(Translation of registrant’s name into English)

(Address of principal executive offices)

The most relevant facts of Telefónica Group results for the January-September 2006 period are the following:

The results of Telefónica Group's corresponding to the first nine months of 2006 keep demonstrating the Company's growth profile and the value of the diversification, as the revenues register strong year-on-year growth (43.1%), which is supported by the solid evolution of the businesses in Spain, the strong growth in Latin America as well as the consolidation and the organic growth from operations in Europe. It should be highlighted the net income level achieved (5,185.7 million euros; +59.4% year-on-year) and the basic earnings per share (1.091 euros; +64.0% year-on-year). Efficiency in integrated operations management has permitted the OIBDA to grow 35.9% year-on-year and operating free cash flow (OIBDA-CapEx) 25.9% year-on-year, reaching 9,587.3 million euros.

The Group's cellular accesses reached 138.4 million compared with 93.6 million in September 2005. From this figure, 21.0 million originate in Spain, 78.8 million in Latin America, 34.4 million in Europe and 4.2 million in Morocco. The customer base for Telefónica Móviles Group stands at 104.0 million, with a year-on-year increase of 16.8%. The acquisition of the value customers has been mantained in the three regions, after recording net adds in the third quarter gains of 365,000 in Spain, 2.6 million in Latin America and 812,000 in Europe.

Retail broadband Internet accesses continue to record high growth rates, totalling 7.3 million at the end of September, 45.0% above the figure of September 2005, highlihgting the levels reached in Spain (3.4 million vs. 2.4 million twelve months ago) and in Telesp (1.5 million vs. 1.1 million at the close of the third quarter 2005).

In the first nine months of 2006, revenues for the Telefónica Group amounted to 38,704.4 million euros, representing year-on-year growth of 43.1%, with positive increase in all business lines. The positive effect of the exchange rates is reduced and contributes with 3.2 percentage points to the growth compared with 5.4 percentage points in the first half of the year. The incorporation of the new companies in the perimeter of consolidation has contributed 32.4 percentage points to the growth vs. 33.3 percentage points in January-June. Therefore, the organic² growth would reach 7.5% (+7.7% in January-June 2006), maintaining a high organic percentage of variation, in which the following must be highlighted; i) the contribution of the growth in the customer base in the 02 Group and Telefónica Móviles Latin América, ii) the solid growth in services revenues in Telefónica Móviles España and iii) the increase of broadband sales in Spain and Latin America. In the third quarter, revenues totalled 13,541.9 million euros and have grown 37.2% compared with the same period the previous year.

By business lines, Telefónica Móviles Group continues to be the main contributor to the growth and ended the first nine months of the year with 13,537.2 million euros of revenues, 12.3% higher than the prior year figure. Excluding the impact of the exchange rates, the year-on-year increase stands at 10.6% compared with 9.4% in the first half of the year. In Telefónica Móviles Spain there is an acceleration in the revenue growth (+3.7% vs. +2.9% to June) after increasing 5.1% in the third quarter due to higher client revenues (+6.8%). In Latin America, the evolution of Venezuela (+47.5% in local currency), Argentina (+33.9% in local currency), Chile (+16.0% year-on-year) and Mexico (+20.0% year-on-year) must be highlighted.

The contribution of revenues from Telefónica O2 Europe (constituted by the O2 Group since February 2006 and from Telefónica O2 Czech Republic and Telefónica Deutschland since the 1st of January 2006) to the consolidated revenues is 9,434.3 million euros. The good performance of service revenues in O2 UK in the first eight months of the year (+15.0% year-on-year in local currencie) that is due to the strong growth of the customer base and the ARPU, has led the Company to upgrade the service revenue growth guidance for 2006 (February-December) to 14%-15% from the previously announced (+8%/+11%). In O2 Germany and also in the first eight months of the year, the year-on-year increase of service revenues has reached 8.1%, changing the target for the end of the financial year (February-December 2006) to the high single digits from the low double digits. In Telefónica O2 Czech Republic, sales register a 0.6% (including other recurring revenues) rise in local currency compared to January-September 2005, reaching 1,592.5 million euros.

The revenues from the Telefónica de España Group in the cumulative period to September stand at 8,893.9 million euros and show a 1.7% growth compared with the same period of the previous year (+2.3% excluding the impact of the change in the accounting criteria for minute-card revenues as of March 2006), mainly supported by the strength of Internet and Broadband revenues (+27.0%) because of the succesful commercial offers of Duos and Trios, which once again more than offset the fall in access sales (-2.0%) and traditional voice (-5.1%). It should be highlighted that in the third quarter alone, the year-on-year growth for the revenues stands at 1.6% (+2.4% ex accounting criteria for minute-card), showing acceleration of the trend registered in the second quarter (+0.3%).

The Telefónica Latinoamérica Group reported revenues of 7,050.3 million euros, 17.5% higher than those obtained in January-September 2005, showing a slow-down compared with the first six months of 2006, when it increased by 23.2%. This desaceleration is due to the lower positive impact of the exchange rates (+10.2 percentage points vs. +16.2 percentage points up to June) and a lesser increase in Telesp sales (+2.1% vs. +4.5% to June) mainly due to the negative tariff adjustments dated in July 2006. Assuming constant exchange rates and excluding the Colombia Telecom revenues, the year-on-year growth rate is 3.5% (+4.4% in the first half), in spite of the negative tariff environment in Argentina and Peru.

By geographic areas, a greater diversification has been observed. As of September 2006, revenues generated in Spain represented 38.5% of the total, compared with 53.1% twelve months ago. Latin America has reduced its contribution to total revenues by 6.2 percentage points, down to 26.0%. On the other hand,revenues from Europe represented 126.0% of the total Group's revenues (4.6% to September last year). Brazil continues to be the country with the highest contribution to total revenues, after Spain, (14.7% on the 30th September vs. 18.0% a year ago), followed by United Kingdom (12.5% vs. 0.4% in September 2005), after the incorporation of O2 last February.

Although the level of commercial activity in the Group has intensified over the last three months, the year-on-year increase of the operating expenses (24,519.2 million euros) up to September (+47.8%) is slightly lower than the figure obtained in the first half of the year (+48.1%). Nevertheless, the effect of the exchange rates, the changes in the perimeter of consolidation and the higher costs in the Telefónica Móviles Group and O2 Group, explain this growth versus September 2005. The performance of the main expense concepts was as follows:

• Supplies expenses (11,984.8 million euros) increased by 69.5% versus the first nine months of 2005 (+66.6% in constant euros) as a consequence of the handsets purchases in the Telefónica Móviles Group and the consolidation of the O2 Group.
• Personnel expenses rose in January-September 2006 to 5,201.4 million euros, equivalent to an increase of 26.1% (+23.7% assuming constant exchange rates). The average workforce during the period was 225,879 employees, with a net increase of 40,116 people (+21.6%) due to the changes in the perimeter of consolidation and the significant increase in the Atento Group (excluding the Atento Group, the average workforce number would increase 22.3% up to 127,525 employees). Regarding the Telefónica de España 2003-2007 Redundancy Program, during the third quarter of the financial year no additional provision has been recorded to the one accounted for the first six months (391.5 million euros for 1,237 redundancies and 45 from the Terra España Remunerated Layoff Plan). During the fourth quarter of the fiscal year, the provision for the rest of the employees joined to the Program in 2006 will be recorded and, in the other hand the incorporation to Redundancy Program in 2007 has been changed to October 2006.
• External services increased by 36.8% in comparison with September 2005 (+33.3% eliminating the exchange rate effect), totalling 6,652.1 million euros as a consequence of the higher costs in the Telefónica Móviles Group related to the commercial activity -commercial costs, advertising costs, call centre costs - in a competitive environment in the operations markets and the incorporation of the O2 Group, which also presents a higher level of commercial costs in O2 UK.

With respect to the sale of fixed assets in the Telefónica Group, it rose in the first nine months of 2006 to 223.5 million euros (+177.9 million euros in January-September 2005). This is mainly explained by two factors: i) the sale of shares in Sogecable (6.6% of capital share) after the takeover bid presented by the Prisa Group ii) the capital gain of real state amounted to 85.8 million euros in Telefónica de España Group.

As a result of the evolution of the aforementioned revenues and costs, the operating income before depreciation and amortization (OIBDA), cumulative to September, totals 14,653.9 million euros, 35.9% higher than that registered in the same period 2005 (+32.6% in constant euros). In the third quarter, the year-on-year increase is 28.1% (5,411.5 million euros). In accumulated terms, the organic³ growth rate has reached 7.6%, 0.2 percentage points higher than the one recorded up to June. As far as the OIBDA margin is concerned, in the first nine months of the year, it stands at 37.9% compared to 39.9% twelve months ago, mainly due to the incorporation of new companies into the perimeter of consolidation. The margin on revenues in the third quarter alone has risen to 40.0% (42.8% in July-September 2005).

The Telefónica Móviles Group, which contributes 32.1% of the Group's OIBDA, in the January-September period 2006 reached 4,700.3 million euros and has grown 11.2% from that obtained in the same period of 2005 (+10.1% in constant currency), whilst profitability has remained virtually stable despite the high commercial activity developed in its markets of operations (OIBDA margin rises to 34.7% with a year-on-year drop of 0.4 percentage points). Noteworthy is the improvement in the OIBDA margin for the Latin American operators up to September (24.70% vs. 22.0% twelve months ago), whilst the OIBDA margin for Telefónica Móviles Spain stands at 45.5% vs. 46.7% in January-September 2005.

The OIBDA of the Telefónica de España Group records 7.6% growth in respect to the first nine months of 2005, totalling 3,769.5 million euros and representing 25.7% of the total OIBDA. The positive evolution of revenues and the cost control (-3.2%) along with the lower accounted provision by the employees joined the Redundancy Program in 2006 compared to 2005, has contributed to this performance. For the 2006 financial year, it has been predicted that OIBDA growth⁴  will surpass 5% without considering the possible provision resulting from bringing forward part of the Redundancy Program for 2007 (previously +1.0%/+3.0%). The OIBDA margin to September stands at 42.4% (40.1% in January-September 2005). Excluding the redundancy plan provision, in both periods the OIBDA margin has increased to 46.8% (46.1% the previous year).

With regard to Telefónica Latinoamérica Group, the OIBDA (3,198.2 million euros) represents 21.8% of the consolidated OIBDA for the first nine months of the fiscal year and shows a year-on-year growth of 18.8%. Excluding the positive impact of the exchange rates (+10.4 percentage points) and the incorporation of Colombia Telecom in May, the rise in the OIBDA is reduced to 4.0%. The OIBDA margin, excluding the result for disposing of fixed assets in both periods, reached 45.4%, 1.8 percentage points higher than the previous year.

Telefónica O2 Europe contributed 2,798.2 million euros or 19.1% to the consolidated OIBDA, which comprised eight months of O2 Group (2,044.6 million euros) and nine months of Telefónica O2 Czech Republic and Telefónica Deutschland. With regard to Telefónica O2 Czech Republic, the OIBDA reached 778.8 million euros and has increased 4.1% compared to January-September 2005, which has led to increase the OIBDA growth target to be around 2% compared to the flat performance which was previously announced. With respect to the OIBDA margin, in the February-September 2006, O2 UK stands at 27.6% and O2 Germany at 24,2%. By the end of 2006, it is expected that the O2 UK margin for the 11 months in 2006 will stand around 1.0 percentage points below than the one obtained in the same period in 2005.With regard to the breakdown of OIBDA by geographic areas at the end of the third quarter, 45.9% of the total OIBDA for the Telefónica Group comes from Spain (-13.7 percentage points compared to September of last year), 33.8% from Latin America (2.0 percentage points less than twelve months ago) and 19.7% from Europe (15.7 percentage points more than in September of the previous year).

Depreciation and amortization to September has risen to 7,209.3 million euros and registers a 50.1% increase over the same period of the previous year. This performance is mainly due to the incorporation of Telefónica O2 Europe, that includes eight months of the O2 Group Purchase Price Allocation for 639.0 million euros and nine months of amortization associated to the Price Purchase Allocation of Telefónica O2 Czech Republic which reached 115.8 million euros. We are not expecting significant variations of the preliminary estimated amount of the O2 puchase price allocation incorporated until the end of September once we have the definitive figure. In organic⁵ terms, depreciation and amortization increased by 9.1%, changing the trend versus June (-1.4%) due to the O2 PPA mentioned before. Excluding this effect, depreciation and amortization would decrease, in organic terms, untill 0.9% as a result of the decline of amortisation in Telefónica de España Group (-13.2%).

The consolidated operating income (OI) presents year-on-year growth of 24.5% and totals 7,44.6 million euros in January-June 2006. The organic⁵ rowth , excluding the effect of the allocated assets in the acquisition proccess of O2 would have increased by 15.6%, 1.0 percentage points less than in the first half of the year.

Net financial expenses amounted to 1,928.7 million euros, 71.5% year-on-year (+804.1 million euros) in respect with the comparable figure of 2005 (1,124.5 million euros). This variation is lower than the 88.3% increase in the average net debt due to the lower costs than 2005 average related to the debt growth in euros and pounds for the O2 acquisition.

The net free cash flow after CapEx generated by the Telefónica Group in the first nine months of 2006 totalled 6,485.6 million euros, of which 2,063.3 million euros were assigned to the buyout of treasury stock in Telefónica, S.A., 1,169.2 million euros to the payment of dividend and 616.1 million euros to the cancellation of commitments, mainly headcount reduction program. Since the financial investments in the period (net of the sale of real state and the cash flow of O2, Colombia Telecom and TPI in the moment of the acquisition/disposal) reached 21,872.2 million euros, mainly because the O2 take over (purchases of O2 shares in the stock market began in 2005), the net financial debt has been increased by 18,641.2 million euros.

Telefónica´s Group net financial debt at the end of September 2006 stood at 52,238.7 million euros. Along with the aforementioned effect (increase of 18,641.2 million euros), another effects have to be added: i) increase of 4,146.6 million euros due to the changes in the perimeter of consolidation and other effects over the financial statements, mainly the incorporation of O2 and Colombia Telecom gross debt and ii) reduction of 616.1 million euros as a consequence of the effects of the exchange rates on net financial debt non denominated in euros. This results in an increase of the net financial debt of 22,171.7 million euros versus the fiscal year 2005 net financial debt figure (30,067.0 million euros).

The tax provision accrued in the first three quarters of the year reached 1,714.0 million euros, which implies a tax rate of 31% in the period, althoug the cash outflow for the Telefónica Group will be further reduced as negative tax bases are compensated for. The effective tax rate stood at 39% in the third quarter impacted by the O2 Group Purchase Price Allocation, higher than the 20% rate accounted in the second quarter which was affected by the deductions (allowances for export activities) that were pending to record.

The result from discontinued operations stands at 1,596.0 million in the first nine months of the financial year after registering the net capital gain in the third quarter of the year corresponding to the sale of Telefónica's participation in TPI for 1,564 million euros.

The results attributed to minority interests subtract 273.0 million euros from the net income cumulative to September and grows 6.6% year-on-year. This variation is mainly due to minority shareholder participation in the higher net income of Telefónica O2 Czech Republic, Telesp, Endemol (IPO in November 2005).

As a consequence of the performance of the aforementioned parties, the net income from the Telefónica Group increased in the first nine months of the year to 5,185.7 million euros, 59.4% higher than the one obtained in January-September 2005, after registering a net income of 2,611.7 million euros in the third quarter (1,418.2 million euros in July-September 2005).

The consolidated CapEx for the first nine months of 2006 reached 5,066.6 million euros, a year-on-year increase of 59.9%. In organic⁶    terms, growth would have been 6.1%, explained basically by the higher investments in the fixed business, broadband and new businesses, both in Spain and in Latin America and in the mobile business in Europe due to the deployment of the third generation network in UK and Germany and additional investments in the second generation network. However, it should be noted that there is a cyclical component of the investments, so that this performance cannot be extrapolated to the full year.

Regarding the financial targets established for 2006 the Telefónica Group expects that:

• The consolidated growth of the revenues for the 2006 fiscal year is now expected to be above 37% compared with the initial range of +34/+37%.
• The 2006 OIBDA growth is expected to be at the top-end of the range previously comunicated (+26%/+29%)
• The OI growth in 2006 is expected to be in the range (+26%/+30%) previously announced.
• CapEx is expected to be around the 7,200 million euros previously announced.

RESULTS BY BUSINESS LINES

Telefónica de España Group

Telefónica de España Group's results for the first nine months of 2006 confirm the success of the commercial strategy by showing a 1.7% growth in revenues, supported by the positive evolution of the Internet and Broadband business, which increased by 27.0%.

As a result from the commercial campaigns developed, net gain of Retail Internet Broadband accesses in the third quarter posted a 27.1% growth compared to that of same quarter 2005, surpassing 190.000 net adds.

This success of Telefónica de España is based on product bundling through the Dúos and Tríos offers, which amounted to over 2.3 millions by September end, and on the higher usage of VAS, which contributed to the increase of global ARPU to 63 euros, being 4.3% higher than that of the first nine months of 2005.

It is also noteworthy the fixed telephone line loss contention in the traditional business, showing a year-on-year decline of just 1.3%. This good performance is due, on one side, to Telefónica's bundling strategy and commercial and promotional actions, and on the other, to the fixed line market growth in Spain, that according to Company's estimates reaches a 1.8% year-on-year growth by September 2006.

The cost contention results, together with top line growth, have resulted in an OIBDA growth, for the January-September 2006 period, of 7.6%. This growth is even more meaningful once taken out one-off effects, such as the lower E.R.E. provision in 2006, the Real State program, or public subventions, leading to an underlying OIBDA growth of 3.7%. All in one has led to an upgrade of the 2006 OIBDA guidance to higher than 5%.

Following with commercial details, next, most relevant products launched during the third quarter of the year are mentioned:

• Expansion of the Dúos range aimed primarily at SMEs, which include the most advanced ADSL modalities: Class (2 Mbps/320 Kbps), Advanced (4 Mbps/512 Kbps), Premium (8 Mbps/640 Kbps), TOP (10 Mbps/320 Kbps) and Premium Plus (20 Mbps/800 Kbps).
• Launch of the new "Actuaciones Lan" (LAN Operations) service to manage the local area networks of our clients and the "Escritorio PYME" (SMEs Desktop) service: The grouping of outsourced functions and services to create an on-line desktop in the company (virtual intranet) where all company staff share resources and information and are connected 24 hours a day from anywhere, inside and outside the office.
• The new modality of contracting theme channels through the Imagenio Service to customize the range of TV programmes, adding channel packages known as "Favoritos" (Favourites) or independent channels "a la carta" (a la carte). From among the former it is possible to choose packages containing theme channels of Series, Music, Cinema, Documentaries or Sports from €3.00 a month. The "a la carte" channels are available from €1.70 a month.

Significant efforts have also be made in terms of marketing campaigns:

• The free subscription campaign between 18th September and 2nd October.
• The marketing campaign undertaken during the summer months regarding the combined offers, Dúos and Tríos, which, among other discounts, offered free monthly subscription fees until September and that have contributed towards a quarterly net gain in this type of products of over 278,000 units, despite the summer season.
• The inclusion of 120-minute vouchers a month in Dúos and Tríos (promotion valid from 20th August until 15th October) for fixed-to-mobile traffic at any time of day free of charge for 6 months. The success of this offer can be seen in the total number of these vouchers, which exceeded 140,000 through the end of September.

Also worth noting is the renewed agreement signed with Buenavista International for an initial three-year period for the video-on-demand distribution of titles from the Walt Disney Studios, Touchestone Pictures and Miramax Films through the Imagenio service.

In terms of regulatory matters, the decision published by the CMT last September in relation to the new RUO, Reference Unbundling Offer (OBA, Oferta de Acceso al Bucle de Abonado: Offer for Access to the Subscriber Loop) is worth noting. This decision established significant new issues in comparison with the previous RUO in force, including:

• The 14.4% reduction in the fully unbundled loop rental price to 9.72 euros per month, the price of the shared loop remaining unaltered.
• Creation of a planning and monitoring system for requests for work associated with loop unbundling, trying to solve problems due to delays over the established completion terms when requests were presented in large numbers and without prior planning.
• The reduction of the period established for alternative operators to use the space reserved in central offices to six months as of its availability.
• The introduction of a new procedure for shared loops to disable the basic telephone service on request by the end customer. The loop will be treated as fully unbundled loop to bill the alternative operator and Telefónica de España will no longer charge the end customer the PSTN line monthly fee.
• The imposition of a gap of no shorter than 30 calendar days for Telefónica to launch a new ADSL retail service as of the availability of the same wholesale service for alternative operators.
• The inclusion of new quality parameters for the unbundled loop services, wholesale ADSL services (GigADSL and ADSL-IP) and the end services it provides for itself, PSTN, ADSL line and Imagenio, and for companies in the Group.

In August, the CMT also published a new decision in which it established the maximum average prices applicable to voice termination interconnection services on mobile networks. In this regulation, the CMT established a period of three years between October 2006 and September 2009 to set a half-yearly path to cut the average prices of the three operators so that, by the end of the period, they will all stand at 0.07 euros/minute, leading to a reduction of between 42% and 47% in comparison with current prices. The first cut proposed, made effective as of 16th October, represents a reduction of between 7% and 8% in relation to the previous prices in force.

Revenues of Telefónica de España Group amounted to 8,893.9 million euros during the first nine months of 2006, a year-to-year growth of 1.7%. Revenues totalled 2,972.7 million euros in the third quarter of the year, a 1.6% increase that, as in the previous quarter, was affected by the change in accounting criteria for traffic-card revenues as of March 2006. Revenues growth, taking out the effect of the traffic cards revenues accounting criteria change, would stand at 2.3% (2.4% for the third quarter alone).

Through September, Telyco's contribution to revenues amounted to 311.0 million euros, down 8.6% compared to the previous year. The performance of Telyco took 0.4 percentage points from Telefónica de España Group growth during January to September 2006. TTP contributed to the Group's growth with 81.3 million euros, a 12.3% year-to-year decline. Iberbanda's contribution, since it is being firstly consolidated as of July 1st 2006 , amounts to 8.9 million euros.

On 1st July 2006, Terra España was merged with Telefónica de España, S.A., retroactively to 1st January 2006. As such, Telefonica de España parent company's operating revenues for the third quarter 2006 included 15.7 million euros of Terra España revenues from the January to September 2006 period. These additional revenues are mostly attributed to the retail internet and broadband business; revenues from wholesale and IT services provided during the period by the Telefónica de España Parent company to Terra España are eliminated in consolidation.

As a result, over the first nine months of the year, the Telefónica de España Parent Company's revenues totalled 8,568.8 million euros, a 2.5% growth year to year, which amounted to 2.4% during the third quarter.

A detailed analysis of the Telefónica de España Parent Company's revenues follows:

• Revenues for traditional access fell by 2.0% in relation to those obtained during the first nine months of 2005 to stand at 2,078.7 million euros. In relation to the third quarter of the previous year, the 1.7% decline was due to the reduction in the number of fixed telephony lines and the freezing of monthly fee of PSTN lines in 2006.

The total number of Telefónica de España accesses where, along with fixed telephony accesses, data and internet accesses were accounted for, as well as pay television and wholesale accesses, increased by 3.6%. The total combined figure amounted to 22.3 million accesses.

• Revenues from traditional voice services amounted to 3,665.6 million euros to September this year, with a year-on-year reduction of 5.1%. Excluding the effect of the traffic cards revenues accounting criteria change, revenues decrease would be 3.8%.

• According to our estimates, the fixed Internet Broadband access market in Spain amounted to around 6.1 million accesses by the end of September, recording an estimated net gain over the quarter of 280,000 accesses, 9% up on that estimated for the same period of the previous year. Telefónica ADSL connections as a whole (wholesale plus retail, including accesses providing only the Imagenio service) accounted for 4,086,690 connections by the end of September 2006.

• Revenues from data services grew by 4.8% in relation to the first nine months of the previous year to reach 806.0 million euros. Growth stood at 7.3% over the third quarter. Over this third quarter, wholesale data revenues recorded a 17.4% growth, basically promoted by leased circuits and transport capacity to other telephony operators.

• Lastly, information technology services contributed towards Telefónica de España revenues with a total of 255.8 million euros, a 17.1% year-on-year increase. Growth stood at 17.2% over the third quarter.

Telefónica de España Group's operating expenses recorded a year-on-year decrease of 3.2% to 5,260.9 million euros, whereas this decline stood at 1.3% for the third quarter. Excluding the effect of the provisions for workforce restructuring, expenses in the January-September 2006 period expenses would have dropped by 0.8%. This good performance is due to the reduction in supplies and external services expenses.

• Personnel expenses fell by 5.6% in relation to the same period of the previous year to reach 1,991.7 million euros. Over the third quarter, however, this expense item increased slightly by 0.6%. 45 redundancies were recorded during the first nine months of the year from the Terra España Remunerated Layoff Plan and 1,237 from the Telefónica de España Redundancy Program (E.R.E.). The provision for this item amounts to 392 million euros.

• Supplies expenses fell by 1.7% over the year to stand at 2,175.0 million euros. This reduction amounted to 3.8% during the third quarter. Lower interconnection expenses (-10.9%) as a result of the reduction in international traffic delivery costs and the reduction in fixed-to-mobile traffic and termination interconnection rates have notably contributed to this good performance.
• External services expenses recorded a drop of 2.6% to stand at 942.5 million euros, mainly as a consequence of the change in the accounting criteria for traffic cards.

The combined effort made by the Company with regard to the growth in revenues and efficiency has led to operating income before depreciation and amortization (OIBDA) of 3,769.5 million euros in the first nine months of the year, a 7.6% year-on-year growth and a 7.7% growth in the third quarter. This growth was affected by the profits recorded from the Real State assets for a value of 85.8 million euros.

For comparison purposes with the announced financial guidance, exceptional revenues/expenses not foreseen in the January-September period of 2005 and 2006 must be excluded from OIBDA. Once this adjustment has been made, the growth in OIBDA would stand at 8.6%, positively affected by the difference between the provisions made by the Redundancy Plan in the January-September 2006 period compared with the same period of 2005.

Excluding one-off effects, such as the lower E.R.E. provision in 2006, the Real State program, or public subventions, the underlying OIBDA would have grown by 3.7%.

The OIBDA margin stood at 42.4% during the January-September period, 2.3 percentage points above that recorded the previous year. Excluding the effect of the provision for the Redundancy Program (E.R.E.), and the actuarial review in 2005 and 2006, the margin would have improved year-on-year by 0.7 percentage points to reach 46.8%.

The OIBDA for the Telefónica de España Parent company amounted to 3,761.1 million euros, up 8.9% year-on-year.

Lastly, CapEx for Telefónica de España Group totalled 1,049.3 million euros over January-September 2006 period, showing a 14.1% increase in comparison with the same period previous year.

In relation with the financial guidance communicated for 2006, Telefónica de España expects:

• Revenues growth shall stand between the 0.5% - 2.0% range initially estimated
• OIBDA growth is upgraded form the previously announced range of between 1.0% - 3.0% to exceed the 5% mark, without considering the possible provision for bringing forward part of the Redundancy Plan scheduled for 2007.
• CapEx will stand at around the initially foreseen 1,500 million euros.

Telefónica Latinoamérica Group

From January 1st 2006, Telefónica Latinoamérica Group's fixed telephony operator accounts include the Telefónica Empresas businesses in their respective countries. The 2005 results are shown on comparable terms. On the other hand, to facilitate year-on-year comparisons, the Telefónica Latinoamérica Group figures include the results of the Terra subsidiaries in Latin America since January 1st 2005.

In addition, from the 1st of May, the Group's results consolidate the results of Colombia Telecom, following the acquisition of 50% plus one share of that company in April. In these five months, Colombia Telecom has contributed 232.1 million euros to Telefónica Latinoamérica's revenues and 118.5 million euros to its OIBDA.

The currencies of the countries in which the Telefónica Latinoamérica Group operates have remained practically stable over the last quarter in relation to the euro. Year-on-year, the good evolution of exchange rates has had a positive, yet declining effect, on Telefónica Latinoamérica Group's accounts, contributing with 10.2 percentage points to the growth of revenues (16.2 percentage points to June) and 10.4 percentage points to the growth of OIBDA (15.6 percentage points to June).

In the first nine months of the year, Telefónica Latinoamérica Group recorded revenues of 7,050.3 million euros, 17.5% up on the same period of the previous year in current euros. Excluding the positive contribution of the exchange rates and the revenues from Colombia Telecom, the Telefónica Latinoamérica Group recorded revenues that were 3.5% higher in constant euros than those of the same period of 2005, reflecting the growth rate of all operators in local currency, particularly in the broadband business. Brazil recorded a 2.1% growth in revenues in local currency, supported by the strong increase in broadband connections; traditional business, despite increasing slightly due to the effect of the tariff increase in 2005 and the positive progress of the public telephony business, slowed down in comparison with previous quarters as a result of the reduction in tariffs approved by Anatel in July 2006 and the downwards trend of average traffic that the operator seeks to offset through the marketing of traffic packages. Argentina recorded a 12.5% growth in revenues in local currency due to the good performance of the traditional business, especially wholesale businesses, and thanks to the growth in revenues from broadband and new businesses. The growth in revenues in Peru (+2.5% in local currency), was mainly due to the growth in broadband and pay TV revenues, offsetting the fall in revenues from the traditional business, which was mostly due to the impact of the productivity factor (CPI-10.07%). In Chile, revenues remained stable (+0.4% in local currency) thanks to the progress of Broadband and digital TV launched in June, which offset the poor performance of traditional business, mostly due to the effect of competition and of mobile telephony.

Operating expenses for Telefónica Latinoamérica Group stood at 3,899.2 million euros until September, with a year-on-year growth of 19.7% in current euros. Excluding the contribution of Colombia Telecom and the exchange rate effect, operating expenses recorded a 6.0% growth in constant euros. This growth was affected by workforce restructuring costs in Chile and Brazil recorded during the first quarter of the year and the recently launched layoff plan in Argentina. Furthermore, greater tax expenses were recorded in Telesp due to the licence fee on the new concession, higher interconnection costs, particularly in Argentina due to the reclassification of international termination rates to operating expenses in September, the increase in payroll expenses in Argentina and higher commercial expenses, especially regarding customer service and advertising.

As a result, Telefónica Latinoamérica Group recorded an operating income before depreciation and amortization (OIBDA) of 3,198.2 million euros, 18.8% higher year-on-year. Excluding the contribution of Colombia Telecom and the positive contribution of exchange rates, OIBDA recorded a 4.0% increase in constant euros. This progress was affected by the capital gains recorded in 2005 through the sale of Infonet and, in 2006, through the sale of TUMSAC (Peru), with a net effect of 4.9 million euros on the group's accounts. Eliminating the impact of results on sales of fixed assets and the contribution of Colombia Telecom, OIBDA growth in constant euros stood at 7.0% (+5.5% in June).

The Telefónica Latinoamérica Group's CapEx until September amounted to 736.6 million euros, a year-on-year growth of 27.4% (+11.7% in constant terms and excluding the investment of Colombia Telecom), primarily used for the expansion of broadband and new businesses. The Telefónica Latinoamérica Group's operating free cash flow (OIBDA-CapEx) during the first nine months of the year amounted to 2,461.6 million euros, a 16.4% growth (+5.7% in constant euros and excluding the contribution of Colombia Telecom and the results on sales of fixed assets).

By the end of September, the Telefónica Latinoamérica Group managed 31.1 million accesses, 11.0% up on September 2005 following the incorporation of Colombia Telecom with 2.4 million fixed telephone accesses and 42,261 retail broadband Internet accesses. The Group's retail broadband Internet accesses upheld the strong growth rate of previous quarters, reaching almost 3.5 million (+43.3% year-on-year), thanks to the commercial efforts of all operators. On the other hand, fixed telephone accesses amounted to 24.0 million, 10.5% up on September 2005 following the incorporation of Colombia Telecom and also thanks to the high growth rate of Telefónica del Perú and TASA, which offset the lower plant in service of Telesp and Telefónica Chile. The Telefónica Latinoamérica Group already has 559,900 pay TV clients in Peru and Chile.

By the end of September, Telesp had 15.8 million accesses, a year-on-year growth of 0.8% thanks to the strong growth in the number of retail broadband Internet accesses that stood close to 1.5 million (+36.1% year-on-year), following a net gain over the first nine months of the year of 271,400 accesses. Fixed telephony accesses stood at 12.3 million (-1.2% year-on-year), of which around 20% were prepaid lines or lines with a consumption limit (18% in September 2005).

Voice traffic recorded a 2.8% year-on-year decrease, standing at 52,579 million minutes as a result of the drop in local traffic (-1.8%), primarily due to lower usage per line and lower average plant. Long distance traffic, mostly inter-state, also dropped as a result of the squeeze of this market (-10% year-on-year) due to the growth of the cellular business, and a reduction was also recorded in traffic originating from mobiles.

Revenues recorded over the first nine months of the year stood at 4,156.7 million euros, a year-on-year increase of 2.1% in local currency in comparison with the 4.5% growth up to June. This fall in the growth rate is explained by the deceleration recorded in the traditional business, 1.8 percentage points lower than the growth recorded in the first half of the year mostly due to the negative tariff adjustment in July (compared with the 7% increase in tariffs in July 2005) and the reduced average fixed telephony plant. Public telephony revenues progressed within traditional revenues (+29.7% year-on-year), mostly as a result of higher card sales. The 17.2% growth of Internet revenues in local currency (narrowband + broadband) also contributed positively, contributing towards 8.5% of Telesp turnover (7.4% in the same period of 2005) thanks to the growth in broadband revenues (+29.3% in local currency), due to the increase in total connections. To a lesser extent, a growth in revenues from the data and information technology business was also recorded (+5.7% and +34.0% in local currency, respectively), providing a combined 3.9% of Company revenues.

Operating expenses recorded a 3.8% year-on-year growth in local currency, primarily due to higher tax expenses (+79.7% in local currency) due to the tax established in the new concession contract and higher personnel expenses (+9.7%) following the extraordinary charge associated to the workforce restructuring programme undertaken during the first quarter of the year that is, however, beginning to bear fruit. Excluding this extraordinary charge, personnel expenses would increase by 1.9% in local currency, whereas operating expenses would reduce their growth rate to 2.8% in local currency. Furthermore, supplies expenses dropped 0.6% in local currency due to the slowing down of interconnection expenses as a result of less traffic to mobiles. Subcontracting expenses recorded a growth rate of only 0.4% in local currency, reflecting the cost containment efforts of the operator.

Telesp's operating income before depreciation and amortisation (OIBDA) over the first nine months of the year stood at 2,001.7 million euros, 7.8% more in local currency than the same period of the previous year and positively affected by the recovery of past taxes (PIS/Cofins) following the favourable judgement issued in September. The OIBDA margin was 48.2%, 2.6 percentage points higher than that recorded in the same period of 2005.

CapEx accumulated to September amounted to 380.0 million euros, a 3.4% growth with regard to the same period of 2005 in local currency. Accordingly, the operating free cash flow (OIBDA - CapEx) amounted to 1,621.7 million euros, an increase of 8.8% year-on-year in local currency.