Telefonica S.A. — Investor Presentation 2011

Dec 31, 2011

Results January-December 2011

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 may refer, among others, 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 and other aspects of the activity and situation relating to the 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.

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.

Finally, it is stated that 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.

Agenda 2011 results and 2012 priorities

2011 HIGHLIGHTS, 2012 STRATEGIC PRIORITIES AND GUIDANCE

2011 FINANCIAL RESULTS, CAPITAL STRUCTURE AND BUSINESS PRIORITIES 02

Mr. César Alierta Executive Chairman and CEO

Mr. Ángel Vilá Chief Finance and Corporate Development Officer

2011 HIGHLIGHTS, 2012 STRATEGIC PRIORITIES AND GUIDANCE

Mr. César Alierta

2011, a year of record FCF generation and significant progress globally and vertically 01

01 Record yearly FCF generation

FCF Generation Outperforming top European based peers¹

1. Source: Company releases and broker estimates.

01 New strategic boost from last summer to drive transformation and increase our growth potential

01 Strong investments in customer expansion, setting stage for future growth

• Record mobile net adds in Q4, with best ever quarter for smartphones
• Outstanding growth in MBB to exceed over ^{38 m} accesses
• Contract segment is already 1/3 of the mobile base
• Sustained expansion of FBB accesses leveraging bundles
• Pay TV net adds in FY ¹¹ almost doubled y-o-y

01 Delivering growth from data on rapid adoption of MBB

FY 10	FY 11	FY 10	FY 11

All revenues figures in aggregated terms.

.

Investor Relations Telefónica, S.A.

FY 11 mobile data revenue growth (organic y-o-y)

Mobile data/MSR Non-SMS data/Mobile data revenue

:

⁰¹ Monetising the MBB explosion

1. Includes T. España and T. Europe.

2. Comparison vs. average contract across footprint.

01 Telefónica strengths Building on our strengths to successfully execute our growth strategy in 2012

Services Beyond Connectivity revenues include content, digital services, ICT solutions and vertical units revenues.

01 Telefónica Digital, our platform to monetise the opportunity in the digital world

01 Best in class networks place us in the best position to maximise value across the whole value chain

01 In 2012 we will further advance in our transformation journey, prioritising investments to drive forward growth

• T. Global Resources to fully capitalise scale
• In-country efficiencies

Sustained CapEx effort to support broadband expansion

• Targeted investment in fiber/VDSL to increase speeds/coverage in FBB
• Enlarged coverage/capacity in MBB Selective LTE roll-out
• Spectrum acquisition

2012 GUIDANCE FINANCIAL GUIDANCE: • Shareholder remuneration in 2012: Cash dividend € 1.30 per share Buyback € 0.20 per share • Net financial debt / OIBDA < 2.35x (equivalent to previous (ND+Commitments) / OIBDA < 2.5x) OPERATING GUIDANCE (considering constant perimeter) • Revenue growth >1% at current exchange rates • Lower OIBDA margin decline than in 2011 • Similar CapEx/sales as in 2011

2011 base for guidance purposes: Net financial debt/OIBDA: 2.46x, Revenue (€ 62,837 m), OIBDA margin (36.1%), CapEx/Sales ex spectrum 14.2%. Assumes average FX for 2012 of €1: US\$1.32; €1: BRL2.30; €1: £0.85.

01 A very attractive shareholder remuneration fully covered by FCF generation

• Fully sustainable remuneration
• Dividend not to be financed with debt

• The highest DY among "top 100" companies by market capitalisation

• Graph assumes 50/50 execution of share buyback in FY 2012/2013.

2011 FINANCIAL RESULTS, CAPITAL STRUCTURE AND BUSINESS PRIORITIES

Mr. Ángel Vilá

02 2011 Key financials

€ in millions	Jan-Dec 2011 Reported	Jan-Dec 2011 Underlying	Jan-Dec 2010 Underlying	Underlying Change y-o-y	Underlying Change y-o-y ex-MTRs	Reported Change y-o-y
Revenues	62,837	62,837	60,737	+3.5%	+4.8%	+3.5%
OIBDA	20,210	22,697	23,188	-2.1%	-1.3%	-21.6%
OIBDA Margin	32.2%	36.1%	38.2%	-2.1 p.p.		-10.3 p.p.
OI	10,064	13,671	15,027	-9.0%		-38.9%
Net income	5,403	7,494	8,983	-16.6%		-46.9%
EPS	1.20	1.66	1.99	-16.4%		-46.7%
OpCF (OIBDA – CapEx ex-spectrum)	11,282	13,769	14,959	-8.0%		-35.7%
Exceptional items1		FY 11	FY 10
 OIBDA  Net Income		-2,487 -2,091	+2,590 +1,184

Underlying Change y-o-y ex-MTRs	Reported Change y-o-y
+4.8%	+3.5%
-1.3%	-21.6%

Underlying performance: reported figures excluding exceptional items and spectrum acquisition.

Spectrum -1,296 -2,616

02 2011 Organic evolution

€ in millions	Jan-Dec 2011 Reported	Jan-Dec 2011 Organic	Jan-Dec 2010 Organic	Organic Change y-o-y	Organic Change y-o-y ex-MTRs
Revenues	62,837	63,104	63,058	+0.1%	+1.4%
OIBDA	20,210	22,784	24,017	-5.1%	-4.3%
OIBDA Margin	32.2%	36.1%	38.1%	-2.0 p.p.
Operating Income	10,064	12,713	14,068	-9.6%
OpCF (OIBDA – CapEx ex-spectrum)	11,282	13,965	15,478	-9.8%

Revenue, OIBDA margin and CapEx in line with 2011 targets

Organic: assumes constant average exchange rates as of FY 10 and excludes changes in the perimeter of consolidation and hyperinflation accounting in Venezuela. Further details included at the end of the document.

02 Best portfolio diversification drives revenue growth

Revenue contribution to FY 11/10 growth

1. Underlying figures: reported excluding exceptional items and spectrum acquisitions. Contribution to consolidated figures before intercompany eliminations.

2. Includes T. España and T. Europe.

02 Industry leading profitability

• MTR cuts drive interconnection costs down

• Ongoing assets and services rationalization

02 Strong CapEx to deliver long-term growth

• Improved network capabilities to support growth in mobile data and FBB through the expansion of capacity/coverage and speed
• Increasing service quality
• CapEx¹ /Sales FY 11: 14.2% (+0.7 p.p. y-o-y)

• Reinforcing our network through spectrum acquisition

• CapEx ex-spectrum

02 Strong FCF allows for debt reduction

Post closing events:

Colombia restructuring & sale of minority stakes

1. Reported OIBDA ex- Redundancy Program in Spain.

2. Net Financial Debt + Commitments at 2.63x OIBDA ex-Redundancy Program in Spain & ex-Sale of Fixed Assets.

02 Active financial management to minimize cost and maximize cash preservation

Active management of WC: €1.35 Bn cash-generation

1. FY 10 cash tax rate excluding impact of revaluation of stake in Vivo; FY 11 cash tax rate adjusted by Redundancy Plan in Spain.

⁰² Strong liquidity position, proactive refinancing

02 2012 outlook: Increase financial flexibility, maximise value

1. Equivalent to previous target of Net Debt + Commitments/OIBDA < 2.5x

02 Latam: Solid operating momentum heading into 2012

Organic growth: assumes average constant exchange rates as of FY 10 and excludes changes in the consolidation perimeter and hyperinflation accounting in Venezuela in both years. 1. Excludes the disconnection of 360k inactive prepay mobile accesses in Chile in Q3 11 and 1,034k accesses in Brazil in Q4.

02 Increased investments for future growth in the region

Profitability impacted by commercial costs and non-recurrent items

• Higher gross adds and different mix impacting OIBDA y-o-y
• Drag from Mexico, heavily hit by unexpected interconnection cuts
• No contribution from regional projects in FY 11 (241 million in FY 10)

CAPEX ex-spectrum (€ bn)

Strong CAPEX efforts bolstering growth

• 86% of CapEx for business transformation
• 40% y-o-y organic growth in Mexico
• CapEx / revenues at 18.1% (16.6% excluding spectrum; +0.2 p.p. y-o-y)

Organic growth: assumes average constant exchange rates as of FY 10 and excludes changes in the consolidation perimeter and hyperinflation accounting in Venezuela in both years.

02 Brazil: 2011 a year of progress on multiple fronts

02 Brazil: Strengthened leadership and solid profitability

1. Excludes the disconnection of 1,034k inactive prepay mobile accesses.

2. Source: Anatel. Data Market Share includes M2M and dongles.

Investor Relations Telefónica, S.A.

FY11 organic y-o-y

Ex-Towers Ex-Higher

Commercial Activity

Revenue FY 11

Contribution to TEF

02 South Region: further advances to transform the businesses

Growth rates in financials are given in local currency.

02 North Region accelerating growth

Growth rates in financials are given in local currency. In Venezuela, excludes also hyperinflation accounting in both years.

⁰² 2012 outlook: Ramp-up in growth leveraging best asset portfolio in Latin America

02 T. Europe: Improving commercial momentum, leading MBB adoption in our markets T. Europe FY 11 net adds (thousands)

Ramp-up in commercial activity

• Leverage on new commercial proposition results on commercial turnaround

• Focus on value customers

• Increased smartphone penetration underpins base expansion

• Higher quality base sets basis for future growth

Smartphone penetration (Dec-11)

Spain 26% 22% +11 p.p. UK 38% 33% +9 p.p.

19%

y-o-y growth

Strong mobile data revenues

MBB lead

• Better revenue mix, with non-SMS data revenues representing 54% of total data
• Non-SMS data revenues up 30% y-o-y in FY 11

Data revenues

1. Last published data available from competitor, based on attached rates.

02 Spain: New offerings already paying-off

Turnaround of FBB net adds, ARPU trends continue improving

• Back to positive net adds in Q4
• Inflection point in FBB churn, down y-o-y in Q4 11
• Preference for high-end offering; price take up levels above previous promotions:
• o 2/3 of gross adds and migrations in €24.9 offer

Connectivity ARPU (y-o-y change)

• Traditional fixed accesses improving trends

Record mobile net adds since Q4, very healthy data ARPU

• ^Improvement across segments driven by new contract and prepay service portfolio
• o Significant improvement in contract, already 70% of total base (+2 p.p. y-o-y)
• Best ever quarterly MBB net adds (400K; +33% y-o-y)

ARPU (y-o-y change)

18.3%	22.1%	23.5%	25.7%	Non SMS data
7.6%	10.7%	11.1%	11.0%	Total data
-9.1%	-9.4%	-10.5%	-11.9%	Total ARPU
Q1	Q2	Q3	Q4

• Strong data ARPU as customers move towards higher value tariffs

• Voice ARPU driven by further usage optimization in Q4 -weaker economy-, MTR cut (-10% in Oct.) and new tariffs

34

⁰² Spain: Significant progress in strategic areas in 2011

Spain: A clear roadmap to turn around commercial momentum and improve financial performance in 2012

02 UK: Stronger finish to the year in commercial terms

Increased commercial momentum in H2…

• Best quarterly contract net adds in Q4 11
• Stable contract churn at 1.2% in Q4 driven by targeted investments in retention
• Strong increase in upgrades in Q4
• Success of Tesco Mobile¹ as the UK market polarizes between volume vs. value

… impacting commercial costs • Pressure in H2 OIBDA driven by: Weaker revenues ex MTRs: Q4 MSR -4.8% y-o-y; -4.1 p.p. q-o-q Increased commercial activity

OIBDA margin

1. Not included in T. UK mobile customer base

02 UK: Robust mobile data offset by adverse market conditions

• Increased smartphone penetration (+9 p.p. y-o-y)
• >80% consumer contract data base on tiered plans

• 80% choosing higher-priced plans

• Smartphone contract shipments over 95% of total in Q4
• Robust growth in non-SMS data revenues (+33.1% y-o-y in FY 11)

02 Germany: a story of success in a profitable market

Strong trading momentum maintained

Market leading revenue growth

• O2 Blue tariff re-launched in H2 11
• Contract churn improvement
• Continued success in partner & business channels

• Leader in smartphone adoption: 90% of

MBB penetration at 26%, 6 p.p. y-o-y

• Mobile data revenue at 41% of MSR

• Sustained MSR growth in Q4 (+7.1% y-oy ex-MTRs). Sequential trend impacted by very strong performance prior period

FY 11 Contract net adds ("000)

Mobile revenue growth FY 11 (y-o-y, ex MTRs)

FY 11 OIBDA

(+0.8 p.p.)

Further margin expansion, strong OpCF

• Full benefits from business restructuring & ongoing efficiencies in Q4 11 (26.1% OIBDA margin)

Organic terms excludes spectrum acquisition in 2010 (€1,379 m) and restructuring costs (€ 202 m).

sales in Q4

(+8 p.p. y-o-y)

Investor Relations Telefónica, S.A.

FY 11 OpCF

FY 10 OpCF

02 2012 outlook: Strengthening positions in two key markets

1. Kundenmonitor Deutschland 2011.

02 Czech R.: Outstanding OpCF, sustained improving trends

Robust commercial momentum

• Contract mix 62% driven by MBB (16% penetration, up 4 p.p. y-o-y)
• Solid prepay net adds boosted by Xmas campaign
• Enhanced churn in fixed and mobile
• DSL helps to protect existing base, managing fixed BB ARPU & enhance churn

2 nd quarter of top-line sequential improvement

• Better mobile revenues driven by stabilisation of consumer spend
• Fixed revenue improved due to ICT
• Proven approach shown in financials

Efficiencies drive healthy OIBDA margin

• Savings from restructuring programs
• Positive and growing OIBDA in Slovakia
• Top quality cash generation; OpCF of € 702 m in 2011

Growth rates in financials are given in constant currency terms.

02 Making the most from our new global units

TELEFÓNICA GLOBAL RESOURCES

• o Global handset portfolio: from 234 handsets to < 100. 80% of global portfolio negotiated
• o Simplification &global standardization of specifications for increased aggregation
• • o Consolidation towards global NOCs¹ and IT
• o Sale of non-strategic towers and network
• Double digit growth in MNC revenues in

>€1 Bn benefits in FY 12E

1. Network operating centres.

02 Closing remarks

• Our business has the right fundamentals for sustained profitable growth
• We have recorded a promising commercial momentum heading to 2012
• In 2012 we are prioritising investments to drive forward growth
• We are determined to increase financial flexibility
• We are fully committed to very attractive shareholder remuneration targets

Organic growth: In financial terms, it assumes constant average exchange rates as of January-December 2010, and excludes changes in the perimeter of consolidation and hyperinflation accounting in Venezuela. Therefore, in January-December 2010 the consolidation of Vivo, HanseNet and Tuenti are included whereas the revaluation of our pre-existing stake in VIVO accounted for in Q3 10 and the results of Manx Telecom are excluded from organic growth calculation. In addition, excluded from OIBDA and OI in 2010 is the impact of the capital gain from the sale of Manx Telecom booked in the second quarter of 2010, and the one-off restructuring expenses, most of which were associated with workforce adjustment plans and firm commitments relating to the Telefónica Foundation"s social activities, registered in the second half of 2010. In OIBDA terms, in January-December 2011 the positive impact from the partial reduction of our economic exposure to Portugal Telecom is excluded, as well the workforce provision related to the Redundancy Program approved in Spain. 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 and fourth quarters 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. In addition, 2011 results include from September (retroactive effect August 1st) the global consolidation of Acens Technologies.

Underlying growth: All figures in million euros, net of taxes and minorities. In 2011: Workforce Reduction Plan in Spain (-1,870), PT capital gain (+184), reduction in the value of TI investment and operating synergies achieved (-481), deferred tax liability related with PPA on Vivo"s acquisition (+952), PPAs (-790) and others (-86). In 2010: VIVO"s capital gain (+3,476), non recurrent restructuring expenses (-862), tax asset reassessment (-450), PPAs (-847) and others (-133).