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Page 1: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.
Page 2: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

2

This presentation contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this presentation and include statements regarding the intent, belief or current expectations of the customer base, estimates regarding future growth in the different business lines and the global business, market share, financial results and other aspects of the activities and situation relating to the Company . Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward looking statements as a result of various factors. Analysts are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation. Telefónica undertakes no obligation to release publicly the results of any revisions to these forward looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Telefónica´s business or acquisition strategy or to reflect the occurrence of unanticipated events. Analysts and investors are encouraged to consult the Company´s Annual Report on Form 20-F as well as periodic filings made on Form 6-K, which are on file with the United States Securities and Exchange Commission.

Safe HarbourSafe Harbour

Page 3: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investors ConferenceMarch 2001, Rio de Janeiro

A value growth company:

Delivering results

A value growth company:

Delivering results

Page 4: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

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WE ARE CONFIDENT THAT BY BUILDING ON OUR FUNDAMENTALS WE WILL DELIVER ON PROFITABILITY AND GROWTH

WE ARE CONFIDENT THAT BY BUILDING ON OUR FUNDAMENTALS WE WILL DELIVER ON PROFITABILITY AND GROWTH

Strengthen focus on earnings

Strong emphasis on efficiency and execution

Multiple growth dimensions

Building business models that are profitable and sustainable

Profitability:

Growth:

AS A CONSEQUENCE, OUR COMPANY’S VALUE WILL INCREASE

Page 5: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

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DELIVERING RESULTS: PROFITABILITY AND GROWTHDELIVERING RESULTS: PROFITABILITY AND GROWTH

We will capture opportunities based on

our strong strategic position and

fundamentals

We manage key performance metrics

Management priorities to crystallize

value

Our Group model enables delivery

Page 6: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

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Current market environment forces management more than ever to focus on key

metrics and on delivery of results

OUR STRONG FUNDAMENTALS AND SOLID STRATEGIC POSITION PUT US IN A SUPERIOR SITUATION TO CAPTURE PROFITABILITY AND GROWTH

OUR STRONG FUNDAMENTALS AND SOLID STRATEGIC POSITION PUT US IN A SUPERIOR SITUATION TO CAPTURE PROFITABILITY AND GROWTH

Large client base

Strong operational skills

Unmatched intangibles

Balanced and flexible business structure

Strong fundamentals

Internet Broadband Mobility Content

Strong strategic position along growth engines

Telefónica is in a good position to simultaneously capture profitability and growth

Page 7: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

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DELIVERING RESULTS: PROFITABILITY AND GROWTHDELIVERING RESULTS: PROFITABILITY AND GROWTH

We will capture opportunities based on

our strong strategic position and

fundamentals

We manage key performance metrics

Management priorities to crystallize

value

Our Group model enables delivery

Page 8: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

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WE FOCUS ON KEY ASPECTS TO ENSURE PROFITABLE GROWTH... billion, in constant exchange rates. Current business perimeter

WE FOCUS ON KEY ASPECTS TO ENSURE PROFITABLE GROWTH... billion, in constant exchange rates. Current business perimeter

Cost efficiency Operational

leverage Quality

Operational excellence

EBITDAEBITDA11 12

10%10%

99 00 04

9-12%9-12%

Focus on key aspects Manage customer

profitability and market share

Marketing effectiveness to enhance usage

Cross-selling

Leverageclient baseTOP

LINETOP LINE

22 28

99 00

24%24%

04

13-15%13-15%

Asset turnover Capex allocation and

control Reducing asset base

Focus on ROCE

EBIT*EBIT*

*Calculated exc. goodwill

4.8 5.0

4%4%

99 00 04

8-12%8-12%

CAGR

Page 9: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

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WE FOCUS ON LEVERAGING OUR CLIENT BASE, ...WE FOCUS ON LEVERAGING OUR CLIENT BASE, ...

We have a growing client base...

We have a growing client base...

…which we expect to expand...

…which we expect to expand...

5265

1999 2000 2004

…and leverage to extract its full potential…and leverage to extract its full potential

Manage client profitability and market share

Accelerate marketing initiatives and effectiveness

Push cross-selling across the Group’s businesses

25%25%

>100 million

Page 10: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

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53,9 47,5

Accelerate e-business implementation Tighten performance parameters Monitor improvements with further

developed cost accounting tools

Turn fixed costs into variable Externalize functions, transparency Outsourcing of non-core functions

Monitor quality with customer centric perspective

Reduce cost of non-quality

…ON RAISING OUR OPERATIONAL PERFORMANCE ...…ON RAISING OUR OPERATIONAL PERFORMANCE ...This is

alreadya clear strength ...

This is alreadya clear strength ...

…but it is an on-going priority...

…but it is an on-going priority...

…and we will raise our performance by:…and we will raise our performance by:

Cost efficiency*

Cost efficiency*

Operational leverage**

Operational leverage**

Quality***Quality***

18,6 16,8 12,6

1999 2000 2004

-7%-7%

1999 2000 2004

-4%-4%

20042000

70-75%90-95%

*Personal expenses (exc. Atento)/revenues**Fixed cost/total cost (estimates)***Residential + business satisfaction index in TdE

1999

<40

Page 11: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

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120%

73.6%64.2%

… AND ON IMPROVING OUR RETURN ON CAPITAL… AND ON IMPROVING OUR RETURN ON CAPITAL

We are success-fully improving our capital expenditure...

We are success-fully improving our capital expenditure...

…but with growing uncertainty, the environment asks for improving EBIT...

…but with growing uncertainty, the environment asks for improving EBIT...

…by being more selective…by being more selective

1999 2000 2004

Net fixed asset turnover

Net fixed asset turnover

Capex*/ revenues

Capex*/ revenues

1999 2000 2004

20%

31%31%

Capex allocation and control

Disposal of non-core assets (de-assetization)

Seek opportunities for non-investing

*Ex-UMTS

Page 12: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

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DELIVERING RESULTS: PROFITABILITY AND GROWTHDELIVERING RESULTS: PROFITABILITY AND GROWTH

We will capture opportunities based on

our strong strategic position and

fundamentals

We manage key performance metrics

Management priorities to crystallize

value

Our Group model enables delivery

Page 13: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

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MANAGEMENT PRIORITIESMANAGEMENT PRIORITIES

“Achieve sustained superior earnings growth”

“Achieve sustained superior earnings growth”

Continue improving results in consolidated businesses

Continue improving results in consolidated businesses

1

Continue the expansion in Latin America Continue the expansion in Latin America

2

Drive developing businesses towards profitability leveraging the Group

Drive developing businesses towards profitability leveraging the Group

3

Continue business buildingContinue business building

4

Capture inter-business and Group synergiesCapture inter-business and Group synergies

Page 14: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

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“Achieve sustained superior earnings growth”

“Achieve sustained superior earnings growth”

Continue improving results in consolidated businesses

Continue improving results in consolidated businesses

1

Continue the expansion in Latin America Continue the expansion in Latin America

2

Drive developing businesses towards profitability leveraging the Group

Drive developing businesses towards profitability leveraging the Group

3

Continue business buildingContinue business building

4

Capture inter-business and Group synergiesCapture inter-business and Group synergies

MANAGEMENT PRIORITIESMANAGEMENT PRIORITIES

Telefónica de España Telefónica Móviles

España TeleSP and other

Latam wireline operators

Leverage existing client bases andmaximize cash generation short and long term: we cannot fail

Page 15: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

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TELEFONICA DE ESPAÑATELEFONICA DE ESPAÑA

Winning the broadband battle• Push ADSL deployment

• Deepen customer segmentation

Continuing to increase efficiency• Transform into e-business

• Control/manage capex intensity

• Quality improvement

Winning the broadband battle• Push ADSL deployment

• Deepen customer segmentation

Continuing to increase efficiency• Transform into e-business

• Control/manage capex intensity

• Quality improvement

More cash-flow

More stable

More business

opportunities for TdE

and rest of the Group

Page 16: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

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TELEFONICA MOVILES ESPAÑATELEFONICA MOVILES ESPAÑA

• Monitor client profitability &

traffic share– Loyalty programs

– Product portfolio

– Contract/prepaid mix

• Get the 2.5G offering right– Contribute to the development of

applications and services

– Develop, launch and promote

appealing services

– Speed-up time-to-market and

customer migration

More cash

generation

Improve customer

mix

Build solid know-

how on 2.5G

business and market

approach

Page 17: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

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TELESPTELESP

Accelerate “Metas” accomplishment Key for roll-out to Brazilian

telecom market

Continue to build on solid operational fundamentals Ensure additional capex meets

strict return criteria Tighten metrics and bring

efficiency to the next level Sharpen the marketing approach

and broaden product catalogue

More cash flow, exceeding organic growth needs

Maintain outstanding competitive position

Platform to leverage Telefonica’s Brazilian opportunity

Page 18: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

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“Achieve sustained superior earnings growth”

“Achieve sustained superior earnings growth”

Continue improving results in consolidated businesses

Continue improving results in consolidated businesses

1

Continue the expansion in Latin America Continue the expansion in Latin America

2

Drive developing businesses towards profitability leveraging the Group

Drive developing businesses towards profitability leveraging the Group

3

Continue business buildingContinue business building

4

Capture inter-business and Group synergiesCapture inter-business and Group synergies

Telefónica de España Telefónica Móviles

España TeleSP and other

Latam wireline operators

Leverage existing client bases andmaximize cash generation short and long term: we cannot fail

MANAGEMENT PRIORITIESMANAGEMENT PRIORITIES

Brazil Mexico Argentina Rest of Latam

Profit from a natural extension of our leadership

Page 19: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

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EXPANSION IN LATIN AMERICAEXPANSION IN LATIN AMERICA

Launch Brazilian wireline operations outside Sao Paulo in 2002 (“Brazil 2002”)

Consolidate TEM-PT JV as the #1 player in Brazilian mobile markets

Successfully develop recently entered markets, e.g., northern Argentina, Mexico

Complete the Latin-American portfolio profiting from a natural extension of our leadership

Page 20: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

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BRAZIL CONTINUES TO BE A BIG OPPORTUNITYBRAZIL CONTINUES TO BE A BIG OPPORTUNITY

Integrated offering of voice

and data services for large

businesses

Long distance national and

international services

Transport (carriers’ carrier)

Brazil 2002 as a first priority projectBrazil 2002 as a first priority project

TEM-PT JV to lead the Brazilian mobile market

TEM-PT JV to lead the Brazilian mobile market 9.3 million controlled

customers, and potential market over 93 million POPs

60% of average market share and single player operating in Sao Paulo & Rio de Janeiro

Leadership in 4 of 5 wealthiest areas in Brazil

Page 21: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

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MANAGEMENT PRIORITIESMANAGEMENT PRIORITIES

Terra Lycos Telefónica Data Telefónica Media Europa UMTS

Anticipate break-even leveraging the overall group position

“Achieve sustained superior earnings growth”

“Achieve sustained superior earnings growth”

Continue improving results in consolidated businesses

Continue improving results in consolidated businesses

1

Continue the expansion in Latin America Continue the expansion in Latin America

2

Drive developing businesses towards profitability leveraging the Group

Drive developing businesses towards profitability leveraging the Group

3

Continue business buildingContinue business building

4

Capture inter-business and Group synergiesCapture inter-business and Group synergies

Telefónica de España Telefónica Móviles

España TeleSP and other

Latam wireline operators

Leverage existing client bases andmaximize cash generation short and long term: we cannot failProfit from a natural extension of our leadership

Brazil Mexico Argentina Rest of Latam

Page 22: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

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TERRA-LYCOSTERRA-LYCOS

Building a strong

organization in business

and geographic fronts

Adapting the business

model to the current

market context

Extract the full potential of

and for the Group:

collaboration of Terra-Lycos

with other Lines of Business

to exploit the Internet

opportunity

Become one of the

top four world

leaders

Work with other

Lines of Business to

capture the Internet

opportunity

Accelerate breakeven

Page 23: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

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TELEFONICA DATA AND EMERGIATELEFONICA DATA AND EMERGIA

• Telefónica Data:Telefónica Data:–Relationship with largest corporate customers and NEPs–Support Telefónica’s WLOs business customers’ data needs–Strengthen position from selective expansion in new markets–Leverage infrastructure/presence to serve multi-national clients

• Emergia:Emergia: Aggregate and manage the Group’s bandwidth needs

• Telefónica Data:Telefónica Data:–Relationship with largest corporate customers and NEPs–Support Telefónica’s WLOs business customers’ data needs–Strengthen position from selective expansion in new markets–Leverage infrastructure/presence to serve multi-national clients

• Emergia:Emergia: Aggregate and manage the Group’s bandwidth needs

Strengthen our position in corporate and NEP’s segments

Develop a strong VAS as a client loyalty and revenue enhancing tool

Bring forward Emergia’s cash generation

Page 24: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

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TELEFONICA MEDIATELEFONICA MEDIA

•Improve operational performance • Capturing existing synergies

within current businesses• Making T.Media cash neutral

for the Group

•Complete the portfolio to lead in our natural market

•Extract the full potential of its position within the Group

Improve return on investments

Contribute content to other Lines of Business

Page 25: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

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MANAGEMENT PRIORITIESMANAGEMENT PRIORITIES

Push current businesses under development and open new options

Atento Katalyx Develop related

businesses leveraging our franchise

“Achieve sustained superior earnings growth”

“Achieve sustained superior earnings growth”

Continue improving results in consolidated businesses

Continue improving results in consolidated businesses

1

Continue the expansion in Latin America Continue the expansion in Latin America

2

Drive developing businesses towards profitability leveraging the Group

Drive developing businesses towards profitability leveraging the Group

3

Continue business buildingContinue business building

4

Capture inter-business and Group synergiesCapture inter-business and Group synergies

Terra Lycos Telefónica Data Telefónica Media Europa UMTS

Anticipate break-even leveraging the overall group position

Telefónica de España Telefónica Móviles

España TeleSP and other

Latam wireline operators

Leverage existing client bases andmaximize cash generation short and long term: we cannot failProfit from a natural extension of our leadership

Brazil Mexico Argentina Rest of Latam

Page 26: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

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CONTINUE BUSINESS BUILDINGCONTINUE BUSINESS BUILDING

We have launched several initiatives: eg., Atento, We have launched several initiatives: eg., Atento,

KatalyxKatalyx

– Clear progress

– Still improvements/adjustments to make

– Focus on performance and clear value potential with

a flexible approach

We will continue to develop opportunities and build We will continue to develop opportunities and build

new businesses:new businesses:

– Leveraging our customer base and franchise

– Creating a competitive advantage by building on our

strengths and intangibles

– Adjacent businesses with low asset intensity and

short pay-backs

Page 27: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

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DELIVERING RESULTS: PROFITABILITY AND GROWTHDELIVERING RESULTS: PROFITABILITY AND GROWTH

We will capture opportunities based on

our strong strategic position and

fundamentals

We manage key performance metrics

Management priorities to crystallize

value

Our Group model enables delivery

Page 28: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

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TELEFONICA’S GROUP MODEL IS THE KEY TO SIMULTANEOUSLY ACHIEVE PROFITABILITYAND GROWTH

TELEFONICA’S GROUP MODEL IS THE KEY TO SIMULTANEOUSLY ACHIEVE PROFITABILITYAND GROWTH

Focused, transparent, accountable complementary Lines of Business operating as good specialists in each business

Owned by a company, Telefónica, that manages across businesses and articulates the group

Our group model...

Allows to lead at a pure play development Allows, whenever suitable, to integrate efforts to

leverage our client base Facilitates new options

… puts us at an advantage...

Still young structure, started two years ago and boosted after the completion of “Operación Verónica”

Achieved significant progress in several areas, but working hard to continuously improve

… and we are working continuously to sharpen it

Page 29: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

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IN THIS MODEL, HIGH VALUE ADDING ACTIVITIES ARE PERFORMED AT GROUP LEVEL

IN THIS MODEL, HIGH VALUE ADDING ACTIVITIES ARE PERFORMED AT GROUP LEVEL

Manage across businesses

Assist to and demand strong business performance

Achieve functional articulation for effectiveness and efficiency

Shape the development of the group

Page 30: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

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WE HAVE PROGRESSED SIGNIFICANTLY IN SEVERAL ACTIVITIES TO BE PERFORMED AT GROUP LEVEL AND ARE WORKING HARD TO ADVANCE ON THE REST

WE HAVE PROGRESSED SIGNIFICANTLY IN SEVERAL ACTIVITIES TO BE PERFORMED AT GROUP LEVEL AND ARE WORKING HARD TO ADVANCE ON THE REST

Plan Futurnet to extract maximum potential of broadband across businesses

Shared distribution channels...

Manage across businessesManage across businesses

Assist to and demand strong business performance

Assist to and demand strong business performance

Achieve functional articulation for effectiveness and efficiency

Achieve functional articulation for effectiveness and efficiency

Architect and shape the development of the group

Architect and shape the development of the group

ExamplesExamples

Strategic reviews and budgeting process

Common management information systems

Coherent reward schemes...

Lowest cost of funding through centralized management of cash and finance

Strong brand managementDevelopment of Shared Service

Centers... Adaptiveness in

partnerships/alliances Launch of dedicated Real Estate

Management Unit ...

A process of continuous development and improvement

Page 31: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

Investor ConferenceMarch 2001, Rio de Janeiro

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WHAT WE’VE SAID SO FARWHAT WE’VE SAID SO FAR

Telefónica’s performance is based on solid, lasting business fundamentals

This fundamentals underpin our financial results Building on our fundamentals and our solid financial position, we are confident that we will deliver on profitability and growth

We focus on four management priorities to crystallize our value

Our group model is a key enabler that puts us at an advantage to deliver value and growth

Page 32: Investor Conference March 2001, Rio de Janeiro 1 This presentation contains statements that constitute forward-looking statements within the meaning of.

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