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Business Services Industry

Telefonica Posts a 22.4% Increase in Net Profit in the First Quarter to 1,538 Million Euros

Business Wire, May 14, 2008

The Company Reiterates That It is on Track to Meet All Its Financial Targets for 2008

MADRID, Spain -- As of 13 May, Telefonica (NYSE:TEF) (LSE:TDE) had completed 35.7% of its share buyback programme thanks to the company's increasing cash generation enabling it to step up the programme

* Organic growth in revenue (+7%), OIBDA (+8.2%) and OI (+17.2%) underscores the improvement in Telefonica's efficiency and profitability ratios, underpinned by the Company's high level of diversification and integrated management

* The strong growth in commercial activity over the first quarter drove a 13% increase in the customer base to 233 million accesses (171 million wireless, 10.8 million broadband and 1.8 million TV accesses)

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* The Company posted strong cash flow generation, with operating cash flow (OIBDA-CapEx) of 4,057 million euros in the year's first quarter

* Telefonica Spain continues to drive sector growth, with like-for-like increases in revenue and OIBDA of 2.6% an 6.4%, respectively, fuelled by improvement in the broadband business and a marked increase in wireless data revenue

* Telefonica Latin America delivered healthy organic growth in both revenue (12.6%) and OIBDA (11.8%) thanks to the sharp growth of the wireless business and the penetration increase of broadband and pay TV

* Telefonica Europe reported robust organic growth in revenue (+6.4%) and OIBDA (+5.3%), in a quarter featuring a strong commercial effort in all the markets

* The Company's robust financial position is also reflected in its net debt/OIBDA ratio of 2.2x, thanks to the reduction in its debt and the increase in OIBDA. This level is in line with the Company's established targets

The results for the first quarter of 2008 highlight once again the Group's strong organic growth, bolstering its unique differential 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 Telefonica 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 ADSL, TV and voice bundles, making significant contributions to developing the broadband market and forging customer loyalty. In Spain, retail 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 third 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.

--Revenues and costs--

Thanks to the sound performance 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%. Organic1 revenues growth was 7%, with Telefonica Latinoamerica (+4.4 percentage points) and, to a lesser extent, Telefonica Europa (+1.7 percentage points) making the largest contributions. By business, wireless revenue services, with growing use of data transmission, were the main organic revenue growth drivers, along with wireline broadband and pay TV.

In absolute terms, Telefonica Latinoamerica increased its weight over Telefonica Group revenues, accounting for 37.1% of the total. Telefonica Espana and Telefonica Europa accounted for 36.9% and 25% of the total revenues of the Telefonica Group respectively.

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

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

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 Telefonica Latinoamerica (+4 percentage points) and Telefonica Espana (+3.1 percentage points) the main contributors.

In absolute terms, Telefonica Espana accounts for 48.3% of Telefonica Group OIBDA. Telefonica Latinoamerica and Telefonica Europa contributed 34.9% and 17% 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%.

Business Services Industry

Telefonica Posts a 22.4% Increase in Net Profit in the First Quarter to 1,538 Million Euros

Business Wire, May 14, 2008

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