Telefonica S.A. — Investor Presentation 2012

Nov 7, 2012

Results January-September 2012

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.

Highlights: Visible results from execution of our strategy

Consolidation of sequential improvement in OIBDA flowing into EPS	• OIBDA growth and margin expansion q-o-q • Outstanding improvement in underlying EPS • Significant savings from transformational initiatives to enhance business model already flowing into P&L • Continued growth in key revenue levers: Latin America and mobile data
Increased financial flexibility	• Over € 2.3 bn debt reduction in Q3 (-4% q-o-q) on the back of strong FCF generation and disposals • Further leverage reduction in Q4 close to € 3.2 bn on fast execution of assets divestments and preferred share swap for treasury shares • Proactive refinancing of over € 13 bn YTD enlarges liquidity cushion to € 18 bn • TEF Deutschland largest IPO in Europe YTD
Transitioning from "Telco" to "Digital Telco" model	• Further progress in our journey, globally and locally Amérigo

Key financials: improved performance from OIBDA to net income in Q3

	Reported			Underlying
€ in millions	9M 12	9M 12 y-o-y	Q3 12 y-o-y	9M 12	9M 12 y-o-y	Q3 12 y-o-y
Revenues	46,519	(0.3%)	(1.6%)	46,519	(0.3%)	(1.6%)
OIBDA	15,782	10.7%	81.6%	15,879	(5.1%)	(3.0%)
OIBDA Margin	33.9%	3.4 p.p.	15.8 p.p.	34.1%	(1.7 p.p.)	(0.5 p.p.)
OI	8,009	19.6%	n.s.	8,835	(11.9%)	(7.8%)
Net income	3,455	26.4%	c.s.	4,414	(17.4%)	(2.0%)
EPS	0.77	28.9%	c.s.	0.98	(15.8%)	0.5%
OpCF (OIBDA-CapEx ex-spectrum)	10,122	16.1%	n.s.	10,219	(8.8%)	(1.8%)
CapEx (ex-spectrum)/sales	12.2%	+0.3 p.p.	-0.5 p.p.	12.2%	+0.3 p.p.	-0.5 p.p.
Exceptional items	9M 12		9M 11	Q3 12		Q3 11

OIBDA	Capital loss on sale	(97)	(2,489)	(97)	(2,671)	Workforce reduction
OI	of stake in CU	(826)	(3,332)	(334)	(2,951)	plan in Spain
Net Income	Reduction of value of TI investment	(959)	(2,609) Workforce reduction plan in Spain & sale of stake in PT	(216)	(2,058)

Underlying growth: Reported figures excluding major exceptional items and spectrum acquisition. Q3 11: Workforce Reduction Plan in Spain (impact in OIBDA: € -2,671 m and in net income: € -1870 m).

Second consecutive quarter of OIBDA growth and margin expansion q-o-q

Outstanding improvement in underlying EPS

Well diversified operations, growing exposure to Latin America

OIBDA and OpCF are underlying. OpCF: OIBDA-CapEx ex-spectrum. Differences up to and over 100% are due to "Others & Eliminations".

Continued revenue growth in strategic areas

Delivering targeted efficiency gains

• One more quarter of strong hold on costs:
• Key transformational efficiency initiatives and scale benefits through T. Global resources already driving savings: lower subsidies, managing commissions, optimising advertising costs, overheads, outsourcing…
• Commercial costs down 0.2% y-o-y in Q3 (+2.4% y-o-y in Q2) on easier comps, handset subsidies removal in Spain and lower upgrades in T. Europe
• Double digit decline in interconnection costs driven by MTRs cuts

(1) Excluding Workforce Reduction Plan provision in T.España in Q3 11 (€ -2,671 m).

T. Global Resources contributing to capture the value of our global scale

Global Sourcing	• Increased savings from aggregation: +4pp in last 9 months to > 40% • Full end-to-end global sourcing for 12 categories (~45% of total value)
Global Devices	• Already 2 rounds of global negotiations setting the basis for a global approach • Increasing to 80% of the value negotiated globally • More balanced OS map and market relevance • As a consequence, reduced number of references (95% value in <100 references)
Network and Operations	• Network sharing deals on track (UK, Mexico) • Global agreement for network management support systems • Global standards defined for key categories (site build, support contracts, RAN)
IT	• Production consolidation into hubs under-way • Brazil data centre completed and Alcala data centre finished by year-end • Application simplification with good results in Latam and Spain in the last 9 months

Latam: Diversified sources for revenue acceleration

• Mobile growth focused on high value customers
• Smartphone accesses x2 y-o-y
• Improved performance in fixed business

Solid commercial activity Revenue improvement with solid growth across regions

Revenue growth ex-regulation by region (organic y-o-y)

(1) Excluding the disconnection of 1,600k inactive prepay mobile accesses in Brazil in Q2 12.

Latam: Further OIBDA and margin expansion

• OIBDA y-o-y improvement on the back of:
• Easier comparable commercial costs basis in Q3 y-o-y
• Ongoing efficiency measures
• Regulation dragging OIBDA growth by 1.4 p.p.

Brazil: Focus on quality paying-off

Brazil: Strong acceleration in revenue and OIBDA growth

Yearly and quarterly improvement across businesses

Revenue growth ex-regulation (organic y-o-y) Q2 12 Q3 12

• Regulation dragging 2.7 p.p. of revenue growth

• Better revenue performance of both fixed and mobile businesses on a sequential basis (+3.1% vs. Q2 12 ex-regulation)

Consolidating best-in-class profitability

• OIBDA margin expansion y-o-y to 34.5% in Q3 12
• Increased efficiency in personnel expenses and G&A leveraging integration

Organic growth: Local currency and excludes the positive impact of the partial sale of our stake in PT in Q2 11.

Latam: Widespread improvement in OIBDA performance (i)

Investor Relations Telefónica, S.A.

T. LATAM

Latam: Widespread improvement in OIBDA performance (ii)

Investor Relations Telefónica, S.A.

T. LATAM

T. Europe: Changes in business model delivering results

Spain: OIBDA stabilisation driven by new business model

Penetration of new tariffs in the residential segments.

OIBDA, CapEx and OpCF y-o-y change excluding provision for redundancy program and spectrum in Q3 11.

Spain: Recovering leadership in the market

UK: Stabilisation of revenue trends

Germany: Sustained outperformance, additional share gains

Further progress in our journey to become a Digital Telco

Investor Relations Telefónica, S.A.

1

Substantial net debt reduction since June driven by FCF generation and disposals

Net financial debt/12 months rolling OIBDA. Excludes the provision for Workforce Reduction in Spain in Q3 11.

(1) Post closing events include € 934 m (Atento, Hispasat, Rumbo), € 1,449 m Telefónica Deutschland IPO and up to € 800 m Preferred shares swapped for treasury shares.

(2) Net Financial Debt and OIBDA adjusted by post closing events.

Over € 13 bn long term diversified financing raised year-to-date

TELEFÓNICA

Dramatically improved liquidity and interest cost contained

Closing remarks

Delivering visible results from continued execution of our strategy

• Consolidation of sequential improvement in underlying EPS leveraging growth in OIBDA q-o-q. Full year outlook and dividend reiterated
• Increased financial flexibility
• Further progress in our journey to become a Digital Telco

We are accelerating our business transformation

Organic growth: In financial terms, it assumes constant average exchange rates as of January-September 2011, and excludes hyperinflation accounting in Venezuela. Therefore, in OIBDA and OI terms, the first nine months of 2011 exclude the positive impact of the partial sale of our stake in Portugal Telecom (+183 million euros), and the provisions for the redundancy program in Spain (-2,671 million euros). In OIBDA and OI terms, the first nine months of 2012 exclude the capital loss of China Unicom (-97 million euros). Telefónica's CapEx excludes spectrum investment and, in 2011, real estate commitments in relation to the new Telefónica headquarters in Barcelona.

Underlying growth: Reported figures, excluding exceptional impacts and spectrum acquisition. The first nine months of 2012 also exclude the reduction in the value of the Telecom Italia investment and operating synergies achieved (-542 million euros; -379 million euros net of taxes), and also PPAs (-799 million euros; -513 million euros net of taxes and minority interests), the capital loss of China Unicom (-97 million euros; -45 million euros net of taxes) and the difference in market value of the BBVA stake (-30 million euros; -21 net of taxes). Figures for the first nine months of 2011 exclude the provision for the redundancy program in Spain (-2,671 million euros; -1,870 million euros net of taxes), value adjustments in relation to the stake in Telecom Italia and the operating synergies achieved (-505 million euros; -353 million euros net of tax), the positive impact arising from a partial reduction of Telefónica"s economic exposure to Portugal Telecom (+183 million euros) and also PPAs (-928 million euros; -569 million euros net of taxes and minority interests).