(Translation of registrant’s name into English)

(Address of principal executive offices)

• Wireline Business
• Wireless Business

• Brazil
• Argentina
• Chile
• Perú
• Colombia
• México
• Venezuela
• Central America
• Ecuador
• TIWS

• O2 UK
• O2 Germany
• O2 Ireland
• O2 Airwave
• Telefónica O2 Czech Republic

• Atento Group

TELEFÓNICA GROUP

Market Size

TELEFÓNICA GROUP

Financial Highlights

The most relevant factors of Telefónica Group results for the January-March 2007 period are the following:

TELEFÓNICA GROUP

Consolidated Results

Telefónica Group results for the first quarter of 2007 once again showed Telefónica as the best combination of growth and returns in the European industry. The basic net profit per share amounted to 0.260 euros, 6.1% up year-on-year. This year-on-year growth rate in the basic net profit per share has been produced in a consecutive way since the period January-September 2004.

At the same time, there was also a simultaneous year-on-year growth in revenues (+15.1%), OIBDA (+9.6%), OI (+15.0%) and net profit (+7.7%) in nominal terms. Once again, since the period January-September 2004, all of these captions in the profit and loss account have grown simultaneously every quarter to date.

The constant focus on growth can be seen through the 7.8% organic¹ growth in revenues during the first three months, thanks to the successful integrated management of operations, that translated in a significant growth in customers and the services usage. It is worth to highlight that the organic growth of revenues has been over 7.5% every quarter since the first quarter of 2004.

Synergies obtained, cost optimisation and already achieved geographical diversification have reinforced the generation of Operating Cash Flow (OIBDA-CapEx) up to 3,718 million euros, a 10.8% increase year-on-year.

The Telefónica Group continued, through a high commercial effort, to maintain high growth rates in terms of customers in markets where it operates, thus strengthening its competitive position. Hence, total accesses were in excess of 206.6 million by the end of March 2007, up 11.4% year-on-year. This variation is due mainly to cellular and broadband connections and extended product bundles that include voice, broadband and television. Telefónica España contributed 44.8 million to the total number of Telefónica Group accesses (+5.5%year-on-year), Telefónica Latinoamérica with 117.0 million (+14.1% year-on-year) and Telefónica O2 Europe with 39.2 million (+7.8% year-on-year).

With regards to cellular business, the Telefónica Group has focused its growth efforts on the capturing, loyalty and retaining its best customers. Hence, Telefónica Group cellular accesses stood at 148.9 million by 31st March 2007, 13.4% higher than in March 2006 due to the increased growth of Telefónica Latinoamérica where they totalled 85.6 million (+15.6% year-on-year). In Spain, the total number of customers increased a remarkable 7.6% year-on-year to stand at 21.8 million in a market that now has eight operators. In Europe, customers rose to 35.9 million, 9.4% up on cellular connections in March 2006.

Retail broadband internet connections exceeded 8.5 million by the end of March 2007, a year-on-year increase of 36.4% thanks to the success of the commercial campaigns developed by the Telefónica Group to encourage total market growth. The marketing of voice, broadband and television bundles continues to be launched successfully and is playing a significant role in the growth, retention and loyalty of customers. Hence, the number of retail internet broadband connections totalled 4.0 million in Spain (3.0 million one year ago), 4.0 million in Latin America (2.9 million twelve months ago) and 0.5 million in Europe (0.3 million in March 2006).

The number of Pay TV customers for the Telefónica Group exceeded 1.1 million, up by 54.7% in relation to March 2006, after having launched different competitive offers in the countries where already this service is provided (Spain, Czech Republic, Peru, Chile and Colombia).

Revenues for the Telefónica Group amounted to 13,747 million euros during the first three months of 2007, a year-on-year growth of 15.1%. The performance of exchange rates reduced growth rate by 2.6 percentage points in March, while changes in the perimeter of consolidation contributed with 9.8 percentage points. Eliminating both effects, the organic growth² of revenues would stand at 7.8%, supported by the growth of Telefónica Latinoamérica and Telefónica España. Additionally, worth of notice are traffic trends and data growth rates.

Telefónica España registered in January-March a figure of 5,033 million euros (36.6% of consolidated revenues), 5.5% up on the first quarter of 2006. Revenues from Wireline Business totalled 3,050 million euros, 3.6% higher than that registered during the first three months of 2006 primarily due to greater broadband revenues (+27.0% year-on-year) and to the slight increase in access revenues (+0.2% year-on-year) following the increase in the PSTN monthly fee on 1st January (+2.0% to 13.70 euros). Telefónica España´s Wireless Business revenues reached 2,336 million euros during the first three months of 2007, 7.9% higher than those obtained during the same period of 2006 particularly due to the good performance of customer revenues (+10.0% year-on-year) because of the strong growth of the customer base, especially from contract customers, between of which is important to highlight the success of the loyalty campaigns.

Telefónica Latinoamérica revenues in January-March 2007 (34.1% of total revenues) reached 4,685 million euros, a year-on-year increase of 8.5% (+12.3%³ organic growth), supported by the growth of the broadband market and the strength of the cellular market. In terms of the cellular business, growth in revenues from Mexico (+66.2% in local currency) and Venezuela (+25.4% in local currency). Among the countries with fixed and mobile businesses, Brazil totalled revenues of 1,801 million euros (contributed with 38.4% to Telefónica Latinoamérica revenues), with an increase of 2.8% in local currency in respect to January-March 2006. In Argentina, revenues cumulative to March stood at 561 million euros, 21.0% higher than the previous year in local currency, in Perú revenues reached 370 million euros (+9.7% in local currency compared with January-March 2006) and those of Chile 423 million euros (+10.0% in local currency).

Telefónica O2 Europe achieved revenues of 3,534 million euros in January-March 2007 compared with the 2,409 million euros of the first quarter of 2006, when the assets of the O2 Group were included in February-March 2006 and those of Telefónica Deutschland and Telefónica O2 Czech Republic in January-March 2006. During the first quarter of 2006, Telefónica O2 Europe contributed to consolidated revenues with 25.7%. Revenues from O2 UK were 10.2% higher, in local currency, than those recorded for the first three months of 2006 thanks to the increased customer base and ARPU. Revenues from O2 Germany fell by 3.0% in relation to the January-March period of the previous year. Revenues for Telefónica O2 Czech Republic, registered a year-on-year increase of 2.6% in local currency during the first three months of the year due the growth of the cellular business (+4.8% in local currency) more than offsetting the slight drop in the fixed business (-0.1% year-on-year). Fixed business revenues has a slightly better performance than in previous quarters.

Cumulative operating costs for the Telefónica Group stood at 8,828 million euros at the end of the quarter, 15.5% higher than in January-March 2006 as a result of increased commercial efforts made to capture customers and ensure their loyalty and of the changes in the accounting consolidation perimeter. Among the expenses captions:

• Supplies increased by 25.3% in relation to the first quarter of 2006 (+27.6% in constant euros) to stand at 4,399 million euros. These results, in organic terms, are due to Telefónica Latinoamérica, registering higher interconnection costs in Brazil and Peru, Telefónica España, mainly the wireless business due to intense commercial activity and O2 UK.
• Personnel expenses for the first three months of the year (1,718 million euros) increased by 4.3% in relation to the same period of the previous year (+6.4% eliminating the negative effect of exchange rates) due to the 7.9% increase in the average workforce (236,771 employees). However, excluding the Atento Group staff (109,021 employees, up 13.0% year-on-year), the average workforce would have increased by 4.0% due to the incorporation of new companies to the consolidation perimeter, despite the drop workforce following the sale of TPI and the 2003-2007 Telefónica España´s Wireline Business Redundancy Program.
• External services expenses (2,307 million euros) increased by 11.1% (+14.3% in constant euros) in comparison with January-March 2006, due mainly, in organic terms, to higher commercial and network expenses in the Telefónica España fixed business and the increased commercial activity of Telesp and O2 UK.

As a result of the performance of the aforementioned revenues and expenses, the consolidated operating income before depreciation and amortization (OIBDA) totalled 5,106 million euros, 9.6% higher than in the same period of the previous year. The negative impact of exchange rates deducted 2.4 percentage points from the growth rate, while incorporations to the consolidation perimeter contributed with 6.1 percentage point to the growth. Therefore, excluding both effects, the organic growth rate ⁴would have stood at 5.9%. In terms of profitability, the OIBDA margin to March stood at 37.1%, 1.8 percentage points lower than that obtained in January-March 2006. In organic⁴ terms, the margin as a percentage of revenues amounted to 37.2% during the first three months of 2007 compared with 37.9% the previous year, reflecting the operating efficiency at Telefónica Group.

With a contribution of 47.8% to the Telefónica Group´s total consolidated OIBDA, Telefónica España recorded OIBDA of 2,439 million euros in the first quarter of the year, a year-on-year growth of 10.7%. In the Wireline business OIBDA (1,419 million euros) increased by 12.4% year-on-year compared with January-March 2006 and the OIBDA margin stood at 46.5% (46.1% in January-March 2006, excluding the provision for the Redundancy Program). The Wireless business OIBDA in January-March 2007 amounted to 1,027 million euros (+7.9% year-on-year) and the margin as a percentage of revenues stood at 44.0%, the same level than the previous year.

OIBDA for Telefónica Latinoamérica (1,713 million euros) represented 33.6% of total OIBDA for the Telefónica Group, registering a year-on-year growth of 12.1% (+20.2% in constant euros). Organic variation would reach 14.6%⁵, supported by the positive contribution of Mexico (22 million euros compared with the previous year´s losses) and the greater contribution of Venezuela (+39.3% year-on-year in local currency) and Argentina (+29.7% in local currency). Among the other countries, Brazil, the highest contributor to total Telefónica Latinoamérica OIBDA with 43.7%, recorded a 2.8% growth in local currency, Chile (9.6% of Telefónica Latinoamérica OIBDA) a 22.5% increase in local currency and Peru (8.4%of Telefónica Latinoamérica OIBDA) a 0.3% growth also in local currency.

Telefónica O2 Europe, contributing 18.3% to the Telefónica Group´s total OIBDA, obtained cumulative OIBDA of 933 million euros in January-March, compared with the figure of 756 million euros in 2006, which included the February-March period of the 02 Group and the January-March period of Telefónica O2 Czech Republic and Telefónica Deutschland. OIBDA for O2 UK and O2 Germany fell in comparison with the first quarter of 2006 by 4.6% and 5.6% respectively in local currency, partly due to increased commercial expenses and customer retention. The OIBDA margin for O2 UK for the first three months of 2006 stood at 24.0%, whereas that of O2 Germany amounted to 19.1%. In Telefónica O2 Czech Republic, OIBDA fell 2.1% year-on-year and the margin amounted to 46.6%, 2.3 percentage points down on that recorded for the first quarter of 2006 basically due to the start of operations in Slovakia.

Depreciation and amortization cumulative to March reached 2,396 million euros, 4.1% up on the same period of 2006 as a result of the higher depreciation and amortization of Telefónica O2 Europe. This includes the O2 Group Purchase Price Allocation (231 million euros) and Telefónica O2 Czech Republic (39 million euros), whereas in 2006, the months of February and March were included for the 02 Group and the January-March 2006 period for Telefónica O2 Czech Republic. In organic terms⁶, depreciation and amortization registered a 6.3% drop, basically due to the decline in Telefónica España and Telefónica Latinoamérica.

Operating income for the quarter amounted to 2,710 million euros, up 15.0% year-on-year to stand at 19.6% in organic terms⁶.

The results of associated companies cumulative to March totalled 35 million euros, 60.2% up on that recorded in January-March of the previous year. This improvement is basically associated with two factors: 1) Sogecable is no longer accounting by the equity method and 2) the greater positive contribution of Portugal Telecom.

Net financial results for the first quarter 2007 amounted to 768 million euros, 47.1% above those of first quarter 2006. Excluding FX results, net financial debt figures would be 751 million euros in the first quarter 2007 and 517 in the first quarter 2006. This would imply an increase of 45.1% in the adjusted net financial results in the period 2007-2006. This variation arises from two different effects. On one hand, an increase of 126 million euros as the result of a 17.2% increase in average total net debt (54,778 million euros as of 31st March 2007, including pre-retirement plan commitments). On the other hand, an increase of 107 million euros due to a lower profits in the cost associated to marked-to-market positions (64 million euros), together with the increase in the average cost of debt for the Telefónica Group due to the higher interest rates in Europe and the higher percentage of debt in Latinoamérica. The average cost calculated on average total net debt for the first quarter 2006 is 5.7% and 5.6% when excluding FX results.

The net free cash flow after CapEx generated by the Telefónica Group in the first quarter 2007 totaled 950 million euros of which 744 million euros were assigned to Telefonica share buyback program and 214 million euros to commitment cancellations derived mainly from the pre-retirements plans. Financial investments for the period amounted to 200 million euros, has caused the need to increase net financial debt in 208 million euros. In the opposite side, net debt has decreased 469 million euros because of changes in the perimeter of consolidation and other effects on financial accounts, mainly due to the differential between accrued and payments. This has been translated in a decrease of 261 million euros with respect to the net financial debt of the fiscal year 2006 (52,145 million euros), reaching the net financial debt of Telefónica Group at March 2007 in 51,884 million euros.

The tax rate recorded during the first three months of 2007 stood at 33.2%, amounting the tax provision to 656 million euros. However, the cash outflow for the Telefónica Group will be further reduced as negative tax bases are compensated for.

The results attributed to minority interests subtract 65 million euros from the net income for the Group during the first quarter of 2007, 23.2% less than in the same period of the previous year (-84 million euros in January-March 2006). This variation is mainly due to the change of stake in Telefónica Móviles (merger with Telefónica S.A. in July 2006).

As a result of all of these items, the net income for the first three months of the year amounted to 1,257 million euros, compared with the 1,167 million euros of January-March 2006 to give a year-on-year growth of 7.7%. Basic net earnings per share grew by 6.1% compared with the first quarter of the previous year to stand at 0.260 euros.

Telefónica Group CapEx during the first quarter of the year amounted to 1,388 million euros, a 6.5% increase year-on-year (+8.6% in constant euros), due to greater investments in Telefónica Latinoamérica (broadband, TV and GSM) and Telefónica O2 Europe (2G and 3G networks). 74% of total investment was devoted to growth activities, 5 percentage points up on the previous year mainly due to optimisation towards broadband and the mobile business. Nevertheless, It should be noted that there is a strong cyclical component of the investments, so that this performance cannot be extrapolated to the full year.

Telefónica Group confirms financial targets⁷ established for 2007:

• Consolidated revenues will grow between 6% and 9% in the year 2007.
• OIBDA growth for the year 2007 in the 8% to 11% range.
• OI growth for the year 2007 in the 14% to 20% range.
• 2007 CapEx to stand below 7,814 million euros.

Likewise, all financial targets for 2007 are also reiterated for Telefónica España, Telefónica Latinoamérica and Telefónica O2 Europe.

1   Assuming constant exchange rates and including the consolidation of the O2 Group, Telefónica Telecom and Iberbanda in January-March 2006. It excludes the consolidation of Telefónica O2 Slovakia in January-March 2007.

2   Assuming constant exchange rates and including the consolidation of the O2 Group, Telefónica Telecom and Iberbanda in January-March 2006. It excludes the consolidation of Telefónica O2 Slovakia in January-March 2007.

3   Assuming constant exchange rates and including the consolidation of Telefónica Telecom in January-March 2006.

4   Assuming constant exchange rates and including the consolidation of the O2 Group, Telefónica Telecom and Iberbanda in January-March 2006. It excludes the consolidation of Telefónica O2 Slovakia in January-March 2007.

5   Assuming constant exchange rates and including the consolidation of Telefónica Telecom in January-March 2006.

6   Assuming constant exchange rates and including the consolidation of the O2 Group, Telefónica Telecom and Iberbanda in January-March 2006. It excludes the consolidation of Telefónica O2 Slovakia in January-March 2007.

7   Base reported numbers include eleven months of O2 (consolidated since February 2006), eight months of Telefónica Telecom (consolidated since May 2006), six months of Iberbanda (consolidated since July 2006), three months of start-up losses in Slovakia (operations started in February 2007), and exclude Endemol and Airwave results. 2007 guidance assumes constant exchange rates as of 2006 and exclude changes in consolidation. In terms of guidance calculation, OIBDA and OI exclude other exceptional revenues/expenses not foreseeable in 2007. Personnel Restructuring (980 million euros in 2006 and estimated 630 million euros for 2007 for Telefónica España: Fixed Business) and Real Estate Programs are included as operating revenues/expenses. For comparison the equivalent other exceptional revenues/expenses registered in 2006 are also deducted from reported figures.

TELEFÓNICA GROUP

Financial Data

RESULTS BY REGIONAL BUSINESS UNITS

Telefónica España

Results for Telefónica España Group, corresponding to the first quarter of 2007, have shown good growth trend driven by strong commercial activity in all areas of business

In the first months of 2007 Telefónica España consolidated its competitive position in the market, the wireless business as well as the wireline business, reaching a total number of 44.8 million accesses, 5.5% more than in March 2006.

Revenues have grown by 5.5% in the first quarter of the year, standing at 5,033 million euros, and OIBDA by 10.7% to reach 2,439 million euros, with the margin standing at 48.5%

Telefónica España Group´s CapEx rose to 426 million euros, which translates as an operating cash flow (OIBDA-CapEx) of 2,013 million euros for the quarter.

With regards to Telefónica España Wireline Business the following are particularly noteworthy:

• The strong revenue growth during the first quarter of the year, (+3.6%), due to the steady increase in Broadband revenues and improved performance of Access and Voice revenues.
• The maintaining of Telefónica´s leading position in the Broadband Internet Access market, with an estimated market share of 56%, presenting the market a 30.1% year-on-year growth.
• The growing participation of Imagenio in the pay TV market, with an estimated share of net adds close to 44% in the quarter, and reaching 418,618 pay TV clients at March end.
• The deceleration in the loss of fixed telephony lines, with lines falling 1.2%. year-on-year, that positively stands out within the European context.
• The rise in the total number of accesses, 3.5% year-on-year, reaching 22.9 million.

With regards to Telefónica España Wireless Business the following are particularly noteworthy:

• Sound growth in service revenues (+7.0% vs. first quarter of 2006).
• The maintaining of the commercial drive, with high activity level resulting in a net gain of 367.715 subscribers, primarily focusing on contract customers.
• The churn contention, with an improvement in the contract segment of 0.2 percentage points vs. previous year, which stands at 1.1% as a result of an increasing focus on customer loyalty.
• The positive year-on-year growth trend in total client base, 7.6% as opposed to 6.3% registered in the first quarter of 2006, exceeding 21.8 million clients, highlighting the good performance of the contract segment (+13.4%).

RESULTS BY REGIONAL BUSINESS UNITS

Telefónica España

WIRELINE BUSINESS

Revenues grew 3.6% during the first quarter of 2007 to stand at 3,050 million euros.

• Traditional access revenues, which reached a figure of 697 million euros, have grown 0.2%, breaking the falling trend of the previous year (-2.1% in 2006), due to the 0.27 euros rise of PSTN line monthly fee effective as of January 1st 2007, to stand at 13.70 euros.

• Traditional voice service revenues and in particular outgoing voice traffic revenues, with drops of 4.5% and 5.9% respectively, have considerably slowed down the decreasing trend during the first quarter due to various reasons: The good performance of international traffic, whose revenues grew 13.5%; the slow down in the decrease of revenues from Intelligent Network; and the 3.7% rise last March 1st, 2007, of national traffic tariffs not associated with flat rates.

• Data and IT service revenues reached, 375 million euros overall, with retail data services showing an acceleration in revenue growth.

Operating expenses for Telefónica España Wireline Business reached 1,671 million euros in the first quarter of the year, a year-on-year reduction of 3.1% due to lower workforce restructuring provision during the quarter, null in comparison to the 95 million euros registered in the first quarter of 2006. Excluding this effect, operating expenses would have grown 2.5%. The growth of expenses in the first quarter is mainly due to growth of supplies expenses, mainly equipment purchases for resale and contents for Imagenio, as well as the growth of external services. Personnel costs, excluding the impacts of the redundancy provisions and the actuarial review of 2006/2007, showed a drop of 0.3%.

The impact of lower workforce restructuring provision during the first quarter of 2007 was also reflected in OIBDA, which rose to 1,419 million euros, a growth of 12.4%.

Excluding specific effects, such as those arising from the Redundancy Programme, Real Estate Programme and subsidies among others, OIBDA growth would have stood at 4.7%.

The OIBDA margin in the first quarter of 2007 reached 46.5%, 3.7 percentage points above that registered during the same period the previous year. Excluding the impact of the Redundancy Programme and the actuarial review in both years, the margin would have seen an improvement of 0.4 percentage points to total 46.5%.

RESULTS BY REGIONAL BUSINESS UNITS

Telefónica España

WIRELESS BUSINESS

During the first quarter of the year, the Spanish wireless market presented an environment of increased competitiveness, with 8 operators in the market and the total number of lines surpassing 48 million by March 2007, with an estimated penetration of over 106% (+7 percentage points vs. the first quarter in 2006).

Nevertheless, Telefónica España´s wireless business net adds during the first quarter of 2007 reached 367,715 clients, a similar figure to the first quarter of 2006 (386,824), pushed by the contract segment, which posted net additions of 386,973.

Thus, in the first quarter of the year, the commercial activity has remained in line with the same quarter of the previous year, reaching virtually 3 million commercial actions that helped to end with a customer base in excess of 21.8 million clients (+7.6% vs. the first quarter 2006). It is worth mentioning the good performance of Telefónica España´s wireless business contract segment, which showed an annual growth of 13.4%, representing more than 57% of the total base, 3 percentage points up on the previous year.

Also worth highlighting are the positive results reached in portability, a positive balance of 3,614 lines during the first quarter of 2007, driven by the excellent performance in the contract segment, with net adds of 78,067 lines in the first quarter, more than doubling the one achieved in the first quarter of 2006, and reflecting, once again, the company´s focus on high value customers.

Churn also played a key role in the solid commercial results of Telefónica España´s wireless business. This metric stood at 1.8% during the first quarter of the year, slightly down in relation to the same period of 2006 (-0.1 percentage points). It is worth noting the drop in contract churn in this quarter in comparison to the first quarter of 2006, which reached 1.1% (-0.2 percentage points). Handset upgrades (+7.4% vs. first quarter of 2006) contributed once more, towards the good churn performance.

In terms of usage, the minutes carried by the company network during the first quarter of the year grew by 13% in relation to the same period of 2006, surpassing 15,400 million minutes. On-net traffic recorded a 16% growth during the first quarter of 2007 compared with the same period of the previous year, due to the promotion of "Free Weekends in 2007", part of the Christmas campaign. Hence, the MoU in the first quarter of 2007 amounted to 160 minutes (+4.3% in relation to the same period in 2006).

Voice ARPU reached 27.0 euros during the first quarter, a reduction of 1.4% in relation to the same period in 2006, affected by the cut in interconnection tariffs in October 2006, and to a lesser extent by the impact of the Christmas promotion, valid until the start of April, which is reflected in the slight fall of outgoing voice ARPU in the first quarter of 2007 (- 0.4%) in relation to the first quarter of 2006.

Data ARPU recorded a growth of 5.8% in relation to the same period in 2006, reaching 4.6 euros. This performance was driven by a growth in connectivity revenues (+71%) and content data revenues (+19%). It is worth noting that the company has already commercialized close to 1.5 million 3G devices and has over 125,000 clients subscribed to semi-flat rate data bundles such as the 1Gb, 5Gb and 30 Mb, which contributed towards the good performance of data ARPU. Interpersonal communication only represented 54% of data ARPU, corresponding the remaining to connectivity and content services.

Hence, total outgoing ARPU in the first quarter rose 0.6% to reach a total ARPU of 31.7 euros, a slight fall of 0.5% in relation to the first quarter of 2006.

With respect to the financial results:

• Revenues rose 7.9% during the first quarter of 2007, reaching 2,336 million euros, driven by the good performance of customer revenues. It is worth noting that since the 1st of January 2007 there has been a change in the way of accounting pre-pay sales and top-up commissions which change from being registered as minor revenues to being added to costs and the registering of revenues/costs of portability transit routing which are now registered for the net amounts. The net effect of this change is neutral at OIBDA level, though the operating revenues would have grown 7.7% excluding the impact of the mentioned changes. Aspects worth mentioning by type of revenue are:

• Handset sales revenues rose to 304 million euros during the first quarter of 2007, a growth of 14.3% in relation to the same period the previous year.
• Service revenues grew by 7.0% reaching 2,032 million euros. Excluding the impact of the accounting changes mentioned above, growth of service revenues would have stood at 6.7%. This good performance of service revenues was driven by the progress of customer revenues, which reached 1,637 million euros, a growth of 10.0% in relation to the previous year, as a result of a strong year-on-year customer base growth (+7.6%), particularly in the contract segment (+13.4%), and increased data usage. Excluding the impact of the accounting changes already mentioned, customer revenues would have grown by 8.4%.
• Interconnection revenues declined 3.2%. If the impact for the accounting change is excluded, the interconnection revenues would have grown by 1.5%, due to a lower cut in the interconnection rates in the fourth quarter of 2006 in comparison to previous years.
• Roaming revenues fell 20.4%, due to reduced roaming wholesale prices.

• Operating costs reached 1,328 million euros in the first quarter of 2007, a growth of 7.7% in relation to the first quarter of 2006, driven by increased commercial activity related to handsets (+5.0%) and higher network management, marketing and advertising costs.
• OIBDA for the first quarter of 2007 rose to 1,027 million euros, a growth of 7.9% in relation to the first quarter the previous year, due to the strong revenue performance. Therefore, the OIBDA margin stood at 44.0%.

RESULTS BY REGIONAL BUSINESS UNITS

Telefónica Latinoamérica

In accordance with the Group´s new structure, Telefónica Latinoamérica´s results include Telefónica Group´s fixed line and cellular operators´ results in the Latin American region. Furthermore, figures for the Telefónica Latinoamérica Group also include the results of Telefónica Telecom, from the 1st of May 2006.

On a yearly basis, the currencies of all the countries in which Telefónica Latinoamérica operates have suffered a depreciation in relation to the euro, which has had a negative impact of 8.1 percentage points on both revenue and OIBDA growth.

Telefónica Latinoamérica reached revenues of 4,685 million euros during the first quarter of 2007, 8.5% up on the same quarter of 2006 in current euros. In constant euros, revenue growth has increased 16.6%, of which Telefónica Telecom contributed 4.3 percentage points. Of the countries contributing most towards growth in constant currency, with the exception of Colombia due to change in the perimeter of consolidation, Mexico is particularly noteworthy with 3.3 percentage points, followed by Venezuela (+2.7 percentage points) and Argentina (+2.5 percentage points). On the other hand, in absolute terms, Brazil continues to be Telefónica Latinoamérica´s greatest contributor with 38.4%, followed by Argentina (12.0%) and Venezuela (11.1%).

Operating income before depreciation and amortization (OIBDA) stands at 1,713 million euros, recording a growth of 12.1% in current euros. Telefónica Latinoamérica´s OIBDA growth rose to 20.2% in constant euros, with a contribution of 5.6 percentage points from Telefónica Telecom. With regards to other countries (excluding Colombia due to change in the perimeter of consolidation), the main contributor to OIBDA growth was Venezuela with 4.9 percentage points, followed by Argentina (+3.6 percentage points) and Mexico (+3.3 percentage points), the latter driven by the positive contribution of the operations in the Aztec country, in comparison to the operational losses recorded in the first quarter of 2006. In absolute terms, Brazil is Telefónica Latinoamérica´s greatest OIBDA contributor with 43.7%, followed by Venezuela (14.1%) and Argentina (12.7%).

CapEx for the Telefónica Latinoamérica Group stood at 426 million euros by the end of March, a year-on-year growth of 19.5%, allocated mainly for the expansion of broadband, television and the development of GSM networks. By the end of March, Telefónica Latinoamérica had reached an operating cash flow (OIBDA-CapEx) of 1,287 million euros, a growth of 9.9% in current euros.

At the close of the first quarter of 2007, the Telefónica Latinoamérica Group managed 117.0 million accesses, 14.1% up on 2006, thanks to the increase in cellular clients, a year-on-year growth of 15.6%, exceeding 85.6 million, due mainly to the high growth rates registered in practically all countries, particularly Argentina (+32.5% year-on-year), Mexico (+42.1%) and Venezuela (+36.2%). Also contributing positively to the total growth in Latin American accesses, was the incorporation of Telefónica Telecom, which contributed 2.3 million fixed telephony accesses and 94,300 retail broadband Internet connections. Fixed telephony accesses reached 23.8 million, 9.1% more than in March 2006, driven by the previously highlighted incorporation of Telefónica Telecom, and by the growth of fixed telephony accesses in Peru (+6.0% year-on-year). The Group´s retail Internet broadband accesses continued their strong growth trend exceeding 4.0 million accesses, a growth of 38.1% year-on-year, thanks to commercial efforts carried out by all operators. With regards to pay TV, Telefónica Latinoamérica manages more than 700,000 clients with operations in Peru, Chile and Colombia.

Telefónica Latinoamérica registered revenues of 1,801 million euros in Brazil, a growth in local currency of 2.8% in comparison to the same period of the previous year, meanwhile operating income before depreciation and amortisation (OIBDA) rose to 749 million euros, showing a year-on-year growth in local currency of 2.8%, thanks to the significant improvement in Vivo´s results. CapEx recorded in the first quarter of the year rose to 170 million euros, 23.9% up in local currency, with respect to the same period of the previous year, driven by greater investment carried out by Telesp.

From an operating point of view, Telefónica Latinoamérica managed 44.6 million accesses in Brazil by the end of March, 2.5% down on March 2006, as a consequence of the adjustment of Vivo´s customer base made in the second quarter of 2006, as well as the downturn in Telesp´s fixed telephony accesses.

At the end of March Telesp managed 15.6 million accesses, 0.3% less than in March 2006, due to a reduction in the number of fixed line accesses, affected by the strong growth in the cellular business registered in the country. Fixed line accesses stood at 12.0 million (-2.7% year-on-year) of which approximately 19% were pre-pay lines or lines with consumption limits.

In 2007 broadband market recorded a strong growth, above 45%, compared to the first quarter of 2006. Telesp kept 54% of this growth, increasing its Internet retail broadband accesses, to achieve 1.7 million accesses (+29.3% year-over-year). With the aim of reinforcing our competitive position and increasing our product portfolio, at the end of 2006 a commercial agreement with TVA was signed to make bundled offers of ADSL+TV. These offers have contributed with more than ten thousand new Speedy customers in the first quarter of the year. In the same way, a commercial alliance was established with DTHi, digital satellite TV services operator, to make bundled offers of ADSL+TV. These offers have contributed with more than 17,000 broadband customers in the first three months of the year. After having received a DTH licence from Anatel, the company expects to launch a Digital TV offer by Telefónica in the following months.

Telesp´s total voice traffic amounted to 16,829 million minutes, a year-on-year decline of 6.1%, due mainly to the drop in local traffic (-9.5% year-on-year), on a lower plant in service and lower usage per line. The operator is offsetting this behaviour with a higher sale of traffic bundles, which reduce the negative effect of the tariff readjustment of July 2006 and the contraction of the market due to the cellular telephony expansion. Long distance traffic also dropped (-5.4% year-on-year) , mainly inter-state, as a consequence of the market contraction (-16.1% year-on-year) and in spite of the growth in market share.

From a regulatory point of view, it is worth highlighting that from the 1st of January the fixed network interconnection tariff was reduced by 20%, in line with the guidelines of the concession contract, effective since January 2006, and on the 13th of February resolution 458, which establishes timescales for call termination charges (TU-RL), came into effect setting a reduction of 30% during the off-peak time period. On the other hand, Telesp received a license to operate satellite television services (DTH) from ANATEL in the middle of March. It is also worth noting that the migration process of invoicing by minutes instead of pulses started in themiddle of March and is expected to be completed by the end of July.

Telesp´s revenues reached 1,359 million euros during the first quarter of 2007, a decrease of 0.3% in local currency in relation to the first quarter of 2006. This slight deterioration in revenue levels was due to the drop in traditional business revenues (-1.5% in local currency), influenced by the negative readjustment of tariffs in July 2006 (-0.38% in local tariffs and -2.73% in long distance tariffs), the loss in basic telephony billable lines, and the 20% reduction in local interconnection tariffs in January. On the other hand, the increase in Broadband revenues (+15.2% in local currency) contributed positively, driven by accesses growth, that allowed for a 12.2% year-on-year Internet revenue increase (narrowband + broadband), and raised it´s weight in the company´s total revenues from 8.2% in the first quarter of 2006, to 9.2% in the same period in 2007.

Operating expenses showed year-on-year growth of 4.1% in local currency, mainly due to the higher cost of external services (+8.3% in local currency, due to a higher commercial activity). On top of that, the company, that has implemented a process of migrating billing systems, has recorded an increase in the provision for bad debtors (+45.1% in local currency), resulting in a provision for bad debts of 3.3% over revenues. Personnel costs (-6.3% in local currency) showed the benefits of workforce restructuring programmes carried out in March 2006 and February 2007. Supply costs rose 1.4% in local currency, in spite of the 20% reduction in local interconnection tariffs, due mainly to increased SMP traffic.

Telesp´s operating income before depreciation and amortization (OIBDA) rose to 601 million euros in the first quarter, 0.3% higher than that registered in the same period the previous year in local currency, helped by the sale of assets. OIBDA margin stood at 44.2%, 0.2 percentage points higher than the same period in 2006.

Cumulative CapEx in March rose to 127 million euros, 48.8% up on that registered during the same period in 2006 in local currency, explained by greater investment in broadband and pay TV, as well as a substantial rise in the costs associated with cable theft. Thus, operating cash flow (OIBDA-CapEx) stood at 473 million euros.

Vivo´s results during the first quarter confirm the positive trend initiated during the previous year, strengthening the work carried out on two fronts: the improvement of client satisfaction and profitable growth. Additionally, during the first quarter, actions defined by the business plan showed positive results with the reduction of more than 95% in the number of cloning cases in relation to the same period the previous year, as well as the integration of billing systems and the pre-pay platform.

It is worth highlighting the commercial launch of the GSM network in both segments (contract and pre-pay) and at national level, which will facilitate a stronger competitive position for the company. The GSM launching was well received by the market, accounting for 16% of the total subscriptions during the period. Additionally, Vivo is the only operator offering solutions using two technologies, offering the CDMA/EVDO technology as the best data solution on the market.

Vivo´s customer base stood at 29.0 million clients (-3.7% vs. 1Q06) in a market with an estimated penetration of 56%, a growth of 5 percentage points from the first quarter of 2006, maintaining the slowdown in growth of the market observed in previous quarters.

Vivo´s commercial activity encompassed 2.2 million adds during the first quarter, slightly down on the previous two quarters, which is remarkable given the lack of large commercial campaigns between January and March. Subscriptions increased 13.2%, in relation to the same quarter in 2006. Pre-pay traffic promotions and improved contract segment capacities, due to the launch of the new "Vivo Escolha" plans (more than 20% of the contract base), led to a substantial improvement of the market´s perception regarding the company´s commercial offer. Gross contract subscriptions rose 34% in relation to the first quarter the previous year, improving the weighting contract segment to 19.5% of the total customer base.

"Vivo Escolha" plans are a new, simpler and more flexible concept of contract plans that, as well as including base minutes to any destination, also allow the client to personalize their plan through additional bundles, in terms of profile, on-net minutes, SMS, long distance or roaming.

Regarding financial results, total revenues during the quarter rose to 526 million euros (+10.9% in local currency in relation to the same period in 2006). Service revenues grew 13.2% vs. 2006 in local currency, mainly due to higher interconnection revenues (+27.6%), as a consequence of the removal of the Bill & Keep rule. Excluding this impact, service revenues during the quarter would have fallen 1.4% in local currency.

Particularly noteworthy was the good progress of results in the pre-pay segment, with an ARPU increase of 24%, driven by good results of traffic incentive campaigns, which translated into an improvement in outgoing traffic revenues of 20%.

During the first quarter, operating income before depreciation and amortization (OIBDA) reached 149 million euros, 14.3% higher than the same period in 2006 in local currency. It is also worth mentioning the containment of commercial costs due, in part, to the contribution of GSM subscriptions in the total number of subscriptions with handsets, as well as the strong cost reduction regarding bad debt as a consequence of the control in fraud and cloning cases. OIBDA margin stood at 28.3%, with an improvement of approximately 1 percentage point in relation to the same period the previous year. Without taking into account the impact of the Bill & Keep rule, OIBDA growth would have been 12.8%, and the margin would have stood at 31.5%.

Telefónica Latinoamérica´s business performance in Argentina continued to show strong growth in both the cellular and fixed line businesses during the first quarter of the year. Revenues rose 21.0% in local currency, reaching 561 million euros while operating income before depreciation and amortization (OIBDA) increased by 29.7% to achieve 217 million euros. Telefónica manages 17.5 million accesses in Argentina as a consequence of its market positioning - where it is leader in the broadband market exceeding 588.000 connections - and in the cellular market with 11.8 million customers and over 80% market penetration. CapEx during the first quarter of 2007 rose to 41 million euros.

Telefónica de Argentina (TASA) managed 5.7 million accesses by the end of March of 2007 (+3.4% in relation to the same period of the previous year), thanks to the year-on-year increase in fixed line accesses (+1.6%) standing at 4.6 million, and the strong growth in the retail Internet broadband connections (+69.7%), which exceeded 588.000.

Total voice traffic rose slightly in comparison to the first quarter of 2006. Local traffic fell a slight 3.8%, affected by the lower fixed-fixed traffic which was partly compensated for by the good performance of the fixed-mobile traffic. The growth of long distance traffic (+2.1%), along with the good performance of interconnection traffic (+11.3%) and the Intelligent Network (+63.0%) offset the decrease in public telephony traffic, affected by the expansion of the mobile business.

Revenues for the fixed line business rose to 247 million euros, a growth of 14.9% in local currency, based on the traditional business revenues growth (+10.9%) and Internet and broadband business (+43.4%). Sales growth was impacted by the changes in the accounting criteria for international termination costs, effective from September. These were accounted as operating expenses and no longer netted from the line of revenues, as of the 1st of January 2006. Excluding this effect in 2006, total revenue increase would have been 11.5% in local currency. Traditional business revenues would have grown by 7.0% excluding the impact of the international termination costs thanks to the good performance of the local-minutes bundles, interconnection traffic coming from the cellular operators and renting of transmission facilities. The growth of revenue bundles was driven by the launch of the flat rate call tariff during 2006, and by the re-definition of the bundles at the end of 2006. Revenues for the Internet and broadband business, with a year-on-year rise of 43.4% in local currency, represented already 13.4% of total revenues and reflected the expansion of broadband, whose revenues grew 62.1% in relation to the same period of the previous year, compensating for the drop in narrowband revenues. The good performance of broadband was driven by strong commercialization of voice and broadband bundles (DUO) during the last quarter of 2006, which totalled 64,300 users. Data business and IT continued to show strong progress (+14.9% in local currency) as a consequence of point-to-point circuits, satellite services and turnkey projects.

Operating expenses presented a growth of 16.0% in local currency (9.7% excluding the impact of the reclassification of the international termination costs) in relation to the first quarter of 2006. This was due to higher costs (+17.1% in local currency), particularly higher payroll costs and workforce restructuring expenses as well as supply expenses, which excluding the impact of the reclassification of the international termination costs would have grown 19.9% in local currency, affected by the rise of interconnection costs and a higher number of equipment purchases for sale.

The ratio of bad debt provision to revenues remained below 1% thanks to good recovery management and to the larger volume of pre-pay and consumption control plant, which remained at around 30% of the total lines.

TASA reached an operating income before depreciation and amortization (OIBDA) of 119 million euros in the first quarter of the year, an increase of 11.9% in local currency.

CapEx stood at 27 million euros, 3.7% down in local currency in relation to the first quarter of 2006, with practically half of that allocated for the development of broadband and new businesses. The operating cash flow (OIBDA-CapEx) of the fixed line business in Argentina reached 92 million euros.

During the first quarter of 2007 the Argentinean cellular market continued its notable growth. Thus, penetration reached 82%, a growth of more than 4 percentage points during the first quarter of the year and 22 percentage points above the level registered in March of 2006.

Net adds during the first quarter of 2007 reached 613,581 customers, 5.9% higher than the one obtained in the first quarter of 2006, based on a slight growth in gross adds, in comparison to the first quarter of 2006 (6.5%) and, to a larger extent, on the good performance of churn which stood at 1.9%(-0.5 percentage points vs the first quarter of 2006). The company closed the quarter with 11.8 million customers, a total customer base increase of 32.5% compared to March 2006. GSM customers already accounted for 77% of the total customer base (+19 percentage points in relation to March of 2006).

Revenues maintained the good performance shown in previous quarters, totalling 337 million euros, an increase of 26.0% in local currency, in comparison to the first quarter of 2006. Service revenues grew 26.5% in local currency in relation to the same period in 2006, due once again to the strong performance of outgoing revenues, and in particular of the pre-pay revenues.

The growth of revenues, along with reduced unit commercial costs and lower operating costs, have allowed the operating income before depreciation and amortization (OIBDA) to rise 60.8% in local currency, reaching 98 million euros in the first quarter of the year. OIBDA margin stood at 29.0%, up 6.3 percentage points on the previous year.

CapEx for the first quarter of 2007 rose to 14 million euros, with an operating cash flow (OIBDA-CapEx) of 84 million euros.

By the end of the quarter, Telefónica Latinoamérica managed 8.7 million accesses in Chile, 5.5% up on March of the previous year, mainly on an 8.1% growth in cellular customers and a slight increase in fixed line clients (+0.8% year-on-year). The notable growth in broadband connections (+52.9%), and the launch of satellite TV services, during the second quarter of 2006, offset the fall in fixed line telephony.

Consolidated revenues registered a cumulative growth of 10.0% in local currency during the first quarter, reaching 423 million euros, thanks to the good progress of the cellular business in the country. Meanwhile, consolidated operating income before depreciation and amortization (OIBDA) rose to 164 million euros, 22.5% more in local currency than the previous year, with positive contributions from both cellular and fixed line businesses.

From an investment point of view, CapEx for Telefónica Latinoamérica in Chile rose to 78 million euros, 44.2% more in local currency in relation to the same quarter of 2006.

In year-on-year terms, Telefónica Chile has successfully increased the number of accesses it manages (+0.8%), reaching 2.9 million, in spite of strong competition in the Chilean market and the extraordinary drop in pre-pay lines registered the previous year. The Triple Play strategy has compensated for the decrease registered in fixed lines (-9.5% year-on-year reaching 2.2 million, affected by adjustments to the pre-pay portfolio carried out the previous year) with increased broadband and television connections through the sale of Dúo and Trío (double and triple) bundles. At the end of March 2007, Telefónica Chile maintained its position as clear leader of the Chilean fixed line market (by number of accesses) with an estimated total market share of 67%. Telefónica Chile also maintained its position as Chile´s leading broadband provider, with an estimated market share of 49%, reaching 528,200 retail Internet broadband connections (+52.9% year-on-year). With regards to the digital satellite TV business (DTH), Telefónica Chile continued to increase its client base, reaching 129,100 by the close of the quarter, consolidating its position as the number two operator by customers in the Chilean market, with a share of approximately 11.5%.

During the first months of 2007, Telefónica Chile continued defending its share of revenues in the most competitive market in the region, with a high penetration in the cellular business. In terms of revenues, the trend of previous quarters has been maintained in 2007, with strong growth in new businesses (mainly broadband and pay TV), which compensated for reduced results in traditional telephony business. By the end of March, cumulative revenues rose to 235 million euros, practically the same levels registered during the first quarter of 2006 (-0.1% in local currency). It is worth highlighting the growth in Internet and broadband revenues (narrowband + broadband + TV), which grew 75.3% in local currency above the first quarter of 2006,figure due to the growth in retail broadband Internet connections and the launch of satellite TV in June 2006. Thus, these revenues contributed 16.5% to company sales, in comparison with a 9.5% contribution during the first quarter of 2006. Revenues for traditional telephony businesses fell 7.6% in local currency, impacted by the loss of lines, reducing their contribution to company revenues to 77.3% (6.9 percentage points down on the same quarter of 2006). Meanwhile, data and IT revenues jointly fell 1.4% in local currency.

Telefónica Chile´s operating expenses registered a year-on-year drop of 4.6% in local currency, positively impacted by the cost associated to the workforce restructuring programme carried out during the first quarter of 2006. Supply costs grew slightly (+0.3% in local currency), due to the costs associated with the Television business (mainly satellite capacity and content) compensating for lower interconnection costs, as a result of the reduction in registered traffic. Personnel costs (excluding the workforce restructuring costs) fell slightly (-0.4% in local currency), due to the necessary recruitment of new employees to insource certain activities in accordance with the new Chilean Subcontracting Law, despite the reduction done in 2006. External service costs showed a growth of 18.3% in relation to those cumulative to March 2006 due to the increase in advertising campaign costs (mainly for TV products, Dúo and Trío), customer services costs, network mantainance and sales commissions. Costs associated with debt recovery registered a drop of 4.4% year-on-year in local currency, standing at 3.0% over revenues.

Cumulative operating income before depreciation and amortization (OIBDA) during the first quarter of 2007 rose to 93 million euros, 13.8% higher than the same period in the previous year.

Telefónica Chile´s cumulative CapEx reached 36 million euros during the first quarter of 2007, 37.7% higher than the same period the previous year in local currency, due mainly to the TV project, growth of broadband and projects for service quality improvement of. Operating cash flow (OIBDA - CapEx) reached 57 million euros during the first three months of the year.

In Chile, the strong level of competition has driven the growth of the mobile market, reaching an estimated penetration of 84% in March 2007, more than 10 percentage points up in relation to March of the previous year.

Telefónica Móviles Chile, maintained its leading market position, reaching 5.8 million clients by the end of the first quarter, driven mainly by GSM gross adds, with 78% of their customer base using this technology. Contract clients (1.3 million, +33% year-on-year) drove total client base to an cumulative growth in the year of 8.1%, which was reflected in the net adds of 87,000 customers during the first quarter (+46% in relation to the same period of 2006).

Revenues showed year-on-year growth of 20.7% in local currency, reaching 209 million euros. Service revenues grew 18.0% in local currency during the first quarter of 2007 in relation to the same period of 2006, which reflected the positive ARPU (+8.4% in relation to the same period of 2006) and MoU performance (98 minutes, +15.3% year-on-year), driven mainly by the GSM migration process and plans upgrades, as well as, the sale of minutes bundles and SVAs.

Operating income before depreciation and amortization (OIBDA), with a cumulative growth of 35.7% in local currency, reached 72 million euros, reaping the benefits of good performance of revenues and higher cost efficiency. The cumulative OIBDA margin reached 34.2% during the first quarter of 2007, 3.8 percentage points above those obtained during the first quarter of 2006 thanks to higher efficiency and despite increased commercial efforts associated with the technology migration and increased market aggresiveness.

Revenues rose to 370 million euros during the first quarter of 2007, 9.7% higher in local currency than the one registered during the same period the previous year,. The growth of revenues is explained mainly by the good performance of outgoing revenues in the cellular business and the growth of Internet and broadband revenues in the fixed line business. Operating income before depreciation and amortization (OIBDA) stood at 144 million euros, growth of 0.3% in local currency in relation to the first quarter of 2006, thanks to the significant improvement of results in the cellular business which compensated for the downturn in the fixed line business. On the other hand, investment carried out in Peru during the first quarter of 2007 rose to 29 million euros, 3.6% higher in local currency than the one registered during the same period of 2006.

Amongst projects which combine fixed line and cellular businesses, it is worth highlighting the launch during March of the IRIS project (fixed wireless telephony).

By the end of March, Telefónica Latinoamérica managed 9.3 million accesses in Peru, a year-on-year growth of 33.7%, thanks to strong growth in cellular clients (+53.9% year-on-year ), which rose to 5.7 million. To a lesser extent, fixed line accesses (+6.0% year-on-year) and retail broadband Internet connections (+38.3% year-on-year ) also contributed positively.

Telefónica del Peru registered a growth in accesses of 11.0% reaching a total of 3.6 million, thanks to the success of the commercial campaigns made. The good performance of fixed line accesses (+6.0% year-on-year reaching 2.5 million), retail broadband Internet connections (+38.3% year-on-year, reaching 497,676) and TV accesses (+18.2% year-on-year reaching 561,098 clients: 530,781 for cable TV and 30,317 for satellite TV) was also maintained.

Voice traffic showed important growth with respect to the same period of the previous year (+5.0% year-on-year), due to increased local traffic in both fixed-fixed and fixed-to-mobile, and interconnection traffic, mainly in incoming international calls, which compensated for the drop recorded in public telephony as a consequence of increased competition, informal public telephone centres and the notable growth in mobile penetration in Peru.

During the first quarter of the year, the company fulfilled the terms established in the agreement signed with the Peruvian government in December 2006, highlighting: i) the reduction in monthly fee (up to 29%) benefiting 1.5 million clients, ii) the new public payphone tariff, iii) extension of phone-card expiry dates and iv) the creation of five new per-second plans. It is worth highlighting the launch of fixed wireless telephony (on the 15th of March) which extended fixed line telephony coverage in the country.

Revenues rose to 266 million euros during the first quarter (-1.2% in local currency). Traditional business revenues decreased by 6.1% in local currency due to the drop in public telephony revenues (-21.7% in local currency) impacted by the substitution of fixed to mobile traffic and competition growth. Lower revenues were also registered in monthly fees on the application of tariff reductions agreed with the government. On the other hand, Internet and broadband revenues (narrowband + broadband + TV) continued to drive the company´s revenue growth, showing a year-on-year increase of 22.1% in local currency (contributing 22.8% to total revenues, 4.3 percentage points more than in the same period of 2006), as a consequence of good performance in broadband (+28.2% in local currency) and television (+17.2% in local currency) revenues, thanks to the strong commercial activity carried out in both businesses. Data revenues grew 2.4%, and IT revenues dropped 17.8% in local currency, due to the reduced number of projects (2006 saw general elections in Peru which generated important projects with ONPE, The Peruvian National Office of Electoral Processes).

Operating costs grew 4.2% in local currency with respect to the previous year, due mainly to the increase in supply costs (+11.9% in local currency) as a consequence of increased interconnection costs (mainly due to higher fixed-to mobile and international long distance traffic, as well as to the inclusion of international termination rates into operating costs, which during the first three quarters of 2006 were registered as lower revenues), and to a lesser extent to the higher costs of external services (+1.8% in local currency), on increased security costs aimed at reducing cable theft and higher sales commissions due to increased commercial activity in broadband, TV and traditional services. On the contrary, personnel costs decreased 2.1% in local currency due to a reduced workforce following the sale of TUMSAC in 2006, while insolvency provision fell 9.4% in local currency, standing at 1.2% over revenues, due to the increased percentage of pre-pay or consumption limited clients (around 60%).

Operating income before depreciation and amortization (OIBDA) stood at 107 million euros, 9.3% down in local currency on the same period in 2006 as a consequence of reduced revenues, the growth of operating costs and increased labour and tax contingencies.

OIBDA margin stood at 40.1%, 3.7 percentage points lower than that registered in March 2006. CapEx fell 9.2% in local currency, standing at 15 million euros, while operating cash flow (OIBDA-CapEx) reached 91 million euros.

During the first quarter of 2007, the Peruvian cellular market maintained the strong dynamism shown throughout the previous year. Thus, penetration registered a growth of more than 13 percentage points in relation to March 2006, surpassing 35%.

The company´s greater commercial aggressiveness is reflected in the positive net adds (533,800), more than double the one obtained in the first quarter of the previous year (+136%).

Telefónica Móviles Peru´s total customer base rose to 5.7 million clients (+53.9% in comparison to March 2006), 54% of which in GSM.

Good usage performance continued, particularly in pre-pay, due to the success of promotional campaigns based on doubling or tripling top-up values. This was reflected in the fact that unit usage increased once again during this quarter, raising the total MoU (85 minutes) 20% in relation to the first quarter of 2006 and 9% in relation to the fourth quarter of 2006, while ARPU grew 3.9% year-on-year in local currency.

Cumulative revenues reached 133 million euros in March 2007, increasing 41.7% in local currency with respect to the same quarter of the previous year. Particularly noteworthy was the good performance of service revenues which grew 53.9% year-on-year in local currency, mainly due to the growth in outgoing pre-pay revenues (+182.8% in relation to the first quarter of 2006 in local currency), significantly above the average customer base growth, with usage continuing to show elasticity to traffic promotions.

Revenue growth and improved operational efficiency, in spite of increased commercial activity, has driven an operating income before depreciation and amortization (OIBDA) growth increase of 43.3% in local currency in relation to the first quarter the previous year. The margin rose to 28.2% during the quarter (+0.3 percentage points in relation to the first quarter of 2006).

During the first quarter of 2007, revenues from fixed and mobile businesses reached 352 million euros, of which approximately 50% correspond to Telefónica Telecom, which began to be consolidated into Telefónica Group in May 2006.

Operating income before depreciation and amortization (OIBDA) by the end of March 2007 totalled 100 million euros, Telefónica Telecom contributing 76.7% after the cellular business was negatively impacted by customer technology migration from TDMA/CDMA to GSM. Hence, the OIBDA margin stood at 28.3% during the first quarter.

Telefónica Telecom total accesses reached 2.3 million (7.2% year on year) by the end of March 2007, highlighting the strong development of Broadband that recorded a 384% growth in relation to the same period of the previous year to amount a total of 94,300 connections by the end of March 2007.

Revenues for the fixed telephony business stood at 167 million euros, equivalent to a decline of 1.2% in local currency, as a result of fixed-mobile substitution which, in turn, affected local traffic (-13.3%).

The internet business registered a strong revenue growth rate (+82.1%) in local currency in relation to the previous year reflecting the operator´s focus on these services, increasing the contribution in relation to total revenues from 3.5% in March of 2006 to 6.5% in March of 2007. The extensive growth in the number of Broadband users (+384%) offsets the decline in the narrowband business (-15.1%) that was affected by customer migration to Broadband. The company maximized the result of this impact by extending its coverage to new cities and municipalities while strengthening its position in areas where it holds a dominant position. Furthermore, the broadband business was driven by successful marketing of speed upgrades in the business and internet segment for business customers.

The Satellite TV product was launched at the beginning of the year and proved to be key to compete in new markets supporting the sale of PSTN lines and Broadband connections as well as to encourage customer loyalty.

In the first quarter of the year, Telefónica Telecom recorded an operating income before depreciation and amortization (OIBDA) of 76 million euros, equivalent to an 8.6% growth in local currency in relation to the first quarter of 2006, mainly due to lower expenses and to its increased focus on Broadband, which recorded an 181.7% growth in revenues.

TEM COLOMBIA

The Colombian cellular market totalled 28 million customers, a 67% penetration rate. Compared with the last quarter of 2006, the total size of the market increased by 0.3 million customers, considerably below the market growth of the first quarter of 2006 (+3.1 million customers).

This lower commercial competitiveness together with the rebound in churn rate associated with low value customers from the aggressive campaigns launched in 2006 led to a negative net gain of 214,500 customers over the period. The total customer base stood at 7.5 million customers (+10.7% year-on-year), with 68% of the base on GSM (+7.9 percentage points compared with the fourth quarter of 2006).

Revenues totalled 195 million euros by the end of March 2007, reflecting a growth rate of 5.8% in local currency. Service revenues grew 9.7% in relation to the first quarter of 2006.

Operating income before depreciation and amortization (OIBDA) amounted to 23 million euros by the end of March 2007, a decline of 33.0% in local currency compared to the first quarter of 2006, due to accelerated customer migrations from TDMA/CDMA to GSM by high value customers, which should lead to an improved TDMA/CDMA churn in forthcoming months. Therefore, the margin recorded a decline of 6.9 percentage points in relation to the first quarter of 2006 to stand at 11.9% over the year (18.8% in the first quarter of 2006).

During the first quarter of 2007, Telefónica Móviles Mexico, increased significantly its commercial activity, year-on-year, as a result of the initiatives developed during 2006, aimed to improve its distribution network, customer service processes and network quality, and the higher market dynamism and the extension of the Christmas campaign till March 2007.

By March 2007, estimated penetration in the Mexican market reached 55% (+9 percentage points vs. March 2006) maintaining the growth trend. Telefónica Móviles Mexico´s customer base exceeded 9.3 million customers by the end of March 2007 (of which 542,400 thousand were contract customers) a growth of 42.1% in relation to the first quarter of 2006. This good performance of the customer base was due to the good acceptance of the latest promotions, mainly in the pre-pay segment, and the extension until March 2007 of the Christmas traffic campaign. Gross adds reached 1.6 million customers in the first quarter of 2007, 57% higher than those registered during the same period of previous year. It is important to highlight that the level of gross adds reached during the first quarter is significantly higher than the one registered during the third quarter of 2006, and only 11% lower than the one achieved in the last quarter of 2006 during which the Christmas campaign was in place. The improvement in the quality of the gross adds during the last quarters, allowed churn to continue its positive trend, standing at 2.9% in the first quarter of 2007 (in comparison to 4.2% in the first quarter of 2006 and 3.5% for the whole year 2006). Thus, net adds during the first quarter reached 766,336 customers, more than tripling the one obtained in the first quarter of 2006.

The good performance of gross adds came along with strong growth in traffic, especially outgoing and on-net, as a result of the new commercial offers launched, the continued traffic promotions within the operator network and the implementation of the national calling party pays service. Hence, the MoU during the first quarter of 2007 rose to 116 minutes, more than doubling the usage of the first quarter of 2006. This improvement is reflected in ARPU, which increased 25.8%, reaching 135.1 Mexican pesos.

As a result of the company´s strong commercial performance, revenues in the first quarter of 2007 rose to 315 million euros, showing a growth of 66.2% in local currency in relation to the same period in 2006. Service revenues maintained the positive trend of previous quarters (+66.4% year-on-year), ahead of customer base growth reflecting the higher quality and usage of the customer base. The good performance of service revenues was driven by the improvement in outgoing revenues (+85.7% in local currency), backed by the increase in on-net traffic. Incoming revenues (+55.3% local currency) have shown positive performance driven by the launch of the national calling party pays service.

Operating income before depreciation and amortization (OIBDA) for the first quarter showed the good evolution of both revenues and improved efficiency. Intense commercial activity during the first quarter did not prevent OIBDA from reaching 22 million euros, compared with OIBDA losses of 25 million euros during the same period in 2006.

CapEx for the first quarter of 2007 rose to 38 million euros, which along with the positive OIBDA performance, fully flowed to Operating Cash Flow (OIBDA-CapEx), which during the first quarter of 2007 reduced losses to 16 million euros.

During the first quarter 2007 Telefónica Móviles Venezuela´s total customer base reached 9.1 million clients (+36.2% in relation to March 2006), registering a net gain of 274,000 lines. Overall the market continued to show strong dynamism, leading to penetration of approximately 72%, more than 20 percentage points growth year-on-year.

In the third week of January 2007 the GSM network was launched providing services both to pre-pay and contract segments. The Valentine´s Day campaign in February was the first to fully market GSM handsets. Throughout the month of March the range of telephone offers was widely extended. The market reacted favorably, leading to a 10.9% increase in subscriptions during the quarter in relation to the previous year, reaching 860,000, of which almost half were GSM. Churn stood at 2.3% in the quarter, due, in part, to the strong commercial activity registered during the Christmas campaign. Service revenues grew 35.9%, in line with customer base growth. ARPU progress (+0.2%, in local currency in comparison to the first quarter of 2006), remained stable in spite of strong competition and increased cellular penetration in the Venezuelan market. The success of commercial campaigns, particularly in pre-pay segment (handset and top-up promotions) contributed to this performance.

Thus, revenues during the quarter rose to 520 million euros (+25.4% vs. 2006 in local currency), affected mainly by the price reductions in handsets throughout 2006 as a consequence of increased market dynamism. Operating income before depreciation and amortization (OIBDA) reached 242 million euros, 39.3% higher than the previous year in local currency, thanks to the growth in revenues previously mentioned and the reduction of costs of handsets with GSM technology. OIBDA margin stood at 46.5%, a growth of 4.7 percentage points in comparison to the previous year.

During the first quarter of 2007, Telefónica Centroamérica (Panama, Guatemala, El Salvador and Nicaragua) heavily increased its commercial activity.

At March 2007, the estimated penetration of the Central American market reached 51% (up 15 percentage points on March 2006). The Telefónica Centroamérica customer base surpassed the 4 million mark by the end of March 2007 (of which 226,689 corresponded to fixed wireless customers and 342,820 to contract customers), a 28.2% growth in relation to the first quarter of 2006. The strong performance of the customer base is supported by the effectiveness of commercial campaigns carried out during this first quarter and increased presence in the market through the opening of points of sale. Thus, net gain in the first quarter amounted to 183,594 customers.

At an operating level, the heavy growth of traffic must once again be underlined, particularly outgoing traffic. Hence, the MoU for the first quarter of grew 7.3% higher than the same period the previous year.

As a result of the good commercial performance of the company, revenues for the first quarter of 2007 totalled 147 million euros, 25.1% higher than the same period of 2006 in constant terms. Service revenues maintained the positive trend of previous quarters (up 26.1% year on year), basically in line with growth of the customer base. This good performance in service revenues is supported by the development of outgoing revenues (+36.9% in constant terms), to improved on-net traffic and to incoming revenues (+22.8% in constant terms), mainly due to the growth in the pre-pay customer base.

The increased commercial activity during this first quarter has not prevented Operating income before depreciation and amortization (OIBDA) from reaching 47 million euros, 26.5% higher than that of the same period the previous year, in constant terms.

The OIBDA margin stood at 31.7% by the end of March 2007, 0.4 percentage point improvement compared to the first quarter of 2006.

Over the last twelve months, the market in Ecuador has recorded a strong growth reaching a penetration of 64% at the end of the first quarter 2007, equivalent to an increase of 13 percentage points compared to the first quarter of 2006. The total base of Telefónica Móviles Ecuador reached 2.5 million with more than half of the base on GSM.

Cumulative revenues to end of March 2007 totalled 67 million euros, recording a decline of 4.9% in local currency compared to the same quarter the previous year. Despite this decline, it is worth mentioning the advance reached during this quarter in terms of service revenues which grew 5% in local currency when compared to the same period the previous year.

Despite the year on-year decline of revenues, the stronger efficiency controlling operating expenses allowed to reach an Operating income before depreciation and amortization (OIBDA) of 16 million euros, equivalent to an annual decrease of 2.3% in local currency. OIBDA margin as of the end of March 2007 stood at 24.5%, registering an increase of 0.7 percentage points compared to the same period the previous year.

Cumulative revenues for TIWS during the first quarter of 2007 maintained the strong growth trend of 2006, reaching 65 million euros (25.0% up in constant euros vs. first quarter of 2006). IP international revenues are also worth highlighting, representing more than 52% of the total showing a growth of 23.3% in constant currency. Additionally, the remaining businesses also showed positive growth: bandwidth capacity (+32.9% in constant euros), virtual private networks (+26.9% in constant euros) and satellite services (+91.2% in constant euros).

Operating income before depreciation and amortization (OIBDA) reached 22 million euros (+22.0% in constant euros), driven by strong revenue growth which compensated for higher operational costs (+24.6% in constant currency), due to increased company activity. In spite of the strong performance of revenues, TIWS maintained its OIBDA margin of 34.5%, down slightly on the previous year (-0.7 percentage points).