Pablo Eguirón - Head, Investor Relations Ángel Vilá - Chief Financial and Corporate Development Officer José María Álvarez-Pallete - Chief Operating Officer

Nick Brown - Goldman Sachs Mathieu Robilliard - Barclays Luigi Minerva - HSBC Giovanni Montalti - UBS Georgios Ierodiaconou - Citi James McKenzie - Fidentiis Luis Prota - Morgan Stanley Paul Marsch - Berenberg Fabián Lares - JB Capital Markets Jonathan Dann - Royal Bank of Canada Jerry Dellis - Jefferies

Ladies and gentlemen, thank you for standing by, and welcome to Telefónica’s January to June 2015 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 Telefónica’s conference call to discuss January-June 2015 results. I’m Pablo Eguirón, Head of Investor Relations. Before proceeding, let me mention that financial information contained in this document related to first half ‘15 has been prepared under International Financial Reporting Standards as adopted by European Union. This financial information is unaudited. This presentation may contain announcements that constitute forward-looking statements, which are not warranties of future performance and involve risks and uncertainties, and that certain results may differ materially from those in the forward-looking statements as a result of various factors. We invite you to read the complete disclaimer included in the first page of the presentation, which you will find on our website. We encourage you to review our publicly available disclosure documents filed with the relevant securities market regulators. If you don’t have a copy of the relevant press releases and the slides, please contact Telefónica’s Investor Relations team in Madrid by dialing the following telephone number: 3-491-482-8700. Now, let me turn the call to 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 Telefónica’s second quarter 2015 results conference call. Today with me is José María Álvarez-Pallete, Chief Operating Officer. So during the Q&A session, you will have the opportunity to address us with any questions you may have. Telefónica has released today a robust set of results, accelerating in the second quarter the new cycle of profitable growth initiated at the start of the year. We are particularly pleased with the year on year growth posted for the second consecutive quarter in reported main metrics ranging from 7% in OIBDA to 17% in net income along with a remarkable EPS of €0.37 in the quarter and €0.75 after June. We continued to strengthen our quarterly organic trends top line accelerated by 110 basis points to 4.4% in Q2 year on year, OIBDA by 90 basis points to 3.3% and operating cash flow virtually flat with just 0.4% decline. CapEx is being consistently revolted to high speed networks namely fiber to the home and to the cabinet and LTE to further increase our differentiation and to complete our spectrum map with the aim of fostering our competitive position. Net financial debt increased in the quarter to €51 billion on seasonal and non-recurring factors that will normalize along the year. We remain committed to annual target of leverage ratio below 2.35 times adjusted for O2 UK. In this context, I would like to highlight the upgrades in outlook recently made by ratings agencies. Our free cash flow generation was sound and surpassed €1.4 billion in the first six months pre spectrum. The execution of our portfolio strategy continued delivering synergies as the ones in Germany are already flowing and there is upside potential in the Brazilian synergies. All of these have allowed us to upgrade our year-end guidance. Moving to slide three, let me summarize our key financials where we also outlined several factors which impacted Q2 results. Firstly we are adjusting our FX in Venezuela to the SIMADI exchange rate which was fixed at 197 Venezuelan bolivars to the dollar in the last auction. This has had the limited impact in OIBDA of minus €90 million and a net income of minus €364 million with Venezuela now contributing only 0.6% of revenues, 0.4% OIBDA and net cash position reduced to around €100 million. Other impacts on the PNL include the positive effect of the divestment in TI and a large activation of tax credits. On the debt side, the quarterly increase is mainly experience by non-recurrent factors such as the demerger of Telco the acquisitions of GVT and DTS plus the dividend and spectrum payments. On slide four, we explain the year-end guidance upgrade given the earlier consolidation of GVT plus the incorporation of DTS, and our good performance in the first six months of the year. After June we have exceeded our outlook as revenues are up 9.4% versus the guidance of over 7% and margin is 0.9 percentage lower. CapEx to sales ratio stands at 14.8% as CapEx has more seasonal evolution. Our new guidance implies growth acceleration to above 9.5% with new perimeter adding 1.8 percentage points to revenues. OIBDA margin pressure is updated to around 1.2 percentage points as perimeter changes increased short-term erosion by 0.3 percentage points but will bring future synergies. The rest of the metrics guided remain without changes: CapEx to sales at around 17% leverage lower than 2.35 times post UK sale, dividend at €0.75 per share and a treasury share cancellation of 1.5% that has been executed already. On the next slide, we can see how Q2 changes in the perimeter and organic performance have accelerated reported revenue and OIBDA year on year growth versus Q1. The consolidation of GVT and DTS from May 1st clearly had the positive impact in the quarter, contributing jointly 10 and 7 percentage points respectively to revenue and OIBDA year on year reported changes. The previously mentioned move to SIMADI in Venezuela has reversed Q1 positive FX movement and directing Q2 close to 3 percentage points in year on year variation. In addition to that we are seeing a consistent improvement in organic trends in Q2. On slide six, I would like to highlight the acceleration in accesses organic growth this quarter on higher quality customer rates with Fiber, Pay TV and Smartphones growing solidly and LTE up five times, churn was also down across services. GVT and DTS have contributed significantly to our high value portfolio with 10 million customers. In the bottom of slide, we highlight that Q2 revenues have seen sequential improvement across the board in organic terms except in Germany. Mobile data and Telefónica Hispanoamérica have made a significant contribution to year on year growth in the period April to June and revenue mix is positively evolving towards fixed and mobile data and services over connectivity. Slide seven shows some insights on how mobile data monetization is fostering growth. We are seeing encouraging data dynamics on LTE with data usage 60% above 3G customers on average as such LTE traffic already represents 13% of total mobile data traffic while LTE penetration is still at 8%. Furthermore smartphone penetration expanded by 11 percentage points year on year and we’ll continue benefiting from clear upside opportunities going forward as shown by the limited smartphone penetration in Hispanoamérica. On the other hand, we are implementing measures to monetize data beyond the allowance as 30% of customers are exceeding data gaps and more than 40% of those by extra data products. This has plenty of room to up-sell, thanks to the launch of new data services that are already adding 1 percentage point to organic revenue growth in Q2. As a result, non-SMS mobile data revenue picked up its growth to 27% organic year on year in the second quarter and now represents 82% of mobile data. On slide eight, we can see that OIBDA year on year organic growth ramped up versus the first quarter by 0.9 percentage points to plus 3.3% with Germany and Spain being the largest contributors to this improvement. Furthermore, we expect to see further benefits from the execution of synergies in Germany in the second half of this year. I would also like to highlight that group margin in Q2 has remained stable overall with a limited erosion of 0.3 percentage points year on year organic. Turning to slide nine, we take you through the progress made in digital services which have delivered solid organic year on year revenue growth of 27% in Q2. As such in this quarter, we are proud to present video business enhance by the consolidation of GVT and DTS, boosting scale and bringing new exclusive content, brilliant know-how and the best technologies. Thus in Spain we have launched a new TV offer, movie star plus built in record time with a most complete TV product on the market, national coverage, a ground breaking platform and the most extensive catalogue. In other digital services, we remain focused on writing digital solutions into our core offers. There were noteworthy advances in Q2 in various areas such as security, cloud and machine to machine. The main accomplishments delivered by global resources are shown on slide 10. On the network side, we continue to accelerate VoLTE growth and deployments. Premises passed with fiber to the home increased to 12.5 million in Spain while in Brazil premises passed with fiber to the cabinet totaled 16.1 million including GVT. In LTE, coverage in Europe stands at 67% and 35% in Latam with LTE now available in all countries except in Salvador and Nicaragua. We continue advancing towards becoming an all IP company with initiatives such as voice over LTE in Germany or central switch’s closure in Spain. As of June fixed voice over IP totaled 4.3 million. In terms of operational excellence, the global device center designed and integrator router that is delivering Wi-Fi at full fiber speed and we are introducing self organizing network automation. IT has business transformation on full stack projects are progressing in line with expectations. Lastly, our efforts in simplification continued with a year on year reduction of digital servers of more than 10% organic, more than 350 applications decommissioned, four data centers closed and virtualization increased by 10 percentage points. Please turn now to slide 11 for a review of our business in Spain. Commercial activity in the quarter slowed down, influenced by a typical factor during April and the first half of May. The first and most notable was a decline in gross additions due to the strike held by third party installation technicians, second was Fusión tariff repositioning and the removal of loyalty clauses which show a momentary pick up in fixed services churn. Importantly, net adds in June were back on track, once the aforementioned effects have ended and the upgrade of speeds up to 300 megabytes started at the beginning of the month. Fusión continued delivering very positive results with ARPU growing €272 in the quarter thus 4.4% year on year or 3.1% quarter on quarter underpinned by the better customer mix and the tariff adjustment. Lastly we further expanded our ultra-broadband networks, reaching 12.5 million premises passed in June and we launched the new TV offer in July integrating the assets of Digital Plus, significantly strengthening our positioning to promote content up selling going forward. Moving on to slide number 12, once again revenue posted a sequential improvement in the quarter with year-on-year decline at minus 1.1%, improving by 2.7 percentage points versus previous quarter. Let me stress that revenues in May and June had already stabilized year on year, something we have not seen since the month of December of 2009. The OIBDA trend notably improved to minus 1.3% year on year in the quarter or minus 2.7% excluding a €90 million real estate gain benefiting mainly from the revenue flow through and the better OpEx performance as commercial trading was lower and content growth were stable quarter on quarter. As a result, margins remained stable at 44.4% in Q2. In Germany, turning to slide 13, we see that Q2 results reflect Telefónica Deutschland conscious strategy to drive value through the development of the customer base, plus strong traction in the business and product segments, and better consumer churn quarter on quarter. This was translated into contract net adds of 201,000 and mobile base growth of 2% year on year organically to 42.6 million. Additionally we continue to focus on LTE deployment, reaching a coverage of 70% at the end of June. LTE was the main growth driver with 35% of new O2 Blue All-in customers, taking tariffs above 1 gigabyte and 34% of customers opted-in data automatic feature extending monthly volumes with data snacks. In this context, mobile service revenue grew 0.2% year on year versus 1.5% in the first quarter with two thirds of mobile service revenue sequential acceleration on lower trading in high value. On slide number 14, we present the strong sequential improvement in OIBDA growth organic and ex non-recurring items to 12.5% year on year which was driven by three main factors: First, early synergy execution which represents more than 40% of our annual improvement; second, commercial activities centered on retaining high-value customers; and third, significant change in trend in margin from handset sales. As a result, Q2 OIBDA margin improved by 2.4 percentage points, year on year and reached 23.8% in organic terms. Finally I would like to highlight our steady progress on integration activities with recent milestones including the agreement to transfer 7,100 rooftop sites to Deutsche Telekom, continued consolidation of shops or 750 employees already signing the leaver program. Turning to slide number 15 to review the performance of Telefónica Brazil. Let me first remind you that the acquisition of GVT was closed in May to fully complement our high quality strategy and to reinforce our growth profile in the Brazilian market. On the mobile market, our leadership has once again been strengthened with 41.7% of contract market share. This coupled with ARPU growth, driven by increased data consumption allows Vivo to capture 97% of the market mobile service revenue growth in the last 12 months. In addition, in the fixed business, the first positive signs of the transformation into fiber and video company are already visible. We reached 3.6 million fiber connections out of a footprint of more than 16 million premises passed which represented 57% of the ultra-broadband market. In pay TV, we captured 93% of the new customers of the market in the first half of 2015. To review the financial performance in Brazil, turn to slide 16. Organic year on year revenue growth ramped up to 5.2%, thanks to the sustained solid growth of the mobile business up 6.9%, the sound progress of the fixed business excluding GVT plus a contribution of GVT. This top-line performance is flowing into positive organic year on year OIBDA growth despite the impact of macro and the strong commercial activity. Finally, two months after the combination of both companies on following the hard work made by our Brazilian team, we have indentified significant upside potential on integration synergies. As such, an intense review of all the assumptions confirms the base case scenario while pointing out to an upside opportunity. Operational synergies are raised from the R$L9.6 billion as a base case to a best case of scenario of up to R$16.2 billion with upward revisions on all items. On slide 17, we review our performance at Hispanoamérica where growth rates in both revenue and OIBDA remains solid in Q2. Accesses growth on higher usage resulted in top line organic growth of more than 10% year on year or 7.7% when excluding Venezuela, stable versus the previous quarter. The main driver for this performance is the smartphone explosion which is driving data traffic up 60% year on year and it seems that there is still plenty of room to grow ahead of us because smartphone users are still one out of every three in the region. In addition, OIBDA grew by more than 9% year on year in organic terms or almost 11% when Venezuela is excluded, boosting profitability expansion for the sixth consecutive quarter. In Mexico, as shown on slide 18, we continue to post strong commercial activity that enables gradual market share gains that are translating into revenue growth acceleration. Thus revenue growth accelerated to 7.8% year on year despite the negative impact of regulation that was dragging 2.7 percentage points. The combination of growing economies of scale, the benefits of the new regulatory framework and the consistent implementation of efficiency improving measures continued to deliver strong OIBDA growth up by almost 44% year on year and profitability expansion of almost 6 percentage points, year on year. In rest of the region, turning to slide 19, we continued to post solid growth, gradually gaining revenue market share based on best in class assets. Let me also highlight the notable OIBDA margin expansion with very positive trends in Colombia, Argentina and Chile. In Peru, we maintained a strong commercial traction in value segments but regulation and intense competition explain the deceleration of financial growth rates in the quarter. Please turn to slide 20 for a review of UK reported at this continued operation. The robust financial performance was underpinned by sustained commercial momentum over the last two and half years, leading to maintain market outperformance. Continuous mobile base growth was driven by the contract base increase and a record high customer loyalty. This is explained by outstanding LTE adoption with 864,000 net adds in the quarter and LTE penetration up 16 percentage points year on year to 26%. Top-line growth accelerated to 6.8% year on year in Q2 excluding O2 refresh driven by service revenue with ARPU inflection through demand for higher value tariffs. OIBDA margin expanded 2.9 percentage points year on year and reached 26.5% in the quarter on tight cost control and higher handset margins. Let me now move to the financial slides on slide 21. As anticipated, our leverage ratio in the second quarter was negatively impacted by certain cash consumption matters that will be offset as the year progresses. In particular, net debt has grown due to the seasonality of the dividend payment combined with non-recurrent factors such as Telco demerger, GVT and Digital Plus acquisitions, change to SIMADI in Venezuela and the German spectrum payment. The net OIBDA ratio adjusted for O2 UK sales stands at 2.38 times and would stand at 2.35 times in the absence of the M&A deals closed in Q2. We expect to improve our leverage ratio towards our target of less than 2.35 times to be a positive free cash flow generation in the second half of 2015, growing up OIBDA on an organic basis and also benefiting from the acquisition of E-Plus and GVT and closing O2 UK divestment in 2016. Moving to slide 22, first thing I would like to highlight is that our effective interest cost has continued to benefit from the EURIBOR rate reduction. We have intentionally decreased fixed rate debt in euros and lower refinancing cost leading to 53 basis-point savings but higher debt in Latin American currencies has partially offset those benefits. In all, there has been 15 basis points reduction in the financial cost to 5.23%. We showed a robust liquidity position, covering maturities until the end of 2016. In line with the strong financing activity completed year-to-date, in the second half of the year, we will continue accessing capital markets and reinforcing our liquidity position. Finally, let me mention that the three rating agencies covering Telefónica have stabilized or placed a positive outlook on our rating year-to-date. To conclude, let me highlight that we have presented today a solid set of operational and financial results delivering sustainable, profitable growth. We are accelerating organic growth in sales and OIBDA and enjoying a strong commercial momentum on LTE, fiber and pay TV. We are capturing early integration benefits in Germany and going forward we will be unlocking and increasing amount of synergies on recently closed acquisitions. We are continuously focused on best customer experience through technological leadership and we are investing to enlarge this leadership. Our balance sheet remains strong, considering the sale of O2 UK in spite of a temporary increase in leverage this quarter. And finally, we are upgrading our guidance for the year. Thank you very much for your attention, we are now ready to take your questions.

[Operator Instructions]. Our first question comes from Nick Brown from Goldman Sachs. Please go ahead.

Thanks, couples of questions please. Firstly, have you had conversations with EC regarding the O2 UK sell yet? If the Competition Commissioner decides not to prove any more mobile consolidation deals, what’s time they place; will you have an issue refinancing debt next year and presumably that might impact the dividend? And secondly are you still expecting another domestic football rights auction later this year. Will it be two or more three seasons and is it reasonable and you might have to spend another €1 billion to €2 billion on counting costs? Pablo Eguirón: Nick, if you don’t mind to repeat the second part of the question?

Yes, sure, just on the domestic football rights auction, will it be for two or three more seasons; are you expecting another auction later this year still or that gets pushed for next year. Pablo Eguirón: Thank you. Ángel Vilá: On the O2 UK sale, we are progressing on the work from signing to closing. We are highly confident that the deal will be successful. Our estimate continues to be that it will be reviewed at European level. European Union phase 2 is the most likely; there are several persons for this type of transaction that has been already conversation on draft documents of the Form CO. We expect the formal filing to be made in September. There are several persons [ph] of this type of transactions in Germany, Austria, Ireland and other markets. Hutchison is highly experienced on these type of dealings and we remain highly confident that the deal will be approved in this instance and with phase 2 in Brussels. José María Álvarez-Pallete: Taking your question on football rights in Spain for the domestic rights, the ‘15, ‘16 season has been awarded, as you know, we have been the winners of that and therefore there is not going to be another auction during 2015. The next round will be during 2016 for the three next seasons, and it would be an auction process. So, there’s no other auction expected for this year. And Telefónica has the rights, the domestic rights for the football season 2015, 2016.

We will take our next question from Mathieu Robilliard from Barclays.

First, with regards to your Digital Plus acquisition, so you have launched a new TV package but I was wondering how we should think about your strategy into integrating this content into your main offering; would that be a way to continue to push ARPU up next year or at the end of this year as you give more for more? So, that’s the first question. Second question has to do with the tax assets you highlighted in your presentation that you activated some tax assets. And looking at your 20-F, there still is more than $9 billion of tax losses that I understand are not recognized, at least in Spain. So what are you saying -- are you saying that you are activating those and potentially there could be more? Some color on that would be very helpful. Thank you. José María Álvarez-Pallete: Thanks for your question. Taking the first one on DTS and the integration of the offering, let me stress the fact that we have been able to do in less than 60 days a fully integrated offer across platform with value added services like video on demand and multi platform screening, integrating not just the content but also the assets of the two companies. As a result of that we have been registering in the competence commission here in Spain, the wholesale offer, 30 days in advance of the retail offer and we are already commercializing the retail offer in Spain, excluding the football rights which we are still pending to be approved the retail price. So, the message here is that, yes we have been integrating both offerings. Yes, we have now a crystal clear offering with different segmentation and significant ARPU -- significant content improvement across platforms. And yes, we think we have a significant upside from ARPU standpoint and we are going to be incentivating that ARPU to move -- the customers to move upward on that value chain. Finally, let me just stress [ph] the fact that we are pending -- we have just pending the approval of the retail offering on the football rights, all the orders have already been commercialized. And the commercial results that we’re seeing, the commercial trends that we are seeing during the month of July as a result of those -- of that integrated offer, is significantly improved. So, integrated the offering; integrating the platforms and already commercializing the product. Ángel Vilá: Regarding tax, the full $9 billion have been activated. So, what we have recognized is slightly above €1.1 billion tax credit accounted in Spain. This comes from losses incurred in previous years that have been clarified after tax audit, court resolutions and after finishing tax authority’s reviews. So, the fully 9.17 billion that you are talking about has been activated.

Okay, is there additional tax assets that are not activated and that could just still be activated beyond what you just did? José María Álvarez-Pallete: Not material ones.

Our next question comes from Luigi Minerva from HSBC.

I have two questions on the European big picture. The first is on the digital single market framework currently under discussion in Brussels, if you can share your views on the current status and the progress. And secondly on cross-border synergies, whether the network is being upgraded to all-IP? There is increasing interest by both companies and investors on the topic, if you can share your views on this please. José María Álvarez-Pallete: On the first one on the telecom single market initiative being currently run at the level of the European Commission, we -- there are several fronts. There is a front on roaming that as you know, the end of roaming has been delayed or postponed for a few more quarters. And on that we think we have better news this quarter than before. We think Commission has understood that it is -- we progressive fading off of those roaming charges. And I think that now we are facing a different scenario than a quarter ago. On other issue like net neutrality and all that issues, in terms of net neutrality we think that definition of the net neutral has been significantly advanced. We think that we have a framework that is workable both on technical and on commercial terms. We think that that framework allow us to go ahead with network optimization and network management without interfere and without provoking a loss of quality and on the customer side. And I think that we think that with this we have advance. We are in favor of our consolidated regulation at European level. We think it makes total sense. And I think that the framework that is being run is logical and makes sense. Of course we are arguing on some of those elements, namely on interoperability of operating systems which we think needs to be addressed and also a new definition for relevant markets because we think that a market like the smartphone market needs to be defined and is not currently contemplated under regulation. So basically, we agree with the initiative. We think it makes sense to have one single set of rules all across the European footprint. We think that those rules or the discussions are advancing into the right direction but we still think that there are some issues that need to be addressed and have not been address. In terms of cross-border synergies, we are big believers and we have been practicing that of in market consolidation. We think it makes total sense. We think that there are just too many operators per country, both MNOs and NVNOs. We think that we are facing competition from over the top platforms that are giving Voice over LTE on an unregulated manner using elements of the network and therefore we think that the regulation is to contemplate those kinds of situations in order to avoid just judging consideration on the traditional manner. So we are deep believers on in market consolidation. We think that cross-broader consolidation depends on what the scale that you have. Let me give you an example. We are on a height, globally speaking, to become distributors of technology and therefore we need to be relevant when the new iPhone is being launched or the new elements of the network of Ericsson or Huawei or Cisco are being launched and therefore it depends on just size and just scale. If you are among the top 10 players, you have that scale and therefore you can take advantage of the leadership to have kind of first mover advantage in technology which is essential. And therefore I think that cross-border synergies need to be judged in dependence of the size that you have. Telefónica feels that we have the right size; we feel that we have the right position in order to take advantage of that leadership position to distribute technology and to be efficient on that side, so we don’t feel that need. So to make a very long answer short, we’re believers in in-market consolidation, cross-border synergies still to be proving depending on your size.

Next question comes from Giovanni Montalti from UBS.

Two quick follow-up on digital class, and some of your competitors have been pretty loud in complaining especially about the football rights. Do you see a room for negotiation or there is some litigation, so let’s say on the rights for this season? And about in-market consolidation, if you can share with us any update about the way you look at Brazil, what could be the timing? I know things are very complicated there but if there is anything you can share with us? Thank you. José María Álvarez-Pallete: Okay. Taking your first question on the situation of the football rights in Spain, you know that in order to get a Digital Plus transaction approved, we were imposed significant remedies in terms of eliminating some retention process, in terms of giving access at no margin to premium content, in terms of having available for our competitors at least 50% of the premium contents that we will buying. So, we have a list of things that have been imposed on us in order to get a transaction approved in a very symmetrical way, I need to say because we are still suffering the bulk of the content acquisition that we are buying. And I think that on that side, the situation is already a symmetrical. And we don’t share the view of our competitors in Spain on that side. Having said that both -- two largest competitors in Spain, Orange and Vodafone have decided that they are going to have access to our wholesale offer of namely of the football rights. And therefore they have access to that content and they are sharing less than 50% of the total cost of that asset. We think that this structure is much more rational because it makes the whole amount of the football rights more sustainable on a long-term view for the football clubs but also is incentivating all of us to expand pay TV penetration in Spain. So we will not share their view; we have given access to them to our premium content; we have registered in a record period of time our wholesale offer in the Competition Commission here in Spain and they are already accessing those contents. Therefore, we do not share their views.

If I may follow up, in terms of our symmetry and again back to Spain, there is -- I mean the current draft implies the regulation still on test as let’s say operator with significant market power and nothing apparently on cable. How do you see these, probably nothing we left them for the next let’s say regulatory period how do you see this topic going forward Europe-wise and in Spain? Do you see let’s say obligation on cable operators coming, are you pushing for these? Thank you. José María Álvarez-Pallete: Well, again, I was saying in the previous question about the definition of relevant on markets, I think that because of what’s going on, because of the conversions that is happening in some of the countries, I think that the definition of relevant market needs to be addressed. And that applies to the smartphone market and in my opinion that also applies to the cable market. Having said that we think that in Spain the situation has already been defined. The rules of the game are now clear in Spain after the Digital Plus approval process and the revenues applied on that side. I think that right now what we have here in this market in Spain, is infrastructure-based competition, significant infrastructure-based competition that is incentivating all of us, to invest heavily and to expand heavily on next generation network and that explains why Spain in the middle of the crisis of the macroeconomic crisis between 2011 and 2015 has passed from being the sixth country in Europe in terms of absolute number of fiber connected to the house -- to the home, to be the leader; and it’s not just Telefónica, all other players have also done like just others. So my view is that next generation network requires new regulation at the European level and in the case of the Spain, the rules of the game have already been defined and we already are playing with those rules. Ángel Vilá: Regarding Brazilian consolidation, three messages: First one is that we have the best assets and the best management in the country, we just upgraded synergies of the Vivo GVT combination; second that we continue to believe that the potential synergies of further in-market consolidation could be very substantial; and the third message is that we are at the sweet spot to benefit from various potential consolidation scenarios to be triggered by our parties.

Our next question comes from Georgios Ierodiaconou from Citi.

I have got two questions please; the first one is around OpEx in Spain. I was wondering if you could give us an idea of the delta in the content expenses with acquisition of La Liga rights on hand and on the other hand synergies you’ll have from the DTS acquisition, going forward, if we could expect a significant growth in content cost or whether the two effects could net off. And secondly, again on OpEx, if you could give us an idea of the benefits you had on your cost basis in the second quarter because of the strike? And my second question is on the debt. If you could just give us an update of any special one-off items being spectrum payments or some other factors that working capital moves that may impact the deleverage in the second half? Ángel Vilá: Thanks for your question. Taking the one on OpEx, namely I would say more globally margins in Spain. In the first half of the year, as you know we have been significantly focused on revenue recovery. And as we explained during our last conference call, the sooner we get back to growth and revenues, the sooner we will be able to stabilize as well. Revenue recovery therefore has been crucial, innovative performance, namely in this quarter. It seems OpEx has been flattish during the quarter and therefore all the revenue recoveries during this quarter is explained -- all the OIBDA performance during this quarter is explained by revenue recovery and tight cost control having the remainder of the OpEx flourish. It is true that we have had lower commercial activity due to the strike and this has helped OIBDA performance. And let me also highlight that the strike has had also some effect -- negative effect on OpEx, since we have been compensating some customers for service interruptions. And we have applied practically little bit more of subsidies to offset the impact on the strike on our customers but also during the month of the price increase in terms of the elimination of the retention process. So, all in all -- and finally regarding the contents, let me also highlight that now that we have Digital Plus on board and taking in to consideration the fact that there has been almost no inflation on the football rights in Spain because we have been paying just slightly above -- 2% above the price of the previous year and Digital Plus has the right of those of the previous year. On consolidated terms, the impact is going to be negligible and we’ll have more rights as last year; we didn’t have the second division rights. So all in all, we keep focus as we told on revenue recovery. It is true that the strike has been helping us marginally on the positive side. But it is also true that we have had some one-offs in terms of some compensations; revenue compensations of revenue reimbursements to customers and because of service introductions we have been having practically more subsidies.

If I could follow up very quickly the synergy benefit on the content side from putting the two assets together, I guess there will be some scale benefits when you talk about international contents from that. Will we see the benefits already from Q3 or would it be something for next year? José María Álvarez-Pallete: There will be benefits whenever we will have the right to distributor to have those rights internationally. So therefore in terms of the scale outside Spain, we don’t have that benefit yet. But in terms of the content in Spain, remember that we have been basically before the acquisition of the Digital Plus; Movistar TV was already leader in Spain. And therefore now the cost of the content of many of the football rights is divided into much more customers therefore in terms of marginally positive effects of the growth factor that we’ll have is more positive than before. After that the fact that to the wholesale offer, we are sharing part of the fix part with all the players which are also going to be incentivated because they have minimum amounts of customer before reaching the marginal part of the agreement. We are all going to be incentivated to massively distribute the content throughout Spain. So I think that one of the major synergies that you will be seeing on the content side is a dilution effect on the fixed part of the content among a much larger customer base. And there are other synergies like for example technological one and on the platforms, not just on the video on demand but also on the close platform multi-screen offering that we have developed. So we expect that for the next quarter, we’ll have more numbers to share with you on that front as we are doing in terms of the synergies in Brazil or in Germany. Ángel Vilá: Regarding the question on why net debt will go down in the second half of the year, I’m going to be using slide number 21, asset base, for a structure of my answer. First we had €1.4 billion free cash flow pre-spectrum in the first half. This is going to be much stronger in the second half of this year. Spectrum that was significant cash outlay in the first half, we are not expecting any significant additional spectrum in the second half of 2015. Regarding shareholder remuneration, we will have a tranche of dividend of 0.35 in November. Remember that we have structured that as a voluntary scrip dividend; if the tick-up was similar to the one that we had last year, it would not imply a significant cash outlay. With respect to net financial investments, we are now expecting to close any further acquisition in the second half of the year. So, all these go in the direction of a much better evolution in the second half. Why am I saying that free cash flow pre-spectrum in the second half will be much stronger than in the first half? We have just upgraded the guidance on our guidance and this, if you do the math, you will see that it results in operating cash flow growth. The consumption of working capital that we had in the first half will move to positive cash generation in the second half; order of magnitude close to 1 billionish. Financial payments, you should expect us to be in the bottom, right at the bottom of the 5% to 6% range. With respect to cash tax and given the positive developments of this year, we’re changing our guidance from 23% to 21%. So all in all, a reasonable estimate of net debt for year-end would be something below €49 billion.

Next question comes from James McKenzie from Fidentiis.

Football rights insight again. Could you give us an idea of how the wholesale negotiations are going with the other operators? You’ve mentioned sharing the costs but then I think in your presentation you talk about exclusive football rights for Spain. And then second question once again on Spain is you’ve put through some pretty hefty price rises on poor residential clients. And yet the growth in revenues or the declining level, the growth in revenues that you’re seeing in June seems relatively sparse. I wonder is it something going on with the corporate client base that we should be looking at or aware of that’s detracting from this and will this change in the second half of the year? José María Álvarez-Pallete: On the football right, I think it’s public information that two or four largest competitors have already decided who will have access to our bringing a wholesale offer on the football rights. And therefore we are not going to have the domestic league, the national championship in exclusivity, not even the -- not on the two packages I would say. One package is all the matches excepting the best match of the weekend and the other package is the weekend match, both of them have been acquired by our two largest competitors. But that means that as we have six premium packages and they need to choose 50% of those, therefore three packages out of six. Our differentiation is going to come from the other content, namely the Formula One, the motorcycling, the movies, the new launches and new the movies premiers and series depending on who’s accessing what. So, we’re going to be able to finish it on depending on who’s accessing what. And in terms of the price upgrade in Spain, because it has not been just the price increase, it has been an offering upgrade. First, we all along the year, because this is not just in May, all along the year in Spain, we have been taking several actions to increase our offering and to change our offer, namely in the -- it is not just Fusión, it is on the mobile side, it isn’t the one P. [Ph] Generally we have been doing a significant effort to upgrade our offer, namely on Fusión, we’ve communicated first the five-year increase. We eliminated during that process, the retention process and therefore during the month of April, we were exposed to a higher churn because of that effect. And then I think it was the 10th of May we upgraded our offer with much more megabytes and much richer content and more capacity on the mobile side. And coincidentally we have the strike in the middle of all of them. What we can share with you is that during June already, we had a significant return to normal patterns of churn in all segments of customers. And therefore before launching the new TV offer during the month of June, we were back to historically low levels of churn before launching the new offer that has more visibility and that has more -- richer in terms of content. So, at the end of the second quarter, the price increase or the upgrade of the offer that we have launched in Spain has been totally assimilated by the market and by that I mean that the customer, the residential customer and Fusión customer looks like accepting the value proposition, more value for a little bit of price, more content for a little bit more price. And therefore the highest execution risk that we have this year in Telefónica España was precisely upgrading the offer in orderly manner and seeing the reaction of our customer base has been I would say very positive, because we are back to historically low levels of churn at the end of June. And now during the month of July that we have been able to launch the new content offer, with the decision of football that is still pending to approval, we are seeing I would say very high levels of commercial activity which allow us to think that the price movement that we have done, that the value movement, the upgrading of the offer that we have done has not just, not only been very well accepted by the market but has been boosting the appetite of our customer for our products. As a result of all of that, I think that we need to start thinking about a sector and namely a company as this is not necessarily deflationary in the long run but probably the opposite is you do the right proposition. In terms of other segments, in terms of B2B. B2B was already doing very well in Spain. It has been one of the segments that has been reacting faster to macroeconomic turnaround. Spain, just issued today, has been growing 1% in GDP in the last quarter and corporate already feeling that for a long while. So, in the B2B segments we are doing okay. It was the SMEs in which -- the segment in which we were struggling. And on that during this quarter we have launched Fusión Empresa, [ph] the Fusión Corporates for mainly for SME’s that is having also a very significant positive traction. So, all in all, will you approach that by the residential market or by the others, the trends in Spain are going in the upside direction. And then on -- I think that was all.

Next question comes from Luis Prota from Morgan Stanley.

Second follow-up on the football rights topic. I’m not sure if I understood well earlier regarding the wholesale from Vodafone and Orange. I don’t know José María whether you said that that was going to account for 50% or just below 50% of the total cost. So, I would like to clarify roughly what percentage of the €600 million that you are paying to be compensated through their wholesale agreements. And secondly, how convinced you are that this can be monetized and not impact EBITDA negatively in 2015 or 2016? So, you have already made comments on this. But what I don’t understand well is whether existing Digital Plus clients who will be migrating to Telefónica’s offer will be providing some ARPU dilutions to Telefónica and then you’re expecting to compensate that through higher take up of fiber or how the all the different moving pieces work. Thank you. José María Álvarez-Pallete: We do not disclose what is the amount of the €600 million that is being covered by the wholesale offer. It depends on two factors, first what are the packages that our competitors are buying; we already know that. It also depends that those packages have a minimum number of customers attached to those which means that they have a minimum amount of connection warranty that is fixed amount and if they overpass that amount, they start paying variable during the season. So it’s going to be depending on what is the price offering that they would do in terms of how fast they are going to recurring the allowances of customers that they have attached for the product [ph] they are paying for the channel. And therefore we will see along the year but the initial movement in the fixed component is significant. This is highly commercial sensitive information and that’s why we don’t disclose that. But it depends on those two things. We think that both of them want to buy -- are going to buy the two football packages. And therefore now we’re going to be depending on how fast they are in deploying on distributing those packages among the customer base, how far they consume the allowance of customers that is attached to the fixed component of that offering. Answering your question of can it be monetized, it’s a very good question. And effectively it was depending on how many customers were overlapping, having both services in the former Digital Plus customer base and the Telefónica customer base. We didn’t access to that information till the transaction was finally approved; now we know and as this is essential for designing the offering. And all in all we think that the situation is controlled and therefore we think that -- and that’s why we were pretty rational on what was the amount of money that we were offering for the domestic rights. And let me remind you that inflation on the domestic football rights has only been of 2% and we have included the second division. So in all I think that equation make sense. I think that we are going be able to show all along the next quarter that it makes sense. It is a very attractive value position for our customers. And I think it is going to be profitable business for Telefónica.

If I can just follow up, how is this accurate, you said you are going to show this in the future quarters; this is for the season 2015, 2016. Is that starting in September or in August or -- so in the third quarter we should already have a few months of these or how is this factored? José María Álvarez-Pallete: Well we are going to be assigning the cost of the football starting with the season and therefore you will see the effect in terms of cost immediately. But again, let me remind you and let me stress the fact that you should just reflect on the consolidated terms because remember that the Digital Plus already had those rights last year. And therefore in the consolidated numbers of Telefónica on a pro forma basis, there is very, very light dilution, just a 2% that we have been paying more. And now, it’s a question of how fast we are going to be able to distribute to increase popularity of those rights among our customer base. And on that regard even before having the offer approved, if you judge upon the numbers of calls that we are having to our call centers asking for their football channels, we are pretty positive on the future of revenues on that side. When I was saying on the next quarters, on the third quarter you will have the impact of the content and you will see the consolidated effect on Telefónica’s number and you will also have the commercial results of the offering. And that’s why I think that during the third quarter results you will have a much better picture of how the equation makes sense.

Next question comes from Paul Marsch of Berenberg.

I have two questions about pricing in Spain. Firstly on the tradeoff between pricing increases on margin and how we should think about the operating leverage from price increases as we go through the rest of the year. is the aim to see price increases flowing through to margin and benefiting margin or should we expect the benefits of the price increase to be spent on content cost, on handset subsidies and other commercial expenses? So that’s my first question. And then the second question is just a more general question about the pricing environment which I think you alluded to earlier on. It seems like the reaction of the customer base was pretty limited to the price increases that have happened so far. So, do you see this as the beginning of a period of regular annual price increases or is this still likely to be something of a one-off that maybe still remains exposed to price reactions from competitors for example? José María Álvarez-Pallete: In terms of your question about the tradeoff between price increases on margin and namely on the operational effect; again the same message that we shared during the first quarter. The only way to really stabilize or improve OIBDA was to eliminate the erosion of the revenue decline. And that’s why we have been so focused on revenue in Spain in the last quarters. And we’ll keep going into that direction. We have been able to do that without significantly affecting our OIBDA margin and we have best-in-class OIBDA margin if you benchmark ourselves against our peers in Europe and we keep doing the efficiency efforts namely on stores and other fronts. So, we feel that now the priority is revenue increase, at the same time and if you just judge upon take sample of the football rights, we intend to be rational. And therefore we have been having just a limited inflation on the football rights of 2% because we thought that was the right thing to do between the tradeoff of having the content and not diluting our margins. So, overall, what I can tell you is that we feel that we can combine both things that in the next quarters we should have the ambition of retaking or preserving historical low levels of churn to have a higher take of premium content from customers and therefore the customers moving up on the value chain and that’s true having the second part of the year. On the same time, we are going to have an impact from the regulatory obligation to commercialize premium at wholesale level at mostly zero margin and that will have an impact in margin, a negative impact on margin. But I think that overall we have significant expectation about up-selling. And now I’m addressing that in second part of your question in terms of the future. Our main reason of what has happened in Spain, in the last two quarters, namely since January this year is that when you do the right proposition between price upgrades and value, the customer responds, the customer wants more data, the customer wants more value added services, the customer wants to enjoy future content, more speed, more capacity and that can be monetized. So, I think that our goal is to keep monetizing data, our goal is to be able to do that and at same time combining historically low levels of churn and we think that we have now one quarter that even considering extraordinary negative effect as the strike, we have been able to demonstrate that that can be executed without scarifying much margin and without scarifying churn. So, to make a very long answer short, we are going to trying to combine both things; price upgrades or product upgrades with historically low levels of churn based on exceptional quality. And therefore as I was saying before, we think this industry should target to stop being a deflationary industry.

Next question comes from Fabián Lares of JB Capital Markets. Fabián Lares: I am sorry to be so redundant to keep coming back to the football rights, but this is not so much about domestic, but the European. I’ve seen some items on news that say that you’re negotiating with MediaPro to access the Champions League and the Europa League broadcasts. Is that finalized or still undergoing? Do you have any intention to keep increasing your football content? And if this were the case, would you be forced to open that or since that channel is not in exclusivity, it can be basically owned by anyone who actually puts the money up? I guess that’s my first question. Second, with regards to the situation with the UK disposal, and I know you highlight that you’re very confident on the conclusion, but are you concerned that the timing of the deal could be somehow delayed as we could have seen in the deals such as the Jazztel-Orange transaction which took almost an entire year to get the phase II approval. And how would that change if anything, your objectives and/or your remuneration policies if at all? José María Álvarez-Pallete: On the first part, unfortunately I’m not going to be able to be very transparent because we are in the middle of our process and therefore I cannot be very specific. Are we interested in the content? The answer is yes. What would be the implications? Well, MediaPro has the exclusive rights. So, they can share that with other players. But sorry, I cannot be more specific on that because we are precisely in the middle of those conversations. Ángel Vilá: On the second question, you are right, we have seen previous processes, not only Orange-Jazztel, but also in our E-Plus transaction or when we sold those to Ireland that these processes tend to take around 12 months. But remind that we signed the O2 UK transaction by the end of the first quarter. So, even allowing it for a little bit of slippage, we are still thinking of closing in the second quarter of 2016.

And next question comes from Jonathan Dann from Royal Bank of Canada.

I’ve got a question on the opt-in and opt-outs with the price rises in the Fusion 300. Could you just -- I mean it seems as though you mentioned that churn wasn’t the problem. But can you just confirm that post the initial one month opt-in, opt-out period, there hasn’t been a sort of backlash where people get the second or third bill and worrying about the price increase? And could you also just quantify roughly how many people have opted it, have chosen to upgrade to the 300 meg offer? José María Álvarez-Pallete: Well in terms of your question, right now as we speak, there is no retention process on our customer base. As a result, the churn figures that we are issuing already reflect the customer decision if they want to stay or leave as depending on the synergies, but there is no more retention clauses. This is a result of not just of the price upgrade but also of the remedies of the Digital Plus acquisition. So now, our customer base is free to go wherever they want. And that’s precisely what, why we think that the churn levels that we have at the end of June are so relevant because it proves that the customer base now that it is totally free to decide, is deciding to stay with us after deal for upgrade, after the price upgrade. And that proves that the value to position is fair and that proves that the ARPU uplift that we have been having in Fusión that only reflects the €71.8 that we are sharing in terms of APRU of Fusión, only reflects a month and half roughly of the price upgrade because it was done on the second billing cycle of May which was on the 20th of May. Therefore you should expect that during the third quarter that ARPU uplift of Fusión should continue, even it was just nothing has been changed in terms of the customer base. So to summarize, there is no more retention clauses, no more opt-in or opt-out, they have been eliminated and in spite of that we are back to historically low levels of churn in Telefónica. And as a result, what I can share with you is there have been no big shocks and therefore we have not been experiencing any kind of a backlash of customers being surprised after receiving their bill because now they are totally free to decide. And in terms of the number of customers that have been moving to 300 megabyte, we do not disclose on that many details because again it’s highly sensitive commercial information. But let me just summarize you that we see more and more customers on their Fusión base, moving out with the value chain in terms of the speed of access, the capacity on the mobile side and on the content side as well. For more detailed information, please contact Pablo and Investor Relations team.

And can I ask a follow-up; those comments would hold true for July as well June? José María Álvarez-Pallete: Can you repeat the question?

Sorry. We’re now at the end of July and I would assume you get weekly updates on churn. So, those comments for June are equally valid for July? José María Álvarez-Pallete: As you might be now receiving daily updates on churn because it’s very sensitive and they are totally updated. So, the same message is not applied for June, apply for July.

Our last question comes from Jerry Dellis from Jefferies.

The first question relates to Spain and really the cost allocation. So within the first quarter the DTS business was included within other and now that kind of this content is being bundled within your Fusión offers from July. How will you allocate the associated content costs between the Spanish perimeter and the other category? And then secondly, a question related to Brazil, obviously revenues is one of the areas in which you indicate that sort of in the best case synergies could be ahead of your previously published expectations. I think as Telefónica Brazil reported yesterday revenue versus steady stable between Q1 and Q2. Are you calling out acceleration in revenue growth in the second half and what sort of view the macro environment that’s predicated upon, please? José María Álvarez-Pallete: Well on the cost allocation part of the Digital Plus on accounting to standpoint, we are working on that because we need to allocate PPA for depreciation purpose and also we need to take into consideration some tax issue. But from an operational standpoint, what we are doing and therefore sooner or later that’s going to be reflected on the corporate side and on the accounting side is that the retail activity of Digital Plus, the retail responsibility, so the full amount of cash on Digital Plus that responsibility handled by Telefónica España, which means that they are responsible for coordinating data bases for deciding on the offer, for deciding on the segments of the offer, the pricings of the offering, the timings of the offering and the marketing strategy of the offering is going to be Telefónica España. Digital Plus is going to be taking care of the production, the content acquisition and the content strategy. So I hope that we will be read more clear once we have that allocation being done from an accounting standpoint but overall at the level of the group on consolidated figure, again, let me stress that full of the impact of the football rights is already embedded in the numbers that we are consolidating in a pro forma basis and therefore we are already incorporating that on the 2014 pro forma numbers. And we are also incorporating that in the guidance review that we have been sharing with you at the level of the group in terms of the new OIBDA margin erosion. So, we do not expect major surprises coming from that side. And in terms of Brazil, I would give a little bit of color on the operational revenue trends and then I will pass to Ángel for the macro situation. From our revenue standpoint, let’s analyze the different components of the Brazilian unit. On the mobile side, on the former Vivo mobile unit, we are clearly outperforming the industry in terms of mobile revenue growth. As you have been seeing in the presentation, we have been able to put up 97% of the mobile service revenue growth during the quarter. On the former Vivo fixed line, the former Telesp, for the first times since 2008, we have been growing customer -- residential customers fixed line revenues in Sao Paolo. And that proves that the turnaround efforts that we have been doing in the last quarter in terms of improving the quality, shortening the local loops, investing in fiber, upgrading the offer, investing in content, and investing on the TV side is paying off. And then you have the trends coming from the former GVT which is also growing double-digits. And finally a combined entity, if you add up the former Vivo fixed and GVT on the TV side, we have been able to grab 93% of the net adds of the market during the quarter. So, all in all, from operational standpoint, the kind of traction that we see and the kind of possibility that we see on the combined sales force and that is ex residential. Now I imagine our corporate offering outside Sao Paolo where we use not to have a wireline infrastructure and therefore we are becoming immediately more powerful and more relevant for the corporate segment and for the SMEs. So, what we see, operationally speaking is a much stronger platform in Brazil, we are the leaders, we are the leaders commercially, we have the best brand, we have the best distribution, and we have the best momentum in terms of -- and this is based on outstanding commercial team and outstanding brand, and outstanding distribution channels, distribution points and capillarity and the strongest network -- mobile network in Brazil and one of the strongest one wireline networks. So, operationally speaking, we are very positive on revenue trends. And now I’m going to be passing it over to Ángel for the macro guidance. Ángel Vilá: This very positive business performance that José María was commenting on is against a difficult macro backdrop. This 2015 is a year of adjustments; we see GDP contraction, consumption contraction but a new political project that is committed gradually and with some adjustments along the way to a correction of existing imbalances in fiscal monetary and structure fronts with an objective to strengthen confidence and to increase investments and to expand the potential growth rate, we are expecting returns overall in Brazil in the medium term. So, as José María was saying, even against these challenging macro backdrops, we are achieving very positive business results. Pablo Eguirón: I think it was the last question. So, I will pass over to Ángel to close the conference call. Thank you. Ángel Vilá: Thank you, very much for your participation. And we certainly hope that we answered and provided some useful insights to you. Should you still have further questions, we kindly ask you to contact the Investor Relations. Good afternoon. And for those of you leaving for holidays soon, we wish you enjoy your summer week ideally on some Spanish beach. Thank you.

Telefónica’s January-June 2015 results conference call is over. You may now disconnect your lines. Thank you.