Pablo Eguirón – Head, IR Ángel Vilá – CFO and Corporate Development Officer

Georgios Ierodiaconou – Citi Giovanni Montalti – UBS Akhil Dattani – JP Morgan Paul Marsch – Berenberg Bank Justin Funnell – Credit Suisse Luis Prota – Morgan Stanley Fabián Lares – JB Capital Markets David Wright – Bank of America Jean-Francois Paren – Credit Agricole Jerry Dellis – Jefferies Nick Brown – Goldman Sachs Keval Khiroya – Deutsche Bank

Good day, ladies and gentlemen. Thank you for standing by and welcome to Telefonica’s January to June 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 afternoon, and welcome to Telefonica’s conference call to discuss January-June 2014 results. I’m Pablo Eguirón, Head of Investor Relations. And before proceeding, let me mention that this document contains financial information that has been prepared under International Financial Reporting Standards. This financial information is valid [ph]. This presentation may contain announcements that constitute forward-looking statements, which are not guarantees of future performance and involve risk and uncertainties. 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, contact Telefonica’s Investor Relations team in Madrid by dialing the following telephone number, 3(491)-482-8700. Now, let me turn the call over to our Chief Financial and Corporate Development Officer, Mr. Ángel Vilá, who will be leading this conference call. Ángel Vilá: Thank you, Pablo. Good afternoon, and welcome to Telefonica’s first half 2014 results conference call. Today with me is Jose Maria Alvarez-Pallete, Chief Operating Officer. So during the Q&A session, you will have the opportunity to address to us any questions you may have. Telefonica has released today a strong set of results based on the execution of the management priorities established for the year. First, the quarter evidenced a pickup in commercial activity with remarkable momentum in net add, especially Pay TV, mobile contract, smartphones and fiber. We are working on expanding customer value by reducing churn and improving ARPU. Second, top line grew year-on-year for the fifth consecutive quarter boosted by Telefonica’s Hispanoamerica growing at double-digit and mobile data ongoing expansion. Third, OIBDA was stable year-on-year. Financing increased their force in commercial expenses with cost savings from efficiencies. As such, OIBDA margins posted a limited decline year-on-year in organic terms both in the semester and in the quarter. Fourth, spending for network differentiation continues to accelerate. If financial flexibility was sustained benefiting from a strong free cash flow of EUR1.7 billion in the six months to June while net debt stood at EUR43 million after the sale of Ireland closed in July. Fifth, EPS posted an outstanding sequential improvement, EUR2.26 per share in Q2. And finally, let me remark that these results are fully aligned with our expectations and therefore our guidance and dividend policy are confirmed. Let me now start with a summary of key financials on Slide 3. Reported first half evolution was impacted by negative FX and the deconsolidation of Telefonica Czech Republic. Although in Q2, both impacts slowed down slightly. The first factor, FX, is at 7.9 percentage points in the semester and 10 percentage points in the second quarter to revenue and OIBDA variation. But at the same time, reduced the payments in euros of CapEx, interest, taxes and minorities; therefore, the FX impact on OIBDA is virtually neutralized at free cash flow level. In organic terms, second quarter revenues posted a consistent performance versus the first quarter, growing 1.3% year-on-year to reach EUR25 billion in the first half, while OIBDA topped [ph] EUR8.1 billion and remained flat. OIBDA margins stood at 32.3%, 50 basis points lower than in the first six months of 2013. Lastly, net debt stood at EUR43.8 billion at the end of June, EUR6 billion lower than last year’s figure. On Slide 4, I would like to stress that commercial activity ramped up showing very strong volumes. This way, total net add exceeded EUR2.6 million, growing 40% quarter-on-quarter and posting a better trend in most categories, but especially in high value services such as mobile contract, Pay TV and fiber. We continue to focus on value and growth levers, as I just said, increasing customer loyalty on the back of customer differential propositions. This strategy translated into a sequential improvement of churn levels across the board. Slide 5 shows the remarkable growth of future key drivers, highlighting Pay TV momentum up 32% year-on-year. Connected fiber accesses double year-on-year and LTE coverage in Europe reached almost 50% of the population. Smartphone traction continues and penetration expanded 8 percentage points year-on-year to 32%. As such, the strong investments in customer expansion enable to improve customer satisfaction and differentiation, setting the stage for further sustainable growth. Best in class portfolio diversification by geographies and services underpinned organic revenue growth as shown in Slide #6. In first half of 2014, Telefonica’s Hispanoamerica and Telefonica Brazil remained as key growth areas, more than offsetting the wholesales by some of our European businesses. Let me also highlight mobile data revenues which accelerated revenue growth in Q2 to 9.2% year-on-year and increased the weight of our mobile service revenues to 40% which is 3 percentage points up year-on-year. Revenue flow coupled with good progress on cost-efficiencies allowed the cumulative for EBITDA to remain flat year-on-year organically. Margin declined 50 basis points year-on-year in the first six months and 60 basis points in the second quarter, reflecting higher customer investments linked to capture future growth. In Slide #7, free cash flow generation was robust in the six months to June, reaching EUR1.7 billion or exceeding EUR1.8 billion before spectrum payments. I would like to highlight the 14.7% year-on-year growth in free cash flow, levered on improvements in most categories of free cash flow metrics. Despite adverse FX effects, CapEx increased on assets sold. Let me remind you that the first half of the year is traditionally impacted by seasonal effects. Therefore, free cash flow should record a better performance in the second half. We continue to invest strongly to improve quality and capacity and foster growth, as shown on Slide 8. On network, we keep on accelerating use of broadband deployments in order to meet steady increases. 4G is increasingly available for customers in key markets. With recent new launch in [indiscernible] on fiber, we have doubled the size of the network, having impact [ph] more than 10 million premises. We are exploiting technology to provide the best data experience, combined with multiple initiatives which are leveraged on our scaling. One example is the global management of roaming traffic already in place in our major markets. IT is helping businesses transformation according to common principles, such as standardization, modernization, reutilization and automatization. We give you some examples. We launched more business support projects across Telefonica’s Hispanoamerica and we are strengthening our digital capabilities for marketing and self-care. Finally, efforts on simplification and consolidation continue. With more than 6% of physical servers review, over 160 applications decommissioned, three additional data centers closed and sustained progress progression on virtualization. Turning to Slide #9, let me go through the main progresses achieved in the digital arena. In the B2B area, solid year-on-year growth rates are shown in different services. Machine to Machine is growing by more than 50% on solid access trends and key deals signed in the first half. Cloud revenue was up 20%. And information security surpassed 40% increase. With relevant agreements reached this quarter such as the one with Etisalat. Regarding the consumer segment, video stood as one of the key drivers. With revenues accelerating above 15% year-on-year, as we continue to focus on reinforcing our position with exclusive content acquisition. The global device management is driving the smartphone adoption with special focus on LTE as the total volume of LTE increased eightfold year-on-year. Finally in financial services I would like to highlight the launch of Yaap Shopping in Spain allowing customers some stores to be connected to discount offers and loyalty program. Let me now update you on the progress of our business in Spain, which is showing signs of recovery driven by an intense commercial performance. Our new quadruple play offer leveraged on our superior TV and fiber is a game changer in the Spanish marketplace as shown by outstanding Q2 net adds pushed by higher growth adds and especially by churn reduction across services. Churn reduction of the new conversion offer allowed us to reach 1.2 million TV customers and 0.9 million fiber accesses in June paving the way to build the leading platform for content delivery at home. We have also repositioned 0.7 million Fusion customers in the quarter which implies resetting the 12-month commitment with the service. While in the mobile business, improved portability trends, net contract mobile net adds to turn positive for the first time since Q2 2011. Fusion is not only helping to gain commercial momentum and extend the lifetime of our customers by dramatically reducing churn, but it is also enhancing the value of the base by accelerating the take up of high value services as reflected by that close to 80% of new customers are opting for high packages in Q2. This commercial performance is leveraged on a strong network differentiation. And we keep investing to large discount. We have already passed 7 million premises after increasing by 1.3 million, the premises covered in just one quarter. Spain’s financial performance is shown on Slide 11, the progress in recent quarters, which allows us to think that revenues have already reached the bottom. This improvement has been driven by lower reprising impact and progressive stabilization of the customer base. So the improved commercial performance that we are already noticing should lead revenues to gradually improve year-on-year trends and to grow again in the coming quarters. In terms of profitability, OIBDA margin declined in the quarter reflected the strong commercial effort devoted to anticipate revenue recovery by capturing the value we see in a market that is finally showing a clear macro turnaround.] Please turn to Slide 12 for a review of our operation in U.K. From a trading standpoint, commercial momentum picked up in the second quarter and as part of this, our contract churn improved to record 1% extending the market leading loyalty. O2 Refresh continues to be a successful proposition together with the prerogative upgrade of high value customers to LTE, resulting a contract segment increase of mid single-digit. Top line returned to growth in the second quarter despite the negative contribution of Refresh following its anniversary in April 14 and the disposal of six business assets. The sequential improvement of revenue trends is the result of non-SMS data revenue acceleration to almost 20% year-on-year. Lastly, improving business dynamics translated into a stable OIBDA and margin in Q2 when excluding non-recurrent effect. In Germany, commercial dynamics reflect the strong direction of new propositions with both gross adds and contract churn improving their trend. As a result, contract net adds more than doubled the average of the last four quarters. Additionally, we continue to focus on LTE deployment reaching a coverage of 52% at the end of June. LTE consolidated as the main driver of mobile data monetization in a very competitive market with 86% of handsets sold in Q2 versus 40% a year earlier. In this context, mobile service revenue showed a better year-on-year trend in the second quarter, down only by 2.5% when excluding MTRs on lower ARPU dilution. Q2 OIBDA margin was 2.7 percentage points lower year-on-year following the increased commercial investment enhanced trading momentum. Finally, I would like to remind that we have overcome an important milestone in the acquisition of E-Plus with the easy conditional approval on July 2nd. In Brazil, turning to Slide 14, our leadership position in network quality and brand perception gave a strong performance in the most valuable segments of the mobile business. As such, for four quarters in a row, we captured more than 60% of the contract net additions, while smartphone penetration almost doubled year-on-year to 32%. As a result, we have expanded our contract market share by 3.4 percentage points year-on-year to 41.3%. In the fixed business, the execution of our turnaround strategy continues on track, with second quarter net adds of fixed services accelerating. On top of that, fiber optic spans out after connecting 37,000 households on accelerated fiber deployment that already reached 2.9 million premises passed. This operational performance resulted in an improved revenue and OIBDA trend as Slide #15 shows. Service revenue growth accelerated year-on-year despite the increased negative regulatory effect this quarter. As such, service revenue would be growing about 6% when regulation is excluded. Also excluding regulatory impacts, mobile service revenue ramped up to 11% in Q2 year-on-year on strong mobile data growth which grew once again 40% year-on-year. Fixed revenue slightly accelerated on lower working days due to the Football World Cup. At the same time, OIBDA reverted the trend of last quarter’s growing 4% year-on-year in Q2 on revenue improvement and on a strict cost discipline, offsetting higher commercial costs incurred to keep improving our market position. Turning to Slide #16, in Telefonica Hispanoamerica, we kept posting a strong revenue and OIBDA growth. As such, excluding regulation, second quarter revenues grew by 13% year-on-year or 12% when excluding Venezuela, with a solid performance across the board. This evolution is underpinned by the growing uptick of non-SMS mobile data posting an increase of 41.5% year-on-year in Q2 along with the higher penetration of fixed broadband and new services above 18% this quarter. At the same time, let me remark that this revenue performance is steadily flowing into OIBDA offsetting higher commercial and network expenses. All countries in the region with exception of Uruguay are growing OIBDA year-on-year which keeps accelerating and growing double-digit even after excluding Venezuela. On a per country review, let’s move to Slide #17. In Colombia, solid revenue and OIBDA year-on-year growth remained in Q2 underpinned by structural changes implemented by the regulator one year ago. In Argentina, revenue and OIBDA were both growing above 20% versus Q2 ‘13. With year-on-year erosion in profitability reflecting currency depreciation and inflation driven costs. In Chile, revenue and OIBDA performance have been highly impacted by the new regulatory framework for mobile and fix termination rates. Nevertheless, let me highlight the strong year-on-year increase in OIBDA margin on better commercial comps and despite strong trading in most valuable segments. To continue with Latin America overview on page 18, in Peru, revenue and OIBDA reached double-digit growth fix regulation, and the low Smartphone penetration provides a huge opportunity onward to an already strong mobile data growth. Mexico posted once again this quarter an accelerated trend on mobile service revenue, increasing by almost 8% year-on-year, while profitability improved despite strong trading momentum. Let me also highlight, the new regulatory framework will be effective from mid August, providing additional growth opportunities in a more dynamic and competitive telecom sector. In Venezuela and Central America, revenue was severely impacted by lower handset sales. But mobile sale revenue kept increasing at a strong rate of about 30% year-on-year. Especially not worthy is the leading non-SMS growth in the region on a right monetization strategy. Let me now move to the financial side on slide 19. Net debt has been reduced to the absolute level of EUR43 billion. The balance between free cash flow and dividends have allowed divestment proceeds for EUR3.1 billion to fully flowing to lower debt [ph]. Despite stable OIBDA in organic terms, lower reported OIBDA due to LatAm currency depreciation on divestments, has pushed up the leverage ratio in the year. To offset this effect, we are putting together measures to reduce leverage. Among others the voluntary skip dividend in November, the recent mandatory exchange on voluntary shares or the expected mandatory convertible link to the Plaza deletion [ph]. Slide 20, shows the ongoing diversification in our funding process while keeping a high liquidity caution. In the last quarter we raised EUR1.25 billion through a mid year bond [ph] yielding 2.24%. We have launched private placement bonds for EUR0.7 billion [ph] with three years of average maturity and 67 basis points as average spread to repay more expensive debt with similar maturity. And we have also being granted bonk [ph] loans at similar spread. We keep a liquidity caution of EUR22.2 billion. Even after the E-Plus acquisition, an early debt repayment for EUR2.2 billion, we will still keep outstanding liquidity levels while controlling financial cost. Effective interest cost to stay similar to our previous quarter in the middle of the target range. Despite the increase on average cost of debt driven by the reduction of debt held mainly in Euros and Corticorona [ph] with lower cost on average. And second, by keeping ahead in [ph] strategy in LatAm currencies with higher cost. To conclude, let me highlight that we have made further progress in our transformation strategy. First, we are accelerating commercial momentum with increased customer appetite for value and quality, translating into lower turn levels. Second, commercial action and investments led to positive organic growth for the last five quarters with improved trends quarter on quarter in Brazil, UK and Germany, while outstanding commercial trading in Spain anticipates revenue recovery in next quarters. Third, level [ph] OIBDA performance year-on-year, organic and healthy margin of 32.3% in the first half – sorry, third, level [ph] OIBDA performance year-on-year, organic and healthy margin of 32.3% in the first half. The year-on-year erosion resulted from higher net debts in Q2 and focused investments to expand 4G coverage and fiber. And finally, in the first half of the year, we posted a strong cash generation while our financial flexibility sustain. Thank you very much for your attention. And now we are ready to take your questions.

Thank you. (Operator instructions) Thank you. (Operator instructions) Thank you. Ladies and gentlemen, we apologize, we are experiencing a momentary interruption in today’s conference call, please standby and the conference will commend – recommend shortly. Thank you. Ladies and gentlemen, we will now take our first question from Georgios Ierodiaconou of Citi. Please go ahead. Georgios Ierodiaconou – Citi: Hello. I’ve got two questions please. The first one is around Pay TV margins. I would like to get an idea of how programming costs work, and whether you get any per unit savings as you grow the base, particular whether there is a threshold at which the programming cost effectively turn to flat fee? And any additions that you make thereafter are much higher margin? And perhaps if you could comment whether it’s successful with acquiring Digital Plus if that could have an impact on your per unit programming costs? And then my second question is on Mexico and obviously the news we had yesterday, I just wanted to understand whether you see a path to convergence and to some type of fixed land arrangements there? Or whether these transaction that you are pursuing is purely focusing on consolidating the mobile market. Thank you.

So thanks for your question on the programming cost mainly on the content cost. The way we account for that is out of the total cost of contract divided by the numbers of years therefore, we are including each year the proportion on the part of that. And therefore, independent of the number of customers that we have each year. And as result, as we were already mentioning, the more customers we have, the more profitable this content is going to flow with the profit on those accounts. But basically, the message is that we are accounting by the full amount of the contract divided by the number of years and then the revenues are flowing as we get more customers [ph]. In terms of Digital Plus, the transaction is subject to the approval of the relevant authorities. For sure, it would give us more scale because we have more customers and therefore, the profitability among other customer bases is going to be significantly acute [indiscernible]. And most of all, I think that Digital Plus would provide us with significant know-how and expertise dealing with content negotiation and in terms of dealing with production capabilities that we are lacking the improve level as we speak. So basically, we think that in terms of the scale, and that’s why we are accelerating. The more we accelerate the scale of the group, the more profitable the business would be for the level of the group. And we do think that Digital Plus would significantly accelerate our expectations on that [ph]. Ángel Vilá: Regarding Mexico, our priority continues to be to accelerate the turnaround of the business, focusing on quality growth and capturing the mobile broadband opportunity. We don’t see it as a converged market yet. As you have seen, the first half is already showing a clear acceleration in revenue and OIBDA growth. Furthermore, the new regulatory framework will improve the competitive landscape meeting the conditions for us to capture better market position. Regarding what was disclosed yesterday, you know that we are firm believers in the benefits of a market consolidation. And we have demonstrated this belief in several opportunities in the last quarters. In the specific case of Mexico, we already have collaboration agreements in place and we are open to explore deepening them. Conversations are on and what I can say at this moment is that we can be pragmatic when assessing a potential merger or integration. Clearly, there are several strategic alternatives open to us no agreement has been reached so far on any fronts. So when that may happen, we would communicate to the market accordingly.

Thank you, Georgios. Next question, please.

Thank you. (Operator Instructions) We will now take our next question from Giovanni Montalti of UBS. Please go ahead, your line is open. Giovanni Montalti – UBS: Hello. Good afternoon. Thank you for taking the question. Just an update on Brazil, I mean, on the back of the recent events on Portugal Telecom, can you provide us an update from the way you look at consolidation? Thank you.

Yes. In Brazil, we continue to have a very strong position as I was explaining during the presentation. We continue leading in the mobile market with a very strong position in Digital Plus. More 60% for the fourth quarter in a row, no? And also, looking at the results of our competitors, one can see that Brazil is an attractive market but one that will require substantial investments going forward. And that would potentially benefit from consolidation. Having said this, this type of transactions require that the timing and the conditions be ripe for all parties involved and we will see how the situation evolves in the coming future. Giovanni Montalti – UBS: Sorry. If I may follow-up. The last time we had a conference call, we knew you were talking about some starts, getting more in line. I mean, incrementally, how do you see the situation today, if I may ask. Thank you.

I don’t know. Maybe we can say that some stars are maybe losing their shine. But the force of gravity remains strong pulling cosmic bodies together potential in the future. Pablo Eguirón: Thank you, Giovanni. Next question please.

Thank you. We will now take our next question from Akhil Dattani of JP Morgan. Please, go ahead. Akhil Dattani – JP Morgan: Yeah. Hi, good afternoon. Two questions please. Firstly, on the Spanish fiber landscape. We’ve seen from [indiscernible] in recent days, they have indicated in their intentions to expand their fiber rollouts from 3 million to 6 million to 7 million. I just wondered if you could comment on whether or not there are any discussions ongoing or whether at least you’d have an interest in partnering with them for that rollout. Or whether we would assume that that is a standard on rollout. And with that, maybe if you can update us on your coverage plans for the next few years in case there are any changes or thoughts around that. And then secondly, just on your margin in Spain for the second half of the year. You’ve talked about how you feel revenues have bottomed in the second quarter. Could you maybe help us understand relative to the 45% margin in Q2 how you think about the cost evolution through the backend of the year and what that might mean for margins. Thanks a lot.

Thanks for your questions. First, in the fiber in Spain. Let me first address our own plans and then I would comment a little bit on the market. As what’s described by [indiscernible] during the conference call, we have reached 7.4 million premises in June 2014, which has doubled the amount that we have a year ago. We have the target to reach 10 million households before year end and also plan to significantly increase by 8 million to 18 million by 2016. Therefore, we are not on a wait and see mode. I mean, we are accelerating because we think that through the fiber – and you see the figures of Fusion [ph], we have a mid-term competitive advantage base on infrastructure investments and CapEx. And therefore, I mean, we have the agreement that we have with just [indiscernible] which is for 1.5 million each for a total of 3 million premises in 18 months ending in the second half of the year and no other plan is already on top of the table [ph]. We are doing our homework and the orders are accelerating by the 7.4 million households that we have in June is the target that some of competitors have for the years. Therefore, we think that we have a mid-term competitive advantage and we are exploiting that through our Fusion [ph] offer. And in terms of the margin in Spain, the margin in Spain has been affected in the second quarter by several factors. I mean, mainly, the commercial effort that we think we need to do in order to capture the value that we see in the market in Spain. Out of the 4 percentage point of decline, roughly 5.1 percentage point are coming from lower revenues compared with a year ago. 2.6 percentage points are coming from commercial costs and fixed content as well. And 3.7 percentage points in positive are coming from interconnection and efficiency. That means that there is a mix of positives and some negatives. The ones that are specifically for this quarter are a little bit more refunded [ph] and not that much. We are talking about roughly EUR50 million. More handset than we have been using tactically to improve the churn and you have seen that we have posted very significantly improved churn levers [ph]. And then I was telling you the content accounting. As a result, for the remainder of the year, we think that the value of the customer that we have been able to capture, namely on the contract side on the mobile side – on the mobile business means that our plans to turn back into Spain for revenue growth has been accelerated. And therefore, but I can also anticipate the use until the month of July, we are seeing much better revenue trend than at the end of June, which means that we think that the margin effort that we have done in the second quarter is going to be paying off significantly sooner in terms of getting back revenue stabilization and soon revenue growth. We are not guiding, as you know, margins but in our view, we will update you in every quarter. We think that this level of margin is sustainable and we are aiming even higher. Pablo Eguirón: Thank you, Akhil. Next question, please.

Thank you. Our next question today comes from Paul Marsch of Berenberg. Please go ahead. Paul Marsch – Berenberg Bank: Thank you very much. Before I ask my question, I wondered if I could just ask you about the comment you made at the end there about the level of margin being sustainable. You mean the Q2 level of margin in Spain you think is at least sustainable through the rest of the year. Is that what you meant? Ángel Vilá: Yes, the answer is yes. Paul Marsch – Berenberg Bank: Yes, thank you. So my question is then on the revenue line for Spain. And then I have a second question on Fusion in ARPU. So on Spanish revenues, your total revenue is growing again in coming quarters, how long do you think that we have to wait for that? Do you think that’s possible to actually get back to growth in 2014 – year-over-year growth I’m talking about in 2015, sorry? And when you talk about that, are you talking about the aggregate for Spain, the total revenue for Spain or are you just talking about the wire line business? And then secondly on Fusion, in the press release, you say that Fusion is attracting both new and existing customers to higher value offers, that 79% of gross additions to Movistar TV to packages of over EUR60 – EUR60 or more. And you also say that Fusion’s customers who repositioned into the new Fusion office had higher ARPU than before the repositioning. So my question is, why did ARPU fall in the second quarter compared to the first quarter? What were the moving parts that actually led to ARPU coming at 68.8% when it was 70.2% in the prior quarter?

Okay. First on the revenues, soon to guide of when we are going to be back [indiscernible] but certainly we think that 2015 is the year in which we should condition that to happen. We are accelerating that and as well we’re investing significantly on the commercial side. The factors that are behind that assumption are the following. In terms of Fusion and I will go into your question about ARPU. We see that 77% of the customers that are coming to Fusion are moving in Fusion for this [ph] and packages are upselling. And therefore, we are starting to see a stabilization of the ARPU Fusion as we speak. And on the other side and just in terms of the absolute amount of customers just by arithmetical calculation, the effort that we have done on the mobile side means that stopping the bleeding [ph] of the contract mobile customer to help us also to go into positive momentum. Too soon to say when, but sooner than what we were anticipating in the first quarter of this year thanks to the commercial effort and the investment that we are doing in this quarter. Because we do see value in the market and we do see the Spanish economy will be more and construction be more attractive for our customers. And that’s why we are investing on the market. In terms of the Fusion in the second quarter, the reason behind the no sequential improvement despite the fact that we see positive incremental ARPU from repositions that we were mentioning is that in order to calculate the ARPU, the revenue correspond to the billing period. That means that for example in Q1, we are taking this from May 18 to June 17. On top of that, the customers consider for calculating the ARPU Fusion are those stable, which means that all that have not changed their tariffs [ph] and therefore gross adds for repositioning after May 18 have not been taken into account. And therefore, it takes a little bit of time for the Fusion ARPU to reflect the change on the mix. We think that going forward, because of the number of customers that we have on fiber and on TV, and out that we – allow me to remind you that in terms of the new gross adds, 79% of the gross adds are coming up from the about EUR60 packages, 70% of Fusion customers have already fiber and 50% of Fusion customers already have TV. Therefore, the blended is improving and is moving outward. But we are becoming more optimistic for the ARPU of Fusion. But again, allow us to update you on a quarterly basis because this is very sensitive in terms of the arithmetical calculation and if Fusion to say when they will turn to a significant revenue growth. But just again to express the previous point on the revenues in July in Spain, the latest reading that we have for that that you’re seeing [ph] out of the mid of July, allow us to think that we are heading into that direction. Paul Marsch – Berenberg Bank: Thank you very much. Pablo Eguirón: Thank you, Paul. Next question, please.

Thank you. We will now move to Justin Funnell of Credit Suisse. Please go ahead. Justin Funnell – Credit Suisse: Thank you. Again on Spain and then back to Mexico. On Spain, obviously you’re seeing a good progress. When Fusion was first launched, they had a pretty good run for a few months and then ultimately just how Andono [ph] reacted with Keith’s [ph] smaller bundles which slowed down the momentum to a degree for Fusion. Do you worry about the same thing or do you think this time because you’ve added TV, because you’ve added fiber you’re doing things that can’t really be replicated? You launched these plans back in April, so you – perhaps whether you’ve seen enough time to know if competition’s going to react or not. How do you see the likely competitive reaction? And secondly, Mexico, can you give us an idea about how the growth trends should improve in the second half as this regulatory change comes through? Do you think that we can move towards double-digit growth in that business?

Okay. Allow me to give a little bit of color on the comparison between the first launch of Fusion and this renewal of the offer. First, now we are three years after the initial launching of Fusion. And we have now learning curve in terms of three [ph] customers that were expiring out of their retention clause to Fusion. Out of that, we have been able to preserve most of them and even to move them up. And therefore, the churn of Fusion that we are showing in the different chapter is already a good indicator of the trends that we might be anticipating. And as a result, repositions and gross adds to help us to keep the momentum of Fusion. Most of that we have a new pillar on the Fusion offer which is a TV offer. And then the fiber deployment. And therefore, we think that we can keep feeding the Fusion attraction more areas – geographical areas of Spain with this 100 mega offer and with the four different content packages or bundles that we have been preparing. Therefore, if you put everything into the equation and after the learning curve that we have and considering the levels of churn that we have in the different products, namely the most valuable products which are mainly fiber, TV and mobile contract, we tend to think that the Fusion momentum would be accelerated I believe or not. But it would be significantly sustained. We are repositioning customers. They resigned a commitment clause of 12 more months. And therefore, all indicators that we have right now looks going to the direction that the trends of Fusion are will be sustainable. In terms of Mexico, I mean now that the reform has been approved by the Congress and the Senate, we think that a new commercial momentum starts in Mexico. I just want to say again, whether they’re going to meet the legal derivatives for any of the places in terms of the procedural parts, we do see better momentum. And just allow me to remind you that the five major points of the reform are asymmetry of interconnection, significant asymmetry even higher than the one that was approved in Colombia, that on net and off net parties, its converts, exclusivity in retail outlets or phones is banned. And the obligation of sharing infrastructure as well as unbundling of the local loop. All those chapters – each of them separately have significant impact and therefore, we think that if we keep building the momentum, the commercial momentum that we have on dot, dot, dot [ph] and we are able to exploit the new regulatory framework, we should be able to unpin or even increase the trends that we have right now. In terms of the quality of the net [ph] where we need to keep investing, that’s why your level of CapEx in Mexico is relevant because we cannot afford not to take advantage of the opportunity. That we will start seeing – to make a long story short, we should start seeing some effects out of the next quarter, the third quarter. Justin Funnell – Credit Suisse: Okay, thank you. Pablo Eguirón: Thank you, Justin. Next question please.

Thank you. Our next question comes from Luis Prota of Morgan Stanley. Please go ahead. Luis Prota – Morgan Stanley: Yes, thank you. Two questions. One on Spain and one on Brazil. On Spain, it would be helpful if you could give us some indication on the impact from first the pension contributions or pension payments that you are going to resume from the third quarter, a rough order of magnitude. And also whether you have already analyzed and you can share with that the implications of the tax rates reduction to 28% and then to 25% where that is going to be reprised for some tax savings in the next few years. And then the question on Brazil is related to GBT [ph] which is an asset that you were interested in the past and then you seemed not to be interested anymore, but is now coming on the table in some market talks, whether you might be interested in this asset again. Thank you.

Hi Luis. Thanks for the question. The impact on the pension plan is roughly between around EUR50 million per quarter. And therefore, it’s relevant that it’s manageable in terms of the other effort that we are doing to supports those segments and so on. But it’s city limited. We are developing as we speak other source of savings in the process structure of Spain and remind also that the commercial effort that we are doing, we will classify that on the market conditions and therefore, the level of margin, OIBDA margin in Spain whenever they’re speaking [ph] on how attractive we see the market and how much value we say we can capture. On the GBT [ph] question, I’ll pass it to Edward [ph].

Well, for GBT [ph], regarding the impacts of stock changes in Spain, what I can say if that for this year, we stick to our guidance of tax rate of around 25%. And for the coming years, we will give the appropriate guidance, but that should be trending towards that [indiscernible]. Regarding GBT [ph], in Brazil as you know in the fixed business, we continue on track in our turnaround strategy. We’re very clear of developing of fixed broadband, fiber and Pay TV. It is not Brazil our conversion market today, but may evolve in that direction in the future. So we are monitoring all possible scenarios and we’re going to get ready to act potentially in a special way if needed. Pablo Eguirón: Thank you, Luis. Next question please.

Thank you. (Operator instructions) We will now take our next question from Fabián Lares of JB Capital Markets. Please go ahead. Fabián Lares – JB Capital Markets: Hi, thank you for receiving my questions. With regard to the fiber deployment in Spain, you already mentioned that by 2016 you want to reach 80 million households. That’s the totality of Spanish households basically. So you want 100% coverage. This would imply somehow that you would probably need to consider what the regulators end point would be on you having such a significant lead on everyone else. Do you have any visibility on how the fiber to the market – fiber to the home review is coming along at the regulator? When we should have some kind of ruling on that and how that would affect your rules and rollout? That’s my first question. Second, with regards to 4G in Spain, the digital dividend in Spain is coming online January 1st of this coming year. Do you plant to have an extensive rollout given your limitations in the 1,800 megahertz reform frequency. So when you receive the 100 megahertz, do you plan to uplift CapEx to do a strong rollout to recover some advantage in 4G. Thanks.

Thanks for the question. On the first question, we’re not – we’re not talking about 80 million. We’re talking about 80 million premises, not households. It is a metric that our competitions are also using. Therefore, it’s a different metrics that we are talking about. In terms of the regulation – on the potential regulation of fixed broadband access or infrastructure, the commission is we’re in a public constitution which is expected to happen earlier first quarter of this year, where position there is as follow. We think the traditional broadband and the ultra broadband did have a different approach. The next generation network would be deployed under company’s additions. And therefore, cannot be regulated. They don’t want to see their investment and sustainable competition. Cable operators [indiscernible] also under this chapter, next generation and therefore their market leaders. So because they have other networks, cable network, they’re happy and updated to those [indiscernible]. There are no [indiscernible] to the market, but the bottom next have been smoked and then I believe operators have access to the potential facilities – civil infrastructure and for rebuilding cyber infrastructure. Therefore, have been significant economies of scale and scope. And therefore – and on top of that, there is a consolidation point in the market. As a result of all that, we don’t think and we are working and we are deploying under the assumption that no major changes are going to be introduced on that framework. Was that not to be the case, then we will reconsider to where deployment are sent. And in terms of the LTE, over 1,800 network will be an overlay network based on the most efficient multimode base station technology and therefore offer in 3G and 4G overall the spectrum of asset that we have. As soon as we will have access to the 100 megahertz, then we will deploy also why LTE 100 network in order to provide indoor experience. But in terms of the technology and the assumptions, we are really working under the moral that we will be able to take advantage of the different band. Pablo Eguirón: Thank you, Fabián. Next question please.

Thank you. We will take our next question from David Wright of Bank of America. Please go ahead. David Wright – Bank of America: Yes, hello, guys. Just one question really. Obviously in Spain, convergence is your core strategy. You’ve even mentioned convergence within the framework of your Brazilian outlook. It does seem like the U.K. stands out a little. You obviously sold six line operations there. And it’s a market that could be moving towards convergent product with BTs, mobile phone launch at some point this year. Could you tell us a little bit more about your sort of your plan for the U.K. and why perhaps you’ve looked to invest less on the fixed line infrastructure side? Thanks.

Thanks for the question. First, we think that in the U.K. today, convergence is not a factor. First of all, the interest of the customers has been significantly limited so far. There are different market structures between the wireless and wire line commercial distribution networks. I mean, in terms of retail direct and indirect [indiscernible] convergence on the commercial side. And so, distribution so far they are significantly limited. There are already some convergence off around the market, for example Beijing [ph] is already offering that. And in such for the time being limited market demand. But it is true that BT [ph] has announced that [indiscernible] significant effort on their front end side [ph], and has also announced that they has the intension to move to mobile data network operator kind of profile into the wireless side of the market. It is also true that BT tried that [ph] previously, and they have proven not be easy. And that’s why for the time being, we think that convergence is not the name of the game, yet, [indiscernible] on the UK market. As to [indiscernible] we monitor permanently. But if you allow me, I think that the UK dynamics today are much more based on the quality and on LTE deployment. If you go to the numbers of net or gross at in the recent months, you will see that namely in this quarter and according to the figures that are already been [ph] published, everything everywhere is kind of the leader in contract, taking advantage of the 4G coverage. But we are immediately after on concrete basis [ph] [indiscernible] we are immediately after. And we have best in class turn [ph], which means that the loyalty for our customer is significantly higher than the one who are configured [ph] based on two factors. First, [indiscernible] solid network, and we keep investing for 4G. But most of all, we have been able to provide to our customers to experiences like priority moments or refresh at the lowest pricing [ph] that we have. One of the best distribution networks as well, and one of the best value proposition close [ph]. As we speak as of today as of this quarter, we think this is the name of the game in the UK, but we will monitor the market. David Wright – Bank of America: Okay. Thank you.

Thank you, David. Next question please.

Thank you. We will now take the question from Jean-Francois Paren of Credit Agricole. Please go ahead. Jean-Francois Paren – Credit Agricole: Thank you, and good afternoon. Very quick question, just want to – of your thoughts where we are in terms of the process of sending and financing India acquisition of E-Plus [ph] [indiscernible], I understand that 20% to 30% was meant to be transfer to convertible [ph] is that still depend? Thank you. Ángel Vilá: The answer is yes. We are planning to issue a mandatory [indiscernible] on Telefonica shares to complete the financing for reverse acquisition [ph] [indiscernible] and the RIET [ph] portion is being accommodated in our balance sheet. This issuance is still not in the market. But since we would [ph] expecting [indiscernible] in the coming weeks on Telefonica Deutschland [ph] to fulfill the rights issue, then it would be the time to see if market conditions are right for such issues. Jean-Francois Paren – Credit Agricole: Okay. Thank you. Pablo Eguirón: Thank you, Jean-Francois. Next question please.

Thank you. We will now move to Jerry Dellis of Jefferies. Please go ahead. Jerry Dellis – Jefferies: Yes, good afternoon. Thanks for taking my questions. First question on the Spain, please. I was just wondering whether I should dove into a [ph] little bit more detail in terms of what might drive a faster pace of cost reduction within the domestic business going forward? So I wonder whether there are any new potential initiatives that you have in mind related perhaps to the personnel cost space. I know alternatively whether you are intending on perhaps easing up on the level of commercial investment in the second half of the year. And whether you feel comfortable that your strong commercial traction will be capable of being maintained if you are to do that. And then the second question please just on Brazil, obviously the cost space is being stabilizing progressively over recent quarters. But in particular again, selling expenses seem to be in particularly flat last quarter. I just want to really know [ph] how sustainable you think that is going forward? Thank you.

[Indiscernible].

Thanks for your question. In Spain, first, we think that [indiscernible] measures. And namely the ones in which we are focused as we speak is simplification, namely of IT and network processes, in-sourcing of activities and focusing on a much more efficient distribution channel. And let me elaborate a little bit on those. In terms of simplification, Angel has mentioned the effort that we are doing in terms of shutting down application. Every single time that we convert or that we are standardize one of their applications, the IT application that not providing us with a significant competitive disadvantage [ph], we significantly save money in terms of storage capacity, processing capacity. And as a result, you will see that the idea that we are doing all around the group enabling the same [ph]. In terms of radically transforming our systems with a lowest radically simplify the way we [ph] process the information. And therefore, fit through [ph] immediately to further commercial cost reduction in terms of number of falls live [ph] call centers, number of claims [indiscernible]. In terms of the distribution model, we are aiming reducing by roughly 20% [indiscernible] we have, and roughly 2,100 to 1,600 [indiscernible] the online channel. Right now, we have an online activity of [indiscernible] we have online activity of 7%. And we are doubling that to more than – we are more than doubling that to more than 20% or in the neighborhood of 20% at the end of this year. And on top of that, we have also been working significantly in terms of the in-sourcing activities. So we basically not about assuming that we are going to be changing our formational [ph] approach. Then we also highlight that in this second quarter and in this summer campaign, so far [indiscernible] soon to conclude. But so far the market is showing more rationality. And therefore, I think that the commercial effort that we are showing is supposed to be installing [ph] some kind of [indiscernible] in the market, being ask the leader [ph]. So we are not assuming that in the second half of the year, we will be saving significantly in terms of our [indiscernible]. And in terms of Brazil, what they can tell you is that, we are doing most of the things that we [indiscernible] we are also applying into Brazil. We think that the effort that we are doing in order to improve, radically improve the quality of our network, namely the wire line [ph] network in Sao Paolo, should flow into better across related [ph] savings. And on top of that, we are also been much more selective in terms of the subsidies that we use, because we have the best network. And therefore, we are significantly trying to rationalize the market because – as we think we are grabbing [ph] 60% of – more than 60% of [indiscernible] in Brazil based on other attributes which are not purely the subsidies. So on both [indiscernible] the wire line [ph] and the wireless side, we are applying most of the methodology that we applied [indiscernible]. And on top of that, we have some sustainable competitive advantage which is for the time being [indiscernible]. So I think that – I guess we are – let’s see [ph] optimistic over the future of our Brasilia margin. Jerry Dellis – Jefferies: Thank you very much. Pablo Eguirón: Thank you, Jerry. Next question please.

Our next question is from Nick Brown of Goldman Sachs. Please go ahead. Nick Brown – Goldman Sachs: Thanks. Two questions please. Firstly on Mexico, would you be prepared to disposed more assets to help fund the expansion of the market like this or do you think you’ve got enough balance sheet capacity? And secondly on Brazil, do you think Holiday still [ph] concern about the conflict of interest of your Telecom Italia stake following the recent exchangeable bond this year [ph]? Ángel Vilá: Okay. Let me take the questions. In the case of Mexico, one way to think about this is that we would be pragmatic when considering merger or integration or scenarios. So probably the other investments sales where would be required with the situation [ph] [indiscernible]. But again, I have to say that there’s nothing – that there’s no agreements so far on any fund [ph]. And regarding [indiscernible] well, we have – well, the rulings that are issued last December are known by the market. We also have been responding to those. On July where they say that [ph] [indiscernible] and we have made some disclosure about these, and now, our results and documentation today [ph]. But in parallel we have taken to measures – to review, sorry in direct state MPI [ph], the first one was to sell our position in the TI mandatory convertible, the one that was issued in November and that we sold around one month ago. And second, following the start of Telco’s merger [ph] process, we have placed a bond which is a mandatory extension in a fraction of our TI shares. And as a result, we would be reducing our stake eventually in TI because now we’re still shareholders of Telco. We would be reducing that stake below the levels we have prior to September 13 when we did the capital increase in Telco. So these two measures are clearly, from the financial point helping us to preemptively neutralize our part [ph] of the potential net increase that would come from Telco merger. But also, we are seeing that into the regulators sort of like influence on anything regarding Teleco. Pablo Eguirón: Thank you. We’ll have time for one final question.

Thank you. Our final question today comes from Keval Khiroya of Deutsche Bank. Please, go ahead. Keval Khiroya – Deutsche Bank: Thank you. I just got two questions on Germany, please. And first, obviously, your net has performed [indiscernible] materially at least the previous quarter. Can you give us a little bit more color in terms of what segments these incremental customers have been coming for. And second, the service revenues excluding MTRs is still falling around 3% in Germany. So what degree do you think or can you give us some color on how much of the custom bases think still potentially needs to be priced towards the new alternative institutions during the past 12 months. Thank you. Ángel Vilá: Well, on Germany, first, the performance that we have in terms of the positive meta-revolution in the second quarter, we have not enforced [ph] [indiscernible] to basically 152,000 which is double the size of the average of the last four quarters. And this is mainly because of two factors; significant traction of two main tariff. One is the O2 Blue [ph] which is devoted to consumers. And as you know, these are very simple straightforward proposition that differentiate between Fiji and Fuji and is pretty simple previously [indiscernible]. It’s still easy to contract and is having significant traction on the consumers. And namely, we are also having significant traction on the SME’s fund with the tariff call all to unite, which has also helped us to give a good significant traction. So it is not the major traction that we are seeing. It’s basically under both consumers and SMEs and it’s based on repositioning from our commercial [ph] proposition that looks to be attractive to the consumer. In terms of the trends that we have been having in Germany, in terms of the operating revenue, we have been basically, stabilizing that at that level of minus 4%. And we have had lower declining handset [indiscernible], minus 7% compared with minus 53% [ph] in the first quarter. The improved performance on [indiscernible] revenue base on those tariffs and then base on the effort that we have been doing currently and persistently ending the last two quarters. Therefore, now, we are just looking to at minus 2.5%. So as a result, what I can tell you is that the repositioning that we are doing in the German market is starting to pay off. And they another highlight another key factor. First, LTE right now in Germany, which is literally booming is just available for the core brand, namely the MNOs participants. And the efforts that the three of us are doing in terms of coverage is paying off. It has for the time being, our competitive advantage in terms of the commercial traction that we are able to have. Out of the customer base of O2 Germany, 72% is as you know postpaid, 1% is prepaid. But the experience that we have in terms of the data consumption of the LTE consumers at this stage is that every LTE customer is basically using three times more – higher data usage than a 3G customer. And basically, it also is showing a significant ARPU uplift [ph]. So we think we are doing the right strategy in Germany, significantly investing in our network, committing to our commercial distribution, simply find our tariff. And that’s how we think that the commercial traction should be sustainable in the coming quarter. Pablo Eguirón: Thank you very much for your participation. And we certainly do hope that we have provided some useful insights for you. Should you still have further questions, we kindly ask you to contact our investor relations department. We wish you a very good summer break. Good afternoon.

Thank you. Ladies and gentlemen, that concludes our conference call. Thank you for your participation. You may now disconnect your line. Thank you.