to come back to the issue of the out of bundle and these things, but in your mobile data tariffs, your structure looks very similar to that of the KPN. This is based on the add-ons rather than data centric bundles. So the question is whether you are seeing in Spain any similar trends to those that KPN have mentioned, decline in out of bundle traffic in Spain, post cannibalization of data, you’ve mentioned that you’re not seeing this in the UK, but any light on what’s happening in Spain and whether you’re planning to move to more data centric bundles would be useful as your peers are already in that kind of tariff? And the second question is regarding your debt position and I’m hearing some comments from credit rating agencies kind of suggesting that your rating might be at risk if you don’t cap that substantially. So I would appreciate your thoughts on these and whether you’re having assets on top of Atento that could be for sale? Thank you.

Hi, Luis. This is Guillermo. Obviously we are tracking cannibalization impacts. In the past we were tracking fixed mobile in broadband cannibalization and we have positive news. We are starting to track more closer cannibalization of services like SMS and data. So far our dating indicates that our revenues, there is a positive net impact meaning that what we estimated could be a decrease in SMS is more than compensated by the revenues that we are generating data. For example, in this quarter we have 7.6% increase year-on-year in data (inaudible). It’s something that we know we have to keep a track an eye on that and we have to track that very frequently. But I think fixed mobile so far, we’ve seen also a positive net impact on our numbers.

Okay, Luis, this is Miguel taking your question. On our rating I claim that we have made good progress in this quarter thereby reducing substantially our leverage ratio just in our quarter. It is true that we have been held by FX, but also we have been placing numbers principal on that good interest with the cash flow we have been generating. So we’re seeing that we are in line to what’s the requirements made especially by the S&P. But this will take some time until we achieve our targets at the year-end. María García-Legaz: Next question please?

The next question comes from Torsten Achtmann from JP Morgan. Please go ahead with your question. Torsten Achtmann – JP Morgan: Good afternoon. Could you update on your progress on cost cutting in Spain? You already indicated at the presentation that your negotiation with CPI. Can you say how far you are and also on the headcount reduction as you start the negotiations there? And secondly, on Argentina, the service revenue growth seem to have slowed down from 25% last quarter to 14% this quarter. So any specific reason for that or could you give some more clarity around that. Thank you.

Hi, Torsten. This is Guillermo. Regarding the question on Spain, cost cutting measures on numerous resources. Before the [non-union] program that we stared in the last quarter of last year that program is going on smoothly and if we could hit targets. Regarding the unionized efforts, after the company union elections in Telefónica España last March, the new bargaining committee was created April 27, I believe. The first meeting of this committee was called on the 11, two days ago, in which it was discussed about the different issues previously mentioned in the Investor Day London. So the negotiations will accelerate and take pace in the next few weeks, and we will keep you posted. But so far we are moving according to the calendar but there is no news to report now.

Good afternoon. Taking your question on Argentina, in fact in the last – in the previous year, we accounted for a very big contract that we have with the government to distribute PCs jointly with our connection and that has somehow altered the comparison. Overall in the first quarter in Argentina, we have a very strong quarter. Revenues in the country were up 16%, 15.8% compared with 12.9% a year ago, which is a most comparable figure. And OIBDA is up in the country 11% compared with 10.7% a year ago again the most comparable figure. Both units are doing very well. Our wireline business is growing 16% revenues that was 11% a year ago and 12% OIBDA versus roughly 2% a year ago. The wireless business is growing very nicely, 16% revenue growth and roughly 11% OIBDA growth with trends being sound and very focused on value. So in fact in Argentina we came but we have a very strong quarter both financially and commercially. And if you were to exclude this contract that we have last year, the trends are even better than the previous year. María García-Legaz: Next question please.

The next question comes from James Ratzer from New Street Research. James Ratzer – New Street Research: Yes, good afternoon. I have two questions please. The first one was regarding your performance in Brazil. Clearly a very strong quarter and it looks like lot of the acceleration in growth. VIVO has been driven by your change in strategy on TLD calling and using the 15 code. I was wondering if you could just talk us a little bit more what your plans are with regard to this. Are you are planning to cut prices more aggressively. To what extent these volumes confer to grow and help accelerate revenue growth in Brazil? I mean clearly it has been a boost for TIM, do you see a similar performance ahead to yourself. And the second question is regarding your Spanish broadband business. I’m still struggling a little bit with the revenue outlook on broadband. You’re saying you’re not competing for what is hard compete for net app for the moment which I understand, but at the same time we’re seeing ARPUs on your existing customers actually come down at an accelerating rate. I mean it’s just customer spending down and well optimizing on the fixed line as well and if it is, could you say how much further your centers has to run from current ARPU levels? Thank you. José María Álvarez-Pallete: Taking your question on Brazil, Brazil as a whole, posted a very strong quarter, both units performed pretty well, Telesp and Vivo. Telesp has been affected at the level of (inaudible) by heavy rains and the (inaudible) we have been doing to preserve quality and not to increase customer insatisfaction. And in fact, we are one of the very few industries or companies, will have the only one that has been stepping out of the crisis even stronger. While revenue growth in Telesp has been positive for the third quarter in a row, so I would suggest, the focus on Telesp because in spite of the fact that, we have been incurring more cost in order to preserve quality, I think that quality is going to pay up, pay back in the short run. Taking the specific question on Vivo, in fact Vivo posted us very solid set of results and I focus on the leaders that we anticipated in London and the word announced by Vivo conference call in fact. We keep focus on value, we are not fighting, just the number of customers and that’s why we have been lagging behind our own competitors in terms of the prepaid market share in this quarter that result has increased significantly, our market share in contact in this last 12 months. In fact, we already have 35.5% market share in contract in Brazil, which is roughly 5 percentage points of overall average market share. More than 40% of the net add in the quarter has been based in contract. Therefore, we have pretty focused on gaining the bulk of the value of the Brazilian market. Traffic is up 13% year-on-year with on-net traffic growing much more than that, MOU and ARPM are practically stagnant with a very slight decrease. Service revenue is growing in the neighborhood of 15%. We have seen a great acceleration in recharges. We proved at our commercial offer is attractive, very consistent growth in data revenues with 21% increase. This proved that we have the best brand, as we have the best network on that we are leaders in quality and those are the levers upon which we are aiming to build on. And that explain as well the difference in margins because we are pretty focusing on getting the value of the market and the growth of the market, but it really matters. By the way, data revenue has been increasing 37%. So very, very strong performance in a very strong dynamic market and we are very enthusiastic about the future. James Ratzer – New Street Research: Can you just talk specifically on the (inaudible). Thank you. José María Álvarez-Pallete: In fact, the DLD, domestic long distance call that we co-own or co-used by Vivo and Telesp. It was owned by Telesp and used by as well as by Vivo with 0% margin with Telesp. All the different billings between the two companies were quite inefficient in terms of indirect taxation. And on top of – and as well in terms of bundling products. So now, that the restructuring process is over, I mean so I guess from three weeks ago, we’ve going to be able to compete with our closest competitors in the region in a much more efficient manner in the domestic long distance market. We’re lessening efficiency as a whole and therefore we think that we could be more present on these markets with more attractive prices for our customers. But still not flowing through the P&L as the restructuring was not over yet.

James this is Isidro. Regarding your questions about free broadband, two things. First, regarding the accelerations there is a direct impact of the promotions, but not only the promotion that you put in place this quarter, but the promotion that were put in place in the past. For example, last year in the first quarter we had a lot of activity on our side in promotions, one – the 12 month promotions meaning that a customer will signup for €19.9 per month for free broadband for 12 month and then the price will – after 12 months will go up to €40. What happens at the end of any promotion in any company, in that situation, that percentage of customers remains with a service provider with increased price and some of the customers churn. What we have seen in the past that’s why one other things we’re looking more carefully in terms of value is that the percentage of customers that after the promotion, the churn is higher. So the value of the promotion is more questionable than in the past. So that’s why we decelerate a little bit in the last month in terms of putting new promotion in place because the – postmortem numbers different because the crisis is shaping obviously changing the customer behavior of our customers. That impacts on our number because we get a lots of promotions that were expiring in the first quarter and we were not having new promotion in higher volume to our base. Looking to the future besides the fact that the increase on the euro that I mentioned before remember that we are accelerating, deploying the upgrades in corporate that we started last year. This means that for example the people that were up to 1 megabit for the same price goes to up to 6 megabit. And the people that were in 6, we’re moving them to 10. This we’re trying to for the same price to give them more value and trying to sustain a lower churn. So I hope that will first get you understanding the dynamics of this quarter, where again lower promotion on this quarter, and a lot of promotions one year ago with a behavior that was not as good as expected as in the past month. I think the same is happening in the rest of the market, because we’re starting to see some minor movements in the competition of trying to improve a little bit, the conditions on their side, not only customer side, because I guess that they’re also questioning the economics of the promotions. James Ratzer – New Street Research: Okay. Thank you. María García-Legaz: We have time for the last question.

The final question comes from Javier Borrachero from Kepler Capital Markets. Please go ahead with your question. Javier Borrachero – Kepler Capital Markets: Yes, good afternoon. I have a question on Germany, what in terms of the EBITDA margins, on slide 17 you mentioned this progress infrastructure and that may deliver more efficiencies in Q2. So may be if you can comment on to what extent we can really see EBITDA margin expansion coming from these restructure or may be the pressure from commercial cost make it the more subdued. And also may be if you can comment a bit more on HanseNet, the cross selling opportunities with HanseNet, and whether you could expect may be some top line acceleration in coming quarters in Germany? Thank you.

Hi, Javier, it’s Matthew. Let me pick up your point, yes in San Diego’s presentation we spoke about OIBDA margins. The reason the declared number has gone down is because, clearly we’re now consolidating HanseNet and it’s no quite like-for-like versus last year in the first quarter once we split HanseNet, it’s broadly flat. The restructuring benefits will start to come through in Q2, the ramp up during the year and by the end of the year, that will get about 3 percentage points of margin. The other key dynamic you should see in the margin is certainly around My Handy; and the increasing proportion of My Handy, which clearly impact service revenue as well. From a combination HanseNet, until we were one statutory company, German law didn’t allow us to cross sell products, now we’re one statutory company, we can set the major focus for us in Germany to exploit the, certainly the O2 base from ADSL perspective on the HanseNet based on a low, while expect to… So, we’re hoping to see some results for that during the second half of the year.

There are no more questions. María García-Legaz: Okay, with this introduction by Matthew, ladies and gentlemen, well I’d like to thank you for having attended this first quarter results of Telefónica. I wish you the best and a very nice weekend. We’ll be holding the next conference call at the end of July.