Report of Foreign Private Issuer

Telefónica, S.A.

(Translation of registrant’s name into English)

(Address of principal executive offices)

Telefónica, S.A.

TELEFÓNICA GROUP

Market Size

TELEFÓNICA GROUP

Financial Highlights

The most relevant factors of Telefónica Group results for the January-June 2007 period are the following:

• Guidance¹ upgrade for fiscal year 2007:

• Revenue growth¹ is expected to be in the range +8%/+10% versus +6%/+9% previously announced.

• OIBDA¹ growth is expected to be in the range +10%/+13% (+8%/+11% before).

• OI¹ growth is expected to be between +19%/+23% compared with the range previously communicated (+14%/+20%).

• 2007 CapEx¹ is expected to be below 8,100 million euros versus the initial estimation of <7,814 million euros.

TELEFÓNICA GROUP

Consolidated Results

Telefónica’s results for the first half of 2007 prove the consolidation and sustainability of the strong growth and returns. Basic earnings per share increased 63.7% year-on-year.

Once again, cumulative revenues (+10.6% year-on-year), OIBDA (+21.9% year-on-year), OI (+45.4% year-on-year) and net profit (+66.4% year-on-year), are showing simultaneous year-on-year growth, fact that has repeated consecutively since the January-June 2004 period.

These superb results are the consequence of the solid organic growth associated to all businesses (Telefónica Group +7.4% year-on-year), the diversification by geographies and businesses, the efficient cost structure and the execution of synergies through the integrated management of the Company.

As a result, total client base rose 11.3%, due to the successful commercial campaigns of customer acquisition and retention, and the operating cash flow (OIBDA-CapEx) reached 8,062 million euros in the first half of the year (+29.6% year-on-year and +8.8% excluding the capital gain of Airwave)..

1 Base 2006 reported numbers include eleven months of O2 Group (consolidated since February 2006), eight months of Telefónica Telecom (consolidated since May 2006), six months of Iberbanda (consolidated since July 2006), three months of start-up losses in Slovakia, and exclude Endemol and Airwave results. 2007 guidance assumes constant exchange rates as of 2006 and excludes changes in consolidation. In terms of guidance calculation, OIBDA and OI exclude other exceptional revenues/expenses not foreseeable in 2007. Personnel Restructuring and Real Estate Programs are included as operating revenues/expenses, with the exception of the ones decided after the guidance communication at the beginning of the year. For comparison purposes the equivalent other exceptional revenues/expenses registered in 2006 are also deducted from reported figures. CapEx excludes investments related to Real Estate Efficiency Plan.

During the second quarter of 2007 the Telefónica Group maintained its high commercial activity, ending the period with 212.6 million accesses, 11.3% more than a year earlier. Telefónica España currently boasts 45.2 million accesses, an increase of 5.5% year-on-year. Not only has the mobile and broadband customer base grown, but the fixed telephony line loss was desacelerated. Meanwhile, the total number accesses in Telefónica Latinoamérica continued to register a strong growth (+13.9% year-on-year to 121.8 million) thanks to the solid increase in the broadband segment and a robust mobile market. Telefónica O2 Europe, which continues to focus its efforts on capturing and retention the value customers, saw its total accesses advance 7.4% to 39.8 million.

By access type, mobile accesses at the Telefónica Group rose 15.1% compared to June 2006, to a total of 154.9 million. Of particular note are the net adds for the quarter (6.0 million) driven by the "Mother’s Day" campaign in Latin America. This means total net adds for the second quarter in Latin America were 5.0 million, taking the total customer base to 90.6 million (+18.9% year-on-year). In Spain, net adds in in the second quarter reached 289,000, taking the total customer base to over 22.1 million (+7.0% vs. June 2006); higher number of contract customers should be highlighted. Net adds in Europe totaled 534,000 in the second quarter, while the customer base grew 8.4% year-on-year to 36.4 million at 30 June 2007.

Retail Internet broadband accesses advanced 34.9% year-on-year to end June 2007 at 9.1 million. ADSL, TV and voice bundles are still an important feature of Telefónica’s markets both in terms of developing faster the broadband market and customer loyalty. The company ended June with over 4.2 million retail broadband accesses in Spain (+30.4% year-on-year), 4.4 million in Latin America (+36.8% year-on-year) and 0.5 million in Europe (+60.9% year-on-year) after posting net adds in the second quarter of 206,000, 335,000 and 35,000 respectively.

Pay TV accesses at the end of the quarter 2007 totaled 1.3 million, 64.5% more than a year before, with operations in Spain, the Czech Republic, Peru, Chile and Colombia.

Thanks to the solid performance of the Group’s customer base, revenues in the first half of 2007 totaled 27,826 million euros, a 10.6% increase year-on-year. Negative exchange rate effect deducted 1.4 percentage points to the growth (-2.6 percentage points in January-March 2007), while changes in the perimeter of consolidation contributed with 4.5 percentage points to this growth (+9.8 percentage points in January-March 2007). Accordingly, organic growth² in revenues was 7.4%, with Telefónica Latinoamérica the main driver, followed by Telefónica España. Therefore, and by businesses, mobile services revenues and broadband revenues contributed the most to organic growth, rising 11.8% and 23.2% respectively vs. January-June 2006. Revenues in the second quarter totaled 14,079 million euros, up 6.5% year-on-year.

2  Assuming constant Exchange rates and including the consolidation of the O2 Group, Telefónica Telecom and Iberbanda in January-June 2006. It excludes the consolidation of Telefónica O2 Slovakia in January-June 2007 and the consolidation of Airwave in April-June 2007.

In absolute terms, Telefónica España contributed the most to consolidated Group revenues, accounting for 36.6%. In the first semester of 2007, revenues at Telefónica España topped 10,191 million euros, 5.4% higher than in the same period in 2006, building on the growth seen in the previous quarter. Revenues at Telefónica España Wireline Bussiness advanced 3.8% in the first half of 2007 to 6,144 million euros on the back of strong revenues from the Internet and broadband (+18.5% year-on-year), Traditional Access (+0.5% year-on-year) and Data Services (+6.6% year-on-year). Revenues at Telefónica España Wireless Business rose 7.5% to 4,751 million euros thanks to an increase in service revenues (+6.2%), driven by the increase customer revenues (+9.6%) derived from the company’s focus on fostering contract customer (+13.4%) loyalty.

Telefónica Latinoamérica (34.6% of consolidated revenues) recorded revenues of 9,628 million euros in the first half of 2007, 10.6% more than in the same period of 2006 (+15.5% in constant euros). Revenues organic growth³ would stand at 12.8%. It is worth to highlight Mexico and Venezuela’s contribution to growth in constant euros, with year-on-year increases in local currency of 60.3% and 27.7% respectively, helped by strong growth in the customer bases, followed by Argentina (+18.8% in local currency) and Brazil (+3.6% in local currency). TASA is the best performing fixed telephony operator in the region, reporting 13.7% growth in local currency thanks to higher Internet and broadband revenues (+44.3% in local currency) jointly with a strong traditional revenues (+10.0% in local currency). In Brazil, it should be noted VIVO (+14.5% in local currency), which results prove the advance in the target of obtaining profitable growth.

3 Assuming constant exchange rates and including the consolidation of Telefónica Telecom in January-June 2006.

Telefónica O2 Europe (7,068 million euros) contributed with 25.4% to the Telefónica Group’s consolidated revenues in the first half of 2007. Telefónica O2 Europe’s 2006 revenues include in 2006 the O2 Group for February-June 2006, as well as Telefónica Germany and Telefónica O2 Czech Republic for January-June 2006. The continued growth in the customer base and ARPU explained O2 UK’s 10.4% revenues increase in local currency vs. the first six months of 2006 despite a tough market environment. At Telefónica O2 Czech Republic, first half revenues rose 3.1% year-on-year in local currency as stable fixed business (+0.3% in local currency) was offset by the growth of the mobile business (+5.5% in local currency). However, at O2 Germany revenues fell 2.9% vs. the first half of 2006 due to the cut in termination rates and the competitive environment.

In the first six months of the year, operating expenses at the Telefónica Group totaled 18,124 million euros, 9.7% higher than the same period the year before. This increase is largely due to the changes in the perimeter of consolidation and the higher commercial efforts carried out in Latin America and Europe, in a context of maximizing the cost structure efficiency.

Supplies in the first six months of 2007 totaled 8,843 million euros, up 14.3% in relation with the same period of 2006 (+15.5% excluding the exchange rate effect). If we also exclude new additions to the perimeter of consolidation, the increase was due to higher interconnection expenses in Telefónica Latinoamérica, Telefónica Móviles España and O2 UK.

Personnel expenses rose 1.5% in the first semester to 3,645 million (+2.7% in constant euros). The average number of employees in the period was 240,912, 18,234 more (+8.2%) than previous year mainly due to the increase of Atento Group’s workforce and the incorporation of new companies in the consolidation perimeter. Excluding the Atento Group, the workforce would have risen just 2.4% to 128,281 employees. With regard to workforce restructuring costs (256 million euros in the first half of 2007), we would highlight in the second quarter the 94 million euros provision for Telefónica España Wireline Business (2003-2007 Redundancy Program) related 350 employees joining the Program and 114 million euros associated to the workforce restructuring at the O2 Group (Germany, UK and Ireland).

External services expenses (4,793 million euros) increased 8.9% vs. the first six months of 2006 (+10.5% in constant euros). In organic terms, Telefónica Latinoamérica and Telefónica España Wireline Business explained this behaviour mainly due to the higher commercial activity.

It is worth to highlight in the caption Other net operating income (expense) includes in the second quarter the 152 million euros provision in Telefónica España Wireline Business corresponding to the imposed fine by the European Union

Also, in the first half of 2007 sale of fixed assets totaled 1,260 million euros due to the inclusion in the second quarter of 1,296 million euros related to the capital gain from the sale of Airwave. In addition, the Group recorded a 45 million euro capital loss on the disposal of the 6.9% stake in CANTV.

OIBDA for the period January-June 2007 totaled 11,269 million euros, 21.9% year-on-year increase, accelerating the trend against the first quarter (+9.6%) due to the 34.4% year-on-year increase in the second quarter (6,163 million euros) thanks to the inclusion of the above-mentioned capital gain of Airwave. Stripping out this capital gain, the increase in OIBDA in the first half of 2007 would have been 7.9% year-on-year. Organic growth⁴ in OIBDA was 20.9% (+7.1% stripping out the Airwave capital gain, 1.2 percentage points more than in the first quarter of 2007). With regard to profitability, the OIBDA margin in the first six months of 2007 was 40.5% (35.8% excluding the Airwave capital gain vs. 36.7% the year before).

4 Assuming constant Exchange rates and including the consolidation of the O2 Group, Telefónica Telecom and Iberbanda in January-June 2006. It excludes the consolidation of Telefónica O2 Slovakia in January-June 207 and the consolidation of Airwave in April-June 2007.

Telefónica España (47.4% of consolidated OIBDA) ended the first half of the year with an OIBDA of 4,723 million euros, 10.4% higher than in the same period of the previous year (OIBDA margin 46.3%, 2.1 percentage points higher than in fist half of 2006). Both the Wireline Business and Wireless Business showed strong OIBDA growth compared to the previous year (+13.1% and 7.0% respectively) help by strong revenues and cost efficiency. The margin in the Wireline business rose 3.5 percentage points to 42.7% (+0.9 percentage points to 46.7% stripping out the effect of the redundancy plan and the EU’s fine) but fell 0.2 percentage points at the mobile business to 44.5% given the increased efforts spent on boosting customer loyalty, network management and commercial activity.

OIBDA at Telefónica Latinoamérica (3,391 million euros) represented 34.0%⁵ of consolidated OIBDA for the first six months of 2007, a year-on-year increase of 12.9%, or organic growth⁶ of 15.7%. In constant euros OIBDA rose 17.8%, highlighting the contributions from Venezuela (+48.3% in local currency), Mexico (61 million euros vs. -34 million euros), VIVO (+38.3% in local currency) and Argentina (+17.6% in local currency). The OIBDA margin cumulative to June 2007 was 35.2%, 0.7 percentage points higher than the same period in 2006 thanks to an overall improvement at all mobile operators.

5 January-June 2007 OIBDA excludes the capital gain of Airwave by an amount of 1,296 million euros.
6 Assuming constant exchange rates and including the consolidation of Telefónica Telecom in January-June 2006.

Telefónica O2 Europe’s contribution to the Telefónica Group’s total OIBDA was 18.1%⁷ in the first half of 2007. In absolute terms, OIBDA cumulative to June 2007 stood at 3,100 million euros, including the 1,296 million euros of capital gain from the sale of Airwave, compared to 1,758 million euros in 2006, when included assets from the O2 Group in February-June and from Telefónica O2 Czech Republic and Telefónica Germany in January-June. The OIBDA margin excluding the Airwave capital gain was 25.5% (30.2% in January-June 2006). In the second quarter, OIBDA at O2 UK rose 5.1% year-on-year in local currency, reversing the negative trend seen the previous quarter due to a decline in customer retention and loyalty expenses. The OIBDA margin in the second quarter was 25.6% (26.4% stripping out the provision for workforce restructuring). In O2 Germany, OIBDA for the second quarter fell 49.8% year-on-year as a 96.5 million euros provision for workforce restructuring (700 employees) was booked. On a like-for-like basis, OIBDA would be practically similar (ex-restructuring the OIBDA margin for the quarter was 22.6%). At Telefónica O2 Czech Republic (OIBDA -2.2% vs. the first six months of 2006) the OIBDA margin cumulative to June 2007 was 46.0% (48.5% in January-June 2006), with a negative impact of around 2 percentage points from operations in Slovakia.

7 January-June 2007 OIBDA excludes the capital gain of Airwave by an amount of 1,296 million euros.

Depreciation and amortisation in the first half of the year totaled 4,713 million euros, 0.5% lower than the year earlier figure. Both Telefónica España and Telefónica Latinoamérica posted declines (-6.5% and -6.8%, respectively). Telefónica O2 Europe recorded an increase (+11.4% year-on-year) as it includes O2 Group Purchase Price Allocation (423 million euros) and the Telefónica O2 Czech Republic (78 million euros). In organic terms⁸, depreciation and amortisation in the first semester for the Telefónica Group fell 5.6% year-on-year, 0.7 percentage points less than the decrease achieved in the first quarter, being Tefónica Latinoamérica the main contributor to this decline.

The strong rise in OIBDA and fall in depreciation and amortisation drove a 45.4% year-on-year increase in operating income (OI) to 6,557 million euros in the first six months of the year. Stripping out the impact of the Airwave capital gain, OI would have increased by 16.7%. Organic growth⁸ was 51.5% (+21.8% excluding the capital gain of Airwave vs. +19.6% in the first quarter of 2007).

8  Assuming constant Exchange rates and including the consolidation of the O2 Group, Telefónica Telecom and Iberbanda in January-June 2006. It excludes the consolidation of Telefónica O2 Slovakia in January-June 2007 and the consolidation of Airwave in April-June 2007.

The results of associated companies surged 104.2% year-on-year to 80 million euros in the first semester. This improvement was due to Lycos Europe, which in April sold its investment in the Czech-based IP provider Seznam, c.z.. Sogecable and The Link also contributed positively after they are no longer accounting by the equity method.

Net financial results for the first half 2007 amounted to 1,437 million euros, 20.7% above those of the first half 2006. This variation arises mainly from the increase in the average cost of debt for the Telefónica Group due to higher interest rates in Europe and higher percentage of debt in Latinoamérica, that drives financial expenses up by 143 million euros. Management of the present value of pre-retirement plan commitments and other positions associated to marked-to-market positions, have a positive impact of 86 millions euros, 20 millions below 2006 first half figure. The average cost calculated on average total net debt for the first half 2007 is 5.45% and 5.30% when excluding FX results.

The free cash flow generated by the Telefónica Group in the first half 2007 totaled 3,477 million euros of which 1,459 and 1,425 million euros were assigned to Telefonica share buyback program and dividend payment respectively, and 400 million euros to commitment cancellations derived mainly from the pre-retirements plans. Due to the fact that financial divestitures for the period amounted to 2,789 million euros, mainly due to Airwave sale, net financial debt decreased in 2,981 million euros. In the opposite side, net debt has increased 56 million euros because of FX impact and changes in the perimeter of consolidation and other effects on financial accounts. All this has been translated in a decrease of 2,925 million euros with respect to the net financial debt of the fiscal year 2006 (52,145 million euros), reaching the net financial debt of Telefónica Group at June 2007 49,219 million euros.

The tax provision for the first six months of the year totaled 1,257 million euros. However, the cash outflow for the Telefónica Group will be further reduced as negative tax bases are compensated for.

Minority interests subtract 113 million euros from net income in the first half of the year 2007, a 40.4% year-on-year decrease mainly due to the merger by absorption of Telefónica Móviles by Telefónica S.A. in July 2006. The minority shareholder participation in the net income of Telesp and Telefónica O2 Czech Republic accounted for the bulk of the absolute total of results attributable to minority interests.

In all, net income cumulative to June amounted to 3,830 million euros, 66.4% more than in the same period last year. Basic earnings per share soared 63.7% year-on-year to 0.799 euros. In the second quarter 2007, net income was 2,573 million euros (1,135 million euros in the second quarter 2006), while basic earnings per share was 0.541 euros (0.243 euros in April-June 2006).

CapEx in the first six months of 2007 totaled 3,208 million euros, up 6.1% year-on-year. Growth in investments by Telefónica Latinoamérica focused in the expansion of broadband, TV and GSM networks, was the main reason for the increase at the group level. However, these investments are highly cyclical, so the performance cannot be extrapolated to the full year.

• In relation to the Telefónica Group’s financial targets set for 2007 the Company expects:

• Revenue growth is expected to be in the range +8%/+10% versus +6%/+9% previously announced.

• OIBDA growth is expected to be in the range +10%/+13% (+8%/+11% before).

• OI growth is expected to be between +19%/+23% compared with the range previously communicated (+14%/+20%).

• 2007 CapEx is expected to be below 8,100 million euros versus the initial estimation of <7,814 million euros.

9 Base 2006 reported numbers include eleven months of O2 Group (consolidated since February 2006), eight months of Telefónica Telecom (consolidated since May 2006), six months of Iberbanda (consolidated since July 2006), three months of start-up losses in Slovakia, and exclude Endemol and Airwave results. 2007 guidance assumes constant exchange rates as of 2006 and excludes changes in consolidation. In terms of guidance calculation, OIBDA and OI exclude other exceptional revenues/expenses not foreseeable in 2007. Personnel Restructuring and Real Estate Programs are included as operating revenues/expenses, with the exception of the ones decided after the guidance communication at the beginning of the year. For comparison purposes the equivalent other exceptional revenues/expenses registered in 2006 are also deducted from reported figures. CapEx excludes investments related to Real Estate Efficiency Plan.

TELEFÓNICA GROUP

Financial Data

Telefónica España

In the second quarter of the year, Telefónica España Group extended the healthy earnings trend of first quarter.

Revenues for the first half 2007 surged by 5.4% to 10,191 million euros, while OIBDA increased by 10.4% to 4,723 million euros, leaving an OIBDA margin of 46.3%. Underlying OIBDA growth, once excluded specific effects such as those arising from the Redundancy Programme, the European Union fine, and the Real Estate Programme and subsidies among others, stays at 6.3%.

Telefónica España Group’s CapEx through June amounted to 1,030 million euros, leaving operating cash flow (OIBDA-CapEx) of 3,693 million euros.

With regards to Telefónica España Wireline Business the following should be highlighted:

• Strong and sustained high growth in revenues in January-June 2007 (+3.8% year-on-year), underpinned by higher Broadband revenues together with an improvement of Access and Voice revenues.

• Acceleration of OIBDA growth in first half 2007 to 5.6% after stripping out specific effects such as the Redundancy Programme, the European Union fine, and the Real Estate Programme and subsidies, driven by increased revenues and higher efficiency.

• A smaller loss of fixed telephony lines in a growing market environment, easing market share loss. The year-on-year decline in fixed lines was reduced to 0.7% after posting in the second quarter the lowest quarterly line loss since last quarter of 2004. This rate of decline positively stands out within the European context.

• Telefónica’s continued leadership of the Spanish Broadband Internet access market, with an estimated market share of 56%.

With regards to Telefónica España Wireless Business the following are particularly noteworthy:

• Strong growth in service revenues of 6.2% year-on-year in the January-June 2007 period, driven by the positive performance of customer revenues (+9.6%).

• Upholding of the growth of the total customer base (+7.0% vs. June 2006), mainly focusing in contract customers (+13.4%), based on the increasing commercial activity and the success of customer loyalty initiatives, which helped maintain churn (1.7%) at second quarter 2006 levels.

• Higher growth in data revenues (+15.4% year-on-year) during in the first six months of the year, with data ARPU achieving its highest growth in years, due above all to content and connectivity services.

• Solid OIBDA growth of 7.0% in the six months to June 2007, with an OIBDA margin of 44.5%.

Telefónica España upgrades its financial targets for 2007 expecting:

• Growth in revenues to be in the +3.5%/+4.5% range, compared to the +0.5%/+2.0% range announced initially.

• Growth in OIBDA² to be in the +9%/+11% range, compared with the initial range of +5%/+7%.

• CapEx target³ remains unchanged, with an objective for 2007 of less than 2,400 million euros.

For Telefónica España Wireline Business:

• Growth in revenues to be in the +2.5%/+3.5% range, versus the previously announced range of +0.5%/+2.0%.

• Growth in OIBDA² to be in the +13.5%/+16% range, compared to the +9%/+12% previously announced.

For Telefónica España Wireless Business:

• Service revenue growth to be in the +4%/+5% range, compared to the +2%/+4% range announced previously.

• Growth in OIBDA to be in the +4%/+5% range, compared to +0%/+1%.

RESULTS BY REGIONAL BUSINESS UNITS

Telefónica España

Revenues in the first half of 2007 totalled 6,144 million euros, after posting growths of 3.6% in the first quarter and 4.0% in the second quarter to reach a cumulative growth in the January-June 2007 period of 3.8% vs. same period 2006.

Driving the growth of revenues were solid increases in Internet and Broadband service revenues and a better showing from the remaining services: access, voice, data and IT.

Traditional access revenues through June amounted to 1,390 million euros, a year-on-year increase of 0.5% led by the 2.0% increase in the PSTN line monthly fee effective from January 1st and by fewer losses of fixed telephony accesses over the period.

• So far this year, estimated growth of the Spanish fixed telephony market has remained steady at 2.4% (0.9 percentage points higher than market growth at June 2006), in stark contrast to the contraction seen at most European markets. Telefónica España’s fixed telephony accesses declined by a net 43,706 lines over the first half of the year, meaning that line loss is slowing down significantly (net loss has dropped off 62.3% in comparison to that of first half 2006); the posted number is the lowest six month loss since 2001 . Fixed telephony accesses totalled 15,906,161 at the end of June 2007, indicating a year-on-year decline of 0.7%, the lowest drop seen in recent years.

• Estimated fixed telephony market share for Telefónica España stood at 81%, with a lower rate of market share decline in the twelve months to June 2007 than in the previous 12 month period.

Traditional voice services revenues saw the rate of decline ease in the six months to June 2007 (-3.4%) thanks to an improvement in the second quarter (-2.3%) from the first (-4.5%). Outgoing traffic revenues, with a year-on-year decline of 5.0% in the first half of 2007, and interconnection revenues, which remained stable during first six month of 2007, also improved their performance during the second quarter as first quarter declines eased.

• The second quarter of 2007 saw traffic minutes in Spain gather momentum, with estimated growth of 0.7% in the first half of 2007 vs. first half 2006. As regards traffic carried over the Telefónica España Wireline Business’ network, the smaller decline in voice traffic is to be highlighted, and above all, the 15.0% increase in international traffic and the 9.4% increase in domestic long distance (interprovincial) traffic. DLD traffic usage is being highly stimulated by the flat rates associated with the Duo and Trio bundles.

• The total number of pre-selected lines at the end of June stood at 1,851,470, representing a reduction of 55,049 lines over the first six months of the year.

• Telefónica España’s estimated market share of wireline traffic at June was 65%, the same as at the end of March 2007.

• Interconnection revenues, that showed a decline of 1.9% in the first quarter 2007, posted a 1.9% growth in the second quarter, to remain unchanged in January-June 2007 period. This upturn was fuelled by the increase of two types of incoming traffic, mobile to fixed traffic and international traffic, especially to mobiles.

Cumulative growth to end June of Internet and Broadband service revenues was 18.5% after a 15.1% year-on-year increase in the second quarter of 2007.

• Revenues trend of Internet and Broadband services is due to both, retail and wholesale business. Retail services posted a 25.1% revenue growth in the second quarter 2007 compared to the 33.9% growth in the first quarter, on the back of greater promotions carried out over the last quarter, including free subscription fee campaigns. Wholesale services, with revenues declining 14.9% in the second quarter (-5.5% in the first quarter) is affected by the migrations of wholesale ADSL accesses to unbundled loops. Meanwhile, Narrowband revenues have continued to fall at a similar rate over the course of the year, at around 32% year-on-year.

• The estimated market for Fixed Broadband Internet Access in Spain reached 7.5 million accesses by the close of June, with net adds of 0.34 million in the second quarter (about same number of net adds in second quarter 2006).

• Telefónica’s retail Internet Broadband net additions in April-June 2007 came to 205,617 accesses (+15.9% year-on-year), taking total accesses to 4,198,363 by the end of June. Telefónica maintained its leading position in the broadband market, with its estimated share holding steady over the last few months at around 56%.

• Growth in unbundled loops lost steam in the second quarter, with net adds of 98,791 loops (-25% year-on-year), 89% of which related to migrations from Telefónica España’s wholesale ADSL service. The total number of unbundled loops at June end was 1,170,008 units, giving a broadband market share of 15.6%. Of all unbundled loops, 56.8% are shared access loops; this percentage has remained fair stable in recent quarters.

• The wholesale ADSL service has continued to shrink due to migration to unbundled loops. Second quarter saw a net loss of 31,283 accesses, leaving a total of 530,457 at the end of June.

• The Spanish pay TV market has grown gradually over the course of the year. Telefónica has enjoyed the fastest growth, thereby gradually increasing its market share to estimated levels of slightly under 12% at the end of June 2007. Net additions in the year’s second quarter were 32,307 customers. Telefónica España ended June with 450,925 pay TV customers.

• The total number of Duo and Trio bundles stood at 3,336,380 units, an increase of 21% from the end of 2006.

The growth of data service revenues accelerated in the second quarter, taking cumulative growth in the first half of the year to 6.6% (vs. first half 2006). Growth was higher in both retail services (leased lines, broadcast and VPNs) and wholesale services.

Operating expenses for Telefónica España Wireline Business fell 5.9% year-on-year in the January-June 2007 period to 3,464 million euros, helped by an 8.4% year-on-year drop in the second quarter of the year. The decline was mainly due to a lower workforce restructuring provision, of 94 million euros in the six months to June 2007 linked to 350 employees joining the Redundancy Plan (E.R.E.), compared to 392 million euros in first half 2006. Excluding this effect, operating expenses would have risen by 2.4% on the back of increases in supplies (+1.7% to 1,474 million euros), mainly due to equipment purchases for resale and content for Imagenio, and external services (+10.1% to 691 million euros), due to both increased commercial activity and a rise in traffic carried in telephone booths and public call centres. Personnel costs amounted to 1,163 million euros, a 20.7% year-on-year fall from January-June 2006, or 0.5% excluding in 2006 and 2007 E.R.E. provisions and the actuarial review.

Telefónica España Wireline Business (Telefónica de España) has provisioned in January-June 2007 accounts 151.875 million euros corresponding to the imposed fine by the European Union. The fine is a result of the decision by the European Union dated July 4th 2007, related to the case COMP/38.784 Wanadoo España against Telefónica. The Company has decided to fully provision the fine, without deserting the right to fully disagree with the aforementioned decision and with the imposed fine, that is to be opposed by Telefónica in the corresponding European Union Court of Justice on a timely and legal basis.

Growth in revenues, coupled with the effects of lower workforce restructuring provisions in the January-June 2007 period and the fine imposed by the European Union, has had a considerable impact on operating income before depreciation and amortisation (OIBDA), which amounted to 2,626 million euros for the first half of 2007, an increase of 13.1% year-on-year.

Excluding specific effects, such as the Redundancy Plan, the fine imposed by the EU, the Real Estate Program and subsidies, the underlying OIBDA growth, for the six month period ending June 2007, would have accelerated to 5.6% year-on-year (4.7% in the first quarter of the year), fuelled by a 3.8% increase in revenues and increased efficiency, as borne out by the fact that revenues outstripped costs (+2.3% year-on-year), once excluded the EU fine and E.R.E.

The OIBDA margin in the first half of 2007 was 42.7%, 3.5 percentage points higher than in the same period last year. Excluding the effects of the Redundancy Plan provisions and the actuarial review in both years, as well as the fine imposed by the EU, the margin would have improved by 0.9 percentage points to 46.7%.

RESULTS BY REGIONAL BUSINESS UNITS

Telefónica España

In a highly competitive environment, the Spanish wireless market managed to surpass the 49 million-line mark by the end of June 2007, with an estimated penetration rate of close to 108% (+7 percentage points vs. June 2006).

In this context, Telefónica España’s wireless business posted net adds in the second quarter of 2007 of 289,006 customers (378,270 in the second quarter of 2006), pushed by the new pricing plan and churn containment. The contract segment extended its good run of recent quarters, registering 389,887 net adds (a year-on-year increase of 11.7%). In the first semester of 2007, Telefónica España’s wireless business achieved 656,721 net adds (vs. 765,094 in the first semester of 2006), led by the contract segment (776,860, up 12.5% against the first semester of 2006).

Commercial activity in the second quarter of 2007 was similar to that of the same period last year, with 2.9 million commercial actions driving the total customer base to over 22.1 million (+7.0% vs. June 2006). Here again, we would highlight the performance of the contract segment, which posted year-on-year growth of 13.4% and now represents more than 58% of the total customer base, a 3.3 percentage points increase on the year ago figure.

In portability, 9,375 lines were lost in the second quarter of 2007. However, Telefónica España’s wireless business continued to perform well in terms of high value customers –it achieved 64,498 net contract adds, in line with the second quarter of 2006- which is where the company focuses its efforts. Thus, for the first half of the year, the net portability balance showed a loss of 5,761 lines, with net adds in the contract segment of 142,565 lines.

Churn was also key in the healthy commercial results achieved by the company. During the second quarter of 2007, churn remained virtually unchanged at 1.7% (+0.1 percentage points vs. the second quarter of 2006) and slightly below the first quarter of 2007 (1.8%) despite the higher number of competitors operating in the market. Noteworthy was the good performance of contract churn in the quarter, which stood at 1.0%, the same as in the second quarter of 2006 and slightly lower (-0.1 percentage points) than in the first quarter of 2007 (1.1%). Residential segment handset upgrades (+8.1% vs. the second quarter of 2006) contributed to this good churn performance.

Voice ARPU reached 28.1 euros in the second quarter, 2.0% lower than in the second quarter of 2006, impacted by the interconnection rate cuts of November 2006 and April 2007 (-13.9% in all). Worth mentioning is the performance of outgoing voice ARPU, which rose 0.2% year-on-year in the second quarter.

Underpinned by the excellent contribution of the data business, total ARPU in the second quarter of 2007 was 32.8 euros. This was, however, 0.5% lower than in the second quarter of 2006 due to the cuts in interconnection rates. Total outgoing ARPU advanced 1.3% year-on-year, boosted by increases in both outgoing voice (+0.2%) and data ARPU (+8.6%).

• Revenues rose 7.1% in the year’s second quarter to 2,415 million euros and 7.5% in the first half to 4,751 million euros. It is worth noting that since the 1st of January 2007 there has been a change in the way of accounting pre-pay sales and top-up commissions which change from being registered as minor revenues to being added to costs and the registering of revenues/costs of portability transit routing which are now registered for the net amounts. The net effect of this change is neutral at OIBDA level, though the operating revenues would have grown 6.9% in the second quarter and 7.3% in the first semester of 2007 excluding the impact of the mentioned changes. Highlights by revenue items include:

• Service revenues grew 5.5% year-on-year in the second quarter of 2007, to 2,121 million euros, and were up 6.2% in the first semester of 2007. This good performance was driven by higher customer revenues. These rose 9.3% year-on-year in the second quarter of 2007 to 1,706 million euros and 9.6% in the first semester of 2007 on the back of the strong year-on-year increase in the total customer base, particularly in the contract segment, and by increased data usage.

• Interconnection revenues fell 8.1% year-on-year in the second quarter of 2007 (-5.7% in the first semester of 2007), signalling a higher decline than in the first quarter of 2007 due to the additional reduction in interconnection rates made in April 2007.

• Roaming revenues fell 11.9% due to lower wholesale prices (-15.6% in the first semester of 2007).

• Handset sales revenues hit the 294 million-euro mark in the second quarter 2007, a 20.2% increase from the second quarter of 2006 due to the different rates of distribution channel uptake. In the first semester of 2007, handset sale revenues climbed 17.1% year-on-year.

Telefónica Latinoamérica

In accordance with the Group's new structure, Telefónica Latinoamérica’s results include Telefónica Group’s fixed line and wireless operators’ results in the Latin American region. Furthermore, figures for the Telefónica Latinoamérica Group also include the results of Telefónica Telecom, from the 1st of May 2006.

On a yearly basis, the currencies of all the countries in which Telefónica Latinoamérica operates have suffered a depreciation in relation to the euro, despite them performing better during the second quarter of 2007 than in the first quarter of 2007. Notwithstanding, this has translated into a negative impact of 5.0 percentage points and 4.9 percentage points in revenue and OIBDA growth respectively in the first semester of 2007, a less negative impact than the one registered at March 2007 (8.1 percentage points both in revenues and OIBDA).

Telefónica Latinoamérica reached revenues of 9,628 million euros during the first semester of 2007, 10.6% up on the same semester of 2006 in current euros. In constant euros, revenue growth has increased 15.5%, of which Telefónica Telecom contributed 2.7 percentage points. Of the countries contributing most towards growth in constant currency, with the exception of Colombia due to change in the perimeter of consolidation, Mexico is particularly noteworthy with 3.1 percentage points, followed by Venezuela (+3.0 percentage points) and Argentina (+2.2 percentage points). On the other hand, in absolute terms, Brazil continues to be Telefónica Latinoamérica’s greatest contributor with 38.3%, followed by Venezuela (11.7%) and Argentina (11.6%).

Operating income before depreciation and amortization (OIBDA) stands at 3,391 million euros, recording a growth of 12.9% in current euros. Telefónica Latinoamérica’s OIBDA growth rose to 17.8% in constant euros, with a contribution of 2.1 percentage points from Telefónica Telecom. With regards to other countries (excluding Colombia due to change in the perimeter of consolidation), the main contributor to OIBDA growth was Venezuela with 5.5 percentage points, followed by Mexico (+3.3 percentage points), Vivo (+2.5 percentage points) and Argentina (+2.1 percentage points). Brazil is Telefónica Latinoamérica’s greatest OIBDA contributor with 44.0%, followed by Venezuela (13.8%), Argentina (11.6%) and Chile (9.7%). The OIBDA in the first semester of 2007 is impacted by a 45 million euros loss due to the divestment of the 6.9% stake in CANTV.

CapEx for the Telefónica Latinoamérica Group stood at 1,131 million euros by the end of June, a year-on-year growth of 32.5% (38.9% in constant euros), allocated mainly for the expansion of broadband, television and the development of GSM networks. By the end of June, Telefónica Latinoamérica had reached an operating cash flow (OIBDA-CapEx) of 2,260 million euros, a growth of 5.2% in current euros (9.4% in constant euros).

At the close of the first semester of 2007, the Telefónica Latinoamérica Group managed 121.8 million accesses, 13.9% up on June 2006, thanks to the increase in cellular clients, a year-on-year growth of 18.9%, exceeding 90.6 million, due mainly to the high growth rates registered in practically all countries, particularly Peru (+57.2% year-on-year), Mexico (+49.0% year-on-year) and Argentina (+30.8% year-on-year). Also contributing positively to the total growth in Latin American accesses, was the incorporation of Telefónica Telecom, which contributed 2.3 million fixed telephony accesses and 125,000 retail broadband Internet connections. Fixed telephony accesses reached 23.9 million, in line with those managed at the end of June 2006, driven by the previously highlighted incorporation of Telefónica Telecom, and by the growth of fixed telephony accesses in Peru (+7.1% year-on-year). The Group’s retail Internet broadband accesses continued their strong growth trend reaching 4.4 million accesses, a growth of 36.8% year-on-year, thanks to commercial efforts carried out by all operators. With regards to pay TV, Telefónica Latinoamérica manages 800,000 clients (+55.2% year-on-year) with operations in Peru, Chile and Colombia.

Telefónica Latinoamérica upgrades its financial targets for 2007 expecting:

In the first half of 2007, Telefónica Latinoamérica registered revenues of 3,690 million euros in Brazil, with year-on-year growth of 3.6% in local currency. OIBDA was 1,493 million euros, up 1.2% year-on-year in local currency as a result of the significant improvement in Vivo’s results. CapEx in the first six months of the year rose to 405 million euros, a rise of 23.0% year-on-year in local currency as a result of greater investments carried out by Telesp.

From an operating standpoint, Telefónica Latinoamérica managed 45.4 million accesses in Brazil at 30 June 2007, 2.8% higher than in the same period of last year as a consequence of year-on-year 6.0% growth in Vivo’s mobile accesses, partially offset by a sight decline in Telesp’s fixed line accesses, together with changes to the accounting criteria applied for narrowband internet access made in the second quarter of 2007.

At the end of June, Telesp managed 15.1 million accesses, 3.0% less than in June 2006, due both to the reduction in the number of fixed line accesses caused by the strong growth in the cellular business in the country and the implementation of a more restrictive accounting criteria (based on activity) for narrowband internet accesses. The company ended the second quarter with 12.0 million fixed line accesses (-2.5% yoy), of which approximately 20.6% were pre-pay or lines with consumption limits.

In the second quarter of 2007, the broadband market continued with strong growth (over 41% yoy), having captured Telesp more than 55% of this increase and thus reaching 1.8 million retail broadband accesses (+31.1% year-on-year), with net adds of 122,000 accesses in the second quarter of the year, 47.9% higher than the figure seen in the previous quarter. The launch of bundled broadband internet/digital TV offers contributed to increase the company’s broadband customer base by 37,400 customers in the first half of the year. After obtaining its DTH license, Telefónica expects to launch its own service in the next few months.

Telesp’s total voice traffic to June (34,320 million minutes) reflected a year-on-year decline of 2.8%, mainly due to the drop in local traffic (-4.3% year-on-year), affected by the decline in the number of lines in service and the lower usage per line, caused by the market contraction triggered by the cellular telephony expansion. To offset this, the operator is still focusing on the sale of traffic bundles; having 2.7 million bundled lines (monthly fee+local traffic) at the end of the first half of the year (23.3% of fixed line accesses), and 1.3 million traffic packages sold (Long Distance, Fixed-Mobile and narrowband Internet access). Also noteworthy is the slowdown in long-distance traffic (-5.2% year-on-year), mainly inter-state traffic (-10.4% year-on-year), as a result of the overall market contraction, although this was partly offset by the increase in market share.

From a regulatory standpoint, it is worth highlighting that in the middle of March, Telesp was granted a license by Anatel to operate satellite television services (DTH). Also the migration from invoicing by pulses to minutes, which commenced in mid March, should be completed by the end of July. Anatel has banned all sales and advertising of bundles to the residential segment until the migration process is completed. Lastly, on 13th July, Anatel published its tariff adjustments for 2007. These involve a 2.21% increase in local rates (effective from 1st October) and Domestic Long Distance, and a rise of 3.29% for fixed to cellular calls (VCs). On the same date, Anatel approved at 2.25% increase in the fixed to cellular interconnection rate (VUM). All these adjustments will come into force on 20th July, except for those related with local rates.

Telesp reported revenues of 2,758 million euros in the first half of 2007, down 0.3% year-on-year in local currency. This slight drop was due to the fall in traditional business revenues (-1.4% in local currency), following the tariff adjustment made in July 2006, the loss of basic telephony billable plant and the 20% reduction in local interconnection tariffs since January. On the other hand, the increase in broadband revenues (+14.5% in local currency) contributed positively, driven by accesses’ growth, which triggered a 10.2% year-on-year rise in Internet revenues (broadband and narrowband), raising the weight of this business in total company revenues from 8.3% in the first half of 2006 to 9.2% in the first half of 2007.

Operating expenses showed year-on-year growth of 5.9% in local currency, mainly due to the higher cost of external services (+6.8% in local currency), on an increased commercial activity. In addition, the company, which has implemented a process of migrating billing systems, has seen an increase in the provisions for bad debts (+69% in local currency vs. the first half of 2006). The ratio of provisions of bad debts of over revenues is 4.1% as of June. The company has already implemented a set of actions aimed to contain this ratio in the next few months, ranging from setting up strict entry filters to more actions to recover debts. Personnel expenses (+0.8% in local currency) reflect the results of the staff restructuring programmes carried out in March 2006 and February 2007, and also the impact of the additional headcount reduction made in June this year which affected nearly 500 employees. Supply costs increased year-on-year by 2.6% in local currency despite the 20% reduction in the local interconnection tariff, due mainly to the rise in SMP traffic.

Telesp reported operating income before depreciation and amortization OIBDA of 1,224 million euros in the first half of 2007, down 4.3% year-on-year in local currency due to higher bad debt provision, the loss of traditional revenues and higher staff restructuring costs. The OIBDA margin was 44.4%, 1.8 p.p. lower than in the first half of 2006.

Cumulative CapEx in June 2007 was 300 million euros, 39.0% higher than the figure reported in the first half in local currency, mainly due to the increased investment in broadband, pay TV and higher cable theft (already reported in the previous quarter). Therefore, operating cash flow (OIBDA-CapEx) was 925 million euros (-13.9% year-on-year in local currency).

Vivo’s second quarter 2007 results shows the management measures implemented to achieve profitable growth and increase customer satisfaction, reflected in the significant growth of the customer base, thereby ending a prolonged period of market share loss, although this has not diluted ARPU.

Also noteworthy was the market’s positive reaction to Vivo’s GSM network, which offers coverage to more than 96% of the towns where the company operates. Vivo obtained 65% of total subscriptions in the quarter, putting its GSM customer base at the end of June at 3.4 million, 11% of its total customer base.

Vivo is still the only operator to provide solutions using two technologies, offering CDMA/EVDO technology as the best data solution on the market. It has been leveraging this technology to steadily grow its WAP offer and Vivo ZAP solutions (EV-DO PMCIA cards and USB), and to launch innovative services using Vivo PLAY (downloads and video streaming).

Vivo ended June with a total of 30.2 million customers (+6.0% vs. June 2006) in a market with an estimated penetration rate of 58.3% (+7 percentage points year-on-year). This puts an end to the slowdown in market growth seen in earlier periods and is evidence of the strong commercial activity seen this quarter.

Vivo’s commercial strategy centred on its Mother’s Day and Valentine’s Day campaigns, which attracted most of the new adds. Subscriptions were 3.3 million in the second quarter 2007, the highest number seen in last years (+30% vs. second quarter 2006). This good performance was underpinned by the wider variety of handsets on offer, pre-pay traffic promotions and improved contract acquisition capabilities through the launch of the new "Vivo Escolha" plans.

By the end of the quarter, 32.6% of the company’s contract customers had subscribed to a Vivo Escolha plan, significantly enhancing the market’s perception of Vivo’s commercial offer. Contract adds rose 63.9% year-on-year in second quarter 2007.

Other factors contributing to the improvement in Vivo’s earnings were the rollout of a new simplified billing format for contract customers and the development of a sound distribution network, with more than 338,000 top-up points.

Revenues through June totaled 1,102 million euros (+14.5% year-on-year in local currency). Service revenues grew 19.0% year-on-year in local currency, largely driven by higher interconnection revenues after the removal of the Bill & Keep rule. Excluding this effect, the increase would have been 3.5%.

The pace of growth of service revenues accelerated in the second quarter from the first quarter due mainly to the positive impact on results of the Escolha plans in the contract segment. These plans played a key role in the increase in outgoing contract ARPU (+9.4% in second quarter 2007 vs. first quarter 2007) and also provide the company with an acquisition and retention tool for its most valued customers.

The pre-pay segment also continued to perform well in the second quarter 2007, with outgoing ARPU up 16.7% as a result of the successful traffic incentive campaigns, which led to a 94% year-on-year increase in outgoing pre-pay MOU in the second quarter 2007.

Total MoU grew 16.8% year-on-year in the second quarter, driving a 27.8% year-on-year increase in total ARPU in the quarter.

Operating income before depreciation and amortization (OIBDA) was 268 million euros in the first half 2007, 38.3% higher than in the first half 2006 in local currency. Contributing to this increase was control over operating expenses in the second quarter via improvements in customer management costs, especially the 74% year-on-year reduction in bad debts. This evidences the strict control exercised over new customers acquired in the end-of-year campaigns. Churn in the second quarter 2007 was 2.3%, down from 2.6% in the first quarter. The OIBDA margin in the January-June period was 24.4%, up 4.2 p.p. on the same period last year, although in the second quarter was 20.8% compared with 28.3% obtained in the first quarter, as a result of the higher commercial costs relating to the Mother's Day and Valentine's Day campaigns. Without taking into account the impact of the Bill & Keep rule, OIBDA growth in the first half would have been 36.2% in local currency, and the margin would have stood at 27.2%.

Telefónica continued to enjoy a good competitive position in the Argentinean market. It is the broadband market leader in its operating area, with 659,000 accesses, and the leader in the wireless market, with over 12.4 million customers. The company managed total accesses of 18.1 million in Argentina at the end of June 2007, an increase of 20.5% vs. June 2006. This healthy position fed through to the company’s financial results in Argentina, with an 18.8% year-on-year increase in the first half of 2007 revenues to 1,113 million euros. Operating income before depreciation and amortization (OIBDA) rose in the first semester of 2007 by 17.6% vs. the same period last year, to 394 million euros. CapEx through June 2007 totalled 123 million euros.

Telefónica de Argentina (TASA) managed 5.7 million accesses at the end of June 2007, 2.8% more than the year earlier. This increase was fuelled by a 61.2% year-on-year rise in retail internet broadband accesses, to 659,000, and, to a lesser extent, a slight (+1.0%) increase in fixed line accesses, to 4.6 million at June 2007.

The traditional business continued to show a positive trend, with traffic growth outstripping the market average, driving a 10.0% year-on-year increase in the first half of 2007 revenues. Total voice traffic was slightly higher than in the first semester of 2006, thanks to the growth in mobile to fixed interconnection traffic (+27.8% vs. the first half of 2006), intelligent network traffic (+61.4% year-on-year) and, to a lesser extent, long distance traffic (+2.3% year-on-year). This offset the drop in fixed to fixed traffic (-3.6% vs. the first semester of 2006), both local and interconnection, and also public telephony traffic (-17.6% year-on-year against the first semester of 2006). Once again, traffic data point to the growth in the cellular and broadband businesses.

Revenues for the fixed line business in the first semester of 2007 totalled 496 million euros, an increase of 13.7% year-on-year in local currency. Sales growth was impacted by the changes in the accounting criteria for international termination costs, effective from September. These were accounted as operating expenses and no longer netted from the line of revenues, as of the 1st of January 2006. Stripping out this impact in 2006, revenues would have increased by 10.7% in local currency.

Revenues from the traditional business were still the main driver of business growth, rising 10.0% year-on-year in the first semester of 2007, or 6.4% excluding the impact of the international termination costs. This was due to the good performance of local minutes bundles, interconnection traffic (mainly from wireless operators), the renting of transmission facilities and value added services. The growth of bundle revenues was spurred on by the mid-2006 launch of flat rate call tariff and by the re-definition of the bundles at the end of 2006. The second main driver of revenue growth in the first half of 2007 was the internet and broadband business (+44.3% vs. the first semester of 2006). Revenues for this business accounted for 13.8% of total revenues in the first semester of 2007 (+2.9 percentage points). The solid performance of broadband was fuelled by overall market growth and the success of the voice and broadband minutes bundle offer (Duo), which was launched in the last quarter of 2006 and already has a total of 145,000 users. Broadband revenues in the first half of 2007 rose 60.8% year-on-year, in line with the 61.2% increase in accesses already mentioned. Thanks to point-to-point circuits, VPNs and satellite services, the data and IT business continued to make heavy inroads, with revenues rising by 10.5% in local currency vs. the first half of 2006.

Over the first six months of the year, operating expenses grew 21.3% year-on-year in local currency (15.3% excluding the impact of international termination costs). This was largely due to an increase in personnel expenses (+33.5% year-on-year in local currency) caused by salary rises and workforce restructuring expenses related to the plan which started in the second half of 2006. Supply costs in the first half of 2007 also grew due to increased interconnection costs and higher purchases of equipment for resale and would have surged by 15.5% year-on-year in local currency if we exclude the impact of the international termination costs.

The ratio of bad debt provision to revenues remained below 1% thanks to good recovery management and to the larger volume of pre-pay and consumption control plant, which remained at around 30% of the total lines.

TASA posted an operating income before depreciation and amortization (OIBDA) in the first half of 2007 of 218 million euros, a 2.1% year-on-year increase in local currency.

CapEx amounted to 72 million euros, up 17.6% in local currency on the same period last year mainly to develop broadband and new businesses. Operating cash flow (OIBDA-CapEx) for the Argentinean wireline business reached to 146 million euros,

The pace of growth of the Argentinean wireless market accelerated in the second quarter of the year, spurred on by the Fathers’ Day campaign boosting the penetration rate up to 88% (+25 percentage points higher than at the end of June 2006), becoming the highest rate in the region.

Net adds in the second quarter of 2007 rose 4.3% year-on-year to 596,074 customers, bringing the total net adds for the first six months of the year to 1,209,655 customers (+5.1% vs. the first semester of 2006). The healthy performance of net adds was due to both practically flat levels of gross adds compared to the same period of 2006 and to the excellent performance of churn, which stood at 1.7% for the second quarter of 2007 (0.8 percentage points lower than in the second quarter of 2006 and 0.2 percentage points lower than in the first quarter of 2007). As a result, the company ended the quarter with over 12.4 million customers, representing a 30.8% increase in the customer base from June 2006. GSM customers accounted for 82% of the total customer base at the end of the period (an 18 percentage points year-on-year increase).

Revenues extended the trend of previous quarters, totalling 662 million euros in the first semester of 2007, a 22.2% year-on-year increase in local currency. Driving growth was a solid performance by service revenues, with a 23.6% year-on-year increase in local currency.

Revenue growth, coupled with lower unit commercial costs and lower customer management expenses, as well as the lower percentage of operating costs over revenue, led to an increase in operating income before depreciation and amortization (OIBDA) of 45.2% year-on-year in local currency in the first half of 2007 to 176 million euros. This left the OIBDA margin in the first semester of 2007 at 26.5%, 4.2 percentage points higher than the year earlier figure.

CapEx for the first half of 2007 amounted to 50 million euros, reaching an operating cash flow (OIBDA-CapEx) of 125 million euros.

During second quarter 2007, Telefónica Latinoamérica sustained growth in terms of managed accesses in Chile, leading the fixed telephony, mobile and broadband markets in number of accesses. Net adds in the quarter reached more then 200,000 accesses to end June 2007 with a total of 8.9 million. Growth remains busted by mobile customer base, 5.9 million clients at June end (+7.5% vs. June 2006). Wireline unit, Telefónica Chile, was able to stabilize the loss of fixed telephony accesses (-6.6%) while at the same time achieving strong growth in retail ADSL (+40.4%) and Satellite TV, which was launched on June 2006.

Cumulative revenues to June 2007 climbed to 864 millions euros, which in constant euros represents 11.8% growth year-on-year. Mobile business (+22.7%) together with Broadband and TV business (+75.1%), which kept posting strong growth as in the first quarter 2007, more than offset declining revenues of the traditional telephony business (-7.4%). Operating income before depreciation and amortization (OIBDA) for the six months to June 2007 climbed to 329 million euros with a year-on-year growth in local currency of 14.0%.

Telefónica Latinoamérica maintains its strong investment activities in Chile, with cumulative CapEx reaching 193 million euros after growing by 55.6% in local currency vs. January-June 2006. Highest growth businesses, namely mobile, ADSL and Pay TV, remain the target of investment activities.

The total number of accesses managed by Telefónica Chile grew by 77,636 in the year’s second quarter and ended June at 3.0 million, up 4.3% year-on-year. The fall in fixed lines narrowed in the second quarter to 2,994 accesses, compared to 28,852 in the first quarter. This left a total number of fixed line accesses at end June of 2.2 million, 6.6% fewer than a year earlier, reflecting the extraordinary drop of pre-pay lines during the second half of last year. Despite this slight fall, which led to a 1 percentage point drop in estimated market share to 66%, Telefónica Chile remains the leader in Chilean fixed line market.

The strong performance of Broadband and pay TV accesses, in conjunction with the commercial roll out of bundles (the DUO and TRIO, double and triple play bundles), offset the decline in fixed telephony lines. Retail ADSL connections at Telefónica Chile jumped 40.4% vs. June 2006 to reach 574,088 accesses. The growth registered in second quarter 2007 enabled Telefónica Chile to raise its market share by 1 percentage point to 50%. Meanwhile, Telefónica Chile remains strategically focused on the digital satellite TV business (DTH), recording more than 40,000 net adds in the three months to June 2007. This took the total pay-TV customer base to 171,400 at the end of June, representing an estimated 15% share of the market. Just one year after its commercial launch, Telefónica Chile is now the second largest player in the pay-TV market by customer base. The company has announced the launch of new Broadband pay-TV services (IPTV) with coverage in certain areas of the city of Santiago.

The undeniable fixed to mobile substitution effect is eroding Telefónica Chile’s voice service revenues. The company’s strategic focus on Triple Play has enabled Telefónica Chile to post significant revenue growth in the Broadband and TV businesses, offsetting the fall in traditional service revenues. Revenues for the first six months of the year totalled 474 million euros, a year-on-year increase of 1.4% in local currency. Internet and Broadband revenues (including narrowband, ADSL and pay-TV) jumped 75.1% in local currency, driven by growth of Broadband accesses and the launch of digital TV services in June 2006. This revenue growth offset the 7.4% fall in local currency of traditional revenues, mainly due to the fixed to mobile substitution effect. Data and IT revenues grew 1.6% year-on-year, reversing the negative trend seen in the first quarter.

Operating expenses grew 3.2% in local currency over the January-June 2007 period, heavily influenced by the extraordinary charge taken in first quarter 2006 in connection with workforce restructuring programme. Supply costs grew 2.3%, due to expenses related to the television business, mainly satellite capacity and content, which were partially offset by a fall in interconnection expenses, on the back of lower traffic, and lower expenses associated with equipment for resale. Stripping out restructuring charges, personnel expenses rose 7.6% year-on-year, still affected by the enactment of new Chilean Subcontracting Law. External service costs rose 20.2% in local currency on the back of more intense commercial activity, advertising campaigns for the TV bundles, Dúo and Trío (double and triple play), customer service, sales commissions and network maintenance. Bad debt provisions were 7.0% lower year-on-year in local currency and amounted to 2.7% of revenues.

With costs outpacing revenues, operating income before depreciation and amortization (OIBDA) for Telefónica Chile slipped 0.4% year-on-year in local currency in the six months to June 2007, to 181 million euros.

CapEx in the six-month period totalled 82 million euros, an increase of 30.5% in local currency from the same period last year driven mainly by sharp growth in satellite TV services (DTH), the upcoming launch of IPTV, growth in the number of ADSL customers and initiatives designed to enhance network quality. n through June amounted to 99 million euros, down 16.7% on January-June 2006 as a result of increased investment activity.

The Chilean mobile market, characterised by intense competition, ended the second quarter with an estimated penetration rate of 86%, a jump of 10 percentage points over the last twelve months.

Telefónica Móviles Chile continues to lead the market, with a total customer base at the end of June 2009 of 5.9 million, an increase of 7.5% on June 2006. Net adds of 160,750 in second quarter 2007, 247,304 in the first half of the year, are being driven by GSM gross adds. Users of this technology now represent 82% of the total customer base. Contract clients reached 1.4 million customers, a year-on-year increase of 35.2%. The percentage of the contract customer base rose to 23.1%, 4.7 percentage points higher than in June 2006. During January-June 2007, 80% of net adds were contract client net adds.

Revenues in the first half of the year amounted to 430 million euros, up 22.7% year-on-year in local currency terms. Service revenues grew by 19.7% in local currency during the first half, driven by growth in the customer base and ARPU, which rose 8.4% and 10.5% in local currency in first and second quarters 2007, respectively against the previous year. These trends are being underpinned by migration to GSM technology, plans upgrades and the sale of minute bundles and value added services.

Operating income before depreciation and amortization (OIBDA) rose 37.9% in local currency during the first half of 2007 to 149 million euros, reflecting revenue growth and enhanced operating efficiency. Thank to this operating efficiency, the OIBDA margin jumped 3.8 percentage points to 34.5%, despite increased commercial activity aimed at encouraging customers to switch to GSM technology and stiffer competition in the marketplace.

CapEx in the January-June 2007 period amounted to 111 million euros, leaving operating cash flow (OIBDA-CapEx) of 37 million euros.

Revenues for the first six months of 2007 reached 743 million euros, equivalent to a year-on-year growth of 11.2% million euros (in local currency). The growth of broadband revenues (+26.7% compared to the first semester of 2006, in constant terms) and TV (+22.1% versus the same period the previous year in local currency) in the fixed business and the prepay outgoing traffic revenues (+184.5% compared to the first half of 2006) in the mobile division, explain the better evolution of revenues of Telefónica in Peru.

Operating income before depreciation and amortization (OIBDA) reached 279 million euros, representing a year-on-year growth of 0.4% in local currency when compared to the same period the previous year as the higher commercial expenses of both businesses offset the revenue growth. CapEx for the first half of the year reached 93 million euros, recording a growth of 31.3% compared to June 2006. CapEx of the fixed line declined 1.3% while mobile CapEx shows a significant growth of 83.8% due to the investment on network capacity needed to confront the strong growth of traffic.

As common projects between the fixed and mobile business, it should be highlighted the launch in mid March of the IRIS project (fixed wireless telephony) which reached 48,051 at the end of June of 2007.

At the end of June 2007, Telefónica reached 10.2 million accesses in Peru, equivalent to a growth of 36.8% year-on-year, due to the strong growth of the mobile business (+57.2%), mainly in the prepay client base, and, in a lower extent, to the fixed line (+12.2%).

Intense commercial activity has enabled Telefónica del Peru to continue to post sharp growth in total accesses, of 12.2% to 3.8 million clients by the end of June 2007. Total fixed line accesses have performed well, with a year-on-year growth of 7.1% to 2.6 million at June 2007. This expansion was fuelled by increases in both broadband accesses (+35.6% year-on-year to 527,804 users) and TV accesses (+22.3% to 599,974 clients: 540,280 in cable TV and 59,694 in satellite TV). Fixed wireless telephony was launched on 15 March 2007 with the aim of extending fixed coverage (48,051 fixed wireless lines by the end of June 2007).

Voice traffic grew by 8.9% due to the healthy performance of basic telephony service traffic, largely due to increased local fixed-fixed and fixed-mobile traffic, but also to fixed-fixed, mobile-fixed and international interconnection traffic. On the other hand, public telephony traffic slumped as a result of stiff competition, illegal public call centres and increased cellular penetration in Peru.

Revenues for the first half of the year amounted to 526 million euros (-0.4% year-on-year in local currency). Revenues from the traditional business fell by 5.8% as a result of lower revenues from monthly fees (-20.4%), due to the new tariffs agreed with the Peruvian government, and public telephony revenues (-23.2%). These decreases were partially offset by higher traffic revenues from both bundles and measured traffic. Internet and TV revenues grew 23.1% year-on-year in local currency, driven by higher ADSL and TV revenues brought on by growth in both customer bases. The contribution of internet and TV revenues over total revenues continued to rise, to 23.6% in the first semester of 2007 versus 19.1% in the same period last year. Data revenues were broadly flat compare to last year’s figure, while IT revenues were dragged down (-20.1% against the first semester of 2006) by the projects carried out over the first half of 2006 with the ONPE (the Peruvian National Office of Electoral Processes) as a result of the elections held in Peru.

Operating expenses grew 3.8% in local currency, largely due to increased interconnection costs (mainly because of greater fixed-mobile and international traffic). Personnel expenses rose by 2.8% in local currency, essentially due to higher employee participation costs. There were also higher external services costs (+1.8% compared to the same period the previous year) due to the intense commercial activity carried out in all business lines, which pushed up customer service costs and sales commissions and the security costs to prevent cable theft. Meanwhile, debt recovery led to declines in tax expenses and bad debt and inventory provisions (to 1.2% of revenues), mainly due to the recovery of bad debt during the January-June period.

Operating Income before depreciation and amortization (OIBDA) came to 210 million euros, a year-on-year drop of 6.6% in local currency due to lower revenues, increased expenses and higher provisions for contingencies (mainly employment and tax related), which remained in line with the first half of 2006 levels. The OIBDA margin as of the end of June 2007 stood at 39.9%, 2.7 p.p. lower than the year before.

CapEx fell by 1.3% year-on-year in the first six months of the year to 43 million euros. Operating cash flow (OIBDA-CapEx) also declined, by 7.9% in local currency to 167 million euros.

The growth of the Peruvian cellular market gathered momentum in the year’s second quarter, reaching a penetration rate of 40% by the end of June 2007, 16 p.p. higher than last year.

The company’s more aggressive commercial strategy, reflected primarily by the Mothers’ Day campaign, led to record gross adds for the operator of 1.2 million in the first half of 2007, 19% higher than the first quarter of 2007 and 83% higher than in the same period the previous year.

Telefónica Móviles Peru’s customer base ended June at 6.4 million clients (+57.2% on June 2006). The second quarter featured further customer migration to GSM; these now represent 61% of the company’s total client base.

Revenues in the first half of 2007 amounted to 276 million euros, up 42.8% in local currency on the same period last year.

We would also highlight that the growth of service revenues is still speeding up, thanks to the strong performance of outgoing pre-pay revenues (+184.5% yoy in the first semester of 2007), which continue to show elasticity to traffic promotions carried out under the double and triple top-up campaigns. The growth of service revenues (+58.8% in local currency compared to the first half of 2006) outstripped the growth of the average customer base thanks to greater ARPU in the second quarter (+6.2%) led by a 25.8% increase in MoU to 91 minutes per month in the second quarter 2007.

In spite of the increased commercial activity, heady growth in revenues alongside operational efficiency gains fuelled a 28.7% year-on-year increase in operating income before depreciation and amortization (OIBDA) in local currency in the first six month of 2007. The OIBDA margin at end June 2007 stood at 24.7% (-2.7 p.p. compared to June 2006).

CapEx as of the end of June 2007 reached 50 million euros, equivalent to a year-on-year growth of 83.8% in local currency, explained by the need to cover the increased traffic experienced by the company. Operating cash flow (OIBDA-CapEx) reached 19 million euros, representing a decline of 28.5% when compared to the same period the previous year.

During the first half of 2007, revenues from fixed and mobile businesses reached 746 million euros, up 46.9% on the first semester of 2006 in local currency, on the back of the consolidation of Telefónica Telecom from May 2006, the strong growth in internet and broadband revenues (+90.2% year-on-year in local currency in the first semester of 2007) and service revenues from the mobile business (+13.0% annual growth in constant terms).

Operating income before depreciation and amortization (OIBDA) rose 119.5% year-on-year to 209 million euros in the first six months of 2007 after of Telefónica Telecom results from May 2006. The OIBDA margin stood at 28.1% in the January-June 2007.

At the end of June of 2007, Telefónica reached 10.1 million clients in Colombia, equivalent to an annual growth of 3.9%.

Telefónica Telecom had a total of 2.5 million accesses at the end of June 2007 (+10.7% year-on-year), underpinned by strong annual growth in broadband of 314.3% when compared to the previous year to 124,986 accesses.

The Satellite TV product was launched at the beginning of the year. This is a key product which will enable Telefónica Telecom to launch ‘Trio’ triple play bundles (voice, broadband and TV). The number of customers reached 28,267 at end of June 2007.

Revenues for the fixed telephony business reached 348 million euros in the first semester of 2007, representing 2.9% growth in local currency, driven mainly by internet and broadband growth (+90.2% year-on-year in local currency), increasing its contribution to total revenues to 7.6% in the first half of 2007 from 4.1% in the same period the previous year. The strong growth in the number of ADSL users (+314.3%) offset the drop in the narrowband revenues (-11.4% in revenues in local currency) due to the migration to broadband. In the first half of 2007, the company extended broadband coverage to new towns and cities, and strengthened its position in areas where it maintains a leadership position. Broadband business also received a boost from the marketing of speed upgrades in the business and internet segment for corporate customers.

Overall, operating expenses grew by 3.4% year-on-year in local currency in the first semester of 2006. There was a 2.6% drop in supply costs in constant terms, due to lower interconnection costs caused by increased contracting of capacity and lower traffic. External service expenses grew by 5.1% in local currency when compared to the same period the previous year.

Telefónica Telecom’s operating income before depreciation and amortization (OIBDA) amounted to 152 million euros in the first half of 2007, which represents a 53.0% year-on-year increase in local currency. Growth was mainly the result of the strong commitment to broadband (revenues increased 170.9% in local currency in the first six month of the year when compared to the same period the previous year).

CapEx at 30 June 2007 stood at 42 million euros. The bulk of this was invested in deploying broadband and a series of regional systems projects such as ATIS and SAP. Operating cash flow (OIBDA-Capex) stood at 110 million euros equivalent to a year-on-year growth in local currency of 21.3%.

The Colombian cellular market ended June with a total of 28.5 million customers, practically flat compared to June 2006 and leaving a penetration rate of 66%.

In the second quarter of 2007, there was a 27.6% year-on-year drop in gross adds when compared to the second quarter of 2006, due to the reduction in handset subsidies. Even though churn improved on the first quarter of 2007 figure (-0.8 p.p.), it remained high (3.8%) due to the disconnection of low value customers who signed on in the aggressive campaigns of 2006. There was a net loss of 147,825 customers in the first half of 2007, leaving the customer base at 7.6 million at the end of June 2007 (up 1.8% year-on-year). Of the total, 71% were GSM customers (+3.7 p.p. compared to the first quarter of 2007). It should be highlighted the better performance during the second quarter of 2007, with net adds reaching 66,641 compared to the net loss of the first quarter of the year of 214,466.

Revenues in the first half of 2007 amounted to 417 million euros, up 3.9% year-on-year in local currency. In the second quarter of 2007 revenues rose 2.2% on an annual basis in local currency. Service revenues rose 13.0% year-on-year in local currency in the first semester of 2007 and 16.1% in local currency in the second quarter of 2007. In both cases, this outstripped the growth of the average customer base. During the second quarter of 2007, outgoing revenues experienced a significant improvement (growth of 18.7% in local currency compared to +9.7% in the first quarter of 2007, in local currency).

Operating income before depreciation and amortization (OIBDA) in the first semester of 2007 amounted to 58 million euros, which represents a 13.4% year-on-year increase in local currency, as a result of service revenue growth and lower subsidies offered to new customers. The OIBDA margin stood at 13.9%, 1.2 p.p. higher than in the first half of 2006.

Capex in the January-June 2007 period amounted to 26 million euros (22 million euros in the second quarter of 2007), leaving operating cash flow (OIBDA-CapEx) at 32 million euros.

Telefónica Móviles México continued to step up its commercial activity significantly in second quarter of the year, leveraging the success of its commercial offer, the excellent results of the Mothers’ Day campaign in May and the results of the initiatives aimed at continually improving its commercial processes and network quality.

The Mexican cellular market ended June 2007 with an estimated penetration rate of 57% (+10 percentage points vs. June 2006), with the pace of growth picking up slightly from March. The company’s customer base stood at over 10.2 million (of which 575,000 were contract customers), 49.0% higher than the year earlier figure. Driving the growth of the customer base were the good acceptance of the company’s commercial offers in the pre-pay segment and the excellent results of the Mothers' Day campaign. These factors led to 1.7 million gross adds in the second quarter of 2007, up 59.6% on the second quarter of 2006 and practically the same as in the fourth quarter of 2006, when the Christmas campaign was carried out. The higher quality of the gross adds in recent quarters has led to further improvement in churn, to 2.8% in the second quarter of 2007 (vs. 3.9% in the second quarter of 2006 and 2.9% in the first quarter of 2007). As a result, there were over 900,000 net adds in the second quarter, almost tripling the figure for the second quarter of 2006. In the first half of 2007, net adds nearly reached 1.7 million customers, also more than triple the figure from last year´s first semester.

The solid commercial performance and the ongoing traffic promotions within the operator network, both underpinned by the positive impact on traffic of the national calling party pays system, led to a strong growth of traffic, especially outgoing and on-net. MoU in the second quarter was 142 minutes, more than double the usage of the second quarter of 2006. This improvement fed through to ARPU, which rose 22.0% year-on-year in the quarter to 141 Mexican pesos.

The company’s strong commercial performance fuelled a 55.3% year-on-year increase in revenues in local currency in the second quarter of 2007 to 338 million euros and a 60.3% year-on-year increase in the first semester of 2007 to 653 million euros. The growth of service revenues accelerated in the second quarter to 73.1% year-on-year from 66.4% in the first quarter of the year. This outstripped the growth of the company’s customer base (+49.0%), which underscores the higher quality and usage of its customers. Driving service revenues were increases in revenues from both outgoing and incoming traffic. The pace of growth of outgoing revenues accelerated to 95.8% year-on-year in local currency in the second quarter of 2007 from 85.7% in the first quarter of 2007 on the back of an increase in on-net traffic. Meanwhile, the launch of the national calling party pays service underpinned a 45.2% advance in incoming revenues in the second quarter of 2007.

Operating income before depreciation and amortization (OIBDA) in the second quarter reflected both the solid growth of revenues and the efficiency gains achieved. Despite intense commercial activity in the quarter, OIBDA still managed to reach 39 million euros, compared with an OIBDA loss of -9 million euros in second quarter of 2006. In the first half of 2007, OIBDA surpassed 61 million euros, reaching an OIBDA margin of 9.4%, compared with an OIBDA loss in the first half of 2006 of -34 million euros.

CapEx through June amounted to 64 million euros. This, coupled with improvement at OIBDA level, triggered significant improvements in operating cash flow (OIBDA-CapEx) vs. the same period last year.

The Venezuelan cellular market continued to grow strongly in the second quarter, with an estimated penetration around 75% by the end of June, almost 20 percentage points more than in June 2006. Strong commercial activity in the quarter was led by the Mother’s Day and Father's Day campaigns, as well as the campaign linked to the Copa América football competition, in which Movistar Venezuela was the sole sponsor of the Venezuelan team.

At 30 June 2007, Telefónica Móviles Venezuela’s customer base stood at over 9.7 million clients (+24.6% year-on-year), after recording net adds of 920,000 lines in the first six months of the year. GSM adds accounted for 62% of the total, with GSM customers making up over 20% of the total customer base at 30 June 2007, less than six months after the service was launched. This fast migration of the customer base to GSM technology, together with the sharp overall growth of the market in the last year, is behind the 1.3 percentage points increase in churn, to 2.9% in the second quarter. It is worth noting that fixed wireless lines performed well, buoyed by the sale of packages which combined fixed and mobile handsets. The number of customers in this segment reached 927,000 at 30 June 2007.

Revenues to 30 June 2007 amounted to 1,123 million euros (+27.7% year-on-year in local currency), driven by higher growth in service revenues (+33.3%) than in the customer base (+24.6%) and a strong ARPU performance in the second quarter 2007 (+ 3.1% year-on-year in local currency).

Operating income before depreciation and amortization (OIBDA) in first half 2007 reached 469 million euros, 48.3% more than the first half 2006 figure in local currency, owing to growth in revenues and lower costs for GSM handsets. The OIBDA margin stood at 41.8%, a 5.8 percentage points increase from the first half 2006.

CapEx for the first half of 2007 amounted to 94 million euros, leaving operating cash flow (OIBDA-CapEx) of 376 million euros.

Commercial activity by Telefónica Móviles de Centroamérica (Panama, Guatemala, El Salvador and Nicaragua) in the first six months of 2007 was far higher than in the same period last year, especially in Guatemala and Panama.

At the end of June 2007, the estimated penetration of the Central American market stood at 55% (up 17 p.p. compared to June 2006). In this context, Telefónica Móviles de Centroamérica client base rose 34.5% year-on-year and nearly reached the 4.5 million mark (246,226 fixed wireless and 366,603 contract customers). Growth was fuelled by the effectiveness of commercial campaigns carried out in the second quarter, focused on the value and quality proposition provided by the operators during the Mothers’ Day and Fathers’ Day and the Eastern campaigns, all of which led to a 36.7% year-on-year increase in gross adds in the second quarter of 2007 to 635,565.

At an operating level, growth in traffic remained strong, especially outgoing traffic, buoyed by the promotional plan which encourages prepay usage. MoU for the second quarter of 2007 came to 150 minutes, a 14% year-on-year increase.

As a result of the company’s good commercial performance, revenues in the first six months of 2007 totalled 297 million euros, up 21.4% year-on-year in constant terms when compared to the same period the previous year. Service revenues rose 23.2% year-on-year in constant euros compared to the first half of 2006, extending the positive trend of previous quarters. This was driven by higher outgoing revenues (+31% in constant terms), on-net traffic and incoming revenues (+21% in constant terms), mainly due to the growth of the pre-pay customer base.

Despite increase commercial activity, operating income before depreciation and amortization (OIBDA) reached 99 million euros in the first six months of 2007, a 35.7% year-on-year increase compared to the same period last year in constant terms. The OIBDA margin stood at 33.2% for the first six months of 2007, an improvement of 3.6 p.p. from June 2006.

CapEx as of the end of June 2007 reached 38 million euros, up 11% when compared to the same period of the previous year. The operating cash flow (OIBDA-CapEx) during the first semester of 2007 grew by 57% (in constant terms) compared to the first half of 2006, reaching 61 million euros.

The Ecuadorian market experienced a strong growth in the last year reaching a penetration of 66% at the end of June 2007 equivalent to an annual growth of 11 percentage points.

Telefónica Móviles Ecuador client base reached 2.6 million customers as of the end of June 2007, with 58% of the base on GSM.

Revenues in the first semester of 2007 totalled 138 million euros, representing a decline of 1.8% in local currency when compared to the same period the previous year, mainly explained by the lower client base. Service revenues showed a better performance in the second quarter of 2007, slowing down its decline rate (dropped 9.3% year-on-year in the April-June 2007 period compared to a retreat of 10.3% in the first quarter of 2007) due to the better performance of contract outgoing revenues.

Despite the annual decline of revenues, operating income before depreciation and amortization (OIBDA) reached 34 million euros in the first half of 2007, standing at similar levels of the same period the previous year (-0.6% in local currency). OIBDA margin at the end of June of 2007 stood at 24.3% (+0.3 percentage points compared to the first semester of 2006).

CapEx as of the end of June 2007 reached 15 million euros, equivalent to a year-on-year growth of 58.6% in local currency, explained by the need to cover the increased traffic experienced by the company. Operating cash flow (OIBDA-CapEx) reached 18 million euros declining 24.1% in local currency when compared to the same period the previous year due to the higher investment efforts carried out.

Revenue momentum remained strong across all TIWS’ business lines in the second quarter 2007. Revenues for the first half amounted to 133 million euros, up 26.8% year-on-year in constant euros (+25.5% more than in the same period 2006 in constant currency). International IP revenues (+20.2% year-on-year) remain the main growth driver, representing over 55% of the total for the company. The other services also posted very healthy growth, led by Broadband capacity (+41.3% in constant euros), VPNs (+27.9% in constant euros) and satellite services (+76.8% in constant euros).

OIBDA rose 23.0% in constant euros to 45 million euros +23.0% in constant euros. Strong top line growth offset the 27% rise in operating expenses in constant currency. The increase in expenses was due to higher supply costs on the back of increased business activity. The OIBDA margin for the first half of 2007 was 34.0%, 0.6 percentage points lower than in the first half of 2006.