Telefonica S.A. — Earnings Release 2011

Sep 30, 2011

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Disclaimer

This document contains statements that constitute forward looking statements about Telefónica Group (going forward, "the Company" or Telefónica) including financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations which refer to the intent, belief or current prospects of the customer base, estimates regarding, among others, future growth in the different business lines and the global business, market share, financial results andother aspects of the activity and situation relating to the Company Company.

The forward-looking statements in this document can be identified, in some instances, by the use of words such as "expects", "anticipates", "intends", "believes", and similar language or the negative thereof or by forward-looking nature of discussions of strategy, plans or intentions.

Such forward-looking statements, by their nature, are not guarantees of future performance and involve risks and uncertainties, and other important factors that could cause actual developments or results to differ from those expressed in our forward looking statements. These risks and uncertainties include those discussed or identified in fuller disclosure documents filed by Telefónica with the relevant Securities Markets Regulators, and in particular, with the Spanish Market Regulator.

Analysts and investors, and any other person or entity that may need to take decisions, or prepare or release opinions about the securities issued by the Company, are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation. Except as required by applicable law, Telefónica undertakes no obligation to release publicly the results of any revisions to these forward looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Telefónica's business or acquisition strategy or to reflect the occurrence of unanticipated events.

Neither this presentation nor any of the information contained herein constitutes an offer of p , urchase,sale or exchang , ^e nor ^a request for an offer of purchase, sale or exchange of securities, or any advice or recommendation with respect to such securities.

Finally, this document may contain summarized information or information that has not been audited. In this sense, this information is subject to, and must be read in conjunction with, all other publicly available information, including if it is necessary, any fuller disclosure document published by Telefónica.

9M 11 Highlights: Steady revenue growth and solid margin

• Strong customer growth, good contract mobile net adds, booming MBB adoption
• Solid top line expansion: +5.4% driven by T. Latam (+18%) and mobile data (+18%)
• Robust profitability amid increased commercial activity: 36% OIBDA margin
• Leveraging our highly diversified asset mix:
• •^∼45% of revenues, OIBDA & OpCF came from T. Latam
• •Stabilising underlying trends in Spain
• •Strong momentum in Germany continues; challenging macro in other European markets
• S d FCF g ti +11 6% Soun generation: +11.6%
• New organization to bolster growth and improve efficiency
• 2011 guidance reiterated, shareholder remuneration policy confirmed

TELEFÓNICA

Financial Summary

€ l l i i i n m o n s	J S a n- e p p 2 0 1 1 R d t e p o r e	J S a n- e p 2 0 1 1 i U d ly g n e r n	J S a n- e p p 2 0 1 0 i U d ly g n e r n	d ly i U g g n e r y n h C g a n e -o y -y	d ly i U g n e r n C h g a n e y -o -y M T R e x- s	d R t e p p o r e h C g a n e -o y -y
R e v e n u e s	4 6 6 7 2 ,	6 6 2 4 7 ,	4 4 2 8 0 ,	% 5 4 +	6 8 % +	% 5 4 +
O I B D A	2 1 4 5 1 ,	1 6 7 3 9 ,	6 9 1 7 1 ,	0 1 % +	1. 0 % +	3 0 0 % -
i O I B D A M g a r	3 0 5 % n	3 5. 9 %	3 7 8 %	1. 9 p p -		1 5 5 p p -
O I	6 6 9 6 ,	1 0 0 2 9 ,	1 0 7 6 6 ,	6 8 % -		5 0 8 % -
i N t e n c o m e	2 7 3 3 ,	5, 4 3 7	6 0 7 9 ,	1 0 6 % -		6 9 1 % -
E P S	0 6 0	1. 2 0	1. 3 4	1 0 4 % -		6 9 0 % -
O C F p ( O C I B D A E a p -	7 6 2 6 ) , x	1 1, 2 0 9	1 1, 8 6 7	5 6 % -		4 1. 9 % -
i Ex t c e p	1 l i t o n a e m s
ƒ O I B D ƒ N t e ƒ S p e c	A I n c o m e t ru m	€ 2, 4 8 9 - € -2 2, 0 0 7 7 4 4 € 1, 0 9 4 -	€ 3, 6 4 9 m m € 2 2, 6 6 7 7 5 5 m m € 2, 3 9 0 m m -

Telefónica, S.A Investor Relations Underlying performance: reported figures excluding exceptional items and spectrum acquisition. 1. In ²⁰¹¹ (all figures net of taxes): Workforce Reduction Plan in T. Spain (€ -1,870 m), PT capital gain (€+183 m), Reduction in the value of TI investment (€ -353 m) and PPAs (€ -664 ^m ). In 2010 (all figures net of taxes): VIVO's capital gain (€ +3,476 m), Restructuring expenses in Germany (€ -141 m), Manx capital gain (€ +61 m), T. capital write-down (€ -6 m) and PPAs (€ -633 m).

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Capitalizing our highly diversified portfolio of operations

d S t e a y r e v e nu e h g t r o w	ƒ b d h l d d l h T. L i i 7. 4 i t t t t t t g t a a m c o n r e p. p o c o n s o a e s a e s r o u w w ƒ 2 c b l ( ) ), h d b l d h B B & S C i i i 2 6 % 3 i i i t t g t t t t t g t g t o n nu e o a n r a c o n: o v e r o a + p p. p p. y y -o o -y y w o u e r o w
i f i i i B l b l g t t a a n c n p r o a y i h h i h t g w e r i l iv i t t c o m m e r c a a c y	ƒ i i d O i i L I B D A t g m e m a r n e r o s o n ƒ l f f l d l b l C i i i i i iv t t g g t t t t g g t t o n nu e o e e r a e o n c o s c o n e n o n e o r s, s c a e a n o a n a e s v ,
l hy h f l H t e a c a s o w i g t e n e r a o n	ƒ € 1 1. 2 O C i i i i i d i l i F t t t t t t m p p r e- nv e s m e n n s p e c ru m a c q s o n a n e c e p o n a e m s u x ƒ i h f fu h H C Ex g t g t e r a p o r r e r o u w ƒ i i i ( ( l l, d ) € 1 1, 0 0 9 9 4 4 i B B i i S i C C. R i t t m n s p e c ru m a c q u s o n r r a a z z p a n a n c a

Financial Summary: Organic performance

l l € i i i n m o n s	J S a n- e p 2 0 1 1 R d t e p o r e	J S a n- e p 2 0 1 1 i O g r a n c	J S a n- e p 2 0 1 0 i O g r a n c	i O g r a n c C h g a n e y y -o o -y y	i O g r a n c C h g a n e -o y -y M M T T R R e e x- x s s	i d G u a n c e fu f l i l l t m e n
R e e n e s v u	6 6 2 4 7 ,	6 8 0 4 5 ,	6 2 9 4 7 ,	0 3 % +	6 % 1. +	9
O I B D A	1 4 2 5 1 ,	1 6 7 9 1 ,	1 7 5 9 8 ,	4 6 % -	3 7 % -
i O I B D A M g a r n	3 0 5 %	3 5. 8 %	3 7 7 %	1. 8 p p -		9
i O I t g p e r a n n c o m e	6 6 9 6 ,	9 3 1 9 ,	1 0 1 9 1 ,	8 6 % -		C E a p x
O C F p ( ) O I B D A C E a p x -	7 6 2 6 ,	1 1, 3 5 8	1 2 4 2 3 ,	8 6 % -		9

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Debt reduction in the quarter, with financial effective cost lower than last year TELEFÓNICA

Limited FX impact despite recent volatility

CZK/€ ARS/€ PEN/€

BRL/€ CLP/€ GBP/€

OTHERS 3 TOTAL 9M FX

Comfortable refinancing, solid liquidity position

Telefónica, S.A Investor Relations 1. Preferred Shares contain a call option on Telefónica for extending this financing with a step up.

1. Credit lines exclude unused amount of Vivo facility (€ 2 bn)

2. Cash and cash equivalents ex-Venezuela. 4. LatAm & public entities.

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Very intense targeted commercial activity

Telefónica, S.A Investor Relations 9M 11 net adds excludes accesses disconnections recorded in Q3 11 (360k prepaid customers in Chile). MBB penetration: MBB accesses (dongles and smartphones) with data attached rate/total mobile customer base. Smartphone penetration: Smartphones with data attached rate/total mobile base excluding dongles and M2M.

Accelerating data revenue growth

Aggregate figures for mobile service revenue, mobile data revenue, P2P SMS and non-P2P SMS data revenue. 11

Latam: strong commercial activity across businesses

1. Excludes the disconnection of 360k inactive prepay mobile accesses in Chile.

Investor Relations

Latam: solid top line, healthy profitability

Telefónica, S.A Investor Relations

Brazil: good momentum, strengthened leadership

Brazil: higher value creation through upgraded synergies

T. LATAM

Solid performance in other key operations

Revenue 9My-o-y organic Contribution to TEF 9M Revenue

Spain: enhanced commercial offer and no further deterioration

Revenuestabilization sequentially

• Strong push in mobile data contains MSR erosion (-8.8% in Q3; -8.1% in Q2)
• Stabilization of contract ARPU q-o-q
• MSR share > 5 p.p. access share (E)
• FBB ARPU flat q-o-q; lower decline y-o-y -6.6% -6.6%

Contained OIBDAdeterioration, stable margin qo-q

• Cost benefits from workforce reduction & ne collecti ^e agreement to come (2012E) Q2 11 Q3 11 45 3%new v
• Stable commercial costs
• Asset disposals starting despite difficult market conditions

Telefónica, S.A Investor Relations All data in comparable terms: y-o-y changes excluding Universal Service (€ 56 m in revenues; € 18 m in OIBDA), bad debt recovery (€ 20 m in OIBDA) and sale of application rights (€ 52 m in revenues and OIBDA) booked in Q3 10. In Q3 11 excludes provision for workforce restructuring plan (€2,591 m) and sale of non-core assets(€ 33 m in OIBDA).

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Spain: a new FBB offer capitalising on our integrated position T. EUROPE

Net adds trendimproved by new offer

FBB erosion easing

• Modest promotional activity in July/Aug.
• Ramp up in pay TV gross adds in Sep Ramp-up Sep. leveraging new content (best football content )

Retail FBB. Net adds ('000)

Pay TV. Net adds ('000)

• Sustained improvement of FBB ti it ARPUvity
• Pay TV ARPU keeps growing (+3.0% y-o-y) -12.6%

Connectivity ARPU (y-o-y change)

H1 11 Q3 11 -4

Similar top-line drivers

• Internet & BB revenue driven by lower y ARPU and customer base
• Fixed revenues showing slight q-o-q improvement due to voice & BB

Fixed Revenue (y-o-y change)

Telefónica, S.A Investor Relations All data in comparable terms: y-o-y changes excluding Universal Service (€ 56 m in revenues) and sale of application rights (€ 26 m in revenues) booked in Q3 10.

Spain: a new mobile offer to foster growth in data

UK: Re-gaining momentum, mobile data strength

1. Smartphones with data attached rate/total mobile base excluding dongles and M2M.

Growth rates in financials are given in local currency.

T. EUROPE

Germany: delivering operating and financial growth

Telefónica, S.A Investor Relations 1. Kundenmonitor Deutschland 2011.

1. In organic terms. ²¹

C. Republic: lead market positioning, robust improvement across the boardT. EUROPEacross the

New organizational structure for new development phase

Reinforcing our status as a global player and leader in the digital world, strengthening our growth profile

T. Digital: The power to outperform in the digital world

T. Global Resources: Increase efficiency by levering our global scale TELEFÓNICAglobal

We are already making significant progresses to capture benefits from our scale^{y p}

• Network & IT (Infrastructures & operations):
• • Rationalization and concentration of data centers
• •Joint model for IT operations in UK & Spain
• •Network sharing agreements across regions

Procurement:

• • Consolidation of global procurement center in Germany, with direct impact in volumes managed: 88% in 2011 vs. 65% in 2009
• •OpEx &CapEx savings reinvested in growth

We have set clear priorities for the short term to fully ex ploit our scale

Increase standardization in global sourcing:

• • Streamline current device portfolio ( ∼ -40% in 12/15 months) maintaining commercial competitiveness
• •Requirements and vendors rationalization in CPEs1
• • Common requirements and configurations for radio access and transport.
• Increase aggregation in global purchases:
• •15% increase in current savings
• IT:
• •Continue with global infrastructure consolidation
• Assets and services rationalization:
• •Sale of non-strategic towers
• •Global NOCs2 rationalization
• •Go deeper in active and passive network sharing
• • Focus on Financial and HR services through Shared i l d i Gl b l ERP³ services, levere in obal
• Achieving our natural share in MNC's, leveraging the extended footprint opportunity:
• •Sales increase >20% y-o-y in 2012E

Key management priorities in the short term

Drive growth and profitability & improve financial flexibility to deliver our commitments

Conclusions: Management priorities focused on shareholder valueshareholder value

• Strong customer growth, building the foundations for future revenue growth
• On track to meet 2011 guidance, leveraging our diversification and strong growth in mobile data
• Sound FCF generation, strong liquidity position
• New organization to bolster growth and efficiency gains, enhancing execution
• Active portfolio management to optimize use of capital & improve financial flexibility
• Fully committed to our shareholder remuneration policy, backed by robust FCF generation

Organic growth: In financial terms, it assumes constant average exchange rates as of January-September 2010, and excludes changes in the perimeter of consolidation and hyperinflation accounting in Venezuela. Therefore, in January-September 2010 the consolidation of Vivo, HanseNet, Tuenti and Acens are included whereas the revaluation of our pre-existing stake in VIVO accounted for in Q3 10, the results of Manx Telecom and restructuring costs in Germany are excluded. In OIBDA terms, in January-September 2011 the positive impact from the partial reduction of our economic exposure to Portugal Telecom is excluded, as well as workforce provision related to the Redundancy Program approved in Spain and the impact of the capital gain from the sale of Manx Telecom booked in Q2 10. Results from the Costa Rica operation are excluded from the organic growth calculation. Telefónica's Capex excludes the Real Estate Efficiency Programme at T. España, the real estate commitments associated with Telefónica's new headquarters in Barcelona and investments in spectrum.

Net additions exclude accesses disconnections made in the second quarter of 2010 and in the third quarter of 2011.

2011 Financial results and accesses include from the second quarter of the year and retroactively from January 1st, 2011, the full consolidation of TVA, company that was already part of Telefónica's perimeter since the fourth quarter of 2007.