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Telefónica Móviles brings forward the acquisition of 100% of its Mexican subsidiary

21 December 2005.

Telefónica Móviles has reached an agreement to acquire the 8% stake of Telefónica Móviles México held by its partner Alejandro Burillo. As a result, Telefónica Móviles now owns 100% of its Mexican subsidiary.

The transaction, which has been made known to the Mexican Anti-Trust Authority (Cofeco), represents a cost to Telefónica Móviles of 177 million euros. It is being carried out by Telefónica Móviles and structured via the exchange of shares of Telefónica Móviles México S.A. for shares of Telefónica S.A., so that Alejando Burillo will become a stockholder of the parent company of the Telefónica Group.

The operation will not involve any significant increase in Telefónica Móviles’ debt as, under International Financial Reporting Standards (IFRS), the minimum price for Grupo Burillo’s put option has been booked as debt. At 30 November 2005, calculated according to interest paid to that date, it had a value of 153 million euros.

The acquisition of 8% of Telefónica Móviles México will allow Telefónica Móviles to increase its holding in a company which has high growth potential and significant scope for cash flow generation in the medium term, bringing forward the dates established in the agreement made between the shareholders for this acquisition. That agreement established the first date for executing the call option in the third quarter of 2007 (4% stake) and the third quarter of 2008 for the remaining 4% (or 8% if the option was not partially exercised in 2007).

The Mexican cellular market, with a penetration rate of around 43% at the close of 2005, has significant growth potential with market consensus forecasts suggesting that the penetration rate will be over 60% by the end of 2008 (nearly 70 million customers). The same forecasts imply that the Mexican market could generate service revenues of over 10 billion euros in 2008.