During the third quarter, 269,858 lines were added, 17.4% lower than the same period of the previous year and 5.7% lower than second quarter of 2002. For the nine months, 786,524 lines were added, 16.6% lower than the same period of last year. At September 30, 2002, total lines in service were 14,158,103, an annual increase of 8.8%.

Lines with at least one digital service increased 39.4% totaling 4,065,101in the nine months, reflecting penetration of digital services of 28.7% of lines, 6.3% more than the same period of 2001.

In the third quarter, total call traffic decreased 1.0% compared with the same period of last year and 2.9% higher than the second quarter of 2002, totaling 6,550 million calls. For the nine months, total call traffic was 19,189 million, similar to the year-ago level resulting from the decline in economic activity.

Interconnection traffic rose to 5,663 million minutes, 10.9% higher than the third quarter of last year and 7.7% more than the second quarter of 2002.

For the nine months, interconnection traffic totaled 15,829 million minutes, an increase of 11.6% compared with the same period of 2001.

In the third quarter, domestic long distance minutes totaled to 3,617 million, 5.0% lower than the third quarter of 2001 and 3.3% higher than the second quarter. For the nine months, domestic long distance traffic totaled 10,616 million minutes, a decrease of 1.0% compared with the same period of the previous year, resulting from the decline in economic activity.

International long distance traffic totaled 1,304 million minutes in the third quarter, 18.7% more than the same period of 2001 and 10.7% lower than the second quarter. For the nine months, International long distance traffic increased 22.8% totaling 4,010 million minutes.

In the third quarter, 4,181 line equivalents for data transmission were added, 97.4% lower than the third quarter of 2001 as a result of a circuit consolidation process with the main telecommunications operators. For the nine months, 266,856 line equivalents were added, 39.0% lower than the same period of last year. At September 30, 2002 TELMEX had 1,840,750 line equivalents for data transmission, an annual increase of 28.3%.

During the quarter, 85,560 Internet access accounts were added, 0.7% higher than the same period of last year and 187.8% higher than the second quarter. For the nine months, 188,491 Internet access accounts were added, 10.9% lower than the same period of last year. At September 30, 2002 TELMEX had 1,101,618 Internet access accounts in operation, 30.3 % more than in 2001.

Even though there was growth in line equivalents, the data market is very competitive and TELMEX is offering packages of products and services in order to maintain the company's position in the market. As a result, revenues generated by the data transmission business for the third quarter were 3,098 million pesos, 1.5% higher than the third quarter of 2001 and 2.5% more than the second quarter. For the nine months, data transmission revenues totaled 8,972 million pesos, 1.8% higher than the same period of the previous year. In the end of the third quarter, the data business contributed 11.1% of TELMEX's total revenues and 10.9% in the nine months.

In the third quarter, total revenues decreased 5.1% compared with the previous year as a result of lower local, interconnection, domestic and international long distance traffic growth rhythm and the reduction of rates in real terms. For the nine months, the decrease was 4.5% compared with the same period of 2001.

Operating costs and expenses increased 5.3% compared with last year's third quarter and for the nine months they increased 0.3%. If costs related with interconnection and depreciation were put aside, costs would show a decrease of 2.4% in the third quarter and 3.0% in the nine months.

This is the result of a reduction in cost of sales and services of 0.4% in the third quarter an increase of 0.1% for the nine months. Commercial, administrative and general expenses decreased 5.3% compared with the same period of last year and for the nine months, they decreased 7.5%.

In the third quarter, EBITDA totaled 14,479 million pesos, a decrease of 9.7% and operating income was 9,206 million pesos, a decrease of 20.9%. For the nine months, EBITDA decreased 8.1% and operating income decreased 12.5%, totaling 43,292 million pesos and 28,403 million pesos, respectively.

In spite of a high level of volatility in the exchange rate during the third quarter, the net impact on the value of the peso was a loss of only 20.5 Mexican cents. In light of that, the company reduced hedges by an average of approximately 2.8 billion dollars related to an exchange rate of 10.07 pesos per dollar. The resulting gain of 265.5 million pesos partially offset losses related to $5.645 billion dollars of foreign-denominated debt. At the end of the quarter, hedges were 2.107 billion dollars.

During the third quarter, comprehensive financing cost had a charge of 1,551 million pesos, resulting from an exchange loss of 896 million pesos and a net interest charge of 1,312 million pesos. The exchange loss was mainly due to the fluctuation of the peso against the dollar, partially offset by hedges made by the company. A gain of 657 million pesos was generated in the monetary position during the quarter. For the nine months, comprehensive financing cost rose to 5,579 million pesos.

Net income for the third quarter was 4,449 million pesos, 7.5% lower than the same period of last year. For the nine months, net income decreased 22.5% compared with the same period of the previous year totaling 14,060 million pesos. TELMEX's earnings per share for the third quarter, based on the number of shares outstanding at period end, were 0.35 pesos, 2.8% lower than the same period of the previous year, and for the nine months were 1.09 pesos, 19.8% lower than the same period of 2001.

The local service income statement, prepared in accordance with accounting separation principles, shows that revenues for the third quarter decreased 5.3%. The decrease in revenues was mainly due to lower dynamics in local and interconnection traffic, the reduction of interconnection rates and the depreciation of local rates in real terms.

Operating costs and expenses increased 3.2% compared with the third quarter of 2001. The reduction of 3.3% in cost of sales and services and 7.9% reduction in commercial, administrative and general did not offset the effect of the increase of 21.6% in depreciation and 11.1% in interconnection costs, compared with the third quarter of 2001.

EBITDA and operating income decreased 9.4% and 21.2% respectively compared with the same period of the previous year. For the nine months, EBITDA decreased 10.5% and operating income decreased 15.3%.

The long distance income statement prepared in accordance with accounting separation principles shows that long distance revenues in the third quarter decreased 10.6% compared with last year's third quarter. The decrease in revenues was due to a lower volume of domestic long distance traffic and the reduction of long distance rates in real terms.

For the nine months, operating costs and expenses increased 1.1% compared with the same period of last year. This increase was mainly due to higher depreciation costs of 29.3% in the third quarter.

EBITDA decreased 21.0% and operating income decreased 31.0% in the third quarter. For the nine months, EBITDA decreased 16.2%. and operating income decreased 22.0%.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT

(FIGURES IN THOUSANDS OF PESOS)

S 12 PLANT, PROPERTY AND EQUIPMENT (NET)

Following, the breakdown is provided for the fixed assets included for the third. quarter of 2002, by the methods of specific index and the NCPI, 5th document.

S 18 DEFERRED ASSETS

At September 30, 2002, deferred assets rose to $ 801,508 that is composed mainly by $ 604,168, that correspond to the acquisition of concessions to operate radio spectrum frequency bands to provide fixed wireless and mobile telephony services, that will be amortized in 20 years and the amount of $ 197,340 correspond to goodwill that Teléfonos de México Group recognizes for share acquisitions of Teckmarketing, Aspel and Multicom Nacional; this goodwill will be amortized in 5 years.

S 19 OTHER ASSETS

Other assets rose to $ 8,674,861 and is composed by the following concepts:

INVENTORIES: rose to $ 1,847,043 at September 30, 2002 and $ 1,751,120 in September 2001, that are mainly for the construction and/or maintenance of the telephone plant; these are valuated by average cost method and are updated based on the specific index method.

INTANGIBLE ASSET: for $ 6,827,818 at September 30, 2002 and $ 8,710,875 at September, 2001, is derived by labor obligations in accordance with Bulletin D-3 of the Mexican Institute of Public Accountants. This item does not impact the results.

S 23 AND S 28 BANK LOANS

In this item, supplier's credits are included in bank credits. The suplier's credits are reclassified to bank loans because in this document, sific/ics, long term opening to suplier's does not exist.

S 24 AND S 29 STOCK MARKET LOANS

In June 1999, Teléfonos de México, S.A. de C.V. issued US $ 1 billion of convertible senior debentures due 2004. The debentures bear interest at a 4.25 % per annum and can be convertible to "L" shares ADS's at any time prior to maturity at conversion price of US $ 47.46095.

On January 26 and May 8, 2001, Teléfonos de México, S.A. de C.V., placed senior notes for $1 billion and $500 million dollars, respectively, with maturity in 2006, and an annual interest rate of 8.25%.

S 37 PAID-IN CAPITAL STOCK (NOMINAL)

A) In the extraordinary shareholders meeting that was held on December 6, 1999, a stock restructure was approved in Telmex's series "AA", "A" and "L" shares. Therefore, starting on February 1, 2000, the 2 for 1 split was carried that consist of 2 new shares per each previous outstanding share held.

B) At September 30, 2002, the capital stock is represented by 12,851 million common stock ( 6,425.5 million before the split ) with no nominal value, representative of fixed capital stock suscribed and paid.

S 42 RETAINED EARNINGS AND STOCKHOLDERS' EQUITY RESERVE

At September 30, 2002, this item rose to $ 72,275,648 and is composed by the following concepts:

Legal reserve $ 15,055,797, retained earnings unappropriated $ 80,183,703, adjustment for labor obligations $ ( 8,473,288 ), accumulated effect for deferred income tax of $ ( 12,427,463), deferred income tax by the difference between methods of specific index and the NCPI for $ 4,727,264, and accumulated income D-4 for $ ( 6,790,365).

On August 7, 2001 the shareholders meeting approved the amount 10,000,000 to repurchase its own shares. This amount is being taken from retained earnings.

From August 8, 2001 to September 30, 2002 the company has repurchased shares for $ 7,816,229 value historic.

S 44 EXCESS (SHORTFALL) IN RESTATEMENT OF STOCKHOLDERS' EQUITY

At September 30, 2002, this item rose to $ ( 62,379,666) and is composed in the following manner:

Result of the monetary position rose to $ ( 12,231,372), resulting from non monetary assets of $(50,148,294).

S 73 PENSION FUND AND YEARS OF SERVICE PREMIUM

In this item, the balance of the labor reserve is presented at September 30, 2002, that rose to $ 4,995,693.

COMPREHENSIVE INCOME

At September 30, 2002 Telmex Group is presenting $ 19,605,284 corresponding to comprehensive income, by the application of Bulletin B-4 comprehensive income; and is comprised of the following:

NOTES TO THE INCOME STATEMENT

R 12 SHARE IN NET INCOME OF SUBSIDIARIES AND NON-CONSOLIDATED ASSOCIATES

At September 30, 2002, Teléfonos de México, recognizes in its results a loss of $ 143,894, in the results of associate companies.

R 28 MONETARY POSITION RESULT

At September 30, 2002, Telmex Group had not carried out operations in UDIS.

R 33 DEFERRED INCOME TAX

At September 30, 2002, Telmex Group is recognizing $ (1,597,530), for the application of the Bulletin D-4 "Accounting treatment of income tax, asset tax and employee profit sharing".

STATEMENT OF CHANGES IN THE FINANCIAL POSITION

C 4 Cash flow from change in working capital

In the cash flow from change in working capital item of $1,527,158 in 2002, includes account receivable of $207,363, generated by exchange-rate hedges acquired by the company. It also includes a contribution to the pension trust of $390,624. If these two items are eliminated, the cash flow from change in working capital would be $929,171.

In the cash flow from change in working capital item of $2,575,390 in 2001, includes account receivable of $279.717, generated by exchange-rate hedges acquired by the company. It also includes a contribution to the pension trust of $620,903. If these two items are eliminated, the cash flow from change in working capital would be $1,674,770.

C 39 OTHER ITEMS

The inventories in this item are presented, mainly for the construction and/or maintenance of the telephone plant.

GENERAL NOTE

CONSOLIDATION

The consolidated financial statements include the accounts of Teléfonos de México, S.A. de C.V., and its twenty four subsidiaries and three foreign subsidiaries, of which fully owns its capital stock, except for the domestic subsidiary Aerocomunicaciones, S.A. de C.V. that 80.10 % is owned. The impact of the results of the associate companies are also included.