Results _

January – March 2016

Disclaimer

This document and the conference-call webcast (including the Q&A session) may contain forward-looking statements and information (hereinafter, the "Statements") relating to the Telefónica Group (hereinafter, the "Company" or "Telefónica") or otherwise. These Statements may include financial forecasts and estimates based on assumptions or statements regarding plans, objectives and expectations that make reference to different matters, such as the customer base and its evolution, growth of the different business lines and of the global business, market share, possible acquisitions, divestitures or other transactions, Company results and other aspects related to the activity and situation of the Company.

The Statements can be identified, in certain cases, through the use of words such as "forecast", "expectation", "anticipation", "aspiration", "purpose", "belief" or similar expressions or variations of such expressions. These Statements reflect the current views of Telefónica with respect to future events, do not represent, by their own nature, any guarantee of future fulfilment, and are subject to risks and uncertainties that could cause the final developments and results to materially differ from those expressed or implied by such Statements. These risks and uncertainties include those identified in the documents containing more comprehensive information filed by Telefónica before the different supervisory authorities of the securities markets in which its shares are listed and, in particular, the Spanish National Securities Market Commission.

The content of this disclaimer must be taken into account by any individual or entity who may have to purchase or sell or elaborate or disseminate opinions related to any securities issued by the Company, and, in particular, by analysts and investors. Except as required by applicable laws, Telefónica does not assume any obligation to publicly update the Statements to adapt them to events or circumstances taking place after the date hereof, including changes in the Company's business or business development strategy or any other unexpected circumstance.

This document and the conference-call webcast (including the Q&A session) may contain summarized or non-audited financial information. The information contained herein and therein should therefore be considered as a whole and in conjunction with all the public information regarding the Company available, including any other documents released by the Company that may contain more detailed information.

Neither this document nor the conference-call webcast (including the Q&A session) nor any of their contents constitute an offer to purchase, sale or exchange any securities, a solicitation of any offer to purchase, sale or exchange of any securities, or a recommendation or advice regarding any security.

Mr. José María Álvarez-Pallete Chairman & CEO

Q1 16 Highlights; a good start

Accelerating sustainable profitable growth

Outstanding connectivity

Strong market position across the board

Robust liquidity position

• +3.4% organic Revenue growth

o Clear path to further data monetisation (mobile data revenues: +19.9%)
Continued progress with value customers (fiber, smartphones LTE, Pay TV)
o Enhancing digital experience and loyalty
Accelerating organic growth in OIBDA to +5.5% and OpCF to 3.6%
o Focus on efficiency and cost rationalisation; maintaining strong margin at 31.3% (+0.6 p.p. y-o-y)
Enhancing leadership in differential platforms (CapEx +7.8% y-o-y)
o 32.1m fiber premises passed (+17% y-o-y); LTE coverage 50% (+16 p.p. y-o-y)
Spain: revenues & OIBDA, growing simultaneously for the first time since Q3 08
Brazil & Germany: synergies driving OIBDA & OpCF growth
Hispam: Revenue growth acceleration; strong performance in value
UK: continued strong profitability; market leading contract churn
€9bn financing since November at historical lows
€19.9bn liquidity (incl. EUR bond April), covering all maturities until Dec-17 without considering any FCF generation
Mid term Net Debt / OIBDA target < 2.35x confirmed

2016 guidance and dividend reiterated

%: y-o-y organic

Financial summary

	Q1 16
€ in millions	Reported	Reported y-o-y	Organic y-o-y
Revenues	10,784	(6.6%)	3.4%
OIBDA	3,376	(6.7%)	5.5%
OIBDA Margin	31.3%	0.0 p.p.	0.6 p.p.
OpCF (ex-spectrum)	1,875	(10.6%)	3.6%
Net income	776	(56.9%)	+25.7%	Ex-deferred tax asset
EPS	0.14	(60.9%)	+21.7%	O2 UK in Q1 15
FCF	69	(81.1%)
Net financial debt	50,213	10.1%

Reported growth rates impacted by FX (with limited impact on FCF) and Perimeter

Telefónica, S.A.

Q1 performance in line with year-end targets

2016 Guidance (Constant FX 2015; ex-VZ; ex-UK)	Guidance 2016E	Q1 16
Revenue	>4%	+8.0%
OIBDA margin	Stabilising vs. 2015	+0.1 p.p.
CapEx/Sales	Around 17%	14.2%

Net Financial Debt/OIBDA (adjusted for O2 UK sale)	<2.35x
Dividend (2016 full cash subject to the receipt of O2 UK proceeds)	€0.75/sh.
€0.4/share cash payment in May-16 (second tranche of 2015 dividend)	Proposal to the AGM (12th May)
Share buyback: % share capital cancelled (treasury; subject to the	1.5%
receipt of O2 UK proceeds)	Proposal to the AGM (12th May)

Best quality customer base

Strong commercial progress on high-quality

• Expanding services

o 2.2m smartphones added to base in Jan-Mar 16
o Rapid adoption of LTE; 15% penetration (5.9m net adds)
o Pay TV reach the 8.4m mark; fostering video adoption
o Outstanding fiber performance (378k net adds)

• Delivering customer value

o +5.2% Avg. Revenue/Access (y-o-y organic)
o Accesses +1% y-o-y to 321.9m
o Continued focus on loyalty
o Churn improving 0.6 p.p. q-o-q
o Enhancing customers offers
o Improving digital experience

FTTx + VDSL / FBB 38% (+9 p.p.)

Pay TV / FBB 40% (+2 p.p.)

OIBDA growth across the board

Consistent revenue growth (12th Q in a row)

Benefitting from unmatched diversification
Ongoing transformation of sales mix towards OnLife Telco
o BB Connectivity & SoC: 47% o/total; growing double digit
o Progressive decline in voice & access to 44% o/total
Organic growth ramping-up sequentially (+0.2 p.p.) mainly due to Hispam & Spain

Strengthening operating leverage

⁷ th consecutive Q of OIBDA growth
Sequential acceleration of OIBDA to +5.5% y-o-y on proven execution
o OpEx decelerating 2.3 p.p. q-o-q (+2.7% in Q1)
Sharp margin stabilisation (31.3%; +0.6 p.p. y-o-y organic)
o Transactions synergies savings
o Progress on efficiencies from simplification: personnel, network and IT initiatives, support, customer care
OpCF accelerated to +3.6% y-o-y

Further advances in data monetisation

Digital Services: monetising beyond connectivity

Digital services bundling solutions

Security (7% o/Digital Services rev.); >6m customers protect digital data with our "Personal Cloud" service
M2M (4% o/Digital Services rev.); Building verticalized value proposition in recently created IoT global business area
Cloud (8% o/Digital Services rev.); Partnerships with Amazon & VMware to enhance our proposition
Telefónica Open Future_; JV with Scytl (eDemocracy) to create Open Seneca platform

TGR: Adding value through technology evolution

Accelerating UBB connectivity

Premises Passed with Fibre (FTTx)

LTE Coverage (%PoP)

(million)

Mr. Angel Vilá CSFO

Spain: Focus on growing customer value

Trading improvement throughout Q1

• Q1 trading reflect tariff update

o "Fusión", mobile contract, FBB non-convergent
o Temporary churn uptick
Commercial activity normalised from March
Fixed telephony net adds recovering
Successful results of TV promo in H2 15
o ~75% of subs. stuck to TV add-ons
o Promos for new customers launched in Q1

Superior proposal makes the difference

Largest FTTH in Europe: 15m prem. passed (0.7m in Q1)
o 16% uptake at Mar-16
LTE expansion: 83% pop. coverage (+8 p.p. q-o-q)
Nationwide Quad-Play capabilities
Best Pay TV offer: quality & price

Spain: Revenue & OIBDA growing including DTS

Starting a new cycle

First quarterly top line y-o-y increase after DTS consolidation
ARPU uplift & customer expansion driving consumer revenue
o Higher quality in the customer mix (UBB, TV)
"Fusion" & Business IT, the growth engines (+26% & +9% y-o-y)
Q1 Service Revenue (SR) €3,009m; +1.0% y-o-y organic
o Consumer: 54% SR; +1.8% y-o-y (Q4: -2.0% y-o-y)
o Business: 28% SR; -2.8% y-o-y (Q4: -4.1% y-o-y)
o Others: 18% SR; +5.1% y-o-y (Q4: -0.1% y-o-y)

Strong operating leverage

Q1 OIBDA (€1,266 m): +2.0% y-o-y organic
o +9.5 p.p. vs Q4
OIBDA Margin: 40.5% (+0.7 p.p. y-o-y organic)
Better organic OpCF trends y-o-y (Q1: -0.5% vs. Q4: -7.5%)
Voluntary Suspension Plan savings from Q2 16 (no impact on Q1)

Germany: Continued data monetisation

Customer base focus drives momentum

• Further LTE deployment

o Mobile data traffic up 28% y-o-y (video and music streaming)
o Average LTE data usage up 50% y-o-y
o Continued LTE upside; penetration at 21%
o Coverage at 76% (+8 p.p. y-o-y)
Record VDSL net adds in Q1: 76k (+16% y-o-y)

Revenue reflects base mix effect

Sustained MSR performance (Q1: -1.3%; -0.3 p.p. q-o-q)
o Ramp-up of non-SMS data revenues to +12.7% y-o-y
o Data revenues 55% of MSR (+4 p.p. y-o-y)
o Regulatory impact: -0.3 p.p. in Q1 y-o-y
Lower handset sales y-o-y (Q1: -5.5% vs. Q4 15: +17.9%)
Maintained fixed revenue trends (Q1: -3.1% y-o-y)

Germany: Progressing in integration

Q1 16 financials

y-o-y organic ex non-recurrent

Synergy evolution

Repositioning of the O2 brand, customer base migration, network integration and IT transformation
o Q1 integration efforts with parallel work streams
o Requiring upfront investments in H1 16; incremental synergies from H2 and will generate savings in the latter years
o CapEx integration effects back-end loaded
Network improvements reflected in surveys (ComputerBild magazine)

Ongoing robust profitability

• OpEx -5.0% y-o-y

o Synergy capture: €55m
o Benefits from first wave of restructuring (2015: 800 FTEs)
o Lower MTRs and handset cost of sale
Solid OIBDA increase y-o-y driven by synergy execution
o Restructuring expenses (€23m in Q1 16); Disposal of "yourfone" (Q1 15: +€17m)

Brazil: Focus on profitable growth

Data-centric strategy driving ARPU acceleration

Contract market share 42.4% (+0.8 p.p. y-o-y)
o Contract churn stable y-o-y despite macro environment
o Largest mobile network, covering 89% of pop (3G & 4G)
o Superior customer satisfaction

Smart bundling to support long-term strategy

16.8m homes passed with fiber in 185 cities nationwide
o 3.9m HH connected
Improving legacy cooper network in SP generating higher returns
Strategy to differentiate TV is paying off
o ARPU y-o-y improvement (+5 p.p. q-o-q); better sales mix
o Differential value preposition: Multiroom PVR, Real Catch up
Successful brand unification during April 16

Brazil: Best-in-class profitability

Outperforming the market

MSR +0.4% y-o-y (+3.3% ex-regulation)
o Growth engine: Data revenues/MSR: +9 p.p. to 48%
Fixed revenues (+2.0% y-o-y; +4.5% ex-regulation)
o Pay TV and fiber: +21.1% and +24.0% y-o-y
Revenue +0.6% vs. Q1 15 despite macro affected by
o Regulation (-2.7 p.p. y-o-y)

o Lower handset sales (-0.4 p.p. y-o-y)

Synergies and efficiencies initiatives

Sequential improvement in OpEx trend despite inflation pressure
o Commercial cost -1.8% y-o-y on more selective approach
o Continued bad debt improvement (-13.4% y-o-y)
o All key projects milestones achieved in 2016 enabling capturing predicted synergies (€48m in Q1 OIBDA)

Financial (y-o-y organic)

Telefónica, S.A.

HispAm: Growing adoption of high-value services

Contract accesses y-o-y

• T. HispAm:

o Further push in contract (net adds x8 y-o-y)
o Smartphone penetration +9 p.p. y-o-y to 38%
o FBB & Pay TV penetration +4 p.p. y-o-y

• Argentina:

o Strong LTE deployment (coverage of 69%)
o Maintaining low churn levels in contract and FBB
Chile:
o The largest contract accesses growth in more than 4 years
o 80% of FBB base >4 Mb; +9 p.p. y-o-y
Peru:

o Outstanding contract, FBB & TV accesses; outperforming peers on assets' quality

Colombia:
o Strong contract net adds & lower churn
Mexico:
o Continued momentum in contract (net adds x4 y-o-y)
o Competition intensifying

HispAm: Focus on quality flowing into revenues

OIBDA (organic y-o-y)

Accelerating top line growth

Revenue improvement despite lower handset sales (-4.5% y-o-y)
o MEX: Solid performance despite strong ARPM reduction
o COL: Continued data revenue growth
o ARG: Fixed revenues boosted performance
CHI: Stable growth despite competition & regulatory impacts
PER: Strong competition in prepay and regulation
Main levers of revenue growth (y-o-y): mobile data (+32.5%), FBB (+22.2%) and Pay TV (+18.2%)

OIBDA still growing despite headwinds Steady OIBDA growth

• OIBDA and margin expansion vs. Q1 ¹⁵

o CHI: Improved y-o-y trends; more rational approach on subsidies
o MEX: Positively affected by revenues, economies of scale & interconnection agreement
OIBDA margin erosion y-o-y
o ARG: Inflation & higher commercial expenses
o PER: Tough comps & FX impact
o COL: Increasing commercial cost, FX & inflation

UK: Market benchmark performance

Contract net adds ('000)

Sustained market leading contract churn <1%

Mobile base 25m
Customer experience leadership (7 years in ^a row)
Successful market propositions ("Refresh", "Business Essentials")
LTE as ^a growth lever
o 639k net adds in Q1 16
o Penetration: 38% (+3 p.p. q-o-q)
o 87% outdoor coverage at Mar-16
Better trends in revenue (ex "O² Refresh"): +1.5% y-o-y vs. Q1 ¹⁵
o Seventh quarter of MSR increase (ex "O2 Refresh")
o Slower handset sales as customer await new high-end devices
OIBDA margin up to 26.3% (+1.9 p.p. y-o-y)

Leverage impacted by Q1 seasonal effects

Strong liquidity to face upcoming maturities

Liquidity position

€ in billions

Net debt maturities (Mar-16)

€ in billions; not considering hybrid NC dates

Telxius: a leading telecom infrastructure Co.

One of the leading telecom infrastructure service providers in Europe and the Americas
Secular industry trends and revenues visibility levered by long-term contractual relationships
Strong cash conversion driven by high profitability and low recurrent maintenance CapEx

Substantial and profitable

Created with selected assets from TEF… … formed by fiber-optic submarine cables and mobile towers

International network: >65,000km submarine fiberoptic cables (~31,000km are owned)

~16,000 telecom towers in Spain, Germany and 2 selected countries in LatAm

Balanced portfolio & exposed to mature and emerging markets

Conclusion

Solid

start of

2016

• Growth accelerating; organic OIBDA +5.5%

OIBDA increasing across the board
Spain growing in revenues & OIBDA; stabilising OpCF
Strong execution in fiber, LTE and Pay TV
Delivering a differentiated network experience
Synergies and simplification efficiencies drive margin stability
OpCF accelerates despite higher CapEx to enhance differentiation

Full year guidance & dividend confirmed

For further information: Investor Relations Tel. +34 94 482 87 00 [email protected] www.telefonica.com/investors