TELEFÓNICA GROUP

Financial Highlights

• The positive performance recorded in the first quarter of 2008 allows the Company to reiterate its 2008 guidance both for the Telefónica Group and for the different regions -Telefónica España, Telefónica Latinoamérica and Telefónica Europe -.

• Strong commercial activity, with an increase of around 13% in total accesses to 233.5 million at the end of March 2008, boosted by the sharp rise in wireless (+16.3%), broadband (+26.8%) and pay TV (+64.4%) accesses.

• Strong organic growth¹ in operations underpinned by the high diversification of the Group and the integrated management of the Company, focused on improving efficiency and profitability:

• In organic terms, revenues increased by 7.0% year-on-year, OIBDA by 8.2% and Operating Income (OI) by 17.2%. Organic OIBDA margin improves 0.4 percentage point year-on-year to 38.3%.

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1 Assuming constant exchange rates and including the consolidation of TVA in January-March 2007. Excluding the consolidation of Airwave and Endemol in January-March 2007 and includes the impact at T. España due to the new model for the public use telephony service (-31.7 million euros in January-March 2007).

• Net income stood at 1,538 million euros in the quarter (+22.4%) reflecting higher growth rates from revenues down to net income:

• Revenues increased by 1.1% compared to March 2007, OIBDA by 5.3% and OI by 14.4%, affected by the negative impact of changes in the consolidation perimeter and exchange rates.

• Basic earnings per share rose a solid 25.8% year-on-year to 0.328 euros

• One quarter more, to sum up fifteen consecutive quarters, year-on-year growth was achieved in revenues, OIBDA, OI, net income and EPS.

• Financial strength, reflected in the net debt+commitments/OIBDA ratio of 2.2 times, in line with the company’s targets.

• Strong cash flow generation, recording an operating cash flow (OIBDA-CapEx) of 4,057 million euros in the quarter:

• Regarding the shareholder remuneration policy, the increased cash flow generation allows the Company to accelerate the execution of its share buyback programme:

• Revenues grew 2.6% vs. first quarter 2007 on like-for-like basis², underpinned by higher wireline Internet and broadband revenues (+9.8%) and the sharp rise in wireless data revenues (+16.7%).

• Significant increase in OIBDA (+6.4% year-on-year), with the OIBDA margin reaching 50.6%.

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2 Including the impact at T. España related to the new business model for its public use telephony -PUT- (-31.7 million euros in January-March 2007).

• Organic⁴ revenue growth rate of 12.6%, driven by robust growth in the wireless business, especially in Mexico and Venezuela, and the growing contribution of the company’s Brazilian operations, underpinned by the strength of Vivo’s earnings.

• Solid OIBDA organic⁴ growth (+11.8%), reflecting higher revenue and enhanced margins at the wireless business, which offset the change in revenue mix and the contribution of recently-launched wireline services (Pay TV). The OIBDA margin stood at 36.4%, unchanged from the first quarter of 2007.

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3 From December 31, 2006 Group's accesses have been reclassified, being fixed wireless accesses now included within the fixed telephony accesses. Till December 2007 fixed wireless accesses were included, depending on the country in mobile or fixed accesses. As from January 1, 2008, the fixed wireless accesses include public telephones with this technology.
4 Assuming constant exchange rates and including the consolidation of TVA in January-March 2007.

• Strong organic revenue⁵ growth (+6.4%), driven by the positive performance in the UK (+12.6% in local currency) and the sequential improvement in earnings in Germany, where positive revenue growth was again reported (+1.5%).

• 5.3% increase in OIBDA in organic⁵ terms. OIBDA margin stood at 26.3%.

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5 Assuming constant exchange rates and excluding the consolidation of Airwave in January-March 2007.

TELEFÓNICA GROUP

Market Size

TELEFÓNICA GROUP

Consolidated Results

The results for the first quarter of 2008 highlight once again the Group’s strong organic growth, bolstering its differentiated profile in the sector, the high value of its geographic and business diversification and the integrated management of the Company.

Total accesses rose 12.9% vs. March 2007 to almost 233.5 million due to the strong growth in commercial activity in all markets. This growth was underpinned by the increase in wireless (+16.3%), broadband (+26.8%) and pay TV (+64.4%) accesses.

By access type, the Telefónica Group’s wireless accesses topped 171 million at the end of the first quarter, with net adds of around 4 million customers. The main contributors were Brazil (839,446), Mexico (724,548), Peru (632,114) and Germany (535,994).

Retail internet broadband accesses surged 26.8% year-on-year to over 10.8 million at the end of March, driven by the strong take-up for voice, ADSL and TV bundles, making significant contributions to developing the broadband market and increasing customer loyalty. In Spain, retail internet broadband accesses surpassed 4.8 million (up 20.2% year-on-year), in Latin America, 5.2 million (+29.5% year-on-year) and in Europe, 800,000 (+58.4% year-on-year). Net adds in the quarter stood at nearly 222,000 in Spain, while this figure amounted to 201,300 and 129,900 in Latin America and Europe respectively.

Pay TV accesses at the end of the quarter exceeded 1.8 million, 64.4% more than a year before, with operations up and running in Spain, the Czech Republic, Peru, Chile, Colombia and Brazil.

Thanks to the expansion of the Group’s customer base and the increased use of our networks, revenues in the first quarter of 2008 totalled 13,896 million euros, a year-on-year increase of 1.1%. Changes in the consolidation perimeter and the negative foreign exchange-rate effect subtract 3.6 percentage points and 2.3 percentage points respectively to revenue growth. Organic¹ revenue growth was 7.0%, with Telefónica Latinoamérica (+4.4 percentage points) and, to a lesser extent, Telefónica Europa (+1.7 percentage points) making the largest contributions. By business, wireless service revenues, with a growing weight of data services, were the main organic revenue growth drivers, along with wireline broadband and pay TV.

1 Assuming constant exchange rates and including the consolidation of TVA in January-March 2007. Excluding the consolidation of Airwave and Endemol in January-March 2007 and includes the impact at T. España due to the new model for the public use telephony service (-31.7 million euros in January-March 2007).

In absolute terms, Telefónica Latinoamérica increased its weight over Telefónica Group revenues, accounting for 37.1% of the total (vs. 34.1% at the end of March 2007). Telefónica España and Telefónica Europa accounted for 36.9% and 25.0% of the total revenues of the Telefónica Group respectively.

In the first quarter of the year, operating expenses at the Telefónica Group totalled 8,777 million euros, 0.6% less than the same period the year before.

Supply costs totalled 4,312 million euros, 2.0% down year-on-year. Stripping out the impact of foreign exchange rates, supply costs would have risen 1.4%, mainly due to higher interconnection expenses at Telefónica Latinoamérica and O2 UK.

Personnel expenses fell 2.0% year-on-year to 1,683 million (-0.3% in constant euros). The average number of employees in the period was 249,050, 12,279 more than the year before, due to the net increase at the Atento Group. Excluding the Atento Group workforce, the average number of employees at the Telefónica Group fell by 2,917 to 124,833 employees.

External service expenses (2,386 million euros) grew 3.5% year-on-year (+5.9% in local currency), mainly due to the higher costs at Telefónica Latinoamérica, mainly in Venezuela (impact of the increase in inflation on all expenses), Argentina (higher advertising and subcontracting costs and commissions, also affected by inflation), and Chile (higher expenses for subcontracting activities), along with higher customer retention costs in the UK.

Also, gains on asset disposals in the first quarter totalled 55 million euros (vs. 6 million euros in the same period a year earlier) mainly due to the booking of capital gains from the Real State programme at Telefónica España.

At the end of March, operating income before depreciation and amortization (OIBDA) stood at 5,376 million euros, up 5.3% from March 2007. Organic¹ OIBDA growth was 8.2%, with Telefónica Latinoamérica (+4.0 percentage points) and Telefónica España (+3.1 percentage points) being the main contributors.

In absolute terms, Telefónica España accounts for 48.3% of Telefónica Group OIBDA. Telefónica Latinoamérica and Telefónica Europa contributed 34.9% and 17.0% of the total Group OIBDA respectively.

The first quarter OIBDA margin stood at 38.7% (compared with 37.1% a year earlier). In organic terms¹, the OIBDA margin grew 0.4 percentage points year-on-year to 38.3%.

Depreciation and amortization in the first quarter totalled 2,277 million euros, 5.0% lower than the year earlier figure. Telefónica O2 Europe includes the purchase price allocations in the O2 Group acquisition (of 178 million euros) and the Telefónica O2 Czech Republic acquisition (of 43 million euros). In organic terms², depreciation and amortization in the quarter for the Telefónica Group fell 2.1% year-on-year, with Telefónica España and Telefónica O2 Europe mainly responsible for this decline.

The rise in OIBDA and fall in depreciation and amortization drove operating income (OI) 14.4% higher in the quarter to 3,099 million euros. Organic OI growth² stood at 17.2%.

1 Assuming constant exchange rates and including the consolidation of TVA in January-March 2007. Excluding the consolidation of Airwave and Endemol in January-March 2007 and includes the impact at T. España due to the new model for the public use telephony service (-31.7 million euros in January-March 2007).
2 Assuming constant exchange rates and including the consolidation of TVA in January-March 2007. Excluding the consolidation of Airwave and Endemol in January-March 2007.

Profit from associates stood at –1 million euros in the quarter mainly due to the lower profit from Portugal Telecom.

Net financial results at the end of March 2008 amounted to 767 million euros, 0.1% behind those of the same period of 2007. This variation arises mainly from the decrease of 11% in the average debt which implies a saving of 92 million euros. This effect is balanced by:

a) an increase of the average cost of the Group’s debt that leads to an expense of 50 million euros due to higher interest rates in non Latam countries and;

b) changes in the present value of pre-retirement plan commitments and other marked-to-market positions that have a negative impact of 24 million euros, 44 million euros higher than the figure reported for march 2007 due to the existing volatility in financial markets.

The average cost calculated on average total net debt for 2008 is 6.21% excluding FX results.

Free cash flow generated by the Telefónica Group in 2008 amounted 852 million euros of which 569 million euros were assigned to Telefonica’s share buyback program and 193 million euros to commitment cancellations derived mainly from the pre-retirements plans. Due to the fact that financial divestitures for the period amounted to 55 million euros, net financial debt decreased in 146 million euros. Also, net debt was reduced by an additional 716 million euros because of FX impact, changes in the consolidation perimeter and other effects on financial accounts. All this has been translated in a decrease of 861 million euros with respect to the net financial debt at the end of the fiscal year 2007 (45,284 million euros), leaving the net financial debt of the Telefónica Group at March 2008 at 44,423 million euros.

Leverage ratio (net debt/OIBDA) continues to fall, down to 2.1x at 31 March 2008 compared to 2.3x at 31 December 2007, thanks to both a reduction in debt in the period and higher OIBDA.

In the first quarter, the Telefónica Group’s financing activity was less intense than in previous quarters due to the turmoil in the credit markets and the Group’s comfortable liquidity position. Our activity has been largely focused on Latin America and our short-term commercial paper programmes. The total amount of financing completed in the first quarter, excluding short-term commercial paper, amounted to 381 million euros. The lower volume of financial activity in the quarter is due to the signing, in the last quarter of 2007, of a number of facilities with multilateral bodies and various financial institutions totalling 1,039 million euros, initially forecast for the first quarter of 2008.

Telefónica S.A., via its fully-controlled subsidiary Telefónica Finanzas, S.A., only signed an eight-year 75 million euro loan with the European Investment Bank (EIB) at very competitive prices.

In this quarter, Telefónica S.A. and its holding companies have remained active under its various Commercial Paper Programmes (Domestic and European), for an outstanding balance of 1,874 million euros, some 13% less than the balance at year-end 2007. Spreads have been kept steady despite adverse market conditions.

During the first quarter of 2008, our subsidiaries in Latin America tapped the financial markets for some 306 million euros, mainly to renew existing debt.

Thanks to the Telefónica Group’s activity in the capital markets and the refinancing of its debt with credit entities in recent months, consolidated gross financial debt comprises 55% bonds and debentures and 45% debt with financial institutions.

On 29 February 2008, Fitch upgraded Telefónica’s long-term outlook from BBB+/stable to BBB+/positive, given the solid de-leveraging over the past 18 months.

The tax provision for the first quarter totalled 736 million euros, with implying a tax rate of 31.6% in the quarter. However, the cash outflow for the Telefónica Group will be lower as negative tax bases from past periods together with unused fiscal deductions will be compensated.

Minority interests fell by 12.7% year-on-year, deducting 57 million euros from net profit. Minority interests in Telesp and Telefónica O2 Czech Republic account for the bulk of profit attributable to minority interests.

In all, consolidated net income to 31 March 2008 totalled 1,538 million euros, up 22.4% year-on-year. Basic earnings per share jumped 25.8% to 0.328 euros.

First quarter CapEx amounted to 1,319 million euros, leaving operating cash flow (OIBDA-CapEx) of 4,057 million euros.

TELEFÓNICA GROUP

Financial Data

The Spanish wireline access market continued its growing trend with an estimated 1.9% year-on-year growth as of March 2008.

The Company’s fixed telephony accesses totalled 15.8 millions at the end of the quarter (down 0.6% vs. March 2007), after recording net quarterly losses of 76,696 lines. This loss is mostly linked to the development by unbundlers of a new loop type, the naked shared loop. Even though this new loop was approved by the Spanish Regulator in September 2006, ULL based operators did not start offering services based on naked shared loops till the end of 2007 (85,647 naked shared loops at March end 2008, vs. 9,293 at the end of 2007).

Telefónica’s estimated share of the wireline access market is slightly below 80%.

The number of pre-selected lines fell further, declining by 68,548 in the first quarter of 2008 (a decline of 110,859 lines in 2007) to 1.7 millions lines at the end of March.

In line with the positive trend in voice service revenues, Telefónica España’s estimated share of wireline traffic remains stable at around 65%.

Estimated net adds in the Spanish fixed broadband internet access market in the first quarter of 2008 amounted to 0.4 million (-13.2% vs. January-March 2007), driving the estimated total to over 8.5 million accesses at the end of March (+18.7% year-on-year).

Telefónica’s retail Internet broadband accesses net adds in the first quarter of 2008 reached 221,825 (-12.4% from the first quarter of 2007), similar to the figure for the previous quarter, taking total accesses to 4.8 millions by the end of March (+20.2% vs. March 2007). As a result Telefónica sustained its leadership in this market with, an estimated share close to 57%.

The estimated share of unbundled loops in the fixed broadband Internet access market increased to over 17%. Net adds during the quarter amounted to 113,506 loops, 14.1% less than a year earlier. Total unbundled loops at the end of March amounted to 1.5 millions, of which 51.4% (754,984) are shared access loops and the remaining 712,462 are fully unbundled loops, (of which 85,647 are naked shared loops). Worth to mention is the growth of fully unbundled loops in the first quarter, with net adds up to 134,886, of which 76,354 (56.6%) are naked shared loops. Shared access loops showed a net loss of 21,380 accesses in the quarter.

The wholesale ADSL accesses loss rate continued to decelerate during the first quarter due to the lower number of migrations to unbundled local loops. In the wake of net losses of 15,239 in the first quarter, total wholesale ADSL accesses amounted to 480,253 at the end of March, down 14.0% from March 2007.

In Pay TV, Telefónica achieved an estimated market share of more than 13% at the end of March 2008, after adding 42,958 new customers in the quarter (35,591 in the same period of 2007). As a result, its customer base has risen to 554,045 by the end of March 2008.

The total number of Duo and Trio bundles stood at 4.1 million units at the end of March 2008. This means that more than 82% of the company’s retail Internet broadband accesses are includedin a double or triple play bundle at the end of March 2008.

Revenues in the first quarter of 2008 totalled 3,079 million euros, a year-on-year increase of 1.0%, affected by the change in accounting criteria for the PUT and call centres business. Growth in like-for-like terms was 2.0%.

• Traditional access revenues amounted to 703 million euros, a year-on-year increase of 0.9%, led by the 2.0% increase in the PSTN line monthly fee.

• The decline of voice service revenues slowed to 2.1% like-for-like¹ (-5.6% reported), maintaining the positive trend seen in previous quarters.

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  1 Including the impact at T. España related to the new business model for its public use telephony 'PUT' (-31.7 million euros in January-March 2007).

  
  
  

• Internet and broadband revenues surged by 9.8% in the quarter, boosted by revenues in the retail broadband segment, in the wake of retail broadband accesses growing 20.2% year-on-year.

• Retail broadband service revenues were up 14.0%, accounting for 2.6 percentage points of the revenue growth recorded by Telefónica España’s wireline business.

• Wholesale broadband service revenues fell 2.9%, mainly due to the recently approved tariff reduction and the decline in wholesale ADSL accesses. The increase in revenues associated with growth in the number of unbundled loops partly offsets the drop of wholesale ADSL associated revenues.

• Data service revenues grew 2.7% in the first quarter versus the same period in 2007 to 289 million euros.

• IT service revenues totalled 91 million euros, down 2.7% year-on-year.

Operating expenses at Telefónica España’s wireline business totalled 1,615 million euros in the first quarter of 2008, 3.3% less than in the first quarter of 2007 due to: i) the 4.2% fall in external service expenses to 319 million euros due to lower network expenses and the new model for the PUT and call centre business; ii) the 1.5% fall in supply costs to 721 million euros, especially expenses associated with IT and VAS sales; iii) the 3.4% fall in personnel expenses to 519 million euros due to the lower average headcount in the period; and iv) the reduction of bad debt provisions due to bad debt recovery amounting to 17 million euros in the quarter. In like-for-like terms¹, operating expenses declined by 1.5%. There were no workforce reorganization costs in either the first quarter of 2007 or 2008.

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1 Including the impact at T. España related to the new business model for its public use telephony 'PUT' (-31.7 million euros in January-March 2007).

Operating income before depreciation and amortization (OIBDA) grew 9.7% year-on-year to 1,557 million euros. Capital gains of 67 million euros were accounted for in the quarter from the Real Estate Programme (3 million euros in the first quarter of 2007).

The OIBDA margin in the first quarter was 50.6%. Stripping out real estate capital gains in the first quarter of 2008 and 2007, along with the bad debt recovery registered in first quarter 2008, and including the impact on revenues and expenses of the application of the new model for the PUT and call centre business (-31.7 million euros in the first quarter of 2007), the margin in the first quarter of 2008 increased by 0.9 percentage points to 47.9%.

First quarter CapEx amounted to 299 million euros, leaving operating cash flow (OIBDA-CapEx) at 1,259 million euros.

The Spanish wireless market hit the 51.2 million-line mark in March 2008, with an estimated penetration rate of over 112% (6 percentage points above March 2007).

During the first quarter of 2008 Telefónica España has continued to focus its commercial activity on the higher value customer segments; this strategy led to net adds in the contract segment of 305,233 (386,973 in the first quarter of 2007) and total net adds of 181,825 (367,715 in the first quarter of 2007).

This drove the customer base to above 23,0 million at the end of March, a year-on-year increase of 5.5%. Growth in the overall customer base was underpinned by a strong momentum in the contract segment where the year-on-year growth figure rises to 11.3%. This segment now accounts for 60.6% of the total (+3.2 percentage points vs. March 2007).

In number portability, during the first quarter a net 21,669 subscribers switched to another operator. Nonetheless, the portability net balance in the contract segment remained positive at 11,933 lines.

First quarter churn was flat year-on-year at 1.8%, despite the increased number of market players. Churn in the contract segment fell slightly year-on-year to 1.1%.

As regards usage, the volume of traffic carried over the network during the first quarter of 2008 totalled 15,500 million minutes. MoU amounted to 151 minutes during the quarter (-5.6% vs. the first quarter of 2007), affected by lower customer usage and to a lesser extent by the lower intensity of traffic promotions vs. first quarter of 2007.

Voice ARPU reached 25.4 euros in the first quarter, 6.0% lower than in the first quarter of 2007, due to lower MoU and to the 9.6% cut in mobile termination rates implemented in October 2007.

Data ARPU, meanwhile jumped 9.7% (outgoing: +11.0%) to 5.1 euros, driven strongly by new revenue sources associated with wireless content ("superconcursos": grand contests) during the first quarter of the year in addition to continued strong momentum in connectivity revenues which expanded at over 65%.

At the end of March Telefónica España’s wireless customers held more than 4.2 million 3G handsets (2.8x vs. March 2007), representing penetration of close to 19% of total customer base excluding M2M, up 12 percentage points vs. the first quarter of 2007.

As a result, total ARPU in the first quarter of 2008 was 30.5 euros, 3.7% lower year-on-year, in line with the trend seen in the previous quarter. The trend in outgoing ARPU was also similar to the previous quarter, falling 2.1% to 25.7 euros.

Revenues rose 2.7% in the first quarter of the year to 2,398 million euros, in line with the trend seen in recent quarters. Highlights by revenue item:

• Service revenues grew 2.0% in the first quarter of 2008 to 2,072 million euros. Growth was driven primarily by customer revenues, which advanced 3.4% year-on-year to 1,692 million euros.

• Interconnection revenues fell 6.3% in the first quarter of the year, hurt by the cut in termination rates. Roaming-in revenues climbed 11.9% in the quarter due to the strong performance in wholesale traffic.

• Revenue from handset sales rose 7.2% year-on-year to 326 million euros.

Operating expenses rose 3.2% to 1,371 million, euros, mostly driven by handset purchases. Stripping this factor out, operating expenses would have risen 1.4%.

Operating income before amortization and depreciation (OIBDA) rose 2.1% to 1,048 million euros during the first quarter of the year, equivalent to an OIBDA margin of 43.7%.

First quarter CapEx amounted to 165 million euros, leaving operating cash flow (OIBDA-CapEx) at 883 million euros.

RESULTS BY REGIONAL BUSINESS UNITS

Telefónica Latinoamérica

Telefonica Latinoamerica’s operating and financial results in the first quarter of 2008 show significant growth rates, resulting from the strong commercial effort made to capture increases in mobile penetration in the region and the continuous progress in transforming the fixed businesses with a growing weight of Internet, broadband and Pay TV services.

At the end of March 2008, Telefónica Latinoamérica managed 137.7 million accesses, 17.7% more than in March 2007, thanks to the strong growth in mobile telephony, with a year-on-year increase of 23.0%, reaching nearly 104 million accesses, and the sustained increase in broadband accesses (+29.5%), exceeding 5.2 million, driven by the commercial effort made by all operators.

In mobile telephony, customer acquisition actions and churn containment allow the company to record high growth rates in almost every country, with the largest contributions coming from Brazil, where the customer base has increased 18.2% year-on-year, with 5.3 million more customers than in March 2007, Mexico, whose customer base rose 42.3% year-on year, after having reached net adds of almost 4 million customers over the last 12 months, and Peru, which has increased its customer base by 55.5% year-on-year and reported net adds of 3.1 million customers over the last 12 months.

In broadband net adds in the last twelve months reached 1.2 million, with outstanding growth rates in the customer base in Colombia (+152.8%), Argentina (+50.5%) and Brazil (+28.2%).

Regarding Pay TV, Telefónica Latinoamérica already has over 1.2 million pay TV subscribers, with operations in Peru, Chile, Colombia and Brazil, compared to 700,148 customers in March 2007.

Similarly, the growth in fixed telephony accesses¹ must be highlighted, having reached 25.6 million at the end of the quarter, 1.9% more than in March 2007. In Peru fixed telephony accesses growth was 10.2% year-on-year, boosted by the increase in the fixed wireless accesses, to 321,440 accesses, thanks to the fixed-mobile common project (IRIS) launched in the first quarter of 2007 to expand fixed telephony penetration in the country.

1 From December 31, 2006 Group's accesses have been reclassified, being fixed wireless accesses now included within the fixed telephony accesses. Till December 2007 fixed wireless accesses were included, depending on the country in mobile or fixed accesses. As from January 1, 2008, the fixed wireless accesses include public telephones with this technology.

The strong expansion recorded in the customer base in Latin America is accompanied by a solid performance in the ARPUs. Mobile ARPU was stable vs. the first quarter of 2007 in constant euros, with a 4.5% year-on-year growth in the outgoing ARPU.

The increase in the average revenue per fixed telephony access in the region must also be highlighted (+1.9% in constant euros), driven by the improvements in the commercial offerings made by the companies and the growing weight in the bundled products. In this regard, 37% of the broadband accesses have a Duo or Trio offer (+14.5 percentage points vs. March 2007). Including local traffic and control packages, this ratio jumps to 55% over the total fixed telephony accesses (+11.4 p.p. vs. March 2007).

The currencies of the countries in which Telefónica Latinoamérica operates have depreciated vs. the euro in year-on-year terms, with the exception of the Brazilian real, the Chilean peso and the Colombian peso, whose average exchange rates rose by 5.8%, 2.0% and 1.7% respectively. This had a negative impact on revenue and OIBDA growth of 2.8 and 2.4 percentage points respectively.

First-quarter revenues at Telefónica Latinoamérica rose 10.1% year-on-year in current euros to 5,158 million euros. Organic² revenue growth reached 12.6%. The countries contributing most to this growth in constant currency include Mexico and Venezuela, with respective contributions of 2.6 and 2.8 percentage points. Brazil continues to account for the largest portion of Telefónica Latinoamérica’s revenues in current euros, and has even increased its contribution to the Group (39.6% in January-March 2008 vs. 38.4% in the same period of 2007) thanks to the good evolution of Vivo’s reults. The next largest contributions were made by Venezuela (11.1%) and Argentina (10.9%).

2 Assuming constant exchange rates and including the consolidation of TVA in January-March 2007.

Operating income before depreciation and amortization (OIBDA) jumped 9.6% in current euros to 1,877 million euros. Telefónica Latinoamérica’s OIBDA grew by 11.8% in organic terms³. By country, Mexico and Venezuela contributed most to OIBDA growth (3.5 percentage points and 4.1 percentage points, respectively). In absolute terms and in current euros, Brazil is the largest contributor to Telefónica Latinoamérica’s OIBDA, accounting for 41.4% of the total, followed by Venezuela (14.6%), Chile (10.1%) and Argentina (10.0%). Particularly noteworthy is the higher contribution of the Mexican business to Telefónica Latinoamérica’s OIBDA (up from 1.3% in the first quarter of 2007 to 3.9% at the end of March 2008)

3 Assuming constant exchange rates and including the consolidation of TVA in January-March 2007.

Despite the strong performance of operating expenses, which lagged revenue growth (+8.4% in current euros and +11.4% in constant euros), year-on-year OIBDA growth was affected by the capital gain from the asset disposals in Brazil in 2007.

Telefónica Latinoamérica maintains its high level of efficiency with an OIBDA Margin of 36.4% stable since the first quarter of 2007 in an environment with increasing commercial activity and business transformation.

Telefónica Latinoamérica’s CapEx in the first quarter amounted to 459 million euros, with investment largely deployed in developing commercial activities for the broadband and TV services in the wireline businesses, in addition to enhancing the coverage and capacity of its wireless GSM/3G networks in the mobile segment.

Telefónica Latinoamérica generated operating cash flow (OIBDA-CapEx) of 1,419 million euros in the first quarter of 2008.

Telefónica Latinoamérica managed close to 50 million accesses in Brazil at 31 March 2008, 11.9% more than a year earlier. This growth reflects an 18.2% year-on-year increase in Vivo’s customer base, the expansion of Telesp’s broadband business (+28.2%) and the incorporation of TVA’s MMDS pay TV customers.

In the first three months of 2008, Telefónica Latinoamérica in Brazil reported revenues of 2,040 million euros, a 6.7% jump in local currency vs. the same period a year earlier thanks to the good increase in Vivo’s sales and the change in revenue trend at Telesp (+4.0% in local currency, compared to declining revenues in the last quarter of 2007).

Operating income before depreciation and amortization (OIBDA) in the quarter totalled 777 million euros, down 3.6% in local currency due to the lower contribution from Telesp, mainly impacted by the capital gains related to fixed asset sales recorded in the first quarter of 2007 and by the change in the service mix, which were not offset by the ongoing improvement in Vivo’s results. In organic terms⁴ and excluding the provisions for personnel reorganization, gains in the sale of fixed assets recorded in the first quarter of 2007, and the provision for regulatory contingencies recorded by Telesp, Telefónica Latinoamérica’s OIBDA in Brazil would have grown 0.4% year-on-year in local currency.

4 Including the consolidation of TVA in January-March 2007.

First quarter CapEx amounted to 196 million euros, leaving operating cash flow (OIBDA-CapEx) of 581 million euros.

The Brazilian wireless market continued to post healthy year-on-year growth in the first quarter of 2008 (+23.2%), reflecting close to 11.7 percentage point increase in penetration to 65.9% nationwide.

The company reported 3.5 million gross adds in the first quarter, 55% more than in the same quarter last year, one of the highest figures in recent years. Factors contributing to this strong performance are still the wider range of handsets, Vivo’s leadership in terms of commercial reach, ongoing traffic incentive campaigns for pre-pay and the improved capacity to attract contract customers through the "Vivo Escolha" plans. By the end of the quarter, 43% of the contract segment had subscribed to a Vivo Escolha plan, significantly enhancing the market’s perception of Vivo’s commercial offering and helping cement customer loyalty.

Vivo’s net adds in the period totalled 839,446 lines, with a strong performance across all segments as a result of gross higher adds and sustained churn at the same level as in the first quarter of 2007 (2.6%), despite the higher volume of SIM only gross adds. Particularly noteworthy is the year-on-year growth in net adds in the contract segment (+57.4%), due both to the higher level of gross adds (+29.1%) and the lower churn (-0.2 percentage points).

As a result, Vivo’s customer base stood at 34.3 million at the end of March 2008 (+18.2% from March 2007). The market continued to react positively to Vivo’s GSM commercial offer, with Vivo obtaining 83% of gross adds in this technology in the quarter and exceeding in March 2008 14.6 million customers, 43% of the total customer base. Vivo maintained its leadership position with 27.28% of the market nationwide.

MoU (-0.7% year-on-year) and ARPU (-0.7% year-on-year in local currency) in the first quarter remained almost unchanged from March 2007, despite the significant growth in the customer base and increased SIM only net adds and control lines, with below average consumption.

Vivo continued to offer convergent products and services, with minute packages for calls to mobiles, to fixed numbers and internet, and two mobile-fixed packages, as well as attractive new offerings for data and internet plans (Vivo Zap and Vivo Flash).

Revenues to 31 March 2008 climbed 15.4% in local currency to 644 million euros, with service revenues rising by 16.6%, in line with the growth in the average customer base. Revenue growth was driven by the sharp growth in data revenues (+46.8%), which now account for 9.6% of service revenues (+2.0 percentage points from the first quarter of 2007). Data revenue growth was boosted by a strong rise in connectivity and SMS revenues. Moreover, outgoing voice contract revenue growth (+16.4% year-on-year in local currency) outpaced the increase in the average customer base, underpinned by the strong take-up for Vivo Escolha plans.

Vivo recorded operating income before depreciation and amortization (OIBDA) through to March of 190 million euros, an increase of 16.3% year-on-year in local currency. This reflects the strong revenue performance combined with improvements in customer management costs and lower unitary customer acquisition costs.

The OIBDA margin at the end of March 2008 was 29.5%, with sligt increase vs. the same period of 2007, despite increased commercial aggressiveness and the costs associated with the management of several networks (CDMA, GSM,…).

First quarter CapEx amounted to 47 million euros, leaving operating cash flow (OIBDA-CapEx) of 143 million euros.

In April Vivo completed the acquisition of 53.9% of the ordinary shares and 4.27% of the preferent shares of Telemig Celular.

At the end of March, Telesp managed 15.6 million accesses, similar to the figure seen in March 2007 (+0.1% year-on-year), thanks to the sharp growth in the number of broadband accesses and following the incorporation of MMDS pay TV accesses in the fourth quarter of 2007. Fixed telephony accesses, 11.9 million, remained almost stable vs. December 2007, with a slight decrease compared to March 2007 (-0.8% year-on-year). Of the total of 11.9 million fixed telephony accesses, around 23% were pre-pay or lines with consumption limits.

The pace of growth of the broadband market in Sao Paolo remained strong in the first quarter of 2008 (estimated above 25% vs. March 2007). At Telesp the first results of the launch in October 2007 of an improved range of speeds for new ADSL services are being noted, with gross adds increasing by 20.7% in the quarter year-on-year. Thus, Telesp accounted for around 58% of total market growth, increasing its retail broadband customer base by 28.2% from March 2007 to 2.2 million accesses, with net adds of 98,072 accesses in the quarter (up 18.8% year-on-year).

Telesp’s pay TV business had 282,336 customers at the end of March after registering 51,429 net adds in the quarter. During the month of March Telesp launched a new commercial offer, adding Globo content in TVA’s platform, reinforcing the company’s competitive positioning in this market.

Continuing with the transformation of its business, Telesp kept fostering the sale of traffic packages, both of bundled lines (monthly fee + local fixed traffic) and long-distance, fixed-mobile and narrowband Internet access packages. In this regard, the improved offer and the higher penetration of local packages, control, duos and trios (close to 50% over fixed telephony lines vs. 37% in March 2007) allowed the company to increase its total average revenue per access (fixed telephony, broadband and TV) 3.0% in local currency vs. the first quarter of 2007.

Revenues came to 1,500 million euros in the first three months of the year, year-on-year growth of 4.0% in local currency (+3.1% in organic terms⁵ in local currency). This positive evolution compares with the declining revenues recorded by Telesp in the last quarter of 2007. The positive revenue trend is underpinned by higher broadband revenues, the launch of pay TV services in 2007, and robust revenues from Data, IT and capacity rental. Internet and TV revenues recorded an outstanding growth rate (+32.8% year-on-year in local currency) and now contribute 11.7% of total revenues (9.2% in 2007). Traditional business revenues were almost flat (-0.7% year-on-year in local currency), helped by the good evolution in long-distance revenues (+21.9% in local currency). The positive evolution of voice traffic is also noteworthy, with a year-on-year growth of 7.3%, vs. the 4.8% increase recorded in the last quarter of 2007 compared to the same period of 2006.

5 Including the consolidation of TVA in January-March 2007.

Operating expenses climbed 6.9% in local currency due to higher supply costs (+19.3% in local currency, pushed up by higher interconnection costs and co-billing with other operators as a consequence of the larger wireless market), partly offset by lower taxes (-14.0% in local currency) and lower personnel expenses (-1.8% in local currency) due to the lower cost associated with personnel reorganization programmes. The ratio of bad debt to revenues was 3.4%, similar to the figure in March 2007.

Telesp reported Operating income before depreciation and amortization (OIBDA) of 587 million euros in 2007, down 8.6% year-on-year in local currency, strongly impacted by gains from the sale of fixed assets recorded in the first quarter of 2007, the provision for regulatory contingencies recorded in 2008, and, to a lesser extent, by the change in product mix, with a higher weight of services with interconnection, and of the broadband and TV businesses, which have a lower margin. In organic terms⁵ and excluding the provision for personnel reorganization, gains in the sale of fixed assets recorded in the first quarter of 2007, and the provision for regulatory contingencies mentioned above, Telesp’s OIBDA would have decreased 3.4% year-on-year in local currency.

5 Including the consolidation of TVA in January-March 2007.

The OIBDA margin stood at 39.1%, 5.4 percentage points lower than in March 2007. Excluding the factors mentioned above, organic OIBDA margin would be 40.3%, 2.8 percentage points below the figure recorded in the first quarter of 2007.

First quarter CapEx amounted to 148 million euros, with increasing investment in broadband projects and corporate networks, while operating cash flow (OIBDA-CapEx) totalled 438 million euros.