Pablo Eguirón - Head of IR Ángel Vilá - CFO and Corporate Development Officer

Georgios Ierodiaconou - Citi Giovanni Montalti - UBS Mandeep Singh - Redburn Partners Mathieu Robilliard - Exane BNP Paribas Justin Funnell - Credit Suisse Luis Prota - Morgan Stanley Ivón Leal - BBVA Frederic Boulan - Nomura Nick Brown - Goldman Sachs Jerry Dellis - Jefferies Will Milner - Arete James Ratzer - New Street Research Sasu Ristimaki - Merrill Lynch

Ladies and gentlemen, thank you for standing by and welcome to Telefónica’s January to March 2014 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 morning, and welcome to Telefónica conference call to discuss January-March 2014 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 unaudited. This presentation may contain announcements that constitute forward-looking statements, which are not guarantees of future performance and involve risk and uncertainties, and that certain results may differ materially from those in the forward-looking statements as a result of various factors. We invite you to read the complete disclaimer included in the first page of the presentation, which you will find 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 releases and the slides, please contact Telefónica’s Investor Relations team in Madrid by dialing the following telephone number, 3(491)-482-8700. Now, let me turn the call to Mr. Ángel Vilá, who will be leading this conference call. Ángel Vilá: Thank you, Pablo. Good afternoon, and welcome to Telefónica’s first quarter 2014 conference call. Today with me is Jose Maria Abril Perez, Chief Operating Officer, so during the Q&A session you will have the opportunity to address to us any questions you may have. Telefónica has released today a strong set of results based on the execution of the management priorities established for 2014. Top line delivered positive year on year organic growth for the fourth quarter in a row and efforts to improve cost structure allowed to consolidate organic OIBDA stabilization versus the first quarter of 2014. Customer value continued to progress in the right direction with significant increase in smartphones, fiber and LTE. This is supported by investments focused on growth on transformation areas leading to accelerated network modernization and setting the basis for further revenue opportunities. Free cash flow generation reached the best figure in the first quarter since 2011 despite higher CapEx, asset disposals and FX effects. Debt reduction of €2.7 billion in the quarter allowed for a significant improvement of leverage metrics to 2.3 times net debt to OIBDA despite the seasonality effect on free cash flow and ForEx. In summary, I would like to highlight that Q1 results are full aligned with our internal expectations and therefore we reiterate our full year outlook dividend included. Please now turn to slide three for a quick review of our financial performance. Reported year on year change reflected a negative ForEx impact mainly due to implicit Venezuelan devaluation to 10.7 bolivars per U.S. dollar, Argentinean peso and Brazilian real depreciation versus the euro along with a deconsolidation of Telefónica Czech Republic since 1st of January 2014. Let me highlight that the FX factor dragged revenue by 11.8 percentage points year-on-year and OIBDA by 11.7 percentage points, but at the same time it reduced CapEx, interest, tax and minorities payments in euros. As such the FX impact on OIBDA is neutralized at free cash flow level. Net income totaled €692 million with an EPS of €0.15 per share. In organic terms sales were up 1.5% year on year and reached over €12.2 billion while OIBDA grew 0.5% year on year and exceeded €3.9 billion with a margin of 32.1%. Finally net debt was reduced to €42.7 billion at the end of March or €41.9 billion including post-closing events. In the next slide let me stress again that free cash flow generation has been the strongest for our first quarter in the last two years achieving €359 million or €433 million before spectrum payments. Let me also remark the positive absolute year on year change in free cash flow of €800 million in the quarter continuing the improved trend initiative in the first quarter of 2013. This performance is based on improvements in every category of free cash flow metrics in spite of adverse FX impacts, CapEx growth and asset disposals. Lastly free cash flow will be recording a better revolution throughout the year as the first quarter is traditionally impacted by seasonal effects. Turning to slide number five, we continue to focus on increasing the value of our customer base through the ongoing launch of differential propositions based on customer insights in each market and with a common approach of the euro pricing. Mobile contract base maintained the high single digit growth rate posted in December 2013 driven by the performance of smartphone net ads doubling those of first quarter 2013 and leading to a penetration of 30%, 9 percentage points up year-on-year, clearly advancing in data monetization strategy. The momentum of LTE fiber and Pay TV improved during the quarter resulting in a remarkable 81% year-on-year increase of homes passed and 90% growth of connected homes and a high single digit growth of Pay TV accesses. All this along with low prepaid smartphone penetration represent a massive opportunity for future growth. In slide six I would like to show the improved organic performance year-on-year from top line to OIBDA. Group revenues were consistently accelerating, 80 basis points versus full year 2013 on the back of our differential diversification. Eastern America was the main contributor to growth and Spain east is base of decline. Our sales mix is evolving towards OIBDA as it is explained by the strong performance of mobile data increasing the weight of non-SMSs by 8 percentage points year-on-year to 71% over mobile data. Good progress on cost management. Transformation and scale efficiencies is reflected in the lowest OpEx year-on-year increase in the last four quarters which resulted in an OIBDA growth of 0.5% versus January-March 2013. Organic OIBDA margin erosion was limited at 0.3 percentage points year-on-year balancing mainly higher network costs coming from increased investments and lower commercial expenses. Let me stress that if we exclude the negative impact from regulation our revenues would have grown 3.4% and OIBDA 1.9% year-on-year. Global resources is consistently contributing to network transformation, IT simplification and higher efficiencies. In networks we are accelerating the deployment of ultra-broadband infrastructure in main markets with 69% of investments devoted to growth and transformation which resulted in approximately two times the number of homes passed with fiber year-on-year and 10 times more LTE sites in service than a year earlier. Let me also highlight that more than 70% of 3G and/or 4G mobile sites are already connected with ultra-broadband technology. In IT simplification of our operating model is delivering results while we continue to progress in infrastructure consolidation. In this sense I would like just to mention that we decommission approximately 80 applications this quarter and more than 35% of our servers are virtualized at the end of March. Moving to slide number eight, let me highlight the progresses made in digital services. Regarding the consumer area, we are gaining market share in the Pay TV businesses in our main markets reinforcing our position in Spain with exclusive content acquired. The area of global device management is supporting a rapid adoption of smartphones with 65% of total devices purchased in the quarter being smartphones. We also announced Yaap, the brand of the digital financial services to be launched in the coming months in Spain by the JV established with CaixaBank and Santander. In the B2B area Telefónica signed a machine to machine deal with JCDecaux to bring urban connectivity in Europe and Latin America and was chosen as partner in Europe by Tesla an industry leader of in-car telematics. Finally we also made strategic investments creating Axonix the first mobile advertising exchange platform owned and powered by a mobile operator and acquiring iOS that enables Telefónica to offer an open source desktop virtualization service. Moving to Spain in slide number nine, our convergent offer, Movistar Fusión continued to gain momentum reaching 3.2 million customers as of March with a higher weight of new upselling customers 71% in the first quarter driving solid trading in a market with increasing customers' preference for quality services. Fiber net adds marked a new record in the quarter with 108,000 maintaining a 17% uptick despite the accelerated base of deployment. Pay TV accesses posted 11% year-on-year growth and contract mobile net loss was significantly reduced both sequentially and year-on-year. Specially worth mentioning is the benefit of the high penetration of Fusión towards a more sustainable revenue model through the continued improvement in our services lifetime thanks to Fusión churn which is notably lower compared to standalone services. At the end of April, underpinned by our differential assets we further increased the value of our offer and revamped Fusión packages including Movistar TV high quality contents in our packages with no price increase. As such, leveraging the Fusión enhanced portfolio and the continued acceleration of the deployment of fiber and LTE networks we expect to foster further commercial activity in the coming months. Turning to slide number 10, we reviewed Telefónica España financials. Revenue recovery trend accelerated in the quarter with year-on-year decline easing sequentially 370 basis points. This performance is explained by improved commercial momentum, lower back book impact leading to the high penetration of new tariffs and higher handset sales driven by intensified commercial effort. Profitability remains solid with OIBDA margin at 46.9% in a very competitive market supported by ongoing efficiency gains and despite increased commercial costs, reflected in higher gross ads and handsets sold. Slide 11 shows a quick review of our operation in UK. We continued to gain high value customers and to maintain market leading contract churn, key initiatives supporting our performance include the success of O2 Refresh proposition or the proactive upgrade of our customers to LTE. I would also like to highlight that 4G services monetization based on increasing data consumption two times versus 3G led to high single digit ARPU uplift. Underlying mobile service revenue trend stabilized year-on-year driven by solid non-SMS revenue growth of 13.9%. In terms of profitability OIBDA margin grew 3.5 percentage points year-on-year benefiting from O2 Refresh and a one-off contribution from the true-up of past commissions in the quarter amounting to €24 million. To review Telefónica Deutschland please turn to slide number 12. LTE continues to gain traction in the market. We keep on seeing very positive signs of LTE adoption with 78% of devices sold being LTE enabled, thus increasing the value of our customer base. With this and the fast rollout of LTE of the LTE network with 50% coverage in April, we are improving our position to capture the data monetization opportunity. As a result and to further promote customer growth, we introduced a Refresh O2 Blue-All-in portfolio for consumers as well as O2 Unite for business. Mobile service revenue year-on-year performance has stabilized though affected by a combination of lower SMS volumes, tariff renewals and weaker prepaid dynamics. I would like to highlight the lower rate of SMSs over data revenues. Up to March this represented 28% of data revenues, 9 percentage points lower than a year ago. At the same time OIBDA and OIBDA margin evolution reflect intensified commercial activities around LTE. In Brazil moving to slide 13 we continue outperforming the mobile market capturing more than 60% of the new contract customers for the third quarter in a row driven by our superior network and better service quality. This strategy allows us to be in the best position to capture the new wave of data growth. Let me also remark the success of Vivo Tudo capturing 4 million customers in just two months. In the fixed business, our turnaround strategy continues focus firstly on a highly segmented approach with quality growth through accelerated fiber deployment as a clear priority and secondly on increased coverage of the fixed wireless technology with growing net ads volumes outside São Paulo. Slide 14 shows our solid Brazilian financial performance. Services revenue year-on-year growth accelerated to 3.8%. Excluding the higher regulatory effect this quarter and meet a more balanced contribution of our fixed and mobile businesses. As such, it is worth to highlight the evolution of fixed business, the best in almost three years and increased contribution of non-SMS data sales growing by 42% year-on-year. Finally, profitability showed limited erosion year-on-year thanks to strong cost discipline and despite more intense commercial activity. Turning to slide number 15, let me summarize our operations in Hispanoamérica with a strong revenue and OIBDA growth in a balanced country contribution as a main highlight this quarter. The region is accelerating its revenue and OIBDA growth even excluding Venezuela. Specially noteworthy is the higher contribution of countries like Mexico, Columbia and Chile posting all of them a strong revenue year-on-year acceleration. During the quarter Telefónica Hispanoamérica recorded a healthy revenue expansion on new revenue sources with non-SMS data revenue up 43% year-on-year as the main growth driver. In the fixed business transformation process to capture increased growth opportunities is also delivering results with fixed broadband and new services up 17% year-on-year and gradually increasing their revenue weight. And finally despite higher network and commercial expenses OIBDA posted a solid year-on-year growth leading to a slight improvement in profitability on strict cost control and efficiency efforts. On a per country overview in slide number 16, Columbia reinforced its market positioning consolidating double digit growth in both revenue and OIBDA. At the same time Argentina posted solid revenue increase while increased profitability year-on-year. In Chile let me highlight that excluding regulatory effects, year-on-year growth has been the highest in the last four years delivering the benefits of better commercial volumes captured in recent quarters. Moving to slide 17, in Peru revenue and OIBDA year-on-year growth trend remains strong with increased profitability year-on-year. In Mexico we posted an outstanding acceleration in revenue year-on-year performance this quarter taking the benefits of our strong network and the reshaped commercial portfolio that is progressively -- let me remark that these results do not yet include any positive impact from the improved regulatory framework expected from Q2. And finally Venezuela and Central America increased volumes remained as the main growth driver with data and voice traffic strongly up year-on-year. Let me now move to the financial side on slide 18. Once again in the first quarter we have demonstrated our deleverage capabilities while reducing our net debt figure by close to €4 billion after Venezuelan Bolivar FX impact or €5 billion when factoring in post-closing events. These efforts translate into a reported net debt figure below €43 billion and leverage rate show a 2.3 times both within the target range. In achieving such figures we have offset the negative effect of Venezuelan Bolivar implicit devaluation with the new higher additions the closing of Telefónica Czech Republic disposal and a growing free cash flow. Slide 19 shows our steady and diversified access to different pockets of liquidity across our footprint with close to €6 billion raise year to date. In parallel we are smoothing our maturity profile by repaying €2.3 billion of higher coupon financings at holding level mainly maturing in 2015. On top of that we maintained an ample liquidity cushion at €22 million which allows us to comfortably address the maturities going forward. Effective interest cost reaching the middle of the target range despite the increase on average cost of debt driven by; one, keeping hedging strategy LatAm currencies with higher cost; and second, reduction held mainly in euro and Czech koruna with lower cost on average within the deliveries in process. To recap, we had a strong start of 2014 increasing customer value and network differentiation while improving financials. Our organic topline and OIBDA accelerated year-on-year with profitability almost flat. At the same time we posted a very solid free cash flow generation the strongest one since 2011. Finally we made a step forward in debt reduction, strengthening our balance sheet and improving leverage ratio. Thank you very much for your attention. Now we are ready to take your questions.

Certainly. Thank you, sir. (Operator Instructions) We’ll now move to our first question from Georgios Ierodiaconou from Citi. Please go ahead. Georgios Ierodiaconou - Citi: Yes, good afternoon and thank you for taking the questions. I have two questions, both on leverage. When I look on slide 18 on the net debt to EBITDA ratios that you show I believe that the (nominator) [ph] of around €18.5 billion includes Irish and Czech EBITDA and Venezuela at the [indiscernible] rate for 9.5 are those for 12 months, so that number is likely to come down materially in the coming quarters. And at the same time you’re already in the process of acquiring Digital Plus and E-Plus and you’ve also been lived with other acquisitions including a very challenging one in Brazil. So my first question is whether the 2.35 times ceiling is a firm target or a medium term aspiration that you may deviate from for a couple of years? And my second question is around your funding options. Based on your comments last year I believe you can issue another €3 billion of hybrid utmost. So is there a firm commitment to maintain the €0.40 cash dividend and would you rollout using your equity as a source of funding for M&A? Thank you very much. Ángel Vilá: Hi Georgios thank you for the questions, this is Ángel. The ratio of 2.30 times net debt to OIBDA is calculated in our tradition with a 12 months rolling OIBDA. This excludes the Telefónica Czech Republic OIBDA because the company was deconsolidated from beginning of this year but for the ratio calculation we have done going backwards adjustment and we have taken Telefónica Czech Republic out of this calculation. Going forward we have a few pending impacts on that, on the one hand we have the sale of Ireland which we are expecting to close in the second quarter and this would reduce that in 780 million, this has not included a deferred payment in addition of €70 million. And then at the time of closing the E-Plus acquisition we would have as Telefónica to pay €4.1 billion, this is including both our share of the rights issue in Telefónica Deutschland and second acquiring a stake of Telefónica Deutschland from PPN, this €4.1 billion would increase our debt but as we announced when we announced the transaction we were going to issue a mandatory convertible for around one third of such figure. So if we were to do the pro forma from the 42.7 that we have closed in the quarter we exclude Ireland, we include the acquisition of E-Plus and then the additions of the mandatory convertible, the figure would be around 44.5 and would be clearly below the 2.35 times net debt to OIBDA once you include the E-Plus OIBDA that we would consolidate. With this we maintain our target of less than 2.35 times net debt to OIBDA and below €43 billion for year end and we still have plenty of options non-organically but also we expect to generate substantial free cash flow between now and the end of the year. With respect to hybrids, I think it was your second question. We have now outstanding €4.2 billion, our issuance of hybrid is motivated by two reasons, one is to support the strategic decisions like M&A or like increasing investments as we are seeing this year or to protect from negative non-organic events as we have seen with the Venezuela devaluation. There would be a limit from ratings agencies up to €7 billion we have outstanding 4.2 and at this stage in the short term we are not planning any further additions. I would like to highlight thought that the last issuance of hybrids, the cost of such have been within the range that we have for senior debt in spite of these instruments being two notches rated below senior. Pablo Eguirón: Thank you, Georgios. Next question please.

Certainly. Our next question now comes from Giovanni Montalti of UBS. Please go ahead. Mr. Montalti your line is open, please go ahead. Giovanni Montalti - UBS: Can you hear me? Okay, high sorry. Couple of questions, could you share with us some talks about your view on the potential addition of the Spanish market following the additional one available there? And do you expect an improvement from the mobile markets, the dynamics coming from this deal? And secondly if you can share with us any update regarding the regulatory review of the fixed access market in Spain. Thank you.

Okay, thanks for your question. Taking your first question out there, transaction been announced by Vodafone acquiring Ono, we do think that we are specially well prepared for a potential market consolidation we think we saw was positive. I think it’s part of the business game. I think that in the longer term, a market with bigger players, integrated players like could be the case of Vodafone plus Ono should evolve in a healthier competition because with the infrastructure base and therefore margins are going to similar and therefore the averaged blended ARPU the customers are going to convergent and therefore I think it's going to be more sustainable. I think that those transactions or these transactions specifically explains part of the aggressiveness of the market in terms of Ono in the last month because they were very eager to increase their size before this potential acquisition. And we do not think this market consolidation is over. Therefore I think that we should be prepared for potentially more in market consolidation, not just in Spain but overall Europe because we think that there are too many meddlers, too many players in Europe and therefore it makes total sense. I think that this is part of our strategy that we are prepared for that, that we have been preparing our company for that mainly in Spain and I think that in the long run it should drive to a healthier competition and to a more sustainable market and to better commercial prospects based on infrastructure product for the consumers. Your second question was about the fixed regulation in Spain but I didn’t understand basically to what you were referring to. Were you referring to the -- which stream of the -- to the unbundling I didn’t catch your question. Giovanni Montalti - UBS: In the review by the telecom authority in Spain for the wholesale access market, explain what should be market number two. If I remember when they should publish public consultation before the beginning of December, wanting to just understand what are your expectations, especially as it relates again regulatory [indiscernible] for farther and possible growth? Thank you.

Okay, understood. I think that you’re referring to the pre-consultation on the markets in Spain number four and number five. We think that the pre-consultation period has clarified the fact that the mobile excess competitive pressure on fees as well and therefore with enough conditions in different area and therefore with enough different alternative players and operators and cable operators, so the integration should explain part of that evolution as well. This new infrastructure competition which should now start to be regulated is we think is the only way to generate growth and competition in the future, so we have reasons to believe that the new rules should go into the right direction. Too soon to say, we expect this new final decision by the end of the year and I think this is not going to be affecting 2014 yet, but we think is going into the right direction. Pablo Eguirón: Thank you, Giovanni. Next question please.

Certainly. Our next question which now comes from Mandeep Singh of Redburn. Please go ahead. Mandeep Singh - Redburn Partners: Hi. Thank you for taking the question. I just wanted to say also when people are asking questions, there is a very big echo going on, it's quite difficult to hear the question. I don’t know if it’s a technical problem. I just wanted to let you know that. My question is really about the Spanish revenue margin dynamic, obviously we’ve seen this quarter an improvement in the rate of decline in the Spanish revenues strong commercial activity. So can you sort of talk to us about the improvement in revenue trends and consensus forecast and how sustainable that is or how consistent that is with a high 4Q margins. Is the cost compared to revenue going to be lower margin? Thank you.

Yes, sure. Thanks for the questions. I think that you have the two effects that you were mentioning in this quarter. First of all we have an OIBDA margin that is 46.9 or 45.3 excluding one-off mainly the towers one-off. As you compare that with the first quarter of the previous year which where the margin was 47% we have a drop of excluding one-off of 1.6%. The explanation of that drop which I think is more comparable first quarter versus first quarter is explained by several factors. First we have had better performance on revenues and therefore that has a positive effective on our OIBDA which is in the neighborhood including [indiscernible] of 2.9 percentage points. Then you have that we have been more aggressively investing in the commercial effort and that brings 4.4 percentage points of the evolution of the margin. Therefore the impact of the margin should be judge up on the most -- more aggressive commercial effort that we have been doing. The next question would be, why are you being more aggressive now and not a year ago? First because we see the macroeconomic situation of Spain improving, we see now value in the market, we see now value that is worth to be captured and that explains why we’re having this quarter some record figures of the commercial activity namely TV gross ads for example having multiplied almost by three times, mobile contract has increased by 9 percentage points, fiber gross ads have increased by 75% and handset upgrades 12%. Next question should be, I don't know what's the impact on revenues? I mean we have been improving the rate of decline of revenues to 8.2% compared with 11.9% at the end of the last year, but if you were to exclude handsets and regulation, the impact will be that our current revenue level will be 7.1% compared with 9.6%. So we are trying to accelerate the revenue trends in Spain because now we see value, this is having an impact on our OIBDA, but I think that now that these new customers are going to flowing through our accounts, this impact should be more limited because we keep working on the efficiency initiatives namely in Spain but also at the level of the group and therefore we think that these level of revenues at the group level, but mainly in Spain is much more sustainable this quarter than a year ago. So we’ll keep going. We think that you will see that you would have seen that in Spain, we launched a new Fusión proposition for the existing customers in April. As we speak, we are having record number of sales in terms of TV ads and we are basically getting back to the figures of Fusión when we launched Fusión initially. So we have reasons to believe that the market on the integrated player and namely on our TV and fiber proposition is paying off. So we will keep going and we think it's the right thing to do. Pablo Eguirón: Thank you, Mandeep. Next question please.

Certainly. Our next question comes from Mathieu Robilliard from Exane BNP Paribas. Please go ahead. Mathieu Robilliard - Exane BNP Paribas: Yes. Good afternoon. Thank you very much. Question on Brazil on fixed actually. I am intrigued by your product fixed wireless that you launched a few quarter ago and seems to be doing quite well. And I wonder is that just an add-on to your mobile strategy in Brazil or is that the beginning of something a bit bigger where you want to be more present in the fixed business in regions outside of Sao Paulo. Clearly in a world were convergence is going to increase even though it’s not there yet in Brazil, but also where you could have some synergies from a on network point of view. I guess the question is, what is your fixed line strategy in Brazil apart from Sao Paulo, and does this product -- is this product the beginning of something? Then a second question about spectrum auctions also in Brazil, it seems the regulator and certainly the government seems quite intent on having that go through in August, and I just wanted to know what was your view on this spectrum auction? Thank you.

Thanks for your questions. On the fixed wireless, our position outside Sao Paulo in Brazil is a standalone strategy, so we are not just bundling there with our mobile product and therefore we need to -- it needs to make the numbers in terms of margin by itself, so we are not just subsiding or gross subsiding one product to the other. We are monitoring that very closely in terms of churn and in terms of subscriber acquisition cost. And in Spain we are taking advantage of the commercial capital distribution that we have in Brazil and also the brand outside Sao Paulo. So it make sense. Its generating good results, but we need to judge this strategy not together or jointly with the mobile strategy, but by itself for the time being. So it’s not a bundle product so far. And in terms of the spectrum auction in Brazil, too soon to say. I mean we are monitoring very closely that, so if you were to ask us, if we need that for 4G this year, the answer is no. We are developing and launching aggressively our 4G proposition in Brazil in the spectrum that we have, but we need to be very careful. The final rules are expected for July with the minimum prices included. And also there are some uncertainties about what are there going to be the cleanup -- of the cost of cleanup of the migration of TV broadcasting in some of the cities. So still too soon to say, it’s still too much of uncertainty, but as you might imagine, we are monitoring very closely.

Thank you. The next question comes from Justin Funnell of Credit Suisse. Please go ahead sir. Justin Funnell - Credit Suisse: Here just on Fusión, I think you mentioned the ARPU is €70 and that’s flat. I am not sure can you tell us what the ARPU on Fusión had been doing year-over-year in prior quarters? Had it been falling year-on-year and it’s now sort of since the year-on-year trends are improving or was it the other way around, had ARPU been growing and it’s come down to flat? I presume it’s the first if you could clarify? Secondly in Brazil, I think breakup of TOKO that maybe coming in June gives you an opportunity to go back and have discussions regarding about your stake in NCI. Have you got any thoughts at this stage that whether you’ll be able to retain the 15% or is it just simply way to early? Ángel Vilá: Hi, Justin, this is Ángel, I'll take the second question regarding the Telco demerger in June. The demerger is opportunity that is contemplated in the shareholder agreement and this can be requested by any shareholder. We have not taken as Telefónica any decision in this respect, although we have seen that some of our partners have been making some statements, but they have not made any formal indication to us on this now. The Brazilian got a rulings which are public on their webpage and we have also made some public statements on them, could be somehow or partially facilitated by demerger. But again I want to stress that we have not taken any decision on this. For the time being of course we will have no problem to maintain our 14.8% stake. We have no presence on the Board of Telecom Italia and we have never had any interference from Brazilian matters when it comes to the Telecom Italia. Attractions of such a potential consolidation remain the same. We have very good performance and as I was saying before in the presentation we continue to grab more than 60% market share of the net ads quarter after quarter. In Brazil, the market is clearly attractive. Both our competitors have been posting, presenting the results recently and one can see that the market is doing nicely. We continue to be strong believers in market consolidation benefits for the market and for the citizens in the markets where that could take place. And if anything, I was saying in the previous conference call that lots of stars need to get aligned maybe some stars are starting to align, but still many things would still have to happen for a consolidation to take place.

The ARPU in Fusión we are tracking that quarter over quarter, Fusión is still a bit -- very young product, but so far the ARPU is very, pretty stable and we are starting to have the first layers of our Fusión customers with their contract maturing, the ARPU -- sorry the churn of those customers are significantly lower than the churn of the customers that have one single product. So from both sides I think that we can already say that he is after right on after the launching of Fusión that it has been a successful product in terms of ARPU stability, in terms of churn reduction and intensive value creation. The customer mix of the Fusión customers continue to improve, 71% of those ads, the recent gross ads are new or upselling customers, were just 64% a quarter ago and it’s significantly protecting our customer base because the lifetime of a Fusión customer is much longer. So from any metric, ARPU or churn or subscriber acquisition cost, Fusión is a good product, it’s helping us to significantly anchored the value for our revenues in Spain and with the new value proposition let me stress again that the figures that we have from April are pretty promising. So with the new TV offer, I think it’s going to be even better. It’s also helping us on the mobile side. We are as of April figures we are getting much closer to a stability and on our customer base in the mobile in the contract mobile customer base, so in all metrics Fusión is helping us significantly. Pablo Eguirón: Thank you, Justin. Next question please.

Certainly. Our next question here comes from Luis Prota of Morgan Stanley. Please go ahead. Luis Prota - Morgan Stanley: Yes, thank you. Two questions please, the first is on Mexico. I wonder if you could give us some figures on the impact from the lower termination rates applied to America Móvil, how that will benefit Telefónica from the second quarter and also when these termination rates go to zero with the new legislation, what is the upside there not just from a direct impact but also from the indirect implications in terms of your potential increasing market share? And second question is on Venezuela, on the exchange rate you’re using to consolidate earnings from that country and cash flows. You are now moving to Sicad I, but we are already seeing a few bunch of companies that have moved to Sicad II closer to 50 Bolivars per dollar. What are your thoughts there? Is there any need to move there? Is there liquidity enough in either Sicad I or Sicad II or where are your plans? Thank you. Ángel Vilá: Hello Luis. This is Ángel, I will take the question on Venezuela. In Venezuela we have currently three exchange rate systems, one is called Cencoex which is the old Cadivi of 6.3 bolivars to dollar, the second one is Sicad I which is the one that we are using for our accounts which has periodic auctions and at the end of March it was a 10.7 bolivars to dollars which is how we have accounted. And then the third system is called Sicad II which is, that it also has several periodic auctions and at this stage it’s closer to 40 something or 50. The volumes that the authorities have been telling publicly that they expect to go through these systems, the first system which is the old Cadivi a Cencoex is supposed to be around two thirds to 70% of the volume of transactions, these we cannot access, this is for basic items like medicines, food, education and very basic services and products. The second one which has been explicitly stated that this is one to apply to industries like telecoms, the Sicad I, the 10.70 at this point is going to have a volume of around 25% to 30% of the transactions and then the Sicad II has very little liquidity and is going to be something around 5% to 8% of the total volume. This one has been for instance according to Venezuelan regulation, the ones applied to consumer goods companies like the ones that you must be thinking that have been recently reporting on Sicad II. So first, regarding the volume that these different systems have and second, regarding the regulation that we have in Venezuela, we are reporting in full agreement with an auditor which by the way is in agreement between the big four auditing firms for all the companies operating in Venezuela, we are operating at Sicad I. Also as you would imagine, given the situation and the evolution of the country we continue to explore potential alternatives to invest our liquidity and protect it from inflation and some of those alternatives that we are looking would be closer to Sicad I than to Sicad II and hopefully we may be able to reach some success on this in the future, but we are still not there.

Luis taking your question about Mexico, first two things. Since the reform was announced initially, severally things have started to happen. The most recent events are that the Telcel America have been declared preponderant players and therefore they’re subject to significant asymmetry. The levels of asymmetry is the things that is currently under discussion and also other elements of the regulation. This regulation has been submitted to the senate and to the Congress in Mexico and therefore it’s going to be debated in the very-very short run. The level of asymmetry that have been announced initially are significant and could allow if those were finally the levels to be applied to significantly have an impact on the all net tariffs of the Mexico market, which again could create a significant movement towards opening some close ecosystems of customers like namely the ones of Telcel because we could become competitive in terms of the interconnection cost compared with the all net tariff. Too soon to say because this detailed regulation is going to be under discussion in Mexico in the next few weeks we hope, but potentially very relevant for the Mexican market. The results that we’re getting so far in this first quarter from our Mexican units have no impact of that yet and therefore it’s totally dependent on the evolution of our own effort with the current regulation, but we think that if this regulation was to crystallize, there is a significant upside because competition was significantly being enhanced the Mexican market.

Our next question comes from Ivón Leal of BBVA. Please go ahead. Ivón Leal - BBVA: Hello. Good afternoon everybody. Just two on Spain for my part. I don’t know if you could share with us the cost of your new commercial strategy in Spain, that is the content cost of Pay TV in your subscriber base and maybe also the cost of the CapEx of migrating all of your Fusión subscribers to fiber? And maybe the second one is, what is the reason behind not extending the fiber agreement with Telcel and just going to be those 30 million homes by your own?

Well, in terms of -- we’ll not detail the cost of the commercial strategy in terms of the content because it’s sensitive commercial information. I tried to address in the previous question that it represents 4.4 percentage points of the reconciliation so to say, but we cannot go farther than that namely on the content side because it’s a pretty sensitive issue as you know. In terms of the cost of migrating customers, I mean to fiber customers, again to detail the information is not the thing we should do, but let me tell you that if we were able to migrate entirely our copper customers in one specific central switch to the fiber customer, the cost of maintaining a fiber network is significantly lower than the ones of maintaining a copper one. So when I try to accelerate that as much as we can and it is true that in the meantime it has an overlapping effects, but it is more than compensated by the fact that churn on fiber is significantly lower than churn on ADSL. In terms of the fiber agreement with Telcel, I mean it’s open to commercial discussion as you might imagine but we are accelerating, we cannot wait for other and therefore we’ll keep going. Our aim it double the home pass this year and we’re executing. So who knows what’s going to happen in the Spanish market, in the mean time we cannot wait. We need to keep going.

The next question comes from Frederic Boulan from Nomura. Please go ahead. Frederic Boulan - Nomura: Hi, good afternoon. Thanks for the question. Firstly if you could elaborate just a follow-up on the question on Ono initially if you could -- could it make you revisit your current sense on fiber wholesale specifically with Orange and do you think Vodafone Ono could emerge as a competitor on high-speed broadband wholesale access? And secondly on Fusión, you now have sort of the broadband base upgraded, what do you think is the trend from here defining it harder to grow from current levels hence the April product refresh and how do you think the materials will -- what they will do if you manage to push this product to the majority of your broadband base? Thank you.

Thanks for the question, on the Ono implications for the overall market and namely for some of our competitors, I mean too soon to say. We think that it’s going to take a while for this transaction to be completed and in the meantime, a lot of things are happening in the Spanish market. Some of our competitors are trying to accelerate to our convergent products, others are more worried and I might consider alternatives of selling or merging. So too soon to say what’s going to be the response of other players, believe me too soon to say. Are we open to a partnership, for sure, but we don’t know what’s going to be the strategic options that other players are going to be considering in Spain. In terms of Fusión, I mean we think that again I mean the fact that we have been that we have now 71% of the customers that come in to Fusión that are either an upsell or are new customers indicate that there is still room to grow and namely on this TV -- on the TV effort that we are doing. Just by launching this new Fusión with TV included for the existing customers and migrating some of those customers from the existing product to fiber, is creating an amazing impact commercially speaking in the last two weeks. We intend to keep going, you should expect from us another commercial move in the coming weeks in order to try to accelerate and to incentivize the markets also in other segments of the market. So we still think that through Fusión, through adding more value on the converged product, we still have significant room to grow and we think that this could contribute significantly to revenue stabilization to finally revenue stabilization for Telefónica in Spain. So we have a significant expectation for the next months, around Fusión and around Spanish revenues. Pablo Eguirón: Thank you, Frederic. Next question please.

Certainly. Thank you. Our next question now comes from Nick Brown of Goldman Sachs. Please go ahead. Nick Brown - Goldman Sachs: Thanks. Two questions please, firstly how should we think about your priorities for non-organic strategic options now? Do you think you need more content, more fixed line presence or do you think there is further opportunities to participate in mobile consolidation in some of your other markets like Brazil? Secondly, assuming the E-Plus that was approved, how can you respond to the increased threat from rival convergence bundles in Germany? Do you think wholesaling fiber will be enough? Thanks. Ángel Vilá: With respect to the first question, our priorities for an organic growth, we are happy with the scale that we have, so have had ambitions to go beyond the current footprint where we are present and yes we have been -- we continue to be acting on two fronts. One is to be looking for stronger positions in the market where we operate and this clearly we are trying to achieve the end market consolidation. This market consolidation can be mobile consolidation, can also be fixed to mobile conversion consolidation or you can include content components as we have seen with the recently announced offer that we made for Digital Plus in Spain that was accepted by Prisa. And the second line that we continue to work is on optimizing our portfolio of assets in those markets where we made in it interesting to be consolidated like what we did in Ireland, we may contemplate those options if there is interest for some of our assets.

Taking your question about the German market, first let me say that we are not seeing in the German market as we speak today a move to what converts, total convergent proposition to the customers and therefore with the transaction that is currently subject to approval with the E-Plus transaction and the agreement that we have in place for wire line and for PDSA line, that warranty size technological evolution, therefore we can be competitive and in fact we are starting to get some traction on the wire line revenues in Germany as well. We think that for the time being we are prepared to face a situation of that market, in fact I think that the E-Plus transaction being approved, we will become a significant player on the German market. So, so far the answer is we are not seeing that trend happening in Germany, we will monitor that but for the time being, the convergent strategy is depending on what the leader is doing in each one of the markets and we've been the leader of the German market so far now and moving aggressively towards a total 4P product. So for the time being, we don’t feel this is a need. Pablo Eguirón: Thank you, Nick. Next question please.

Certainly thank you. Our next question comes from Jerry Dellis of Jefferies. Please go ahead. Jerry Dellis - Jefferies: Yes. Good afternoon. Thank you for taking the questions, the first question is just on Spain, if I may. On a teamed up basis, it looks as though in Spain, net costs are sort of down 5% year-on-year this quarter and previous quarters that trend has been the order of sort of minus 20%. Obviously we understand it was a ramp up in commercial investments but obviously going forward, content cost could be running at high levels as well. So how should we think about the progression in the net cost base going forward is minus 5% for example the sort of level that you would deem acceptable going forward. And then secondly related to Brazil if I may, obviously there was a very heavy commercial investment there as well this quarter, but broadband attach were negative albeit very fractionally negative and I think local management commented that competition was pretty fierce in the last quarter. So I wonder whether you could please just describe what's sort of going on in the Brazilian fixed broadband market and how we might expect that to evolve going forward? Thank you.

Thanks for your question. Taking the one on the -- the first one on the Spanish cost evolution on the trend of cost reduction, year-on-year the comparison is harder because some of the initiatives that we have started to put in place three years ago like the voluntary employee retirement plan and the handset subsidy reduction and others, the year-on-year comparison start to fade away and therefore it basically -- those are there to stay, but in order to improve, we need more water and now we need to face this situation in which we do see value in investing more commercially and therefore for the next few quarters, we see this on top of the table, we’ll do the same, we’ll keep investing in the market because we see value there and therefore the commercial cost is also going to be there to stay probably namely on the content side. So what we are doing is, we are preparing the second wave of cost reduction in Spain which includes a channel optimization, we are reviewing the number of the stores that we have, the ones that are more efficient than the others, we are investing in the most efficient ones, we are going to be trying to close some of the others and we are aiming, we introduced in the neighborhood of 10% to 15% at points of sale that we have and on top of that, we are significantly increasing the activities overall by channel and therefore that should also help to increase productivity. On top of that we are in sourcing all the activities that we can and this is going to have another impact in terms of margin. And finally remember that we have put in place at the level of the group at €1.5 billion initiative in terms of basically generating savings at the level of the group in OpEx and CapEx and Spain being one of the largest unities, one of them is going to be one of the most favorite unit as well. So basically summarizing some of the parts of initiatives that we have started to take two years ago, three years ago are there to stay and therefore that provides a cushion in terms of the sustainability of the existing margins. The commercial cost will keep growing if we keep seeing value and we do see value for the time being and we are already working on the second wave of optimization in Spain that allow us to think that this 5% should be improved. How much we don’t know yet. And then on the Brazilian situation, well it’s true that we have been having a slight negative net ads in the broadband market but the commercial cost overall are related to the overall of the market and we have been forcing a huge significant performance in terms of contracting that and also the launch of the Vivo Tudo which commercially requires significant effort. The performance, the weak performance on fixed broadband is due to seasonal effects, if we have lower number of business days and the summer vacation period as well but nevertheless, you should also take into consideration the fact that now we are running São Paulo as an integrated region which means that we are for every demand that we have for every customer in terms of broadband access depending on where he is sitting we serve him through a 4G or through a 3G increased proposition or through fiber or through ADSL. So -- and that’s why you should start measuring the total amount of broadband customers that we have in São Paulo, because now we are treating the region as a whole independent of the nature of the access that we are providing the customer with. Pablo Eguirón: Thank you, Jerry. Next question please.

Certainly. Thank you. We’ll now move to our next question which comes from Will Milner of Arete Research. Please go ahead. Will Milner - Arete: Thanks very much for taking the question. Just on the main market obviously, the accounting for the handset sales there, looks like you’re still having quite a big impact on the reported growth trends and I just wondered if you could clarify if for any other markets where you’re accounting for handsets in the same way and I guess I'll probably go half in Spain and the big reversal in equipment sales which have been falling but are now growing hopefully again. So that’s the first one and then secondly just on the Digital Plus acquisition that you announced yesterday or early this week, could you just sort of walk us through why you’re confident that deal should get clearance from the various regulatory and competitive bodies it does sort of seem to leave you a very high share of Pay TV in the Spanish market? Thanks.

Okay, thanks for your questions. The first one on which are the markets we are accounting in a similar way to the O2 Refresh is in Germany in which the My Handy product is accounted in a similar way and from the O2 Refresh this is the only other time we want to remember right now. But if there is any other, I will keep you posted, but I think that the only one that I can remember now is in Germany with the My Handy proposition. And in terms of the Digital Plus offer that we have put on top of the table, we do things, several things. First, the level of competition on the Pay TV market now needs to judged not just on the Pay TV market itself but also on who is competing for content, and who is competing for content right now taking into consideration the nature of the Spanish market in which free-to-air TV has a significant market share and on top of that, it’s a significantly content consumer. I think that the market shares in terms of who is going to be able to compete for content should be judged more extensively and top of that now you have other source of competition, namely through the over the top players and also some other competitors in Spain that are integrating themselves. So our proposal that we think that this nature of this Spanish market is changing structurally, that the nature of the video market is globally worldwide is changing as well as structurally and this is a trend. Look at what’s going on in the U.S. market and in other markets in Europe. So we do think that we have reasons to believe that the level of competition in the Spanish market is going to be preserved or even increased, but again, too soon to say, this is a process that has just started, it's going to take long, it’s going to take approximately at least 12 months, we think. So too soon to say what’s going to happen. We intent to collaborate intensively with the antitrust authorities and we will see. But we think that we have strong arguments to put on top of the table.

Thank you. Our next question now comes from James Ratzer from New Street Research. Please go ahead. James Ratzer - New Street Research: Yes, good afternoon. Thank you very much indeed for taking the questions. Two questions please, the first one is just regarding this statement you make about the Spanish business where you’re saying the back book reprising is now largely digested. I’m just trying to kind of crosscheck that against your Fusión ARPU, which you say is about €70 which I think would about €85 including sales tax which seems higher than most of your headline Fusión price point, so if you could help me to match those two statements that will be helpful? And then the second question was regarding the strategic outlook for your UK business. British Telecom yesterday made a more formal announcement about them move into offering mobile services and so may hope to offer a kind of compelling proposition in the consumer segment. Do you think you might need to follow suite and do something to maybe reverse your sale of the fixed line business? Would you even consider actually selling O2 UK? Many thanks, bye-bye. Ángel Vilá: With regard to the UK operation, I have to say that our UK operations are core -- the UK mobile market is improving and O2 UK has a strong position and a positive momentum in the market. We are not contemplating divesting our UK operation.

In terms of the question about the ARPU at Fusión and how to reconcile that with the current offer, we are not providing any information on that but I would strongly suggest to include the fact that some of our customers in Fusión have add-ons and therefore the €70 or the commercial offer needs to be completed with the add-ons that each of the customers are choosing because we are putting in front of them a catalog of potential add-ons that will be on top of the nominal price of the offer that they are considering. So the way to reconcile that, the nominal ARPU, the offer is considering the add-ons and a significant increase in number of the customers that we are seeing now in the Spanish market are going now just to the basic offer, but with at least one of the add-ons which proved that the Spanish recoveries are starting to flow somehow to our commercial offer and on top of that, that Fusión is not just the nominal offer but potentially there the services that consumers are adding on top of the basic offer.

Our next question now comes from Akhil Dattani of JPMorgan. Please go ahead. Akhil, your line is open. Please go ahead. And it appears, this caller has stepped away from their phone. So I’ll now move to our next question from Sasu Ristimaki from Merrill Lynch. Please go ahead. Sasu Ristimaki - Merrill Lynch: What is your current net cash balance in Venezuela and to what extent have you been able to repatriate funds at this Sicad 1 rate that you applied to the situation at the moment? Thanks. Ángel Vilá: Euros equivalent accounted at 10.70 bolivars per dollar and we have not been able to repatriate at this rate.

We have no further questions at this time sir. Pablo Eguirón: Okay, thank you very much. And thank you for your participation. We certainly do hope that we have provided with useful answers for you. Should you still have other questions, we kindly ask you to contact our Investor Relations department in Madrid. Thank you very much.

Thank you. Telefonica’s January to March 2014 results conference call is over. You may now disconnect your line. Thank you.