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Razón social Santiago Fernández Valbuena

Área Chief Strategy Officer, Telefónica

This presentation contains statements that constitute forward-looking statements about the Company, within the general meaning of the term and within the meaning of applicable securities laws, including financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations. These statements appear in a number of places in this document and include statements regarding our intent, belief or current expectations regarding our customer base, estimates regarding future growth in our different business lines and our global business, market share, financial results and other aspects of our activity and situation relating to the Company. The forwardlooking 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 the 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 actual results may differ materially from those in the forward-looking statements as a result of various factors. These risks and uncertainties include those discussed or identified in the documents filed by Telefónica with the relevant Securities Markets Regulators, and in particular, with the Spanish Securities Market Regulator.

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 presentations, 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 purchase, sale or exchange, nor a request for an offer of purchase, sale or exchange of securities, or any advice or recommendation with respect to such securities. Finally, be advised that 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. Furthermore, Telefónica may present financial information herein that is not prepared in accordance with IFRS. This non-GAAP financial information should be considered in addition to, but not as a substitute for, financial information prepared in accordance with IFRS. Telefónica has included such non-GAAP financial information because Telefónica's management uses such financial information as part of its internal reporting and planning process and to evaluate Telefónica's performance. Accordingly, Telefónica believes that investors may find such information useful. However, such non-GAAP financial information is not prepared in accordance with IFRS or any other generally accepted accounting principles, and such non-GAAP financial information, as defined and calculated by us, may be different from similarly-titled financial information used by other companies. Investors are cautioned not to place undue reliance on such non-GAAP financial information.

Disclaimer

Index

CF growth opportunities: outside and inside Telefónica Completing the P&L and the CF statement The asset side: portfolio The liability side: debt and equity Conclusions Investing in Telefónica: A true Story

Investing in Telefónica: A true story

Telefónica: a sizeable company…

Source: Telefónica's reported figure and Bloomberg for other companies

… beating returns…

¹ Annual equivalent total returns in local currencies. March 2006 to March 2011

… for many years now

Total shareholders returns (last 20 years)1

CF growth opportunities: outside and inside Telefónica

There is a macro recovery in our footprint…

Telefónica's footprint: 2014 private consumption 14% above 2008

Slow recovery in Spain

… income growth drives penetration and we are well placed to benefit from trends…

… and monetise it

Chile OIBDA grows as penetration does

And the same in all the countries

To deliver CF growth as seen in many of our business units

Challenge: all units at full speed

Selected Telefónica wireless units: OpCF change FY 2005-2010 (as percentage of FY 2010 revenues)

Reforms to revert underperformance of Spain

Source: IMF and OECD

Medium & Long term Beyond 2013E

SPAIN vs. EURO ZONE: GDP growth rate differential

Completing the P&L and the CF statement

Our financial policy has served well our strategy

Depreciation & Amortization growing in 2011

² Subject to FX rates and assuming constant perimeter

¹ Includes 3 months of Vivo's PPA

PPA decline from FY 2012E led by T. Europe

Funding costs kept under control

Financial expenses below 6% medium term benchmark

1Includes forward starting swaps fixing debt in FY 2011

Cash taxes below average nominal tax rate

Interests taxed at marginal tax rate, close to 30%: to be used for WACC, but

FCF projections to include tax payments at rates on EBT at around 23%

Effective and cash tax rate starting to decrease from FY 2012 onwards Beating nominal rates in the countries where we operate whilst being fair with the Societies

Working Capital active and efficiently managed

The asset side: portfolio

A sizable profitable asset portfolio…

€ in\$billions\$as\$of\$31st\$March\$2011 Source:\$Bloomberg.\$Telefónica's OIBDA\$as\$reported\$by\$Telefónica

… enjoying a high diversification and upstream cash flow capacity

Diversified portfolio:

2/3 of our revenues and OIBDA generated outside Spain in FY 2010

Oriented towards growth areas in FY 2010:

60% of our accesses in Latam

75% of our accesses are mobile

We have fostered growth

We have achieved the right scale in our target footprint

The liability side: debt and equity

Debt currency mix related to OIBDA and FCF to protect solvency

Non - € debt reducing sensitivity of Debt/OIBDA ratio to FX movements without incurring in high costs

Debt Currency Mix (Dec-10)	%
EUR	72
US\$ + Latam	18
GBP	7
CZK	3

Our balanced approach to the credit markets…

Average debt life of bonds issued since 2009: 7.5 years

Average maturity targeting to be kept above 6 years, overcoming temporary deviations Unused committed lines increased to € 9bn in FY 2010; close to 60% maturing long term

… has contributed to a solid liquidity position to manage debt maturities

¹ Adjusted average debt life calculated as of Dec-10, including € 1,200 m and US\$ 2,750 m bond issuances made in 2011

On the way to de-leveraging

Stable policy: Net Debt + Debt like Cash Commitments / OIBDA in the 2.0 – 2.5 range

Trending progressively towards the middle of the leverage range

Disciplined growing remuneration policy, changing mix…

Beyond 2012: 1.75 €/share minimum annual shareholder remuneration target Shareholder remuneration not to be paid with debt

… supported by Earnings well above Dividends, and…

Average FY 2006-09

FY 2010

… by FCF also exceeding dividend payments

¹ Proportional FY 2010 Vivo's FCF acquired less annualised interest expenses after taxes

To get the best combination of growth expectations and cash remuneration

¹ Source: average of 20 analysts: T. Italia pro-forma 2010, consensus analyst 2012