María García-Legaz Ponce - Head of Investor Relations César Alierta Izuel - Executive Chairman, Chief Executive Officer and Chairman of Executive Commission Ángel Vilá Boix - General Manager of Finance, General Manager of Corporate Development and Member of Executive Commission Santiago Fernandez Valbuena - Former Non-Executive Director Miguel Escrig Meliá - Chief Financial Officer

Timothy Boddy - Goldman Sachs Group Inc., Research Division Luis Prota - Morgan Stanley, Research Division Mathieu Robilliard - Exane BNP Paribas, Research Division Keval Khiroya - Deutsche Bank AG, Research Division Torsten Achtmann - JP Morgan Chase & Co, Research Division Ivon Leal - BBVA Research SA Robin Bienenstock - Sanford C. Bernstein & Co., LLC., Research Division Paul Marsch - Berenberg Bank, Research Division James McKenzie Justin Funnell - Crédit Suisse AG, Research Division Frederic Boulan - Nomura Securities Co. Ltd., Research Division Guy R. Peddy - Macquarie Research James Ratzer - New Street Research LLP Luigi Minerva - HSBC, Research Division

Ladies and gentlemen, thank you for standing by, and welcome to Telefónica's January-September 2012 Results Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the call over to Ms. María García-Legaz, Head of Investor Relations. Please go ahead, madam. María García-Legaz Ponce: Good afternoon, ladies and gentlemen, and welcome to Telefónica conference call to discuss January-June 2012 results. 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 could find in our website. We encourage you to review our publicly available disclosure documents filed with the relevant securities and market regulators. If you don't have a copy of the relevant press release and the slides, please contact Telefónica Investor Relations team in Madrid by dialing the following telephone number: +34-91-482-8700. Now let me turn the call to César Alierta, who will be leading this conference call. César Alierta Izuel: Thank you, Maria. Good afternoon, ladies and gentlemen, and welcome to Telefónica's 2012 Third Quarter Results Conference Call. It is my pleasure to chair this call. Today, I have with me José María Álvarez-Pallette, Chief Operating Officer; Eva Castillo, Head of Telefónica Europe; Santiago Fernandez Valbuena, Head of Telefónica Latin America. Also with me are Matthew Key and Guillermo Ansaldo, Heads of Telefónica Digital and Telefónica Global Resources, respectively. During the Q&A session, you will have the opportunity to ask questions directly to any of them. During the last month, we have continued executing our strategy, with significant progress and visible results in 3 key areas. First, on the operational side, Q3 results confirm the consolidation of the recovery trend initiated in the previous quarter with a sequential improvement in underlying EPS, underpinned by sequential growth in OIBDA, both in absolute terms and in margins. Second, on the financial side, we have significantly improved our financial position, with a net debt reduction of close to EUR 5.5 billion since the end of June on the back of the substantial improvement in free cash flow and the fast execution of asset disposals. We are particularly proud of the successful IPO of Telefónica Deutschland, which has been the largest IPO in Europe year-to-date and has been executed in a record time. On top of that, we have been very active on the financing front, with over EUR 13 billion refinanced year-to-date, increasing our total liquidity to EUR 18 billion. And third, we continue making progress in our transformation into a digital telco, achieving significant milestones in the quarter. Let me now start with a summary of key financials on Slide 4. In the first 9 months of both 2012 and 2011, we booked several significant exceptional items, with Q3 '11 results being particularly impacted by the provision for the redundancy program in Spain. Accordingly, to better understand the underlying performance of the company, we are providing a P&L excluding those nonrecurring effects and noncash impacts. January to September revenue reached over EUR 46.5 billion, while underlying our OIBDA total nearly EUR 16 million. Net income was over EUR 4.4 billion in underlying terms. The good news in the third quarter is that we posted a much better performance from OIBDA to net income, confirming the quarter-on-quarter improvement trend initiated in Q2. I would also like to highlight that although material items, such as asset write-downs, are flowing into the P&L, there are other transactions that are enhancing our equity but not flowing through the P&L. For example, the restructuring of the Colombian operations, which increased shareholders' equity by EUR 1.6 billion. As Slide #5 shows, we continue improving profitability across the group. In absolute terms, underlying OIBDA grew sequentially for the second quarter in a row, with a consistent performance in Europe and Latin America. As a result, consolidated OIBDA margin stood at 35.1% in the third quarter, up 230 basis points in the last 6 months, leading to improved year-on-year trends. As we anticipated, OIBDA margin in the second half of the year would be better and we are fully on track to deliver on our target. The improved trends in OIBDA flowed directly to the bottom line, leading to an inflection point in underlying EPS. As you can see on Slide #6, underlying EPS reached EUR 0.36 in the third quarter, which is a significant improvement since the beginning of the year, both in absolute terms and on year-on-year basis. Underlying EPS in the 9 months to September was close to EUR 1, well above our 2013 dividend commitments and we still have another quarter to provide further support to dividend sustainability. Strong diversification continues to be one of our key strengths, as shown in Slide #7. The growth [ph] particularly highlight the growing contribution from our Latin American businesses, which already account for 49% of consolidated sales and for the first time, exceeds revenue generated in Europe. It is also important to highlight our lower dependence on Spain, which now is just 24% of our sales and 32% of our OIBDA. Turning to Slide #8. In the first 9 months of 2012, consolidated revenues grew 1.1% year-on-year, excluding the impact of regulation, driven by solid growth in 2 key strategic areas: First, Latin America, where revenue growth accelerated in the first -- in the third quarter to 8% year-on-year in organic terms x regulation; and second, mobile data revenues, which continued to enjoy a strong momentum, with a 14% year-on-year growth and already account for over 1/3 of mobile service revenues. This performance is driven by our data monetization strategy focused on increasing smartphone penetration with attractive data propositions based on tier pricing and integrated tariffs. On the efficiency side, on Slide #9. I would like to highlight our ability to deliver cost savings, with OpEx down 1% year-on-year in the third quarter. Key transformational efficiency initiatives are bearing fruit, with significant savings for more rational subsidy models across our footprint, commissions management and headcount reductions, among others. We are fully confident on our ability to continue delivering significant cost-cutting across regions, the key lever to offset [indiscernible] of our European businesses. On top of local and regional efficiency measures, Telefónica Global Resources is further exploiting scale benefits, helping to maximize business profitability. The unit is consistently contributing to higher efficiencies and cost reduction, driven by new ways of sourcing, building and operating our networks and IT. Evolved sourcing models and a clear focus on the right map of vendors are providing the expected results. Additionally, global end-to-end devices management is starting to provide tangible results, not only in terms of cost reduction, but also in terms of stronger market relevance. Please turn now to Slide #11 to review our operations by region, starting with Latin America. In the third quarter, mobile commercial activity remained strong, maintaining a clear focus on high-value customers. Contract net adds were solid, especially in smartphones where we are doubling accesses year-on-year. It is also remarkable, the improved trends in the fixed business, with positive net adds in the traditional business for the first time in 2 years and higher fixed broadband and Pay TV net adds in the quarter. Revenue growth acceleration in Q3 [indiscernible] 8% year-on-year was fueled by the improved trends in fixed revenues and robust mobile service revenues up 13% year-on-year. A healthy diversification by businesses was coupled with a well-balanced contribution by our 3 Latin American regions, with all of them contributing to enhanced growth. As Slide 12 shows, the solid revenue performance, easier comps from commercial costs and ongoing efficiency measures drove further improvement in our OIBDA and margin expansion in the quarter. OIBDA year-on-year growth in underlying terms ramped up to close 5% in the quarter, which is a significant progression from the virtually flat year-on-year performance at the beginning of the year. OIBDA margin also consolidated its improved trends year-on-year and reached over 35%. Please turn now to Slide 13 to start reviewing our Brazilian operations. Our focus on quality and the integration of the fixed and mobile operations have allowed us to materially widen the gap in Customer Satisfaction Indexes versus our main competitors. There has been a marked turnaround in the fixed business since we launched Vivo as a single brand. On top of that, our new conversion propositions continue to underpin a better performance across segments. Targeted commercial actions and our leading quality resulted in additional market share gains in the mobile business, reaching 37% in the contract segment, combined with a very robust performance in the prepaid segment, both in terms of accesses and top-ups. Meanwhile, we continue to transform the fixed business, launching a new 200-megabyte fiber proposition to speed up the uptake while we are reinforcing our Pay TV business with a new IPTV platform already launched. On the financial side, in the third quarter, Vivo delivered a strong set of results with acceleration in revenue and OIBDA growth. Top line rose 5% year-on-year and 3% quarter-on-quarter, driven by the sustained outperformance in mobile service revenue and the improved trend in the fixed business, both year-on-year and sequentially. Fixed revenues reflected the better commercial performance in the quarter. The ramp-up in revenues, coupled with increased efficiency, led to an acceleration of OIBDA growth on the year, with Vivo retaining its best-in-class profitability despite the negative impact from regulation. As such, OIBDA margin reached 34.5% in the quarter, up both year-on-year and quarter-on-quarter, excluding the specific factors booked in the second quarter. Please turn now to Slide #15. The main highlight of the Southern Region is the margin expansion across the region. With a particularly strong performance in Peru, further robust commercial momentum was coupled with a ramp-up in revenue and OIBDA growth year-on-year. The only exception was Argentina, where, despite the positive revenue performance, high commercial activity dragged OIBDA margin in the quarter. In the Northern Region, as in the rest of LatAm, we delivered a widespread improvement in revenue and profitability quarter-on-quarter. In Mexico, the turnaround process continues, with a strategy focused on quality growth, driving ARPU acceleration and the inflection in mobile service revenue performance with positive year-on-year growth in the quarter. In Venezuela, once again, operational performance was impressive, with revenue growth acceleration and margin expansion amid strong commercial activity. Let's now review our operations in Europe on Page 17. I would like to highlight that Q3 results reflect the benefits of the commercial and efficiency initiatives we have executed across our countries. The successful tariff refreshment allowed us to compete better in the marketplace, driving mobile churn reduction and leading to a quarter-on-quarter increase in net adds. Handset upgrades were down in the quarter, as customers delayed renewals ahead of the launch of new devices and we tactically reduced the base in Spain, ahead of the launch of Fusion, our new convergent offer. Our focus on value customers resulted in higher contract and the smartphone penetration across our footprint, with 1/3 of our customers already enjoying mobile data plans. Our targeted actions on the commercial side, whether [ph] with a set of efficiency measures, led Telefónica Europe to consolidate a sequential improvement in our OIBDA and profitability, with over 30% OIBDA margin in the quarter. Turning to Slide 18. To start with our operations in Spain, I would like to highlight that after 1 year of execution, there are visible results from our turnaround plan, which we are implementing in different stages. The first step was the launch of the new fixed broadband and mobile tariffs, which had a great traction among our customers, leading to a sharp reduction in churn, the cornerstone of our initial push. Once the customers were comfortably installed in the new tariffs, we took a second step forward and removed subsidies for new customers, leading to significant savings in commercial costs. The first step was the implementation of several measures in order to increase efficiency, with an aggressive simplification of processes across the company, from workforce to IT and handset portfolio, while increasing quality levels to improve customer satisfaction. All these efforts have led to a radical improvement in our financial results. While revenues continue to be under pressure, operating cash flow performance has improved significantly, reflecting our levers to enhance OpEx and CapEx efficiency. Q3 OIBDA is up on a sequential basis for the second consecutive quarter, with margin higher than a year ago. Let me also stress that the double-digit reduction in CapEx is sustainable without jeopardizing our increased fiber rollout efforts. The fourth transformation step in Spain is the launch of Movistar Fusion. This is a key milestone in our strategy to regain commercial leadership in the market. Movistar Fusion is the best convergent offer in the market and the first time our customers would benefit from a single wheel. It bundles fixed, broadband, TV and mobile services at very attractive prices and we offer add-ons to adapt the offer to the customer needs. We aim at increasing the customer base who have all their telecommunication services with Telefónica, what we call totalized customers, leading to further churn reductions and we also expect to capture new customers in the market. At the same time, Movistar Fusion will lead to lower commercial costs on the back of changes in our loyalty program and introduction of handset financing facilities. The best way to describe the attractiveness of the offer is customers' reaction. Just 1 month after the launch, we have already reached 430,000 customers. Please turn now to Slide 20 to review our operations in the U.K. where trading activity continued to be solid in Q3. Contract gross adds rose 18% year-on-year, though lower upgrade activity as customers delayed renewals in anticipation of the new devices launch at the end of the quarter. We retained a benchmark low contract churn levels, which, together with increased gross adds, led to solid net adds in the contract segment, with smartphone penetration growing 8% -- 8 percentage points to 44% in September. Top line pressure continued in Q3 with mobile service revenue reflecting impacts from MTR cuts and the new roaming regulation, with total revenues posting stabilizing year-on-year trends. Profitability continued improving, with sequential growth in OIBDA, both in absolute levels and in terms of margin, which stood at 25.3% in the third quarter. The lower upgrade activity, together with a positive impact from the ruling on lower pricing, drove the quarter-on-quarter margin expansion. Turning to Slide 21. The recently listed Telefónica Deutschland continued posting very good results, gaining value market share on the back of a strong commercial offer and the success of our data monetization strategy. Trading activity was strong, with a consistent momentum in net adds in the quarter. In addition to this, data revenue grew at a faster pace than data traffic, with a gap between these 2 metrics widening year-on-year. Mobile service revenue growth remained strong with stable ARPU trends. As a result, Telefónica Deutschland is now the #3 mobile player in the German market by revenues. In addition, OIBDA increased 14% year-on-year, with growth accelerating in the quarter, reaching an OIBDA margin of 27.2% in the third quarter, up 2.4 percentage points year-on-year. Operating cash flow was robust, reaching EUR 533 million up to September. Let me now update you on the progress made in our journey to become a Digital Telco in the last few months. To enhance our position as connectivity provider, we have recently launched new convergent propositions both in Spain in Colombia, while in Brazil, we have strengthened both the broadband and Pay TV offerings. In our enabling/retailer role, we have extended operator billing agreements to new countries and we have also launched new machine-to-machine services in key industries, while services like Kantoo are having a great traction with our 3 million Brazilian learning Spanish, English or French via mobile phones. Finally, as a provider of digital services, we're also advancing rapidly. To be highlighted is a recent approval by EU authorities of our JV for advertising and financial services in the U.K., the agreement signed with Aurasma, the world's leading augmented reality platform and the success of Wayra with our 170 collaboration agreements with start-ups. Let's now move to the financial side on Slide 23. Net financial debt has been reduced by EUR 2.3 billion in the quarter, mainly due to the significant free cash flow generation since the end of June, coupled with a completion of asset disposals, mainly the sale of China Unicom stake. As already anticipated in previous calls, free cash flow generation has been enhanced on the back of a better operating performance and the unwinding of the working capital consumption recorded in the first half of the year. We continue to see further positive impacts from our asset rationalization strategy, with additional cash proceeds from the IPO of Telefónica Deutschland and Atento, Hispasat, Rumbo and other minority stake disposals. On top of that, the refinancing of the preferred shares currently accounted asset, we reduced that by EUR 800 million through the swap, and treasury stock at market value. All these post-Q3 events will continue to contribute to reduce net debt by an additional EUR 3.2 billion. Let me stress that as of today, we are pointing towards EUR 50 billion net financial debt by year end compared to a debt figure of over EUR 58 billion at the end of last June. On Slide 24, we detail how we are performing an excellent financing activities so far in the year, totaling EUR 13.4 billion. This compares quite favorably with last full year financing activity of EUR 11.5 billion. This has been achieved despite decrease over [ph] in risk and the heavy [ph] financial environment in 2012. Since June, Telefónica has raised over EUR 5 million long-term financing in the credit markets, with extremely strong support from credit investors, both in Europe and in Latin America, as shown by the heavy oversubscription of the bonds raised, nearly 11x in Colombia or Chile and about 9x in the euro market. It is to note the broad diversification of our financing activity. Only 15% of total banking and financing raised along the year corresponds to Spanish financial entities, while American and European, except Spain, have contributed 30 percentage, and Asian is the remaining 26%. On top of that, 77% of total undrawn credit facilities have signed with nondomestic financial entities. This also to highlight the ample diversification by funding instrument, proving that Telefónica maintains all markets open. Hopefully, 1/3 of the financing has been raised through bonds at the holding level, another 1/3 corresponds to syndicated loans and the remaining 1/3 coming from bonds in Latin America and other funding sources from public entities. Slide 25 shows the benefits of our productive financing activity, which has allowed us to build a significant liquidity cushion of EUR 18 billion, up EUR 4 billion since June. Our cash position, excluding Venezuela, stood at EUR 7.8 billion at the end of September, while total undrawn credit lines amount to EUR 10.1 billion, with nearly 90% maturing long term. This places us in a quite comfortable position to manage debt maturities, which are covered beyond 2014. I wish to highlight that all the financing efforts have been completed while keeping effective interest costs in line with previous quarters and continue to remain at the middle part of our guidance. And our average debt life is back again above 6 years as per our guidance. To wrap up, let me stress that our strategy is delivering visible results. Sequential OIBDA improvement across regions is driving an outstanding improvement in EPS, with 9 months performance consistent with our full year guidance which we confirmed. We're also increasing materially our financial flexibility with a significant step forward in debt reduction in the second half of the year in our [ph] well-diversified access to financial markets, with the recent success of the IPO Telefónica Deutschland providing a new platform for additional flexibility. It is also important to note our progress to become a digital telco. All in all, we are accelerating the transformation of Telefónica. María García-Legaz Ponce: We are now open to any questions you may have.

[Operator Instructions] Our first question comes from Tim Boddy with Goldman Sachs. Timothy Boddy - Goldman Sachs Group Inc., Research Division: A question about Spain. The -- obviously, in the press, we read about, a year ago, potentially being up for sale. Can you remind us what contribution to EBITDA a year ago currently represents in the Spanish business? Secondly, given the very strong momentum you've achieved in deleveraging and refinancing as you highlighted, does it still make sense to look at listing options in Latin America given that it seems, relative to current trading multiples, you might not get the value for those attractive growth assets? María García-Legaz Ponce: Thank you very much. On your first question, as you know, we cannot disclose that figure, but as you can imagine, we are following the process very closely and we are reviewing anything as the outcome is known. César Alierta Izuel: With respect to the second question, we continue our internal work of analyzing and assessing the options with respect to a potential IPO of our Latin American businesses. No decision has been taken on such a transaction, but we are working in the preparations in the case we decided to move ahead with it.

The next question comes from Luis Prota from Morgan Stanley. Luis Prota - Morgan Stanley, Research Division: Two questions also on Spain. First is regarding the Movistar Fusion and the 430,000 customers you were mentioning. I don't know whether you can give us some light on what percentage of these new customers are coming from your existing customer base and, therefore, will give rise to some revenue dilution. And whether you expect the net balance of new customers taken from competition and cannibalization to give rise to any kind of short-term pressure in revenues and EBITDA? And the second question is on margins. Your margins in the third quarter were very strong in Spain. I don't know whether you could give us some light on what savings were generated from the lack of subsidies, headcount, cat and others? And also with the stronger commercial activity in the fourth quarter, whether we should expect margins to drop materially and the fourth quarter -- the third quarter margins to be considered as a kind of one-off. María García-Legaz Ponce: Thank you, Luis. And I think that as you saw, the number that we are releasing is 430,000 customers year-to-date. We -- I won't be able to give you more details around the mix on those customers. But I have to say that since the preregistration that we saw early or late in September until today, all we are seeing are the right trends and we are definitely -- we will definitely give you more details towards the fourth quarter. It is, for sure, the best value offer that there is now in Spain. So as you know, we are starting to see appropriate and the right reaction from our current customers, the ones that were already with us, partially or in totally. Definitely, the ones that are -- with whom we can uplift and foster new services and with the new customers. As you know, our aim is to go both for the current customers and also for the new ones. With regards to the second questions and regarding the margins per se, we're very pleased with the third quarter result on the margin. It's a clear improvement and it's showing that our strategy on the transformation journey since the beginning of the year, or moreover, since the end of last year, is paying results. What we need to focus is specifically on the cost reductions that are low in maintaining these high margins, which we believe are sustainable. And in fact, people are -- when you look at each of the contribution to this performance is both on the incremental savings and personnel costs throughout the year. As you remember, this happens through every quarter until next year. It's also the cost efficiencies initiatives that are not only removing the subsidies, but also creating new ways of operating within the Spanish operation. I have to highlight here that there have been, in these new roles, for only 7 weeks and it is very impressive to see how the Spanish team is leading this commercial strategy, it's a leading effort within the OB and in the Spanish telecoms operations. They're also taking very seriously the efficiency program, both on personnel and the rest of the efficiencies within the network, and we believe this is a continuing program. So we -- there is room for more efficiencies and we're working on that very closely.

Our next question comes from Mathieu Robilliard from Exane BNP Paribas. Mathieu Robilliard - Exane BNP Paribas, Research Division: I have 2 questions, please. With regards to revenues first, you are running slightly below your full year guidance. You had reiterated the guidance, so I was wondering where you expect the reacceleration in Q4? It does seem to me that in LatAm, despite the strong growth, comps are a bit tougher in Q4 and there's no acceleration in the growth when you look at the revenues, including the regulatory impact. So I assume it must be from Spain or from Europe, but maybe if you can give a little bit of color of where you expect the acceleration of revenue to come from. And the second question has to do with cash flow development. I wanted to have a little bit more detail into one of the items that appears on Page 23, which is FX commitments, cancellation and others. Quarter after quarter, this is a big consumption of cash. For this quarter, it's EUR 900 million. Previous quarter, I think it was EUR 700 million and before that, around EUR 400 million. Maybe if you could give us a little bit of color and guidance into that item. César Alierta Izuel: Thanks for your question. Taking the first part of it, on revenues and the guidance, let me first stress that the guidance was given under a certain framework of exchange rates that we are encouraged to take because those are the -- this is the framework in which you should review your projections. And the second part, in terms of -- on a region-by-region basis in Europe, we have revenue pressure. It is true that we have been affected by regulation. We are very focused on value on average margin by user. We expect for it [ph] to continue improving, mainly driven by efficiencies, and the trends that we have been seeing this quarter should continue. And in Latin America, we see revenues accelerating in Q4 due to a very solid customer base growth. I know the evolution in Q4 will be -- you need to consider that it was impacted last year by tower sales, therefore excluding tower sales in the second part of -- in this last quarter of the year, our OIBDA growth should continue to improve. So basically, we see the trends that we are having in the third quarter being extrapolated to the fourth quarter and please consider the framework of the exchange rates in which we were giving the guidance at the beginning of the year. Ángel Vilá Boix: Mathieu, this is Angel. With respect to your second question, in this column of FX, commitments, cancellations and other, we have various effects. The first one is the impact of interest accruals or interest payments which is basically reversing what we saw to the contrary in the first quarter of the year. These would be around EUR 355 million of the total EUR 899 million of this column. Then we also have the mark-to-market of interest rate hedges, which is around EUR 270 million and the rest -- FX is around EUR 60 million and the rest is a part of the employee retirement commitments that become due and then -- in the year and they become debt.

Our next question comes from Keval Khiroya of Deutsche Bank. Keval Khiroya - Deutsche Bank AG, Research Division: I've got 2 questions, one on Spain and one on Brazil. I mean, it looks like Vodafone is extending its handset subsidies beyond summer and do you feel a need to respond to this at all? And secondly, on Brazil, your Brazilian fixed line revenues remain weak, they're still 49%, and your KPIs, in Pay TV in particular, are quite poor and what steps are you taking to improve this? And when will the revenue trend improve with that as well? María García-Legaz Ponce: Thank you. First of all, on your first question, we have seen some of our competitors going back to subsidies. And as you know, this is our commitment in -- within the Spanish strategy to not to go back to subsidies that we don't think is necessary to respond on that front. In fact, our aim is to continue working on our transformation program and right now, we are in the fourth stage by which the launch of Fusion has already impacted positively our clients and the reaction is positive. I think that the -- we show a very clean business, a very clean operation and we don't see any need to go back to subsidies. In fact, some of our competitors have repudiated our offer and they came out very recently and our belief is that not so much you see in the subsidy in handsets anymore. That obviously, you need to analyze. I think that, that was the question.

Yes, and this is Santiago. On Brazilian fixed, their situation there is very competitive. There are a number of one-offs that you might want to single out before making the final comparison. This has a lot to do with the improvement that we have had in Q3. We feel much better about how things are going and we have a number of actions, including the deployment of our IPTV platform this month, launching some OTT products that are going to reinforce the value of our fiber and VDSL product and the launching of or the renewal of the TV, satellite TV product. So it's not as good as it sounds, but it is certainly pointing in the right direction in the sense that once you exclude the one-offs, the improvements are quite real.

Our next question comes from Torsten Achtmann of JPMorgan. Torsten Achtmann - JP Morgan Chase & Co, Research Division: Two questions please. The first one on Brazil where -- first one on Brazil, the competitive intensity is increasing and the regulator is introducing more aggressive measures [ph] on the MTR reduction. And on -- say wireline asset opening up, can you give any early indications how you think it will change the competitive landscape and your business and how you look to respond? And secondly, on the buyback Telesp test [ph] introduced, is that more of the formal flexibility measure? Or is it really that you're trying to implement that over the next year and therefore, reducing the minority float of Telesp? And secondly, and on potential asset sales outside of LatAm, are you looking at further option of other assets where you could list minorities or sell partial stakes of assets you have in your portfolio?

Thank you, Torsten. This is Santiago again. On the latest plans from the regulation, I think it's fair to say that after all has been said and done, it is lighter than we had feared. It is worse than we had expected at the beginning of the year. I think the brighter part is that we finally have no bill and key proportional billing [ph] key measure and I think that's the right development because it's going to make adjustments in the future MTRs easier. And as to the pace of decline in MTRs, it's true that they are lower than we had expected at the beginning of the year, but they're also manageable. It's a bit early to understand what the full impacts are going to be, but remember 2 things. First, that if you have an integrated operation like we have in Sao Paulo, the final net effect is likely to be lower than if you are mobile only. And second, that unlike in some other markets, the Brazilian market is characterized by fierce competition and very small differences between the market share of the top player, which is us, and the bottom player, and that helps reduce the impact of any MTR at the end of the day. Once the tariffs are lower or are very similar, it's difficult to make a lot of elasticity from one network to the next. Ángel Vilá Boix: Torsten, this is Angel. Could you please repeat your second question? Torsten Achtmann - JP Morgan Chase & Co, Research Division: The second one was literally on potential further asset sales outside of LatAm. So are you looking at any other assets you would -- or stakes of assets you could potentially monetize next year if you decide not to do LatAm or on top of LatAm? Ángel Vilá Boix: Okay, well, what we already communicated back in May, June, we have been delivering. We also said that we would be analyzing the potential IPO of Telefónica Latinoamérica, which, as I said before, we are still in the process of internal analysis. We do not need to do that transaction, but we may decide to do it depending on what provides the best value for our shareholders. We still maintain a small stake in PT, which we are monitoring market conditions to see when is the best moment to monetize, and we have received expressions of interest from potential interested parties on some of our assets. But we will assess those always with the prospective of seeing whether they provide value for Telefónica. I would like to stress that all the investments that we have done this year so far have been done in such a way that they do not alter at all the equity story of Telefónica or the long-term value perspective for the company.

Our next question comes from Ivon Leal of BBVA. Ivon Leal - BBVA Research SA: My 2 questions are in Spain. The first one, since the launch of Movistar Fusion at the beginning of October, there are a number of competitors that have already matched your offer. So actually now, how do you feel the new commercial proposition has improved your position in the market given the price, how there are honoring much in dues [ph]? And the second one, maybe if you could help us how you expect to compensate the ARPU declines that, I guess, you expect to get for 2013 due to this Movistar Fusion? Could you give us a number in terms of what is the market share you need to increase in fixed and mobile in order to compensate that or is compensation coming from commercial cost reduction? María García-Legaz Ponce: Thank you, Ivon. I think that since the launch of Fusion at the very beginning of October, we are seeing the right evolution within our clients. As I mentioned earlier, we are -- I'm able to give you the number of 430,000 customers year-to-date as fully Fusion customers and I can give you another signal of how this is going with regard to the fixed broadband, which we are up to 43,000 so far. The positioning of -- for the launch of Fusion, as I mentioned earlier, this is part of the program. Since we launched the program, we knew our competitors would have the capacity to react and some of them have done so. Analyzing the latest in the offerings, obviously, they were able to -- to do the replicability of the offer, but we still believe that Fusion is the best value offering for clients that were already with us and the new clients. Obviously, we cannot give you yet the mix of the clients because it's very early days. But again, to reinstate that all that I'm seeing is the right trends and hopefully, we will be able to give you more details very soon. When you tell me what -- when you ask what can we do in order to compensate ARPU declines, so initial ARPU declines, I think that the offer is very well studied, so you go step by step. And to some of the potential initial ARPU decline, as we compensate and we have the mix of clients that we want within our offering, contracting fixed broadband, so the customers who contract fixed broadband are positive to our mobile services. It's also positive on mobile customers which contracted fixed broadband and the fixed voice service. It's a positive again in any mobile additional lines. And of course, as you can imagine, any new customers are into the offering. Another very important factor is that the churn continues its trend of going down. And overall, all the strategy that we had in mind is provoking a more dynamic market in Spain. We're happy to say that we believe we are leading that new dynamic market with this commercial strategy which, at the moment, is leading the offerings in the market. Your -- I think that I answered altogether, no? I'm not missing any. Okay, thank you.

Our next question comes from Robin Bienenstock from Bernstein Research. Robin Bienenstock - Sanford C. Bernstein & Co., LLC., Research Division: So a few questions, if I may. The first is about Spain. You're focusing on total telecom offers, and clearly these are going to put wireless companies under a lot more pressure, wireless-only companies. The question is… María García-Legaz Ponce: Robin, so it's Maria. [indiscernible] We cannot hear you properly. Can you repeat, please? Robin Bienenstock - Sanford C. Bernstein & Co., LLC., Research Division: Yes, yes. On the total telecom offers that are going to put wireless-only companies under a lot more pressure, I guess what I would like to know is whether or not you're going to face the same headwinds in Germany and Mexico where you are the wireless-only businesses rather than the total telecom businesses. And separately, with Latin American MTRs falling longer, a lot more longer-term pressure on wireless revenues in Latin America, I'm wondering whether that means you need more CapEx sooner in Latin American second wireline to reduce any eventual cannibalization.

Robin, this is Santiago. The sound was not too good, so if I understand -- if I did not understand you correctly, please do correct me. If I understand what you're pointing at, you're talking about the headwinds affecting some of our operations and whether or not CapEx would need to be deployed at a faster pace than we've done until now to compensate for that. I think you probably may be right in terms of the fixed lines, especially in Sao Paulo, as I think I mentioned to you in one of the earlier questions, but I think that what we have almost everything we need to counter the possible headwinds on the wireless as we've already done most of the investments so we're already in the process of not seeding, but harvesting some of those CapEx efforts, especially in the markets that you mentioned, namely Mexico, and I cannot speak for Europe, but I would assume that my colleagues are probably going to be on time. So yes, the environment is challenging, but no, I don't think we're lagging behind, with the possible exception of a minor push that we have to do in fixed line Brazil. María García-Legaz Ponce: And going back to the European questions, and starting with Germany, as mentioned earlier and yesterday in the conference call, we've seen solid trading momentum in the quarter and there's sustained low contract churn. With regards to the MTR questions, as you know, in Germany, we're not expecting them until December, different to the other markets. And what we believe as a whole within Germany is that we need to stick to a balance in between growth and the profitability of the operation. With regard to the CapEx, as you know, in the third quarter is an important increase of 40% year-over-year. As a signal, we don't expect similar increase in the fourth quarter, although I have to reinstate there is a continued investment process into our 3G network, so we want to ensure the stability and the quality of our network, as well as accelerating the LTE deployment in the country. I think that we have, I don't know if you've seen in the results coming from Connect, this publication is already giving us very important results of our German operation and I encourage you to look at them because they reinstate that their quality and investment is proven as a good one.

Our next question comes from Paul Marsch of Berenberg. Paul Marsch - Berenberg Bank, Research Division: I just have 2 questions. Firstly, are you expecting Fusion, the Fusion tariff in Spain to lead to a higher level of handset upgrades? And secondly, maybe you could clarify any progress on the tax and license renewal situation in Peru. How much tax has been demanded by the Peruvian authorities? How much have you paid so far and has there been any progress actually on the license renewal in Peru? María García-Legaz Ponce: Well, starting with the Fusion question, I think that just to remind that the Fusion does not have subsidies within the offer as actually, we started with that policy at the beginning midyear. And the second question is regarding Fusion, it was an upgrade so we're not expecting that to happen and it's not within the Fusion.

Yes, Paul, this is Santiago again. Nothing on Peru, nothing much really to update you on. We do expect that the license renewal process that has gone through a rather long and convoluted administrative path is coming to an end. I think the end may very well be satisfactory and I think some of the published statements by the ministers in Peru are pointing to that direction. Nothing finalized and nothing's done until it's completed, but certainly, we do think that it's very likely that before the end of the year, that the process of renewal, license renewal will find a satisfactory completion on both grounds. And on the tax side, there really isn't much to talk about. This process has been going on for 10 years now. We don't expect it to close in the next weeks as it is a very long and protracted and might be complicated from the technical side. What I think is a welcome development, this is no longer a media issue. This has been and will continue to be a tax-related issue with us and the courts and we will make some progress as time proceeds. You know that we did spend a lot of money at the beginning of the year paying down the partial payment but then no further payments have been done since then and no significant decision has been taken by any of the courts where we have this. Let me remind you that this started almost 10 years ago as a consequence of 2 things, which we feel very strongly about, and that's why we've been challenging the tax administration's view and those are related to whether or not we can take off from our income the revenues that our customers cannot pay to us and the deductibility or lack thereof of interest when it is devoted to investment. Those 2 items are, we think, crystal clear. Any other constituency in the world would accept them as tax-deductible. And the fact that the numbers might be so interesting is simply the fact that they've been compounding at a fast rate from the year we started, not because the number itself was very nice. My colleagues talk to me that we did spend PEN 134 million, that's about EUR 35 million at the time.

Our next question comes from James McKenzie from Fidentiis.

Two quick questions on Europe. Firstly on Spain, your fixed band or fixed broadband churn has ticked up quarter-on-quarter. We don't have a full series of these. Could you just discuss the reasons for that? Is the market getting more competitive or is there a seasonal tick up as we've seen in, I think, other operators? And then secondly, the lack of handset upgrades in the U.K., does that bode badly for fourth quarter margins when presumably, the upgrades are all going to come through? María García-Legaz Ponce: Thank you for your question. With regard to Spain, I think that the key messages on the fixed line or fixed revenues evolution on the 9 months is that, first of all, we believe that the 11% sequential improvement is broadly stable and the reality is we have seen accesses on voice decline driven by both a bit of a lower access base and a higher weight of flat rate and bundled traffic coming in competition. We'll pick up with specifically fixed broadband revenues. And as you know, they weren't affected by repositioning of the new tariff portfolio. And I can give you numbers up to date. The number or the proportion of declines that have moved to the new portfolios reaching 76% of residential fixed broadband up to September 2012. So that's why the year-over-year evolution in the quarter has worsened a bit. However, in September, we have started to see a revamp in that evolution and we have started to reposition in the month compared to last year. It is important to mention the churn, which is much lower, is minus 0.4 percentage points year-over-year, and I think that's the best number, which finished it at 1.9%. And the rest of the questions regarding the U.K., and it is important to say that during the third quarter, we were awaiting for the new high-end devices to be, to have this token to be positioned in the market, so we didn't have all the commercial activity that we normally used to have. The expectation in the fourth quarter is that we will have more activity, but we will watch pretty closely the margins and also the commercial activity. What I want to reinstate is that this is about a normal activity. This is about having the right behavior in the market. And as I mentioned, earlier, we believe the U.K. market is also showing different behaviors and a more rational approach to handset commercial activity.

Our next question comes from Justin Funnell of Crédit Suisse. Justin Funnell - Crédit Suisse AG, Research Division: You mentioned during the call, potential shifts in Spain, I think you were mentioning less spend on handset retention. I guess, for years, you've had this loyalty scheme on -- people use the phone and build up points and trade them into new phones. Is that -- are you shifting away from that model? And you also mentioned moving into a handsets finance deal. I mean, is that going to be along the lines of perhaps the O2 My Handy model where you could see potentially quite substantial handset deals offered but done through working capital and factoring? Would that make you more competitive in the handset space? And then secondly, on Brazil margins, I guess I've been waiting a few quarters to see if your margins would benefit from the Telesp-Vivo merger, and margins remain pretty flat. Is that a trend or should we actually see some margin expansion in the coming 12 months? María García-Legaz Ponce: Thank you for your question. Within Spain, as you know, Fusion specifically has no subsidies for handsets and that was also part of our commercial strategy set at the beginning of our transformation program. When you asked me about the ways of being more efficient on handsets, commercial activity, as you know, we have different approaches depending on the countries, but in Spain, it is a different system than the My Handy in Germany. In Spain, what we have is an agreement with a financial institution and that is working increasingly well. We do that to My Handy. I think, it's one of the best financial offerings and is working well from the beginning to the end of the process. So we believe this is the way going forward to make sure that the operations businesses look clean and that we stick to our mainly business operations.

Justin, it's Santiago again, and on Brazilian margins, actually there are 2 forces acting upon them. One is structural that you mentioned, and it is the cost reductions as a consequence of the integration of our operations. This is going to have a modest but long-lasting effect on margins. And then there is the result of the commercial activity of the quarter, which rarely coincides with the sales, so you should expect some stabilization of the structural points going forward. But you should also expect us to continue pushing or pulling from the commercial levers depending on what the market is demanding there. Right now, as I think I've mentioned throughout this call, we're putting a lot of emphasis on everything fixed and broadband-related, and we probably should spend a little bit more there. And we are satisfied with the way our commercial measures are acting and the results we're getting on the wireless, especially on the high-end contract, and on the smartphone end. So we are probably not going to be pushing too hard on that one. But take those 2 observations as temporary and tactical rather than structural.

Our next question comes from Frederic Boulan of Nomura. Frederic Boulan - Nomura Securities Co. Ltd., Research Division: I've got 2 questions. Firstly, if we could come back on Spain, you seem to want to focus our attention on sequential improvements. So firstly, in mobile, ARPU has been flat in the last 4 quarters at around EUR 21.5. Should we expect this level to be sustainable or should we foresee the usual Q4 drop? And similarly, at the EBITDA level, you showed sequential improvement in the last 2 quarters. Is there any message here for us for Q4? And secondly... María García-Legaz Ponce: Frederick, we are having some problems with the line. Would it be possible that you repeat your question, please? Frederic Boulan - Nomura Securities Co. Ltd., Research Division: Sure. Is it better? Okay, so firstly on Spain, you seem to focus our attention on sequential improvements in this business. So my question is, in terms of mobile ARPU, ARPU has been flat in the last 4 quarters at around EUR 21.5. Do you expect to be able to hold this level going forward or we should expect the usual drop in Q4? And similarly, the OIBDA level, you show sequential growth in Q2 and Q3. Is there any message for us for Q4? And secondly, back to Latin America, if you could elaborate on the type of structure you are thinking in terms of potential IPO? Do you plan to use Telefónica Brazil as a platform to divide this consolidation and how do you think about TEF Brazil minority shareholders in this process? María García-Legaz Ponce: Frederic, you're right. I think the sequential improvement in EBITDA in the mobile business, it is a reflection of all the measures that we are taking from the very beginning, refreshment of the tariffs, to the handset subsidies changes, and to the higher efficiency programs that we have across the operation. What is that giving us is much better results with satisfaction of clients, improved quality, reduction of claims, which at the end, is an increase on the average margin per user. What we're working from that moment is to say, okay, the refreshment of tariffs produced, the '70s [ph] has produced a 56% in penetration within our clients within the mobile business, and there's been a deterioration or an impact on ARPU. So in the quarter, it is mobile service revenues affected by the ARPU declines, as well as interconnection declines. The slowdown decline that we see in mobile service revenue in the third quarter, there is a positive effect. As you know, there is a lower handset upgrades and a related impact on the loyalty program. As you know, the contract handset upgrades is 32% -- minus 32% lower than year-over-year. And the underlying mobile service evolution is, as mentioned earlier, worsened in third quarter as the ARPU declined almost by 16% year-on-year. What we have in the contract, in the postpaid contract revenues, very clear in seasonality third quarter situation with respect to the connectivity. The seasonality effect seen in 2011 didn't happen this year due to the high penetration of the flat rates and the lower weight of the big screen to the multi seems with the tablets, et cetera, that we are seeing more recently. And just to mention again the continued increased penetration of the new portfolio with 57% residential segment. Anyway, looking into what is happening today, the Fusion strategy, I think it is the best strategy going forward to counter fight with some of these trends that we've seen in the third quarter.

With respect to the second question, as I said before, we are still analyzing various alternatives for the potential listing of our Latin American businesses. Different alternatives have different potential implications, both from regulatory tax and other implications. None of them are more clear or differential than others. We have not taken a decision not only with respect to any structure, but with respect to whether the transaction would be performed or not next year. As soon as there is progress on this potential transaction, we would provide further clarity to the market.

Our next question comes from Guy Peddy from Macquarie. Guy R. Peddy - Macquarie Research: Just a couple of clarification questions, please. In your net debt calculation, you used a number of non-current financial assets and investments of just over EUR 5 billion. But in the balance sheet, you have a number of over EUR 12 billion. So I was just intrigued to know what is the difference? And of your total debt, could you tell us how much of that is raised through Spain or through your Dutch debt vehicle? Miguel Escrig Meliá: This is Miguel Escrig. Regarding your first question, we have in the balance sheet EUR 12.1 billion of assets, we are including there, the value of some of our associates corporate stakes. So if we just take from that, what is really interest-bearing which are essentially the mark-to-market of derivatives for close to EUR 5 billion and some other long-term deposits, that's it and the rest is excluded from that EUR 12 billion.

And with respect to the second question, 90% of corporate net debt is held at holding level, be it a Telefónica parent or through the subsidiaries that we have to issue that.

Our next question comes from James Ratzer of New Street Research. James Ratzer - New Street Research LLP: I had 2 questions, please. The first one is just regarding your group-wide commercial costs. I think, at the Q2 conference call, you talked about those coming down year-on-year in the whole of the second half, and it's very clear that's happened in the third quarter. I mean, if I look forward to the fourth quarter, you obviously had the launch of Fusion in Spain, you've got the TV relaunch in Brazil, there are going to be costs related to the iPhone 5. Is it fair to say that commercial costs in Q4, group-wide, can be lower than Q4 last year as well? And then the second question I have is just regarding Mexico. I mean, AMX in Mexico continued to be a very strong competitor. They continue to outperform you on service revenue growth. And again, this last quarter, they saw a stronger pickup in their service revenue growth x MTR. I mean, what do you think you need to do to kind of start turning that around? Do you need to rely on the current regulatory review to help you? I mean, do you think that's necessary or are there other commercial actions you can take to improve the revenue growth? And if so, by how much?

Thanks for your question on the commercial cost trend and the potential outlook for the fourth quarter. Let me tell you that we are anticipating a similar trend out in the third quarter. Some of the trends that we have been observing in the group, namely the case of Spain, as I was mentioning, are here to stay, are very sustainable because there, we have radically changed the structure of the offer, and therefore, we have already been somehow educating the market. On top of that, we have been working very intensively on the quality side of our business. And therefore, we have been significantly and structurally changing the number of calls that we get and the claims, we have reduced by half the number of claims in Spain. The situation is pretty similar in other European countries like Germany or the Czech Republic. And with this simplification process, this has [indiscernible] Spain up significantly. The only update we might get is from the iPhone 5 activity in the U.K., which might tick up a little bit in the fourth quarter, but overall, in Europe, we see the similar trends. In Latin America, we see similar trends, as Santiago was mentioning as well, because we have high commercial activity but we have been having significantly high commercial activity as well during the year. So the outlook that we have for the fourth quarter in terms of commercial cost overall at the group level is pretty similar in the third quarter. And we are working intensively to expand the model that we have been able to -- we are trying to create here in Spain to other regions, namely in terms of subsidies, we are basically out of subsidies in Germany, the Czech Republic and here in Spain, and it has not been affecting our contract commercial activity. So we think that we have a lot of room to improve and to go even more ambitious. But for the fourth quarter, we are contemplating similar trends within the third quarter of this year.

James, it's [indiscernible]. On Mexico, we're pretty happy with them, with the progress we're making. It may not look like a lot from the outside, but we're making progress on quality perception, on coverage, on reliability and on the tariffs, most preferred tariffs for the customers. So we changed the game. What we tried to do is make people -- make customers alert that we have not only viable, but a good product that, at times, are very difficult to beat by anybody else on the market. This is not going to be a one-off event. This is going to be a trickle-down phenomenon but we're quite happy the way all these things are progressing. We are not going to put the blame of our possible shortcomings on the regulation. Essentially, the more level playing field would be beneficial in that market as it might be in any other market where the difference between the first and the second player is so large as to be nothing short of astounding. María García-Legaz Ponce: Time for the last question, please.

Our last question comes from Luigi Minerva of HSBC. Luigi Minerva - HSBC, Research Division: My questions are on the fiber strategy in Spain. I was wondering if you can tell us, of the 2 million that you cover, how many of those are with fibers to the premises and how much is fiber to the street cabinet? Also I wanted to hear if you expect any other operators to join the co-investment agreement on the verticals that you have signed with Jazztel? And lastly, whether you would consider a co-investment agreement for the horizontal infrastructures? María García-Legaz Ponce: I think on the first question, it's just to confirm, it's 100% to the premises. With regards to the agreement with Jazztel, as you know, this is agreement that is part of our strategy of seeking for network-sharing agreements. This potential agreement or this agreement is -- with Jazztel, as it was the first comer to sign the agreement, it is, as you can imagine and you know, efficient on CapEx versus being a stand-alone and permit us to access in the -- we already have deployed EUR 1.5 million of the Fiber to the Home and the other EUR 1.5 million, Jazztel will do the in-building development and it will be up to 3 million customers. We'll start in March, and as you know, this agreement is open for all the competitors in case they are prepared to join us. It is also following regulators' requirements and we feel this strategy is similar to the one we have in other European countries and across the firm globally.

Well, before concluding this call, I would like to make an announcement regarding the position of Head of Investor Relations. After several years of very successfully leading IR, Mrs. María García-Legaz is being promoted to run the offices of the Executive Chairman and of the COO. I want to express [indiscernible], María, for the excellent work done and the IR team has won numerous industry awards. The position of Head of Investor Relations will be occupied by Mr. Pablo Eguirón. I wish both Maria and Pablo success in their new roles. Thank you, ladies and gentlemen, for attending this call and look forward to seeing many of you in Barcelona next week.

Telefónica's January to September 2012 Results Conference Call is over. You may now disconnect your line. Thank you.