January-December 05 Results

2nd Mar 2006 11:13

Telefonica SA02 March 2006 Quarterly results January-December 2005 TABLE OF CONTENTS Telefonica Group 2 Financial Highlights Consolidated Results Financial Data RESULTS BY BUSINESS LINES Fixed Line Business • Telefonica de Espana Group • Telefonica Latinoamerica Group Mobile Business Cesky Telecom Other Business • Directories Business • Atento Group • Content and Media Business • Telefonica Deutschland Group AddendA Companies included in each Financial Statement Key Holdings of the Telefonica Group and its Subsidiaries Significant Events Changes to the Perimeter and Accounting Criteria of Consolidation Telefonica, empowering economic, social and technological development The financial information contained in this document has been prepared underInternational Financial Reporting Standards (IFRS). This financial informationis unaudited and, therefore, is subject to potential future modifications. 2004financial results were originally prepared under Spanish GAAP and have beentranslated into IFRS for comparison purposes only. The English language translation of the consolidated financial statementsoriginally issued in Spanish has been prepared solely for the convenience ofEnglish speaking readers. Despite all the efforts devoted to this translation,certain omissions or approximations may subsist. Telefonica, its representativesand employees decline all responsibility in this regard. In the event of adiscrepancy, the Spanish-language version prevails. These consolidated financial statements are presented on the basis of accountingprinciples generally accepted in International Financial Reporting Standards(IFRS). Certain accounting practices applied by the Group that conform withgenerally accepted accounting principles in IFRS may not conform with generallyaccepted accounting principles in other countries. TELEFONICA GROUP TELEFONICA GROUPACCESSESUnaudited figures (thousands) December 2005 2004 % Chg Fixed telephony accesses (1) 40,859.0 37,768.5 8.2Internet and data accesses 12,859.9 10,872.2 18.3 Narrowband 5,166.9 5,672.5 Broadband 6,902.7 4,736.7 ADSL (2) 5,880.2 3,915.5 Retail (3) 5,023.1 3,225.6 Other accesses (4) 790.3 463.0 Unbundled loops (5) 434.8 116.1Pay TV 683.2 408.3 67.3Cellular accesses 99,124.0 74,441.4 33.2Total Accesses 153,526.0 123,490.3 24.3 (1) PSTN (including Public Use Telephony) x1; ISDN Basic access x1; ISDN Primary access; 2/6 Access x30. Company'saccesses for internal use included.(2) T. Deutschland's connections resold on a retail basis and Cable Modem in Peru included.(3) Includes Cable Modem in Peru. TdE Retail includes Terra form 3Q05, Linea ADSL and satellite. TASA Retail includesISP in the north part of the country.(4) Cable modem El Salvador, WiFi clients, satellite Latam, fiber and leased circuits included.(5) Includes fully unbundled loops and shared loops. TELEFONICA GROUP Financial Highlights The most relevant factors of Telefonica Group results for fiscal year 2005 arethe following: • Net income reached a record amount of 4,445.8 million euros, 40.0% higher than in 2004, thanks to the good evolution of operations and the positive contribution of the executed acquisitions: • Net income would have reached 4,915.8 million euros if we exclude the write-down of the remaining value of the UMTS license of IPSE1 and the provision2 for the Redundancy Program in Telefonica de Espana and Telefonica Data Espana. • A 43.4% rise in basic earnings per share, to 0.913 euros. • Achievement of the financial targets set for 2005, in terms of revenues, OIBDA, OI and CapEx, both at the Telefonica Group level and within the main business lines. • Strengthening of the Group's growth profile, after reporting a solid year-on-year revenue growth of 25.1%: • All business lines reported revenues above 2004 fiscal year figures. • A sharp increase in total accesses (+24.3% over the prior year), driven by the growth in mobile customers and in broadband, which stood at 153.5 million at the end of the year. Including the O2 customers, whose acquisition was completed in 2006), the Telefonica Group's customer base would increase to 180.9 million: • Telefonica Moviles Group's customer base increased to 94.4 million, gaining 16.33 million new customers. • The Group's retail Internet broadband accesses reached 5.0 million, up from 3.2 million in December of 2004. • Outstanding organic growth4 (constant exchange rates and excluding changes in the perimeter of consolidation) in the main Income Statement items: • Revenues grew by 9.3% year-on-year, OIBDA by 9.9% and OI by 21.7%. • The positive contribution of the exchange rate fluctuations, particularly the appreciation of Latin American currencies against the euro, which added 47 percentage points 4.5 percentage points and 3.3 percentage points to the growth of revenues, OIBDA and OI, respectively. • Transformation of operating efficiency into profitability and generation of free cash flow: • The consolidated OIBDA margin stood at 40.3%, unchanged from the previous year, in a high-growth environment and higher commercial activity. • Operating free cash flow (OIBDA-CapEx) rose to 9,917.7 million euros, equivalent to 17.3% increase over the 2004 figure with the positive contribution of all business lines, despite a higher investment in growth. • The 2005 shareholder remuneration policy is one of the most attractive in the industry, as demonstrated by the payment of a cash dividend of 0.5 euros /share, distribution of treasury stock representing 4% of shareholders' equity (1x25) and extension of the share buy-back program until the end of 2007, for a total of 6 billion euros. For 2006, the Board of Directors agreed to propose the payment of a dividend against 2005 fiscal year results of 0.5 euros/share in the next AGM. ------------------------ 1 Net of their corresponding tax effect and the loss attributable to minorityinterest.2 Net of their corresponding tax effect3 Excludes the adjustment for 300,000 inactive lines in Mexico, no longerconsidered in the reported customer base in the second quarter of 20054 Assuming constant exchange rates and including the consolidation of the LatinAmerican assets acquired to BellSouth in Argentina, Colombia, Chile, Ecuador,Guatemala, Nicaragua, Panama, Peru, Uruguay and Venezuela in the cellularbusiness and Atrium in the Telefonica Latinoamerica Group from January 1st 2004.Cesky Telecom has been included in the period July-December 2004.------------------------ TELEFONICA GROUP Consolidated Results The results obtained by Telefonica Group and the management report included inthis report are based on the actions carried out by the various business unitsin the Group and which constitute the units over which management of thesebusinesses is conducted. This implies a presentation of results based on theactual management of the various businesses in which Telefonica Group ispresent, instead of adhering to the legal structure observed by theparticipating companies. In this sense, income statements are presented by business, which basicallyimplies that each line of activity participate in the companies that the Groupholds in the corresponding business, regardless of whether said holding hasalready been transferred or not, even though it might be the final intent ofTelefonica, S.A. to do so in the future. It should be emphasized that this presentation by businesses in no case altersthe total results obtained by Telefonica Group. These results are incorporatedfrom the date of effective acquisition of the holding. Starting third quarter 2005, Terra Networks results will be included in theTelefonica de Espana Group and Telefonica Latinoamerica Group results. Hence,Terra Espana, Azeler and Maptel results will be incorporated within theTelefonica de Espana Group, whereas Terra in Latin America will be incorporatedin the Telefonica Latinoamerica Group's results. The Terra Networks Groupresults from the first and second quarter of 2005 and from fiscal year 2004 willbe incorporated into Other Companies in the Telefonica Group accounts. Also starting in the third quarter of 2005, the Cesky Telecom resultscorresponding to the July-September 2005 period will be incorporated as anindependent business line, at the closing of its acquisition last June. In 2005, the Telefonica Group obtained a new dimension after the successfulintegration of the mobile telephony operations acquired from BellSouth in LatinAmerica and Cesky Telecom, combined with the acquisition of O2, strengtheningthe Group's competitive position through the Company scale. With theseacquisitions, the Group's strategic objective offering the best combination interms of growth and cash returns is strengthened, after successfully executingthe integrated management of operations through an increasing focus on customersand efficiency. The Telefonica Group thus achieved in 2005 a record net income of 4,445.8million euros, 40.0% above last year's figure. The achievement of this goodresult stems from the strong annual growth in revenues (+25.1%) thanks to theexpansion of the customer base (+24.3%) and of the average revenue per customer,as a consequence of the increased commercial efforts, with particular emphasison growing businesses and on product and service innovation. Operationalefficiency means maintaining profitability (OIBDA margin) at a 40% ratio andoperating free cash flow (OIBDA-CapEx) growing at a high annual rate (+17.3%).It is also significant the successful management of non-operational results,going from an annual growth in OIBDA of 25.0% and 30.5% of OI to a 40.0% of netincome. The economic and financial results for 2005 were also strengthened by thediversification of being an integrated operator. The cellular business is themain contributor to Group revenues (+38.1% year-on-year), while the fixedtelephony business line is so in terms of profitability, with a growth in theoperating income of Telefonica de Espana Group of 19.9% and of TelefonicaLatinoamerica Group of 14.6% year-on-year. This way, the need to finance theincreased number of customers in the mobile telephony business in order tocapture the unique opportunity for growth of its markets, with its logicalimpact on margins, is compensated by the solid results from the fixed telephonybusiness line, a reference in the sector in terms of revenues, profitability andgeneration of cash flow. As a result, the Telefonica Group achieved all the financial objectivesestablished for 2005. In terms of revenues5, growth at constant exchange ratesand excluding changes in the consolidation perimeter stood at 17.2%, surpassingthe growth target of "over 15%". With respect to the Operating Income beforeDepreciation and Amortization (OIBDA)5, growth stood at 12.3%6, within theannounced range of +10%/+13%. Operating Income (OI)5 grew by 16.1%6, also withinthe range of +12%/+18%. Lastly, CapEx5 stood at 4,725.9 million euros, in linewith the guidance of reaching approximately 4,600 million euros. It should alsobe noted that all business lines achieved the targets set for 2005. The shareholder remuneration policy in 2005 continued to progress, being one ofthe most attractive in the sector and reaffirming itself after the acquisitionof O2. In 2005 a dividend corresponding to the 2004 year of 0.5 euros/share waspaid, Telefonica S.A. shares were distributed, representing a 4% of capitalshare, in a proportion of 1x25 and there has also been a progress in the sharebuy-back program. This program was renewed in April, and extended until the endof 2007, for a total of 6,000 million euros. On 31st December 2005, the treasurystock stood at 2.8% of the current share capital. For 2006, the Board of Directors agreed to propose the payment of a dividendagainst 2005 fiscal year results of 0.5 euros/share in the next AGM. At 2005 year end, the Telefonica Group managed 153.5 million accesses (+24.3%year-on-year), of which 99.1 million are cellular accesses, 40.9 million arefixed telephony accesses, 12.9 million are data and Internet accesses, and 0.7million are Pay TV accesses. The acquisition of Cesky Telecom contributed with8.3 million, while, if we include O2 lines as of 31st December 2005, theTelefonica Group total accesses reached 180.9 million. The Telefonica Moviles Group has placed itself as one of the sector's mainoperators, in the high-growth environment of the Latin American markets, with amanaged customer base of 94.4 million, up 26.9% year-on-year. Net adds in thefourth quarter recorded 5.4 million customers, in a period characterized byChristmas campaigns, while in the year as a whole added 16.37 million newcustomers. The broadband market in 2005 showed great dynamism and growth in Spain, LatinAmerica and the Czech Republic, with a total of 5.0 million retail Internetbroadband accesses for the Telefonica Group at the end of December, 55.7% higherthan the previous year. The contribution of Spain (2.7 million +68.5%year-on-year) and Brazil (Telesp: 1.2 million +46.0% year-on-year) must behighlighted. Telefonica Group revenues increased 25.1% compared with 2004, reaching anabsolute figure of 37,882.1 million. This strong yearly growth was due to theincreased revenues achieved by all business lines, the positive impact ofexchange rates (contributing with 4.7 percentage points to the growth) andchanges in the consolidation perimeter, mainly the BellSouth and Cesky Telecomassets. Excluding these final two effects, the organic growth8 of revenues stoodat 9.3% (+9.9% to September). By business lines, the cellular business continued to be the main contributor tothe Group's growth, recording a 38.1% year-on-year growth in revenues in 2005,to 16,513.5 million euros. The solid performance of revenues is mainly explainedby changes in the consolidation perimeter on the one hand, and the contributionof Telefonica Moviles Espana (revenues +7.6%, making it one of the Europeanoperators with the highest growth in domestic market), Venezuela (revenues of1,438 million euros) and Argentina (revenues of 1,010 million) on the otherhand. In the fourth quarter of the year there was a slowdown in the growth rateof revenues (+29.1% year-on-year), since the first nine months (+41.7%year-on-year) were more affected by the consolidation of eight of the ten LatinAmerican operators acquired from BellSouth since November 2004. Telefonica de Espana Group revenues totaled 11,739.5 million euros in the year(Terra's operations in Spain accounted 21.6 million euros), up 4.8% year-on-year(+4.6% excluding Terra). Revenues from Internet and Broadband services (+26.9%over 2004) are the growth engine, particularly those for Broadband (+40.2%compared with January-December 2004), compensating the reduction in revenues fortraditional voice services (-0.7% year-on-year). In the fourth quarter of 2005the quarterly trend for the slowdown in the year-on-year increase in revenues,excluding Terra, (+3.6% vs. +4.0% in the third quarter vs. +4.9% in the secondquarter vs. +6.0% in the first quarter) mainly due to the elimination of theeffect of the increase in the monthly fee in 2004, the fall in revenues fromvoice traffic and the slowing growth of broadband revenues. The Telefonica Latinoamerica Group, supported by the good performance of theoperators, and the appreciation of Latin American currencies against the euro,obtained revenues of 8,265.5 million euros in 2005 (Terra Latinoamericacontributed with 111.0 million euros), 22.5% above 2004 figure. In constanteuros, and excluding the effect of Terra, the increase with respect toJanuary-December of the previous year stood at 6.2% (+6.5% to September) mainlydue to the contribution of Telesp (+7.9% compared with +7.7% of September)driven by the increase in tariffs in July and the solid growth of the broadbandbusiness. By geographic areas and as of the end of 2005, Spain represented 51.9% ofconsolidated revenues, reducing its contribution by 9.4 percentage pointscompared with December 2004, while Latin America increased its contribution tototal revenues by 7.3 percentage points to 41.5%, due to the incorporation ofBellSouth Latin American operators. Brazil maintained a contribution to totalsales practically stable (18.2% vs. 17.3% twelve months ago). The incorporationof Cesky Telecom in July 2005 has given better geographical diversification,with 2.7% of revenues coming from the Czech Republic. Cumulative operating expenses in 2005 stood at 23,219.3 million euros, recordinga year-on-year growth of 26.7%, as a result of the intensification of commercialefforts carried out by Telefonica Group and the changes in the consolidationperimeter. Supplies expenses (10,065.0 million euros) grew by 31.8% year-on-year (+27.2%excluding the effect of the exchange rate vs. +29.9% to September) and isexplained mainly by the cellular business, with the incorporation of BellSouthLatin American operators and by the higher interconnection costs, as well asTelefonica de Espana Group due to the purchase of equipment for the ADSL andImagenio services, and the boost in the local loop unbundling (ULL) by thecompetition. Personnel expenses amounted to 5,656.4 million euros and grew by 11.0% in 2005year-on-year (+7.9% in constant euros vs. +5.3% to September) related with therise in the Group's average workforce (+21.4% to 190,385 employees) due to thecellular business, the acquisition of Cesky Telecom and the Atento Group(excluding Atento the average workforce would be 106,021 employees, a growth of12.3%). Regarding the Telefonica de Espana 2003-2007 Redundancy Program, as anexceptional measure, 127 layoffs have been accepted in addition to the 1,750applications accepted for 2005, and a new Redundancy Program in Telefonica DataEspana has been approved, joined by 68 persons, increasing the total provisionmade for 2005 to 597,3 million euros. Cumulative external services expenses at year end (6,715.3 million euros)increased by 32.4% year on year (+26.4% in constant euros) as a result of theincreased commercial and advertising activity, mainly in the bet on growth innumber of customers and the changes in the consolidation perimeter. However, inthe last quarter there was a control over commercial costs in Telefonica MovilesEspana. At the end of the year 2005, Telefonica Group recorded a gain for the sale offixed assets of 249.3 million euros compared with the 21.6 million euros accruedthe previous year. The main items accounted for in this accounts are the capitalgains from; i) the sale of Infonet, ii) the listing of Endemol, iii) thedisposal of 1.2% of TPI share capital, iv) the disposal of real state and v) thesale of Radio Continental and Radio Estereo, both from the ATCO Group. Thecapital gain obtained from the listing of Endemol and from the sale of Telinverin Argentina explain the positive accrued amount of 71.7 million euros in thefourth quarter of 2005. Consolidated OIBDA in January-December 2005 stood at 15,276.4 million euros, a25.0% growth in relation to the same period in 2004, a significant increase inthe rate of variation compared with January-September (+20.0% year-on-year),after the 39.7% year-on-year OIBDA growth during the period October-December.The fluctuations in exchange rates contributed with 4.5 percentage points to thegrowth rate in 2005. The organic growth8 in consolidated OIBDA in 2005 stood at9.9%, 3.2 percentage points higher than in the first nine months of the year,mainly due to the control of expenses during the last quarter, specially in thecellular business. In terms of profitability, despite the high levels ofcommercial activity, particularly in the cellular business, (OIBDA margin) wasmaintained practically stable compared with the previous year (40.33% vs.40.36%). In 2005, there was an acceleration in the cellular business OIBDA growth ratehigher than the obtained to September (+25.4% vs. +19.4%), reaching 5,817.0million euros and representing 38.1% of the consolidated OIBDA. In yearly terms,the OIBDA margin fell by 3.5 percentage points, to 35.2%, due to the commercialefforts made and the brand launch (movistar) last April. However, it is worthhighlighting the year-on-year 3.9 percentage points improvement in the OIBDAmargin of the fourth quarter (35.6%). This was mainly due to the 11.9 percentagepoints increase in the OIBDA margin of the Latin American subsidiaries to 24.5%because of the lower unit acquisition costs (SAC). The Telefonica de Espana Group (31.2% of total OIBDA) finished the year with anOIBDA of 4,766.8 million euros (Terra's operations in Spain contributed 27.3million euros), up 4.5% on that recorded in 2004. In the fourth quarter, thetrend observed in previous quarters was reversed, and there was a year-on-yearfall of 3.8%, basically associated with the 127 new people joining theTelefonica de Espana 2003-2007 Redundancy Program in 2005, and 68 people joiningthe Telefonica Data Espana Redundancy Program. The OIBDA margin stood at 40.6%,0.1 percentage point lower than in 2004, though if we exclude the effect of theRedundancy Program in both years, the OIBDA margin would increase to 45.7% (-0.8percentage points vs. January-December 2004). The Telefonica Latinoamerica Group OIBDA, contributing with 24.6% to the totalOIBDA, stood at 3,758.3 million euros at year end (Terra in Latin Americacontributed 4.8 million euros), showing a growth in nominal terms of 14.1%,which translates to 0.4% (-7.5% to September), in constant euros and excludingthe effect of Terra Latam. It should be noted that these variations areinfluenced by the gain on the sale of fixed assets (mainly the sale in July 2004of the CTC mobile telephony subsidiary and the sales of Infonet and Telinver inArgentina) as a result of which, the variation excluding this effect would be27.4% (+11.7% excluding the exchange rates and Terra Latam effect). The OIBDAmargin, excluding the result of the gain for the sale of fixed assets in bothperiods, stood stable compared with September at 44.2%, though increasing by 1.7percentage points compared with 2004. The geographical distribution of the OIBDA in 2005 reflects, in the same way asrevenues, greater diversification, with 58.3% of the consolidated OIBDA comingfrom Spain (70.4% of the previous year), 36.4% from Latin America (32.5% twomonths ago) and 3.0% from the Czech Republic after the incorporation of CeskyTelecom in the second half of 2005. The operating income for January-December 2005 amounted 8,558.8 million euros, ayear-on-year growth of 30.5%, 6.0 percentage points higher than that recorded inthe first nine months of the year. This acceleration was the result of thehigher increase in OIBDA described above, and despite the higher increase indepreciation compared with September (+18.6% vs. +14.6%). The main businesslines that contribute to this increase in depreciation are, in first place, thecellular business, due to the changes in the consolidation perimeter and theimpact of 280 million euros associated with the amortization of allocatedintangible assets related to the acquisition of Telefonica Movil Chile andBellSouth Latin American operators in 2004 and at the beginning of 2005, and,secondly, Cesky Telecom, which was incorporated from the second half of theyear. The organic variation8 rate in operating income is +21.7% compared withthe +16.6% registered to September. The results of associated companies reversed the positive trend recorded in thefirst nine months of the year (+9.6 million euros) and closed 2005 with lossesthat can be attributed to these companies of 128.2 million euros (-50.5 millioneuros in January-December 2004). In the fourth quarter -136.8 million eurosmainly related to the write-down of the remaining value of the UMTS license ofIPSE were accounted (this asset write-down does not imply any cash outflow)). Itshould be noted, in particular, that if we exclude this effect, the results ofthese companies would be positive (+8.6 million euros) thanks to the lowerlosses that can be attributed to Sogecable, Lycos Europe and the positivecontribution of Medi Telecom, which, last year, brought losses to the Group. Financial net expenses amounted to 1,634.3 million euros in 2005, 0.3%year-on-year reduction (4.8 million euros) compared with the comparable figureof 2004 (1,639.1 million euros). The interest rates expenses deteriorated by334.3 million euros, of which 261.3 million euros belong to the 18.6% increasein the average net debt versus 2004. The exchange rate differences improved in339.1 million euros compared with 2004, highlighting the positive contributionof the USD/EUR position, that contributed with a 43% to the improvement in theresult. The net free cash flow after CapEx generated by the Telefonica Group amounted to7,108.1 million euros in 2005, of which 4,476.1 million euros were dedicated tothe net payments of dividends and treasury stock in Telefonica S.A., 5,839.9million euros were deployed on financial investments (net of the sale of realstate) and 692.8 million euros to the cancellation of commitments, mainly toheadcount reduction. Hence, the free cash flow after dividends, that explains ina high degree the increase in the net financial debt of 3,900.7 million euros. The Telefonica Group's net financial debt at the end of December 2005 stood at30,067.0 million euros. The increase of 6,372.6 million euros with respect tothe 2004 net financial debt figure (23,694.4 million euros) was due to the freecash flow after dividends of -3,900.7 million euros. Moreover, the net financialdebt increased by 1,075.8 million euros corresponding to changes in theconsolidation perimeter and others and in 1,396.1 million euros as a consequenceof the effects of the exchange rates on net financial debt not denominated ineuros. The tax provision amounted to 1,969.2 million euros in 2005, and the tax ratestood at 29.0%, although the cash outflow for the Telefonica Group will bereduced even further as negative tax bases are compensated for. The results attributed to minority interests in 2005 showed year-on-year growthof 23.0% and deducted 381.2 million euros from the Telefonica Group's netincome. This evolution is explained by the participation of minority interestsin the net income of Cesky Telecom since 1st July 2005, the improved net incomeobtained by Telesp and the lower losses recorded by Telefonica Moviles Mexico. As a result of this, the consolidated net income accumulated to December reached4,445.8 million euros, up 40.0% year-on-year In the fourth quarter, the netincome grew by 51.6% compared with the fourth quarter of 2004, and reached1,192.5 million euros. During 2005, consolidated CapEx reached 5,358.7 million euros (4,725.9 millioneuros9 with constant exchanges rates of 2004 and excluding changes in theconsolidation perimeter), which represents a growth of 42.3% vs the 2004 figure(organic variation8 +21.0%). By business lines, there was a generalized growth,mainly associated with growth initiatives both in Spain and Latin America(broadband, increase in capacity of mobile telephony networks, and rollout ofthe UMTS network in Spain and GSM in Colombia). It is also worth to highlightthe investment made in Distrito C, the future Telefonica Group headquarters inMadrid and the incorporation of the Cesky Telecom's investments since July 2005.------------------------ 5 All projections refer to local currency (constant exchange rates) and excludechanges in consolidation other than assets acquired to BellSouth in Argentina &Chile in 2005 (TEM), and Atrium (T.Latam).6 In terms of guidance calculation, Operating Income and Operating Income beforeD&A exclude other exceptional revenues/expenses not foreseeable in 2005.Personnel Restructuring and Real Estate Programs are included as operatingrevenues/expenses.7 Excludes the adjustments of 300,000 inactive lines in Mexico, not longerconsidered in the reported customer base as of the second quarter of 2005.8 Assuming constant exchange rates and including the consolidation of the LatinAmerican assets acquired to BellSouth in Argentina, Colombia, Chile, Ecuador,Guatemala, Nicaragua, Panama, Peru, Uruguay and Venezuela in the cellularbusiness and Atrium in the Telefonica Latinoamerica Group from January 1st 2004.Cesky Telecom has been included in the period July-December 2004.9 All projections refer to local currency (constant exchange rates) and excludechanges in consolidation other than assets acquired to BellSouth in Argentina &Chile in 2005 (TEM), and Atrium (T.Latam).------------------------ TELEFONICA GROUP Financial Data TELEFONICA GROUPSELECTED FINANCIAL DATAUnaudited figures (Euros in millions) January - December 2005 2004 % Chg Revenues 37,882.1 30,280.9 25.1Operating income before D&A (OIBDA) 15,276.4 12,222.0 25.0Operating income (OI) 8,558.8 6,556.0 30.5Income before taxes 6,796.2 4,866.4 39.7Net income 4,445.8 3,175.7 40.0Basic earnings per share 0.913 0.637 43.4Weighted average number of ordinary shares outstanding during the period (millions) 4,870.9 4,987.8 (2.3) Note: For the basic earnings per share calculation purposes, the weighted average number of ordinary shares outstandingduring the period have been obtained applying IFRS rule 33 "Earnings per share". Thereby, there are not taking intoaccount as outstanding shares the weighted average number of shares held as treasury stock during the period nor theshares assigned to the stock options plan for employees "Programa TIES". Furthermore, in line with IFRS rule 33, theweighted average number of shares outstanding during every period, has been adjusted for these operations that hadimplied a difference in the number of outstanding shares, without a variation associated in the equity, as if thosehave taken place at the beginning of the first period presented. It consists on the distribution of the paid-in capitalreserve by means of delivery of shares in the proportion of 1 share to every 25 shares, approved by the AGM as of May31, 2005. TELEFONICA GROUPRESULTS BY COMPANIESUnaudited figures (Euros inmillions) REVENUES OIBDA OPERATING INCOME January - December January - December January - December 2005 2004 % Chg 2005 2004 % Chg 2005 2004 % Chg Telefonica de Espana Group 11,739.5 11,202.2 4.8 4,766.8 4,560.0 4.5 2,627.7 2,192.4 19.9Telefonica Latinoamerica Group 8,265.5 6,748.4 22.5 3,758.3 3,294.8 14.1 1,965.8 1,716.1 14.6Cellular Business 16,513.5 11,961.4 38.1 5,817.0 4,637.6 25.4 3,443.0 3,057.5 12.6Cesky Telecom 1,035.2 - n.c. 456.7 - n.c. 164.8 - n.c.Directories Business 660.5 616.4 7.1 220.0 204.8 7.4 196.0 181.0 8.3Atento Group 856.5 606.5 41.2 116.4 85.1 36.7 88.5 51.4 72.1Content & Media Business 1,269.1 1,219.1 4.1 269.2 185.0 45.5 240.3 156.2 53.9Other companies (*) 868.2 1,265.0 (31.4) (188.0) (248.9) (24.5) (258.5) (410.2) (37.0)Eliminations (3,325.7) (3,338.1) (0.4) 60.1 (496.5) c.s. 91.1 (388.4) c.s.Total Group 37,882.1 30,280.9 25.1 15,276.4 12,222.0 25.0 8,558.8 6,556.0 30.5 Starting third quarter 2005, Terra Networks results will be included in the Telefonica de Espana Group and TelefonicaLatinoamerica Group results. The Terra Networks Group results from the first and second quarter of 2005 and fromfiscal year 2004 will be incorporated into Other Companies in the Telefonica Group accounts.Also starting in the third quarter of 2005, the Cesky Telecom results corresponding to the July-December 2005 periodwill be incorporated as an independent business line, whose acquisition was last June.(*) OIBDA and Operating Income exclude the variation in investment valuation allowances accounted for by TelefonicaS.A. parent company and that are eliminated in consolidation. TELEFONICA GROUPCAPEX BY BUSINESS LINESUnaudited figures (Euros in millions) January - December 2005 2004 % Chg Telefonica de Espana Group 1,406.6 1,207.5 16.5Telefonica Latinoamerica Group 1,061.2 748.5 41.8Cellular Business 2,330.4 1,669.0 39.6Cesky Telecom 147.0 - n.c.Directories Business 24.1 21.5 11.9Atento Group 42.9 22.8 88.6Content & Media Business 25.5 24.3 5.2Other companies & Eliminations 321.0 73.5 n.m.Total Group 5,358.7 3,767.1 42.3 Starting third quarter 2005, Terra Networks results will be included in the Telefonica de Espana Group and TelefonicaLatinoamerica Group results. The Terra Networks Group results from the first and second quarter of 2005 and from fiscalyear 2004 will be incorporated into Other Companies in the Telefonica Group accounts.2004 data of Telefonica Latinoamerica Group and Total Group is adapted to the new accounting criteria (IFRS) for IRUs. TELEFONICA GROUPCONSOLIDATED INCOME STATEMENTUnaudited figures (Euros in millions) January - December October - December 2005 2004 % Chg 2005 2004 % Chg Revenues 37,882.1 30,280.9 25.1 10,480.0 8,217.9 27.5Internal expenditure capitalized in fixed assets(1) 601.3 470.3 27.9 263.2 165.2 59.3Operating expenses (23,219.3) (18,329.8) 26.7 (6,461.3) (5,116.9) 26.3 Supplies (10,065.0) (7,637.3) 31.8 (2,941.0) (2,276.1) 29.2 Personnel expenses (5,656.4) (5,095.2) 11.0 (1,441.0) (1,164.1) 23.8 Subcontracts (6,715.3) (5,072.0) 32.4 (1,827.9) (1,523.1) 20.0 Taxes (782.6) (525.3) 49.0 (251.5) (153.6) 63.7Other net operating income (expense) (212.9) (43.6) n.m. (9.1) (4.1) 123.0Gain (loss) on sale of fixed assets 249.3 21.6 n.m. 71.7 2.7 n.m.Impairment of goodwill and other assets (24.2) (177.3) (86.4) (12.5) (164.7) (92.4)Operating income before D&A (OIBDA) 15,276.4 12,222.0 25.0 4,331.9 3,100.2 39.7Depreciation and amortization (6,717.7) (5,666.0) 18.6 (1,897.6) (1,461.6) 29.8Operating income (OI) 8,558.8 6,556.0 30.5 2,434.3 1,638.6 48.6Profit from associated companies (128.2) (50.5) 153.9 (137.8) 1.5 c.s.Net financial income (expense) (1,634.3) (1,639.1) (0.3) (505.1) (590.7) (14.5)Income before taxes 6,796.2 4,866.4 39.7 1,791.4 1,049.4 70.7Income taxes (1,969.2) (1,512.8) 30.2 (513.8) (364.0) 41.2Income from continuing operations 4,827.1 3,353.6 43.9 1,277.5 685.4 86.4Income (Loss) from discontinued operations 0.0 132.0 n.m. 0.0 190.8 n.m.Minority interest (381.2) (309.9) 23.0 (85.0) (89.7) (5.3)Net income 4,445.8 3,175.7 40.0 1,192.5 786.5 51.6 Weighted average number of ordinary shares outstanding during 4,870.9 4,987.8 (2.3) 4,813.1 4,912.2 (2.0)the period (millions)Basic earnings per share 0.913 0.637 43.4 0.248 0.160 54.7 (1) Including work in process.Note: For the basic earnings per share calculation purposes, the weighted average number of ordinary shares outstandingduring the period have been obtained applying IFRS rule 33 "Earnings per share". Thereby, there are not taking intoaccount as outstanding shares the weighted average number of shares held as treasury stock during the period nor theshares assigned to the stock options plan for employees "Programa TIES". Furthermore, in line with IFRS rule 33, theweighted average number of shares outstanding during every period, has been adjusted for these operations that hadimplied a difference in the number of outstanding shares, without a variation associated in the equity, as if thosehave taken place at the beginning of the first period presented. It consists on the distribution of the paid-in capitalreserve by means of delivery of shares in the proportion of 1 share to every 25 shares, approved by the AGM as of May31, 2005. TELEFONICA GROUPCONSOLIDATED BALANCE SHEETUnaudited figures (Euros in millions) December 2005 2004 % Chg Non-current assets 59,545.0 48,954.5 21.6 Intangible assets 7,877.1 5,674.1 38.8 Goodwill 8,910.2 5,949.4 49.8 Property, plant and equipment and Investment property 28,027.4 23,221.7 20.7 Long-term financial assets and other non-current assets 6,345.6 5,152.0 23.2 Deferred tax assets 8,384.7 8,957.1 (6.4)Current assets 13,628.8 11,124.4 22.5 Inventories 919.5 655.5 40.3 Trade and other receivables 7,515.7 5,919.8 27.0 Current tax receivable 1,448.3 1,069.5 35.4 Short-term financial investments 1,517.8 2,556.6 (40.6) Cash and cash equivalents 2,213.2 914.3 142.1 Non-current assets classified as held for sale 14.3 8.7 64.8 Total Assets = Total Equity and Liabilities 73,173.8 60,078.9 21.8 Equity 16,158.4 12,342.5 30.9 Equity attributable to equity holders of the parent 12,733.3 10,439.8 22.0 Minority interest 3,425.1 1,902.7 80.0Non-current liabilities 35,126.5 27,742.6 26.6 Long-term financial debt 25,167.6 17,492.2 43.9 Deferred tax liabilities 2,477.4 1,642.6 50.8 Long-term provisions 6,353.2 7,407.7 (14.2) Other long-term liabilities 1,128.2 1,200.1 (6.0)Current liabilities 21,888.9 19,993.8 9.5 Short-term financial debt 9,235.9 10,210.4 (9.5) Trade and other payables 6,932.9 5,632.3 23.1 Current tax payable 2,191.6 1,824.9 20.1 Short-term provisions and other liabilities 3,528.5 2,323.5 51.9 Liabilities associated with non-current assets classified as held for sale 0.0 2.7 n.m. Financial DataNet Financial Debt (1) 30,067.0 23,694.4 26.9 (1) Net Financial Debt = Long term financial debt + Other long term liabilities + Short term financial debt - Shortterm financial investments - Cash and cash equivalents - Long term financial assets and other non-current assets. TELEFONICA GROUPFREE CASH FLOW AND CHANGE IN DEBTUnaudited figures (Euros inmillions) January - December 2005 2004 % Chg I Cash flows from operations 13,854.3 11,706.5 18.3II Net interest payment (1) (1,449.4) (1,235.9)III Payment for income tax (1,233.0) (326.0)A=I+II+III Net cash provided by operating activities 11,171.9 10,144.6 10.1B Payment for investment in fixed and intangible assets (4,409.9) (3,457.7)C=A+B Net free cash flow after CAPEX 6,762.0 6,686.9 1.1D Net Cash received from sale of Real Estate 99.9 210.8E Net payment for financial investment (5,939.8) (3,714.3)F Net payment for dividends and treasury stock (2) (4,822.8) (4,804.4)G=C+D+E+F Free cash flow after dividends (3,900.7) (1,621.0) 140.6H Effects of exchange rate changes on net financial debt 1,396.1I Effects on net financial debt of changes in consolid. and 1,075.8 othersJ Net financial debt at beginning of period 23,694.4K=J-G+H+I Net financial debt at end of period 30,067.0 (1) Including cash received from dividends paid by subsidiaries that are not under full consolidation method.(2) Dividends paid by Telefonica S.A. and dividend payments to minoritaries from subsidiaries that are under fullconsolidation method and treasury stock. TELEFONICA GROUPRECONCILIATIONS OF CASH FLOW AND OIBDA MINUS CAPEXUnaudited figures (Euros in millions) January - December 2005 2004 % Chg OIBDA 15,276.4 12,222.0 25.0- CapEx accrued during the period (EoP exchange rate) (5,358.7) (3,767.1)- Payments related to commitments (894.2) (916.5)- Net interest payment (1,449.4) (1,235.9)- Payment for income tax (1,233.0) (326.0)- Results from the sale of fixed assets (249.3) (21.6)- Invest. in working cap. and other deferred income and expenses 670.2 732.0= Net Free Cash Flow after CapEx 6,762.0 6,686.9 1.1+ Net Cash received from sale of Real Estate 99.9 210.8- Net payment for financial investment (5,939.8) (3,714.3)- Net payment for dividends and treasury stock (4,822.8) (4,804.4)= Free Cash Flow after dividends (3,900.7) (1,621.0) 140.6 Note: At the Investor Conference held in October 2003, the concept expected "Free Cash Flow" 2003-2006 was introducedto reflect the amount of cash flow available to remunerate Telefonica S.A. Shareholders, to protect solvency levels(financial debt and commitments), and to accomodate strategic flexibility.The differences with the caption "Net Free Cash Flow after CapEx" included in the table presented above, are related to"Free Cash Flow" being calculated before payments related to commitments (workforce reductions and guarantees) andafter dividend payments to minoritaries, due to cash recirculation within the Group. Jan-Dec 2005 Jan-Dec 2004Net Free Cash Flow after CapEx 6,762.0 6,686.9+ Payments related to cancellation of commitments 692.8 697.2- Ordinary dividends payment to minoritaries (346.7) (176.1)= Free Cash Flow 7,108.1 7,208.0 TELEFONICA GROUPNET FINANCIAL DEBT ANDCOMMITMENTSUnaudited figures (Euros inmillions) December 2005 Long-term debt 25,647.8 Short term debt including current 9,193.9 maturities Cash and Banks (2,213.2) Short and Long-term financial investments (2,561.5) (1) A Net Financial Debt 30,067.0 Guarantees to IPSE 2000 365.5 Guarantees to Newcomm 83.5 B Commitments related to guarantees 449.0 Gross commitments related to workforce 5,270.1 reduction (2) Value of associated Long-term assets (3) (754.7) Taxes receivable (4) (1,457.7) C Net commitments related to workforce 3,057.7 reduction A + B + C Total Debt + Commitments 33,573.7 Net Financial Debt / OIBDA (5) 1.91x Total Debt + Commitments/ OIBDA (5) 2.13x (1) Short term investments and certain investments in financial assets with amaturity profile longer than one year, whose amount is included in the caption"Investment" of the Balance Sheet. (2) Mainly in Spain, except 91.3 million euros related to the provision of pensionfund liabilities of corporations outside Spain. This amount is detailed in thecaption "Provisions for Contingencies and Expenses" of the Balance Sheet, and isthe result of adding the following items: "Provision for Pre-retirement, SocialSecurity Expenses and Voluntary Severance", "Group Insurance", "TechnicalReserves", and "Provisions for Pension Funds of Other Companies". (3) Amount included in the caption "Investment" of the Balance Sheet, section"Other Loans". Mostly related to investments in fixed income securities andlong-term deposits that cover the materialization of technical reserves of theGroup insurance companies. (4) Net present value of tax benefits arising from the future payments related toworkforce reduction commitments. (5) Calculation based on annualized OIBDA. Including Cesky Telecom January-December2005 OIBDA. TELEFONICA GROUPEXCHANGES RATES APPLIED P&L (1) Balance Sheet and CapEx (2) Jan - Dec 2005 Jan - Dec 2004 % Chg December 2005 December 2004 USA (US Dollar/Euro) 1.242 1.242 1.180 1.362Argentina (Argentinean Peso/Euro) 3.631 3.651 3.577 4.058Brazil (Brasilian Real/Euro) 3.002 3.632 2.761 3.616Czech Republic (Czech Crown/Euro) 29.780 - 29.005 -Chile (Chilean Peso/Euro) 694.444 757.576 606.061 757.576Colombia (Colombian Peso/Euro) 2,881.844 3,257.329 2,695.418 3,257.329El Salvador (Colon/Euro) 10.870 10.868 10.322 11.919Guatemala (Quetzal/Euro) 9.496 9.887 8.974 10.570Mexico (Mexican Peso/Euro) 13.517 14.017 12.715 15.344Nicaragua (Cordoba/Euro) 20.799 19.794 20.222 22.242Peru (Peruvian Nuevo Sol/Euro) 4.096 4.240 4.051 4.470Uruguay (Uruguayan Peso/Euro) 30.331 35.587 28.490 35.958Venezuela (Bolivar/Euro) 2,624.672 2,386.635 2,538.071 2,617.801 (1) These exchange rates are used to convert the P&L accounts of the Group foreign subsidiaries from local currency toeuros.(2) Exchange rates as of 31/12/05 y 31/12/04. RESULTS BY BUSINESS LINES Fixed Line Business TELEFONICA DE ESPANA GROUP The 2005 results for Telefonica de Espana Group comfortably met forecastsannounced at the beginning of the year, which were revised upwards following thepublication of the third quarter results. Operating revenues grew 4.8% to standat 11,739.5 million euros and OIBDA increased by 4.5% to total 4,766.8 millioneuros. Investments amounted to 1,406.6 million euros to remain within announcedlevels. In terms of operations, the ambitious objective of closing 2005 with over200,000 Imagenio customers in service was met. This service has notablyreaffirmed the attractiveness of Telefonica's Broadband offer, both in terms ofan individual marketed product, and sold as part of a bundle in Duo and Triopackages. This led to a record growth in broadband accesses during the lastquarter of the year. The following broadband products are worthy of mention in terms of the latestcommercial initiatives: • ADSL Mini Class that, with download volume-based billing and a speed of up to 2Mb/s, focuses primarily on SMEs or Businesses. • ADSL TOP and ADSL PREMIUM PLUS, services based on ADSL 2+ technology with upload/download speeds of up to 10Mb/s / 800Kb/s and 20Mb/s / 800Kb/s, respectively. Of particular note in the traditional voice business: • The inclusion of fixed-to-mobile traffic in the Voice Mini Flat-Rate (Tarifa Plana de Voz Mini) and in the National Flat Rate (Tarifa Plana Nacional), at monthly fees of 4 and 16 euros, respectively. Fixed-to-mobile calls are billed at a single price of 0.19 euros a minute, with no set-up fee. • International Mini Rate (Tarifa Mini Internacional) at a monthly fee of 3 euros, implying attractive prices to different international destinations to both fixed and mobile lines. In relation to Wi-Fi services, particularly relevant was the agreement signedwith Telecom Italia and Portugal Telecom within the framework of the WirelessBroadband Alliance, an international association of Wi-Fi operators of whichTelefonica is the sole Spanish member. Through this agreement, Wi-Fi Roaming hasbeen set up in both countries to expand coverage to 790 new Wi-Fi zones inPortugal and 800 in Italy. These zones now form part of the ADSL Wi-Fi Zone, theoperational coverage of which is the largest in Spain with 1,555 hotspots byDecember 2005. Lastly, the agreement signed with Federacion Valenciana de Municipios yProvincias (Valencia Federation of Municipalities and Provinces) to supplywireless technologies to its facilities should be highlighted. Aware of the home entertainment market's great potential for development,Telefonica has signed an agreement with Intel, through its subsidiary Terra, toprovide the content for the new Intel home entertainment platform. Besides of the constant launching of new services, Telefonica de Espana hascontinued to make intense commercial efforts, especially during the Christmascampaign, with the launch of new promotions. Foremost are the Duo and Triopromotions that, for subscriptions received between November 15th and January7th, were billed at a fee of 20.00 euros per month until the end of January forboth Duo and Trio with flat-rate national voice calls and 24-hour ADSL, comparedwith the standard fees of 39.90 and 51.90 euros per month, respectively. As a proof of the continuous commercial efforts to offer users quality andprice-competitive products and services, in a recent study the Consumers' Unionof Spain placed Telefonica de Espana as the fixed-line operator with the bestprice-quality ratio in Spain, based on information regarding prices from theSpanish Telecommunications Regulator, the CMT, and regarding quality from theState Department of Telecommunications and Information Society (SETSI,Secretaria de Estado para las Telecomunicaciones y Sociedad de la Informacion). From a regulatory viewpoint, the measures published over recent months regardingthe RIO and the 2006 price-cap must be underlined: • Last November, the CMT published the new RIO, Reference Interconnection Offer, in which the prices of basic services were modified, leading to an average decrease of 1.8% in real terms. Hence, Capacity-based Interconnection prices were maintained and the effective average price of Time-based Interconnection fell by an average of 5.6%. Given the high percentage of traffic processed through the Capacity-based Interconnection model, representing almost 70% of Fixed to Fixed interconnection traffic in 2005, the measure has low financial impact. Other aspects considered in the modification of the RIO concern are the inclusion of new services in the Capacity-based Interconnection model, such as call interconnection at special rates (intelligent network and subscriber number enquiry services) and calls to short numbers, except for 112, placing effective average interconnection prices among the cheapest in Europe. • As a result of the measure adopted by the CMT in September to reduce interconnection prices of mobile phone operators, Telefonica de Espana readjusted fixed-to-mobile prices for each of the three operators in November, to comply with the regulatory requirement forcing Telefonica to have the same net remuneration per traffic, independent of the target mobile phone operator. These adjustments had no impact on average prices. • Subsequently, on February 4th 2006, Telefonica de Espana modified its rates for local and fixed-to-mobile traffic under the provisions of the Comision Delegada de Asuntos Economicos (Delegated Commission for Economic Affairs). The new prices meant that monthly subscription fees for PSTN lines remained unchanged, and voice traffic billing per second from the start of the call was introduced, without the inclusion of franchise time. The new rates, which modify prices per minute, increase fixed-to-mobile set-up fee to 0.12 euros and reduce metropolitan set-up fee to 0.065 euros, while removing the existing 160-second franchised time. These modifications have been defined under the principle of neutrality and, therefore, will have no impact on the average price per minute. • However, on February 9th 2006, the CMT approved a resolution to suppress the ex-ante control of domestic and international retail prices for the telephone service. Revenues of Telefonica de Espana Group amounted to 11,739.5 million euros over2005, a year-on-year growth of 4.8%. Considering the fourth quarterindependently, revenues grew by 4.0% to total 3,010.9 million euros. Excluding revenues from Terra business in Spain over the last half of the year,Telefonica de Espana Group revenues for 2005 would stand at 11,717.9 millioneuros (2,998.3 million euros in the last quarter of 2005), a 4.6% year-on-yeargrowth (+3.6% in the fourth quarter) in line with the guidance revised upwardduring the publication of the results from the third quarter 2005, which set thegrowth rate for 2005 revenues over 4%. Telefonica de Espana parent company's revenues amounted to 11,250.5 millioneuros, up 4.8% year on year. Revenues for the fourth quarter of the year stoodat 2,889.7 million euros, a 4.3% increase on the same period of the previousyear despite the drop in revenues from voice traffic and the slowing down in thegrowth of broadband revenues. With regard to revenue contribution by the most relevant subsidiaries in 2005,Telyco Group reached 478.1 million euros revenues equivalent to a 10.2%year-on-year increase, Telefonica Telecomunicaciones Publicas revenues reached226.6 million euros falling 6.0% year on year and, finally, Terra added 21.6million euros to the Group revenues over the last half of the year. • Revenues from Traditional Access grew by 0.1% over the year to reach 2,826.2 million euros. The growth in revenues from subscriptions was able to offset the drop in revenues from connection fees, affected by the free connection fee campaigns. However, revenues from access experienced a 0.9% decline over the last quarter of the year, essentially due to the reduction in revenues from surcharges on calls from public payphones. The fixed telephony accesses in Spain are estimated to have grown 0.9% over 2005, while those of Telefonica de Espana decreased 1.2% to 16.135.563, to end the year with an estimated market share around 85% of those accesses, after aligning historical data with latest data available from the CMT. But this decreasing trend has been more than compensated by the 2.8% growth of the total number of accesses of Telefonica de Espana, that by year end stood at 21.9 millions. This growth is a result of successful broadband marketing, and was achieved despite the loss of 199,243 fixed telephony accesses over the year. • Revenues from Traditional Voice services amounted to 5,161.8 million euros during 2005, with a year-on-year reduction of 0.7%. These revenues fell by 1.9% over the fourth quarter. Regarding analogue voice traffic originated in fixed lines, the estimated total volume of the market in Spain, expressed in minutes, was down 3.1% year on year, a 1.9 percentage points slowdown in relation to the decline recorded the previous year. After aligning historical data with latest data available from CMT, Telefonica de Espana's estimated share of the voice market stood at 66% in December. The estimated total volume of minutes processed by Telefonica de Espana during 2005 amounted to 110,207 million, a 10.4% year-on-year drop. Total outgoing traffic (including Internet) amounted to 59,418 million minutes and fell by 13.6% with regard to the previous year. Traditional outgoing traffic totalled 43,932 million minutes, down by 7.2% year-on-year and slowing down the decline in comparison with the beginning of the year as a result of the lower significant drop in the market. In closer detail, metropolitan traffic in the January-December period dropped by 10.9%, provincial by 10.5%, DLD by 5.5% and fixed-to-mobile by 1.6%. International traffic made very good progress over the year, 13.5% up at the end of December, although its growth in the last quarter (+7.6%) was slightly below than that recorded during the first three of 2005. The number of outgoing minutes to the Internet amounted to 15,486 million and continued to show a negative year-on-year variation (-27.8% over the year), mainly as a result of cannibalization of switched Internet traffic by broadband ADSL services. Finally, incoming traffic amounted to 50,789 million minutes, a 6.4% drop compared with the previous year. With regard to service packages, it is worth noting that the total number of plans, Combinados and flat rates amounted to 2,905,941, 34.3% more than that reached in September 2005 primarily due to the launch of the Duo and Trio packages that same month. Moreover, the number of pre-selected lines stood at 2,284,590 by the end of 2005, a reduction of 78,121 lines over the quarter, as a result of migrations to unbundled loops, the customer win-back campaigns and the positive effect of new commercial products - particularly the Duos and Trios. • Internet and Broadband services, which contributed almost 79% of the growth in Telefonica de Espana revenues, totalled 1,904.7 million euros over 2005, a 26.9% increase year on year. Within this section, broadband revenues including both, Internet broadband access revenues and Pay TV revenues, grew 40.2% over the year to reach 1,703.5 million euros, of which 1,297.8 million euros are from the retail business. Strong growth of the customer base was boosted by the new bundles of products and by promotions, which despite its implication on ARPU reduction, resulted in a final strong top line revenue growth. According to our estimates, total fixed broadband Internet accesses in the Spanish market at year end exceeded 5 million lines, with an estimated net gain of around half a million accesses in fourth quarter of the year, being up to date the highest quarterly net gain figure ever in Spain. The success of Telefonica's ADSL offering has been a determining factor in this growth, reaching 3,479,824 acceses (wholesale and retail including those accesses providing only Imagenio service) by the end of 2005. On the other hand, the growth of unbundling has resulted in a decline of Telefonica de Espana's market share on ADSL down to 89%. The offer by Telefonica de Espana of retail Internet broadband accesses (ADSL, optical fibre, and other technologies, excluding the accesses providing only Imagenio service) registered a net gain of 303,346 accesses in the fourth quarter, almost doubling the net gain of same quarter 2004 and representing more than 60% of the estimated net gain of the Spanish market. This lead to a total number of retail Internet broadband accesses by Telefonica de Espana of 2,719,669, representing, according to Company's estimates, a 55% share of the Spanish market. It must be noted that this growth has been achieved in an environment of strong commercial aggressiveness by both our cable-modem and unbundled loop competitors. The net gain of unbundled loops for the fourth quarter was 73,475. By year end, the total number of unbundled loops stood at 434,759, 116,112 unbundled lines at 2004 year end, and amounting, according to our estimates, to 8.8% of the total number of fixed broadband Internet accesses and 11.1% of total ADSL connections. Of these unbundled loops, 279,027, 64,2%, were shared access loops. The wholesale ADSL service is being affected by the migration to unbundled loops. However, a net growth of 13,332 lines was recorded over the fourth quarter to place the total number at 721,940. Broadband value added services (VAS) provided by Telefonica de Espana remained a distinguishing factor with regard to the competition's commercial offer. 65.1% of our retail broadband customers have contracted at least one VAS and the number of operative services now amounts to over 2.6 million units. ADSL Solutions is noteworthy among these services, a total of 393,295 solutions being operational by the end of 2005 to give a 17,1% increase in relation to September 2005. As indicated, the Imagenio service met its target for 2005 with 206,572 clients, after achieving a fourth quarter net gain of 114,466 customers. This figure is above the total net gain accumulated to September, which shows the commercial efforts made and the operational capacity to manage such a large number of subscriptions. With this growth, Imagenio has reached a significant share of the Spanish Pay TV market, which we estimate at a 6% level, compared to the 0.3% estimated market share at the end of 2004. • Revenues from Data services grew by 5.4% over the year to reach 1,031.0 million euros. Retail data services fell by 1.1% over this period, despite the 12.7% growth in VPN connections and as a result of the migration of traditional network solutions towards cheaper IP products and the replacement of circuit rental for other, cheaper products. Fibre connections to retail customers stood at 13,810, 40.2% above the figure reported at 2004 year end. • Lastly, revenues from Information Technology services continued to progress with regard to contribution to Group revenues, ending the last quarter of the year with a contribution of 108.4 million euros, a year-on-year growth of 69.0%. Revenues of this type over the year represented 326.8 million euros and a 38.9% growth. This good behaviour was due to the growth in outsourcing services of desktop positions and systems integration. There are currently 184 client management centres operated by Telefonica staff, and 123 contracts with customers who are outsourcing their communications service/information systems. These figures have grown by 52.1% and 36.7% respectively year on year. The number servers dedicated to clients' amounted to 2,931, a 38.6% increase on the previous year. The number of desktop positions managed stood at 87,249. Telefonica de Espana Group's operating expenses increased by 5.0% compared withlast year to stand at 7,213.7 million euros, as a consequence of the commercialefforts made and the development of new products that allow Telefonica de Espanato offer the most complete and innovative portfolio of services in our market.Expenses in the fourth quarter amounted to 1,777.7 million euros, havingincreased 9.5% due to the contribution of additional expenses from the workforcerestructuring program during this period. • Personnel expenses fell 0.8% over the year to stand at 2,695.8 million euros. A new Redundancy Program (E.R.E.) was applied to the Telefonica Data Espana S.A. workforce during the last quarter of the year. 68 people joined this program, along with the 127 additional employees accepted under the Telefonica de Espana Redundancy Program during the fourth quarter of 2005, leading to a total figure of 1,945 redundancies by year end. This led to an additional provision of 71.0 million euros in the fourth quarter for workforce restructuring, increasing personnel expenses over the quarter by 18.6% year on year to stand at 597.5 million euros. Excluding the effect of Redundancy Program provisions in 2004 (643.5 million euros including actuarial revision) and in 2005 (595.4 million euros), personnel expenses would have grown by 1.3% over the year and 4.4% over the last quarter. This latter figure was affected by the extraordinary provision arising as a result of the salary review in line with the increase in the 2005 CPI, from the 3.3% foreseen at the end of the third quarter to the 3.7% actually recorded at year end. The Telefonica de Espana Parent Company workforce at the end of December was placed at 33,279 employees, a net reduction of 1,766 employees since the start of the year. The average Telefonica de Espana Parent Company workforce in 2005 stood at 34.280 employees, a 4,5% reduction in comparison with the average workforce in 2004. • Supplies expenses grew by 8.7% over the year to reach 3,032.0 million euros. This growth was slightly lower during the fourth quarter, standing at 7.5%, due to the lower handset sales at Telyco, the reduction in fixed-to-mobile interconnection tariffs (mobile termination rates) and lower fixed-to-mobile traffic processed during the last quarter of the year. The greater expenses related to the purchase of equipment for Imagenio and new broadband connections, and those allocated to unbundling loops by competitors of Telefonica de Espana are the main factors following the growth in supplies expenses over 2005. These effects were partially offset by the slight 0,6% fall in interconnection expenses. • External services expenses grew by 9.3% over the year to total 1,289.9 million euros, as a result of the intense commercial campaign developed by Telefonica de Espana to face the demanding competitive environment. In fact, Telefonica de Espana's commercial expenses increased by 12.3% over this period in relation to the same period of the previous year. The combined effort made by the Company with regard to the growth in revenuesand efficiency has led to an operating income before depreciation andamortization (OIBDA) of 4,766.8 million euros, a 4.5% year-on-year growth.However, the OIBDA in the fourth quarter of 2005 stood at 1,280.6 million euros,a 3.8% fall year on year following the acceptance of an additional 195 employeesto join the Redundancy Plan over the last three months of the year In order to compare this with the announced financial guidance, the effect ofincluding Terra assets in Spain and other exceptional revenues/expenses notforeseen in 2005 and 2004 must be excluded from the OIBDA. Excluding the effectof the integration of Terra, the OIBDA recorded a year-on-year growth of 3.9% in2005 to stand at 4,739.5 million euros. Also excluding other exceptionalrevenues/expenses not foreseen in 2005 and 2004, the growth of OIBDA would standat 5.1% to exceed the guidance announced by the company, which set the OIBDAgrowth forecast at between 2% and 5% for 2005. The OIBDA margin stood at 40.6% in 2005, remaining almost the same (-0.1percentage points) as that recorded the previous year. Excluding the effect ofRedundancy Plan provision in 2005, the margin would have increased by 5.1percentage points to reach 45.7%. Comparing this margin with the comparablemargin of the same period in 2004 (excluding the Redundancy Program provisionand the actuarial review for 2004), a 0.8 percentage point drop was recorded asa result of the greater commercial and supply efforts during 2005. The OIBDA for the Telefonica de Espana parent company amounted to 4,716.4million euros, up 4.1% year on year. CapEx totaled 1,406.6 million euros, a 16.5% increase in comparison with theprevious year but staying within the announced range. TELEFONICA DE ESPANA GROUPSELECTED OPERATING DATAUnaudited figures (Thousands) December 2005 2004 % Chg Fixed telephony accesses (1) 16,135.6 16,334.8 (1.2)Internet and data accesses 5,585.9 4,989.7 11.9 Narrowband 1,614.9 2,263.5 (28.7) Broadband 3,441.6 2,492.7 38.1 Retail (2) 2,719.7 1,614.5 68.5 Unbundled loops (3) 434.8 116.1 n.m.Pay TV 206.6 6.0 n.m.Total Accesses 21,928.0 21,330.5 2.8 (1) PSTN (including Public Use Telephony) x1; ISDN Basic access x1; ISDN Primary access; 2/6 Access x30. Company'saccesses for internal use included.(2) Includes Terra from the third quarter of 2005, Linea ADSL and satellite.(3) Includes fully unbundled loops and shared loops. TELEFONICA DE ESPANA PARENT COMPANYOPERATING REVENUESUnaudited figures (Euros in millions) January - December October - December 2005 2004 % Chg 2005 2004 % Chg Traditional Access (1) 2,826.2 2,823.2 0.1 704.3 710.7 (0.9)Traditional Voice Services 5,161.8 5,199.4 (0.7) 1,298.3 1,323.4 (1.9) Domestic Traffic (2) 1,330.8 1,467.6 (9.3) 334.7 378.3 (11.5) Fixed to Mobile Traffic 1,151.8 1,207.4 (4.6) 281.8 303.7 (7.2) International Traffic 474.4 410.1 15.7 120.0 115.8 3.6 Intel. Network, other cons. and bonusses (3) 309.9 237.1 30.7 87.4 65.7 33.1 Interconnection (4) 944.0 868.9 8.6 227.1 222.9 1.9 Handsets sales and others (5) 951.0 1,008.3 (5.7) 247.3 237.0 4.3Internet Broadband Services 1,904.7 1,501.1 26.9 516.7 425.6 21.4 Narrowband 201.2 285.9 (29.6) 47.8 61.9 (22.8) Broadband 1,703.5 1,215.2 40.2 468.9 363.7 28.9 Retail (6) 1,297.8 950.8 36.5 358.9 283.6 26.5 Wholesale (7) 405.7 264.4 53.4 110.1 80.1 37.4Data Services 1,031.0 978.6 5.4 262.1 247.2 6.0 VPN, Leased Circuits and Broadcasting 666.9 674.1 (1.1) 169.0 176.6 (4.3) Wholesale 364.1 304.4 19.6 93.1 70.6 31.9IT Services 326.8 235.3 38.9 108.4 64.1 69.0Total operating revenues 11,250.5 10,737.6 4.8 2,889.7 2,771.0 4.3 (1) Monthly and connection fees (PSTN, Public Use Telephony, ISDN and Corporate Services) and Telephone boothssurcharges.(2) Local and domestic long distance (provincial and interprovincial) traffic.(3) Intelligent Network Services, Special Valued Services, Information Services (118xy), bonusses and others.(4) Includes revenues from fixed to fixed incoming traffic, fixed to mobile incoming traffic, and transit andcarrier traffic.(5) Managed Voice Services and other businesses revenues.(6) Retail ADSL services and other Internet Services.(7) Includes Megabase, Megavia, GigADSL, and local loop unbundling. TELEFONICA DE ESPANA GROUPCONSOLIDATED INCOME STATEMENTUnaudited figures (Euros in millions) January - December October - December 2005 2004 % Chg 2005 2004 % Chg Revenues 11,739.5 11,202.2 4.8 3,010.9 2,894.1 4.0Internal expenditure capitalized in fixed assets (1) 160.8 144.3 11.5 53.3 47.0 13.3Operating expenses (7,213.7) (6,871.0) 5.0 (1,777.7) (1,623.5) 9.5Other net operating income (expense) 19.6 64.1 (69.5) (12.2) 14.6 c.s.Gain (loss) on sale of fixed assets 70.7 43.0 64.4 10.7 9.9 8.3Impairment of goodwill and other assets (10.0) (22.6) (55.8) (4.4) (11.1) (60.6)Operating income before D&A (OIBDA) 4,766.8 4,560.0 4.5 1,280.6 1,331.1 (3.8)Depreciation and amortization (2,139.1) (2,367.7) (9.7) (510.9) (568.7) (10.2)Operating income (OI) 2,627.7 2,192.4 19.9 769.8 762.4 1.0Profit from associated companies (2.1) (0.5) n.m. 0.1 (0.1) c.s.Net financial income (expense) (393.5) (523.7) (24.9) (51.9) (147.4) (64.8)Income before taxes 2,232.1 1,668.1 33.8 718.1 614.9 16.8Income taxes (737.3) (554.8) 32.9 (243.8) (203.4) 19.8Income from continuing operations 1,494.7 1,113.4 34.3 474.3 411.5 15.3Income (Loss) from discontinued operations 0.0 0.0 n.m. 0.0 0.0 n.m.Minority interest (0.5) (0.2) 157.5 (0.1) (0.0) n.m.Net income 1,494.3 1,113.2 34.2 474.2 411.5 15.2 (1) Including work in process. RESULTS BY BUSINESS LINES Fixed Line Business TELEFONICA LATINOAMERICA GROUP The good progress made by the fixed telephone line operators Telefonica EmpresasAmerica (TEA) and TIWS, and the general appreciation of all Latin Americancurrencies against the Euro, in particular the Brazilian real (+21.0%) haveallowed Telefonica Latinoamerica Group to record outstanding results in 2005, inline with all the financial targets announced at the beginning of the year.Furthermore, since July the results of Terra's Latin American operations (TerraLatam) have been consolidated in the Telefonica Latinoamerica Group,contributing 1.6 percentage points to the increase in revenues. Over the year, Telefonica Latinoamerica Group generated revenues of 8,265.5million euros, a 22.5% increase in current euros (+6.2% in constant euros andexcluding the effect of the inclusion of Terra Latam). This year-on-year growthwas achieved mainly through the growth in Telesp revenues (+7.9% in localcurrency), driven by tariff increases, the good progress made by Broadband andTUP, and, to a lesser extent, the growth of value-added services. It is alsoworth noting the increase in TASA revenues (+9.3% in local currency) thanks tothe good performance of the traditional business (+7.3%), the increase in fixedtelephony accesses (+4.8%) and the good performance in the wholesale business,as well as the positive growth of the broadband business. CTC recorded a lowerlevel of growth (+1.1% in local currency), thanks to the positive progress madeby the Internet business (narrowband + broadband), whose 32.5% growth in localcurrency compensated for the decreased revenues from the traditional business,which dropped by 0.9%. TdP is a similar case, with a slight growth in revenues(+1.6% in local currency), thanks to growth in the Internet business (+38.7%),that counteracts the 1.3% fall in traditional business, affected by theapplication of the new productivity factor to its tariffs (10.07%). TelefonicaEmpresas America and TIWS showed significantly increased revenues, up 8.3% and18.9% in constant euros, respectively. At year end, Telefonica Latinoamerica Group's operating expenses stood at4,462.4 million euros, +22.3% in current euros compared to 2004. This growth wasreduced to 5.0% in constant euros and excluding the inclusion of Terra Latam,1.2 percentage points below the growth in revenues. The main cost growth factorfor the operators was the increased commercial efforts, mainly sales commissionsand customer assistance expenses. Bad debts made good progress, with a 12.3% decrease in bad debt provision inconstant euros (excluding Terra Latam), thanks to good recovery management andthe larger volume of prepaid and consumption control lines in the operators. In 2005, Telefonica Latinoamerica Group recorded a net gain on sale of fixedassets of 107.1 million euros, primarily corresponding to the capital gainsgenerated by the sale of Infonet, which took place during the first quarter ofthe year, and of Telinver, in Argentina, in the last quarter. As a result of the above, Telefonica Latinoamerica Group recorded an operatingincome before depreciation and amortization (OIBDA) of 3,758.3 million euros,14.1% higher year-on-year in current euros (+0.4% in constant euros andexcluding the contribution of Terra Latam). This progress was influenced by gainon sale of fixed assets, that include the sale of the mobile telephony divisionof CTC to Telefonica Moviles in 2004, and the sales in 2005 of Infonet andTelinver in Argentina. Excluding the gain on sale of fixed assets, there was a27.4% growth in OIBDA in current euros (+11.7% in constant euros and excludingTerra Latam). The OIBDA margin as a percentage of revenues (excluding the gainon sale of fixed assets) stands at 44.2% (compared with 42.5% in the previousyear). The greater investment in broadband, which was necessary for the expansion ofthis business in the region, placed Telefonica Latinoamerica Group's CapEx at1,061.2 million euros, a year-on-year growth of 13.2% in constant terms andexcluding Terra Latam. Despite this growth, the significant OIBDA volume thatwas achieved allowed to reach an operating free cash flow (OIBDA-CapEx) of2,697.1 million euros. At year end, Telefonica Latinoamerica Group managed 28.2 million accesses, up7.0% year on year, mainly due to the 53.8% growth in retail Internet broadbandaccesses, which have reached 2.1 million. The fixed telephone accesses reached2.1 million, an increase of 1.5% compared to 2004, as a result of thesignificant growth recorded by TASA (+4.8%) and TdP (+9.8%). The Group's final workforce stood at 28,856 employees, an 11.4% increasecompared with 2004 year end, due essentially to the inclusion of Terra Latam(around 1,000 employees), the takeover of Atrium in Brazil and the insourcing ofemployees, mainly in Telesp and TASA. TELESP On December 22nd, Telesp signed the renewal of its concession contract, whichexpired on 31st December 2005, for a period of 20 years. The conditions of thenew contracts were approved by Anatel in December. The main ones are theobligation to bill local traffic in minutes instead of pulses, the new tariffrevision reference index (IST), the new productivity factor applicable to tariffrevisions, the new interconnection tariff regulation, and the provision of a newtype of service to favour access for customers with low income (AICE). OnFebruary 23rd, Anatel announced a delay of 12 months in the implementation ofthe pulses to minutes conversion. At 2005 year end, Telesp had 15.7 million accesses, a growth of 1.7%, thanks tothe strong growth of its retail Internet broadband plant, which stands at 1.2million accesses (+46.0% year on year), having recorded the highest net gain inone quarter (more than 122,000 accesses in the last quarter of 2005). Thisprogress compensates for the slight fall in fixed telephone accesses (-0.9%, to12.3 million accesses), although the positive change in family lines, in placesince the end of March, should be noted, meaning that lines with consumptioncontrol represent 19% of the fixed-line telephony plant at the end of the year. Voice traffic (57,577 million minutes) fell by 2.3% year on year, slightlyimproving on the performance recorded until September (-3.6%). This decrease isdue to the greater use of mobile phones, which affects mainly long distance andpublic telephony traffic, to the decline in traffic in the Intrastate LongDistance market, and to the change in the mix of the plant, which affectsfixed-to-mobile and long distance traffic. Note, however, the improved progressof local fixed-to-fixed traffic, which grew by 2.6%. Internet traffic fell by12.3%, due to the migration of customers to broadband. Revenues stood at 4,852.7 million euros, an increase of 7.9% in local currency,thanks to 6.6% growth in revenues from traditional business, helped by theincrease in fixed-to-fixed and fixed-to-mobile tariffs, increased sales ofvalue-added services and sales of equipment, and also the good performance ofInternet revenues (narrowband and broadband), which increased by 27.1% in localcurrency, and now represent 7.5% of the company's revenues (6.4% in 2004), dueto the good progress in numbers of Internet broadband accesses. Throughout the year, Telesp kept control of operating costs, which grew by 6.8%in local currency, lower than the increase in revenues. This increase isassociated with higher personnel costs (+4.3% in local currency) due to thegrowth of the workforce caused by the takeover of Atrium and the insourcing ofSecurity and Systems employees, and also to increased interconnection costsresulting from the rise in fixed-to-mobile tariffs, counteracted by theincreased revenues, and to higher costs for increased commercial activity,improvement of customer care, and higher prices in some contracts. Despite this,the good management regarding renegotiation with service providers should benoted, managing to limit contractual readjustments. The positive evolution of bad debt provision is also noteworthy, with an 8.4%decrease compared with last year, thanks to good recovery management and to newproducts aimed at customers' needs. The bad debt to revenues ratio thus standsat 2.4%. Telesp operating income before depreciation and amortization (OIBDA) inSeptember stood at 2,221.8 million euros, up 9.5% year on year in localcurrency, in line with the growth recorded in September, mainly as a result ofthe increase in revenues. The OIBDA margin stands at 45.8%, an improvement of0.3 percentage points compared to September and 0.6 percentage points year onyear. CapEx accumulated to December was 607.1 million euros, a growth of 25.2% withregard to 2004 in local currency, amounting to 11.5% of revenues in localcurrency. This increase is due to the sales of new products, and, mainly, to theexpansion of broadband. The operating free cash flow (OIBDA-CapEx) stood at1,614.7 million euros (+5.0% in local currency with regard to last year). TELEFONICA DE ARGENTINA Management of TASA, adapted to a context of growing activity and consumption,and of frozen tariffs, has allowed growth in fixed telephone lines and voicetraffic (+4.8% and +6.9% respectively), factors that, together with theexpansion of broadband, have contributed to the 9.3% increase in revenues. At 2005 year end, TASA managed 5.4 million accesses (+4.7% compared to December2004), thanks to the year-on-year increase in fixed telephone accesses (+4.8% tostand at 4.5 million) and the extraordinary growth in retail Internet broadbandaccesses (+68.1%). With 241,500 retail Internet broadband accesses, TASA remainsthe leader in the broadband market in the Southern zone of the country. Voice traffic per line grew by 3.1% year on year, driven by the strong growth intotal incoming traffic (+18.7% year-on-year) and of total fixed-to-mobiletraffic (+28.0%) in line with the strong expansion of the mobile telephonybusiness in the country. Narrowband Internet traffic fell by 29.4%, affected bythe migration to broadband. The good performance of line and traffic operating variables compared with 2004has resulted in a volume of revenues that grew to 890.9 million euros,equivalent to a 9.3% year-on-year increase in local currency. Broken down bybusiness, revenues from the traditional business grew by 7.3% year on year, dueto the good performance of lines in service and voice traffic, and by thewholesale business, while revenues from the internet business (Narrowband +Broadband), which now contribute 9.0% of TASA revenues (+1.7 percentage pointsyear on year), rose 34.5% in local currency, thanks to the expansion of Internetbroadband accesses, increasing revenues for these services by 82.5% year onyear, and offsetting the decrease in the narrowband business. The growth in TASA operating expenses is slowing down, to 7.4% year on year inlocal currency, mainly due to the decrease in personnel costs (-2.4%), as aresult of the lower labor-related contingencies recorded in 2005, and also dueto the lower growth in subcontracting (+18.1%, vs. +21.9% in September), theincrease of which is associated with revenue generation (greater commercialactivity, customer assistance, increase in quality plans and infrastructuremaintenance). Supply expenses increased by 7.9%, mostly due to the expansion ofbroadband. The bad debt to revenues ratio was reduced, thanks to the good performance ofrecoveries and the sales of prepaid lines and lines with consumption limits,which now represent more than 29% of fixed telephone accesses. The significant growth in revenues, together with the policy of rationalizingand containing costs that is maintained, and the capital gains recorded with thesale of Telinver in the last quarter (48.4 million euros), allowed TASA toobtain an operating income before depreciation and amortization (OIBDA) of 542.9million euros, a figure that is 17.0% higher, in local currency, than that for2004. Excluding the sale of Telinver, the OIBDA shows a year-on-year growth of6.6% in local currency (+4.7% to September), achieving a margin of 55.5% ofrevenues. In 2005, CapEx grew by 7.2% year on year in local currency, to stand at 117.3million euros, of which approximately a third was dedicated to the developmentof broadband. The increase in OIBDA, along with control over investments, led toa growth in the operating free cash flow (OIBDA-CapEx) -excluding the capitalgain from the sale of Telinver- of 6.4% in local currency year on year, to standat 377.2 million euros. TELEFONICA CTC CHILE On January 1st 2005, the distribution of the product and customer portfolio forthe business segment between CTC and T-Empresas Chile was reviewed. As aconsequence of this, Telefonica CTC Chile's 2004 results are shown on comparableterms with the new segmentation. In January, CTC announced its plans to offer its employees a voluntaryretirement plan, to be carried out in 2006. As a result of this, CTC recorded anextraordinary provision of around 2.6 million euros. In December 2005, CTC managed 2.9 million accesses, up 0.9% on 2004, thanks tothe development of new flexible plans, and to the solid progress made bybroadband in Chile. Within traditional access, of particular note is CTC's newcommercial offer, based on the development of unregulated tariff plans (plans ofminutes and product bundling). On December 31st 2005, more than 700,000customers had flexible plans (plans of minutes, prepaid and consumption controlsolutions for those with low incomes, and bundled offers of voice and broadbandservices). Thanks to the good progress made by Internet broadband accesses sales, a 56.5%growth in accesses was achieved in 2005. CTC thus had a total of 314,200accesses at the end of the year (of which 289,600 are retail accesses), reachinga 43% market share. This growth reflects the strong commercial efforts made inthe year for the expansion of broadband in the country. New variable broadbandservices (Speedy Recargado) have been developed, and new broadband + voicepackages have been launched, in addition to a combined offer with satellite TVand new distribution channels. Total traffic carried by CTC's network continued to fall, essentially due tosignificant replacement by mobile telephony and Internet. Local fixed-to-fixedtraffic dropped 10.5% in 2005, while fixed-to-mobile traffic grew 8.4%. Thetotal market for domestic and international long distance continues to fall(-13.8% for DLD and -6% for ILD in the last quarter). Despite this decline, CTCachieved better performance than the market as a whole (in the same period-11.5% and +1.3%, respectively). Revenues amounted to 890.0 million euros, up 1.1% over 2004 figure in localcurrency, due to the good performance of broadband, whose revenues grew 46.1% inlocal currency. Thus Internet revenues (narrowband + broadband) grew by 32.5% inlocal currency to contribute 8.1% of CTC revenues (up 1.9 percentage points yearon year). This progress compensates for the slight fall in revenues from thetraditional business (-0.9% year on year in local currency), given that theincreased revenues from local traffic, which include plans of minutes,interconnection and business and operator services do not offset the decreasedrevenues from monthly fees, sales of equipment, public telephony and longdistance. Accumulated operating expenses grew by 1.9% to December, in local currency.Personnel expenses fell 6.5% year on year, as a result of the lower workforcerestructuring costs in 2005. Subcontracting expenses increased by 4.3%, mainlydue to the significant network installation and maintenance work carried out,and commercial and customer care activity. During the fourth quarter asignificant effort was made to contain these costs (+9.5% to September). Bad debts were contained, thanks to specific new prepaid and consumption controlproducts, and to the readjustment of debt recovery policies. The bad debtprovision fell by 22.2% in local currency, to stand at 3.2% of revenues. At 2005 year end, the operating income before depreciation and amortization(OIBDA) stood at 362.4 million euros. This result, which is around 57.2% lowerthan the one recorded in the previous year in local currency, cannot be comparedwith the 2004 result, since the latter includes the results of the sale of theCTC mobile telephony subsidiary to Telefonica Moviles, which generated capitalgains of around 425 million euros for CTC. Excluding this, the fall in OIBDA inlocal currency is around 4.1%. 2005 OIBDA margin as a percentage of revenuesstands at 40.7% (affected by the adjustments in the long distance businessannounced in the previous quarter and the voluntary retirement programmeannounced in January; excluding the effects of both, the margin would stand at43.6%). The aggregate CapEx to December 2005 stood at 108.5 million euros, of whicharound 30% was dedicated to the expansion of broadband. This figure represents ayear-on-year growth of 11.3% in local currency. The aggregate operating freecash flow (OIBDA-CapEx) in 2005 thus amounted to 253.9 million euros. TELEFONICA DEL PERU In 2005, Telefonica del Peru (TdP) recorded significant growth in the number ofaccesses (+13.7%) to 3.2 million, due to intense commercial activity throughoutthe entire year, which resulted in a net gain of 208,735 fixed telephoneaccesses in 2005. The total fixed telephony plant hence stands at 2.3 millionaccesses, and in broadband the company managed to pass 340,000 retail Internetbroadband accesses (+65.7% year on year) recording a net gain of 135,011customers in the year. Noteworthy, also, is the good performance of the CableTelevision plant (Cable Magico), which has seen year-on-year growth of 18.8%,with 462,211 customers at the end of the year. TdP's revenues stood at 1,031.4 million euros at 2005 end, meaning year-on-yeargrowth of 1.6% in local currency. Internet revenues (broadband + narrowband)grew by 38.7%, essentially due to the good performance of the broadband plant(+55.6% in revenues). Internet revenues continue to increase their weight in thetotal revenues, to 9.7% (7.1% in 2004). Revenues from the traditional businessfell 1.3%, due to lower revenues from the basic telephone service, despite thegrowth in lines, as a result of the impact of the productivity factor appliedsince September 2004 (CPI-10.07%). These are compensated in part by increasedpublic telephony revenues, due to better management of the plant and the goodperformance of cable TV revenues, which grew by 11.3% year on year thanks to thegrowth of the accesses. Total traffic carried by TdP decreased by 2.8% year on year: while voice trafficgrew 2.2%, promoted by the good performance of incoming interconnection traffic(+14.4%), local fixed-to-fixed traffic (+1.7%) and International Long Distance(+32.1%). Internet traffic showed a 39.9% year on year fall, due to the marketdemand for faster Broadband products. The year's operating expenses fell by 3.5% in local currency, because of savingsmade on personnel expenses, which fell by 21.6%, mainly due to lower profitsharing, and savings were also made in supply expenses (-6.6% in local currency)as a results of the lower fixed-to-mobile tariff, despite the fact thatconsumption supplies were increased, because of the significant growth of theplant. Subcontracting expenses increased (+7.9% in local currency) due to thehigher commercial activity. There was a fall in bad debt provision (-31.3%) as a result of better recoverymanagement, and the increased percentage of prepaid and consumption controlinfrastructure in the total of fixed telephone lines (59% of fixed telephonelines in December 2005, and 54% at 2004 end), which helped the bad debtprovision as a percentage of revenues to stand at 1.2%. The operating income before depreciation and amortization (OIBDA) amounts to437.3 million euros, around 15.1% more than in 2004 in local currency, affectedby the lower provision made for extraordinary contingencies and others. TheOIBDA margin improved by 5.0 percentage points compared with 2004, to stand at42.4%. CapEx stands at 117.9 million euros, 1.5% lower in local currency than thatrecorded in 2004, placing the CapEx ratio as a percentage of revenues at 11.3%in local currency. The operating free cash flow (OIBDA-CapEx) grew by 22.6% yearon year in local currency to reach 319.4 million euros, due to the growth inOIBDA and the CapEx containment. TELEFONICA EMPRESAS AMERICA As in previous quarters, due to the change in the consolidation perimeter ofTelefonica Empresas America (TEA), which incorporates TLD Puerto Ricooperations, and the new segmentation of business and wholesale customers inTelefonica Empresas Chile, 2004 results are shown on comparable terms. In 2005, TEA aggregate revenues stood at 620.9 million euros. This figure means16.5% year-on-year growth (+8.3% in constant euros). Broken down by business line, revenues from Data and Internet contributed about62% of total revenues and show solid levels of growth (+23.3%; +12.5% inconstant euros). Of particular note is the performance of data revenues inBrazil, which reach almost 50% of the total and show a growth of 25.2% in localcurrency. International Services and Telephony services for business are alsoshowing positive levels of growth (+14.2% and +10.2% in constant euros,respectively.) At 2005 year end, the operating income before depreciation and amortization(OIBDA) stood at 93.6 million euros, achieving a growth rate of 81.7% in currenteuros compared to 2004 (about 62.1% in constant euros). The accumulated OIBDAmargin as a percentage of revenues stands at 15.1%, a year-on-year improvementof 5.4 percentage points. Aggregate investment to December stood at 72.5 millioneuros, meaning 23.5% growth in constant euros compared to 2004. As a result, theoperating free cash flow (OIBDA-CapEx) amounted to 21.1 million euros, comparedwith 3.6 million euros the previous year. Telefonica Empresas Brasil continues to be the group's largest operation interms of revenues and OIBDA. In 2005, T-Empresas Brasil revenues stood at 245.9million euros, showing year-on-year growth of 19.0% in local currency.T-Empresas Brasil aggregate OIBDA was 58.7 million euros, a 47.4% increase inlocal currency. T-Empresas Argentina achieved revenues of 74.9 million euros, up 13.9% year onyear in local currency. T-Empresas Peru kept its revenue levels practicallystable compared with 2004 in 65.0 million euros (-0.1% in local currency).T-Empresas Chile, after the aforementioned resegmentation, recorded accumulatedrevenues of 124.3 million euros, a year-on-year fall of 3.1%. In other countries where Telefonica Group is not the incumbent operator (the US,Colombia and Mexico), the figures of T-Empresas USA are of particular note.Having incorporated TLD operations in Puerto Rico, it achieved total revenues of71.0 million euros, corresponding to a growth rate of 15.4% in local currencycompared with 2004. TELEFONICA INTERNATIONAL WHOLESALE SERVICES (TIWS) Revenues for 2005 stood at 188.0 million euros (+19.4% year on year, +18.9% inconstant euros). The business line that contributed the most to revenues was IPInternacional (54.6%) which showed year-on-year growth of 16.7% in constantterms. The other businesses also showed significant growth. Of particular noteis the Bandwidth Capacity which grew 25.1% in constant euros. Significantsavings were generated in terms of operating expenses, which, together with thegrowth of revenues, allowed an operating income before depreciation andamortization (OIBDA) of 58.3 million euros, equivalent to a year-on-year growthof 30.2% (+30.1% in constant euros), achieving a margin as a percentage ofrevenues of 31.0% (+2.6 percentage points compared with 2004). TELEFONICA LATINOAMERICA GROUPSELECTED OPERATING DATAUnaudited figures (Thousands) December 2005 2004 % Chg Telesp 15,669.7 15,410.3 1.7 Fixed telephony accesses (1) 12,340.3 12,454.8 (0.9) Internet and data accesses 3,329.4 2,955.5 12.7 Narrowband 1,986.7 1,996.7 (0.5) Broadband 1,206.8 826.4 46.0 Retail 1,206.7 826.3 46.0 Telefonica de Argentina 5,434.4 5,192.1 4.7 Fixed telephony accesses (1) 4,532.2 4,325.4 4.8 Internet and data accesses 902.1 866.6 4.1 Narrowband 564.0 643.3 (12.3) Broadband 303.5 190.2 59.6 Retail (2) 241.5 143.7 68.1 Telefonica CTC Chile 2,912.7 2,886.2 0.9 Fixed telephony accesses (1) 2,429.1 2,412.5 0.7 Internet and data accesses 483.6 473.7 2.1 Narrowband 130.5 239.4 (45.5) Broadband 314.2 200.8 56.5 Retail 289.6 176.1 64.4 Telefonica del Peru 3,213.0 2,826.2 13.7 Fixed telephony accesses (1) 2,347.6 2,138.9 9.8 Internet and data accesses 403.2 298.2 35.2 Narrowband 52.5 83.0 (36.7) Broadband (3) 340.4 205.4 65.7 Retail 340.4 205.4 65.7 Pay TV 462.2 389.2 18.8 GRUPO T. LATINOAMERICA 28,168.5 26,314.8 7.0 Fixed telephony accesses (1) 21,649.1 21,331.6 1.5 Internet and data accesses 6,057.1 4,594.1 31.8 Narrowband (4) 3,185.1 2,962.4 7.5 Broadband (3) (5) 2,652.3 1,422.8 86.4 Retail (2) 2,078.2 1,351.6 53.8 Pay TV 462.2 389.2 18.8 (1) PSTN (including Public Use Telephony) x1; ISDN Basic access x1; ISDN Primary access; 2/6 Access x30. Company'saccesses for internal use included.(2) TASA includes ISP in the north part of the country.(3) TdP cable modem included.(4) Includes Narrowband ISP from Terra Brasil and Terra Colombia from the third quarter of 2005(5) Includes Broadband ISP from Terra Brasil, Terra Mexico and Terra Guatemala from the third quarter of 2005 TELEFONICA LATINOAMERICA GROUPSELECTED OPERATING DATAUnaudited figures (Euros in millions) January - December 2005 2004 % Chg Telesp Revenues 4,852.7 3,716.2 30.6 OIBDA 2,221.8 1,678.0 32.4 OIBDA margin 45.8% 45.2% 0.6 p.p. Telefonica de Argentina Revenues 890.9 810.9 9.9 OIBDA 542.9 461.3 17.7 OIBDA margin (1) 60.9% 56.9% 4.1 p.p. Telefonica CTC Chile Revenues 890.0 806.9 10.3 OIBDA 362.4 776.0 n.c. OIBDA margin 40.7% n.m. n.c. Telefonica del Peru Revenues 1,031.4 980.9 5.1 OIBDA 437.3 367.1 19.1 OIBDA margin 42.4% 37.4% 5.0 p.p. Telefonica Empresas America Revenues 620.9 532.9 16.5 OIBDA 93.6 51.5 81.7 OIBDA margin 15.1% 9.7% 5.4 p.p. TIWS Revenues 188.0 157.5 19.4 OIBDA 58.3 44.8 30.2 OIBDA margin 31.0% 28.4% 2.6 p.p. Note: OIBDA before management fees. Data for Telefonica de Argentina include the ISP business of Advance, while thoseof Telefonica del Peru includes CableMagico.(1) Net of fixed to mobile interconnection. TELEFONICA LATINOAMERICA GROUPCONSOLIDATED INCOME STATEMENTUnaudited figures (Euros in millions) January - December October - December 2005 2004 % Chg 2005 2004 % Chg Revenues 8,265.5 6,748.4 22.5 2,352.0 1,742.9 34.9Internal expenditure capitalized in fixed assets (1) 47.3 43.3 9.2 15.6 13.3 17.0Operating expenses (4,462.4) (3,648.2) 22.3 (1,288.1) (961.1) 34.0Other net operating income (expense) (205.4) (276.8) (25.8) (41.0) (140.6) (70.9)Gain (loss) on sale of fixed assets 107.1 428.8 (75.0) 29.6 2.0 n.m.Impairment of goodwill and other assets 6.3 (0.7) c.s. 1.5 (1.3) c.s.Operating income before D&A (OIBDA) 3,758.3 3,294.8 14.1 1,069.7 655.2 63.3Depreciation and amortization (1,792.5) (1,578.7) 13.5 (483.9) (394.5) 22.7Operating income (OI) 1,965.8 1,716.1 14.6 585.8 260.7 124.7Profit from associated companies 4.4 2.6 71.1 1.3 2.5 (48.3)Net financial income (expense) (383.6) (344.6) 11.3 (144.8) (52.7) 174.6Income before taxes 1,586.7 1,374.1 15.5 442.2 210.4 110.2Income taxes (319.2) (292.6) 9.1 (66.1) (86.0) (23.1)Income from continuing operations 1,267.5 1,081.4 17.2 376.1 124.4 202.4Income (Loss) from discontinued operations 0.0 0.0 n.m. 0.0 0.0 n.m.Minority interest (160.8) (327.1) (50.8) (52.3) (17.1) n.m.Net income 1,106.7 754.3 46.7 323.8 107.3 201.8 (1) Including work in process. RESULTS BY BUSINESS LINES Mobile Business In a year marked by the integration of the 10 operators acquired from BellSouthin Latin America, technological migration in 8 countries and stiff competitionin main markets of operation, Telefonica Moviles posted the highest net incomein history in 2005 of 1,918,9 million euros, a year-over-year increase of 13.4%.Excluding the impact of the write down of the remaining value of the UMTSlicense of IPSE, net income would have been over 2,000 million euros in 2005, anincrease of 18.7% over 2004. At the same time, the Company has consolidated its position as one of theleading operators in the industry worldwide, with over 94.4 million managedcustomers by December 2005 (+26.9% vs.2004). With over 5.4 million new customers in the fourth quarter of 2005, TelefonicaMoviles obtained net adds of 16.3 million in 2005, driven primarily by the sharpgrowth in the Latin American markets. By geographical areas, 19.9 million of the total customer base corresponded toTME (+4.8% vs. 2004), 71 million to Latin American operators (+34%) and over 4million corresponded to the Moroccan operator, Medi Telecom (+47%). Among the key aspects of the full year 2005 results, we would highlight that allthe growth targets established for the Group for the year were met. We wouldpoint out: • Solid growth in revenues of 40.5% vs. 2004 to 16,513.5 million euros. Organic growth10 of consolidated revenues stood at 14.2%. By components, service revenues in 2005 rose 40.4% to 14,353.5 million euros, while handset sales rose 41.4% to 2,160 million euros. Consolidated revenues registered year-over-year growth of 29.1% in the fourth quarter of 2005, compared to 45.3% in the nine first months of 2005, affected by the consolidation of 8 of the operators acquired from BellSouth since November 2004. By geographical areas, Telefonica Moviles Espana registered a 7.6% year-over-year growth in revenues in 2005, making it one of the European operators with the highest growth in its domestic market. Service revenues grew by 7% vs. 2004 (+8.2% excluding impact of loyalty points). The consolidated Latin American operators recorded 116.9% growth in revenues vs. 2004, representing 47% of the Group's total revenues11 (30% in 2004). Organic growth10 of these operators' revenues was 23.5% year-on-year. • Consolidated OIBDA in 2005 of 5,817 million euros, 26.8% higher than in 2004. Year-over-year growth of consolidated OIBDA in the fourth quarter of 2005 of 45%, with sharp acceleration from previous quarters (+21% in the nine first months of 2005). Year-on-year organic growth3 in consolidated OIBDA in 2005 was 7.5%. Year-on-year growth of OIBDA at Telefonica Moviles Espana rebounded in the fourth quarter of 2005 (+4.4% vs. -2.3% in the nine first months of 2005), driven by the positive performance of service revenues and control over commercial costs. OIBDA at Telefonica Moviles Espana in 2005 stood at 4,127.9 million euros, virtually unchanged vs. 2004, despite the increased commercial activity and the costs related to the rebranding. The OIBDA margin for 2005 stood at 46.7%, in line with the Company's targets. The consolidated Latin American operators contributed 554 million euros to Group OIBDA in the fourth quarter of 2005 and 1,755 million euros in 2005 (+218.4% vs. 2004). In organic terms12, OIBDA from these operators increased 28.6% vs. 2004 and represented 30% of total OIBDA for the Group11 (12% in 2004). We would point out the sharp improvement in OIBDA margin at these operators in the fourth quarter of 2005 (+11.9 p.p. vs. the fourth quarter of 2005), mostly due to lower SACs. The OIBDA margin in 2005 stood at 22.8% vs. 15.5% in 2004. In all, the consolidated OIBDA margin stood at 35.6% in the fourth quarter of 2005 (+3.9 p.p. vs. the fourth quarter of 2004) and 35.2% in the full year 2005. Regarding the rest of the main items, we would highlight: • The 55,9% year-over-year increase in depreciation, primarily due to changes to the Group's consolidation perimeter and to the impact of 298 million euros of amortization of allocated intangible assets related to the acquisition of Telefonica Movil Chile and the 10 Latin American operators acquired from BellSouth in 2004 and early 2005. Allocated intangible assets from these acquisitions related to customers and software pending amortization stood at 164 million euros and 21 million euros, respectively at the end of the year. • Increased losses at companies consolidated by the equity method, impacted by the write-down of the remaining value of the UMTS license of IPSE in the fourth quarter of 2005. Excluding this effect, the contribution of these companies to Group results would have improved, with a decline of 54% in their losses compared to 2004, due to the improved results of Medi Telecom. It should be noted that this asset write-down does not imply any cash outflow. • The 4.7% year-over-year decrease in negative net financial results, despite the larger increase in the average net debt balance for the period (+59.0%). At the end of 2005 consolidated net debt stood at 8,659 million euros (vs. 8,442 million euros in 2004), 8% lower than at the end of September, thanks to cash flow generation in the period. Proportionate net debt at the end of the year stood at 8,759 million euros. As it has been indicated in previous communications, if IPSE were forced to disburse the deferred payments related with the acquisition of its UMTS license, consolidated net debt would increase by the amount of the deposits made by Telefonica Moviles to guarantee a part of IPSE's deferred payments with the Italian government. This amount totaled 335 million euros at the end of 2005. • 33.4% effective tax rate in 2005, mainly affected by the application of certain allowances for export activities in the second quarter of 2005, although the fact that there is no tax consolidation in various countries in Latin America detracts from this benefit, increasing the marginal rate. In this regard, the Brazilian companies have begun a corporate restructuring process (see significant events post closing) which will reduce this impact. • Consolidated CapEx, excluding licenses, of 2,285 million euros in 2005. 45.2 million euros were recorded in 2005 for the acquisition of licenses in Mexico. Assuming constant exchange rates compared to 2004, total CapEx would have been 2,023 million euros, in line with the Company's guidance. Regarding the evolution of the Mobile Business of Telefonica Group (includingTelefonica Movil Chile since January 1st, 2004), as of December 2005, revenuesand Operating Income before D&A would have registered year-on-year increases of38.1% and 25.4%, respectively. SPAIN In a year marked by stiffer competition, the Spanish wireless market reachedover 43 million lines, equivalent to 97% penetration rate. In this context, Telefonica Moviles Espana recorded net adds of nearly 260thousand in the fourth quarter of 2005 and almost one million lines in 2005(+48% vs. 2004). As a result, the Company ended December with nearly 20 millioncustomers, a 4.8% year-over-year growth. We would point out the strong commercial activity carried out in 2005. Includinggross adds, migrations and handset upgrades, Telefonica Moviles Espana carriedout 2.7 million commercial initiatives in the fourth quarter of 2005 (+9.4% vs.the fourth quarter of 2004) and 10.7 million in the full year 2005 (+19% vs.2004), marking the highest figures in the Company's history. Against a competitive backdrop featured by a large volume of number portabilityactions, Telefonica Moviles Espana's gross adds grew 23% vs. 2004, with a 41%year-over-year increase in number portability gross adds. In line with the Company's focus on value, especially noteworthy is the increasein contract gross adds (+30% vs. 2004). As a result of this and with ongoingefforts to encourage prepaid to contract migrations (nearly 1 million in 2005),the contract segment represented nearly 54% of Telefonica Moviles Espana's totalcustomer base (+5p.p vs. 2004). The commercial initiatives targeting high-value customers were also reflected innumber portability. Telefonica Moviles Espana recorded a positive net balance of71 thousand lines in the contract segment in the fourth quarter of 2005 (+22%vs. the fourth quarter of 2004) and 180 thousand lines in the full year 2005. Inall, including prepaid and contract, the accumulated net balance in numberportability in 2005 was a loss of 116,000 lines. This was also the result ofTelefonica Moviles Espana 's greater focus on acquiring prepaid clients throughgeneric commercial campaigns, rather than through number portability. Also worth highlighting are the efforts made in retention activities. TheCompany launched campaigns to reward customer loyalty and offered favorableconditions for handset upgrades to encourage greater commitment from ourcustomers. Handset upgrades reached nearly 1.1 million in the fourth quarter of2005 and more than 4.5 million in 2005 (+23.2% vs. 2004). These activities and commercial initiatives such as "Ya te llamo yo" or the"100x1" promotion have proven to be important loyalty tools, enabling TME tocontain the churn rate at a 1.8% level in 2005 despite competitors' commercialaggressiveness. The new commercial offers have also boosted customer usage. The Company carriedmore than 13,000 million minutes of traffic in the fourth quarter of 2005(+21.5% vs. the fourth quarter of 2004) and more than 50,000 million minutes inthe full year 2005 (+20.3% vs. 2004). Despite the increase, Telefonica MovilesEspana networks' quality indices improved relative to previous years. Particularly significant is the growth of on-net traffic (+30% vs. 2004), whichnow represents 43% of total traffic. MOU reached 152 minutes in the fourthquarter of 2005 (+12.6% vs. the fourth quarter of 2004) and 150 minutes in thefull year 2005 (+15.9% vs. 2004). We would also highlight the launch in December 2005 of "Mundo Movistar"(Movistar world), the first multi-country product and service distributionscheme. It complements the "Mi Favorito Internacional" (My favouriteinternational number) and "Mis Cinco Internacional" (My five internationalnumbers) products already offered by the Company. The Mundo Movistar service,which sets Telefonica Moviles Espana apart from competitors, allows customers tobuy a handset and a prepaid card at any sales point in the movistar network inSpain and have them available for pickup by a customer in Ecuador or Colombiathe following day. Plans are to extend this service gradually to other marketsin Latin America and Morocco. Thanks to the positive performance of MOU and despite price cuts and lowertermination rates, Telefonica Moviles Espana posted voice ARPU (excluding theimpact of promotions) of 28.5 euros in the fourth quarter of 2005 (+0.8% vs. thefourth quarter of 2004) and 28.7 euros for the full year 2005 (+2.6% vs. 2004). Moreover, throughout the fourth quarter of 2005 Telefonica Moviles Espanaintroduced new data transmission price schemes, with concepts similar to flatrate plans, enabling the Company to boast the most comprehensive and competitiveoffer in the data transmission market, with prices of 30 euros/month for 1 Gigaand 58 euros/month for 5 Gigas. TME's data ARPU (excluding the impact of promotions) stood at 4.7 euros in thefourth quarter of 2005 (+7.1% vs. the fourth quarter of 2004) and 4.4 euros in2005 (+7.6% vs. 2004). Non-traditional SMS data services were the main growthdriver. Revenues from these services increased to represent 38% of the Company'stotal data revenues vs. 29% in 2004. As a result, Telefonica Moviles Espana's total ARPU stood at 33.2 euros in thefourth quarter of 2005 (+1.6% vs. the fourth quarter of 2004) and 33.1 euros in2005 (+3.3% vs. 2004). Highlights of Telefonica Moviles Espana's financial results include: • Revenues of 2,213 million euros in the fourth quarter of 2005 (+5.8% vs. the fourth quarter of 2004) and 8,834.2 million euros in the full year 2005 (+7.6% vs. 2004). The sharp growth in revenues, which should be seen in the European context and despite substantial cuts in prices, was driven by the positive performance of service revenues, which totaled 1,975 million euros in the fourth quarter of 2005 (+6.8% vs. the fourth quarter of 2004) and 7,794 million euros in the full year 2005 (+7.0% vs. 2004). Revenues from handset sales totaled 1,040 million euros in 2005, up 11.8% year-over-year vs. 2004 and to represent 11.8% of total revenues. • Given the sharp increase in Telefonica Moviles Espana 's commercial activity throughout the year, the weight of commercial costs (including SAC, SRC and advertising) over service revenues ex-loyalty points stood at 15.4% in 2005 (11.7% in 2004). These figures include the rebranding costs incurred in the second quarter of 2005. • Year-on-year growth of OIBDA at Telefonica Moviles Espana rebounded in the fourth quarter of 2005 (+4.4% vs. -2.3% in the nine first months of 2005), driven by the positive performance of service revenues and control over commercial costs. OIBDA for the full year 2005 stood at 4,127.9 million euros, virtually unchanged vs. 2004 despite the increased commercial activity and the costs related to rebranding. The OIBDA margin in 2005 stood at 46.7%, in line with the Company's targets. • Telefonica Moviles Espana continued with the deployment of its UMTS network and investment to increase network capacity in order to meet the sharp growth in usage during 2005. CapEx in 2005 totaled 727 million euros (+15.8%. vs. 2004). At the end of 2005, Telefonica Moviles Espana's UMTS network had more than 5,000 base stations, providing coverage to areas in which over 70% of the population lives. MOROCCO At the end of 2005 Medi Telecom's customer base stood at 4.023.3 million (+47.4%vs. 2004). Net adds in the fourth quarter of 2005 stood at 185 thousand, 17%more than in the fourth quarter of 2004. Regarding financial results, revenues in 2005 totaled 397 million euros (+21%vs. 2004), driven by growth in the customer base throughout the year. OBIDA stood at 153 million euros while the OIBDA margin for the year was 39%(46% in 2004), impacted by the higher commercial activity (+40.4% vs. 2004).OIBDA increased by 2% vs. 2004. LATIN AMERICA Brazil In the last quarter of the year, the Brazilian market continued showing a solidperformance despite slowing its pace of growth. At the end of 2005 the totalmarket stood at 86.2 million customers (+31.4% vs. 2004), equivalent to apenetration rate of 46.6% (49.6% in Vivo's areas of operation). In the fourth quarter of 2005, against a backdrop of intense competition, lesscommercial pressure was seen in the prepaid segment, with the main operatorstargeting their commercial initiatives at high-value segments. In this context,Vivo's customer base stood at 29.8 million at the end of December (+12.3% vs.the fourth quarter of 2004), with net adds in the fourth quarter of 2005 ofnearly 1 million. Vivo continues to target its commercial initiatives at the acquisition andretention of high-value customers and fostering prepaid to contract migration. In terms of customer usage and traffic, MOU in the fourth quarter of 2005 was 74minutes, while ARPU in the fourth quarter of 2005 was 29.0 reais, an increase of2.5% compared to the third quarter of 2005, driven by higher contract ARPU. Regarding Vivo's financial results, service revenues grew 5% in local currencyvs. 2004, fuelled by higher outgoing revenues (+17%) in both the prepaid andcontract segments, which in part offset the decline in incoming revenues (-7%). The decrease in commercial activity led to a 2% year-over-year fall in revenuesfrom handset sales vs. 2004, leading to a 4% increase in total revenues. Higher entry barriers compared to the 2004 Christmas campaign and the decreasein commercial activity led to lower commercial costs (SAC, SRC and advertising)in the fourth quarter of 2005 compared to the fourth quarter of 2004, althoughhigher provisions related to communications not attributable to customers (33million euros in the fourth quarter of 2005) caused the OIBDA margin aftermanagement fees to fall to 21.0% in the fourth quarter of 2005 and to 26.3% in2005. The Company is implanting detection systems in the short term to limitthis risk. Excluding the impact of these provisions in 2005, the OIBDA marginwould be 26.9% in the fourth quarter of 2005 and 28.8% in the full year 2005. Finally, CapEx in 2005 totaled 400 million euros, driven primarily by theincreased capacity of Vivo's networks. Northern region Mexico In the fourth quarter of 2005 Telefonica Moviles Mexico continued to focus ondeveloping a quality distribution network and enhancing its processes, makingchanges to its commercial offering, reinforcing customer care and the quality ofits services. In this context, in a quarter marked by higher commercial activity, TelefonicaMoviles Mexico posted net adds in the fourth quarter of 2005 of 392 thousand,compared to 129 thousand in the third quarter of 2005, bringing the totalcustomer base at the end of December 2005 to 6.37 million (+12.9% vs. the fourthquarter of 2004). This commercial effort should be seen in the context of the reshaping of thedistribution network, with 190 distributors contracts cancelled in the year and47 new ones incorporated, in order to increase the quality of gross adds. MOU in the fourth quarter of 2005 stood at 50 minutes while ARPU was 124 Mexicanpesos, unchanged compared to the third quarter of 2005. MOU in the full year2005 was 51 minutes and ARPU was 136 Mexican pesos. Regarding financial results, revenues grew by 9.9% year-over-year in 2005 inlocal currency. In the fourth quarter of 2005, revenues grew 10.2% vs. the thirdquarter of 2005, driven by higher revenues from handset sales and 6.7% growth inservice revenues. Data revenues continued to show stronger growth, accountingfor 12.3% of service revenues in the fourth quarter of 2005. Y-o-y revenue growth in the fourth quarter of 2005 was affected by lower handsetsales (-7% in local currency), as well as by the impact in service revenues ofthe 10% reduction in interconnection rates and the mandatory charge informationon voice mail service introduced by the regulator in April. Despite the increase in commercial activity in the fourth quarter of 2005compared to the third quarter of 2005, the higher revenues in the quarter havereduced OIBDA losses to 28.5 million euros in the fourth quarter of 2005 (vs.33.6 million euros in the third quarter of 2005) and stand at 159 million eurosin the full year 2005, in line with the level of 2004, in local currency terms. By the end of December 2005, the coverage of Telefonica Moviles Mexico's GSMnetwork reached 90% of the urban population. CapEx in 2005, in local currency,declined by 54% year-over-year, leading to a sharp reduction in negativeoperating cash flow (-39% vs. 2004). The auction of additional spectrum in the 1900 MHz band, which took place inApril, was recorded as investment in licenses in the amount of 45.2 millioneuros Andean Region Venezuela Commercial activity in the Venezuelan wireless market remained intense in thefourth quarter of 2005, leading to solid growth and an estimated penetrationrate at the end of 2005 of 48%, 17 p.p. higher than in 2004. Telefonica Moviles Venezuela's customer base reached 6.2 million in 2005 (+42.4%vs. 2004), with net adds of 841 thousand in the fourth quarter of 2005 (doublingthe amount in the fourth quarter of 2004) and nearly 1.8 million new lines in2005. As for financial results, the strong growth in the customer base, coupled withhigher traffic and steady improvement in data revenues led to a 21.3% growth inservice revenues in the fourth quarter of 2005 vs. the third quarter of 2005 inlocal currency, and a 22.1% increase in total revenues, which in the full year2005 stood at 1,438 million euros. We would point out the performance of OIBDA, which totaled 178 million euros inthe fourth quarter of 2005 (+14% vs. the third quarter of 2005 in local currencyterms) and 585 million euros in the full year. This led to a solid OIBDA marginof 40.7% in 2005, despite the increase in commercial activity. Finally, the Company's innovation in the Venezuelan market led to the commerciallaunch of EV-DO services and of new mobile e-mail services. CapEx in 2005reached 145.7 million euros. Colombia The Colombian wireless market showed the strongest growth in the region in 2005,with an increase of almost 25 p.p. in the estimated penetration rate to 48% inDecember 2005. Following the commercial launch of its GSM service in the third quarter of 2005,Telefonica Moviles Colombia accelerated again its rate of growth in commercialactivity, with net adds of over 862 thousand in the fourth quarter of 2005,double the figure in the third quarter of 2005. At the end of 2005 its customerbase stood was over 6 million, an increase of 83.0% compared to 2004. The success of the Christmas campaign, targeting GSM customer acquisition, ledto a high percentage of GSM gross adds (88% over total gross adds in the fourthquarter of 2005). In just 5 months after its launch, the GSM customer basesurpassed 1.6 million (27% of the total customer base). Regarding financial results, revenues totaled 750 million euros in 2005. Thegrowth in revenues in the fourth quarter of 2005 vs. the third quarter of 2005in local currency was due to higher revenues from handset sales as a result ofstronger commercial activity in the fourth quarter of 2005 and to the positiveperformance of service revenues (+7.3% vs. the third quarter of 2005). Against a backdrop of high commercial activity, we would point out the positiveevolution in the OIBDA margin in the fourth quarter of 2005 (+0.4 p.p. vs. thethird quarter of 2005) due to control over commercial costs and growth inrevenues. The OIBDA margin in 2005 was 14.7%, but in the fourth quarter of 2005reached 23.4%, leading to an OIBDA of 50 million euros in the fourth quarter of2005 and of 110 million euros in full year 2005. Total CapEx in the year was over 272 million euros, reflecting the rollout ofthe GSM network, with coverage of 68% of the population as of December. Peru The Peruvian market saw tougher competition in the fourth quarter of 2005. Inthis context, Telefonica Moviles Peru's customer base stood at 3.5 million atthe end of December (+20.4% vs. December 2004). Net adds recorded a sharpincrease in the fourth quarter of 2005 to 256 thousand (+82% vs. the thirdquarter of 2005), reaching 585 thousand in full year 2005. Regarding financial results, quarterly growth in revenues in local currencyremained solid (+13.2% vs. the third quarter of 2005), driven by the growth incustomers and outgoing traffic, which offset the impact of lower incomingtraffic and the 19% reduction in interconnection rates in the third quarter of2005. We would point out the solid performance of the OIBDA margin, which remained at32% in the fourth quarter of 2005 despite the increased commercial activity.OIBDA stood at 33 million euros in the fourth quarter of 2005 (+12% vs. thethird quarter of 2005 in local currency) and 118 million euros in 2005. We would also highlight that Telefonica Moviles Peru began the deployment of itsGSM network in the fourth quarter of 2005, recording its first GSM gross add atthe beginning of February 2006. Southern Cone Region Argentina The strong advance of the Argentine wireless market continued in the fourthquarter of 2005, with the pace of growth accelerating throughout 2005 thanks tothe favorable macroeconomic situation in the country and an increasinglycompetitive environment. The estimated penetration rate at the end of 2005 stoodat 55%, nearly 21 p.p. higher than at the end of 2004. In this context, Telefonica Moviles Argentina's commercial efforts have beenpositive, leading customer base to 8.34 million clients at the end of December.GSM customers now represent 51% of the total. Net adds were over 940 thousand inthe fourth quarter of 2005. Regarding financial results, we would highlight the solid growth of servicerevenues in local currency (+11.1% in the fourth quarter of 2005 vs. the thirdquarter of 2005), driven by the increase in the customer base (+12.7% vs. thethird quarter of 2005) and ARPU. Also worth highlighting is the increasingcontribution of data revenues, which in 2005 represented 15% of service revenues(18% in the fourth quarter of 2005). In line with the strong commercial activity in the quarter, which featured theyear's two most important campaigns (Mother's Day and Christmas), the OIBDAmargin declined vs. the third quarter of 2005. In 2005 the OIBDA margin stood at15%. As for the rollout of the GSM network, coverage at the end of the year stood at95% of the population, with CapEx in 2005 totaling 132 million euros. In spiteof the strong investment effort, the operator posted positive operating cashflow, with OIBDA for the full year totaling 151 million euros. Chile Despite the penetration levels at the beginning of the year, the Chileanwireless market remained extremely buoyant in 2005, with an increase of 10 p.p.in the estimated penetration rate to over 71%. In this context, Telefonica Moviles Chile ended December with 5.28 millioncustomers, recording net adds in 2005 of 525 thousand. GSM customers nowrepresent 51% of the total. With regard to financial results, revenues totaled 661 million euros in 2005 and202 million euros in the fourth quarter of 2005 (+11.3% vs. the third quarter of2005 in local currency), driven by a positive performance in service revenues(+12.9% in the fourth quarter of 2005 vs. the third quarter of 2005). OIBDAmargin in 2005 reached 35.5% in 2005. Total CapEx in 2005 was 177 million euros, boosted by the deployment of the GSMnetwork, with coverage of 96% of the population as of December.------------------------ 10 Organic growth includes the consolidation of Telefonica Movil Chile and LatinAmerican assets acquired from BellSouth in Argentina, Colombia, Chile, Ecuador,Guatemala, Nicaragua, Panama, Peru, Uruguay and Venezuela since 1 January 2004;and assuming constant exchange rates. 11 Consolidated revenues before Rest andintergroup eliminations12 Organic growth includes the consolidation of Telefonica Movil Chile and LatinAmerican assets acquired from BellSouth in Argentina, Colombia, Chile, Ecuador,Guatemala, Nicaragua, Panama, Peru, Uruguay and Venezuela since 1 January 2004;and assuming constant exchange rates.------------------------ CELLULAR BUSINESSSELECTED OPERATING DATA: CELLULAR CUSTOMERSUnaudited figures (Thousands) December December 2005 % Chg 05/04 2005 % Chg 05/04 Telefonica Moviles Espana 19,889.9 4.8% TEM Guatemala 1,040.7 38.7% Contract 10,703.5 15.6% Contract 69.9 (12.6%) Prepaid 9,186.4 (5.5%) Prepaid 864.4 53.8%Medi Telecom 4,023.3 47.4% Fixed Wireless 106.3 (2.0%) Contract 149.9 36.4% TEM Mexico 6,368.1 12.9% Prepaid 3,873.4 47.8% Contract 319.9 6.1%Brasilcel 29,804.6 12.3% Prepaid 6,047.7 13.3% Contract 5,743.8 10.8% Fixed Wireless 0.6 n.c. Prepaid 24,060.8 12.7% TEM Venezuela 6,160.3 42.4%TEM Argentina 8,335.0 147.3% Contract 347.8 20.6% Contract 3,119.2 151.5% Prepaid 5,203.7 47.1% Prepaid 5,035.8 136.4% Fixed Wireless 608.8 21.9% Fixed Wireless 179.9 n.c. TEM Ecuador 1,884.6 67.9%TEM Peru 3,455.0 20.4% Contract 364.7 59.2% Contract 579.5 16.5% Prepaid 1,517.5 70.4% Prepaid 2,804.3 21.5% Fixed Wireless 2.4 (12.6%) Fixed Wireless 71.1 10.2% TEM Panama 849.4 35.8%TEM El Salvador 537.8 39.9% Contract 67.9 19.1% Contract 79.0 1.5% Prepaid 781.5 37.5% Prepaid 435.3 48.0% TEM Nicaragua 371.6 29.8% Fixed Wireless 23.5 88.6% Contract 45.3 15.4%TEM Chile 5,275.8 59.0% Prepaid 310.4 33.9% Contract 891.7 84.3% Fixed Wireless 15.9 4.8% Prepaid 4,384.1 54.7% TEM Uruguay 418.9 106.3%TEM Colombia 6,033.0 83.0% Contract 62.4 16.8% Contract 1,375.1 44.2% Prepaid 356.5 138.3% Prepaid 4,657.9 98.8% Total Managed 94,447.9 26.9% Note: The comparison is affected by the incorporation of BellSouth's Latam mobile operators in Colombia, Ecuador,Guatemala, Nicaragua, Panama, Peru, Uruguay and Venezuela from November 2004 and Argentina and Chile from January 2005.December 2005 figures include the adjustment of 300,000 inactive prepaid lines in Mexico not longer considered in thereported customer base. TELEFONICA MOVILES GROUPSELECTED FINANCIAL DATAUnaudited figures (Euros in millions) January - December 2005 2004 % Chg Spain Revenues 8,834.2 8,213.8 7.6 OIBDA 4,127.9 4,158.2 (0.7) OIBDA margin 46.7% 50.6% (3.9 p.p.) Latin America Revenues 7,704.5 3,552.4 116.9 OIBDA 1,754.6 551.2 n.m. OIBDA margin 22.8% 15.5% 7.3 p.p. Brazil Revenues 1,889.3 1,502.3 25.8 OIBDA 496.5 491.0 1.1 OIBDA margin 26.3% 32.7% (6.4 p.p.) Northern Region Revenues 1,263.6 912.3 38.5 OIBDA (1.2) (118.7) (99.0) OIBDA margin -0.1% -13.0% 12.9 p.p. Andean Region Revenues 2,837.4 607.7 n.c. OIBDA 866.2 116.4 n.c. OIBDA margin 30.5% 19.2% 11.4 p.p. Southern Cone Revenues 1,714.2 530.1 n.c. OIBDA 393.1 62.5 n.c. OIBDA margin 22.9% 11.8% 11.1 p.p. Rest and intragroup Revenues (25.3) (12.3) 105.1 OIBDA (65.5) (121.5) (46.1) OIBDA margin n.m. n.m. n.m. TOTAL Revenues 16,513.5 11,753.9 40.5 OIBDA 5,817.0 4,587.9 26.8 OIBDA margin 35.2% 39.0% (3.8 p.p.) Note: The comparison is affected by the incorporation of TM Chile from August 2004, of BellSouth's Latam mobileoperators in Colombia, Ecuador, Guatemala, Nicaragua, Panama, Peru, Uruguay and Venezuela from November 2004 andArgentina and Chile from January 2005. TELEFONICA MOVILES GROUPCONSOLIDATED INCOME STATEMENTUnaudited figures (Euros in millions) January - December October - December 2005 2004 % Chg 2005 2004 % Chg Revenues 16,513.5 11,753.9 40.5 4,463.5 3,458.7 29.1Internal expenditure capitalized in fixed assets (1) 123.6 89.5 38.1 37.8 40.7 (7.0)Operating expenses (10,634.2) (7,178.9) 48.1 (2,848.9) (2,371.4) 20.1Other net operating income (expense) (174.8) (15.5) n.m. (52.1) 25.6 c.s.Gain (loss) on sale of fixed assets 0.2 (57.2) c.s. 1.4 (49.6) c.s.Impairment of goodwill and other assets (11.2) (3.9) 183.7 (11.2) (6.4) 74.6Operating income before D&A (OIBDA) 5,817.0 4,587.9 26.8 1,590.5 1,097.6 44.9Depreciation and amortization (2,374.0) (1,522.9) 55.9 (694.2) (467.9) 48.4Operating income (OI) 3,443.0 3,064.9 12.3 896.3 629.7 42.3Profit from associated companies (154.2) (38.1) n.m. (143.8) (6.9) n.m.Net financial income (expense) (459.1) (481.9) (4.7) (158.9) (241.0) (34.1)Income before taxes 2,829.7 2,544.9 11.2 593.6 381.8 55.5Income taxes (946.0) (868.5) 8.9 (236.5) (126.5) 86.9Income from continuing operations 1,883.7 1,676.4 12.4 357.1 255.2 39.9Income (Loss) from discontinued operations 0.0 0.0 n.m. 0.0 0.0 n.m.Minority interest 35.2 15.2 131.2 19.1 18.0 6.1Net income 1,918.9 1,691.7 13.4 376.2 273.3 37.7 (1) Including work in process. CELLULAR BUSINESSCONSOLIDATED INCOME STATEMENTUnaudited figures (Euros in millions) January - December October - December 2005 2004 % Chg 2005 2004 % Chg Revenues 16,513.5 11,961.4 38.1 4,463.5 3,457.1 29.1Internal expenditure capitalized in fixed assets (1) 123.6 90.7 36.3 37.8 40.7 (7.1)Operating expenses (10,634.2) (7,335.8) 45.0 (2,848.9) (2,370.2) 20.2Other net operating income (expense) (174.8) (17.5) n.m. (52.1) 25.6 c.s.Gain (loss) on sale of fixed assets 0.2 (57.2) c.s. 1.4 (49.6) c.s.Impairment of goodwill and other assets (11.2) (3.9) 183.7 (11.2) (6.4) 74.6Operating income before D&A (OIBDA) 5,817.0 4,637.6 25.4 1,590.5 1,097.1 45.0Depreciation and amortization (2,374.0) (1,580.1) 50.2 (694.2) (471.8) 47.1Operating income (OI) 3,443.0 3,057.5 12.6 896.3 625.3 43.3Profit from associated companies (154.2) (39.5) n.m. (143.8) (7.1) n.m.Net financial income (expense) (459.1) (496.1) (7.5) (158.9) (245.7) (35.3)Income before taxes 2,829.7 2,521.9 12.2 593.6 372.4 59.4Income taxes (946.0) (864.4) 9.4 (236.5) (124.3) 90.2Income from continuing operations 1,883.7 1,657.4 13.6 357.1 248.1 43.9Income (Loss) from discontinued operations 0.0 0.0 n.m. 0.0 0.0 n.m.Minority interest 35.2 25.2 39.7 19.1 21.9 (12.6)Net income 1,918.9 1,682.7 14.0 376.2 270.0 39.4 Note: Cellular Bussines included Telefonica Movil Chile in 2004.(1) Including work in process. RESULTS BY BUSINESS LINES Cesky Telecom Telefonica Group consolidates Cesky Telecom financial statements for the secondhalf of 2005, with a contribution of 1,035.2 million euros to Telefonica'srevenues for the financial year with OIBDA accounting for 456.7 million eurosand OI for 164.8 million euros, respectively. Within the process to bring Cesky Telecom Group accounting practices andfinancial statements reporting in line with Telefonica Group, in December thefollowing accounting adjustments, which fundamentally affected the Cesky Telecomfixed telephony business, have taken place: • Deferral of connection fees revenues over the average period of expected economic life of the customers, i.e. expected lifetime of the fixed line subscribed by the customer, for new and past subscriptions (since 1996). These revenues were previously entirely recorded in the period corresponding to the time of the line activation. • Traffic revenues and expenses related to payments to premium content providers for value added telephone services (known as "color lines"), which were previously recognized separately as revenues and expenses and which are now accounted for as their net value in revenues. The impact of these two adjustments on the annual results of Cesky Telecom gaverise to an increase in revenues of 353 million Czech korunas and 606 millionCzech korunas in OIBDA, leading to a decrease in retained earnings of around1,400 million Czech korunas. In order to give a true and fair view of thisbusiness' evolution, all year-on-year variations (in local currency) will berelated to pro forma fiscal year 2004, adjusted by the two aforementionedeffects. Cesky Telekom total revenues in 2005 amounted to 2,049 million euros, a 6.3%increase year-on-year in euros and a 0.8% decrease in local currency. The growthrate recorded in the fourth quarter alone was 1.0% in local currency, reflectingthe better performance of the mobile telephony business and the progress ofbroadband within the Group's fixed telephony business. In 2005, consolidated operating expenses showed a slight increase in localcurrency of +0.2% increase year-on-year, mostly thanks to the cost discipline inthe fixed telephony business that partially offset the greater expenses recordedin the mobile subsidiary. Hence, the Group's operating income before depreciation and amortization (OIBDA)amounted to 916 million euros, showing a decrease of 0.3% increase year-on-year(-6.9% in local currency). The drop in the company's OIBDA would have beenreduced to 2.6% in local currency if we had excluded the impairment charge(non-recurrent) of 1,251 million korunas from OIBDA calculation. As a result,the OIBDA margin amounted to 44.9% in 2005, compared with the 48.1% marginobtained in 2004. If the 2005 OIBDA were adjusted by the aforementionednon-recurrent expenses, the margin would have reached 47.0%. Operating income (OI) increased by 11.0% year-on-year in local currency to reach318 million euros as a result of lower amortization and depreciation chargesarising from lower investments in recent years and changes in the amortizationof goodwill and of certain intangible assets. Total CapEx for Cesky Telecom Group amounted to 209.3 million euros, havingincreased by 5.5% in local currency compared to the previous year, on the backof higher investments in the growth areas of the business. Operating free cash flow (OIBDA-CapEx) up to December 2005 stood at 706.7million euros, showing a 9.9% year-on-year decrease in local currency as aresult of the drop in OIBDA and the rise in CapEx, as indicated above. Fixed Line Business Total revenues in the fixed line business totaled 1,083.5 million euros for theyear, a 4.5% drop in local currency year-on-year in a continuous shift from thetraditional telephony services to broadband internet access, data and othervalue added services. Revenues from traditional access fell by 3.7% year-on-year in local currency,primarily due to the 7.2% decline in the number of fixed telephony lines, whichdropped to 3.1 million lines at year end 2005. Total traffic generated by Cesky Telecom customers showed a 14.8% year-on-yeardecline as a result of the loss of lines and the increase in competitiontogether with the ongoing fixed-to-mobile traffic substitution. Thus, revenuesfrom voice services fell by 19.5% year-on-year in local currency, whereas thosefrom interconnection traffic increased by 23.2%, mainly due to the extension ofinternational traffic services within the Central and Eastern Europe marketspace. Revenues from traditional voice services therefore fell 5.2%year-on-year. Revenues from Internet and Broadband services registered a year-on-year decreaseof 3.1% in local currency due to the significant migration of customers fromnarrowband to broadband Internet access. Hence, revenues from narrowbandInternet services fell by 44.9% in local currency whereas those from broadbandservices increased by 84.9%. The total number of Internet broadband accesses at December 2005 amounted to274,000 (approx. 80% retail), leading to a net gain of 173,000 connections overthe year. Approximately two thirds of these were made during the second half ofthe year. Revenues from data services showed a 0.9% year-on-year decrease in localcurrency due to the fact that the decrease in revenues from leased lines (-4.5%)was not fully offset by the increase in revenues from virtual private networksand IP connectivity solutions (+5.2%). Operating expenses of the fixed line business fell by 4.6% year-on-year in localcurrency, having declined by 6.0% year-on-year in local currency in the fourthquarter alone. Supplies expenses increased by 2.4% in local currency, primarilydue to the increase in international interconnection expenses, whereas personnelexpenses, including headcount reduction costs, fell by 0.9%. External servicesexpenses recorded a 7.0% year-on-year decrease, with the 10.3% drop in networkoperating and maintenance expenses being particularly noteworthy under thisitem. OIBDA in the fixed line business amounted to 477 million euros, an 8.9%year-on-year drop in local currency to reach a 44.5% margin at year end, 2.8percentage points down on that recorded at the end of 2004. CapEx for the Cesky Telecom fixed line business in 2005 amounted to 77.5 millioneuros, showing an 11.6% year-on-year decrease in local currency. Mobile Business (Eurotel) Eurotel's total revenues for 2005 increased by 2.0% year-on-year in localcurrency to reach 1,008 million euros. The 4% growth in operating revenuesrecorded in the fourth quarter alone reflected the strong positioning of Eurotelin the Czech cellular market, recovering the first position in terms of thenumber of customers by year end. The total number of Eurotel customers increased by 6.4% year-on-year to reach4.7 million by year end. The successful migration of prepaid customers topostpaid tariffs led to a 46% increase in the number of contract customers whoat the end of the year amounted to 1.5 million, a 33% of the total customer basein comparison with the 24% figure recorded in December 2004. Revenues from voice services (monthly fees, customer and interconnectiontraffic) increased over the year by 0.2% in local currency, mostly due to thecombined effect of the increase in revenues from monthly fees (+10.6%) as aresult of the aforementioned larger contract customer base and to the drop inrevenues from traffic (-3%), due to the greater number of contract customerspurchasing minute packages, which explains the 10% year-on-year increase intraffic recorded in 2005. As a result of the continuous increase in the number of customers with multipleSIM cards and the decrease in ARPU generated by new customers, the average ARPUrecorded a 3.0% year-on-year decline in local currency, although 1.4% up on thatrecorded over the first half of the year as a result of the successfulacquisition of contract customers. The number of customers from the Eurotel Data Express service (CDMA-basedbroadband internet access service) exceeded 70,000, leading to a net gain ofmore than 40,000 customers over the year. This, together with the 14% increasein the number of customers from the Eurotel Data Nonstop service (GPRS-basedinternet access service), which stood at 67,000 in December 2005, led torevenues from Internet and Data nearly doubling compared to the previous year. Revenues from equipment sales dropped by 9.5% year-on-year in local currency dueto the increased number of clients to whom the Company offered lower rates inexchange for permanency agreements over a certain period of time. Eurotel's operating expenses increased by 4.8% over the year in local currency,with a 6.9% year-on-year increase in the fourth quarter alone due to greatercommercial activity during that period. Personnel expenses were the major contributor to the increase in the operatingexpenses, growing by 27.2% year-on-year in local currency throughout the year asa result of one-off items that were already recorded in the second quarter. Eurotel's operating income before depreciation and amortization (OIBDA) totaled431.6 million euros for the year, a 5.5% decrease in local currency with itsmargin having dropped by 3.4 percentage points year-on-year to 42.8%. CapEx for the mobile line business amounted to 131.5 million euros for the year,a 19.0% year-on-year increase in local currency, primarily due to theinvestments in the rollout of the UMTS network. CESKY TELECOMCONSOLIDATED INCOME STATEMENTUnaudited figures (Euros in millions) July - December October - December 2005 2005 Revenues 1,035.2 525.8Internal expenditure capitalized in fixed assets (1) 11.5 6.4Operating expenses (566.6) (285.1)Other net operating income (expense) 17.2 (7.6)Gain (loss) on sale of fixed assets 1.4 0.7Impairment of goodwill and other assets (42.1) (36.3)Operating income before D&A (OIBDA) 456.7 204.0Depreciation and amortization (291.9) (149.2)Operating income (OI) 164.8 54.8Profit from associated companies 0.0 0.0Net financial income (expense) (10.8) (6.1)Income before taxes 154.0 48.7Income taxes (36.0) (10.0)Income from continuing operations 118.0 38.7Income (Loss) from discontinued operations 0.0 0.0Minority interest 0.0 0.0Net income 118.0 38.7 (1) Including work in process. RESULTS BY BUSINESS LINES Other businesses DIRECTORIES BUSINESS TPI Group 2005 results include those of Telinver, the leader directory companyacquired in Argentina for a firm value of 74 million dollar, which consolidateswith Group figures from November 2005, and also, those coming from DA operationin Italy, from the moment it started operations on October 1st 2005. The performance of the business in Italy in its first three months showed asatisfactory number of calls received, reflecting the successful advertisingcampaign. TPI Group revenues rose 9.7% to 651.6 million euros. OIBDA was 219.3 millioneuros, showing an increase of 8.7% vs. 2004 Net income rose 10.3% to 126.93million euros. These results are explained by: • Advertising revenues increased 6.9% to 544.3 million euros. • Strong performance of telephony traffic revenues, which grew 39.3% to 65.3 million euros, helped by the positive evolution of the business in Spain and the traffic coming from Italy. • Positive evolution of operator revenues, with a 6.3% increase to 39.9 million euros. Europe13 decreased its contribution to group revenues by 2 percentage points to79%. This is the result of the combined effect of the positive performance ofcurrency exchange rates in Latam, together with the acquisition of Telinver inArgentina. Geographical contribution to Group OIBDA, remained unchanged, with87% and 13% for Europe and Latam, respectively. Revenues in Europe went up 6.1% to 515.1 million euros, which was driven by: • Growth of 2.4% in advertising revenues to 421.3 million euros. • Internet revenues reached 34.0 million euros with an increase of 20.1%, while those related to telephone information service went up 14.6% to 4.8 million euros. • The strong rise achieved by traffic revenues, which went up 39.3% to 64.8 million euros. The rise in revenues, along with the good results obtained from the group'scost-cutting, fed through to a 9.0% increase in the European OIBDA14 to 190.6million euros. The OIBDA margin grew 1.0 percentage points to 37.0%. Latin America performance, that contributes to 21% of revenues and 13% of OIBDAwas driven by: • Publiguias total revenues fell 4.4% in local currency, (+4.2% in euros). This is a result of both increased competition and the write-off of default customers begun in January to improve bad debts. • TPI Peru increased revenues by 6.8% in local currency to 33.9 million euros, and contributes 7.6 million euros to total Group OIBDA. • Advertising revenues coming from TPI Brazil grew 10.3% in local currency to 17.2 million euros, and OIBDA improves 56.9% to -2.5 million euros. • Telinver in Argentina contributed 17.45 million euros to Group revenues and 5.2 million euros to OIBDA through November and December 2005. These results cannot be extrapolated to the full year as directories published along the year in Telinver have different margins. They also do not include the new contract framework with TASA, which was applied from the beginning of 2006. With these results, the TPI Group outperformed the revenue guidance (+5.5%/6.5%)and met the upper part of the range of the OIBDA guidance (7%/8%). At constantexchange rates, Group revenues and OIBDA increased 7.8% both. The Board of Directors will propose the Annual General Shareholders Meeting thepayment of a dividend of 40 cents of an euro per share, representing an increaseof 33.3% compared to 2004. This dividend amounts to 114% of the Group's netincome and to 123% of that of Telefonica Publicidad e Informacion, S.A. Thiswould give a dividend yield of 4.8%15. In turn, the directories business of the Telefonica Group, which includes theArgentinean company Telinver in the whole twelve months of both 2004 and 2005,recorded 660.5 million euros in revenues, a 7.1% year-over-year increase. OIBDA,on the other hand, improves in a 7.4% in the fiscal year, reaching 220.0 millioneuros.TPI - PAGINAS AMARILLAS GROUPSELECTED OPERATING DATA IN EUROPEUnaudited figures January - December 2005 2004 % ChgBooks PublishedYellow Pages* 124 110White Pages 58 60 (Euros in millions)Revenue Breakdown (1) 515.1 485.3 6.1Advertising 421.3 411.3 2.4 Publishing 378.5 374.6 1.1 Yellow Pages 296.0 296.3 (0.1) White Pages 70.6 69.1 2.2 Others paper revenues 11.9 9.2 29.6 Internet 34.0 28.3 20.1 Operator Assisted Yellow Pages 4.8 4.2 14.6 Others 4.1 4.3 (4.9)Telephony Traffic 64.8 46.6 39.3Operator 26.0 24.9 4.4Others 2.9 2.6 13.7 * Includes a breakdown by residential/business services and pocket guides.(1) TPI Europa includes the results of the companies Telefonica Publicidad e Informacion S.A., TPI Edita, TPI Directand Edinet Europa, 11888 Servicio de Consulta Telefonica S.A.U., Servizio di Consultaziones Telefonica, S.R.L. TPI - PAGINAS AMARILLAS GROUPCONSOLIDATED INCOME STATEMENTUnaudited figures (Euros in millions) January - December October - December 2005 2004 % Chg 2005 2004 % Chg Revenues 651.6 594.2 9.7 188.9 151.4 24.8Internal expenditure capitalized in fixed assets (1) 0.5 0.0 n.m. 0.5 0.0 n.m.Operating expenses (405.5) (360.7) 12.4 (122.1) (98.9) 23.4Other net operating income (expense) (26.2) (29.2) (10.4) (8.0) (8.9) (10.1)Gain (loss) on sale of fixed assets (0.3) (0.4) (41.4) (0.0) (0.0) (33.3)Impairment of goodwill and other assets (0.9) (2.1) (59.0) (1.4) 0.0 n.m.Operating income before D&A (OIBDA) 219.3 201.8 8.7 57.8 43.5 32.9Depreciation and amortization (23.6) (23.2) 1.4 (6.2) (7.5) (17.0)Operating income (OI) 195.7 178.6 9.6 51.6 36.0 43.3Profit from associated companies (0.0) (0.4) (87.7) 0.0 (0.1) c.s.Net financial income (expense) (5.3) (2.0) 162.4 (2.0) (0.9) 116.1Income before taxes 190.4 176.2 8.0 49.7 35.0 41.8Income taxes (63.4) (61.7) 2.9 (17.6) (15.6) 13.2Income from continuing operations 126.9 114.5 10.8 32.0 19.5 64.6Income (Loss) from discontinued operations 0.0 0.0 n.m. 0.0 0.0 n.m.Minority interest 0.0 0.5 n.m. 0.0 (0.0) n.m.Net income 126.9 115.1 10.3 32.0 19.5 64.6 (1) Including work in process. DIRECTORIES BUSINESSCONSOLIDATED INCOME STATEMENTUnaudited figures (Euros in millions) January - December October - December 2005 2004 % Chg 2005 2004 % Chg Revenues 660.5 616.4 7.1 190.1 166.5 14.2Internal expenditure capitalized in fixed assets (1) 0.5 0.0 n.m. 0.5 0.0 n.m.Operating expenses (413.4) (375.4) 10.1 (123.2) (108.8) 13.2Other net operating income (expense) (26.4) (33.7) (21.7) (8.0) (11.7) (31.3)Gain (loss) on sale of fixed assets (0.3) (0.4) (41.4) (0.0) (0.0) (33.3)Impairment of goodwill and other assets (0.9) (2.1) (59.0) (1.4) 0.0 n.m.Operating income before D&A (OIBDA) 220.0 204.8 7.4 57.9 46.0 25.9Depreciation and amortization (24.0) (23.8) 0.8 (6.3) (7.5) (16.4)Operating income (OI) 196.0 181.0 8.3 51.7 38.5 34.1Profit from associated companies (0.0) (0.4) (87.7) 0.0 (0.1) c.s.Net financial income (expense) (6.7) (5.7) 17.8 (2.0) (1.7) 17.9Income before taxes 189.3 175.0 8.2 49.7 36.7 35.2Income taxes (63.4) (60.2) 5.5 (17.6) (14.1) 25.2Income from continuing operations 125.8 114.8 9.6 32.0 22.7 41.3Income (Loss) from discontinued operations 0.0 0.0 n.m. 0.0 0.0 n.m.Minority interest 0.0 0.5 n.m. (0.0) (0.1) (66.1)Net income 125.8 115.3 9.1 32.0 22.6 41.6 (1) Including work in process. ------------------------ 13 Europe includes TPI, S.A., TPI Edita, TPI Direct, Edinet Europa, 11888 SCTand 1288 SCT.14 Adjusted OIBDA does not include impairment of financial assets for itssubsidiaries nor the results obtained by their capital operations.15 Taking the price at the close of trading on February 20th 2006 of 8.33 eurosper share.------------------------ RESULTS BY BUSINESS LINES Other businesses ATENTO GROUP 2005 was a year of strong growth in some of the Atento Group's business lines,with an increase in the net income. The following customers contributed the mostto this increase, over the financial year as a whole: • In Brazil, the increase in sales with Vivo, Sera, Speedy, Atento ao Cliente, the start of operations with Banco IBI and growth of customers in the financial sector (UBB, Bradesco, Redecard, Losango). • In Spain, the services with Gas Natural, and the increase in the activity with Telefonica. • In Mexico, the growth in business with BBVA and US Airways. • In Chile, the increase in business with Telefonica CTC, Movistar, VTR and Interamericana. • In Argentina, with the start of operations with Movistar. • In Puerto Rico, growth with SunCom. • In Venezuela, increase in sales with CANTV and Movistar. Operating revenues grew by 41.2% year-on-year, to stand at 856.5 million euros.In this year, all Atento operations have increased sales, except for AtentoMorocco. It is important to highlight Atento Brazil, with a 52.7% growth inrevenues over 2005. Its sales in euros make it the group's largest operation,with a weight of 35.5% over total Atento Group revenues. Sales in Spainrepresent 34.2% of the total, having grown by 22.2% compared with 2004. Revenuesin other countries, such as Argentina, Central America, Colombia, Mexico andVenezuela have grown by more than 50%. Customers outside the Telefonica Group have once again increased theircontribution to Atento total revenues, to stand at 44.8%, up 0.7 percentagepoints more than a year ago. By 2005 end, the Atento Group was the serviceprovider to more than 400 companies, and had continued to diversify andspecialize in the financial, telecommunications, mass market, energy, transportand tourism sectors, and government bodies. Operating costs grew by 42.0% year on year, to stand at 741.5 million euros.Personnel expenses had the greatest impact on this increase (+44%), as a resultof the year's increased activity. The Atento Group OIBDA for 2005 rose to 116.4 million euros, a 36.7% increase onthe 85.1 million euros for 2004. The downward pressure on pricing throughout the2005 financial year resulted in a general reduction in operating margins in thesector, which Atento was able to face up to thanks to better optimization ofcosts and to the increase in the scale, placing the OIBDA margin at 13.6%, just0.4 percentage points lower than 2004. Operating income amounted to 88.5 million euros, up 72.1% year on year,supported by the downward trend in depreciation, as a result of the degree ofmaturity achieved in operations. Atento Group net income was again positive, for the second year in a row,standing at 48.2 million euros, 15.9 million more than last year. At operating level, Atento Group had 39,705 positions in place as of 31stDecember 2005, up 29.9% on 2004. The average number of occupied positions forthe 2004 financial year was 30,247. This was a significant improvement on thelevel of occupation achieved in 2004 (80% vs. 75% in 2004). CapEx in the 2005 financial year reached 42.9 million euros, compared with 22.8million euros in 2004, and the operating free cash flow grew by 17.7%, to 73.4million euros.ATENTO GROUPCONSOLIDATED INCOME STATEMENTUnaudited figures (Euros in millions) January - December October - December 2005 2004 % Chg 2005 2004 % Chg Revenues 856.5 606.5 41.2 247.9 174.3 42.2Internal expenditure capitalized in fixed assets (1) 0.0 0.0 n.m. 0.0 0.0 n.m.Operating expenses (741.5) (522.3) 42.0 (213.6) (150.4) 42.0Other net operating income (expense) 1.4 1.1 23.6 (0.6) 0.3 c.s.Gain (loss) on sale of fixed assets 0.0 (0.3) c.s. 0.0 0.1 (73.1)Impairment of goodwill and other assets 0.0 0.0 n.m. 0.0 0.0 n.m.Operating income before D&A (OIBDA) 116.4 85.1 36.7 33.8 24.3 38.8Depreciation and amortization (27.9) (33.7) (17.3) (7.2) (7.6) (5.0)Operating income (OI) 88.5 51.4 72.1 26.6 16.8 58.5Profit from associated companies 0.0 0.0 n.m. 0.0 0.0 n.m.Net financial income (expense) (20.2) (10.5) 93.0 (7.1) (4.3) 65.9Income before taxes 68.2 40.9 66.7 19.5 12.5 55.9Income taxes (16.6) (6.8) 143.5 (1.8) (4.5) (60.1)Income from continuing operations 51.6 34.1 51.3 17.7 8.0 120.2Income (Loss) from discontinued operations 0.0 (0.1) n.m. 0.0 0.0 n.m.Minority interest (3.4) (1.7) 99.4 (1.1) (0.6) 92.0Net income 48.2 32.3 49.3 16.6 7.5 122.3 (1) Including work in process. RESULTS BY BUSINESS LINES Other businesses CONTENT AND MEDIA BUSINESS The Contents and Media business ended the last quarter of 2005 with revenues of1,269.1 million euros, 4.1% higher of the figure reached in the same period ofthe previous year. This increase was basically due to the better performance ofEndemol and the ATCO Group in this fourth quarter, fully offsetting the lowerrevenues from changes to the consolidation perimeter. The consolidated operating income before depreciation and amortization (OIBDA)over the year amounted to 269.2 million euros, compared with the 185.0 millioneuros obtained over 2004. This represents a 45.5% year-on-year growth, primarilythanks to the positive progress of the results from all business lines, revenuesobtained from the floating of 25% of Endemol, N.V. on the stock exchange and thesale of the radio business in ATCO. Endemol NV The company, floated on the Amsterdam exchange, recorded a 5.8% growth inrevenues to total 900.1 million euros. Revenues from acquisitions amounted to10.5 million euros of this figure and the remainder growth is organic. The growth in revenues was reflected in all countries in which Endemol NVoperates, with a particularly significant performance on the Spanish and Britishmarkets and Rest of the World (ROW), contributing towards the greaterdiversification of the Group's revenues and a greater relative weight ofrevenues from formats other than non-scripted (scripted and digital) thataccounted for 23.3% of the total compared with the 21.4% represented in 2004. The reported EBITDA of Endemol NV stood at 152.8 million euros, a 15.4% increaseon the previous year and leading to a 17% margin, 1.4 percentage points up on2004. The positive operational progress of the Company is explained by thegrowth in its revenues and the good performance of production costs in the USfollowing the syndication of the four series of Fear Factor, offset by the loweroperational profitability of some markets in the rest of the world in which theCompany has most grown proportionally. ATCO The advertising market in Argentina (Capital and Gran Buenos Aires regions) grewby 21% over the year with respect to the previous year. This growth can becompared with the 39% recorded in 2004, which reflected the market recoveryrecorded over that year. In this favorable market context, Telefe reaffirmed its position as leader,obtaining 37.9% of the total audience by 2005 year end - very similar to thefigure recorded over the previous year - followed by Canal 13, its maincompetitor, with an average share of 24.9%. The market share accumulated byTelefe by the end of 2005 stood at 41.2%, 3.7 percentage points lower than in2004, once again, followed by Canal 13 with 32.1%. Thus, ATCO recorded an improvement in its financial results in comparison withthe previous year thanks to the growth in the Capital and Gran Buenos Airesadvertising markets over the year, the good results regarding total audienceobtained by Telefe that enabled it to increase its revenues and to the profitsobtained from the sale of Radio Continental and Radio Estereo. CONTENT AND MEDIA BUSINESSCONSOLIDATED INCOME STATEMENTUnaudited figures (Euros in millions) January - December October - December 2005 2004 % Chg 2005 2004 % Chg Revenues 1,269.1 1,219.1 4.1 390.3 387.2 0.8Internal expenditure capitalized in fixed assets (1) 0.0 0.2 n.m. 0.0 0.0 n.m.Operating expenses (1,052.2) (1,049.1) 0.3 (324.8) (344.0) (5.6)Other net operating income (expense) 5.7 10.5 (45.7) (2.7) 11.6 c.s.Gain (loss) on sale of fixed assets 47.5 6.9 n.m. 40.0 1.9 n.m.Impairment of goodwill and other assets (0.8) (2.6) (69.0) (0.7) (0.1) n.m.Operating income before D&A (OIBDA) 269.2 185.0 45.5 102.1 56.6 80.2Depreciation and amortization (28.9) (28.9) 0.1 (8.4) (9.3) (9.6)Operating income (OI) 240.3 156.2 53.9 93.7 47.3 97.8Profit from associated companies (6.4) (34.2) (81.2) (1.3) (10.8) (87.6)Net financial income (expense) (96.7) (121.6) (20.5) (93.0) (96.7) (3.9)Income before taxes 137.2 0.4 n.m. (0.6) (60.2) (99.0)Income taxes (49.2) (35.9) 37.0 (2.9) 20.4 c.s.Income from continuing operations 88.0 (35.6) n.m. (3.5) (39.8) (91.2)Income (Loss) from discontinued operations 0.0 0.0 n.m. 0.0 0.0 n.m.Minority interest (9.1) (5.0) 82.8 (4.9) (1.6) 197.3Net income 78.8 (40.6) c.s. (8.4) (41.5) (79.8) (1) Including work in process. MORE TO FOLLOW This information is provided by RNS The company news service from the London Stock Exchange

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