At its General Shareholders’ Meeting, Telefónica will propose a 14.3% dividend increase for 2011, to €1.60/share, in line with the policy of increasing shareholder remuneration.
The Group has set targets for 2011 with the aim of capturing growth in a profitable manner, and expects revenue growth up to 2%, an OIBDA margin in the upper 30s, with a limited erosion year-on-year, and CapEx of approximately 9 Billion euros
 Solid growth: Consolidated revenues grew 7.1% in 2010 to 60,737 million euros (+9.9% in 4Q), driven by a solid performance in this item in Latin America (+13.3%) and Europe (+12.7%) and the growing contribution of the mobile data business (close to 9,300 million euros, +19.3% year-on-year organic growth).
 High degree of diversification: Telefónica Latinoamérica and Telefónica Europe represent 68% of the Group’s consolidated revenue and generate over 60% of consolidated OIBDA.
 Boosting commercial strategy: Telefónica has 287.6 million accesses worldwide, and posted growth in this item of 7.2% year-on-year organic. In 2010, the Company registered organic net adds of 19.2 million accesses. In Spain, despite the fierce competitive environment, net adds in the last year were six times the gains registered in 2009 in comparable terms.
 Strategy focused on value-added customers: In 2010, 53% of organic growth in net adds of mobile clients were in the contract segment, which represents 31% of the Group’s over 220 million accesses. Telefónica already has 22.2 million mobile broadband clients (+63.9%), and 17.1 million retail fixed broadband internet accesses (+27%). In addition, as a result of the Group’s bundling strategy, 89% of the retail fixed broadband accesses in Spain, and 86% of broadband accesses in Latin America form part of a duo or trio package.
 A leader in operating efficiency: At the close of 2010, OIBDA stood at 25,777 million euros, with year-on-year growth of 14% and an OIBDA margin of 42.4%. Operating cash flow stood at 14,933 million euros for the year.

 Telefónica invested over 10,800 million euros in 2010, including the spectrum and license acquisitions carried out in Germany and Mexico. In Spain, despite the difficult economic climate, the company increased its investment by 8.4% to 2,021 million euros, consolidating its solid leadership position in the market and its commitment to the country.

Madrid, 25 February 2011.- Telefónica obtained solid results in 2010, complying, for the eighth consecutive year, with the financial targets and commitments made with the market.
Telefónica’s year-end net profit increased 30.8%, hitting a new all-time record at 10,167 million euros, which puts earnings per share at 2.25 euros, outpacing the target of 2.10 euros set by the company.
Similarly, in line with its performance over the last eight years, Telefónica complied with the rest of the targets set and commitments made to the financial community. Therefore, in accordance with the criteria applied for setting these targets, revenues grew 3.8%, in the upper part of the announced range (+1%-+4%), OIBDA increased 1.4% (within the +1%-+3% range established) and CapEx - excluding spectrum - totalled 7,646 million euros.
Upon presenting these results at the close of 2010, Telefónica also announced its proposal to the Shareholders Meeting of a dividend of €1.60/share for 2011, which represents growth of +14.3% with respect to the 2010 dividend. Underpinned by the solid cash generation forecasts for 2011, this proposal confirms Telefónica’s commitment to making shareholder remuneration a priority use of cash and to gradually increase dividends per share, with the aim of paying out a minimum dividend of €1.75/share in 2012.
The Company also announced its financial targets for 2011, which reflect a strategy focused on capturing the growth in its markets while maintaining a high level of profitability:
Guidance for 2011* 2010 Bases for Telefónica’s 2011
financial targets:
Revenue growth up to 2% Consolidated revenues: 63,144M€
An OIBDA margin in the upper 30s, with a limited
erosion year-on-year OIBDA margin 38%
CapEx of approximately 9 billion euros Consolidated CapEx: 8,541 million
euros
Before providing a breakdown of the income statement, we would underscore the
Telefónica Group’s operations’ high degree of diversification, both in terms of geography and business, which - as is evident in our analysis of 2010 figures - played a key role in its earnings performance last year.
The strong growth posted by Telefónica Latinoamérica and Telefónica Europe drove Telefónica’s solid performance, offsetting the lower contribution of the business in Spain. It is noteworthy the growing contribution of the Latin America business to the Group’s results, supported by the positive performance in operations and the greater exposure to Brazil, following the acquisition of Portugal Telecom’s stake in Vivo last September. It should be
noticed that Vivo is fully consolidated in the Group since October 2010 (prior to that date, the results of Vivo were proportionally consolidated), affecting therefore to year-on-year comparisons in reported terms as from the fourth quarter of the year.

More value-added customers to fuel further growth
The Company’s focus on growing its customer base and increasing the value of
customers led to a solid advance in the number of accesses, especially in the broadband businesses (both wireline and mobile). In addition, it is noteworthy the higher proportion of the contract segment in the mobile business, thanks to active migration policies and to the rapid adoption of smartphones. Bundled offers in the wireline business showed also steady growth, reflecting the commercial priorities set for the year.
The intense commercial activity recorded throughout the year by the Group’s businesses across markets pushed total accesses up by 7.2% year-on-year in organic terms (+8.7% in reported terms), to 287.6 million. By region, of particular note are the expansion of the customer base at Telefónica Latinoamérica (+9.0% year-on-year) and Telefónica Europe
(+6.2% year-on-year organic; +14.3% reported).
The increased commercial drive resulted in a year-on-year growth in gross additions of 13.3%. At the same time, customer loyalty programmes and the commitment to improving quality kept the churn rate stable year-on-year at 2.3% in 2010. As a result, the Company registered 19.2 million organic net additions during the year (1.5 times the net additions recorded in 2009), adding 5.7 million new accesses in the fourth quarter (+36.0% compared to
the third quarter; +13.1% year-on-year).
Mobile accesses at the Telefónica Group stood at 220.2 million at the end of 2010, a yearon- year growth of 8.9% (both in organic and reported terms). Organic net additions reached 18.2 million in 2010 (1.3 times those recorded in 2009). The focus on high-value customers has been reflected in a significant increase in contract net additions compared to 2009: 53% of
organic net additions corresponded to this segment, compared to 38% in 2009. This has left a total of 69.0 million contract customers (+15.9% year-on-year in organic terms), which represents over 31% of the Group’s total mobile accesses (+3 percentage points year-on-year organic).
The strong adoption of mobile broadband services, together with the launch of new and more segmented price schemes has allowed the Group to increase its number of mobile broadband accesses to more than 22.2 million by the end of 2010 (+63.9% year-on-year). This represents a penetration over the total mobile access base of 10.1%, 3.4 percentage points higher than at December 2009.
Retail fixed broadband accesses reached a total of 17.1 million (+27.0% year-on-year in reported terms, +10.9% organic). Net additions picked up in the fourth quarter to reach 422 thousand accesses. In 2010, net additions stood at 3.6 million accesses (1.5 million in organic terms). Brazil was once again the driver of the Group’s growth in this type of access, with Telesp registering 681 thousand net additions, a record-high figure in the Company’s history.
Bundled voice, broadband, and television services remain key to Group strategy and especially to churn control. In Spain, 89% of retail fixed broadband accesses are bundled as part of either a dual or triple play offer, while in Latin America the figure stands at 86%.
The number of pay-TV accesses stood at 2.8 million in 2010, an 8.9% increase in organic terms on December 2009 (+12.0% reported). Fixed telephony accesses totalled 41.4 million, down 2.7% year-on-year in organic terms, although the rate of decrease was slower in the fourth quarter than in previous periods. In reported terms, the number of accesses rose 1.8%.

Solid growth in revenues, driven by diversification
The increased customer base and the growing contribution from the mobile data
business drove growth in revenues, which totalled 60,737 million euros in 2010, up 7.1% yearon- year (+9.9% in the fourth quarter). Foreign exchange rates added 2.2 percentage points despite the sharp devaluation in the Venezuelan bolivar, while changes in the consolidated perimeter accounted for 2.5 percentage points of the growth for the year.
The Group’s high-class diversification is a key factor behind the strong revenue trends. In 2010, Telefónica Latinoamérica and Telefónica Europe accounted for 68% of consolidated revenues, whereas Telefónica España’s contribution stood below 31%. This diversification is also behind the positive performance of revenues in organic terms, which grew 2.4% year-onyear
in 2010. This figure is roughly in line with the growth rate recorded in the first nine months of the year. It is worth to mention that cuts in mobile termination rates dragged 1.0 percentage point to organic revenue growth. By region, it is noteworthy the sustained momentum in the year-on-year revenue growth at Telefónica Latinoamérica and Telefónica Europe. These regions account for 2.7 percentage points and 1 percentage points of the
organic growth in consolidated revenues respectively, and offset the lower contribution from Telefónica España (-1.6 percentage points).
Consolidated operating expenses amounted to 40,375 million euros in 2010, a 13.8% year-on-year growth in reported terms. These expenses were negatively affected by nonrecurrent restructuring expenses recorded in the second half of 2010 (1,262 million euros).
These costs were mainly related to personnel reorganization (658 million euros) and firm commitments relating to the Telefónica Foundation’s social activities (400 million euros; of this total, 280 million euros are recorded in Telefónica S.A. and the rest is registered in Telefónica Latinoamérica).
Supply costs amounted to 17,606 million euros in 2010. Personnel expenses amounted to 8,409 million euros in 2010, up 9.3% year-on-year in organic terms. This figure was affected by personnel reorganisation costs recorded in the second half of the year. Subcontract expenses amounted to 12,228 million euros in 2010, up 7.9% on 2009 in organic terms.

The average number of employees in 2010 was 269,047 (13,896 employees more than
at December 2009), mainly due to the larger workforce at Atento. Excluding Atento, Telefónica Group’s average workforce rose 2% year-on-year to 128,012.

Gain on sales of fixed assets totalled 4,150 million in 2010, primarily explained by the positive impact of the revaluation of the previously held stake in Vivo at the date of acquisition of the 50% in Brasilcel owned by Portugal Telecom (3,797 million euros in the third quarter).
Operating income before depreciation and amortization (OIBDA) for 2010 stood at
25,777 million euros, a year-on-year growth of 14.0%, strongly affected by the gain on sales of fixed assets abovementioned recorded in the third quarter of the year, and despite the negative impact of non-recurrent restructuring expenses (1,262 million euros) also mentioned previously. Foreign exchange rates contributed with 1.2 percentage points to this growth, while changes in the consolidated perimeter represented 1.6 percentage points. The OIBDA margin stood at 42.4% for 2010 (+2.6 percentage points year-on-year). Stripping out the above mentioned impacts, the OIBDA margin would reach 38.3% in 2010.
In organic terms, which exclude the aforementioned non-recurrent restructuring
expenses, OIBDA rose 0.8% year-on-year, an improved performance compared to the first nine months of 2010.
By region and excluding the positive impact of the revaluation of the previously held stake in Vivo already mentioned, Telefónica Latinoamérica increased its contribution to the Group’s OIBDA up by 5 percentage points year-on-year, to exceed 45% of the Group figure.
Consequently, together with the higher contribution from Telefónica Europe, in 2010 over 60% of consolidated OIBDA was generated outside Telefónica España.
Operating income (OI) totalled 16,474 million euros in 2010, up 20.7% year-on-year in reported terms. In organic terms and excluding the non-recurrent expenses mentioned above, OI rose 4.5% year-on-year.
Profits from associates amounted to 76 million euros in 2010, up 59.8% year-on-year.
This increase is mainly due to the improved results contributed by the associate Telco, S.p.A.
Net Financial Results (expenses) up to December 2010 amounted to 2,649 million euros (-19.9% year-on-year).

Financial strength
At the end of 2010, Net financial debt increased by 12,042 million euros with respect to the net financial debt at the end of 2009 (43,551 million euros), leaving the final figure in December 2010 at 55,593 million euros. The leverage ratio, net debt over OIBDA (including accumulated 100% of Vivo’s OIBDA to December 2010, excluding results on the sale of fixed assets and adjusted by firm commitments relating to the Telefónica Foundation’s social activities), stands at 2.4 times at December 2010.
During 2010, the financing activity of Telefonica Group, excluding short term Commercial Paper Programmes activity, rose to 15,800 million equivalent euros, with the main objective of partly financing in advance 2011 debt at Telefónica, S.A. level and finance the acquisition of 50% of Brasilcel. At the end of December, bonds and debentures represented 63%, on the consolidated financial debt breakdown, while debt with financial institutions reached a 37% weight.
Corporate income taxes for 2010 stood at 3,829 million euros, impacted by the
reassessment of the tax assets in Colombia, amounting to 864 million euros and recorded in the fourth quarter of 2010. It is worth to mention that in the third quarter of 2010, this caption also included 321 million euros of fiscal effects relating to the revaluation of the Company’s previously-held stake in Vivo at the date of acquisition of the 50% in Brasilcel owned by Portugal Telecom. On the positive side, income tax expense for 2010 has decreased in the amount of 138 million euros due to tax credits generated in México and Terra Brazil, which are based on the expected taxable income to be generated by the companies.
Profit attributable to minority interests increased the net income figure by 95 million euros in 2010, reversing the trend observed both until September 2010 (-153 million euros) and compared to 2009 (-161 million euros).
The result of all the above was consolidated net income of 10,167 million euros for 2010, 30.8% higher year-on-year. The main drivers behind this performance were: the positive net impact from the revaluation of the previously held stake in Vivo at the date of acquisition of the 50% in Brasilcel owned by Portugal Telecom (3,476 million euros); non-recurrent restructuring expenses registered in the second half of 2010 (862 million euros, net of taxes and minority interests); the write-down of tax credits in Colombia (450 million euros, net of minority interests). As a result, basic earnings per share stood at 2.25 euros (+31.6% year-onyear).
CapEx, excluding spectrum acquisitions, reached 8,228 million euros, up 13.6% on 2009 figure (+5.9% in organic terms). The Company continues to focus its investments on growth and transformation projects (77% of total investment, excluding spectrum acquisitions), fostering the development of broadband services (both fixed and mobile). Taking into account the spectrum acquisitions in Germany in May and the acquisition of additional spectrum and licenses in Mexico, CapEx for 2010 amounted to 10,844 million euros. As a result, operating cash flow (OIBDA-CapEx) totalled 14,933 million euros in 2010 (- 2.7% year-on-year). In organic growth terms and stripping out spectrum acquisitions, operating cash flow dropped 1.7% year-on-year.