29 Feb 2008 07:00
Telefonica SA28 February 2008 Quarterly results January-December 2007 TABLE OF CONTENTS TELEFONICA GROUP Market Size Financial Highlights Consolidated Results Financial Data RESULTS BY REGIONAL BUSINESS UNITS Telefonica Espan • Wireline Business • Wireless Business Telefonica Latinoamerica • Brazil • Argentina • Chile • Peru • Colombia • Mexico • Venezuela • Central America • Ecuador • TIWS Telefonica Europe • O2 UK • O2 Germany • O2 Ireland • Telefonica O2 Czech Republic Other Companies • Atento Group ADDENDA Key Holdings of the Telefonica Group and its Subsidiaries Significant Events Changes to the Perimeter and Accounting Criteria of Consolidation 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. 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. TELEFONICA GROUP Market SizeTELEFONICA GROUPACCESSESUnaudited figures (thousands) January - December 2007 2006 % Chg Final Clients Accesses 225,910.3 200,700.7 12.6 Fixed telephony accesses (1) 41,974.2 42,340.7 (0.9) Internet and data accesses 12,968.4 12,170.9 6.6 Narrowband 2,532.9 3,997.7 (36.6) Broadband (2) 10,277.8 7,974.8 28.9 Other (3) 157.7 198.4 (20.5) Mobile accesses 169,219.7 145,125.1 16.6 Pay TV 1,748.1 1,064.0 64.3Wholesale Accesses 2,628.0 2,479.4 6.0 Unbundled loops 1,396.5 962.2 45.1 Shared ULL 776.4 527.7 47.1 Full ULL 620.1 434.5 42.7 Wholesale ADSL (4) 575.5 1,288.6 (55.3) Other (5) 656.0 228.6 n.m.Total Accesses 228,538.3 203,180.2 12.5 (1) PSTN (including Public Use Telephony) x1; ISDN Basic access x1; ISDN Primary access; 2/6 Access x30. Company's accesses for internal use included.(2) ADSL, satellite, optical fibre, cable modem and broadband circuits.(3) Remaining non-broadband final client circuits.(4) Includes Unbundled Lines by T. Deutschland.(5) Circuits for other operators. Note: Mobile accesses, Fixed telephony accesses and Broadband accesses include MANX customers. TELEFONICA GROUP Financial Highlights Key highlights of the Telefonica Group's 2007 results: • Revenues rose +6.7%, OIBDA jumped +19.3%, OI, +42.1% and net profit, +42.9% year-on-year in 2007, driven by significant geographical and business diversification. • OIBDA 2007 is heavily impacted by the personnel reorganization announced by the company that will boost efficiency in the coming years. Personnel reorganization expenses at Telefonica Group stood at 1,199 million euros in 2007 (1,084 million euros in 2006) and 900 million euros in the fourth quarter of 2007 (651 million euros in 2006). • Additionally, in 2007 the Company has recorded other expenses related to operations restructuring, amounting to 199 million euros (16 million euros in 2006), mainly related to the cessation of the national roaming contract with T-Mobile. • Telefonica posted consolidated net profit1 of 8,906 million euros: • Basic earnings per share rose 43.5% to 1.872 euros (1.304 euros per share in December 2006), the fourteenth consecutive increase. ---------------------------------------------------------------------------- 1 Includes the capital gains of 1,296 million euros and 1,368 million euros from the disposals of Airwave and Endemol respectively. • Strong organic revenue growth2, up 7.4% from 2006. • By region, Telefonica Latinoamerica reported a 13.0% year-on-year revenue growth, while Telefonica Espan and Telefonica Europe reported increases of 4.6% and 4.5%, respectively. ---------------------------------------------------------------------------- 2 Assuming constant exchange rates and including the consolidation of the O2 Group, Telefonica Telecom and Iberbanda in January-December 2006. It excludes the consolidation of Telefonica O2 Slovakia in January-December 2007, the consolidation of TVA in October-December 2007, the consolidation of Airwave in April-December 2006 and the consolidation of Endemol in July-December 2006. • Commercial activity was boosted by the success of the Company's customer acquisition and retention schemes, resulting in a sharp year-on-year rise in total accesses (+12.5%) to 228.5 million, underpinned by wireless and broadband accesses: • The wireless customer base increased by 16.6% year-on-year to 169.2 million. • The number of retail broadband accesses stood above 10.2 million at the end of 2007, an increase of 28.9% from 2006. • Pay TV customer base grew 64.3% year-on-year to 1.7 million. • Operating cash flow (OIBDA-CapEx) amounted to 14,797 million euros thanks to synergies stemming from the integrated management of operations, cost optimisation and growing diversification. • Telefonica Group's results for 2007 provide further evidence of the differencial profile of the Company. Once again, the Group met all its financial targets3: • Consolidated revenue growth of 9.8% versus the forecast range of 8%-10%; • Operating income before depreciation and amortisation (OIBDA) growth stood at 12.8%, towards the top of the forecast range of 10% - 13%. • Operating income (OI) increased by 27.6%, above the given range of 19% to 23%. • CapEx totalled 8,087 million euros, lower than the forecast investment of 8,100 million euros. ---------------------------------------------------------------------------- 3 Base 2006 reported numbers include eleven months of O2 Group (consolidated since February 2006), eight months of Telefonica Telecom (consolidated since May 2006), six months of Iberbanda (consolidated since July 2006), three months of start-up losses in Slovakia, and exclude Endemol and Airwave results. 2007 guidance assumes constant exchange rates as of 2006 and excludes changes in consolidation (TVA). In terms of guidance calculation, OIBDA and OI exclude other exceptional revenues/expenses not foreseeable in 2007. Personnel Restructuring and Real Estate Programs are included as operating revenues/expenses, with the exception of the ones decided after the guidance communication at the beginning of the year. For comparison purposes the equivalent other exceptional revenues/expenses registered in 2006 are also deducted from reported figures. CapEx excludes investments related to Real Estate Efficiency Plan. • The Group's strong business performance allows to announce sound growth prospects in 2008 and to reiterate the long-term growth targets announced in October 2007. For 2008, the Company forecasts4: • Consolidated revenue growth in the range of +6.0%/+8.0%; • Consolidated OIBDA growth in the range of +7.5%/+11.0%; • Consolidated OI growth in the range of +13.0%/+19.0%; • CapEx is expected to stand around 8,600 million euros. ---------------------------------------------------------------------------- 4 2007 adjusted figures exclude Airwave and Endemol, include 3 months of consolidation of TVA. 2007 T. Espan revenues are adjusted for new public voice telephony services business model. Group revenues are also adjusted accordingly. 2008 figures Includes TVA, Deltax and Telemig (from April 2008). Telefonica's CapEx excludes Real Estate Efficiency Program. Guidance growths assume 2007 constant FX. In terms of guidance calculation OIBDA and OI exclude other exceptional revenues/expenses not foreseeable in 2007 and 2008. 2007 Bases for Guidance purposes: • Consolidated revenues: 55,550 million euros; • Consolidated OIBDA: 20,863 million euros; • Consolidated OI: 11,467 million euros; • CapEx: 7,975 million euros. • The Company reinforces its shareholder remuneration policy: • The dividend of 1 euro per share corresponding to 2008 fiscal year announced back in October is now complemented with a new share buy-back programme, announced on February, 27th, 2008, for a total amount of 100 million shares, representing close to 2.095% of the Company's share capital. The programme will be effective during 2008 and the first half of 2009. TELEFONICA GROUP Consolidated Results Telefonica Group organizational restructuring by Regional Business Units:Telefonica Espan, Telefonica Latinoamerica and Telefonica Europe, in accordancewith the new regional and integrated management model, defines that thecompanies legal structure is not relevant for the presentation of the TelefonicaGroup financial information. In this sense, operating results of each regionalbusiness units are presented independently of their legal structure. In line with this new structure, Telefo Group has incorporated in Telefo Espanand Telefo Latinoame regional businesses units all the information correspondingto fixed, cellular, cable and Internet businesses. Likewise, Telefo O2 Europe includes O2 Group results and Telefo O2 CzechRepublic results. In the caption Other companies and Eliminations Content and Media Business isincluded, where the results of Telefonica S.A. direct stake has been integratedin the share capital of Endemol Entertainment Holding, N.V. For the presentation of the segment reporting, revenue and expenses arising fromthe use of the trademark and that do not affect the Group's consolidated resultshave been eliminated from the operating results of each Group segment. Telefonica Group's 2007 results continue to show the differential profile of theCompany, underpinned by its strong execution of operations and its ability toconsistently meet its financial targets. The solid growth achieved in 2007highlights the Group's potential for organic growth, the value of its geographicand business line diversification, an efficient cost structure and the synergiestapped through the integrated management of the Company. In a context of a strong expansion of the customer base (+12.5%), revenues(+6.7%), OIBDA (+19.3%), OI (+42.1%) and net profit (+42.9%) all rose sharplycompared with 2006, while operating cash flow (OIBDA-CapEx) increased by 33.0%year-on-year to 14,797 million euros (+9.1% ex-capital gains from the Airwaveand Endemol disposals). Once again, the Company's outstanding performance in 2007 has enabled theTelefonica Group to meet all its financial targets1 for the year. In accordancewith the criteria applied for setting its targets for 2007: • Revenue growth stood at 9.8% vs. the forecast range of 8%-10%; • Operating income before depreciation and amortisation (OIBDA) grew 12.8%, in the upper part of the forecast range of 10%-13%. • Operating income increased by 27.6%, above the given range of 19% to 23%. • CapEx totalled 8,087 million euros, lower than the forecast investment of 8,100 million euros. -------------------------------------------------------------------------------- 1 Base 2006 reported numbers include eleven months of O2 Group (consolidatedsince February 2006), eight months of Telefonica Telecom (consolidated since May2006), six months of Iberbanda (consolidated since July 2006), three months ofstart-up losses in Slovakia, and exclude Endemol and Airwave results. 2007guidance assumes constant exchange rates as of 2006 and excludes changes inconsolidation (TVA). In terms of guidance calculation, OIBDA and OI excludeother exceptional revenues/expenses not foreseeable in 2007. PersonnelRestructuring and Real Estate Programs are included as operating revenues/expenses, with the exception of the ones decided after the guidancecommunication at the beginning of the year. For comparison purposes theequivalent other exceptional revenues/expenses registered in 2006 are alsodeducted from reported figures. CapEx excludes investments related to RealEstate Efficiency Plan. Commercial activity picked up in the fourth quarter due to successful customeracquisition and retention campaigns, boosting total accesses by 12.5% to 228.5million from 2006. Telefonica Espan has 46.4 million accesses, an increase of 5.0% on 2006,underpinned by growth in wireless and broadband customers together with thecontention of fixed lines losses, at-0.3% year-on-year, the smallest declinesince 2001. Growth in the number of total accesses at Telefonica Latinoamerica picked up thepace (+16.9% year-on-year to 134.1 million) thanks to the strong growth inbroadband, a robust wireless market, which registered a new record for net addsin the fourth quarter (7.3 million customers), and an expanding Pay TV customerbase, which increases close to 75% compared with 2006. Telefonica Europa reported growth of 8.7% in its customer base to 42 million,driven by the strong performance of its wireless business, especially in thecontract segment. By access type, growth in mobile accesses at the Telefonica Group accelerated to16.6% year-on-year to 169.2 million. In Latin America, it is worth highlightingthe quarterly net adds registered in Brazil (2.2 million, close to seven-foldincrease on the same period in 2006), and in Mexico (almost 1.5 million, up 32%year-on-year). In Spain, net adds in the quarter totalled 406,837 thousand,exceeding the figures seen in the last three quarters and boosting the customerbase to over 22.8 million, up 6.4% compared with 2006. In Europe, the customerbase increased by 8.6% to 38.3 million, with net adds of 1.0 million customersin the quarter. Retail Internet broadband accesses at the Telefonica Group surged 28.9%year-on-year to over 10.2 million at the end of December. Take-up for ADSL, TVand voice bundles remained strong, making a significant contribution todeveloping the broadband market and forging customer loyalty. In Spain, retailbroadband accesses surpassed 4.5 million (up +22.1% year-on-year), in LatinAmerica, 5.0 million (+33.2%) and in Europe, 670,000 (+48.3%). Net adds in thequarter stood at 227,500 in Spain, while this figure amounted to 332,300 and97,500 in Latin America and Europe respectively. Pay TV accesses at the end of the quarter exceeded 1.7 million, 64.3% more thanin 2006, with operations up and running in Spain, the Czech Republic, Peru,Chile, Colombia and Brazil. Thanks to the sound increase in the Group's customer base, revenues in 2007totalled 56,441 million euros, a year-on-year increase of 6.7%. Negativeexchange rate effects detracted 1.2 percentage points from top-line growth (-1.0percentage points to September, -1.4 percentage points to June, -2.6 percentagepoints to March), while changes in the consolidation perimeter contributed 0.5percentage points to this growth (vs. +1.9 percentage points to September, +4.5percentage points to June, +9.8 percentage points to March). Organic revenuegrowth2 was 7.4%, with Telefonica Latinoamerica (4.4 percentage points) andTelefonica Espan (1.6 percentage points) making the largest contributions. Bybusiness, mobile services and broadband were the main revenue driversunderpinning organic growth, up 11.1% and 22.6% year-on-year respectively.-------------------------------------------------------------------------------- 2 Assuming constant exchange rates and including the consolidation of the O2Group, Telefonica Telecom and Iberbanda in January-December 2006. It excludesthe consolidation of Telefonica O2 Slovakia in January-December 2007, theconsolidation of TVA in October-December 2007, the consolidation of Airwave inApril-December 2006 and the consolidation of Endemol in July-December 2006. In absolute terms, Telefonica Espan contributed most to Telefonica Grouprevenues, accounting for 36.6% of the total. Telefonica Espan reported revenuesof 20,683 million in 2007, up 4.7% from 2006. Revenues at Telefonica Espan'swireline business amounted to 12,401 million euros in the year, a year-on-yearincrease of 3.7%. This was largely underpinned by strong Internet and broadbandservice revenues and, to a lesser extent, data and IT services, not forgettingthe noteworthy performance of voice and traditional access revenues. TelefonicaEspan's wireless business reported full-year revenues of 9,693 million euros, up5.4% year-on-year, driven by strong service revenues (+4.5%), which in turn werebuoyed by customer revenues (+8.0%). Telefonica Latinoamerica (35.6% of consolidated revenues) recorded revenues of20,078 million euros in 2007, 11.0% more than in 2006 (14.5% in constant euros).In organic terms3, revenues grew by 13.0%. In constant currency terms, Mexicoand Venezuela contribute most to topline growth with respective contributions of3.2 and 3.1 percentage points. Brazil continues to make the largest contributionto Telefonica Latinoamerica's revenues (38.2%) followed by Venezuela (11.9%) andArgentina (11.3%). TASA remains the best performing fixed operator in theregion, reporting 9.9% growth in local currency thanks to higher broadbandrevenues (+45.7% in local currency) and a robust traditional business (+5.4% inlocal currency). In Brazil, Vivo (revenues up 16.5% in local currency) should behighlighted, where results reflect the impact of the management measuresimplemented in 2006 and 2007 to achieve profitable growth and improved customersatisfaction.-------------------------------------------------------------------------------- 3 Assuming constant exchange rates and including the consolidation of TelefonicaTelecom in 2006. It excludes the consolidation of TVA in October-December 2007. Telefonica Europe contributed 14,458 million euros (25.6%) to the TelefonicaGroup's total revenues in 2007. Telefonica Europe's 2006 revenues included theO2 Group for February-December 2006, as well as Telefonica Deutschland andTelefonica O2 Czech Republic for January-December 2006. In the UK, the continuedgrowth of the customer base and ARPU boosted revenues, in comparable terms, by9.5% in local currency vs. 2006 despite the strong competitive pressure in themarket. At Telefonica O2 Czech Republic, 2007 revenues rose 2.9% year-on-yearboosted by the wireless business (+4.4% in local currency) and a stable fixedbusiness. At O2 Germany, in comparable terms, revenues fell by 1.9% vs. 2006 astraffic growth failed to offset the major price cuts made over the year in ahighly competitive market. In 2007, Telefonica Group's operating expenses grew 7.0% vs. 2006 to 37,431million euros. These higher costs are mainly due to changes in the consolidationperimeter, higher commercial efforts carried out in Latin America and Europe andthe impact of operational and personnel reorganization plans announced by theCompany that will boost efficiency in the coming years. Supplies rose 7.7% year-on-year in 2007 to 17,907 million euros (up 9.0%excluding the exchange rate effect). Stripping out also changes to theconsolidation perimeter, supplies would have risen 9.2%, mainly due to higherinterconnection expenses at Telefonica Latinoamerica and O2 UK. Personnel expenses rose 3.6% year-on-year to 7,893 million (+4.6% in constanteuros). The average number of employees in the period was 244,052, 16,915 morethan the previous year, due to net hires at the Atento Group and the inclusionof new companies in the consolidation perimeter. Excluding the Atento Groupworkforce, the average number of employees at the Telefonica Group would havebeen virtually flat year-on-year at 127,102 employees. Personnel reorganizationexpenses at Telefonica Group stood at 1,199 million euros in 2007 (1,084 millioneuros in 2006): • Telefonica Espan: 667 million euros, including the 2003-2007 redundancy programme and a new personnel reorganization programme for 2008 started in 2007; • Telefonica Latin America: 318 million euros booked for personnel reorganization programmes carried out in different companies of the Group corresponding to plans implemented in 2007 and in force throughout 2008; • Telefonica Europe: 158 million euros relating to personnel reorganization programmes implemented in Germany, the UK and Ireland. External service expenses (9,991 million euros) grew by 8.2% year-on-year (+9.5%in constant currency), partly due to the cessation of the roaming agreement inGermany with T-Mobile in the fourth quarter. In organic terms, this increase wasmainly due to increased commercial activity at Telefonica Latinoamerica and inTelefonica Espan's wireline business. Also, gains on sale of fixed assets in 2007 totalled 2,766 million euros due tothe recognition in the second quarter of 1,296 million euros in capital gainsfrom the sale of Airwave and in the third quarter of 1,368 million euros incapital gains from the disposal of Endemol. Meanwhile a capital loss of 45million euros was recorded in the second quarter in connection with the disposalof the Group's 6.9% stake in CANTV. At the end of 2007, operating income before depreciation and amortisation(OIBDA) stood at 22,825 million euros, up 19.3% from 2006. Stripping out gainsfrom the sale of Airwave and Endemol, OIBDA growth would have been 5.4%year-on-year. Organic OIBDA growth4 would have stood at 20.8% (+6.8% strippingout both capital gains). The OIBDA margin in 2007 was 40.4% (35.7% excluding theAirwave and Endemol capital gains vs. 36.2% the previous year).-------------------------------------------------------------------------------- 4 Assuming constant exchange rates and including the consolidation of the O2Group, Telefonica Telecom and Iberbanda in January-December 2006. It excludesthe consolidation of Telefonica O2 Slovakia in January-December 2007, theconsolidation of TVA in October-December 2007, the consolidation of Airwave inApril-December 2006 and the consolidation of Endemol in July-December 2006. Telefonica Espan (46.9% of consolidated OIBDA) reported OIBDA of 9,448 millioneuros in 2007, up 9.3% from 2006. The OIBDA margin stood at 45.7%, 1.9percentage points higher than one year ago. OIBDA at Telefonica Latinoamerica (7,121 million euros) represented 35.3% ofconsolidated OIBDA for 20075, a year-on-year increase of 8.4%. In organic terms6OIBDA growth was 10.6%. In constant currency terms, OIBDA growth in LatinAmerica was 11.5%. By country, Venezuela contributed most to OIBDA growth (5.2percentage points), followed by Mexico (3.1 percentage points). In absoluteterms, Brazil was the largest contributor to Telefonica Latinoamerica's OIBDA,accounting for 43.1% of the total, followed by Venezuela (14.9%) and Argentina(11.1%). Telefonica Latinoamerica's OIBDA margin in 2007 amounted to 35.5%, 0.9percentage points lower than in 2006, affected by the personnel reorganizationprovisions outlined above. Excluding these provisions, the margin would havebeen 37.1% (0.3 percentage points higher than the one recorded in 2006).-------------------------------------------------------------------------------- 5 2007 OIBDA for Telefonica Group does not consider the capital gains of 1,296million euros and 1,368 million euros from the disposals of Airwave and Endemolrespectively. 6 Assuming constant exchange rates and including the consolidation of the O2Group, Telefonica Telecom and Iberbanda in January-December 2006. It excludesthe consolidation of Telefonica O2 Slovakia in January-December 2007, theconsolidation of TVA in October-December 2007, the consolidation of Airwave inApril-December 2006 and the consolidation of Endemol in July-December 2006. Telefonica Europe generated OIBDA7 of 4,977 million in 2007 including the 1,296million euro capital gain from the sale of Airwave recorded in the secondquarter, a contribution of 18.3% to total Group OIBDA7. In 2006 TelefonicaEurope reported OIBDA of 3,708 million euros; this figure reflected theconsolidation of the O2 Group in February-December and Telefonica O2 CzechRepublic and Telefonica Germany for the full twelve months. The OIBDA marginexcluding the Airwave capital gain was 25.5% vs. 28.2% in 2006.-------------------------------------------------------------------------------- 7 Excluding the capital gain from Airwave (1,296 million euros) from TelefonicaEurope and from Group OIBDA the Airwave capital gains and the capital gain of1,368 million euros from the disposal of Endemol. In the fourth quarter O2 UK's OIBDA fell by 4.9% year-on-year in local currencydue to a 20.5 million euros charges, mainly due to personnel reorganizationcosts at its IT and technology business aimed at achieving future efficiencies.Stripping out this expense, OIBDA would have been almost flat vs. 2006. At O2Germany, fourth-quarter OIBDA fell by 77.9% year-on-year due to non-recurrentcharges of 151 million euros. Most of these were accounted for by the earlycancellation of the roaming agreement in Germany with T-Mobile mentioned earlierand the personnel reorganization plan initiated in the second quarter of theyear. Telefonica O2 Czech Republic recorded a fall of approximately 1.1percentage points in its OIBDA margin partly explained by the negativecontribution of its operations in Slovakia. Depreciation and amortisation in 2007 totalled 9,437 million euros, 2.8% lowerthan 2006 figure. Both Telefonica Espan and Telefonica Latinoamerica contributedthe most to lower depreciation and amortisation (6.0% and 3.0% lessyear-on-year, respectively). Telefonica Europe recorded a decrease (0.4%year-on-year) owing to the purchase price allocations in the O2 Groupacquisition (802 million euros) and the Telefonica O2 Czech Republic acquisition(158 million euros). In organic terms8, depreciation and amortisation for theTelefonica Group fell 3.7% in 2007 year-on-year, with Telefonica Espan andTelefonica Europe chiefly responsible for this decline. The sharp rise in OIBDA and fall in depreciation and amortisation droveoperating income (OI) 42.1% higher in the year to 13,388 million euros.Stripping out the impact of the Airwave and Endemol disposals, OI would haveincreased by 13.8%. Organic growth8 was 47.0% (+18.1% excluding the capitalgains from the disposals of Airwave and Endemol).-------------------------------------------------------------------------------- 8 Assuming constant exchange rates and including the consolidation of the O2Group, Telefonica Telecom and Iberbanda in January-December 2006. It excludesthe consolidation of Telefonica O2 Slovakia in January-December 2007, theconsolidation of TVA in October-December 2007, the consolidation of Airwave inApril-December 2006 and the consolidation of Endemol in July-December 2006. Profit from associates jumped 83.3% in 2007 to 140 million euros. The bulk ofthe increase was due to Portugal Telecom and Lycos Europe, which in April soldits investment in the Czech-based IP provider Seznam, c.z. The improvement wasalso underpinned by the fact that Sogecable and The Link have not beenconsolidated under the equity method since the fourth quarter of 2006. Net financial results at the end of 2007 amounted to 2,844 million euros, 4.0%above those of the same period of 2006. This variation arises mainly from theincrease in the average cost of debt for Telefonica Group due to higher interestrates in Europe and higher percentage of debt in Latinoamerica, that drivesfinancial expenses up by 207 million euros. The increase in the average cost ofdebt is offset by the 200 million euros reduction due to the decrease of averagetotal debt in 2007. Management of the present value of pre-retirement plancommitments and other positions associated to marked-to-market positions, have apositive impact of 84 million euros, 42 million euros behind the figure reportedfor 2006. The average cost calculated on average total net debt for 2007 is5.59% and 5.61% when excluding FX results. Free cash flow generated by the Telefonica Group in 2007 amounted 8,847 millioneuros of which 2,113 and 3,076 million euros were assigned to Telefonica's sharebuyback program and dividend payment respectively, and 781 million euros tocommitment cancellations derived mainly from the pre-retirements plans. Due tothe fact that financial divestitures for the period amounted to 2,512 millioneuros, mainly due to Airwave and Endemol disposals and TELCO participation, netfinancial debt decreased in 5,389 million euros. Also, net debt was reduced byan additional 1,472 million euros because of FX impact, changes in theconsolidation perimeter and other effects on financial accounts. All this hasbeen translated in a decrease of 6,861 million euros in respect to the netfinancial debt of the fiscal year 2006 (52,145 million euros), reaching the netfinancial debt of Telefonica Group at 2007 45,284 million euros. The tax provision for 2007 totalled 1,565 million euros, a tax rate of 14.65% inthe year. However, the cash outflow for the Group will be lower as it offsetsloss carryforwards generated in previous years and which have not yet been used. In 2007 the tax rate was affected by several issues that resulted in it beingsignificantly reduced. Chief among these were the disposal of Endemol, whichgenerated a fiscal loss, the tax reforms in the UK, which resulted in areduction in deferred liabilities, and the disposal of Airwave, which had nofiscal impact. Minority interests substracted 213 million euros in 2007, a 38.5% year-on-yeardecrease mainly due to the merger by absorption of Telefonica Moviles byTelefonica S.A. in July 2006. Minority stakes in Telesp and Telefonica O2 CzechRepublic accounted for the bulk of profit attributable to minority interests. In all, consolidated net profit to December totalled 8,906 million euros, up42.9% year-on-year. Basic earnings per share jumped 43.5% to 1.872 euros. In thefourth quarter, net profit amounted to 1,058 million euros, up 2.3%year-on-year, while earnings per share stood at 0.224 euros compared to 0.213euros per share in the fourth quarter of 2006. CapEx in 2007 totalled 8,027 million euros, an increase of 0.3% year-on-year.Exchange rate effects detracted 1.4 percentage points. 2008 FINANCIAL TARGETS In accordance with the criteria used to establish its financial targets for20089, Telefonica Group expects: • Annual growth in consolidated revenues to be in the range of 6.0%-8.0% for 2008 (2007 Base for guidance purposes: 55,550 million euros). By regions: o Telefonica Espan : +2.0%/+3.5% (2007 Base for guidance purposes: 20,536 million euros); o Telefonica Latinoamerica: +11.0%/+14.0% (2007 Base for guidance purposes: 20,078 million euros); o Telefonica Europe: +4.0%/+7.0% (2007 Base for guidance purposes: 14,358 million euros). • Annual OIBDA growth in 2008 to be in the range of 7.5%-11.0% (2007 Base for guidance purposes: 20,863 million euros). By regions: o Telefonica Espan : +6.0%/+8.0% (2007 Base for guidance purposes: 9,635 million euros); o Telefonica Latinoamerica: +12.0%/+16.0% (2007 Base for guidance purposes: 7,408 million euros); o Telefonica Europe: +2.0%/+6.0% (2007 Base for guidance purposes: 3,974 million euros); • Annual operating income (OI) growth in 2008 to be in the range of 13.0%-19.0% (2007 Base for guidance purposes: 11,467 million euros). • CapEx in 2008 will stand around 8,600 million euros (2007 Base for guidance purposes: 7,975 million euros). -------------------------------------------------------------------------------- 9 2007 adjusted figures exclude Airwave and Endemol, include 3 months ofconsolidation of TVA. 2007 T. Espan revenues are adjusted for new public voicetelephony services business model. Group revenues are also adjusted accordingly.2008 figures Includes TVA, Deltax and Telemig (from April 2008). Telefonica'sCapEx excludes Real Estate Efficiency Program. Guidance growths assume 2007constant FX. In terms of guidance calculation OIBDA and OI exclude otherexceptional revenues/expenses not foreseeable in 2007 and 2008. TELEFONICA GROUP Financial Data SELECTED FINANCIAL DATAUnaudited figures (Euros in millions) January - December 2007 2006 % Chg Revenues 56,441 52,901 6.7Operating income before D&A (OIBDA) 22,825 19,126 19.3Operating income (OI) 13,388 9,421 42.1Income before taxes 10,684 6,764 58.0Net income 8,906 6,233 42.9Basic earnings per share 1.872 1.304 43.5Weighted average number of ordinary shares outstanding during the period (millions) 4,758.7 4,779.0 (0.4)Note: Figures are presented considering the Purchase Price Allocation of O2 as of February 2006.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. TELEFONICA GROUPRESULTS BY REGIONAL BUSINESS UNITSUnaudited figures (Euros in millions) REVENUES OIBDA OPERATING INCOME January - December January - December January - December 2007 2006 % Chg 2007 2006 % Chg 2007 2006 % Chg Telefonica Espan 20,683 19,750 4.7 9,448 8,647 9.3 7,067 6,113 15.6Telefonica Latinoamerica 20,078 18,089 11.0 7,121 6,571 8.4 3,562 2,900 22.8Telefonica Europe (1) 14,458 13,159 9.9 4,977 3,708 34.2 1,591 309 n.m.Other companies and 1,221 1,903 (35.8) 1,278 200 n.m. 1,168 99 n.m.eliminations (2)Total Group 56,441 52,901 6.7 22,825 19,126 19.3 13,388 9,421 42.1 Note: Figures are presented considering the Purchase Price Allocation of O2 as of February 2006. Note: OIBDA for wireline operations in Latin America is presented after management fees. (1) Telefonica Europe includes in 2006 Telefonica O2 Czech Republic (January-December), T. Deutschland (January-December), O2 Group (February-December) and O2 Germany (February-December). OIBDA figures exclude brand fee.(2) OIBDA and Operating Income exclude the variation in investment valuation allowances accounted by Telefonica, S.A. CAPEX BY REGIONAL BUSINESS UNITSUnaudited figures (Euros in millions) January - December 2007 2006 % Chg Telefonica Espan 2,381 2,304 3.4Telefonica Latinoamerica 3,343 2,811 18.9Telefonica Europe (1) 2,125 2,552 (16.7)Other companies and eliminations 178 336 (47.1)Total Group 8,027 8,003 0.3 Note: Group CapEx in 2006 at cumulative average exchange rate. (1) Telefonica Europe includes in 2006 Telefonica O2 Czech Republic (January-December), T. Deutschland (January-December), O2 Group (February-December) and O2 Germany (February-December). TELEFONICA GROUPCONSOLIDATED INCOME STATEMENTUnaudited figures (Euros in millions) January - December October - December 2007 2006 % Chg 2007 2006 % ChgRevenues 56,441 52,901 6.7 14,426 14,196 1.6Internal exp capitalized in fixed assets (1) 708 719 (1.5) 211 195 8.3Operating expenses (37,431) (34,995) 7.0 (10,381) (9,992) 3.9 Supplies (17,907) (16,629) 7.7 (4,653) (4,645) 0.2 Personnel expenses (7,893) (7,622) 3.6 (2,578) (2,421) 6.5 Subcontracts (9,991) (9,230) 8.2 (2,771) (2,578) 7.5 Bad Debt Provisions (666) (609) 9.4 (130) (125) 3.5 Taxes (974) (905) 7.7 (249) (224) 11.4Other net operating income (expense) 358 346 3.3 192 127 51.2Gain (loss) on sale of fixed assets 2,766 236 n.m. 132 12 n.m.Impairment of goodwill and other assets (17) (81) (79.2) (4) (66) (94.5)Operating income before D&A (OIBDA) 22,825 19,126 19.3 4,577 4,472 2.3Depreciation and amortization (9,437) (9,704) (2.8) (2,452) (2,510) (2.3)Operating income (OI) 13,388 9,421 42.1 2,125 1,962 8.3Profit from associated companies 140 77 83.3 34 16 n.m.Net financial income (expense) (2,844) (2,734) 4.0 (749) (805) (7.0)Income before taxes 10,684 6,764 58.0 1,409 1,172 20.2Income taxes (1,565) (1,781) (12.1) (294) (64) n.m.Income from continuing operations 9,119 4,983 83.0 1,115 1,108 0.6Income (Loss) from discontinued ops. 0 1,596 n.m. 0 0 n.m.Minority interest (213) (346) (38.5) (57) (73) (22.5)Net income 8,906 6,233 42.9 1,058 1,035 2.3Weighted average number of ordinary shares 4,758.7 4,779.0 (0.4) 4,718.5 4,853.6 (2.8)outstanding during the period (millions) Basic earnings per share 1.872 1.304 43.5 0.224 0.213 5.2 Note: Figures are presented considering the Purchase Price Allocation of O2 as of February 2006. "Bad debt provisions" have been reclassified from "Other net operating income (expense)" to "Operating expenses". (1) Including work in process. Note: For the basic earnings per share calculation purposes, the weightedaverage number of ordinary shares outstanding during the period have beenobtained applying IFRS rule 33 "Earnings per share". Thereby, there are nottaking into account as outstanding shares the weighted average number of sharesheld as treasury stock during the period. TELEFONICA GROUPCONSOLIDATED BALANCE SHEETUnaudited figures (Euros in millions) January - December 2007 2006 % ChgNon-current assets 87,395 91,269 (4.2) Intangible assets 18,320 20,758 (11.7) Goodwill 19,770 21,739 (9.1) Property, plant and equipment and Investment property 32,469 33,888 (4.2) Long-term financial assets and other non-current assets 9,007 6,183 45.7 Deferred tax assets 7,829 8,702 (10.0)Current assets 18,478 17,713 4.3 Inventories 987 1,012 (2.4) Trade and other receivables 9,662 9,666 (0.0) Current tax receivable 1,010 1,555 (35.0) Short-term financial investments 1,622 1,679 (3.4) Cash and cash equivalents 5,065 3,792 33.6 Non-current assets classified as held for sale 132 9 n.s.Total Assets = Total Equity and Liabilities 105,873 108,982 (2.9)Equity 22,855 20,001 14.3 Equity attributable to equity holders of the parent 20,125 17,178 17.2 Minority interest 2,730 2,823 (3.3)Non-current liabilities 58,044 62,644 (7.3) Long-term financial debt 46,942 50,675 (7.4) Deferred tax liabilities 3,926 4,700 (16.5) Long-term provisions 6,161 6,287 (2.0) Other long-term liabilities 1,015 982 3.4Current liabilities 24,974 26,337 (5.2) Short-term financial debt 6,986 8,382 (16.7) Trade and other payables 8,729 8,533 2.3 Current tax payable 2,157 2,841 (24.1) Short-term provisions and other liabilities 7,102 6,580 7.9Financial DataNet Financial Debt (1) 45,284 52,145 (13.2) Note: Figures are presented considering the Purchase Price Allocation of O2 as of February 2006. (1) Net Financial Debt = Long term financial debt + Other long term liabilities+ Short term financial debt - Short term financial investments - Cash and cashequivalents - Long term financial assets and other non-current assets. TELEFONICA GROUPFREE CASH FLOW AND CHANGE IN DEBTUnaudited figures (Euros in millions) January - December 2007 2006 % Chg I Cash flows from operations 20,132 18,824 6.9II Net interest payment (1) (3,097) (2,296)III Payment for income tax (1,457) (1,100)A=I+II+III Net cash provided by operating activities 15,578 15,428 1.0B Payment for investment in fixed and (7,205) (6,828) intangible assetsC=A+B Net free cash flow after CAPEX 8,373 8,600 (2.6)D Net Cash received from sale of Real Estate 129 24E Net payment for financial investment 2,383 (21,574)F Net payment for dividends and treasury stock (5,496) (5,542) (2)G=C+D+E+F Free cash flow after dividends 5,389 (18,492) c.s.H Effects of exchange rate changes on net (819) (511) financial debtI Effects on net financial debt of changes in (653) 4,097 consolid. and othersJ Net financial debt at beginning of period 52,145 30,067K=J-G+H+I Net financial debt at end of period 45,284 52,145 (13.2) (1) Including cash received from dividends paid by subsidiaries that are notunder full consolidation method. (2) Dividends paid by Telefonica S.A. and dividend payments to minoritaries fromsubsidiaries that are under full consolidation method and treasury stock. RECONCILIATIONS OF CASH FLOW AND OIBDA MINUS CAPEXUnaudited figures (Euros in millions) January - December 2007 2006 % ChgOIBDA 22,825 19,126 19.3- CapEx accrued during the period (8,027) (8,003)- Payments related to commitments (781) (830)- Net interest payment (3,097) (2,296)- Payment for income tax (1,457) (1,100)- Results from the sale of fixed assets (2,766) (236)- Invest. in working cap. and other deferred income and 1,676 1,939exp= Net Free Cash Flow after CapEx 8,373 8,600 (2.6)+ Net Cash received from sale of Real Estate 129 24- Net payment for financial investment 2,383 (21,574)- Net payment for dividends and treasury stock (5,496) (5,542)= Free Cash Flow after dividends 5,389 (18,492) c.s. Note: The concept "Free Cash Flow" reflects the amount of cash flow available toremunerate Telefonica S.A. Shareholders, to protect solvency levels (financialdebt and commitments), and to accomodate strategic flexibility. The differenceswith the caption "Net Free Cash Flow after CapEx" included in the tablepresented above, are related to "Free Cash Flow" being calculated beforepayments related to commitments (workforce reductions and guarantees) and afterdividend payments to minoritaries, due to cash recirculation within the Group. Jan-Dec 2007 Jan-Dec 2006Net Free Cash Flow after CapEx 8,373 8,600+ Payments related to cancellation of commitments 781 830- Ordinary dividends payment to minoritaries (307) (514)= Free Cash Flow 8,847 8,916Weighted average number of ordinary shares outstanding 4,758.7 4,779.0during the period (millions)= Free Cash Flow per share 1.859 1.866 NET FINANCIAL DEBT AND COMMITMENTSUnaudited figures (Euros in millions) December 2007 Long-term debt 47,269 Short term debt including current maturities 6,986 Cash and Banks (5,065) Short and Long-term financial investments (1) (3,906) A Net Financial Debt 45,284 Guarantees to IPSE 2000 365 B Commitments related to guarantees 365 Gross commitments related to workforce reduction (2) 5,437 Value of associated Long-term assets (3) (676) Taxes receivable (4) (1,472) C Net commitments related to workforce reduction 3,289 A + B + C Total Debt + Commitments 48,938 Net Financial Debt / OIBDA (5) 2.3x Total Debt + Commitments/ OIBDA (5) 2.4x (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. This amount is detailed in the caption "Provisions forContingencies and Expenses" of the Balance Sheet, and is the result of addingthe following items: "Provision for Pre-retirement, Social Security Expenses andVoluntary Severance", "Group Insurance", "Technical Reserves", and "Provisionsfor 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 relatedto workforce reduction commitments.(5) Calculated based on December 2007 OIBDA, excluding results on the sale of fixed assets. TELEFONICA GROUPEXCHANGES RATES APPLIED P&L and CapEx (1) Balance Sheet (2) Jan - Dec 2007 Jan - Dec 2006 December 2007 December 2006 USA (US Dollar/Euro) 1.368 1.255 1.472 1.317United Kingdom (Sterling/Euro) 0.685 0.682 0.733 0.672Argentina (Argentinean Peso/Euro) 4.263 3.857 4.636 4.033Brazil (Brazilian Real/Euro) 2.661 2.728 2.608 2.816Czech Republic (Czech Crown/Euro) 27.756 28.338 26.620 27.495Chile (Chilean Peso/Euro) 714.637 665.336 731.472 701.262Colombia (Colombian Peso/Euro) 2,837.126 2,949.853 2,965.928 2,949.853El Salvador (Colon/Euro) 11.974 10.977 12.881 11.524Guatemala (Quetzal/Euro) 10.502 9.548 11.234 10.004Mexico (Mexican Peso/Euro) 14.953 13.664 15.996 14.330Nicaragua (Cordoba/Euro) 25.229 22.031 27.827 23.703Peru (Peruvian Nuevo Sol/Euro) 4.282 4.108 4.409 4.205Uruguay (Uruguayan Peso/Euro) 32.101 30.183 31.724 32.201Venezuela (Bolivar/Euro) 2,942.254 2,695.418 3,165.015 2,832.861 (1) These exchange rates are used to convert the P&L and CapEx accounts of the Group foreign subsidiaries from local currency to euros.(2) Exchange rates as of 31/Dec/07 and 31/Dec/06. RESULTS BY REGIONAL BUSINESS UNITS Telefonica Espan Telefonica Espan successfully bolstered its position in an extremely active andcompetitive market, meeting all the financial targets announced for 2007. Revenues grew by 4.7% in 2007 to 20,683 million euros, beating the growth targetof 3.5% - 4.5%. Operating income before depreciation and amortisation (OIBDA)jumped by 9.3% to 9,448 million euros, putting the OIBDA margin at 45.7%. Forpurposes of comparison with the OIBDA growth target for 2007 of between 9% and11%, factoring in the factors taken into consideration when this target was set,OIBDA growth stood at 11.6%, meeting the target upgraded in July 2007. CapEx amounted to 2,381 million euros, an increase of 3.4% from 2006. CapExtarget for 2007, which excluded investments related to Real Estate EfficiencyPlan, was set at keeping the figure below 2,400 million euros in 2007.Investment effort has been mainly devoted to growing the Internet and Broadbandbusinesses, with significant investments related to ADSL and IP services(Imagenio). Worth to highlight is the launching of the mobile and fixed networktransformation processes. Operating Cash Flow (OIBDA-CapEx) for the year amounted to 7,067 million euros,growing by 11.4% compared to the January-December 2006 period. As with regards to the Redundancy Plan (E.R.E. 2003-2007) at the WirelineBusiness, it should be noted its conclusion after registering 1,102 sign-ups inthe final year of the programme, with a related provision of 345 million euros. During the last quarter of 2007, Telefonica took decisions of organizationalnature aiming to foster a structure to ease technological convergence andservices delivering in the businesses where the company operates. With thisobjective, and within the integration model adopted, ongoing efforts onpersonnel reorganization are being implemented. This has resulted in a newpersonnel reorganization programme approved, which by December 31st 2007 hadalready been initiated. The estimated cost of this programme amounts to 322million euros (168 million euros at the Wireline Business and 154 million eurosat the Wireless Business), with the corresponding provision already included in2007 accounts. Total personnel reorganization costs for year 2007 amount to 667 million eurosat Telefonica Espan, of which 551 million euros where accounted for in the lastquarter. Highlights of Telefonica Espan's Wireline Business: • Sustained topline growth (+3.7% in 2007) underpinned by the good performance of Internet and broadband services and, to a lesser extent, data and IT services. • Strong competitive position in the Broadband market, maintaining its estimated market share above 56%. At the end of December Telefonica's retail broadband accesses reached 4.6 million. • Losses in the number of fixed telephony lines were contained at just 0.3% year-on-year (December 2007 vs. December 2006) after posting 32.801 net adds in the fourth quarter. Net losses for the year 2007 stood at 51,901 lines, the best year-on-year performance since 2001. • 5.1% underlying OIBDA growth in 2007 (stripping out specific effects such as personnel reorganization costs, the Real Estate Programme and subsidies among others). • Conclusion of the Redundancy Plan (2003/2007), to which a total of 13,870 employees signed up during the five years it was in force. Highlights of Telefonica Espan's Wireless Business include: • Solid service revenues growth of 4.5% in 2007, driven by the strong performance of customer revenues (+8.0%). • The customer base grew by 6.4% year-on-year to 22.8 million lines, with growth in the contract segment jumping 12.4%. Contract customers now account for almost 60% of the total customer base. • Churn remained flat at 1.8% in the face of increased competitive pressure, similar to the 2006 figure, with a slight reduction in contract churn achieved down to 1.0%. • Increasing contribution from data revenues (+12.4% in 2007 vs. 2006), with connectivity revenues posting the best performance, up over 70% in 2007. • 6.5% increase in OIBDA under guidance criteria in year 2007 (excluding costs related to personnel reorganization). OIBDA reaches 4,395 million euros in 2007, with an OIBDA margin over revenues of 45.3%. RESULTS BY REGIONAL BUSINESS UNITS Telefonica Espan WIRELINE BUSINESS Revenues in 2007 amounted to 12,401 million euros, with growth reaching 3.7%year-on-year in the fourth quarter. Cumulative growth to December stood at 3.7%,slightly exceeding the growth target of between 2.5% and 3.5%. This rise was underpinned by growth in Internet and broadband services and dataand IT services, not forgetting the noteworthy performance of traditional voiceand access revenues, with the former falling slightly and the latter remainingstable. Traditional access revenues amounted to 2,772 million euros, a year-on-yearincrease of 0.1%, led by the 2.0% increase in the PSTN line monthly fee andfewer losses of fixed telephony accesses relative to 2006. • The Spanish wireline access market grew by an estimated 1.9% over the course of the year. The Company's fixed telephony accesses totalled 15,897,966 at the end of 2007 in the wake of fourth quarter net line gains of 32,801, stemming the pace of the year-on-year decline to 0.3% (-0.7% at September 2007). The strong performance during the fourth quarter, the best figure since the first quarter of 2001, means that net line losses in 2007 were contained at 51,901, down substantially on those recorded in 2006 (-185,696 net access losses). These figures make 2007 the best year since 2001 in terms of net adds. • Telefonica's share of the wireline access market remained stable vs. September 2007 at 81%. Voice service revenues continued to follow the positive trend seen in previousquarters, and fell by 1.6% in 2007 (-2.1% in the first nine months of the year).Voice service revenues remained flat in year-on-year terms in the fourthquarter, underpinned by a 12.5% jump in interconnection revenues, driven byhigher incoming international and carrier traffic and falls in outgoing traffic(-1.4%) and handset sales (-6.1%). • The number of pre-selected lines fell further, declining by 110,859 in 2007 to 1,795,660 at the end of December. • In line with the positive revenue trend, Telefonica Espan's estimated share of wireline traffic remains stable at around 65%. Internet and broadband revenues surged by 11.9% in the fourth quarter, boostedby revenues in the retail broadband segment which were 17.4% higheryear-on-year. Internet and broadband revenues increased by 15.5% in 2007 from2006. Retail broadband service revenues were up +24.2% in December, accounting for 3.8percentage points of the revenue growth registered by Telefonica Espan'sWireline Business. Growth in these revenues slowed through the year, to post agrowth of 17.4% in the last quarter, due to the decline in retail broadband netadds in 2007 vs. 2006 (-19.0%). At the same time, wholesale broadband service revenues fell 11.3% in 2007,mainly on account of the migration of wholesale ADSL to unbundled loops. • Estimated net adds in the fixed broadband Internet access market amounted to 0.4 million in the fourth quarter, resulting in estimated net adds of around 1.4 million for the entire year, 18.9% down on 2006. The total estimated market in Spain in December 2007 stood at 8.1 million accesses. • Telefonica's retail Internet broadband accesses net adds in the fourth quarter came to 227,480, taking total accesses to 4,571,599 at the end of December. This gave Telefonica continued segment leadership with an estimated market share of over 56%, slightly higher than in 2006. • The estimated share of unbundled loops in the broadband Internet access market increased to almost 17% (14% in 2006). Net adds during the fourth quarter amounted to 116,088 loops, down 29.3% on that recorded in the same quarter of 2006. Total unbundled loops at the end of December amounted to 1,353,940, of which 57.3% were shared access loops. • The wholesale ADSL service continued to lose steam during the fourth quarter due to the lower number of migrations to unbundled loops. In the wake of net fourth quarter losses of 13,658, total wholesale accesses amounted to 499,263 at the end of December. • Telefonica continues to spearhead the development of the pay TV market in Spain, achieving an estimated market share below 13% (10% by December end 2006) after adding 42,020 new customers in the fourth quarter. As a result its customer base had risen to 511,087 by the end of December 2007. • The total number of Duo and Trio bundles stood at 3,792,002 units at the end of December 2007. It is worth highlighting that over 80% of the Company's retail Internet broadband accesses are included in a double or triple play bundle (over 70% by December 2006 end). Data service revenues grew sharply in the fourth quarter to 14.1% from 5.6% inthe nine months to September 2007. This increase in the pace of growth isunderpinned by the 12.0% increase in revenues from Virtual Private Networks(VPNs) in the fourth quarter of 2007, driven by the strong uptake in fibre andADSL VPNs. Wholesale services also posted an impressive 22.8% growth in thefourth quarter, compared with growth of 6.8% in the January-September 2007period. IT service revenues grew 11.6% in 2007 versus 2006. Operating expenses at Telefonica Espan's Wireline Business totalled 7,337million euros in 2007, 4.0% less than in 2006. This fall relates to lowerpersonnel reorganization costs (513 million euros in 2007 vs. 980 million eurosin 2006), which fell by 47.7%. These costs are broken up into 345 million eurosin connection with the E.R.E. 2003-2007 (Redundancy Plan) to which 1.102employees have joined in 2007, the ending year of the program, plus 168 millioneuros of the new personnel reorganization programme initiated in 2007 and to beimplemented through 2008. Stripping out personnel reorganization costs in 2006 and 2007 and the actuarialreview, operating expenses grew 2.5% in 2007. This growth was due to: i) the8.5% rise in external services expenses to 1,413 million euros due to increasedcommercial activity and PUT (Public Use Telephony) expenses; ii) the 1.2%increase in supply expenses to 3,008 million euros, especially expensesassociated with Internet and Imagenio; and iii) the 0.2% growth in personnelexpenses, once stripped out personnel reorganization costs, amounting 2,129million euros. Personnel expenses fell by 14.9% in the year as a whole to 2,642million euros due to the impact of the above mentioned lower personnelreorganization costs. Topline growth outpaced expenses excluding personnel reorganization costs. This,together with the decline of personnel reorganization costs, boosted operatingincome before depreciation and amortisation (OIBDA) by 14.8% to 5,249 millioneuros in 2007. OIBDA in October-December 2007 totalled 1,181 million euros, substantiallyhigher than the figure reported in the same period of 2006 (+47.1%). This wasdue primarily to the higher personnel reorganization costs accounted for in thelast quarter of 2006 (588 million euros vs. 397 million euros in the fourthquarter of 2007). Stripping out specific items such as the redundancy provision (E.R.E.2003-2007), the new personnel programme, the real estate programme, subsidies,the fine imposed by the EU and recognised in the second quarter, and others,underlying OIBDA rose 5.1% in 2007, having grown by 3.5% in the fourth quarterof 2007. For purposes of comparison with the stated financial targets, if atotal provision of 630 million euros had been booked for personnelreorganization costs (compared with the actual provision of 513 million euros),and capital gains from property sales and others stood at 162 million euros(compared with the reported amount of 163 million euros), OIBDA growth wouldhave been 15.8%, at the top end of the growth target of 13.5% -16% (the 151.9million euro fine imposed by the European Union is considered a unforeseeableexpense and consequently is not included as part of the financial targets). The OIBDA margin in 2007 stood at 42.3%. Excluding the effect of personnelreorganization programmes and the actuarial review in both years, along with thefine imposed by the European Union in the second quarter of 2007, the OIBDAmargin would have expanded by 1.3 percentage points year-on-year to 47.7%. RESULTS BY REGIONAL BUSINESS UNITS Telefonica Espan WIRELESS BUSINESS The Spanish wireless market surpassed the 50.7 million-line mark by the end of2007, with an estimated penetration rate of 111% (an increase of more than 6percentage points vs. December 2006). Against this backdrop, Telefonica Espan's Wireless Business achieved net adds of406,837 customers in the fourth quarter (426,235 in the fourth quarter of 2006),beating the figures recorded in the first three quarters of the year. Incumulative terms, Telefonica Espan's net adds stood at 1,380,596 lines(1,556,027 in 2006), with a noteworthy number of customer gains in the contractsegment (1,501,800, up 4.3% on 2006). This made Telefonica Espan clear leader incontract adds in the Spanish market, improving its share of net adds in thissegment in an increasingly competitive market. Commercial activity grew by 4.4% in the final quarter in year-on-year terms,with a total of more than 11.9 million commercial actions in the year, a 2.9%increase on 2006. Customer base now totals more than 22.8 million (+6.4% vs.December 2006), underpinned by growth in the contract segment (+12.4% vs.December 2006), which accounted for almost 60% of the total customer base at theend of 2007 (up more than 3 percentage points on December 2006). In portability, lines balance was positive in the fourth quarter of 2007,underpinned by the strong performance of the highest value segment, specifically36,593 net contract adds. In the year as a whole, the net portability balancewas positive (494 lines), with net adds in the contract segment of 238,320lines. Strong gross adds (+3% in 2007 vs. 2006) and stable churn were key to thepositive outcome of the company's commercial strategy. Particularly noteworthywas the growth in contract adds, which rose 12.0% year-on-year. Churn in 2007stood at 1.8%, the same rate as in 2006 despite increased pressure fromcompetition, and the company even achieved a slight reduction in contract churn(-0.03 percentage points) to 1.0%. Prepay churn in the final quarter of the yearwas lower than in the third quarter of 2007 (-0.3 percentage points) and than inthe final quarter of 2006 (-0.1 percentage points). Handset upgrades once againplayed a key role in churn performance. Driven by loyalty campaigns, these grewby 7.8% versus the fourth quarter of 2006 and rose 7.4% in year-on-year terms. In terms of usage, the volume of traffic carried in the final quarter grew by6.2% year-on-year (more than 15,500 million minutes) and by 11.5% in the year asa whole (over 63,300 million minutes). On-net traffic rose 7.4% in the fourthquarter and by 14.0% in the year . MoU amounted to 161 minutes in 2007 (+3.0%vs. 2006). The drop in MoU in the fourth quarter of 2007 vs. the fourth quarterof 2006 was due to the different types of promotions carried out in the twoperiods. Voice ARPU reached 26.7 euros in the final quarter of the year, 4.5% lower thanin the same quarter of 2006. The main causes of this decrease were the April andOctober cuts in interconnection rates (14.9% in cumulative terms) and theregulation of roaming tariffs in the European Union. Year-on-year voice ARPUterms falls 2.8% to 27.6 euros. Outgoing voice ARPU in 2007 fell slightly to22.9 euros (-1.0%), declining by 2.9% in the fourth quarter of 2007 to 22.3euros. Meanwhile, data ARPU reached 5.0 euros in the fourth quarter, with year-on-yeargrowth of 1.8% (with an increase of +2.6% in outgoing data ARPU), and full-yeargrowth of 4.8% (5.2% in outgoing data ARPU) to 4.8 euros. The lower data ARPUgrowth in the fourth quarter was due to the slowdown in content services, drivenby the restructuring process affecting the sector and the regulatory uncertainty(although this was recently resolved). Stripping out content revenues both inthe fourth quarter of 2007 and the year as a whole, data ARPU would be growingat a rate of over 6%, underpinned by connectivity revenues (over 70% growthversus the fourth quarter of 2006). At the end of December Telefonica Espan's customers held more than 3.5 millionUMTS/HSDPA handsets, representing a penetration of 16% excluding M2M, up 10percentage points from 2006. As a result, total ARPU in the fourth quarter of 2007 was 31.8 euros, 3.6% lowerthan in the fourth quarter of 2006 and down 1.8% in the full year at 32.3 euros.Outgoing ARPU in 2007 remained at a similar level to 2006 (27.1 euros). With regard to data roaming, on January 14th the Wireless Business of TelefonicaEspan and Telefonica Europe announced a range of new Internet roaming rates forusers travelling in Europe. These will be between 42% and 61% lower than atpresent. Revenues rose 5.4% in 2007 to 9,693 million euros vs. 2006 and by 3.2% in thefourth quarter to 2,407 million euros. It is worth noting that since January 1st2007 the way prepay sales and top-up commissions are accounted has changed.Instead of being recognised as a decrease in revenues, they are now reported ascosts. Also, revenues/costs of portability transit routing are now reported atthe net amounts. The net effect of this change is neutral at OIBDA level,although revenues would have risen 2.9% in the fourth quarter and 5.1% in 2007excluding these accounting changes. Highlights by revenue item: • Service revenues grew by 2.6% in the fourth quarter and by 4.5% in 2007 to 8,509 million euros, within the target of between 4.0% and 5.0% growth respectively. Growth was primarily driven by customer revenues, which surged 8.0% in 2007 (+5.8% in the quarter, impacted by the regulation of roaming tariffs in the EU from September 2007) to 6,861 million euros. • Interconnection revenues fell 8.6% in 2007 (-10.8% in the fourth quarter), due to the reduction in interconnection rates. Roaming-in revenues fell by 12.4% over the year due to the downward trend in wholesale prices (-6.3% in the fourth quarter). • Revenue from handset sales totalled 1,184 million euros, a year-on-year rise of 11.9% and of 7.6% in the fourth quarter. • During the last quarter of 2007, Telefonica took decisions of organizational nature aiming to foster a structure to ease technological convergence and services delivering in the businesses where the company operates. With this objective, and within the integration model adopted, ongoing efforts on personnel reorganization are being implemented. This has resulted in a new personnel reorganization programme approved, which by December 31st 2007 had already been initiated. The estimated cost of this programme amounts to 154 million euros, with the corresponding provision already included in 2007 accounts. • Operating costs amounted to 5,541 million euros in 2007, up 7.6% on the 2006 total, underpinned by greater cost efficiency and impacted by the provision mentioned. In the fourth quarter, operating costs were 13.1% up year-on-year, totalling 1,531 million euros. Excluding this provision, the operating costs would have amounted to 5,387 milion euros in 2007 (1,378 million euros in the fourth quarter), up 4.6% vs. 2006 (+1.8% in the quarter). Operating income before depreciation and amortisation (OIBDA) grew by 2.8% in2007 in relation to 2006 to 4,241 million euros. Fourth-quarter OIBDA amountedto 902 million euros, a year-on-year decline of 10.0%. Excluding the aforementioned provision, the OIBDA would have increased by 6.5%vs. 2006 amounting 4,395 million euros comfortably beating the target of between4.0% and 5.0% growth. In the fourth quarter, the OIBDA excluding the provisionreached 1,056 million euros, up 5.3% year-on-year. The OIBDA margin stood at43.9% in the fourth quarter (43.0% in the same period of 2006), and 45.3% incumulative terms vs. 44.9% in 2006, despite increasing commercial activity in ahighly competitive market. TELEFONICA ESPANACCESSESUnaudited figures (thousands) 2006 2007 December March June September December % Chg y-o-y Final Clients Accesses 42,620.8 43,115.8 43,508.2 43,885.2 44,514.9 4.4 Fixed telephony 15,949.9 15,920.3 15,906.2 15,865.2 15,898.0 (0.3)accesses (1) Internet and data 4,842.0 4,963.2 5,048.4 5,131.3 5,279.3 9.0accesses Narrowband 1,040.5 916.0 798.1 736.5 660.8 (36.5) Broadband (2) 3,742.7 3,992.7 4,198.4 4,344.1 4,571.6 22.1 Other (3) 58.8 54.4 52.0 50.7 47.0 (20.1) Mobile accesses 21,446.0 21,813.7 22,102.7 22,419.7 22,826.6 6.4 Pre-Pay 9,303.0 9,283.8 9,182.9 9,158.0 9,181.8 (1.3) Contract 12,142.9 12,529.9 12,919.8 13,261.7 13,644.7 12.4 Pay TV 383.0 418.6 450.9 469.1 511.1 33.4Wholesale Accesses 1,531.8 1,640.8 1,707.8 1,757.2 1,859.2 21.4 Unbundled loops 939.0 1,071.2 1,170.0 1,237.9 1,353.9 44.2 Shared ULL 527.7 605.2 664.5 713.5 776.4 47.1 Full ULL 411.3 466.0 505.5 524.4 577.6 40.4 Wholesale ADSL 586.4 561.7 530.5 512.9 499.3 (14.9) Other (4) 6.4 7.8 7.4 6.5 6.0 (5.4)Total Accesses 44,152.6 44,756.6 45,216.0 45,642.5 46,374.2 5.0 (1) PSTN (including Public Use Telephony) x1; ISDN Basic access x1; ISDN Primaryaccess; 2/6 Access x30. Company's accesses for internal use included.(2) ADSL, satellite, optical fibre, cable modem andbroadband circuits.(3) Leased lines.(4) Wholesale circuits.Note: Does not include Iberbanda's accesses TELEFONICA ESPANCONSOLIDATED INCOME STATEMENTUnaudited figures (Euros inmillions) January - December October - December 2007 2006 % Chg 2007 2006 % Chg Revenues 20,683 19,750 4.7 5,222 5,030 3.8Internal exp 220 215 2.5 59 65 (9.3)capitalized in fixedassets (1)Operating expenses (11,505) (11,429) 0.7 (3,366) (3,328) 1.2Other net operating (71) 48 c.s. 8 25 n.m.income (expense)Gain (loss) on sale of 137 80 72.6 145 (3) c.s.fixed assetsImpairment of goodwill (17) (17) 1.1 (3) (5) (41.7)and other assetsOperating income 9,448 8,647 9.3 2,064 1,783 15.7before D&A (OIBDA)Depreciation and (2,382) (2,533) (6.0) (587) (619) (5.1)amortizationOperating income (OI) 7,067 6,113 15.6 1,476 1,164 26.8 Note: "Bad debt provisions" have been reclassified from "Other netoperating income (expense)" to "Operating expenses".(1) Including work in process. TELEFONICA ESPAN: WIRELINE BUSINESSSELECTED FINANCIAL DATAUnaudited figures (Euros in millions) January - December October - December 2007 2006 % Chg 2007 2006 % Chg Revenues 12,401 11,964 3.7 3,183 3,070 3.7OIBDA 5,249 4,572 14.8 1,181 803 47.1OIBDA margin 42.3% 38.2% 4.1 p.p. 37.1% 26.1% 11.0 p.p.CapEx 1,614 1,555 3.8 552 506 9.2 TELEFONICA ESPAN: WIRELINE BUSINESSSELECTED REVENUES DATAUnaudited figures (Euros in millions) January - December October - December 2007 2006 % Chg 2007 2006 % Chg Traditional Access (1) 2,772 2,768 0.1 688 689 (0.2)Traditional Voice Services 4,792 4,868 (1.6) 1,203 1,203 0.0 Domestic Traffic (2) 2,921 3,014 (3.1) 729 740 (1.4) Interconnection (3) 952 907 5.0 237 211 12.5 Handsets sales and others 918 947 (3.1) 237 252 (6.1)(4)Internet Broadband Services 2,775 2,403 15.5 716 640 11.9 Narrowband 95 143 (33.4) 18 26 (30.2) Broadband 2,679 2,260 18.6 698 615 13.6 Retail (5) 2,361 1,901 24.2 624 532 17.4 Wholesale (6) 318 359 (11.3) 74 83 (10.2)Data Services 1,160 1,076 7.8 309 270 14.1IT Services 437 392 11.6 133 136 (2.0) Note: Telefonica de Espan parent company's operating revenues includes TerraEspan's revenues as of the first quarter 2006. (1) Monthly and connection fees (PSTN, Public Use Telephony, ISDN and CorporateServices) and Telephone booths surcharges. (2) Local and domestic long distance (provincial, interprovincial andinternational) fixed to mobile traffic, Intelligent Network Services, SpecialValued Services, Information Services (118xy), bonusses and others. (3) Includes revenues from fixed to fixed incoming traffic, mobile to fixedincoming traffic, and transit and carrier traffic. (4) Managed Voice Services and other businesses revenues. (5) Retail ADSL services and other Internet Services. (6) Includes Megabase, Megavia, GigADSL and local loop unbundling. TELEFONICA ESPAN: WIRELESS BUSINESSSELECTED FINANCIAL DATAUnaudited figures (Euros in millions) January - December October - December 2007 2006 % Chg 2007 2006 % Chg Revenues 9,693 9,199 5.4 2,407 2,333 3.2OIBDA 4,241 4,128 2.8 902 1,002 (10.0)OIBDA margin 43.8% 44.9% (1.1 p.p.) 37.5% 43.0% (5.5 p.p.)CapEx 767 750 2.4 257 341 (24.5) TELEFONICA ESPAN: WIRELESS BUSINESSSELECTED REVENUES DATAUnaudited figures (Euros in millions) January - December October - December 2007 2006 % Chg 2007 2006 % Chg Service Revenues 8,509 8,142 4.5 2,111 2,058 2.6 Customer Revenues 6,861 6,353 8.0 1,718 1,623 5.8 Interconnection 1,372 1,500 (8.6) 333 373 (10.8) Roaming - In 220 251 (12.4) 44 47 (6.3) Other 57 38 49.5 17 15 13.2Handset 1,184 1,058 11.9 296 275 7.6 TELEFONICA ESPAN: WIRELESS BUSINESSSELECTED OPERATING DATAUnaudited figures 2006 2007 December March June September December % Chg y-o-y Mobile customer (thousands) 21,446.0 21,813.7 22,102.7 22,419.7 22,826.6 6.4Pre-pay 9,303.0 9,283.8 9,182.9 9,158.0 9,181.8 (1.3)Contract 12,142.9 12,529.9 12,919.8 13,261.7 13,644.7 12.4 4Q 1Q 2Q 3Q 4Q % Chg y-o-y MoU (minutes) 157 160 159 168 156 (0.8)Pre-pay 66 74 67 89 64 (2.8)Contract 228 224 225 223 218 (4.4)ARPU (EUR) 33.0 31.7 32.8 33.1 31.8 (3.6)Pre-pay 15.9 14.9 15.7 16.5 15.0 (5.7)Contract 45.7 44.3 45.1 44.8 43.2 (5.6)Data ARPU 5.0 4.6 4.6 4.9 5.0 1.8%non-P2P SMS over data revenues 45.3% 48.1% 49.5% 48.4% 47.7% 2.4 p.p. Note: MoU and ARPU calculated as monthly quarterly average. RESULTS BY REGIONAL BUSINESS UNITS Telefonica Latinoamerica In accordance with the Group's new structure, Telefonica Latinoamerica's resultsinclude Telefonica Group's fixed line and wireless operators' results in theLatin American region. Furthermore, figures for the Telefonica LatinoamericaGroup also include the results of Telefonica Telecom, from the 1st of May 2006. At the end of December 2007, Telefonica Latinoamerica managed 134.1 millionaccesses, a year-on-year increase of 16.9%, boosted by growth of 22.4% incellular customers to almost 102 million. Net adds during the fourth quarteramounted to 7.3 million, the Group's best ever figure. Growth rates were high in almost all the countries in the mobile business, withcustomer growth especially robust in Mexico (+46.6% year-on-year to over 12.5million customers), Argentina (+22.6%, 13.7 million customers), and Peru(+58.5%, 8.1 million customers). Wireline telephony accesses reached 23.9 million, in line with those managed ayear earlier, with significant growth in Peru (+11.3% year-on-year) which offsetthe lower number of lines in service in other countries. Growth in retailinternet broadband accesses remained strong, up 33.2% year-on-year to over 5.0million accesses, reflecting the sales and marketing efforts made by all theoperators. Telefonica Latinoamerica now has close to 1.2 million pay TVcustomers, with operations in Peru, Chile, Colombia and, since the third quarterof 2007, Brazil, where Telesp's satellite TV licence was complemented in thefourth quarter of 2007 with the incorporation of TVA . The currencies of the countries in which Telefonica operates depreciated againstthe euro in year-on-year terms, with the exception of the Brazilian real and theColombian peso, whose average exchange rates appreciated by 2.5% and 3.7%respectively. This detracted 3.5 and 3.2 percentage points from revenue andOIBDA growth in 2007 respectively, although less than in previous quarters(currency effects reduced revenue and OIBDA growth by 3.7 and 3.5 percentagepoints in the first nine months, respectively, and by 5.0 and 4.9 percentagepoints respectively in the first half of 2007). Revenues at Telefonica Latinoamerica in 2007 rose 11.0% year-on-year in currenteuros to 20,078 million euros. In constant euros revenue growth was 14.5%,within the growth range communicated to the market of +13% to +16%1. Changes inthe consolidation perimeter contributed 1.5 percentage points to constantcurrency revenue growth. In constant currency terms, the countries contributingmost to top line growth are Mexico and Venezuela with respective contributionsof 3.2 and 3.1 percentage points. Brazil continues to make the largestcontribution to Telefonica Latinoamerica's revenues (38.2%) followed byVenezuela (11.9%) and Argentina (11.3%).-------------------------------------------------------------------------------- 1 T. Latam base reported figures include eight months of Telefonica Telecom(consolidated since May 2006). 2007 guidance assumes constant exchanges rates asof 2006. All figures exclude changes in consolidation. In terms of guidancecalculation, OIBDA excludes other exceptional revenues/expenses not foreseeablein 2007. Personnel reorganization plans and Real Estate Programs are included asoperating revenues/expenses, with the exception of the ones decided after theguidance communication at the beginning of the year. For comparison theequivalent other exceptional revenues/expenses registered in 2006 are alsodeducted from reported figures. Operating income before depreciation and amortisation (OIBDA) jumped 8.4% incurrent euros in 2007 to 7,121 million euros. In constant currency terms,Telefonica Latinoamerica's OIBDA growth increased to 11.5%. Changes in theconsolidation perimeter contributed 1.0 percentage points to constant currencyOIBDA growth. By country, Venezuela contributed most to OIBDA growth (5.2percentage points), followed by Mexico (3.1 percentage points). In absoluteterms, Brazil is the largest contributor to Telefonica Latinoamerica's OIBDA,accounting for 43.1% of the total, followed by Venezuela (14.9%) and Argentina(11.1%). Telefonica Latinoamerica's OIBDA growth slowed in the fourth quarter of 2007(+13.8% in constant euros to September) as a result of a provision of 258million euros in the quarter for personnel reorganization plans in several groupcompanies, after the company decided to accelerate the implementation of plansalready in place, and the launching of new ones. Personnel reorganization costsstood at 318 million euros in 2007, with the departure of 1,684 people in theyear accounting for 105 million euros of this sum. The company's plans for 2008account for the remaining 213 million euros, affecting Telesp, Telefonica delPeru, Telefonica de Argentina, Telefonica Telecom and Telefonica MovilesColombia. Regarding the objectives communicated to the market, OIBDA grew by15.5%, within the range of 14% to 17%2 forecast by the company, which did notfactor in the personnel reorganization expenses recorded in the fourth quarterof 2007.-------------------------------------------------------------------------------- 2 T. Latam base reported figures include eight months of Telefonica Telecom(consolidated since May 2006). 2007 guidance assumes constant exchanges rates asof 2006. All figures exclude changes in consolidation. In terms of guidancecalculation, OIBDA excludes other exceptional revenues/expenses not foreseeablein 2007. Personnel reorganization plans and Real Estate Programs are included asoperating revenues/expenses, with the exception of the ones decided after theguidance communication at the beginning of the year. For comparison theequivalent other exceptional revenues/expenses registered in 2006 are alsodeducted from reported figures. Telefonica Latinoamerica's OIBDA margin in 2007 amounted to 35.5%, 0.9percentage points lower than in 2006, affected by the personnel reorganizationprovisions outlined above. Excluding these provisions, the margin would havebeen 37.1% (0.3 percentage points higher than the one recorded in 2006). Telefonica Latinoamerica's CapEx in 2007 stood at 3,343 million euros, up 18.9%year-on-year (+23.0% in constant euros). This increase was driven by strongercommercial activity at its wireline business, both in broadband and TV, theincreased coverage and capacity of its GSM networks and the acquisition ofspectrum in Venezuela, Brazil and Panama to expand coverage and guaranteeservice quality in areas where traffic is heaviest. In 2007 Telefonica Latinoamerica generated operating cash flow (OIBDA-CapEx) of3,778 million euros, growth of 0.5% in current euros (+3.0% in constant euros). BRAZIL Telefonica Latinoamerica managed close to 49 million accesses in Brazil at 31December 2007, 9.5% more than a year earlier. This growth reflects a 15.2%year-on-year increase in Vivo's customer base and, to a lesser extent, theexpansion of Telesp's broadband business and the incorporation of TVA's MMDS payTV customers. This is offset by a reduction in the number of wireline accessesat Telesp and the changes to the accounting criteria used to record narrowbandinternet accesses made in the second quarter of 2007. In 2007, Telefonica Latinoamerica in Brazil reported revenues of 7,662 millioneuros, up 3.2% in local currency vs. 2006 thanks to the sharp increase in Vivo'ssales, which offset Telesp's lower revenues. Operating income beforedepreciation and amortisation (OIBDA) totalled 3,026 million euros, down 3.8% on2006 due to the fall in earnings at Telesp, partly related to tax reversalsbooked in 2006 and the higher provisions made in 2007 for personnelreorganization (explaining 0.8 percentage points of this reduction) which werenot offset by the significant improvement in Vivo's results. Meanwhile CapExamounted to 1,087 million euros, an increase of 3.1% year-on-year in localcurrency, driven by the larger investments carried out by Telesp in its growthbusinesses (broadband and television). TELESP At the end of December, Telesp managed 15.5 million telephony, broadband and TVaccesses, 1.2% less than in 2006, due both to the reduction in the number ofwireline accesses, in a context of a strong growth in the cellular business inthe country, and the implementation of more restrictive accounting criteria(based on activity) for narrowband Internet accesses. The company ended the yearwith just under 12 million wireline accesses (-1.2% year-on-year), of whichapproximately 22% were prepay or lines with consumption limits. A total of196,300 MMDS TV accesses from TVA (acquired recently) were added in December2007 to the 34,600 satellite TV (DTH) subscriber base. This latter service waslaunched in August 2007. The broadband market continued to grow strongly in 2007 (+36% vs. 2006). Telespaccounted for around 56% of this growth, increasing its retail broadbandcustomer base by 28.7% vs. 2006 to over two million accesses. A number ofsignificant milestones were achieved in 2007. These included: the launch of theTrio Telefonica triple play bundle on 12 August, with different connection speedoptions and a range of TV content choices, on 1 October the company includedGloboSat content in its TV offer, and in the fourth quarter the acquisition ofTVA's MMDS operations was completed. Telesp carried slightly more (+1.5%) traffic in 2007 (71,140 million minutes)than a year earlier, due mainly to growth in long distance traffic by SMP mobileaccesses (+36.2%) as a result of the joint marketing strategy rolled out withVIVO. Local traffic levels were similar to those recorded in 2006 despite thereduction in the number of wireline accesses. Fixed-mobile traffic fell anoteworthy 4.4% year-on-year as a result of heavy migration to wirelessnetworks. Telesp is focusing on the sale of traffic bundles, both bundled lines (monthlyfee + unlimited local calling) and traffic packages (long distance, fixed-mobileand narrowband Internet traffic). Telesp reported revenues of 5,619 million euros in 2007, down 1.5% year-on-yearin local currency. This slight drop in revenues was due to the fall intraditional business revenues (-3.1% vs. 2006 in local currency), attributableto the loss of basic telephony billable lines, the change in customer mix with ahigher percentage of lines with consumption limits, the negative tariffadjustment made in July 2006 and the 20% reduction in local interconnectiontariffs in January. The increase in broadband revenues (+16.2% in local currency), lagged accessgrowth due to more intense competition and was not sufficient to fully offsetthe fall in traditional revenues. Nonetheless, the operator readjusted ADSLtariffs in mid October to coincide with the launch of an improved range ofspeeds for new ADSL services. The pace of growth marked by Internet revenues(narrowband + broadband + TV) picked up (+14.1% year-on-year in local currencyvs. +10.3% to September) and these now account for 9.9% of the company'srevenues (8.5% in 2006) due to the increase in broadband revenues and theincorporation of TVA's revenues in the fourth quarter. Operating expenses rose 5.9% in local currency in 2007, affected by a higherlevel of bad debt, leading to higher provisions (+65.5% in local currency vs.2006). The ratio of bad debt to revenues was 3.6%, lower than the figure of 3.9%reported in September, due to the implementation of various measures adopted tostem this ratio. These include stricter entry filters and more actions torecover bad debts. Another factor behind the rise in operating expenses is thehigher external service expenses (+5.4% in local currency) caused by strongercommercial activity. Supply costs rose by 3.2% in local currency despite the 20%reduction in the local interconnection tariff, due mainly to the rise ininterconnection traffic (especially SMP).Personnel expenses rose by 5.0% inlocal currency due to the provisions associated with personnel reorganizationprogrammes, which affected 800 employees in 2007. Total provisions amounted to54 million euros, of which around 22 million euros correspond to plans that willbe implemented in the first months of 2008. Personnel costs excluding theseprovisions decreased 1.0% vs. 2006 in local currency. Telesp reported Operating income before depreciation and amortisation (OIBDA) of2,438 million euros in 2007, down 9.7% year-on-year in local currency due to theloss of traditional business revenues, higher bad debt provisions and higherpersonnel reorganization costs. The comparison is further affected by the factthat in September 2006 Telesp recorded tax reversals (PIS/COFINS). The OIBDAmargin stood at 43.4%, 3.9 percentage points lower than in 2006, impacted by thetwo factors mentioned above. Stripping out personnel reorganization expenses,Telesp's OIBDA would have fallen by 8.7% vs. 2006 in local currency, with amargin of 44.3%. CapEx in 2007 was 729 million euros in local currency, 11.2% higher than thefigure reported a year earlier due to greater investment in broadband and pay TVand higher cable theft recorded in the last three quarters. VIVO Vivo's strong earnings in 2007 reflect the management measures implemented in2006 and 2007 to achieve profitable growth and increase customer satisfaction,resulting in a significant increase in the customer base and the ARPU growth. Momentum remained strong in the fourth quarter, with the Christmas campaignlaunched in November resulting in fierce competition on the market. Also, Vivohas been involved in convergent offer campaigns since October, with minutecombinations for cellular, wireline and Internet calls and two mobile-fixedpackages. Vivo maintained its leadership in the quarter in terms both of marketshare and adds in its operating area. The company reported 4.2 million gross adds in the final quarter of the year,1.7 million more than in the same quarter last year (+66.5%), one of the highestfigures in recent years. Factors contributing to this strong performance includethe wider range of handsets, Vivo's leadership in terms of commercial reach,ongoing incentive campaigns for prepay traffic and the improved capacity toattract contract customers with the "Vivo Escolha" plans. It is worthhighlighting that Vivo achieved net adds close to 2.2 million new customers inthe fourth quarter, enjoying a position of market leadership in terms ofcustomer acquisitions in December (1.4 million customers, a net gain marketshare above 38% in its operating area). As a result, Vivo's net adds for theyear stood at over 4.4 million customers. By the end of 2007, 42% of the contract segment had subscribed to a Vivo Escolhaplan, significantly enhancing the market's perception of Vivo's commercialoffer. Contract gross adds rose 39.7% in the fourth quarter year-on-year and by47.2% year-on-year for the full year. These plans also helped to increasecustomer loyalty, with total churn in the fourth quarter standing at 2.1% (0.4percentage points less than in the same quarter a year earlier) and at 2.3% inthe year (compared with 2.9% in 2006). Also noteworthy was the market's positive reaction to Vivo's GSM network. Vivoobtained 85% of gross GSM adds in the quarter, putting its GSM customer base atthe end of December at 11.3 million, 34% of its total customer base. Vivo ended December with a total of 33.5 million customers (+15.2% vs. December2006) in a market with an estimated penetration rate of 65.6%, up more than 10percentage points year-on-year in the company's area of activity. This figurereflects the high levels of commercial activity, especially in the fourthquarter. Revenues for the year totalled 2,396 million euros, a year-on-year increase of+16.5% in local currency, with growth further accelerating in the final quarter(+15.8% year-on-year in local currency in the first nine months of 2007).Service revenues grew 18.4% year-on-year in local currency, vs. 2006, largelydriven by higher interconnection revenues after the elimination of the Bill &Keep rule in July 2006. Stripping out this impact, service revenues would havegrown 10.2% (vs. +8.1% in the first nine months of the year). In the contractsegment, the Vivo Escolha plans remain the main tool for attracting andretaining the most valuable customers; leading to outgoing ARPU rise of 8.9%. The prepay segment also continued to fare well in the fourth quarter, withoutgoing ARPU up 22.9% year-to-date as a result of successful traffic incentivecampaigns, leading to a 22.7% year-on-year increase in MoU. Total MoU rose by 3.9% compared with the same period in 2006, with cumulativetotal ARPU up 14.5% year-on-year at 11.9 euros. Vivo recorded Operating income before depreciation and amortisation (OIBDA)through to December of 588 million euros, an increase of 30.8% on 2006 in localcurrency. Contributing factors include strong topline growth combined withcontrol over customer management costs, notably the 49.3% year-on-year reductionin bad debts in local currency. This in turn evidences the strict controlexercised over new customer acquisitions in the campaigns. These controls weresufficient to offset higher commercial expenses. The OIBDA margin in 2007 was 24.5%, up 2.7 percentage points on 2006, improvingby 5.6 percentage points year-on-year in the final quarter to 25.6%. Excludingthe impact of the elimination of the Bill&Keep rule, OIBDA growth in 2007 wouldhave been 30.6%, with a margin of 27.4%. In 2007 the company achieved full national coverage, winning thirteen of thefifteen 1900 licences auctioned in September, and the entirety of the J band inthe 3G licence auction carried out by Anatel last December. This means it cannow guarantee service quality in the areas with heaviest traffic. Also, Vivo isawaiting the final green light from Anatel to acquire Telemig, although thecompany agreed the sale of the Amazonia shares to Telemar in December. ARGENTINA Telefonica maintained its leadership in its operating area in 2007, to reach19.5 million accesses, a year-on-year growth of 15.8%. This increase wasunderpinned by the sharp growth in cellular customers, up by 22.6% vs. December2006 to more than 13.7 million, and by broadband accesses, which totalled819,000, 58.3% more than in 2006. This strong operating performance is reflectedin the financial data, with revenues rising by 15.7% in local currency vs. 2006to 2,264 million euros. Operating income before depreciation and amortisation(OIBDA) rose 8.0% year-on-year in local currency to 773 million euros in 2007,reaching an OIBDA margin of 32.9%. CapEx stood at 289 million euros (243 millioneuros in 2006). This higher investment is due to the development of broadbandand new businesses, as well as the increase in wireless network capacity. TELEFONICA DE ARGENTINA Telefonica de Argentina had 5.7 million accesses at the end of 2007, up 2.1% on2006. This figure was underpinned by the 58.3% growth in retail broadbandaccesses to 819,000, which offset the slight fall in wireline accesses (-1.3%). Total voice traffic remained stable year-on-year despite the sharp growth in thecompany's cellular business in the country. The falls in local (-5.6% vs. 2006)and interconnection (-4.8% vs. 2006) fixed-to-fixed traffic were offset by thehealthy performance of mobile-to-fixed interconnection traffic (+27.4% vs.2006). Intelligent network traffic improved throughout 2007 (+51.1% vs. 2006)while public use telephony traffic fell by -20.8% vs 2006. Revenues in the fixed line business came to 984 million euros in 2007, ayear-on-year growth of 9.9% in local currency terms, with the traditionalwireline business contributing 45% of this growth, the Internet businesscontributing 40%, and data and IT businesses accounting for the remainder. Traditional revenues rose 5.4% in local currency in 2007, reflecting the stronguptake of flat rate plans, strong traffic (mobile to fixed interconnection) andmomentum in value added services and the sale of equipment. Bundle revenuegrowth was underpinned mainly by local fixed-to-fixed calling plans on the backof strong uptake for the flat-rate per call plan launched in mid-2006, whoseperformance in 2007 exceeded all expectations. Higher interconnection revenueswere driven primarily by traffic generated by mobile operators and incominginternational traffic. Internet and broadband revenues were up by 34.8% vs. 2006, accounting for 14% oftotal revenues. The broadband business was the main growth driver in 2007 withrevenues up 45.7% in local currency and 819,000 accesses at the end of December,1.6 times the number in December 2006; this offsets the fall in narrowbandrevenues. Broadband was boosted by the launch of the DUO plan (a flat rate planbundling voice and broadband) in the last quarter of 2006 with 34% of broadbandusers currently using this plan. Thanks to higher revenues from virtual private networks, turnkey projects andsatellite services, data and information technology business lines continued tomake heavy inroads (20.8% in local currency vs. 2006). Operating expenses grew 30.6% year-on-year in local currency in 2007. This waslargely due to the increase in personnel expenses (+68.5% in local currency)caused by salary rises and payments in connection with the personnelreorganization plan launched during the second half of 2006, which gathered pacein the second half of 2007. Personnel reorganization costs stood at 90 millioneuros in 2007 (67 million euros in the fourth quarter of 2007), with thedeparture of 741 personnel in 2007 accounting for 50 million euros of this sum;remaining 40 million euros correspond to reorganization to be executed in thecoming months. Stripping out these personnel reorganization costs, operatingexpenses would have grown by 14.3% vs. 2006 and personnel costs by 18.7%. Supplycosts rose 22.3% in local currency in 2007, driven up by higher equipment rentaland higher purchases of equipment for resale. External service expenses rose7.7% year-on-year in local currency due to the rise in activity (customerservices, advertising, commissions and logistics and distribution), as well asprice increases across various services including rents, energy and supplies,which do not offset other cost savings (general costs and temporary works). The ratio of bad debt to revenues stood at 0.9%, 0.4 percentage points higherthan in 2006 due to the impact of the strike action which meant lower collectionactivity during the troubles. However, sound management over this periodpermitted a reduction in the ratio of 1.1% reported in September 2007. Prepayand controlled consumption segments accounted for 25% of the total, downslightly compared with previous quarters. Telefonica de Argentina's operating income before depreciation and amortisation(OIBDA) fell 13.3% year-on-year in local currency in 2007 to 356 million euros.This fall was chiefly attributable to the higher personnel expenses detailledearlier. Stripping out the personnel reorganization expenses, OIBDA would havegrown by 6.2% vs. 2006 in local currency. The 2007 OIBDA margin stood at 30.9%(39.0% in 2006). Stripping out the impact of these expenses, the OIBDA marginwould have reached 38.7% in 2007 (39.9% in 2006). CapEx amounted to 165 million euros, a 30.3% increase in local currency on 2006.Investment was primarily earmarked for the development of broadband and newbusinesses. TEM ARGENTINA The Argentine cellular market continued to grow at a strong pace in 2007,boosting estimated penetration to over 97% at December 2007 (+20 percentagepoints higher than at December 2006), ending the year with the highestpenetration in Latin America. Net adds in TEM Argentina in the fourth quarter of 2007 stood at 656,269 newcustomers. Over the year as a whole, churn was down on 2006 (1.7%, -0.3percentage points vs. 2006), boosting net adds in the year to more than 2.5million (compared with almost 2.9 million in 2006). It is noteworthy the strongfocus in contract customer acquisition during 2007 and the fourth quarter of2007, adding along the year 1.1 million customers (+68.5% vs. 2006), weightingthe contract net adds in the fourth quarter 2007 more than 58% of the total. Thecompany ended the year with almost 13.7 million customers, a 22.6% increase vs.the customer base at year-end 2006. GSM customers now account for 86.5% of thetotal customer base (+13.3 percentage points from December 2006). Revenues hit the 1,353 million euro mark in 2007, an 18.7% year-on-year increasein local currency. The sound performance of service revenues, up 21.4% in localcurrency vs. 2006, drove growth. Revenue growth, coupled with lower unit commercial costs and customer managementexpenses as well as lower network expenses, translated into an increase inoperating income before depreciation and amortisation (OIBDA) of 36.5%year-on-year in local currency to 418 million euros. This left the OIBDA marginin 2007 at 30.9%, 4.1 percentage points higher than the previous year's figure. CapEx in 2007 totaled 123 million euros, an increase of 33.2% in local currencyfrom 2006 due to the increase of the network capacity. CHILE At the end of 2007 Telefonica Latinoamerica managed a total of 9.4 millionaccesses in Chile, 9.6% more than in December 2006, underpinned by growth incellular accesses (+10.6% to 6.3 million), and, to a lesser extent, an increasein retail broadband Internet accesses (+30.6% to 646,000) and pay TV (+133.4% to220,000), while wireline telephony accesses fell 1.5% to 2.2 million. Telefonica Latinoamerica's revenues in Chile totalled 1,814 million euros in2007, a year-on-year increase of 14.3% in local currency. Revenues were fosteredby the strong growth in the cellular telephony, broadband and TV businesses,which offset the decline in the traditional wireline telephony business.Operating income before depreciation and amortisation (OIBDA) in 2007 totalled716 million euros, up 8.2% in local currency vs. 2006 due to higher OIBDA in thecellular business which offset the drop in the results of the wireline business. Telefonica Latinoamerica continues to invest heavily in Chile. CapEx in 2007totalled 418 million euros, an increase of 32.3% in local currency from 2006.Main investments continue concentrating into the fastest growing businesses:mobile telephony, ADSL and pay TV. TELEFONICA CHILE At the end of 2007 Telefonica Chile managed a total of 3.1 million accesses,7.5% more than in 2006. Telefonica Chile's wireline accesses fell by 1.5% from2006, though the quarterly loss in wireline accesses has notably decreased (just300 accesses in the fourth quarter compared with almost 29,000 in the first,3,000 in the second and 1,700 in the third). Telefonica Chile remains the marketleader with an estimated share of 65% in lines. Broadband and pay TV accesses continued to grow. The commercial focus was oncustomer loyalty by pushing the DUO and TRIO bundles, packages whichadditionally increase ARPU. Telefonica Chile managed 646,000 retail broadbandInternet accesses at the end of 2007, maintaining its leadership of the Chileanbroadband market with an estimated 50% market share. Telefonica Chile is still growing the pay TV business, reaching 220,000subscribers by the end of 2007. After eighteen months of operations, TelefonicaChile has established itself as the second ranking pay TV operator in thecountry with an estimated market share of 17%. In June 2007 the company launchedits IPTV service in certain areas of Santiago, becoming the first company to doso in Latin America. In addition, new services on the DTH platform, such as newdecoders equipped with personal video recorders, were launched in the finalmonths of the year. The competitive landscape in telephony in Chile is marked by a significant fixedto mobile substitution effect. Triple play is the cornerstone of TelefonicaChile's strategic focus, aiming to increase the number of services per customerand accordingly, ARPU. In this way the operator continued to offset thecontraction of its traditional telephony business with revenue growth inbroadband and pay TV services. Revenues in 2007 totalled 974 million euros, ayear-on-year increase of 4.0% in local currency. The launch of TV services inJune 2006 and the increased broadband penetration drove a 79.7% increase inInternet and broadband revenues in local currency, offsetting the lower revenuesfrom its traditional business (-5.8% in local currency). Internet and broadbandaccounted for 18.5% of the operator's total revenues in 2007, 7.8 percentagepoints more than in 2006, while the weighting of its traditional business fellto 75% (-7.8 percentage points from 2006). Operating expenses grew 8.9% in local currency vs. the same period in 2006. Thehighest increases were in external services (+19.3%), driven by highercommercial activity and improved service quality and customer services.Personnel expenses rose by 4.4% in local currency, primarily as a result of theenactment of the new Chilean Subcontracting Law. Stripping out personnelreorganization expenses, which fell by 65.1% in local currency, personnelexpenses rose by 13.8% due to the impact of this law. Supply costs were up 2.1%in local currency, with the increase in expenditure on TV content and satellitecapacity offset by lower interconnection costs, especially in fixed-mobiletraffic. Bad debt provisions over revenues ratio in 2007 was 2.9%. Operating income before depreciation and amortisation (OIBDA) fell 5.3% in localcurrency in 2007 to 368 million euros. CapEx totalled 198 million euros, an increase of 30.1% in local currency from2006, driven mainly by sharp growth in satellite TV services (DTH), the launchof IPTV, growth in the ADSL access base and initiatives designed to enhancenetwork quality. TEM CHILE The Chilean market grew strongly again during 2007 with estimated penetration up8 percentage points to 90%. Telefonica Moviles Chile remains market leader with over 6.3 million customersat the end of 2007, boosted by net adds of 602,457 customers over the year.Growth in the customer base was driven by net adds to the GSM service, whichaccounted for 89% of the total, 17 percentage points more than in December 2006.The number of contract customers rose by 31.4% year-on-year to 1.5 million,accounting for more than 60% of net adds in the year, though growth in theprepay customer base picked up in the final quarter (+5.2% year-on-year vs +2.2%to September ). The customer base increased 10.6% year-on-year (+7.7% toSeptember). A highlight in December 2007 was the launch of the 3G network. Revenues for 2007 totalled 930 million euros, a year-on-year increase of 25.5%in local currency. Service revenues jumped 23.0% in local currency compared to2006, driven by growth in ARPU, which rose 12.7% in local currency, andcontinues increasing its growth rate quarter after quarter (+8.4%, +10.5% and+11.6% in local currency in the first, second and third quarters respectively.This trend is underpinned by migration to GSM technology, growth in the contractcustomer base (24.5% of the customer base in December 2007 vs. 20.6% in December2006), plan upgrades and the sale of minute bundles and value added services. Operating income before depreciation and amortisation (OIBDA) rose 27.3% inlocal currency in 2007 to 348 million euros, fuelled by the strong growth inrevenues. Thanks to this operating efficiency, the OIBDA margin jumped 0.5percentage points to 37.5% in 2007 despite increased commercial efforts in lightof the market aggressiveness and despite the initiatives towards technology andsegment migration. CapEx in 2007 totalled 220 million euros, an increase of 34.5% in local currencyfrom 2006. PERU At the end of the year, accesses in Peru stood at 12.2 million, an increase of39.8%, year-on-year driven by the 58.5% increase in mobile accesses, 8.1 millionaccesses at the end of the period, especially in the prepay segment. Alsonoteworthy is the growth in accesses from the IRIS project, collaborationbetween wireline and wireless operators launched in March 2007, with the aim ofboosting the penetration of wireline telephony, and the growth in broadband andTV accesses. Telefonica's revenues in Peru hit the 1,513 million euros mark in 2007, a 10.5%year-on-year increase in local currency. This strong revenue growth wasprimarily driven by outgoing revenues in the prepay segment of its wirelessbusiness and broadband services and by television in its wireline business. Operating Income before depreciation and amortisation (OIBDA) stood at 469million euros at the end of 2007, down 15.6% year-on-year in local currency dueto the decline in OIBDA in the wireline business (-28.6%) resulting from theregistration of 104 million euros in the fourth quarter in provisions for thepersonnel reorganization that was started in 2007 and will be implemented along2008. In 2007, the total provision for the personnel reorganization programmeamounted to 105 million euros. OIBDA margin in 2007 stood at 31.0% compared to40.6% in 2006. Stripping out the impact of the reorganization programme, theOIBDA would have grown 3.2% year-on-year in local currency and the OIBDA marginwould have been 37.9%, 2.7 percentage points lower than previous year's margin. CapEx in 2007 totalled 281 million euros, an increase of 35.8% in local currencyfrom 2006. Particularly noteworthy is the major investment in the expansion ofthe mobile network due to higher traffic levels. As a result, the wirelessbusiness accounted for 55% of CapEx. TELEFONICA DEL PERU Telefonica del Peru had total accesses of 4.0 million in 2007, an increase of13.0% year-on-year, thanks to the surge in fixed wireless telephony andbroadband accesses. Fixed telephony accesses, which stood at 2.8 million inDecember (+11.3%), grew over the year as a result of the strength of fixedwireless telephony accesses, which totalled 228,584 lines. Broadband accessesgrew by 22.1% to 572,088 users. In addition, TV accesses totalled 640,045 usersrecording a growth of 14.9% primarily due to satellite subscribers. Voice traffic advanced by 7.2% in 2007, slightly below the cumulative growthfigure to September 2007 (+8.7%). This deceleration was due to the slight fallin fixed-to-fixed traffic (-0.4%), which was partially offset by the increase infixed-to-mobile traffic resulting from the greater penetration of wirelesstelephony; the fall in domestic long distance traffic (-7.4%) resulting from theabolition of pre-selection by default in October and the decline in publictelephony traffic which fell further (-34.5%) due to the competition fromwireless telephony and informal public call centres. In contrast we highlightthe sharp growth in incoming traffic (+39.2%), both wireless and international. Revenues totalled 1,031 million euros, down 2.0% in local currency from 2006.This is primarily due to the fall in public telephony revenues (-28.6%) and tothe lower revenues from the basic telephony service, affected by the cut intariffs following the agreements made with the government in 2006 and by thedecline in revenues from long distance traffic due to the abolition ofpre-selection by default in October. In contrast, revenues from broadband(+24.9% in local currency) and television (+24.0% in local currency) continuedto rise sharply. Internet and broadband (broadband + narrowband + TV) revenuesaccounted for 25.2% of total revenues in 2007 (20.2% in 2006). Operating expenses grew by 19.9% in local currency, due to higher personnelexpenses resulting from the registration of the 105 million euros provisionrelated to the personnel reorganization that was started in 2007 and will beimplemented along 2008. Stripping out the impact of this reorganization, totaloperating expenses would have grown by 2.5% year-on-year in local currency. Thehigher expenses relating directly to the increased commercial activity wereoffset, by the lower growth in personnel costs excluding those related topersonnel reorganization and in interconnection supply and media rentalexpenses. However, it is also worth highlighting the rise in the bad debtprovision (1.8% of revenues) for services provided to the lowest income bracketgroups. Operating Income before depreciation and amortisation (OIBDA) in 2007 was 311million euros, a year-on-year decline of 28.6% in local currency due to higherspending on the personnel reorganization and higher commercial expenses andcosts associated with labour and fiscal eventualities. The 2007 OIBDA marginstood at 30.2%. Stripping out the impact of personnel reorganization expenses,OIBDA would have fallen 4.7% year-on-year in local currency and the OIBDA marginwould have been 40.3%, 1.1 percentage points lower than previous year's margin. CapEx in 2007 totalled 126 million euros, a decrease of 0.2% in local currencyfrom 2006. TEM PERU The pace of growth of the Peruvian mobile market accelerated in 2007, with anestimated penetration of 48% at the end of December (+16 percentage pointscompared to December 2006). At the year end Telefonica Moviles Peru's customer base stood at 8.1 million, anincrease of 58.5%, year-on-year, with the prepay segment growing by more than66% year-on-year. Migration to GSM technology continued during the year. At theend of December, GSM customers accounted for 77% of the total, up from 42% atyear-end 2006. Telefonica Moviles Peru's intense commercial activity translatedinto significant 74.5% year-on-year growth of gross adds in 2007. Additionally,gross adds and net gain achieved during the quarter reached a record level of1.6 million and 908,230 accesses respectively. Revenues totalled 603 million euros in 2007, up 40.5% in local currency.Particularly noteworthy was the significant growth in service revenues. Boostedby the outstanding performance throughout the year of outgoing revenues in theprepay segment (+129.9% in local currency in 2007), their growth comfortablyoutstripped that of the average customer base, showing high elasticity to thepromotions made in the prepaid cards top-ups with "Double" and "Triple" playcampaigns. Outgoing revenues in the contract segment also grew, although lesssharply (+14.6%). Operating income before depreciation and amortisation (OIBDA) amounted to 158million euros, a year-on-year rise of 27.3% in local currency, despite theincrease in commercial costs due to commercial and marketing campaigns toincrease the customer base. The OIBDA margin stood at 26.2%, a drop of 2.7percentage points compared to 2006. CapEx stood at 155 million euros at the end of 2007, up 92.3% in local currencycompared to 2006, being the bulk of this invested in expanding the networkcapacity. COLOMBIA At the end of December 2007, Telefonica reached 11.0 million accesses inColombia which translates into growth of 7.7% compared to December 2006. During the year, revenues from the fixed and mobile businesses reached 1,569million euros, up 27.9% on 2006 in constant currency, reflecting the first timeconsolidation of Telefonica Telecom in May 2006 and strong growth in Internetand Broadband revenues and service revenues at the mobile business. Operating income before depreciation and amortisation (OIBDA) rose 42.5%year-on-year in local currency to 485 million euros. Telefonica Telecom isconsolidated in these figures from May 2006. The OIBDA margin for the periodstood at 30.9% (+3.2 percentage points from December 2006). TELEFONICA TELECOM3 Telefonica Telecom reached a total of 2.6 million accesses at 31 December 2007,up 7.1% year-on-year, with an almost three-fold increase in the number ofbroadband users since December 2006 (a total of 200,271 accesses at 31 December2007); which offsets the drop in wireline accesses (-1.3% year-on-year).-------------------------------------------------------------------------------- 3 T. Telecom has been fully consolidated in the Telefonica Group from May 2006.Published variations are based on proforma 2006 figures. The Satellite TV product was launched at the start of the year. This keyproduct, which enables Telefonica Telecom to launch 'Trio' triple play bundles(voice, broadband and TV), had 72,930 TV customers at the end of December 2007. Revenues for the wireline telephony business reached 739 million euros in 2007,representing 8.1% growth in local currency, driven mainly by Internet andBroadband growth (+ 100.3% year-on-year in local currency). The contributionfrom this business to total revenues increased to 8.8% in 2007 from 4.7% inDecember 2006. The strong growth in broadband revenues (+165.4% year-on-year inlocal currency) offset the drop in the narrowband business (-22.8% in revenuesin local currency) due to the migration to broadband. The company extendedbroadband coverage to new towns and cities in 2007 and cemented its position inareas where it maintains a leadership position. The broadband business was alsoboosted by marketing bandwidth upgrades to corporate customers. Operating expenses in 2007 rose 16.0% year-on-year in local currency, pushed upby increases in supplies and bad debt provisions. Personnel expenses increasedby 17.4% in local currency impacted by a provision of 3.2 million eurosregistered due to the personnel reorganization of the company initiated in 2007and in force throughout 2008. Excluding the impact of this provision, personnelexpenses would have rose by 13.4%. Operating income before depreciation and amortisation (OIBDA) amounted to 299million euros, which represents year-on-year growth of 16.0% in local currency,driven largely by the strategic commitment to broadband. Excluding the impact ofthe personnel reorganization provision, OIBDA would have rose by 16.9%. CapEx to 31 December 2007 stood at 180 million euros. The bulk of this wasinvested in deploying broadband and a series of regional systems projects. TEM COLOMBIA The Colombian cellular market ended 2007 with 32.3 million customers, althoughgrowth is slowing, reaching an estimated penetration of 75% on December 2007, up8 percentage points from 2006. In 2007 the company focused on its commercial restructuring, registering sharpincreases in its capillarity and higher productivity, screening and reactivatingcustomers and expanding its GSM coverage. Also, the company continued to work ona commercial offering with similar price schemes regardless of call destination. Gross adds increased by 61.1% in the fourth quarter of 2007 compared with thesame period a year earlier and fell by 8.4% over the year. This was a result ofthe cut in subsidies from the final quarter of 2006 following the aggressivecommercial campaigns carried out until then. Churn in 2007 stood at 3.7% , 0.6percentage points up year-on-year, due to the disconnection of low valuecustomers who were signed up in the aggressive campaigns carried out in 2006.Churn in the fourth quarter was 2.5%, -1.0 percentage point compared to thefourth quarter of 2006. As a result, net adds in 2007 totalled 820,532customers, leaving the customer base at 8.4 million at 31 December 2007 (up 7.9%compared to December 2006). Of this total, 81.4% were GSM customers (+21.8percentage points on 2006). Revenues in 2007 amounted to 869 million euros, up 7.4% year-on-year in localcurrency. Service revenues climbed 13.4% in local currency compared to 2006,which is above the growth of the average customer base despite the impact of thereduction in interconnection rates from December 2007. Operating income before depreciation and amortisation (OIBDA) rose 30.0%year-on-year in local currency to 186 million euros in 2007. The OIBDA marginstood at 21.4% in 2007, up 3.7 percentage points from 2006. Telefonica MovilesColombia made a provision of 2.5 million euros in the fourth quarter of 2007 forpersonnel reorganization initiated in 2007 and in force throughout 2008.Excluding the impact of this provision, OIBDA growth would have stood at 31.7%and OIBDA margin would have reached 21.7%. CapEx in 2007 stood at 180 million euros. MEXICO Growth in the Mexican market accelerated yet again, with the penetration ratereaching an estimated 64% by December 2007 (up 11 percentage points vs. December2006). The focus of Telefonica Moviles Mexico's commercial activity in the fourthquarter was its Christmas Campaign, with the company again launching innovativeproducts to make up a competitive commercial offer that met customerexpectations. In addition, the development of its commercial network and ongoingimprovements to the quality of its network, enabled the company to maintainrobust growth in its commercial activity. The customer base of Telefonica Moviles Mexico stood at 12.5 million at the endof December 2007 (of which 700,000 were contract customers), an increase of46.6% from December 2006. This growth was underpinned in the fourth quarter bythe introduction of a competitive and flexible commercial offer in the prepaysegment, "Movistar Pagamenos" ("Movistar pay less"), which enabled the companyto achieve over 2.3 million gross adds in the period, a 30.8% increase on thesame period in 2006. Gross adds totalled almost 7.3 million in 2007, up 42.7% on2006. With regard to churn, the significantly higher quality of the gross addsacquired in 2007 along with the introduction of lower top-up amounts, led to ayear-on-year improvement in churn to reach 2.5% in the fourth quarter of 2007(-0.4 percentage points vs. the fourth quarter of 2006), and in line with thefigure recorded in the third quarter of 2007. As a result of the strong customer gross adds and improved churn, net adds inthe fourth quarter were approximately 1.5 million, signalling year-on-yeargrowth of 32.0%. Cumulative net adds for 2007 totalled almost 4.0 million, 1.8times the figure recorded in 2006. With regard to usage, although more than a year has passed since the launch ofthe commercial offer that introduced the new concept of "Fixed rate per call",traffic growth remains buoyant. Outgoing and on-net traffic have grownsubstantially compared to the fourth quarter of 2006, albeit at slower ratesthan in previous quarters. As a result, fourth quarter MoU reached 164 minutes,a year-on-year increase of 56.6%, and fourth quarter 2007 ARPU grew by 5.4% inlocal terms year-on-year to 9.2 euros. ARPU growth in local currency for thefull year stood at 15.8%. The company's strong business momentum fuelled a 56.4% year-on-year increase inrevenues in local currency in the fourth quarter of 2007 to 420 million eurosand a 58.5% year-on-year increase in 2007 to 1,431 million euros. This growthwas underpinned by strong service revenues, both in the fourth quarter of 2007(+55.9% year-on-year) and in 2007 as a whole (+65.4% vs. 2006). This outstrippedgrowth of the company's customer base (+46.6%) in both periods, underscoring thehigher quality of its customers and increased usage. The strong performance of service revenues was fuelled by higher outgoing andincoming revenues, both underpinned by the introduction of the national callingparty pays service in November 2006. Growth in outgoing revenues in localcurrency slowed in the fourth quarter to 67.7% year-on-year, while cumulativegrowth stood at 82.1% due to the steady year-on-year growth in on-net traffic.Meanwhile, the launch of the national calling party pays service drove a 31.4%increase in incoming traffic revenues in the fourth quarter vs. the fourthquarter of 2006 and a rise of 42.9% in 2007 compared with 2006. Operating income before depreciation and amortisation (OIBDA) in the fourthquarter reflected both solid revenue growth and the efficiency gains achievedthanks to economies of scale. Despite the intense commercial activity in thefourth quarter, OIBDA totalled 66 million euros compared with the figure of 22million euros reported in the fourth quarter of 2006. As a result, the OIBDAmargin increased by 8.3 percentage points to 15.7% in the fourth quarter. OIBDAin 2007 stood at 179 million euros, a margin of 12.5% compared with an operatingloss of 11 million euros in 2006. CapEx in 2007 amounted to 230 million euros compared with 180 million euros in2006, as a result of the capacity expansion carried out to manage increases intraffic. Operating cash flow (OIBDA-CapEx) came to -51 million euros in 2007, asignificant improvement on the 2006 figure of -191 million euros. VENEZUELA Penetration in the Venezuelan cellular market stood at an estimated 85% inDecember 2007, up 15 percentage points from December 2006. Telefonica Moviles Venezuela's commercial strategy during the fourth quarter wasdesigned around broadening the range of handsets on offer vs. its competitors,offering certain models on an exclusive basis. The operator also launched newplans in the prepay segment. These so-called "A tu medida" personalised plansenable customers to adapt the package to their specific needs. Customers can addon to the basic usage plan additional plans, such as higher on-net trafficplans, calls to other operators, flat rate text messages or data downloadpackages, depending on their individual preferences. As a result, Telefonica Moviles Venezuela's customer base stood at over 10.4million (+18.2% year-on-year) at the end of 2007, recording net adds of over 1.6million new lines in the year. Since the GSM network was launched at thebeginning of the year, GSM gross adds have accounted for 61% of the total andGSM customers made up over 35% of the total cellular customer base at December2007. This rapid migration of the customer base to GSM technology is behind the 0.6percentage point increase in churn to 2.6% in the fourth quarter of 2007 vs. thefourth quarter of 2006. Revenues in 2007 totalled 2,392 million euros (+27.8% vs. 2006 in localcurrency), driven by higher growth in service revenues (+27.1% year-on-year)than in the customer base. It is noteworthy the 1.4% increase in ARPU,underpinned by the 4.1% growth in outgoing ARPU, which offsets the 34% cut ininterconnection rates implemented last July. Operating income before depreciation and amortisation (OIBDA) reached 1,060million euros in 2007, 42.0% higher than the 2006 figure in local currency,owing to growth in revenues and to lower unit costs for GSM handsets. Thisenabled the OIBDA margin to rise by 4.4 percentage points year-on-year to 44.3%. CapEx totalled 370 million euros in 2007 (232 million euros in 2006) as a resultof the major investment in the roll-out of the GSM network and the acquisitionof a licence to provide service on the 1900 MHz band for 88 million euros. CENTRAL AMERICA Telefonica Moviles de Centroamerica (Panama, Guatemala, El Salvador andNicaragua) substantially stepped up its commercial activity in 2007 compared to2006, once again especially in Guatemala. At the end of 2007, estimated penetration of the Central American market stoodat 69% (up 23 percentage points on 2006). Against this backdrop, TelefonicaMoviles de Centroamerica's customer base rose 37.8% year-on-year to 5.3 million(268,186 fixed wireless and 381,230 contract customers). Growth was fuelled bythe effectiveness of commercial campaigns carried out throughout the year,focused on traffic promotions and flat tariff plans (with a very competitiveaverage charge per minute) that increase usage. Also, the Christmas campaignsand Mother's Day campaign (in Panama) drove a 25.0% year-on-year increase ingross adds in the fourth quarter. As a result, net adds in the fourth quarterstood at 400,681 customers, up 51.4% on the same quarter in 2006. Net adds in2007 stood at 1,448,530. At the operating level, traffic growth was once again robust, especiallyoutgoing, buoyed by the promotional plan which encourages prepay usage and theapplication of a very economical flat-rate tariff for customers. Consequently,outgoing MoU increased by 18.5% year-on-year in 2007 to 86 minutes. As a result of the company's healthy commercial performance, revenues in 2007totalled 585 million euros, up 15.9% year-on-year in constant terms. Servicerevenues (up 10.3% compared to. the fourth quarter of 2006) continued to followthe positive trend marked in previous quarters, growing by 16.9% in constantcurrency on. 2006. This strong performance of service revenues in 2007 waschiefly underpinned by higher outgoing revenues (+28.9% in constant terms on2006), which in turn were buoyed by the robust growth in on-net traffic (+76.3%compared to the same period in 2006). Despite the increase in commercial activity, Operating income beforedepreciation and amortisation (OIBDA) reached 236 million euros in 2007, a 26.7%year-on-year increase in constant terms. The OIBDA margin stood at 40.3% in2007, an improvement of 3.5 percentage points from 2006. In 2007, CapEx totalled 133 million euros, a 35.0% year-on-year increase inconstant currency. The bulk of this investment was allocated to boosting thecapacity and coverage of the region's wireless network. ECUADOR The Ecuadorian cellular market experienced strong growth in 2007, with anestimated penetration of 70% by the end of the year, 9 percentage points higherthan a year earlier. Telefonica Moviles Ecuador's customer base at the end of December 2007 stood at2.6 million. Of this number, 70.3% were GSM customers (+18.8 percentage pointson 2006). Especially noteworthy is the sharp growth in the number of customerson the "movistar tariff" and "multicolour" (preferential tariffs for on-net andoff-net calls respectively), which totalled around one million in December 2007(a ten-fold increase on the beginning of the year). Revenues at December 2007 stood at 291 million euros, up 9.5% in local currencycompared to 2006. Service revenues rose 0.2% in local currency year-on-year,showing a shift in the previous trend (14.1% growth in the fourth quarter of2007 compared to the year-on-year fall of 3.9% reported in September 2007)largely attributable to the improvement in outgoing revenues in the contractsegment (+8.8% on 2006). Operating income before depreciation and amortisation (OIBDA) rose 24.8%year-on-year in local currency to 73 million euros in 2007. The 2007 OIBDAmargin stood at 25.1%, 3.1 percentage points higher than in 2006. CapEx in 2007 totalled 60 million euros, up 36.8% in local currency compared tothe previous year in order to service the sharp increase in traffic beingcarried by the operator. TELEFONICA INTERNATIONAL WHOLESALE SERVICES Telefonica International Wholesale Services (TIWS) again put in a strongperformance in the fourth quarter, reporting significant growth in its keyoperating and financial figures in the year. Revenues in 2007 totalled 275million euros, a year-on-year increase of 22.4% in constant euros. Of the company's main business lines, International IP capacity revenues grew18.0% year-on-year in constant euros, underpinned by the growth of TelefonicaGroup's broadband business in the region, to 137 million euros (50% of TIWS'total revenues). Revenues from the sale of international bandwidth capacity alsogrew sharply (+46.5% in constant euros), VPNs (+32.1%) and satellite services(+27.3%). The growth in revenues pushed up Operating income before depreciation andamortisation (OIBDA) to 88 million euros (+13.9% in constant euros); the OIBDAmargin stood at 31.9%. TELEFONICA LATINOAMERICAACCESSESUnaudited figures (thousands) 2006 2007 December March June September December % Chg y-o-y Final Clients Accesses 114,604.4 116,905.7 121,773.0 126,423.0 134,041.8 17.0 Fixed telephony accesses 23,916.9 23,810.9 23,894.7 24,027.4 23,946.3 0.1(1) Internet and data 6,723.7 6,757.6 6,467.8 6,803.4 6,954.8 3.4accesses Narrowband (2) 2,813.5 2,615.3 1,989.8 2,000.6 1,815.6 (35.5) Broadband (3) (4) 3,780.3 4,045.6 4,380.4 4,703.5 5,035.9 33.2 Other 130.0 96.7 97.6 99.3 103.4 (20.4) Mobile accesses 83,298.4 85,637.0 90,610.9 94,712.1 101,976.9 22.4 Contract 67,329.9 69,112.7 73,654.3 77,117.4 83,162.9 23.5 Pre-Pay 14,705.4 15,208.7 15,582.9 16,210.8 17,379.3 18.2 Fixed Wireless 1,263.1 1,315.5 1,373.7 1,384.0 1,434.7 13.6 Pay TV 665.3 700.1 799.6 880.0 1,163.8 74.9Wholesale Accesses 65.9 64.6 64.5 64.1 62.6 (5.1)Total Accesses 114,670.3 116,970.3 121,837.5 126,487.1 134,104.4 16.9 (1) PSTN (including Public Use Telephony) x1; ISDN Basic access x1; ISDN Primaryaccess; 2/6 Access x30. Company's accesses for internal use included.(2) Includes narrowband ISP of Terra Brasil and Terra Colombia.(3) Includes broadband ISP of Terra Brasil, Telefonica de Argentina, TerraGuatemala and Terra Mexico.(4) Includes ADSL, optical fiber, cable modem, broadband circuits and Telefonicade Argentina ISP in the North part of the country. TELEFONICA LATINOAMERICACONSOLIDATED INCOME STATEMENTUnaudited figures (Euros in millions) January - December October - December 2007 2006 % Chg 2007 2006 % ChgRevenues 20,078 18,089 11.0 5,402 4,847 11.4Internal exp capitalized in fixed assets 105 109 (4.3) 36 37 (4.1)(1)Operating expenses (13,422) (11,814) 13.6 (3,783) (3,128) 20.9Other net operating income (expense) 363 227 59.9 163 42 n.m.Gain (loss) on sale of fixed assets (3) 13 c.s. (6) 14 c.s.Impairment of goodwill and other assets 0 (53) n.m. 0 (52) n.m.Operating income before D&A (OIBDA) 7,121 6,571 8.4 1,812 1,761 2.9Depreciation and amortization (3,559) (3,671) (3.0) (1,010) (919) 9.8Operating income (OI) 3,562 2,900 22.8 802 841 (4.7) Note: "Bad debt provisions" have been reclassified from "Other net operating income (expense)" to "Operating expenses".(1) Including work in process. TELEFONICA LATINOAMERICAACCESSES BY COUNTRIES (I)Unaudited figures (Thousands) 2006 2007 December March June September December % Chg y-o-yBRAZIL Final Clients Accesses 44,716.9 44,599.1 45,344.4 46,607.3 48,963.1 9.5 Fixed telephony accesses 12,107.1 12,033.6 12,031.3 12,019.0 11,960.0 (1.2)(1) Internet and data accesses 3,556.8 3,535.2 3,072.6 3,259.5 3,288.6 (7.5) Narrowband 1,856.6 1,786.3 1,201.1 1,262.3 1,155.9 (37.7) Broadband (2) 1,608.2 1,690.8 1,813.0 1,937.3 2,069.6 28.7 Other 92.0 58.1 58.6 59.9 63.1 (31.4) Mobile accesses 29,053.1 29,030.3 30,240.5 31,320.2 33,483.5 15.2 Pre-Pay 23,543.4 23,377.0 24,549.4 25,456.8 27,236.4 15.7 Contract 5,509.6 5,653.2 5,691.1 5,863.5 6,247.1 13.4 Pay TV 0.0 0.0 0.0 8.5 230.9 n.m. Wholesale Accesses 38.4 38.9 38.1 37.4 37.4 (2.6)Total Accesses 44,755.3 44,638.0 45,382.5 46,644.7 49,000.5 9.5 ARGENTINA Final Clients Accesses 16,809.4 17,464.1 18,112.1 18,812.2 19,462.1 0.2 Fixed telephony accesses 4,636.3 4,627.9 4,633.5 4,633.1 4,578.2 (0.0)(1) Internet and data accesses 973.7 1,023.2 1,069.5 1,101.3 1,149.9 0.2 Narrowband 439.2 418.0 392.9 363.6 312.2 (0.3) Broadband (2) 517.7 588.1 659.0 719.7 819.3 0.6 Other 16.8 17.1 17.7 18.1 18.4 0.1 Mobile accesses 11,199.4 11,813.0 12,409.1 13,077.8 13,734.0 0.2 Pre-Pay 7,315.8 7,753.1 8,112.8 8,553.1 8,836.0 0.2 Contract 3,742.9 3,925.8 4,169.9 4,410.4 4,793.7 0.3 Fixed wireless 140.7 134.2 126.3 114.3 104.3 (0.3) Wholesale Accesses 7.3 7.6 8.7 8.9 9.3 0.3Total Accesses 16,816.6 17,471.7 18,120.8 18,821.2 19,471.4 0.2 CHILE Final Clients Accesses 8,538.4 8,670.5 8,909.3 9,077.8 9,361.7 0.1 Fixed telephony accesses 2,206.2 2,177.4 2,174.4 2,172.7 2,172.4 (0.0)(1) Internet and data accesses 557.7 597.3 636.0 656.0 686.8 0.2 Narrowband 53.3 59.0 52.5 40.1 31.8 (0.4) Broadband (2) 494.5 528.2 574.1 606.9 646.0 0.3 Other 10.0 10.0 9.5 9.0 8.9 (0.1) Mobile accesses 5,680.2 5,766.8 5,927.5 6,051.9 6,282.7 0.1 Pre-Pay 4,507.6 4,515.7 4,557.9 4,591.4 4,742.2 0.1 Contract 1,172.7 1,251.1 1,369.6 1,460.5 1,540.5 0.3 Pay TV 94.2 129.1 171.4 197.3 219.9 1.3 Wholesale Accesses 19.9 17.6 17.2 17.3 15.4 (0.2)Total Accesses 8,558.3 8,688.1 8,926.5 9,095.1 9,377.2 0.1 (1) PSTN (including Public Use Telephony) x1; ISDN Basic access x1; ISDN Primary access; 2/6 Access x30. Company's accesses for internal use included. (2) Includes ADSL, optical fiber, cable modem and broadband circuits. TELEFONICA LATINOAMERICAACCESSES BY COUNTRIES (II)Unaudited figures (Thousands) 2006 2007 December March June September December % Chg y-o-yPERU Final Clients Accesses 8,710.9 9,303.2 10,152.5 11,199.0 12,173.8 0.4 Fixed telephony accesses 2,498.5 2,531.2 2,605.7 2,742.1 2,781.9 0.1(1) Internet and data accesses 525.5 547.4 581.8 608.4 623.1 0.2 Narrowband 47.8 40.3 44.2 42.4 40.3 (0.2) Broadband (2) 468.5 497.7 527.8 555.9 572.1 0.2 Other 9.2 9.4 9.7 10.2 10.7 0.2 Mobile accesses 5,129.8 5,663.5 6,365.0 7,220.5 8,128.7 0.6 Pre-Pay 4,353.3 4,882.3 5,570.7 6,389.7 7,238.1 0.7 Contract 705.2 711.0 724.4 763.2 829.2 0.2 Fixed wireless 71.3 70.2 70.0 67.7 61.5 (0.1) Pay TV 557.2 561.1 600.0 628.0 640.0 0.1 Wholesale Accesses 0.4 0.4 0.5 0.5 0.5 0.1Total Accesses 8,711.4 9,303.6 10,153.0 11,199.5 12,174.3 0.4COLOMBIA Final Clients Accesses 10,190.0 9,995.9 10,095.6 10,105.5 10,973.8 0.1 Fixed telephony accesses 2,359.4 2,346.5 2,330.5 2,340.3 2,328.5 (0.0)(1) Internet and data accesses 70.9 94.3 125.0 167.5 200.3 n.m. Narrowband 2.9 0.0 0.0 0.0 0.0 n.m. Broadband (2) 68.0 94.3 125.0 167.5 200.3 n.m. Other 0.0 0.0 0.0 0.0 0.0 n.m. Mobile accesses 7,759.7 7,545.2 7,611.8 7,551.5 8,372.1 0.1 Pre-Pay 5,960.5 5,734.6 5,887.0 5,867.4 6,612.9 0.1 Contract 1,799.2 1,810.6 1,724.8 1,684.1 1,759.2 (0.0) Pay TV 0.0 10.0 28.3 46.2 72.9 n.m. Wholesale Accesses 0.0 0.0 0.0 0.0 0.0 n.m.Total Accesses 10,190.0 9,995.9 10,095.7 10,105.5 10,973.8 0.1MEXICO Mobile accesses 8,553.2 9,319.6 10,232.8 11,072.7 12,537.6 0.5 Pre-Pay 8,017.8 8,775.0 9,655.2 10,446.9 11,833.7 0.5 Contract 533.4 542.4 574.8 622.6 700.4 0.3 Fixed wireless 2.0 2.2 2.8 3.2 3.6 0.8Total Accesses 8,553.2 9,319.6 10,232.8 11,072.7 12,537.6 0.5VENEZUELA Mobile accesses 8,826.2 9,100.3 9,746.6 9,840.0 10,429.9 0.2 Pre-Pay 7,520.2 7,724.2 8,345.1 8,392.2 8,900.3 0.2 Contract 469.4 495.4 474.7 510.3 533.7 0.1 Fixed wireless 836.6 880.7 926.8 937.5 995.9 0.2Total Accesses 8,826.2 9,100.3 9,746.6 9,840.0 10,429.9 0.2 (1) PSTN (including Public Use Telephony) x1; ISDN Basic access x1; ISDN Primary access; 2/6 Access x30. Company's accesses for internal use included.(2) Includes ADSL, optical fiber, cable modem and broadband circuits. TELEFONICA LATINOAMERICAACCESSES BY COUNTRIES (III)Unaudited figures (Thousands) 2006 2007 December March June September December % Chg y-o-yCENTRAL AMERICA (3) Fixed telephony accesses 109.4 94.4 119.4 120.3 125.3 0.1(1) Internet and data accesses 26.0 26.0 22.3 22.2 22.0 (0.2) Broadband (2) 24.1 24.0 20.2 20.0 19.8 (0.2) Other 1.9 2.0 2.1 2.2 2.2 0.2 Mobile accesses 3,829.5 4,042.1 4,469.4 4,877.4 5,278.1 0.4 Pre-Pay 3,303.1 3,472.5 3,856.6 4,240.8 4,628.6 0.4 Contract 315.6 342.8 366.6 376.7 381.2 0.2 Fixed Wireless 210.9 226.7 246.2 259.8 268.2 0.3 Pay TV 14.0 0.0 0.0 0.0 0.0 n.m.Total Accesses 3,978.9 4,162.5 4,604.1 5,019.8 5,425.3 0.4ECUADOR Mobile accesses 2,490.0 2,481.7 2,645.0 2,653.2 2,582.4 0.0 Pre-Pay 2,133.0 2,116.8 2,275.2 2,272.1 2,177.5 0.0 Contract 355.3 363.3 368.2 379.6 403.6 0.1 Fixed Wireless 1.7 1.6 1.5 1.5 1.3 (0.2)Total Accesses 2,490.0 2,481.7 2,645.0 2,653.2 2,582.4 0.0URUGUAY Mobile accesses 777.3 874.6 963.1 1,047.0 1,147.8 0.5 Pre-Pay 675.3 761.4 844.3 907.0 957.0 0.4 Contract 102.0 113.2 118.8 140.0 190.8 0.9Total Accesses 777.3 874.6 963.1 1,047.0 1,147.8 0.5 (1) PSTN (including Public Use Telephony) x1; ISDN Basic access x1; ISDN Primary access; 2/6 Access x30. Company's accesses for internal use included.(2) Includes ADSL, optical fiber and broadband circuits.(3) Includes Guatemala, Panama, El Salvador and Nicaragua TELEFONICA LATINOAMERICASELECTED FINANCIAL DATA (I)Unaudited figures (Euros in millions) January - December 2007 2006 % Chg % Var Local Cur BRAZIL Revenues 7,662 7,238 5.9 3.2 OIBDA 3,026 3,068 (1.4) (3.8) OIBDA margin 39.5% 42.4% (2.9 p.p.) CapEx 1,087 1,028 5.7 3.1 Telesp Revenues 5,619 5,565 1.0 (1.5) OIBDA 2,438 2,632 (7.4) (9.7) OIBDA margin 43.4% 47.3% (3.9 p.p.) CapEx 729 639 14.0 11.2 Vivo Revenues 2,396 2,005 19.5 16.5 OIBDA 588 438 34.1 30.8 OIBDA margin 24.5% 21.9% 2.7 p.p. CapEx 358 389 (8.0) (10.2) ARGENTINA Revenues 2,264 2,163 4.7 15.7 OIBDA 773 792 (2.3) 8.0 OIBDA margin 32.9% 35.1% (2.2 p.p.) CapEx 289 243 19.0 31.5 Telefonica de Revenues 984 989 (0.6) 9.9Argentina OIBDA 356 453 (21.5) (13.3) OIBDA margin (1) 30.9% 39.0% (8.1 p.p.) CapEx 165 140 17.9 30.3 TEM Argentina Revenues 1,353 1,260 7.4 18.7 OIBDA 418 339 23.5 36.5 OIBDA margin 30.9% 26.9% 4.1 p.p. CapEx 123 102 20.5 33.2 CHILE Revenues 1,814 1,706 6.4 14.3 OIBDA 716 711 0.7 8.2 OIBDA margin 39.5% 41.7% (2.2 p.p.) CapEx 418 339 23.2 32.3 Telefonica Chile Revenues 974 1,006 (3.2) 4.0 OIBDA 368 417 (11.8) (5.3) OIBDA margin 37.7% 41.4% (3.7 p.p.) CapEx 198 163 21.1 30.1 TEM Chile Revenues 930 796 16.8 25.5 OIBDA 348 294 18.5 27.3 OIBDA margin 37.5% 36.9% 0.5 p.p. CapEx 220 176 25.1 34.5OIBDA is presented after management fees.(1) Margin over revenues includes fixed to mobile interconnection. TELEFONICA LATINOAMERICASELECTED FINANCIAL DATA (II)Unaudited figures (Euros in millions) January - December 2007 2006 % Chg % Var Local Cur PERU Revenues 1,513 1,428 6.0 10.5 OIBDA 469 579 (19.0) (15.6) OIBDA margin 31.0% 40.6% (9.6 p.p.) CapEx 281 216 30.3 35.8 Telefonica del Peru Revenues 1,031 1,097 (6.0) (2.0)(2) OIBDA 311 454 (31.5) (28.6) OIBDA margin 30.2% 41.4% (11.2 p.p.) CapEx 126 132 (4.3) (0.2) TEM Peru Revenues 603 447 34.8 40.5 OIBDA 158 129 22.1 27.3 OIBDA margin 26.2% 28.9% (2.7 p.p.) CapEx 155 84 84.5 92.3 COLOMBIA Revenues 1,569 1,182 32.8 27.9 OIBDA 485 328 47.9 42.5 OIBDA margin 30.9% 27.7% 3.2 p.p. CapEx 360 333 8.3 4.3 Telefonica Telecom Revenues 739 417 n.c. n.c.(3) OIBDA 299 189 n.c. n.c. OIBDA margin 40.4% 45.4% (5.0 p.p.) CapEx 180 140 n.c. n.c. TEM Colombia Revenues 869 779 11.5 7.4 OIBDA 186 138 34.9 30.0 OIBDA margin 21.4% 17.7% 3.7 p.p. CapEx 180 192 (6.4) (9.9) MEXICO (TEM Mexico) Revenues 1,431 988 44.8 58.5 OIBDA 179 (11) c.s. c.s. OIBDA margin 12.5% (1.1%) 13.7 p.p. CapEx 230 180 27.8 39.9 VENEZUELA (TEM Venezuela) Revenues 2,392 2,041 17.2 27.8 OIBDA 1,060 815 30.1 42.0 OIBDA margin 44.3% 39.9% 4.4 p.p. CapEx 370 232 59.1 73.6 CENTRAL AMERICA (4) Revenues 585 556 5.3 n.c. OIBDA 236 205 15.3 n.c. OIBDA margin 40.3% 36.8% 3.5 p.p. CapEx 133 108 22.5 n.c. ECUADOR (TEM Ecuador) Revenues 291 290 0.4 9.5 OIBDA 73 64 14.4 24.8 OIBDA margin 25.1% 22.0% 3.1 p.p. CapEx 60 48 25.4 36.8OIBDA is presented after management fees.(2) Telefonica del Peru includes Cable Magico.(3) Data for Telefonica Telecom (formerly Colombia Telecom) only include results for May-December 2006 period, including Telefonica Data Colombia.(4) Includes Guatemala, Panama, El Salvador and Nicaragua TELEFONICA LATINOAMERICASELECTED FINANCIAL DATA (III)Unaudited figures (Euros in millions) January - December 2007 2006 % Chg % Var Local Cur URUGUAY (TEM Uruguay) Revenues 104 77 34.4 42.9 OIBDA 28 18 51.9 61.6 OIBDA margin 26.6% 23.5% 3.1 p.p. CapEx 15 13 12.6 19.7 TIWS Revenues 275 232 18.4 22.4 OIBDA 88 79 10.9 13.9 OIBDA margin 31.9% 34.0% (2.1 p.p.) CapEx 54 45 21.4 21.4OIBDA is presented after management fees. More to follow... This information is provided by RNS The company news service from the London Stock Exchange
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