Pablo Eguirón - Head of Investor Relations Ángel Vilá - Chief Financial and Corporate Development Officer and member of the Executive Committee at Telefónica, S.A. Eva Castillo Sanz - Chairwoman and Chief Executive Officer of Telefónica Europe and member of the Board of Telefónica S.A. Santiago Fernández Valbuena - Chairman and Chief Executive Officer of Telefónica Latin America and member of the Board of Telefónica S.A. José María Álvarez-Pallete López - Chief Operating Officer, Telefónica S.A.

Paul Marsch - Berenberg Mandeep Singh - Redburn Partners Luis Prota - Morgan Stanley Georgios Ierodiaconou - Citi Tim Boddy - Goldman Sachs Ivon Leal - BBVA Giovanni Montalti - UBS James McKenzie - Fidentiis Jerry Dellis - Jefferies Will Milner - Arete Research Fabian Lares - JB Capital Markets Jonathan Dann - Barclays

Ladies and gentlemen, thank you for standing by and welcome to Telefónica's January-June 2013 Results Conference Call. At this time, all participants are in a 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 turn the call over to Mr. Pablo Eguirón, Head of Investor Relations. Please go ahead, sir. Pablo Eguirón: Good afternoon, ladies and gentlemen. Welcome to Telefónica's conference call to discuss January-June 2013 results. I’m Pablo Eguirón, 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 not audited. This presentation may contain announcements that constitute forward-looking statements, which are not warranties of future performance and involve risks 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 in 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 release 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 to our Chief Financial and Corporate Development Officer, Mr. Ángel Vilá, who will be leading this call. Ángel Vilá: Thank you, Pablo. Good afternoon, ladies and gentlemen, and welcome to Telefónica's first half 2013 results conference call. Today, with me are the members of the executive committee, so during the Q&A session you will have the opportunity to address to them any questions you may have. Telefónica has released today a strong set of results based on the execution of the management priorities published for 2014. Revenue peaked up notably in the second quarter, returning to positive growth year-on-year led by a significant improvement in Telefónica Latin America and mobile data. Our profitability continues to progress in the right direction, reflecting a limited year-on-year margin erosion and reflecting cost savings from efficiencies of setting higher breathing around smartphones. In the last 12 months, we have reduced our net debt figure by close to €10 billion, demonstrating our focus on the leverage. As a result, net debt declined to €48.6 million, including announced divestment spending closing. Our free cash flow posted an outstanding improvement in the second quarter to almost €2 billion and also EPS improved, sequentially, to €0.25. The transaction announced two days ago will allow us to crystallize value in the German market thus it will further enhance our growth profile, diversification, the scale and cash flow without increasing our leverage ratios. Let me now start with the summary of key financials on slide 4. Reported year-on-year performance is negatively impacted by ForEx effect and changes in the perimeter of consolidation. FX deducted around 5.5 percentage points to revenues and OIBDA in both periods. Revenues showed in the second quarter an acceleration from first quarter year-on-year. Performance of 2.1 percentage points to reach €14.4 billion. OIBDA reached €4.9 billion, 0.07% lower year-on-year in organic terms. Operating cash flow keeps growing in the first six months exceeding €6.3 billion, 3.4% higher than year ago organically. While net income surpassed €2 billion in the first half, roughly stable year-on-year. Year-to-date results are fully aligned with our internal expectations, so we [won't] reiterate our outlook for the full year. On the next slide, free cash flow generation posted a very solid performance in the second quarter and grew 16% year-on-year topping €1.9 billion. As a result, free cash flow in the first half improved to almost €1.5 billion. Let me mention that first half figures include payments for spectrum acquisition of €1.1 billion. So, isolating this effect, free cash flow would have reached €2.6 billion, posting a remarkable growth of 19% year-on-year. EPS also improved on a sequential basis and reached €0.25 in the period April to June and €0.46 in January to June. On slide 6, you can see how commercial activity is intensifying. In the second quarter, we have intensified our commercial efforts in every category to further focus on value and sustainable growth. As such, we have recorded a strong acceleration in mobile contract net adds that reached 2.1 million, the highest since Q3 2011. Especially worth mentioning is the rapid expansion of the smartphone base, with record net adds in the quarter and with penetration increasing 8 percentage points year-on-year to 24%. At the same time, fixed broadband and fixed line improved momentum, especially in Latin America. Finally, we continue with the selective deployment of [broadband] services. 30% of our fixed accesses are currently ready for these services. And out of them, 10% have already connected. Let's turn to slide number 7, for the review of top line growth reacceleration. In the second quarter, we have returned to organic revenue growth year-on-year. Revenue trended 210 basis points better than in the first quarter, improving simultaneously in other regions of operations. It is worth mentioning that Telefónica Latin America performance accelerated its year-on-year growth rate to 10.4%, 360 basis points higher versus Q1, highlighting once again the benefits of our best-in-class diversification. Excluding [impact] from MTR cuts, first half organic increase would be 1%, turning also to positive growth. By services, mobile data revenues continue to enjoy strong momentum with a 10% year-on-year organic growth and already accounting for over one-third of mobile service revenues. Non-SMS sales drove this performance on the back of a profitable data monetization. Turning to profitability on slide 8, I would like to stress the ongoing efficiency improvements delivered from key transformational initiatives in the commercial and operational model. This savings drove to flattish OIBDA margin versus the first half of 2012 to 33%, offsetting higher commercial spend in Telefónica Latin during the quarter in order to capture market growth opportunities and transforming towards a more sustainable model. As such OIBDA margin in the second quarter stood at 33.7%, declining 0.4 percentage points year-on-year organically. Telefónica Global Resources on slide number 9 is consistently contributing to higher efficiencies. Cost reduction and transformation driven by product execution of priority projects. In Networks and Operations, we are driving the development of LTE sites and we are launching the pile up test of our network virtualization in Brazil. In IT, simplification of our operative model is delivering results while we continue to progress in infrastructure consolidation. In devices, we are advancing to more balanced winter month through strategic agreements with several industry players. Let me highlight that Telefónica España was first worldwide to large Firefox OS device. Finally, on procurement and thanks to our scale, our savings are on track. Next, I would like to talk about a few highlights of Telefonica Digital during the quarter demonstrating Telefonica's innovation as a digital telecom. Firstly, there were financial services developments in LatAm and Europe. In Brazil, we've launch Zuum, a JV with MasterCard that provides banking services for the unbanked. We've also agreed to create the JV with Santander and Caixabank that that will become a pioneering alliance between financial institutions and our telco to create new digital services. Secondly, Telefonica Digital is investing in information security capabilities. We've set up 11 parts which we like a hothouse driving radical innovation in security for Telefonica's clients. In machine-to-machine, Telefonica signed an agreement with Dell to deliver Dell NetReady a pay-as-you-go mobile broadband service for notebooks and tablets. Finally, the first Firefox OS handset was launched in Spain on July 2nd for €69. Next launches of Firefox handsets will take place in Colombia and Venezuela along the third quarter of 2013. Please turn now to slide number 11 to review our operations in Latin America, where our strategy based on capturing the most valuable customers is delivering very positive results. We committed to our long-term growth strategy as proven by the outstanding commercial activity in the second quarter. We reached a record high in contract gross adds, reinforcing our regional leadership in this segment. At the same time, we improved our performance in the fixed business with positive net adds in all services, thus top line strongly accelerated in the second quarter exceeding 10% year-on-year, showing a widespread ramp-up across the region and across services. Booming mobile data is the main growth driver and fixed businesses are recovering and returning to positive growth this quarter. OIBDA growth of almost 3% year-on-year in organic terms lacks revenue growth, mainly due to the higher commercial effort done in the quarter as we are capturing value clients that have higher upfront costs, but make revenues more sustainable longer-term. In Brazil, turning to slide number 12, commercial activity has been impressive in the most valuable mobile segments. Vivo captured almost 60% of the contract net adds in the market this quarter, mainly due to the explosion of smartphones demand of [customers] Vivo's network quality, a differential service proposition. Let me remark that Vivo keeps working in maintaining this quality as shown by the recent launch of 4G in 22 cities. The higher quality of our customer base can also be seen in the prepaid performance. Our stricter disconnection policy is driving prepaid base down by 5% year-on-year while on the other hand top-ups grew at the healthy 12% rate year-on-year. In the fixed business, our turnaround plan is on track. Broadband net adds benefited from the segmented approach of our strategy and doubled year-on-year with enhanced quality in our DSL services and with Vivo Fiber starting to gain traction. As a result, the success of our commercial strategy is starting to flow into revenues as shown in slide 13. Excluding regulatory impacts, revenue accelerated to almost 5% year-on-year in the second quarter maintaining the solid growth in the mobile business while significantly improving revenue trend in the fixed business as operational KPIs started to recover. On the other hand, profitability decline year-on-year this quarter by mainly two factors, the strong commercial momentum and the impact of some one-offs that positively affected Q2, last year. Moreover, let me remind that following the roadmap of the integration of mobile and fixed businesses, the final step of the corporate restructuring has already been approved. This will lead us to capture additional synergies that we flow to the bottom line onwards. Please turn now to slide number 14 to review other businesses in Latin America. In Peru, revenue and OIBDA continued accelerating while strong commercial activity remained, reaching a record high in contract gross adds this quarter. In Argentina, top line continued posting a solid base while pressure on profitability was mainly coming from the strong commercial momentum and inflation-driven costs. Chile posted a significant improvement versus the first quarter as new commercial proposals launched in April started to gain traction. Revenue accelerated by almost six percentage points to 3% year-on-year, while OIBDA grew on the back of efficiency efforts. In Columbia, turning to slide 15, revenues reverted their trend and grew 2.6% year-on-year this quarter, driven by solid commercial activity. In addition, OIBDA margin improved year-on-year as the benefits stemming from the fixed and mobile integration offset the higher commercial costs. In Mexico, the new telecommunications law already signed will prove [higher] to the market and we will be an active part of that process. In the meantime, revenue slightly recovered while we continued our operational transformation. Lastly in Venezuela, the impressive operating performance remains. It is relevant to highlight that the main drivers for revenue growing at almost 50% are growing volumes. Contract base is increasing by 32% year-on-year. Smartphones by 37%, while raising ARPU is driven by data traffic explosion and by voice traffic, which grew by more than 20%. The reason is that value customers demand quality of service under our services to market preference. Turning to slide 16, we will review our operations in Europe. And, in a challenging environment, Telefonica Europe continued executing its transformation strategy towards a more sustainable model to strengthen its market position and profitability. Contract mobile net adds increased over two-fold quarter-on-quarter and smartphone adoption continue to expand, reflecting the value for money of our renewed simple and transparent portfolio is around to increasing data usage. In terms of financials, top line performance improved, sequentially, and margin expanded year-on-year for third consecutive quarter, driven by further efficiencies. Especially, worth mentioning is that despite expansion of [fiber] networks operating cash flow up to June was stable year-on-year, leveraging targeted CapEx allocation. Slide 17 provides more color on the Spanish business. Movistar Fusión's commercial traction remained solid, reaching 2.2 million customers as of June, which means that almost 40% of consumer fixed broadband accesses in Spain had already in Fusión's. It is also good news, the sustained improvement in the mix of new customers and up-selling to 56% in the second quarter, nine percentage points more than the previous quarter. In addition, Movistar Fusión continues for spring's strong fiber optic and sound increase in additional mobile lines. On the impact of lower value packages, Fusión Cero, let me mention that more than 70% of Fusión quarterly gross adds chose higher value packages. I would like to highlight the higher rationality seen in the market with focus on tariffs rather than on handset subsidies. In this context, new mobile tariffs launched in April led to a significant reduction in the contract net loss in Q2, although aggressive convergence offers continued impacting portability trend. Finally, convergence is also allowing us to continue improving churn levels and customer satisfaction across services. On slide 18, we can see the details of financial performance in Spain. Revenues, ex-handset sales improved sequentially its year-on-year trend as in the previous two quarters. Especially remarkable is the continued improvement achieved in profitability, driven by the ongoing benefits of the new operating model coming from disruptive initiatives. As such, along with progressive new savings OIBDA margin in Q2 stood at 48.4%, expanding 3.6 percentage points year-on-year. Let me remark that this is the fourth consecutive quarter with margins above 47% and significant margin expansion year-on-year. Operating cash flow in the first half of the year remained flat year-on-year, with CapEx focused on fiber rollout acceleration, which ensures our commitment to capture a new wave of growth. In a nutshell, Telefonica Espana Q2 results evidenced the sustainable benefits of our transformation strategy, which led to a meaningful improvement in the company's operating leverage. Please turn to slide 19, for a review of our operation in U.K. From a trading standpoint, strong momentum continued in the second quarter with contract churn maintained at historical low levels and healthy contract net adds. O2 Refresh proved to be a successful proposition with a 20% uptake among contract trading despite it is only available through the direct channel and for high-end devices. The benefits of this commercial approach are starting to be redirected towards a more sustainable, distribution model based on increasing the direct mix. Even though the upfront cost of transactions through the direct channel has a negative impact in the short time, lifetime value for customer is significantly higher making the model more sustainable. It should be highlighted that mobile service revenues improved the year-on-year performance for the third consecutive quarter. Lastly, let me give some detail on the impact of O2 Refresh. In the second quarter, it has contributed with 5.5 percentage points to revenue growth, with no relevant negatively impact in mobile service revenues. Part of this positive contribution has been offset by the higher upfront cost of increasing activity in direct channel, and as a result the net positive impact in OIBDA margin was 2.3 percentage points. In Germany, commercial dynamics reflect accelerated market transformation towards data monetization with practically all handset sales being smartphones. As such, the new O2 Blue offers position us in this direction and we continue to focus on LTE deployment progress the up-selling opportunity. LTE is starting to get traction, representing 40% of handsets sold in Q2 and two times the ones in the first quarter. In this context, mobile service revenue continued de-accelerating as growth in data services does not offset yet the pressure of tariff renewals, lower SMS traffic and the lower base growth. The positive trends in data resulting into non-SMS revenue growth of 25% year-on-year in the second quarter which already represents 65% of data revenues, we are seeing increasing evidences of LTE monetization with more than 60% of customers showing higher data usage after migrating to this technology. Revenue pressure is partially mitigated by the company's focus on efficiency measures with OIBDA margin of 25.5% in the second quarter. The recently announced transaction will provide us with the opportunity to further generate synergies and to be able to phase from much stronger platform the market transformation towards data. Now, in slide 21, let me briefly summarize the offer we have launched for E-Plus for creating a leading digital telco Germany. Total consideration for the acquisition is €5 billion and a final stake in the large entity of 17.6%. The structure of the payment is composed of two consecutive steps. First the rights issue of Telefonica Deutschland of €3.7 billion and the stake in the combined entity of 24.9%. And then, Telefonica will acquire a 7 .3% stake to KPN, or €1.3 million. Telefonica, we commit €4.1 billion for this transaction. €2.84 billion to subscribe the rights issue, plus €1.3 billion to acquire the additional stake. The strategic rationale for this transaction is compelling. Combining a robust, with the brighter future due to strong potential to capture data growth, capturing significant value from synergies with an NPV in the range of five to €5.5 billion, enhancing profitability and free cash flow metrics and creating a platform to deliver a superior customer experience to over 43 million customers. On slide 23, let me remark the better scale and diversified profile with Telefonica becoming the second largest European mobile operator by customers. In terms of revenues, Germany will end up representing 13% of group sales, at five percentage points on 2012 pro forma, improving our geographic diversification. All of this will be financed without increasing leverage. Of the required €4.1 billion 50% to 65% will be financed through hybrid instruments, 20% to 30% through a mandatory convertible and therefore there will be only the incremental debt of 10% to 20% of the required amount. The incremental debt plus the component of the hybrid is estimated to be around two times the incremental OIBDA from E-Plus. Finally, let me wrap up the key value operation points for our shareholders. The announced transaction will unlock significant synergies for Telefonica; will better position us to capture future growth. It will reinforce geographical diversification, increasing exposure to an attractive market. It will have a positive impact on Telefonica's cash flow generation profile. It will be EPS and free cash flow accretive from year one and it will be credit-friendly with the financing structure designed for leverage ratios to improve. Let me now move to the financial side on slide 24. Telefonica is making substantial progress on its de-leveraging process by taking decisive actions. Net debt including post-closing events, decreases by more than €3.5 billion, compared to December 2012 net debt adjusted by the devaluation of Venezuela. If we look back one year, we have made remarkable progress in debt reduction for around €10 billion. Positive free cash flow pre-spectrum has contributed with €2.6 billion. This has been complemented with additional portfolio management initiatives such as the sale of our Irish business, 40% of Central America and a stake in Inversis. Again, we reiterate our target to reduce our net debt below €47 billion in 2013. On slide 25. I would like to highlight our efforts to strengthen liquidity, lead us to show recurring maturity coverage in excess of 24 months. Telefonica's financing activity has been intense during the first half of the year through bond loan markets. Several long-term financing operations have allowed us to raise nearly €8 billion year-to-date and to increase our average debt life while smoothing the maturities profile. This successful financing has contributed to an additional improvement in our liquidity position, reaching €21.7 billion as of June, about the level of March 2013. It is also worth mentioning, the decreasing effective interest cost during the last 12 months almost 25 basis points to 5.23%, close to the bottom of the range of our guidance and despite the strong liquidity position. To wrap up, we are returning to revenue growth, leveraging diversification and strong commercial push. We are exploiting our strong execution and transformation capabilities to deliver targeted efficiencies and reinvesting them in increasing customer lifetime value, allowing us to maintain community for OIBDA year-on-year trend practically stable. We have posted a very solid free cash flow generation in the second quarter, leading to a sequential improvement of both, free cash flow per share and earnings per share. We have made a significant step forward in debt reduction, decreasing €10 billion since June 2012. We've announced two days ago a transaction that will allow us to crystallize value in the German market. So, all-in-all, we are progressing in our transformation strategy. Thank you very much. Now, we are ready to take your questions.

(Operator Instructions) Our first question comes from the line of Paul Marsch from Berenberg. Please go ahead. Paul Marsch - Berenberg: Yes. Thank you very much. I think your domestic OpEx fell by 500 million in Q1, and I think it was 400 million in Q2 compared to the previous year. But, as I understand it, the comp gets tougher into the second half, so do you think you can sustain that run rate of cost reduction in the range of 400 million to 500 million per quarter through the second half? And, if not, can you give some indication as to what level of about OpEx reduction we can expect to see through the second half. Then secondly, just while your contract churn fell in Spain, it looks like you still churned about 815,000 contract subscribes subscribers in Q2. Now, that's a similar level to Q4 when you launched the Fusion product. So, it looks like you still need to do a lot more on contract churn and gross additions. What more can you do and have you actually got the cost/flexibility to do it. Thanks.

Thank you, Paul. I think that on your first question, as we have stated in the last few quarters, we are confident, we can maintain similar levels of a cost reductions and moreover to sustain our current margin levels. We feel compelled, we continue with our simplification in sourcing an order of our project in the Telefónica España operation. Secondly, with regard to the contract churn, we have agreed with the investor community that we needed to continue working on that. We believe, we have set up the right tariffs and we are covering all the segment perfectly well now. And, just to say that what noticed is a more equilibrium in the market, so that we are looking more into both, the fixed and the mobile as opposed to just looking at the mobile. We have seen some improvement contract net adds, but overall we will continue working on this part of the business. Pablo Eguirón: Thank you, Paul. Next question, please?

Our next question comes from the line of Mandeep Singh from Redburn Partners. Please go ahead. Mandeep Singh - Redburn Partners: Thank you. I have got two questions, please. First of all, just a quick one on your position regarding Telecom Italia, a couple of your partners in Telco SpA indicated they want to exit Telecom Italia, so I wanted to understand if you were going to take up their shares or what your future intentions were regarding Telecom Italia. That's the first question. The second question is really about your full year EBITDA. I appreciate you'd guide an organic basis, but you've done €9.4 billion of EBITDA in the first half and the market expectations are for that €19.7 billion for the full year. That requires significantly more than doubling your first half EBITDA. Are you comfortable with market expectations, or if you can't answer that question, what you think could actually drive an absolute increase in H2 EBITDA versus the H1 EBITDA? Ángel Vilá: Thank you. This is Ángel Vilá with the first question regarding telecom Italia. We believe that there is value in keeping the investment in Telecom Italia under a joint vehicle that has a substantial stake which has significant influence in a major European telecom operator, so we are talking to our partners over the merits of preserving this ownership structure and that is still an ongoing dialogue, so we are not contemplating taking full control of telco, but we are talking to our partners to convince them of the merits of standing such structure. Taking your question on the OIBDA for the full year, as you know, we have not been guiding on OIBDA. We have been guiding on OIBDA margin. And we have guided on revenue growth, so I will focus my answer on revenue growth and on margin if you don't mind. Revenue growth, we announced that will be improving sequentially throughout the year, and so we are seeing quarter-on-quarter. The second quarter has been better than the third one. We think that according to the trend that we are seeing internally, this is going to be to [third] and fourth quarter. Namely, Latin America, very strong commercial activity, namely, contract allow us to see a better trend in terms of ARPU and therefore, we feel comfortable that the challenging profile of growth that we have in our own budget and that we have shared with the market is going to be in that. In Europe, it's been a tough year as you know overall, namely in Spain, but we are seeing progressively a stabilization of the jobs and is slightly improving some cases. So, overall in revenues, we feel comfortable with the trend that we are seeing. On top of that, in the places where revenues have been weaker than we expected, the cost contention is being higher, because we are significantly matching both things revenue growth and subscriber acquisition cost. Therefore, the overall thing is that, we feel comfortable and we reiterate our guidance of revenue growth and a better performance OIBDA margin for the full year. Pablo Eguirón: Thank you, Mandeep. Next question please?

Our next question comes from the line of Luis Prota from Morgan Stanley. Please go ahead.

Yes. Thank you. I have two questions, please. The first is on fiber regulation in Spain, where I have heard about public consultation regarding a potential mandatory wholesale offer for fiber based on competitive levels by regions, so I don't know whether you could elaborate a bit on what's going on, give us an update on this regard and what could be the potential outcome? The second question is on Argentina, and what's your current cash position in the country and whether you have any kind of hedge ahead of a potential currency de-valuation in the country. Thank you. - Morgan Stanley: Yes. Thank you. I have two questions, please. The first is on fiber regulation in Spain, where I have heard about public consultation regarding a potential mandatory wholesale offer for fiber based on competitive levels by regions, so I don't know whether you could elaborate a bit on what's going on, give us an update on this regard and what could be the potential outcome? The second question is on Argentina, and what's your current cash position in the country and whether you have any kind of hedge ahead of a potential currency de-valuation in the country. Thank you.

Thank you, Luis. With regard to your first question, we do believe we are referring to a pre-consultation, a process that it was before analysis of fair market, but we cannot give you more information as such. Ángel Vilá: Hell, Luis. This is Angel regarding our cash position in Argentina, the net cash is around €100 million equivalent is summarized at 15.5%. And, don't have special details on that position. What we have is a positive cash position in solid currencies and some deposition in local currency.

If I may add on my previous question, just to clarify that requirement of fiber in Spain is directly related to the current regulation, so if there is any other regulation or new regulation, we will update it. Pablo Eguirón: Thank you, Luis. Next question please?

Next question comes from the line of Georgios Ierodiaconou from Citi. Please go ahead. Georgios Ierodiaconou - Citi: I have got two questions please. Firstly one is around leverage. Your target for the full year is to go below 45 billion of net debt and you are currently own report number is around 3 billion short of that, but the interim dividend was just [north] of €1 billion, so you more or less need to generate around €4 billion in the second half to deleverage to that level, so I am not sure if Ireland were close in time for that, so my question is to clarify whether the target is for the reported net adds or the one with the closing events is the one we should be focusing on. And, is the report number linked to that, if you would give us any as to how you expect to deliver the target? And my second question is on consolidation with announcement of Ireland last quarter and the Germany this week. There is limited room for consolidation in Europe that at least with your direct involvement, but I wanted to extend part of the discussion about Latin America. Are there any markets in the region where you believe returns need to improve for investment to be viable and sustainable and whether market structure is currently suboptimal and do you believe it is feasible for consolidation to be delivered or are there any barriers [would] prevent that? Thanks. Ángel Vilá: Hello, Georgios. With respect our leverage, our net debt at the end of June stands at €49.8 billion. If you were to include the transactions that we have already signed, some of them like Central America already, all the conditions to closing have been fulfilled, so it is going to be closed around second half of August, and we are aiming to close Ireland ideally in the last quarter of this year, maybe in the first quarter of next year. So, with these divestments, we would be at €48.6 billion. We have a target of €47 billion, net debt by year end. And, as you rightly say, we are going to pay dividend in November, which is around €1.6 billion, so we are estimating that with the free cash flow that we are going to generate in the second half, plus the closing of these transactions we should be reaching that objective. Having said this, you should expect us to continue being active in our strategy of active portfolio management, not so much here to achieving this debt figure by year end, but because believe it make sense. Our approach has been all along this year to try to strengthen the operations in the markets where we are present. We have been very pragmatic, so in some places like Ireland, we have allowed ourselves to be consolidated, while in other places such as Germany, we are aiming to be the consolidator. This type of approach to the markets trying to get a better position in those markets, be it in market, be in potential to create value, will continue and we will explore opportunities for doing so in each one of the markets where we operate and potentially also in Latin America. Santiago Fernández Valbuena: If I may complement the answer, I would say that for us consolidation is not just corporate deals, but also about network sharing. We think it doesn't make sense that the amount of network that we have in some places, namely, Europe, we think that having 60 players is not the right numbers. So, I think that consolidation is going to happen. We have already shared our network in the U.K.; we are doing network sharing deals in Germany, the Czech Republic and including Spain. We are doing exactly the same in Latin America, so for us it's becoming a much more [pragmatical] in terms of allocating our capital and in terms of looking for other sources of depreciation, namely on the business intelligence and customer insight and products and services. So, yes, you should expect from us to be very active on these kind of consolidation and in this kind of making sure that we set up the right differential, competitive differential points in our value chain. Pablo Eguirón: Thank you, Georgios. Next question please?

Our next question comes from the line of Tim Boddy from Goldman Sachs. Please go ahead. Tim Boddy - Goldman Sachs: Yes. Thanks. It's been another quarter with a volatility in currency. Obviously sort of nature in the quarter you haven't yet felt the full impact in EBITDA. I guess, the question on that is have you thought any more about your ability to reduce your exposure to LatAm currencies? Obviously, given your debt is nominated mainly in Euros. Is there anything you can do? I appreciate your hedging costs are very high, but anything structurally you can do to change that? Then related to that as well, do you still have in mind the kind of target leverage goal for the group, because, obviously while the deleveraging has been by strong the net debt to EBITDA ratio hasn't materially reduced. Second, I just wanted to ask a bit about the timing in Germany, and obviously this is a transaction that [might] many years. What changed, which made you think that that this is the right time to take on that transaction? Thank you. Ángel Vilá: Hi, Tim. With respect to our ability to reduce exposure to LatAm currencies, we have hedging policy, which is for LatAm currencies, two times free cash flow interest on those currencies. Our aim is not to have a specific percentage of that within different geographies, but to protect the solvency. So, reducing the sensitivity of leverage ratio is perfect moments. So, for instance, some of the weakness that we have seen in the Brazilian real is translating into our OIBDA is offset by the reduction or the exposure of the Brazilian debt in our balance sheet, so our hedging policy is aimed to protect solvency reducing the sensitivity on leverage ratios. With respect to target ratio, if you look at slide number 24, at the end of June we are at 2.4 times net debt to OIBDA. If you were to contemplate the figure after divestments announced still pending closing, you will see that the ratio is 2.36 times, which is closer to the target that we have for the year. With respect to the timing on Germany, I'll pass it to José María. José María Álvarez-Pallete López: While now is the right timing in this idea of this potential transaction has been on top of it. They were for several quarters so to say. Well, first of all, right now there are some elements that are brand new and that has aligned the elements to make this transaction doable right now. First thing is that commercial momentum is heading into the right direction. Second, we have an asset that is differentially like the spectrum that we have in Germany on the 800 royalty purpose. Third, I would mention there, the IPO that we [need] for our German business last quarter of last year allow us to have another currency and attractive currency and an attractive platform to develop these transactions. So, overall, I think that today right now, we can present to all shareholders KPN and Telefónica and Telefónica Deutschland shareholders, but mostly to the customers of Germany a very appealing proposal and therefore I think that right now we have all the elements aligned to make a very sound and robust base for this transaction to go through. Tim Boddy - Goldman Sachs: A quick follow-up if I may. Could you remind me on your long-term leverage target for the group? José María Álvarez-Pallete López: We have a target of leverage by year end of 2.55 times. We have not moved our year-end target, but you should assume that our aim is going to be to continue de-leveraging both, pre and post closing, the announced transaction. Pablo Eguirón: Thank you, Tim. Next question, please.

Our next question comes from the line of Ivon Leal from BBVA. Please go ahead with your question. Ivon Leal - BBVA: Hello. Good afternoon, everybody. I have two questions. The first one is, I don't know if you could help us to try to figure out how mobile ARPUs are going to perform in Spain in second half and 2014. I guess, that is part of the re-pricing of the base and lower price coming from Movistar Fusión has set to the for the subscriber base. I don't know if you have some numbers on the third quarter, which can help us to try to see if that [guide] is or not. And in that sense it would be interesting if you could give us an idea of what kind of mobile ARPU you are getting on the Movistar Fusión Cero contract, which I guess is where the risk of mobile voice cannibalization is more evident. Lot of those were in Spain. And, second one Brazil. You are blaming the margin pressure on two issues, one, which I guess is more temporary, which is postpaid growth and the second one which I guess more structural, which is replacing your fixed line business, so I don't know if you could give us a figure on how long can it take for you to have that fixed line operation and what cost you may have in terms of EBITDA margin in the country?

Thank you, Ivon. I think that regards to Spain and in particular what is going on or it's a ARPU there. I think that I stated earlier some new situation. First of all the market is moving more towards mobile and fixed and mobile market model, so the convergence seems to be the key driver in fixed business and in mobile business, so that is moving more toward a theme-only model. We are seeing the stabilization in revenues. It's handset sales and I have to say that we believe we are moving towards improvement at the end of the year, so we will see some improvement in second half, but more at the end of the year and we believe that will continue being part of the commercial section coming from Fusion and the new mobile portfolio despite a considering the negative impact of MTR stroke in July. With regards to your question around Fusion Cero, I have to say is that something that Ángel mentioned earlier in his presentation is that, despite us having that lower level there are lower possibilities in Fusion Cero, most of the take-ups in Fusion go to the higher value package, so more than 70% are moving into that direction without being able to be more specific in that good trend for Fusion. Ivon Leal - BBVA: Okay. The improvement that you are mentioning is already visible in July trends?

I think that we will see more towards the second half of the year, as I mentioned earlier, but we are seeing the right trends in the take up. Santiago Fernández: Ivon, this is Santiago Fernández. On Brazilian margins, two statements, one is that we are happy we are making the progress we thought we could make on capture data growth and upgrading customers from prepared to contract. Our net share, or our share of net adds is about 10 points or so better than our market share and so this is working. The second thing that is working is working as you mentioned is improvement in fixed line. It's still not enough. It's still not out of the water, but totally it is pointed in the right direction. We have great confidence that slowly, but surely this will be the trend over the coming couple of quarters. About the stability of margins or long-term numbers, we certainly do not have one, but we think continue to have benchmark numbers for the industry in Brazil and that to the extent that the industry consolidates, stabilizes or starts growing, which it is not showing any sign of the wind maybe cost could be managed differently, but we think that they [sign] of terms today is come through that growth. The growth there rather than be very aggressive on cost management. Of course there is always a balance. But at this point, we think that come through this is the priority. Ivon Leal - BBVA: Okay. Thank you, Santiago.

Our next question comes from the line of Giovanni Montalti from UBS. Please go ahead. Giovanni Montalti - UBS: Good morning. Just two questions, there has been some acceleration in the [speaking] Spain. Just was wondering if you could give us the trends behind these and what you expect for the coming quarters. On Brazil, I know, how much can you answer to these, but looking at the political environment, would you see feasible, let's say at break-up of one of the four mobile operators among the three ones that would remain. Thank you. Santiago Fernández Valbuena: Giovanni, sorry, could you repeat the last part of your second question? Giovanni Montalti - UBS: Again, just assuming a breakup of one of the four operators in Brazil among the three that would remain, would you see these as a feasible scenario considering the regulator view, government's view about the evolution of the industry? Just wanted to understand what's your opinion about how the regulator will see such a scenario? Thank you.

Thank you, Giovanni. I think that with regards to your question on the fixed line business in Spain, it's to debt loss has increased within the months of April is specifically because it was affected by the connection fee increase that was specifically 2.9%. That increase was finally postponed to June, which impacted lower gross adds. Santiago Fernández Valbuena: Giovanni, in terms of what future shape of Brazilian telecoms will be, all the options can possibly be open. We of course had few views, but let me say just one thing. It will not require change in regulation, but change in the rules that the government has set up to control and direct the industry to attack thing like the one you mentioned. I think it is of no use that we could share our views, but certainly we have seen in other geographies that things can change. We are going to do just that in Germany, but that is not necessarily a lead on what would be good for Brazil, so I think you probably place (Inaudible) to have a view what can and what cannot happen. But it is not only a regulatory issue, it is a highly charged political and industry [shape] industry view. Giovanni Montalti - UBS: So, sorry, if I may a very quick follow-up, would you consider the current framework as, let's say favorable providing some ground. Would you see some margin for this to happen, I don't know, over the next two years, let's over the short, medium-term, let's say. Or, do you see there is still too much that this is to happen? Santiago Fernández Valbuena: Look, there's still growth and there's a lot of growth coming from the segments that I mentioned, contract, upgrade and in data, but Brazil is a large market and all of us have reasonably close market shares. It is highly competitive, so there is no obvious need for you to disappear as many other markets might be, so large market with two or three players and very small market with five players and this is the shape of the industry that's more. We don't have a strong view about what is best, which will tell you try to adapt to whatever the conditions are.

Our next question comes from the line of James McKenzie from Fidentiis. Please go ahead. James McKenzie - Fidentiis: Hi. Good afternoon. Just two very quick questions. Firstly, there's been a lot of press comment about equations with Yoigo in Spain, either if you get cases on that or if there are any, do you think negotiations going on. Then secondly, I want Santiago, your view of what that new telecom's law could mean if you are in Mexico.

Thank you. I think, we look into what's happened in the press. What I would like to say and to clarify which as you know at moment is that we are quite open minded to reach agreements ensuring infrastructure. We've done it everywhere in Europe, and we have done it in Spain, so we will maintain that on providing that objective. I think it is rationale movement as that improve the market economics and optimize capital investment is always good to look at it. When we look at LTE, specifically, we believe that the potential market launch will depend first on market demand, on technological maturity and on spectrum availability. As we have mentioned in other occasions the usage of 1,800 spectrum and a 2,600 spectrum bonds, definitely provides service in a temporary measure until the 800 is available, so for us really the bonding which we will focus, the quality and the attention will be on that one when it is released in Spain. So, we will have to offer quality and we will have to offer the best service to our clients and that will be our goal. James McKenzie - Fidentiis: Okay. Thank you very much. Santiago Fernández: So, James, and in terms of the Mexico law, you know that the most interesting things are still to be written. The bylaws and secondary laws are in the process of being put together and loss will show the details. The highlights are however very well known. The highlights are that the government of Mexico wants and has written in the constitution to limit market shares down to 50%. It's obvious that some of the dominant players or predominant players are way about that and so there are in number of known ways to get from where they are to [50%]. That includes as network pricing that includes comps that includes other things which are going to be in the details. We think this is going to be healthy for the Mexico market and we will try to take advantage of whatever opportunities present themselves to do that. There are no longer going to be any restrictions about the ownership. That's the second feature. We think there is a third line that is the strength in we could tell the new regulator that is likely to have an impact on how fast any dispute is resolved and how easy or rather how difficult will it be to bring it to the legal court, which has been a feature of the Mexico market slowing down quite dramatic of the thing. So, the most interesting things are still to come, but limited market share through any of the known means are strengthening the regulatory body powers and regional restrictions we think are going to be quite healthy and interesting for the Mexico market. James McKenzie - Fidentiis: Okay. Any, I guess, timeframe when you must start benefit from this? Santiago Fernández: We think that the interested in details will be known before the end of this year and it will be somewhat in effect and this is just a guess, in the first half of 2014, but of course we will all be updating the market on the later piece as the Mexican government will be doing. James McKenzie - Fidentiis: Yes. Okay. Thank you very much.

Our next question comes from the line of Jerry Dellis from Jefferies. Please go ahead. Jerry Dellis - Jefferies: Yes. Good afternoon. Thank you for taking my questions. First question has to do with capital intensity noted in the slides, now capital investments in Spain have been reduced this quarter. In general terms, CapEx across the European footprint seems to be trending at about two-thirds of D&A, and I wondered to what extent that might be sustainable going forward. How should we think about that? Then secondly, just in terms of Spanish mobile, you alluded earlier to the onset of $0.01 termination rates in Spain from July. Obviously another market as you did laid out has been the precursor to quite aggressive pricing activity at the retail level by competitors. I wondered if you are seeing any evidence of that and what initiatives you have in place to [prepare] and defend yourself in the event of any competitor activity. Thank you.

Thank you very much. I think that regard to the CapEx question, to clarify, we are accelerating definitely on fiber investments on obviously the LTE, across Europe, so what you might have seen is just some trends or that working another year we will adjust to those targets, so nothing strange there. Moreover, we are positive because we are targeting fiber [MLT] very importantly, so capital allocation on making sure that we do the right thing on prioritization has been key at maintaining targets and maintaining definitely our objective all across Europe and Spain as well. The second question, I am not sure if I understood all together. I didn't hear the whole thing, but with regard to the mobile business and with regard to specifically what is going on in the market as you know the recent MTR effect that we will see in July more specifically. Secondly, we want us to make sure is that we focus on data monetization and that data monetization should be the focus for us all across Europe. In the case same even more so our convergence is also helping us to focus on it. We are seeing that coming also from all of our competitors, but what we wouldn't like to see competitors jeopardizing these data opportunity, these data monetization opportunities.

Our next question comes from the line of Will Milner from Arete Research. Please go ahead. Will Milner - Arete Research: Thanks. Just had a question on Telefonica Deutschland, the acquisition E-Plus. Would you expect going forward, I mean, assuming the merger completes, an increase in the Telefonica Deutschland dividend that would cover the incremental interest costs on the €4 billion of debt that you are taking on to finance that deal. The second question is then Spanish mobile. I think this quarter, you lapped the launch of Fusion last year. And as a result, you annualized the benefit of lower loyalty point discounts, which I think looks like quite a headwind in the third quarter. I mean, A, should we expect the mobile service revenue trend in Spain to deteriorate as a result of lapping lower loyalty point discounts or are you confident as you seem to suggest earlier that the service revenue trend would accelerate and improve in Spain? Ángel Vilá: With respect to the first question on the dividend of Telefonica Deutschland, first thing I have to say is that this is a matter that corresponds to the Telefonica Deutschland and its governing bodies, but what they can commend it, but there are two stages. One is pre-closing of a deal and the other one is post-closing of a deal. So, pre-closing of the deal, the 2013 dividend that should be paid in early 2014, this should be fully aligned with what is stated in their prospectus, with a dividend has really been distributed recently. Then after closing, the structure that we have designed will result in Telefonica Deutschland being very well capitalized company. So, as such, it would make sense that it should have very high free cash flow paid out of dividend and Telefonica will continue to hold at least 65% of that comp again as such that we will be a major beneficiary of those dividends.

Going into your second question, I think Spain, now on going forward, the market is moving towards a mobile and fixed and mobile market mode, so convergences are the key driver in both fixed and mobile businesses are going to be the key for our focus. And, as I stated in previous call, the positive impact of the loyalty program, it will be fading off and it's already fading off. In the second quarter, the impact is lower than in the previous quarter and will be even more diluted towards the end of 2013. When we will have a more like-for-like more homogenous comparison basis, because [subsidies] come from March 2012 and will be fully in place also for retention from third quarter 2012. Then the negative impact that subsidies had only ARPU will also fade off going forward, so you will have a more like-for-like and more homogenous in comparison. I think that specifically to answer.

Our next question comes from the line of Fabian Lares from JB Capital Markets. Please go ahead. Fabian Lares - JB Capital Markets: Good afternoon. Two questions for you. So, regards to the Irish deal, considering that this is a transaction that reduces the number of players, do you believe that there could be any difficulties in getting regulatory approval? And, if so, could this somehow compromise your objective of reaching the €47 billion by year end as you seem to be counting with the cash from this transaction already even though officially hasn't closed, so perhaps maybe some visibility on it kind of timeline you believe this may have? Second, on the E-Plus, KPN deal, I was keen to know your thoughts over the statements made already in the press by people from German antitrust regulator and others, authorities seem to point to a rather stance in the transaction. Thanks. Ángel Vilá: Thanks for your question. First of all on the Irish deal. We think that the proposal that we are making in Ireland by the sale of our business is very solid and attractive for the Irish market as a whole. I think that the level of competition in the Irish market is high enough to make sure that in spite of this construction there is significant tension. And in fact, you will be a little more robust player and therefore to offer much more attractive offers to customers into different segment. So, we do think that the proposal to the customers and to the Irish market is solid enough to justify the transaction, so we are not expecting major hurdles on that. And, taking your question on the German transaction, it's a very similar. Let me a very bold statement in terms of saying that, again, it doesn't make sense and there are too many players in Europe that in Europe as a whole, as a region wants to play scale. It needs to consolidate. That consolidation is going to be their interest of European consumers and therefore it needs to happen. We think that we have already a strong and compelling case in the case of our German business and then we try to retail that a little bit better. First, from a infrastructure point of view, competition is going to accelerate, because right now you have a [third] because our entry has been layer and the earlier we are lagging behind and therefore we are just struggling to be competitive against two very strong players, so the consolidation of the third and fourth should create an infrastructure based player that is going to accelerate competition and therefore we think we have a solid case in terms of adding competition to that market through this transaction, but then we approach this transaction through the eyes of the customer. I mean, having a stronger player would allow us in our case namely, by a combination of a O2 Germany and E-Plus to have a much more competitive offer to some segments to which we have not been able to be competitive today in the German market like the corporate segment. So, whenever you close a transaction is you don't more intensity and better proposal to both, the consumers and the society as a whole, because it will accelerate investment CapEx and it would accelerate more attractive offers to the customers. So, in both cases, we think that we have a compelling case. Then we finalize by saying that even at the end of the transaction is a transaction was to be completed when the transaction is going to be completed. We still have more than 100 brands in Germany, because we have more than [100] German market, so I don't think this is when I will use significant competition part of the opposite will help us to be much more competitive. Pablo Eguirón: Okay. Thank you, Fabian. We have time for one just final question.

Our last question comes from the line of Jonathan Dann from Barclays. Please go ahead. Jonathan Dann - Barclays: Hi. Three questions. One, have you begun to think about partners for fiber beyond 3 million homes? Then secondly in Latin America, apart from Brazil, are there any other sort of low frequency spectrum auctions coming up in the next two years?

Thank you, Jonathan. I think that our aim is to continue accelerating our fiber deployment. And, as such, we have the Digital agreement, and to remind you that our objective is quite aggressive already and is to reach 8 million household past by 2015. We are seeing good traction and the most important here demand is there, so that we are seeing demand coming from our customers, especially through Fusion. So, we believe that we are well positioned, we have the right partner and we are assigning the right agreements. Santiago Fernández Valbuena: Yes. Jonathan, in terms of the upcoming spectrum auctions and lower frequencies understanding 700 by that the upcoming Chilean auction in Q3 is the one we expect and there is strong talks that Brazil, Columbia, Ecuador, even Peru, might do something next year, but this is more talk. You know that these frequencies tend to be heavily occupied and very noisy and so it's not easy to clean them up, but they might come in 2014. No strict plans that we know of are there yet. Then Mexico and probably Europe, why will come sometime in 2015, but those are more expectations than plans. Jonathan Dann - Barclays: Does an auction in Brazil sort of, I mean, does it mean it gets open up the scope for consolidation. I guess, there isn't enough for all five players? Santiago Fernández Valbuena: It's difficult to answer, because as the rural part is still pending and they deploy full deployment LTE in the upcoming sporting event are likely to concentrate regulatory and inventory auction for the next year. Jonathan Dann - Barclays: Thank you very much.

At this time no further questions will be taken. Santiago Fernández Valbuena: Thank you very much for your participation. We certainly hope that we have provided some useful insights for you. Should you have further questions, we kindly ask you to contact our investor relations department. Good afternoon. Thank you.

Telefonica's January-June 2013 results conference call is over. You may now disconnect your line. Thank you.