SECURITIES REGISTRATION STATEMENT Amendment No. 1 Amendment No. 2 Amendment No. 3 Amendment No. 4

(Translation) SECURITIES REGISTRATION STATEMENT Amendment No. 1 Amendment No. 2 Amendment No. 3 Amendment No. 4 TELEFÓNICA EUROPE B. V. a private company with limited liability under Netherlands law with corporate seat at Rotterdam (This translation of the Japanese Securities Registration Statement has been prepared solely for reference purposes and shall not have any binding force.)

SECURITIES REGISTRATION STATEMENT AMENDMENT No. 4 Cover Document to be filed Filed with : Securities Registration Statement : The Director-General of Kanto Local Finance Bureau Date of Filing : 11 July 2007 Corporate Name Title and Name of Representative : Telefónica Europe B.V. : Carlos David Maroto Sobrado Managing Director Location of the Registered Office : Strawinskylaan 1259, 1077 XX Amsterdam, The Netherlands Name of the Attorney-in-fact Address of the Attorney-in-fact : Fumiaki Shimazaki (Attorney-at-law) : Shimazaki International Law Office 2nd Floor, Teral-Koraku Building 3-27, Koraku 2-chome Bunkyo-ku, Tokyo 112-0004 Japan Telephone : 03-5802-5860 Administrative Personnel to Contact : Fumiaki Shimazaki (Attorney-at-law) Place to Contact : Shimazaki International Law Office 2nd Floor, Teral-Koraku Building 3-27, Koraku 2-chome Bunkyo-ku, Tokyo 112-0004 Japan Telephone : 03-5802-5860

Public Offering for Subscription to Be Registered: Type of Securities to be Offered for Subscription : Bonds Amount to be Offered for Subscription : Telefónica Europe B.V. Japanese Yen Bonds - First Series (2007) Guaranteed by Telefónica, S.A. 15,000,000,000 Telefónica Europe B.V. Japanese Yen Floating Rate Bonds - First Series (2007) Guaranteed by Telefónica, S.A. 15,000,000,000 Matters concerning Stabilising Operations : N/A Place at which Copy of the Present Statement is Offered for Public Inspection Name of Such Office Location : N/A : N/A

TABLE OF CONTENTS PART I. INFORMATION CONCERNING SECURITIES... I. TERMS AND CONDITIONS OF OFFERING... 1. Offering of the Bonds... 2. Purpose of the Fund Raising... (1) Amount of Proceeds from the Issuance... (2) Use of Proceeds... Page II. OTHER DESCRIPTION... PART II. CORPORATE INFORMATION... I. OUTLINE OF THE LEGAL AND OTHER SYSTEMS IN THE HOME COUNTRY... 1. Outline of the Corporate System... (1) Corporate System of the Country or Political Sub-Division Thereof to which the Company belongs... (2) Corporate System as Provided for in the Articles of Association of the Company... 2. Foreign Exchange Control System... 3. Tax Treatment... 4. Legal Opinion... II. OUTLINE OF THE COMPANY... 1. Trends in Major Operational Indices, etc.... 2. History of the Company... 3. Nature of Business... 4. Affiliated Companies... 5. Employees...

III. DESCRIPTION OF BUSINESS... 1. Description of Performance, etc.... 2. State of Production, Order Intake and Sale... 3. Matters to be Resolved... 4. Risks relating to Business... 5. Material Contracts Relating to Business... 6. Research and Development... 7. Analysis of Financial Conditions and Operating Results... IV. CONDITION OF FACILITIES... 1. Outline of Investment in Facilities, etc.... 2. Principal Facilities... 3. Plans for Installation or Removal, etc. of Facilities... V. DESCRIPTION OF THE COMPANY... 1. Description of Shares, etc.... (1) Total Number of Shares... (2) Total Number of Shares Issued and Outstanding and Changes in the Share Capital... (3) By Type of Shareholders... (4) Major Shareholders... 2. Dividend Policy... 3. Trends in Share Prices... 4. Directors and Executive Officers... 5. State of Corporate Governance... VI. FINANCIAL CONDITION... 1. Financial Statements... 2. Details of Principal Assets and Liabilities... 3. Major Differences of Accounting Principles and Procedures in The Netherlands from those of Japan...

4. Other... VII. TREND OF FOREIGN EXCHANGE RATES... VIII. SUMMARY OF ISSUER'S SHARE HANDLING, ETC. IN JAPAN... IX. REFERENCE INFORMATION OF ISSUER... PART III. INFORMATION ON GUARANTOR, ETC... I. INFORMATION ON GUARANTOR... 1. Bonds covered by the Guarantee... 2. Matters relating to Guarantor which is a Continuing Disclosure Company... (1) Documents filed by the Guarantor... (2) The Place(s) at which copies of the Documents referred to above are available for Public Inspection... 3. Matters Relating to Guarantor which is not a Continuing Disclosure Company... II. INFORMATION ON NON-GUARANTOR... III. INFORMATION ON INDICES, ETC...

PART IV. ADDITIONAL INFORMATION... I. RECENT FINANCIAL STATEMENTS OF THE COMPANY... II. FORM OF SECURITIES... 1. Form of the Bond Certificate... 2. Form of the Coupon... III. RECENT FINANCIAL STATEMENTS OF GUARANTOR... NOTES: 1. In this document, unless the context requires otherwise, references to the "Issuer" or the "Company" are to Telefónica Europe B.V., references to the "Guarantor" are to Telefónica, S.A. and references to the "Group" are to Telefónica, S.A. and its consolidated subsidiaries unless the context requires otherwise. Also references to "Japanese Yen Bonds-1st Series" are to Telefónica Europe B.V. Japanese Yen Bonds - First Series (2007) Guaranteed by Telefónica, S.A. and references to "Japanese Yen Floating Rate Bonds-1st Series" are to Telefónica Europe B.V. Japanese Yen Floating Rate Bonds - First Series (2007) Guaranteed by Telefónica, S.A., respectively, and the terms "Bonds", "Conditions of Bonds" and "Fiscal Agent" used under the headings "<Japanese Yen Bonds-1st Series> and <Japanese Yen Floating Rate Bonds-1st Series> refer to those of the Japanese Yen Bonds-1st Series and Japanese Yen Floating Rate Bonds-1st Series, respectively. Unless separate description are made under such headings, these two bonds are collectively referred to as the "Bonds". 2. In this document, references to "Euro" or "EUR" are to the lawful currency of the member states of the European Union that adopt the single currency in accordance with the Treaty establishing the European Community, as amended by the Treaty on European Union and references to " " are to Japanese yen. The mean of the telegraphic transfer spot selling and buying rates vis-à-vis customers as at 7 May 2007, as quoted by a major bank engaging in foreign exchange transactions in Tokyo was EUR1= 163.33. For convenience in reading this document, certain Euro amounts have been translated into Japanese yen at the above rate. 3. The financial year of both the Issuer and the Guarantor commences on January 1 and ends on December 31 of each year. 4. Where figures in tables in this document have been rounded, the totals may not necessarily agree with the arithmetic sums of the figures.

PART I. INFORMATION CONCERNING SECURITIES I. TERMS AND CONDITIONS OF OFFERING 1. Offering of the Bonds(other than Short-Term Notes) <Japanese Yen Bonds-1st Series> Name of the Bonds : Telefónica Europe B.V. Japanese Yen Bonds - First Series (2007) Guaranteed by Telefónica, S.A. (the "Bonds") Registered / Bearer : N/A Aggregate Face Value or Aggregate Amount of Book-Entry Bond : 15,000,000,000 Amount of Each Bond : 100,000,000 Aggregate Issue Price : 15,000,000,000 Issue Price : 100 per 100 of the principal amount of the Bond Rate of Interest : 2.11% p.a. Interest Payment Date : Payable on each January19 and July 19 of each year Maturity : July 19, 2012 Method of Offering : Public offering Deposit for Subscription : Not required Period of Subscription : July 11, 2007 Place of Subscription : Head office and each branch office in Japan of the Joint-Lead Managers named below Payment Date : 19 July 2007 Clearing /Recording Agency : Clearing Agency

II-2 Japan Securities Depository Center, Incorporated 1-1, Nihonbashi Kayaba-cho 2-chome,, Chuo-ku, Tokyo Method of Public Notice : Public notice in relation to the Bonds shall be made in the Japanese Official Gazette (kampo) (if possible) and in a major daily newspaper. (Note 1) The Bonds shall be subject to the provisions of the Law concerning Book- Entry Transfer of Corporate Bonds, etc. (Law No. 75 of 2001, as amended) (the "Book-Entry Transfer Law") and shall be handled in accordance with the business regulations of a Book-Entry Transfer Institution (as defined in the Book-Entry Transfer Law) setting forth the matters required by the Book- Entry Transfer Law.

II-3 Underwriters The securities companies (the "Managers") which have entered into the Subscription Agreement are as follows: Name Address Underwritten Amount Daiwa Securities SMBC Co. Ltd. Mitsubishi UFJ Securities Co., Ltd. Mizuho Securities Co., Ltd. (Collectively, the Joint-Lead Managers ) 8-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo 4-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo Otemachi First Square, 5-1 Otemachi 1-chome, Chiyoda-ku, Tokyo Since the Managers will subscribe for the total issue amount of the Bonds on a joint and several basis, there are no respective underwritten amounts. The total underwritten amount is 15,000,000,000. All the Bonds will be subscribed for, and offered to the public in Japan at the issue price, by the Joint-Lead Managers pursuant to the Subscription Agreement entered into by and among the Issuer, the Guarantor and the Joint-Lead Managers July 11, 2007. The aggregate of the management, underwriting and selling commissions is equal to 0.35% of the aggregate amount of the Bonds.

II-4 <Japanese Yen Floating Rate Bonds-1st Series> Name of the Bonds : Telefónica Europe B.V. Japanese Yen Floating Rate Bonds - First Series (2007) Guaranteed by Telefónica, S.A. (the "Bonds") Registered / Bearer : N/A Aggregate Face Value or Aggregate Amount of Book-Entry Bond : 15,000,000,000 Amount of Each Bond : 100,000,000 Aggregate Issue Price : 15,000,000,000 Issue Price : 100 per 100 of the principal amount of the Bond Rate of Interest : 6 month JPY LIBOR displayed in the Reuter's LIBOR01 page plus 0.40% p.a.(floating rate. Please refer to "Method of Payment of Interest" below. Interest Payment Date : Payable on each January 19 and July19 of each year Maturity : July 19, 2012 Method of Offering : Public offering Deposit for Subscription : Not required Period of Subscription : July 11, 2007 Place of Subscription : Head office and each branch office in Japan of the Joint-Lead Managers named below Payment Date : 19 July 2007 Clearing /Recording Agency : Clearing Agency Japan Securities Depository Center, Incorporated

II-5 1-1, Nihonbashi Kayaba-cho 2-chome,, Chuoku, Tokyo Method of Public Notice : Public notice in relation to the Bonds shall be made in the Japanese Official Gazette (kampo) (if possible) and in a major daily newspaper. (Note 1) The Bonds shall be subject to the provisions of the Law concerning Book- Entry Transfer of Corporate Bonds, etc. (Law No. 75 of 2001, as amended) (the "Book-Entry Transfer Law") and shall be handled in accordance with the business regulations of a Book-Entry Transfer Institution (as defined in the Book-Entry Transfer Law) setting forth the matters required by the Book- Entry Transfer Law.

II-6 Underwriters The securities companies (the "Joint-Lead Managers") which have entered into the Subscription Agreement are as follows: Name Address Underwritten Amount Daiwa Securities SMBC Co. Ltd. Mitsubishi UFJ Securities Co., Ltd. Mizuho Securities Co., Ltd. (Collectively, the Joint-Lead Managers ) 8-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo 4-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo Otemachi First Square, 5-1 Otemachi 1-chome, Chiyoda-ku, Tokyo Since the Joint-Lead Managers will subscribe for the total issue amount of the Bonds on a joint and several basis, there are no respective underwritten amounts. The total underwritten amount is 15,000,000,000. All the Bonds will be subscribed for, and offered to the public in Japan at the issue price, by the Joint-Lead Managers pursuant to the Subscription Agreement entered into by and among the Issuer, the Guarantor and the Joint-Lead Managers July 11, 2007. The aggregate of the management, underwriting and selling commissions is equal to 0.35% of the aggregate amount of the Bonds. Fiscal, Issuing and Paying Agent and Its Duties and Functions <Japanese Yen Bonds-1st Series> The fiscal,issuing and paying agent (the "Fiscal Agent") is as follows: Name of the Fiscal Agent The Bank of Tokyo-Mitsubishi UFJ, Ltd. Address 7-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo, Japan No bond administrator will be appointed.

II-7 Substance of Duties and Functions of the Fiscal Agent (1) The Bank of Tokyo-Mitsubishi UFJ, Ltd. acts as fiscal agent of the Issuer and the Guarantor in respect of the Bonds and also acts as issuing and paying agent (as provided in the JASDEC Business Regulations) of the Issuer (such fiscal agent and issuing and paying agent being collectively referred to as the "Fiscal Agent").The Fiscal Agent shall perform the duties and functions provided for in the conditions of the Bonds (the "Conditions of Bonds"), the Fiscal Agency Agreement dated July 11, 2007 among the Issuer, the Guarantor and the Fiscal Agent (the "Fiscal Agency Agreement") and the JASDEC Business Regulations, respectively. The Fiscal Agent shall act solely as agent of the Issuer or the Guarantor (as the case may be) and does not assume any obligation towards or relationship of agency or trust for or with the Bondholders. A copy of the Fiscal Agency Agreement to which the conditions of Bonds (the "Conditions of Bonds") and the conditions of guarantee (the "Conditions of Guarantee") are attached shall be kept at the head office of the Fiscal Agent and shall be made available for perusal or photocopying by any Bondholder during normal business hours. All expenses incurred for such photocopying shall be borne by the applicant therefor. (2) No person who is comparable to a corporate bond administrator (as provided for in Article 702 of the Company Law (Law No. 86 of 2005)) is appointed in respect of the Bonds. Accordingly, should any necessity arise to enforce the rights of Bondholders under the Conditions of Bonds or the Guarantee (as defined in "Security (2)" below), the Bondholder may have to enforce these rights on their own and to proceed directly against the Issuer and/or the Guarantor. (3) The Issuer may from time to time vary the appointment of the Fiscal Agent, provided the appointment of the Fiscal Agent shall continue until the replacement fiscal agent shall be effectively appointed. In such case the Issuer shall give prior public notice, in accordance with" Method of Public Notice" above, thereof to the Bondholders. (4) Should JASDEC revoke its designation of the Fiscal Agent acting as issuing agent or paying agent and the Issuer receive a notice of such revocation, the Issuer shall, without delay, appoint another such agent who has been so designated.

II-8 Fiscal, Issuing,Paying and Reference Agent and Its Duties and Functions <Japanese Yen Floating Rate Bonds-1st Series> The fiscal agent, issuing,paying and reference agent (the "Fiscal Agent") is as follows: Name of the Fiscal Agent The Bank of Tokyo-Mitsubishi UFJ, Ltd. Address 7-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo, Japan No bond administrator will be appointed. Substance of Duties and Functions of the Fiscal Agent (1) The Bank of Tokyo-Mitsubishi UFJ, Ltd. acts as fiscal agent of the Issuer and the Guarantor in respect of the Bonds and also acts as issuing and paying agent (as provided in the JASDEC Business Regulations) and reference agent of the Issuer (such fiscal agent, issuing and paying agent and reference agent being collectively referred to as the "Fiscal Agent"). The Fiscal Agent shall perform the duties and functions provided for in the Conditions of Bonds, the Fiscal Agency Agreement dated July 11, 2007 among the Issuer, the Guarantor and the Fiscal Agent (the "Fiscal Agency Agreement") and the JASDEC Business Regulations, respectively. The Fiscal Agent shall act solely as agent of the Issuer or the Guarantor (as the case may be) and does not assume any obligation towards or relationship of agency or trust for or with the Bondholders. A copy of the Fiscal Agency Agreement to which the Conditions of Bonds and the Conditions of Guarantee are attached shall be kept at the head office of the Fiscal Agent and shall be made available for perusal or photocopying by any Bondholder during normal business hours. All expenses incurred for such photocopying shall be borne by the applicant therefor. (2) No person who is comparable to a corporate bond administrator (as provided for in Article 702 of the Company Law (Law No. 86 of 2005)) is appointed in respect of the Bonds. Accordingly, should any necessity arise to enforce the rights of Bondholders under the Conditions of Bonds or the Guarantee, the Bondholder may have to enforce these rights on their own and to proceed directly against the Issuer and/or the Guarantor. (4) The Issuer may from time to time vary the appointment of the Fiscal Agent, provided the appointment of the Fiscal Agent shall continue until the replacement fiscal agent shall be

II-9 effectively appointed. In such case the Issuer shall give prior public notice, in accordance with "Method of Public Notice" above, thereof to the Bondholders. (4) Should JASDEC revoke its designation of the Fiscal Agent acting as issuing agent or paying agent and the Issuer receive a notice of such revocation, the Issuer shall, without delay, appoint another such agent who has been so designated.

II-10 Method of Payment of Interest <Japanese Yen Bonds-1st Series> The Bonds shall bear interest at the rate of 2.11% per annum of the principal amount thereof. The Bonds shall bear interest from and including July 19, 2007, payable in Japanese yen semi-annually in arrears on January 19, 2008 and on each subsequent January 19 and July 19 in respect of the six (6)-month period to and including each such date. Interest for any period other than such six (6) month period shall be payable for the actual number of days included in such period computed on the basis of a 365-day year. Each date set for payment of interest in this Section (1) is hereinafter referred to as an "Interest Payment Date". The Bonds shall cease to bear interest after the date on which they become due for redemption; provided, however, that should the Issuer fail to redeem any of the Bonds when due in accordance with the Conditions of Bonds, interest shall be paid at the interest rate specified above in the first paragraph for the actual number of days included in the period from but excluding the due date to and including the date of actual redemption of such Bond, computed on the basis of a 365-day year. Such period, however, shall not exceed the date on which the Fiscal Agent (in its capacity of paying agent under the JASDEC Book-Entry Transfer System) allocates the necessary funds for the full redemption of the Bonds received by it among the relevant JASDEC Participants; provided that if such overdue allocation is not possible under the JASDEC Book-Entry Transfer System, such period shall not exceed 14 days commencing the date on which a public notice is given by the Fiscal Agent in accordance with "Remarks (4) Payment " above. <Japanese Yen Floating Rate Bonds-1st Series> (1)(i) The Bonds shall bear interest from and including July 19, 2007, payable in Japanese yen semi-annually in arrears on January 19 and July 19 of each year in respect of the Interest Period (as defined below) ending on but excluding such date; provided that, if any such date would otherwise fall on a day which is not a Tokyo Business Day (as defined below), the relevant due date for payment of interest shall be postponed to the next succeeding Tokyo Business Day unless it would thereby fall into the next calendar month, in which event such due date shall be brought forward to the immediately preceding Tokyo Business Day, and the interest shall be payable in respect of the Interest Period ending on but excluding the due date as modified pursuant to this proviso. Interest due for a part of any Interest Period shall be payable

II-11 for the actual number of days included in such part on the basis of a 360-day year. Each due date for payment of interest, as provided above, is hereinafter referred to as an "Interest Payment Date". In this Section: (a) "Tokyo Business Day" means a day on which banks are open for business (including dealings in foreign exchange and foreign currency deposits) in Tokyo; and (b) "Interest Period" means the period beginning on and including July19, 2007 and ending on but excluding the first Interest Payment Date and each successive period beginning on and including an Interest Payment Date and ending on but excluding the next succeeding Interest Payment Date. (ii) The Bonds shall bear interest at the rate (the "Rate of Interest") from time to time determined as follows; provided that such Rate of Interest shall not be less than 0%: (a) At or prior to 10:00 a.m. (Tokyo time) on the Tokyo Business Day (an "Interest Rate Determination Date") immediately following the Interest Rate Quotation Date (as defined below), the Issuer will ascertain in respect of the relevant Interest Period the offered rate (rounded, if necessary, to the nearest 4th decimal place with five or more in the 5th decimal place to be rounded upwards) for six (6)-month Japanese yen deposits in the London interbank market which appears on the Reuters Page LIBOR01 (as defined below) as of 11:00 a.m. (London time) on the second London Business Day (as defined below) before the first day of such Interest Period (or, in respect of the first Interest Period, on July 17, 2007) (each such day being hereinafter referred to as an "Interest Rate Quotation Date"). The Rate of Interest for such Interest Period shall be the rate equal to 0.40% per annum plus the above offered rate so ascertained by the Issuer. In this Section, (x) (y) "London Business Day" means a day on which banks are open for business (including dealings in foreign exchange and foreign currency deposits) in London; and "Reuters Page LIBOR01" means the page designated as "LIBOR01" displayed on Reuters (or any successor service) which page displays the British Bankers' Association Interest Settlement Rate for Japanese yen deposits or such other page as may replace LIBOR01 on that service or

II-12 other page on such other service as may be reasonably nominated by the Issuer as the information vendor, for the purpose of displaying rates comparable to the British Bankers' Association Interest Settlement Rates for Japanese yen deposits, which replacement shall be promptly notified by the Issuer to the Fiscal Agent in writing. (b) If the above offered rate does not appear on the Reuters Page LIBOR01, or if such page is unavailable, in either case, as of 11:00 a.m. (London time) on any Interest Rate Quotation Date, the Issuer will request on the Interest Rate Determination Date the principal Tokyo office, if any, of each of the Reference Banks (as defined below) to provide the Issuer with the offered quotation (expressed as a rate per annum) for six (6)-month Japanese yen deposits commencing on the second London Business Day following such Interest Rate Quotation Date offered by its principal London office to leading banks in the London interbank market at approximately 11:00 a.m. (London time) on such Interest Rate Quotation Date. In such case: - If on such Interest Rate Determination Date six (6) or more Reference Banks provide the Issuer with such offered quotations, the Rate of Interest for such Interest Period shall be the rate equal to 0.40% per annum plus the arithmetic mean (rounded, if necessary, to the nearest 4th decimal place with five or more in the 5th decimal place to be rounded upwards) of such offered quotations (disregarding two of the lowest and two of the highest of such quotations), as ascertained by the Issuer. - If on such Interest Rate Determination Date not less than two (2) but not more than five (5) Reference Banks provide the Issuer with such offered quotations, the Rate of Interest for the relevant Interest Period shall be the rate equal to 0.40% per annum plus the arithmetic mean (rounded, if necessary, to the nearest 4th decimal place with five or more in the 5th decimal place to be rounded upwards) of the quotations of those Reference Banks providing such quotations. - If on such Interest Rate Determination Date only one (1) or none of the Reference Banks provides the Issuer with such offered quotations, the Issuer shall ascertain the offered rate (rounded, if necessary, to the nearest 4th decimal place with five or more in the 5th decimal place to be rounded upwards) for six (6)-month Japanese yen deposits in the London interbank market which appears on the Reuters Page LIBOR01 as of 11:00 a.m. (London time) on the London Business Day most closely preceding the relevant Interest Rate Quotation Date (if the offered rate for six (6)-month Japanese yen deposits in the London interbank market does not appear on

II-13 the Reuters Page LIBOR01 or the Reuters Page LIBOR01 is unavailable on such day, on the preceding but closest London Business Day on which the offered rate appears). The Rate of Interest for the relevant Interest Period shall be the rate equal to 0.40% per annum plus such rate so ascertained by the Issuer; provided that, if such London Business Day falls on or before the preceding Interest Rate Quotation Date, if any, the Rate of Interest shall be the Rate of Interest in effect for the last preceding Interest Period. In this Section, "Reference Bank" means a bank which provided its offered quotation used to calculate the offered rate for six (6)-month Japanese yen deposits in the London interbank market which appeared on the Reuters Page LIBOR01 as of 11:00 a.m. (London time) on the London Business Day most closely preceding the Interest Rate Quotation Date in respect of the relevant Interest Rate Determination Date (if the offered rate for six (6)-month Japanese yen deposits in the London interbank market does not appear on the Reuters Page LIBOR01 or the Reuters Page LIBOR01 is unavailable on such day, on the preceding but closest London Business Day on which the offered rate appears). (iii) (iv) (v) The Issuer shall, at approximately 10:00 a.m. (Tokyo time) on each Interest Rate Determination Date, calculate the amount of interest per currency unit for the relevant Interest Period (the "Interest Amount Per Currency Unit") with respect to the Bonds for the purpose of the JASDEC Business Regulations. The Interest Amount Per Currency Unit shall be calculated, pursuant to the JASDEC Business Regulations, by multiplying the Rate of Interest by a fraction, the numerator of which is the actual number of days in the Interest Period concerned and the denominator of which is 360. The calculation of the Interest Amount Per Currency Unit for a part of any Interest Period shall be made for the actual number of days included in such part on the basis of a 360-day year. As soon as practicable after the determination of the Rate of Interest for any Interest Period, but in no later than five (5) Tokyo Business Days following the commencement of any Interest Period, the Issuer shall notify the Fiscal Agent in writing of such Rate of Interest and the relevant Interest Amount Per Currency Unit and Interest Payment Date; provided that public notices for these matters for any Interest Period need not be given. Without delay after receiving such notice, the Fiscal Agent shall make such matters available for perusal by the Bondholders at the head office of the Fiscal Agent during normal business hours. If, after giving notice of any Rate of Interest, the relevant Interest Amount Per Currency Unit and Interest Payment Date pursuant to sub-paragraph (iv) above, the relevant Interest Period is lengthened or shortened, the Issuer shall promptly

II-14 determine what adjustment is appropriate. As soon as practicable after the determination of such adjustment, the Issuer shall notify the Fiscal Agent in writing of the Interest Amount Per Currency Unit and the Interest Payment Date, as amended pursuant to such adjustment; provided that public notices for such amendment need not be given. As soon as practicable after the date on which the Fiscal Agent receives such notice, the Fiscal Agent shall make such matters available for perusal by the Bondholders at the head office of the Fiscal Agent during normal business hours. (vi) (vii) Any Rate of Interest, Interest Amount Per Currency Unit or Interest Payment Date determined in accordance with the provisions of this paragraph (1) shall in the absence of manifest error be final and binding upon all parties, including the Bondholders. The Bank of Tokyo-Mitsubishi UFJ, Ltd. acts as the Issuer's reference agent (the "Reference Agent") at its head office in Tokyo, Japan in respect of the Bonds. Pursuant to the Fiscal Agency Agreement, the Issuer shall entrust the Reference Agent with the performance of all of its obligations (other than those to give public notices) under this paragraph (1) relating to the ascertainment, calculation and determination of any offered quotation or interest rate (including, but not limited to, the Rate of Interest). The Reference Agent shall act solely on behalf of the Issuer and shall assume no obligation towards or relationship of agency or trust for or with the Bondholders. Any notice required to be given by the Issuer to the Fiscal Agent under this paragraph (1) need not be given if and so long as the Fiscal Agent and the Reference Agent are one and the same bank. The Issuer may from time to time vary the appointment of the Reference Agent; provided that the appointment of the Reference Agent shall continue until the replacement Reference Agent is duly appointed. In such case the Issuer shall give prior public notice thereof. (2) The Bonds shall cease to bear interest after the date on which they become due for redemption; provided, however, that should the Issuer fail to redeem any of the Bonds when due, then the Issuer shall pay accrued interest on the unpaid principal amount in Japanese yen for the actual number of days of the period from and including the due date to but excluding the date of the actual redemption of such Bond, computed on the basis of such actual number of days divided by 360 at the interest rate to be determined applying the provisions in the paragraph (1) above mutatis mutandis as if the Interest Payment Dates continued to occur after such due date. Such period, however, shall not exceed the date on which the Fiscal Agent (in the capacity of paying agent under the JASDEC Book-Entry Transfer System) allocates the necessary funds for the full redemption of the Bonds received by it among the relevant JASDEC Participants (as defined in the JASDEC Business Regulations; the "JASDEC Participants"); provided that if such overdue allocation is not possible under the JASDEC Business Regulations, such period shall not exceed 14 days commencing the date on which a public notice is given by the Fiscal Agent in accordance with Condition 6. The

II-15 Issuer shall notify each interest rate so determined to the Fiscal Agent in writing in accordance with the provisions of the paragraph(1)(iv) above, whereupon, in no later than 5 Tokyo Business Days following such due date, the Fiscal Agent shall make such interest rate available for perusal by the Bondholders at the head office of the Fiscal Agent during normal business hours. Public notice for such interest rate need not be given. Method of Redemption (1) Redemption at Maturity <Japanese Yen Bonds-1st Series> Unless previously redeemed or purchased and cancelled, the Bonds shall be redeemed on July 19, 2012 at a price equal to their principal amount. <Japanese Yen Floating Rate Bonds-1st Series> Unless previously redeemed or purchased and cancelled, the Bonds shall be redeemed on July 19, 2012 at a price equal to their principal amount; provided that, if such date would otherwise fall on a day which is not a Tokyo Business Day, the due date for redemption of the Bonds shall be postponed to the next succeeding Tokyo Business Day, unless it would thereby fall into the next calendar month, in which event such due date shall be brought forward to the immediately preceding Tokyo Business Day,. (2) Redemption for Taxation Reasons If (i) as a result of any change in or amendment to the laws, regulations or rulings of The Netherlands or the Kingdom of Spain ("Spain") or of any political subdivision thereof or any authority or agency therein or thereof having power to tax or in the interpretation or administration of any such laws, regulations or rulings which becomes effective on or after the date of issue of the Bonds, (x) the Issuer or, as the case may be, the Guarantor would be required to pay any Additional Amount (as defined in Section (3) of "Remarks" below) or (y) the Guarantor or any Subsidiary(as defined in Section (1)Negative Pledge Clause of "Financial Covenants" below) of the Guarantor is or would be required to deduct or withhold tax on any payment to the Issuer to enable the Issuer to make any payment (whether in respect of principal, interest or otherwise); (ii) in each case, the payment of such Additional Amount in the case of (x) above or such deduction or withholding in the case of (y) above cannot be avoided by the Issuer or the Guarantor or such Subsidiary taking reasonable measures available to; and (iii) such circumstances are evidenced by the delivery by the Issuer or the Guarantor to the Fiscal Agent of a certificate signed by one director of the Issuer or the Guarantor stating that the said circumstances prevail and describing the facts leading thereto and an opinion of independent legal advisers of recognized standing to the effect that such

II-16 circumstances prevail, the Issuer may, at its option and having given no less than 30 nor more than 60 days' notice to the Bondholders in accordance with "Method of Public Notice" above (which notice shall be irrevocable), redeem all (but not some only) of the outstanding Bonds at their principal amount, together with accrued interest (if any) thereon provided, however, that no such notice of redemption may be given earlier than 90 days prior to the earliest date on which the Issuer or, as the case may be, the Guarantor would be obliged to pay such Additional Amounts were a payment in respect of the Bonds then due. If, pursuant to Remarks (2) (A) Substitution, Merger, Consolidation, etc. by the Issuer and Remarks (2) (B) Substitution, Merger, Consolidation, etc. by the Issuer, a Person (as defined in Financial Covenants (1) (B) ) into which the Issuer or the Guarantor is merged or to whom the Issuer or the Guarantor has conveyed, transferred or leased its properties or assets has been or would be required to pay any Additional Amounts, the outstanding Bonds may be redeemed at the option of such Person in whole, but not in part, in accordance with this Condition 5(2), which provision shall apply mutatis mutandis. The Issuer shall ensure that the Fiscal Agent will notify JASDEC of the exercise of the redemption option provided in this Section (2) forthwith upon the determination of such exercise. The above certificate and opinion delivered to the Fiscal Agent pursuant to this Section (2) shall be kept at its head office and made available for perusal and photocopying by any Bondholder during normal business hours; provided that all expenses incurred for such photocopying shall be borne by the applicant therefor. All reasonable expenses necessary for the procedures under this section (2) shall be borne by the Issuer or the Guarantor, as the case may be. (3) Purchase and Cancellation The Issuer, the Guarantor or any of the Guarantor's other Subsidiaries may at any time purchase in whole or in part the Bonds at any price in the open market or otherwise and retain, resell or cancel them, except as otherwise provided for by applicable laws and regulations or the JASDEC Business Regulations. (4) Non-Prepayment Except as otherwise provided in the Conditions of Bonds, the Issuer may not prepay the principal of or interest on the Bonds in whole or in part. Security (1) Collateral

II-17 Except where any security is provided pursuant to Section (2) of "Financial Covenants" below, the Bonds shall not be secured by collateral of the Issuer. (2) Guarantee The due and punctual payment by the Issuer of the principal of and interest on the Bonds and all other amounts payable under the Conditions of Bonds is guaranteed (rentai hosho) by Telefónica, S.A. (the "Guarantor") in accordance with the conditions of guarantee (the "Conditions of Guarantee"). Such guarantee is hereinafter referred to as the "Guarantee". The Guarantor guarantees (rentai hosho) to the holders of the Bonds (the "Bondholders") the due and punctual payment by Issuer of principal of and interest on the Bonds and all other amounts payable under the Conditions of the Bonds (such principal, interest and other amounts being hereinafter referred to as the "Guaranteed Amounts") as and when the same shall be due and payable whether at maturity or otherwise. The Guarantor covenants that should the Issuer fail to make the due and punctual payment of any Guaranteed Amount, the Guarantor shall make such payment as and when the same shall become due and payable whether at maturity or otherwise, and as if such payment were made by the Issuer. If any payment received by any Bondholder pursuant to the Conditions of Bonds shall, on the subsequent bankruptcy ("faillissement"), insolvency ("surséance van betaling"), reorganization or other such similar events of the Issuer, be avoided or set aside under any laws relating to bankruptcy, insolvency, reorganization or other similar events, such payment shall not be considered as discharging or diminishing the liability of the Guarantor and the Guarantee shall continue to apply as if such payment had at all times remained owing by the Issuer and the Guarantor shall indemnify the Bondholders in respect thereof. The Guarantee being rentai hosho, the category of guarantee provided for under Article 454 of the Civil Code of Japan (Law No. 89 of 1896, as amended) (the "Civil Code"), the Guarantor shall not be entitled to the rights provided for under Articles 452 (Right to Request to First Claim against Principal Debtor) and 453 (Right to Request to First Enforce against Assets of Principal Debtor) of the Civil Code. No Bondholder shall be required to give any notice to or make any demand on the Issuer or to proceed against the Issuer's assets prior to the performance by the Guarantor of its obligations under the Conditions of Guarantee. The Guarantor agrees that the Guarantor's obligations under the Conditions of Guarantee will not be discharged except by complete

II-18 performance of the monetary obligations set forth in the Conditions of Bonds and the Conditions of Guarantee. The Guarantor agrees that it will not exercise any rights of indemnification or subrogation or any other right relating to the payment of monies which it may have under or by virtue of any contract or law against the Issuer as a result of or in relation to the performance of the obligations of the Guarantor in accordance with the Conditions of Guarantee unless and until the Guaranteed Amounts have been paid in full. Financial Covenants (1) Covenants by the Issuer (A) Pari Passu The Bonds constitute direct, unconditional, (except where any security is provided for the Bonds pursuant to the provisions in Financial Covenants (1) (B) below) unsecured and unsubordinated obligations of the Issuer and rank and (except as aforesaid) will rank pari passu without any preference among themselves and with all other outstanding unsecured and unsubordinated obligations of the Issuer, present and future, except as may be preferred by law. (B) Negative Pledge Clause So long as any of the Bonds remains outstanding, the Issuer undertakes that it will not create or have outstanding any mortgage, pledge, lien or other charge (the "Encumbrance") upon the whole or any part of its assets, present or future, in order to secure any Relevant Indebtedness (as defined below) issued or guaranteed by the Issuer or by any other Person (as defined below) or to secure any guarantee of or indemnity in respect of any Relevant Indebtedness unless (a) the outstanding Bonds are equally and rateably secured therewith, or (b) such other security is provided as the Bondholders shall approve by the Bondholders' meeting, in each case for as long as such Relevant Indebtedness shall be so secured; provided, however, that the foregoing restriction shall not apply to any Encumbrance upon the assets of the Issuer securing Relevant Indebtedness issued or guaranteed by the Issuer or by any other Person if the Relevant Indebtedness so secured (i) was originally offered, distributed or sold primarily to residents of The Netherlands, (ii) by its terms matures within one year of its date of issue, or (iii) the Encumbrance affects the assets of an entity which, when the Encumbrance was created, was unrelated to the Issuer, and which was subsequently acquired by the Issuer; and provided, further, that nothing herein shall limit the ability of the Issuer to grant or permit to subsist Encumbrances over any or all of its present or future assets to secure Relevant Indebtedness issued or guaranteed by the Issuer or by any other Person, to the extent that the

II-19 aggregate principal amounts so secured do not exceed 5% of the consolidated net tangible assets (as defined below) of the Guarantor, as reflected in the most recent balance sheet (prepared in accordance with such accounting principles as are generally accepted in Spain at the date of such computation and as applied by the Guarantor) prior to the time such Relevant Indebtedness was incurred. "Relevant Indebtedness" means any obligation for the payment of borrowed money which is in the form of, or represented or evidenced by, a certificate of indebtedness or in the form of, or represented or evidenced by, bonds, notes or other securities which, in any of the above cases, is or are, or is or are capable of being, quoted, listed, dealt in or traded on a stock exchange or other recognized securities market, and Person means any individual, corporation, partnership, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof. For the purposes of avoiding any doubt in respect of asset-backed financings originated by the Issuer or the Guarantor, the expressions "assets" and "obligations for the payment of borrowed money" as used in the definition of consolidated net tangible assets or Relevant Indebtedness do not include assets or obligations of the Issuer or the Guarantor which, pursuant to the requirements of law and accounting principles generally accepted in The Netherlands or Spain, as the case may be, need not, and are not, reflected in the balance sheet of the Issuer or the Guarantor, as the case may be. "Consolidated net tangible assets" means the total amount of assets of the Guarantor and its consolidated Subsidiaries, including investments in unconsolidated Subsidiaries, after deduction of (i) deferred charges, (ii) goodwill in consolidation, (iii) intangible assets, and (iv) amounts due from stockholders for uncalled capital. "Subsidiary" means any company in respect of which the Guarantor owns, directly or indirectly, more than half of the voting rights of the shares of such company, or, when the Guarantor owns half or less of the voting power, controls such company, i.e. has the power to govern the financial and operating policies of such company so as to obtain benefits from its activities. If any security is provided for the Bonds under this Section, the Issuer shall take, or cause to be taken, any and all steps and procedures necessary for creation and perfection of such security for the benefit of the Bondholders in accordance with this Section and applicable laws and regulations. Upon creation of such security, the Issuer shall give public notice to the Bondholders in accordance with "Method of Public Notice" below, stating that such security by the Issuer has been duly and validly created and perfected for the benefit of the Bondholders in accordance with this Section and applicable laws and regulations. All expenses incurred in connection with the creation, perfection, maintenance and execution of such security (including expenses relating to the above public notice) shall be borne by the Issuer.

II-20 The provisions of this Section shall not apply when the Fiscal Agent (in its capacity of paying agent under the JASDEC Book-Entry Transfer System) allocates the necessary funds for the full redemption of the Bonds received by it among the relevant JASDEC Participants (as defined in the JASDEC Business Regulations; the "JASDEC Participants"). (2) Covenants by the Guarantor (A) Pari Passu The obligations of the Guarantor under the Guarantee constitutes direct, unconditional, (except where any security is provided for the Guarantee pursuant to "Financial Covenants (2)(B)" below) unsecured and unsubordinated obligations of the Guarantor and ranks and (except as aforesaid) will rank pari passu with all other outstanding unsecured and unsubordinated obligations of the Guarantor, present and future, except as may be preferred by law. (B) Negative Pledge Clause So long as any of the Bonds remains outstanding, the Guarantor undertakes that it will not create or have outstanding any mortgage, pledge, lien or other charge (the "Encumbrance") upon the whole or any part of its assets, present or future, in order to secure any Relevant Indebtedness (as defined below) issued or guaranteed by the Guarantor or by any other Person (as defined below) or to secure any guarantee of or indemnity in respect of any Relevant Indebtedness unless (a) the Guarantor's payment obligations under the Guarantee are equally and rateably secured therewith, or (b) such other security is provided as the Bondholders shall approve by the Bondholders' meeting, in each case for as long as such Relevant Indebtedness shall be so secured; provided, however, that the foregoing restriction shall not apply to any Encumbrance upon the assets of the Guarantor securing Relevant Indebtedness issued or guaranteed by the Guarantor or by any other Person if the Relevant Indebtedness so secured (i) was originally offered, distributed or sold primarily to residents of Spain, (ii) by its terms matures within one year of its date of issue, or (iii) the Encumbrance affects the assets of an entity which, when the Encumbrance was created, was unrelated to the Guarantor, and which was subsequently acquired by the Guarantor; and provided, further, that nothing in this paragraph in this Section shall limit the ability of the Guarantor to grant or permit to subsist Encumbrances over any or all of their respective present or future assets to secure Relevant Indebtedness issued or guaranteed by the Guarantor or by any other Person, to the extent that the aggregate principal amounts so secured do not exceed 5% of the consolidated net tangible assets (as defined below) of the Guarantor, as reflected in the most recent balance sheet (prepared in accordance with such accounting principles as are generally accepted in Spain at the date of such computation and as applied by the Guarantor) prior to the time such Relevant Indebtedness was incurred.

II-21 If any security is provided for the Guarantee under this Section, the Guarantor shall take, or cause to be taken, any and all steps and procedures necessary for creation and perfection of such security for the benefit of the Bondholders in accordance with this Section and applicable laws and regulations. Upon creation of such security, the Guarantor shall give public notice to the Bondholders in accordance with Method of Public Notice above, stating that such security by the Guarantor has been duly and validly created and perfected for the benefit of the Bondholders in accordance with this Section and applicable laws and regulations. All expenses incurred in connection with the creation, perfection, maintenance and execution of such security (including expenses relating to the above public notice) shall be borne by the Guarantor. The provisions of this Section shall not apply if the Fiscal Agent (in its capacity of paying agent under the JASDEC Book-Entry Transfer System) allocates the necessary funds for the full redemption of the Bonds received by it among the relevant JASDEC Participants. Bondholders' Meetings When the Bondholders holding one-tenth or more of the aggregate amount of the Bonds (excluding the redeemed amount), acting either jointly or individually, make a written request therefor to the Fiscal Agent at its head office on behalf of the Issuer, stating the matters having a material effect on the interests of the Bondholders that are the purpose of a Bondholders' meeting and the reasons for convocation, with certificates (the "Certificates") issued by the Nearest Upper Positioned Institutions (as defined in the JASDEC Business Regulations) showing the holding of the Bonds held by such Bondholders being presented to the Fiscal Agent on behalf of the Issuer at its head office, or should the Issuer deem it necessary, the Issuer will convene a Bondholders' meeting to consider any of the matters that may have a material effect on the interests of the Bondholders, including the modification of the Conditions of Bonds, by giving written notice at least thirty-five (35) days prior to the proposed date of the meeting to the Fiscal Agent; provided that any such modification shall require consent of the Issuer except for waivers of the rights of the Bondholders under the Bonds. The convocation of a Bondholders' meeting shall be made by giving public notice at least 21 days prior to the date of such meeting. The provisions of the Book-Entry Transfer Law shall apply mutatis mutandis to the Bonds in respect of which the Certificate has been issued. Bondholders' meeting shall be held in Tokyo, Japan. The Bondholders may be present at a Bondholders' meeting in person or by proxy. The Issuer may have its representative(s) attend such meeting and express its opinion thereat. Any Bondholder who will not be present in person or by proxy at such meeting may exercise his voting rights upon submission of the document stating the matters prescribed in the above public notice of the meeting or transmission by way of an electromagnetic means of the matters to be stated in such document, pursuant to the rules established by the Issuer or the

II-22 Fiscal Agent on behalf of the Issuer or as instructed by the Fiscal Agent. The amount of voting rights exercised by such document or electromagnetic means shall be taken into account for the purpose of calculation of the amount of voting rights held by the Voting Rights Holders (as defined below) who were present. At such meeting, each Bondholder shall have a voting right corresponding to the total amount of the Bonds (excluding the redeemed amount) held by him; provided, however, that the Certificates shall be presented to the Fiscal Agent on behalf of the Issuer at least 7 days before such meeting and also at the date of such meeting. Adoption of resolutions at a Bondholders meeting shall require consent of the holders of voting rights of more than one-half of the aggregate amount of voting rights held by the Bondholders who are entitled to exercise their voting rights (the "Voting Rights Holders") and present at the meeting; provided that in case of (a) giving a period of grace for payment, release or settlement of any liability resulted from default with respect to the entire Bonds (other than the matters referred to in (b)), (b) legal actions or bankruptcy, corporate reorganization or any other similar proceedings, and (c) the election or dismissal of representative(s) of the Bondholders who may be appointed and authorized by resolution of a Bondholders' meeting to make decisions on matters to be resolved at a Bondholders meeting (provided such person(s) must hold one-thousandth or more of the aggregate amount of the Bonds (excluding the redeemed amount)) (the "Representative(s) of the Bondholders") or an executor (the "Executor") who may be appointed by resolution of a Bondholders' meeting so as to execute the resolutions of the Bondholders meeting, or the change in any matters entrusted to them, adoption of the resolutions thereof shall require consent of the holders of voting rights of (i) at least one-fifth of the aggregate amount of voting rights held by the Voting Rights Holders and (ii) at least two-thirds of the aggregate amount of voting rights held by the Voting Rights Holders who were present at the meeting. Such resolutions shall, to the extent permitted by Japanese law, be binding on all the Bondholders whether present or not at such meeting and shall thereupon be carried out by the Representative(s) of the Bondholders or the Executor. For the purpose of this Section, the Bonds, if any, then held by the Issuer, the Guarantor or any of the Guarantor's other Subsidiaries shall be disregarded and deemed not to be outstanding. All reasonable expenses necessary for the procedures under this Section shall be borne by the Issuer. Governing Law and Jurisdiction The Bonds and all the rights and obligations of all the parties concerned, including the Bondholders, arising under the Conditions of Bonds and all the rights and obligations of all the parties concerned, including the Bondholders, arising thereunder shall in all respects be governed by the laws of Japan.

II-23 Except as otherwise provided in the Conditions of Bonds and the Conditions of Guarantee, the place of performance of obligations pertaining to the Bonds and the Guarantee is Tokyo, Japan. Any legal action or other court procedure against the Issuer relating to the Bonds or the Conditions of Bonds and any legal action or other court procedure against the Guarantor relating to the Guarantee or the Conditions of Guarantee or the Conditions of Bonds may be instituted in the Tokyo District Court, to the jurisdiction of which the Issuer and the Guarantor expressly, unconditionally and irrevocably submits. The Issuer and the Guarantor appoint Fumiaki Shimazaki, attorney-at-law, of Shimazaki International Law Office in Tokyo, Japan as the authorized agent of the Issuer upon whom process and any judicial or other court documents may be served in any such action or other court procedural action arising from or relating to the Bonds or the Conditions of Bonds and any such action or other court procedural action arising from or relating to the Guarantee or the Conditions of Guarantee that may be instituted in Japan; the Issuer and the Guarantor designates the address from time to time of Shimazaki International Law Office currently at 2nd Floor, Teral-Koraku Building, 3-27, Koraku 2-chome, Bunkyo-ku, Tokyo, Japan, as the address to receive such process and any judicial or other court documents; and the Issuer and the Guarantor agrees to take, from time to time and so long as any of the Bonds shall remain outstanding, any and all action (including the execution and filing of any and all documents and instruments) that may be necessary to effect and to continue such appointment and designation in full force and effect. If at any time such agent shall not, for any reason, serve as such authorized agent, the Issuer and the Guarantor shall immediately appoint, and it hereby undertakes to take any and all action that may be necessary to effect the appointment of a successor authorized agent in Tokyo, Japan and the Issuer shall notify the Fiscal Agent of the appointment of such successor agent, and give a public notice thereof to the Bondholders. Nothing in this Section shall affect the right of the Bondholders to institute legal action in any court of competent jurisdiction under applicable laws or to serve process in any manner otherwise permitted by law. Credit Rating Obtained In respect of the Bonds, the Issuer has obtained credit rating of Baa1 from Moody s Investors Service, Inc.as of June 29, 2007, BBB+ from Standard & Poor's Ratings Services as of July 4, 2007, and received a notice from Fitch Rating to the effect that it will give the credit rating of BBB+ subject to its receipt of the definitive conditions of onds relating to the Bonds. Also the Issuer has obtained credit rating of A- from JCR as of July 11, 2007,

II-24 Remarks (1) Events of Default If any of the events or circumstances (the "Events of Default") specified in the following paragraphs (a) through (f) shall have occurred and be continuing, any Bondholder may, by written notice to the Fiscal Agent at its head office on behalf of the Issuer and the Guarantor, declare that any Bond held by such Bondholder and all accrued interest shall immediately become due and payable: (a) (b) (c) (d) if the Issuer fails to pay, and the Guarantor fails to honor the Guarantee with respect to payments of, any principal or interest due in respect of the Bonds or any of them and such default continues for a period of 21 days; or if the Issuer or the Guarantor fails to perform or observe any of its other obligations under the Conditions of Bonds or the Conditions of Guarantee, as the case may be, and (except where such failure is incapable of remedy when no such notice or continuation as is hereinafter mentioned will be required) such failure continues for more than 60 days (90 days if the failure to perform relates to an obligation of the Issuer or the Guarantor arising under Remarks (2) (A) Substitution, Merger, Consolidation, etc. by the Issuer and Remarks (2) (B) Substitution, Merger, Consolidation, etc. by the Guarantor below) after written notice thereof shall have been given to the Fiscal Agent at its head office on behalf of the Issuer or the Guarantor by a Bondholder or by Bondholders acting jointly, in either case, holding at least 25% in aggregate principal amount of the Bonds then outstanding (at the time of giving such notice, such Bondholder(s) shall present, at the head office of the Fiscal Agent, the Certificates (as defined in" Bondholder's Meeting" above) showing its or their holding of at least 25% in aggregate principal amount of the Bonds then outstanding); or if the Issuer or the Guarantor fails to fulfill (taking into account any applicable grace periods) any payment obligation in excess of 100,000,000 or its equivalent in any other currency under any Relevant Indebtedness or under any guarantee or suretyship provided for under any Relevant Indebtedness of others, and this failure remains uncured for 30 days; or if the holders of any Relevant Indebtedness of the Issuer or the Guarantor accelerate any payment obligation in excess of 100,000,000 or its equivalent in any other currency as a result of the Issuer or the Guarantor entering into a transaction described under Remarks (2) (A) Substitution, Merger, Consolidation, etc. by the Issuer and Remarks (2) (B) Substitution, Merger, Consolidation, etc. by the Guarantor

II-25 above, which transaction constitutes an event of default in respect of such other Relevant Indebtedness; or (e) (f) if (1) the Issuer or the Guarantor announces its inability to meet its financial obligations or files a petition before a court for a suspension of payments (surséance van betaling in The Netherlands, concurso in Spain); or (2) if a court opens insolvency proceedings against the Issuer or Guarantor or imposes special measures (bijzondere voorzieningen) on the Issuer within the meaning of Chapter X of the Netherlands Act on the Supervision of Credit Institutions (Wet toezicht kredietwezen 1992, as amended or re-enacted from time to time) and any such proceeding or measure is not discharged or dismissed within 60 days; or (3) if the Issuer or Guarantor goes into liquidation, unless it is done in connection with such transaction as permitted pursuant to Remarks (2) (A) Substitution, Merger, Consolidation, etc. by the Issuer and Remarks (2) (B) Substitution, Merger, Consolidation, etc. by the Guarantor above; or (4) if the Issuer or Guarantor makes a filing seeking relief under any applicable bankruptcy or insolvency laws; or if the Guarantee ceases to be valid or legally binding for any reason. Upon the receipt of such notice (which must be accompanied by a Certificate) by the Fiscal Agent at its head office, all such Bonds shall immediately become due and payable at the principal amount thereof together with accrued interest (and the Additional Amounts, if any), unless prior to such date all such Events of Default shall have been cured. For the purpose of thissection, the Bonds then held by the Issuer, the Guarantor or any of the Guarantor's other Subsidiaries shall be disregarded and deemed not to be outstanding. (2) Substitution, Merger, Consolidation, etc. (A) Substitution, Merger, Consolidation, etc. by the Issuer The Guarantor or any of its Subsidiaries (each a "Substitute Debtor" as used herein in this (2) (A) Substitution, Merger, Consolidation, etc. by the Issuer) may, without the consent of the Bondholders, assume the obligations of the Issuer under the Bonds, provided that: (i) the Substitute Debtor shall expressly assume such obligations for the benefit of the Bondholders, which assumption shall provide that the Substitute Debtor shall pay to the Bondholders such Additional Amount as may be necessary in order that every net payment of the principal of and interest on the Bonds will not be less than the amount provided for in the Bonds to be then due and payable; provided that, subject to the restrictions and limitations set out above in Condition 7, such obligation shall extend to any withholding or deduction for or on account of any present or future Taxes

II-26 imposed or levied by or on behalf of The Netherlands, Spain or any country of other jurisdiction in which any Substitute Debtor is organized or any political subdivision thereof or any authority or agency therein or thereof having power to tax; except that the Substitute Debtor shall not be obligated to make any indemnification or payment in respect of any tax consequences to any individual Bondholder as a result of such assumption of rights and obligations and which arise as a result of the domicile or residence of such holder in, or connection of such holder with, such other jurisdiction; (ii) (iii) (iv) (v) (vi) (vii) (if the Substitute Debtor is not the Guarantor) the Guarantor shall unconditionally and irrevocably guarantee the due and punctual payment of all amounts payable by the Substitute Debtor under the Bonds; immediately after giving effect to such assumption, no Event of Default shall have occurred and be continuing; all actions, conditions and things required to be taken, fulfilled and done by the Issuer, the Guarantor and (if the Substitute Debtor is not the Guarantor) the Substitute Debtor to ensure that the Bonds constitute legally valid and binding and enforceable obligations of the Substitute Debtor have been taken, fulfilled and done and are in full force and effect; a certificate, signed by a duly authorized officer of the Guarantor and a written opinion of the independent legal advisers of recognized standing selected by the Guarantor, each stating that such assumption by the Substitute Debtor comply with all the conditions (i) through (iv) above, shall have been delivered to the Fiscal Agent who shall keep them at its head office and make them available for perusal and photocopying by any Bondholder during normal business hours (all expenses incurred for such photocopying to be borne by the applicant therefor); the Guarantor and (if the Substitute Debtor is not the Guarantor) the Substitute Debtor shall enter into an agreement amending the Fiscal Agency Agreement to reflect such assumption and (if the Substitute Debtor is not the Guarantor) the giving of such guarantee; and a public notice to the Bondholders in respect of such assumption shall have been given by the Issuer at least 14 days prior to the effective date of such assumption. As at the effective date of such assumption (subject to satisfaction with the above conditions (i) through (vii)), the Issuer shall be released from such obligations and, thereafter, all references in the Bonds to the Issuer shall be deemed to be references to the Substitute Debtor.

II-27 The Issuer shall not consolidate with or merge (which term shall include for the avoidance of doubt a scheme of arrangement) into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and the Issuer shall not permit any Person to consolidate with or merge into the Issuer or convey, transfer or lease its properties and assets substantially as an entirety to the Issuer without the consent of the Bondholders, unless: (i) (ii) (iii) (iv) (v) in the case the Issuer shall consolidate with or merge into another Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which the Issuer is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Issuer substantially as an entirety shall be a corporation, partnership or trust, shall be organized and validly existing, under the laws of the jurisdiction of its organization and shall expressly assume the due and punctual payment of the principal and interest due in respect of the Bonds and the performance or observance of every covenant under the Conditions of Bonds on the part of the Issuer to be performed or observed; if the Person formed by such consolidation or into which the Issuer is merged or to whom the Issuer has conveyed, transferred or leased its properties or assets is a Person organized and validly existing under the laws of a jurisdiction other than The Netherlands, such Person agrees to indemnify the Bondholders against (a) any Tax imposed on any such holder or required to be withheld or deducted from any payment to such holder as a consequence of such consolidation, merger, conveyance, transfer or lease; and (b) any costs or expenses of the act of such consolidation, merger, conveyance, transfer or lease; immediately prior to the consummation of such transaction, no Event of Default, and no event which would with the lapse of time or the giving of notice or both or fulfillment of other conditions constitute an Event of Default, shall have occurred and be continuing; the consummation of such transaction must not cause an Event of Default under the Conditions of Bonds which the Issuer does not reasonably believe that can be cured within 90 days from the date of such transaction; and the Issuer has delivered to the Fiscal Agent a certificate signed by one director of the Issuer and an opinion of counsel (as defined below), each stating that such consolidation, merger, conveyance, transfer or lease comply with this (2) (A) Substitution, Merger, Consolidation, etc. by the Issuer and that all conditions precedent herein provided for relating to such transaction have been complied with. The Fiscal Agent shall keep such certificate and opinion of counsel at its head office and make them available for perusal and photocopying by any Bondholder during normal business hours (all expenses incurred for such photocopying to be borne by the applicant therefor).

II-28 Upon any consolidation of the Issuer with, or merger of the Issuer into, any other Person or any conveyance, transfer or lease of the properties and assets of the Issuer substantially as an entirety in accordance with this (2) (A) Substitution, Merger, Consolidation, etc. by the Issuer, the successor Person formed by such consolidation or into which the Issuer is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Issuer under the Conditions of Bonds with the same effect as if such successor Person had been named as the Issuer herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under the Conditions of Bonds. For the purposes of this (2) (A) Substitution, Merger, Consolidation, etc. by the Issuer, "opinion of counsel" means a written opinion of independent legal advisers of recognized standing or internal legal counsel for the Issuer. (B) Substitution, Merger, Consolidation, etc. by the Guarantor The Guarantor or any of its Subsidiaries (each a "Substitute Debtor", as used herein in this (2) (B) Substitution, Merger, Consolidation, etc. by the Guarantor) may, without the consent of the Bondholders, assume the obligations of the Issuer under the Bonds, provided that: (i) (ii) the Substitute Debtor shall expressly assume such obligations for the benefit of the Bondholders, which assumption shall provide that the Substitute Debtor shall pay to the Bondholders such Additional Amount as may be necessary in order that every net payment of the principal of and interest on the Bonds will not be less than the amount provided for in the Bonds to be then due and payable; provided that, subject to the restrictions and limitations set out above in Condition 7 of the Conditions of Bonds, such obligation shall extend to any withholding or deduction for or on account of any present or future Taxes imposed or levied by or on behalf of The Netherlands, Spain or any country of other jurisdiction in which any Substitute Debtor is organized or any political subdivision thereof or any authority or agency therein or thereof having power to tax; except that the Substitute Debtor shall not be obligated to make any indemnification or payment in respect of any tax consequences to any individual Bondholder as a result of such assumption of rights and obligations and which arise as a result of the domicile or residence of such holder in, or connection of such holder with, such other jurisdiction; (if the Substitute Debtor is not the Guarantor) the Guarantor shall guarantee (rentai hosho) the due and punctual payment of all amounts payable by the Substitute Debtor under the Bonds;

II-29 (iii) (iv) (v) (vi) (vii) immediately after giving effect to such assumption, no Event of Default (as defined in Remarks (1) Events of Default ) shall have occurred and be continuing; all actions, conditions and things required to be taken, fulfilled and done by the Issuer, the Guarantor and (if the Substitute Debtor is not the Guarantor) the Substitute Debtor to ensure that the Bonds constitute legally valid and binding and enforceable obligations of the Substitute Debtor have been taken, fulfilled and done and are in full force and effect; a certificate, signed by a duly authorized officer of the Guarantor and a written opinion of the independent legal advisers of recognized standing selected by the Guarantor, each stating that such assumption by the Substitute Debtor comply with all the conditions (i) through (iv) above, shall have been delivered to the Fiscal Agent who shall keep them at its head office and make them available for perusal and photocopying by any Bondholder during normal business hours (all expenses incurred for such photocopying to be borne by the applicant therefor); the Guarantor and (if the Substitute Debtor is not the Guarantor) the Substitute Debtor shall enter into an agreement amending the Fiscal Agency Agreement to reflect such assumption and (if the Substitute Debtor is not the Guarantor) the giving of such guarantee; and a public notice to the Bondholders in respect of such assumption shall have been given by the Issuer at least 14 days prior to the effective date of such assumption. As at the effective date of such assumption (subject to satisfaction with the above conditions (i) through (vii)), the Issuer shall be released from such obligations and, thereafter, all references in the Bonds to the Issuer shall be deemed to be references to the Substitute Debtor. The Guarantor shall not consolidate with or merge (which term shall include for the avoidance of doubt a scheme of arrangement) into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and the Guarantor shall not permit any Person to consolidate with or merge into the Guarantor or convey, transfer or lease its properties and assets substantially as an entirety to the Guarantor without the consent of the Bondholders, unless: (i) in the case the Guarantor shall consolidate with or merge into another Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which the Guarantor is merged or the Person which acquires by conveyance or transfer, or which leases, the

II-30 properties and assets of the Guarantor substantially as an entirety shall be a corporation, partnership or trust, shall be organized and validly existing, under the laws of the jurisdiction of its organization and shall expressly assume the due and punctual payment of all amounts due in respect of the Guarantee and the performance or observance of every covenant under the Conditions of Guarantee on the part of the Guarantor to be performed or observed; (ii) (iii) (iv) (v) if the Person formed by such consolidation or into which the Guarantor is merged or to whom the Guarantor has conveyed, transferred or leased its properties or assets is a Person organized and validly existing under the laws of a jurisdiction other than Spain, such Person agrees to indemnify the Bondholders against (a) any Tax imposed on any such holder or required to be withheld or deducted from any payment to such holder as a consequence of such consolidation, merger, conveyance, transfer or lease; and (b) any costs or expenses of the act of such consolidation, merger, conveyance, transfer or lease; immediately prior to the consummation of such transaction, no Event of Default, and no event which would with the lapse of time or the giving of notice or both or fulfilment of other conditions constitute an Event of Default, shall have occurred and be continuing; the consummation of such transaction must not cause an Event of Default under the Conditions of Bonds which the Guarantor does not reasonably believe that can be cured within 90 days from the date of such transaction; and the Guarantor has delivered to the Fiscal Agent a certificate signed by one director of the Guarantor and an opinion of counsel (as defined below), each stating that such consolidation, merger, conveyance, transfer or lease comply with this (2) (B) Substitution, Merger, Consolidation, etc. by the Guarantor and that all conditions precedent herein provided for relating to such transaction have been complied with. The Fiscal Agent shall keep such certificate and opinion of counsel at its head office and make them available for perusal and photocopying by any Bondholder during normal business hours (all expenses incurred for such photocopying to be borne by the applicant therefor). Upon any consolidation of the Guarantor with, or merger of the Guarantor into, any other Person or any conveyance, transfer or lease of the properties and assets of the Guarantor substantially as an entirety in accordance with this (2) (B) Substitution, Merger, Consolidation, etc. by the Guarantor, the successor Person formed by such consolidation or into which the Guarantor is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Guarantor under the Conditions of Guarantee with the same effect as if such successor Person had been named as the Guarantor herein, as the case may be, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under the Conditions of Guarantee.

II-31 For the purposes of this (2) (B) Substitution, Merger, Consolidation, etc. by the Guarantor, "opinion of counsel" means a written opinion of independent legal advisers of recognized standing or internal legal counsel for the Guarantor. (3) Taxation All payments of the principal and interest in respect of the Bonds or the Guarantee, as the case may be, will be made free and clear of and without withholding or deduction for or on account of any present or future taxes, duties, assessments or governmental charges ("Taxes") of whatever nature imposed or levied by or on behalf of The Netherlands (in the case of payments by the Issuer) or Spain (in the case of payments by the Guarantor) or any political subdivision thereof or any authority or agency therein or thereof having power to tax, unless the withholding or deduction of the Taxes is required by law. In that event, the Issuer or the Guarantor, as the case may be, will pay such additional amounts (the "Additional Amount") as may be necessary in order that the net amounts received by the Bondholder after such withholding or deduction shall equal the respective amounts which would have been receivable by such Bondholder in the absence of such withholding or deduction, except that no such Additional Amount shall be payable in relation to any payment in respect of any Bond: (i) (ii) (iii) (iv) presented for payment in The Netherlands or Spain; or to, or to a third party on behalf of, a Bondholder who is liable to the Taxes in respect of such Bond by reason of his having some connection with The Netherlands (in the case of payments by the Issuer) or Spain (in the case of payments by the Guarantor) other than (a) the mere holding of such Bond or (b) the receipt of principal of or interest on the Bond; or presented for payment more than 30 days after the Relevant Date (as defined below) except to the extent that the holder thereof would have been entitled to such Additional Amount on presenting the same for payment on or before the expiry of such period of 30 days; or held by or on behalf of any holder of the Bonds who has failed to comply with any applicable certification, documentation, request for information or other reporting requirements concerning such holder's nationality, residence, identity or connection with The Netherlands or Spain, as the case may be, if such compliance is required as a pre-condition to relief or exemption from such taxes or other governmental charges (including, without limitation, a certification that such holder is not an individual resident of a member state of the European Union), provided that a specific

II-32 proceeding for certification, documentation or request for information or reporting concerning the holder s tax residence as mentioned above then exists under the JASDEC Book-Entry Transfer System and is applicable to the Bonds. For the avoidance of doubt, where such specific proceeding does not exist, the Issuer may, at its option, pay such Additional Amounts or redeem the outstanding Bonds as stated in Condition 5(2). For the purpose of this Condition 7, the "Relevant Date" means, in respect of any payment, the date on which such payment first becomes due and payable, but if the full amount of the moneys payable has not been received by the Fiscal Agent on or prior to such due date, it means the date on which, the full amount of such moneys having been so received and being available for payment, a public notice to the Bondholders to that effect shall have been given by the Fiscal Agent in accordance with"method of Public Notice" above. Any reference in the Conditions of Bonds to principal or interest shall be deemed also to refer to any Additional Amount which may be payable in respect of principal of or interest on the Bonds, respectively, under Section (2) Redemption for Taxation Reason" of "Redemption and Purchase" above and Section (2) of "Remarks" above. (4) Payment <Japanese Yen Bonds-1st Series> Payment of principal of and interest on the Bonds to the Bondholders shall be made pursuant to the Book-Entry Transfer Law and JASDEC Business Regulations and any other applicable rules and methods of treatment adopted by JASDEC. At the time when the Fiscal Agent (in its capacity of paying agent under the JASDEC Book-Entry Transfer System) allocates the necessary funds for the payment of principal of or interest on the Bonds received by it among the relevant JASDEC Participants, the Issuer or the Guarantor shall be released from any obligation of such payment under the Conditions of Bonds or the Guarantee (as the case may be). If the amount of principal of or interest on the Bonds payable on any due date is received, in whole or in part, by the Fiscal Agent after such due date, the Fiscal Agent shall forthwith notify JASDEC thereof and shall also give public notice to that effect and of the date and method of payment to the Bondholders as soon as practicable but no later than 14 days after receipt of such amount by the Fiscal Agent. All expenses incurred in connection with said public notice shall be borne by the Issuer. If any due date for the payment of principal of or interest on the Bonds falls on a day on which banks are not open for business in Japan, the Bondholders shall not be entitled to

II-33 payment of the amount due until the next following day on which banks are open for business in Japan and shall not be entitled to the payment of any further interest or other payment in respect of such delay. <Japanese Yen Floating Rate Bonds-1st Series> Payment of principal of and interest on the Bonds to the Bondholders shall be made pursuant to the Book-Entry Transfer Law and JASDEC Business Regulations and any other applicable rules and methods of treatment adopted by JASDEC. At the time when the Fiscal Agent (in its capacity of paying agent under the JASDEC Book-Entry Transfer System) allocates the necessary funds for the payment of principal of or interest on the Bonds received by it among the relevant JASDEC Participants, the Issuer or the Guarantor shall be released from any obligation of such payment under the Conditions of Bonds or the Guarantee (as the case may be). If the amount of principal of or interest on the Bonds payable on any due date is received, in whole or in part, by the Fiscal Agent after such due date, the Fiscal Agent shall forthwith notify JASDEC thereof and shall also give public notice to that effect and of the date and method of payment to the Bondholders as soon as practicable but no later than 14 days after receipt of such amount by the Fiscal Agent. All expenses incurred in connection with said public notice shall be borne by the Issuer. (5) Registration Book The registration book for the Bonds shall be prepared and administered by the Fiscal Agent on behalf of the Issuer, and kept at its head office. (6) Currency Indemnity In the event of a judgment or order being rendered by any court for the payment of the principal of or interest on the Bonds or any other amount payable under the Conditions of Bonds, and such judgment or order being expressed in a currency other than Japanese yen, the Issuer undertakes to pay to the Bondholders the amount necessary to make up any deficiency arising or resulting from any variation in rates of exchange between (i) the date as of which any amount expressed in Japanese yen is (or is to be treated as) converted for the purposes of any such judgment or order, and (ii) the date or dates of discharge of such judgment or order (or part thereof). The above undertaking shall constitute a separate and independent obligation of the Issuer from its other obligations, shall give rise to a separate and independent cause of action against the Issuer, shall apply irrespective of any indulgence

II-34 granted by any Bondholder from time to time and shall continue in full force and effect notwithstanding any judgment or order. (7) Prescription The period of extinctive prescription shall be ten years for the principal of the Bonds and five years for the interest on the Bonds. (8) Japanese Taxation Any interest on the Bonds received by a resident of Japan or a Japanese corporation, and any amount received by a resident of Japan or a Japanese corporation upon redemption of the Bonds in excess of the issue price thereof ("Issue Differentials"), will be subject to Japanese taxation in accordance with the existing Japanese tax laws. Gains derived from the sale of the Bonds will be added to taxable income if the seller is a corporation, while if the seller is an individual, such gains will not be subject to Japanese taxation.

II-35 Interest on the Bonds and Issue Differentials received by non-residents of Japan or non- Japanese corporations will not be subject to Japanese taxation. Gains derived by non-residents of Japan or non-japanese corporations from the sale of the Bonds within Japan will not be subject to Japanese taxation unless the seller is a non-japanese corporation having a permanent establishment within Japan; applicable tax treaty provisions may further restrict or eliminate this tax liability for such non-japanese corporations. (9) Form of the Bonds The certificates for the Bonds shall not be issued except where the Bondholders may make a request for the issue of Bond certificates in such exceptional cases as provided under the Book-Entry Transfer Law, in which event all expenses incurred in connection with the issue of the Bond certificates shall be borne by the Issuer. The Bond certificates to be issued at such request shall be only in bearer form with unmatured interest coupon and the Bondholders may not request that the Bond certificates be exchanged for Bond certificates in registered form or divided or consolidated. Should the Bond certificates be issued, the then applicable Japanese law and prevailing market practice shall apply to the methods of calculation and payment of principal of and interest on the Bonds, the exercise of rights arising under the Bonds by the Bondholders and all other matters in respect of the Bonds. In the event of any inconsistency between the provisions of the Conditions of Bonds and the then applicable Japanese law and prevailing market practice, such Japanese law and market practice shall prevail. In this section "1.Offering of the Bonds(other than Short-Term Notes)" all references to JASDEC shall be deemed to include any successor Book-Entry Transfer Institution as designated by a competent Minister pursuant to the Book-Entry Transfer Law.

II-36 2. Purpose of the Fund Raising (1) Amount of the Proceeds from the Issuance Aggregate Amount of Payment Estimate of Expenses Estimated Net Proceeds 30,000 million 105 million 29,895 million (2) Use of Proceeds The Company intends to onlend the net proceeds to the Group companies including the Guarantor, which then are expected to apply most of such onlent funds to such companies' general corporate purposes, including but not limited to repayment of loans or credit facilities currently outstanding.

II-37 II. OTHER DESCRIPTION The name and logo of the Issuer and the Guarantor and the names of the Joint-Lead Managers will appear on the cover page of the Registration Prospectus. Further, the following description will appear on the back of the cover page of the Registration Prospectus. "No administrator for bonds will be appointed in respect of the Bonds. Therefore, the Bondholders are required to do any and all acts by themselves individually, if necessary, in order to obtain payment of principal of and interest on, and to preserve their rights under the Bonds, in certain circumstances, such as the Issuer and the Guarantor in respect of the Bonds do not perform its obligations under the Bonds. The Fiscal Agent is acting solely on behalf of the Issuer and does not assume any obligation towards or relationship of agency or trust for or with the Bondholders. The financial statements in the original language (English), which are contained in the Securities Registration Statement are omitted in this Registration Prospectus. " Matters to be Considered in Investing in the Bonds (1) Non-existence of Administrator for Bonds No administrator for bonds will be appointed in respect of the Bonds. Therefore, the Bondholders are required to do any and all acts by themselves individually, if necessary, in order to obtain payment of principal of and interest on, and to preserve their rights under the Bonds, in certain circumstances, such as the Issuer and the Guarantor in respect of the Bonds do not perform its obligations under the Bonds. The Fiscal Agent is acting solely on behalf of the Issuer and does not assume any obligation towards or relationship of agency or trust for or with the Bondholders. (2) Investment Value of the Bonds The Company is a financing subsidiary of the Guarantor which was incorporated to facilitate the raising of finance for the Group. Potential investors should therefore be aware that the investment value of the Bonds relies on the credit quality of the Guarantor rather than that of the Company. Potential investors are advised to look to the financial condition of the Guarantor when making any investment decision with respect to the Bonds. Moreover, the value of the Bonds may fluctuate from time to time as a consequence of variation of interest rates applicable, as well as variations on the credit quality of the Guarantor.

II-38 The latest credit ratings given by major international rating agencies are as follows. Rating Agencies Long Term Short Term Outlook Moody's Baa1 P-2 Stable Standard & Poor's BBB+ A-2 Stable Fitch Rating BBB+ F-2 Stable JCR. Ltd. A- Stable For information on the risk factors pertaining to the Guarantor, please refer to "PART I-III - 4. Risk relating to Business" of the Securities Report of the Guarantor referred to under "PART III-I- 2(1)Documents filed by the Guarantor" below. Potential investors should be aware that from December 31, 2006, Telefonica SA (the Guarantor) has guaranteed the following Debt Issuances: On July 2, 2007, Telefónica Emisiones, S.A.U., under its Programme registered in the Securities and Exchange Commission, completed a three-tranche issuance -guaranteed by Telefónica, S.A.- that amounted an aggregate principal of USD2,300 million (including USD750 million fixed rate notes due in 2013; USD850 million floating rates note due in 2013 and USD700 million fixed rate notes due in 2017); On June 19, 2007, Telefónica Emisiones, S.A.U. completed three issuances amounting an aggregate principal of CZK8,000 million under a European Medium Term Note Programme ( EMTN Programme ), guaranteed by Telefónica, S.A. (including CZK2,400 million floating rates note due in 2010; CZK3,000 million fixed rate notes due in 2012 and CZK2,600 million fixed rate notes due in 2014); On March 30, 2007, Telefónica Emisiones, S.A.U. completed an issuance guaranteed by Telefónica, S.A. of floating rate notes of 350 million due in 2009 under EMTN Programme; On February 7, 2007, Telefónica Emisiones, S.A.U. completed an issuance guaranteed by Telefónica, S.A. of 1,500 million euros fixed rate notes due in 2014 under EMTN Programme; and On January 31, 2007, Telefónica Emisiones, S.A.U. completed a two-tranche issuance guaranteed by Telefónica, S.A. amounting an aggregate principal amount of 79 million under EMTN Programme (including a 55 million floating rate notes due on December 31, 2021 and 24 million floating rate notes due on January 31, 2018, respectively). (3) Summary of the Guarantor (i) Nature of Business Telefónica, S.A. is a corporation duly organized and existing under the laws of the Kingdom of Spain, incorporated on April 19, 1924. We are: a diversified telecommunications group which provides a comprehensive range of services through one of the world s largest and most modern telecommunications networks;

II-39 mainly focused on providing fixed and mobile telephony services; and present principally in Spain, Europe and Latin America. Business Units In 2006, we implemented a regional and integrated management model to pursue our customeroriented approach and take full advantage of scale. We have adapted the company s management structure by creating three business units, with each unit in charge of all fixed and mobile assets in Spain, the rest of Europe and Latin America, respectively. Our business units are: Telefónica Spain: fixed line and mobile telephony in Spain and mobile telephony in Morocco; Telefónica O2 Europe: fixed line and mobile telephony in the rest of Europe; and Telefónica Latin America: fixed line and mobile telephony in Latin America. We also have certain other subsidiaries: Telefónica Contenidos: audio-visual media and content in Europe, Latin America and the United States; and Atento: call centers in Europe, Latin America and North Africa.

II-40 (ii) Summary of Operating Results of the Guarantor-1st Quarter 2007 TELEFÓNICA GROUP CONSOLIDATED INCOME STATEMENT Unaudited figures (Euros in millions) January - March 2007 2006 % Chg Revenues 13,747 11,946 15.1 Internal exp capitalized in fixed assets (1) 153 146 5.1 Operating expenses (8,828) (7,640) 15.5 Supplies (4,399) (3,511) 25.3 Personnel expenses (1,718) (1,647) 4.3 Subcontracts (2,307) (2,075) 11.1 Bad Debt Provisions (168) (190) (11.9) Taxes (237) (216) 9.5 Other net operating income (expense) 36 60 (39.3) Gain (loss) on sale of fixed assets 6 152 (96.4) Impairment of goodwill and other assets (8) (5) 46.1 Operating income before D&A (OIBDA) 5,106 4,657 9.6 Depreciation and amortization (2,396) (2,301) 4.1 Operating income (OI) 2,710 2,356 15.0 Profit from associated companies 35 22 60.2 Net financial income (expense) (768) (522) 47.1 Income before taxes 1,977 1,856 6.5 Income taxes (656) (613) 6.9 Income from continuing operations 1,322 1,242 6.4 Income (Loss) from discontinued ops. 0 9 n.s. Minority interest (65) (84) (23.2) Net income 1,257 1,167 7.7 Weighted average number of ordinary shares 4,828.4 4,754.9 1.5 outstanding during the period (millions) Basic earnings per share 0.260 0.245 6.1 (1) Including work in process. Note: "Bad debt provisions" have been reclassified from "Other net operating income (expense)" to "Operating expenses". Note: For the basic earnings per share calculation purposes, the weighted average number of ordinary shares outstanding during the period have been obtained applying IFRS rule 33 "Earnings per share". Thereby, there are not taking into account as outstanding shares the weighted average number of shares held as treasury stock during the period.

II-41 TELEFÓNICA GROUP CONSOLIDATED BALANCE SHEET Unaudited figures (Euros in millions) January - March 2007 2006 % Chg Non-current assets 88,150 87,249 1.0 Intangible assets 19,540 21,810 (10.4) Goodwill 21,488 17,914 19.9 Property, plant and equipment and Investment property 32,306 33,245 (2.8) Long-term financial assets and other non-current assets 6,455 5,723 12.8 Deferred tax assets 8,361 8,557 (2.3) Current assets 18,915 18,042 4.8 Inventories 1,065 1,154 (7.7) Trade and other receivables 9,762 9,244 5.6 Current tax receivable 1,303 1,288 1.1 Short-term financial investments 1,593 1,877 (15.1) Cash and cash equivalents 3,354 4,468 (24.9) Non-current assets classified as held for sale 1,838 11 n.m. Total Assets = Total Equity and Liabilities 107,065 105,291 1.7 Equity 20,591 15,714 31.0 Equity attributable to equity holders of the parent 17,744 11,932 48.7 Minority interest 2,848 3,782 (24.7) Non-current liabilities 62,101 54,053 14.9 Long-term financial debt 50,492 41,665 21.2 Deferred tax liabilities 4,363 4,868 (10.4) Long-term provisions 6,270 6,466 (3.0) Other long-term liabilities 976 1,054 (7.4) Current liabilities 24,373 35,523 (31.4) Short-term financial debt 7,805 19,507 (60.0) Trade and other payables 8,313 8,792 (5.4) Current tax payable 2,531 2,007 26.1 Short-term provisions and other liabilities 5,176 5,218 (0.8) Liabilities associate with non-current assets classified "held 548 0 n.m. for sale" Financial Data Net Financial Debt (1) 51,884 53,510 (3.0) Note: Figures are presented considering the Purchase Price Allocation of O2 as of February 2006. (1) Net Financial Debt = Long term financial debt + Other long term liabilities + Short term financial debt - Short term financial investments - Cash and cash equivalents - Long term financial assets and other non-current assets.

II-42 TELEFÓNICA GROUP FREE CASH FLOW AND CHANGE IN DEBT Unaudited figures (Euros in millions) 2007 2006 % Chg I Cash flows from operations 4,176 4,113 1.5 II Net interest payment (1) (1,054) (645) III Payment for income tax (439) (303) A=I+II+III Net cash provided by operating activities 2,684 3,165 (15.2) B Payment for investment in fixed and intangible (1,942) (1,558) assets C=A+B Net free cash flow after CAPEX 742 1,608 (53.9) D Net Cash received from sale of Real Estate 10 12 E Net payment for financial investment (211) (22,868) F Net payment for dividends and treasury stock (749) (1,131) (2) G=C+D+E+F Free cash flow after dividends (208) (22,379) H Effects of exchange rate changes on net (136) (527) financial debt I Effects on net financial debt of changes in (333) 1,590 consolid. and others J Net financial debt at beginning of period 52,145 30,067 K=J-G+H+I Net financial debt at end of period 51,884 53,510 (1) Including cash received from dividends paid by subsidiaries that are not under full consolidation method. (2) Dividends paid by Telefónica S.A. and dividend payments to minoritaries from subsidiaries that are under full consolidation method and treasury stock.

II-43 TELEFÓNICA GROUP RECONCILIATIONS OF CASH FLOW AND OIBDA MINUS CAPEX Unaudited figures (Euros in millions) January - March 2007 2006 % Chg OIBDA 5,106 4,657 9.6 - CapEx accrued during the period (1,388) (1,303) - Payments related to commitments (214) (243) - Net interest payment (1,054) (645) - Payment for income tax (439) (303) - Results from the sale of fixed assets (6) (152) - Invest. in working cap. and other deferred income (1,265) (405) and exp = Net Free Cash Flow after CapEx 742 1,608 (53.9) + Net Cash received from sale of Real Estate 10 12 - Net payment for financial investment (211) (22,868) - Net payment for dividends and treasury stock (749) (1,131) = Free Cash Flow after dividends (208) (22,379) (99.1) Note: The concept expected "Free Cash Flow" was introduced to reflect the amount of cash flow available to remunerate Telefónica S.A. Shareholders, to protect solvency levels (financial debt and commitments), and to accommodate strategic flexibility. The differences with the caption "Net Free Cash Flow after CapEx" included in the table presented above, are related to "Free Cash Flow" being calculated before payments related to commitments (workforce reductions and guarantees) and after dividend payments to minoritaries, due to cash recirculation within the Group. Jan-Mar 2007 Jan-Mar 2006 Net Free Cash Flow after CapEx 742 1,608 + Payments related to cancellation of 214 211 commitments - Ordinary dividends payment to minoritaries (5) (5) = Free Cash Flow 950 1,814

II-44 TELEFÓNICA GROUP NET FINANCIAL DEBT AND COMMITMENTS Unaudited figures (Euros in millions) March 2007 Long-term debt 50,803 Short term debt including current maturities 7,805 Cash and Banks (3,354) Short and Long-term financial investments (1) (3,370) A Net Financial Debt 51,884 Guarantees to IPSE 2000 365 B Commitments related to guarantees 365 Gross commitments related to workforce reduction (2) 5,198 Value of associated Long-term assets (3) (735) Taxes receivable (4) (1,625) C Net commitments related to workforce reduction 2,838 A + B + C Total Debt + Commitments 55,087 Net Financial Debt / OIBDA (5) 2.54x Total Debt + Commitments/ OIBDA (5) 2.70x (1) Short term investments and certain investments in financial assets with a maturity profile longer than one year, whose amount is included in the caption "Investment" of the Balance Sheet. (2) Mainly in Spain. This amount is detailed in the caption "Provisions for Contingencies and Expenses" of the Balance Sheet, and is the result of adding the following items: "Provision for Pre-retirement, Social Security Expenses and Voluntary Severance", "Group Insurance", "Technical Reserves", and "Provisions for Pension Funds of Other Companies". (3) Amount included in the caption "Investment" of the Balance Sheet, section "Other Loans". Mostly related to investments in fixed income securities and long-term deposits that cover the materialization of technical reserves of the Group insurance companies. (4) Net present value of tax benefits arising from the future payments related to workforce reduction commitments. (5) Calculation based on 12 months accumulated OIBDA, including Telefónica O2 Czech Republic, O2 and Telefónica Telecom.

II-45 Telefónica Group: Consolidated Quarterly Results January-March 2007 1 According to Telefónica Group results for the first quarter of 2007, 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% organic 2 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 optimization 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-onyear. This variation is due mainly to cellular and broadband connections and extended product bundles that include voice, broadband and television. Telefónica Spain contributed 44.8 million to the total number of Telefónica Group accesses (+5.5%year-on-year), Telefónica Latin America 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 Latin America 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 1 The Telefónica Group organizational restructuring by regional business units (Telefónica Spain, Telefónica Latin America and Telefónica O2 Europe, in accordance with the new regional and integrated management model) defines that the companies legal structure is not relevant for the presentation of the Telefónica Group financial information. In this sense, operating results of each regional business units are presented independently of their legal structure. In line with this new structure, the Telefónica Group has incorporated in Telefónica Spain and Telefónica Latin America regional businesses units all the information corresponding to fixed, cellular, cable and Internet businesses. Likewise, Telefónica O2 Europe includes O2 Group results and Telefónica O2 Czech Republic results. 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.

II-46 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 growth 3 of revenues would stand at 7.8%, supported by the growth of Telefónica Latin America and Telefónica Spain. Additionally, worth of notice are traffic trends and data growth rates. Telefónica Spain 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 Spain 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 Latin America 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% 4 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 Latin America 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). 3 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. 4 Assuming constant exchange rates and including the consolidation of Telefónica Telecom in January-March 2006.

II-47 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-onyear). 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 Latin America, registering higher interconnection costs in Brazil and Peru, Telefónica Spain, 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 Spain 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 Spain 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 4 would 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 organic 5 terms, the margin as a percentage of revenues amounted to 37.2% during the first three months of 5 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.

II-48 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 Spain 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 Latin America (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% 6, 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 Latin America OIBDA with 43.7%, recorded a 2.8% growth in local currency, Chile (9.6% of Telefónica Latin America OIBDA) a 22.5% increase in local currency and Peru (8.4%of Telefónica Latin America 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 terms 7, depreciation and amortization registered a 6.3% drop, basically due to the decline in Telefónica Spain and Telefónica Latin America. Operating income for the quarter amounted to 2,710 million euros, up 15.0% year-on-year to 6 Assuming constant exchange rates and including the consolidation of Telefónica Telecom in January-March 2006. 7 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.

II-49 stand at 19.6% in organic terms 8. 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 markedto-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 Latin America. 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 free cash flow generated by the Telefónica Group in the first quarter 2007 totaled 950 million euros of which 744 million euros were assigned to Telefónica 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 yearon-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 8 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

II-50 6.5% increase year-on-year (+8.6% in constant euros), due to greater investments in Telefónica Latin America (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. Significant events regarding the Guarantor which have occurred after the first quarter of 2007 and up to the filing of this SRS: In relation with the European Commission proceeding COM/C1-38784, about our broadband pricing policy, reported in the Guarantor s Financial Statements on July 4, 2007, the European Commission published its Decision declaring an infringement of article 82 of the European Community Treaty by an abuse of a dominant position, and imposing a fine of 151.9 million. The Company states its intention to appeal the Decision before the Court of First Instance of the European Communities as it considers it is unjustified, disproportionate and lacking of grounds in its legal, economical and market analysis. Moreover, the Company considers that it has always followed the requirements imposed by the Spanish National Regulatory Authority (CMT) which has closely supervised Telefonica's broadband activities since its early stages. (For more details, please see note 21 of the Notes to the 2006 Annual Accounts of the Guarantor). On June 7, 2007, 147,633,912 ordinary shares of Telefónica S.A. were cancelled, reducing share capital by the sum of 147,633,912 (from 4,921,130,397 to 4,773,496,485). The purpose of the reduction was to cancel shares held as treasury stock. On May 17, 2007, a final cash dividend of 0.30 per share payable from 2006 net income was paid, after the approval by the shareholders of such payment at the Annual General Shareholders Meeting held on May 10, 2007. On May 14, 2007, after analyzing various offers received, we entered into an agreement for the sale of our 99.7% stake in Endemol Investment Holding BV ( Endemol Holding )-that indirectly owns 75% of Endemol NV- to a newly incorporated vehicle, jointly and equally owned by (i) Mediacinco Cartera SL, a newly incorporated entity owned by Mediaset SpA and its quoted subsidiary Gestevision Telecinco, S.A., (ii) Cyrte Fund II B.V. and (iii) Gs Capital Partners Vi Fund, LP. The total consideration for the sale of Endemol Holding amounts to 2,629 million for 75% of Endemol NV valued at 25 per share cum dividend and including the additional assets and liabilities within Endemol Holding and its subsidiaries. The agreement was subject to obtaining of the relevant regulatory authorizations. Once the corresponding administrative authorisations were obtained, the sale was completed on July 3, 2007.

II-51 On April 28, 2007, we announced that we had reached an agreement with a group of Italian Investors, Assicurazioni Generali S.p.A., Sintonia S.A., Intesa Sanpaolo S.p.A. and Mediobanca S.p.A., to constitute a consortium in order to purchase the entire share capital of Olimpia S.p.A. ( Olimpia ), which owns an 18% stake in the voting share capital of Telecom Italia, S.p.A. ( Telecom Italia ), at a provisional price of 4.1 billion. Completion of the transaction is conditional upon the authorizations and approvals of the relevant authorities. The offered consideration, to be paid in cash at closing (expected by the end of 2007), implies the valuation of Olimpia s equity investment in Telecom Italia at a price of 2.82 for each Telecom Italia ordinary share, for a countervalue of approximately 4.1 billion, net of the net debt of Olimpia. The acquisition will occur by way of a new company, Telco S.p.A. ( Telco ), which, after the transaction, will hold approximately 23.6% of the voting share capital of Telecom Italia (18% indirectly through Olimpia and 5.6% contributed by Generali and Mediobanca). As a result of the transaction, we will hold a total of 42.3% of Telco s share capital, and the Italian Investors will hold the remaining 57.7% as follows: Generali, 28.1%; Mediobanca, 10.6%; Intesa Sanpaolo, 10.6%; and Sintonia, 8.4%. Telco will be funded with our initial contribution of 2,314 million, in cash, in addition to the corresponding contributions of each of the Italian Investors and a bridge financing of up to a maximum of 1,000 million. A subsequent share capital increase of Telco to reimburse totally or partially this debt will be carried out maximum six months after the closing of the transaction, which may be subscribed by Telefónica proportionally and by Italian investors. The governance of Telco will be determined according to proportionality criteria; it sets forth qualified majorities (the achievement of such majorities implying the consent of Telefónica) for certain specific, particularly significant transactions, including, among others, those which may change the shareholder structure (spin-offs, mergers and reserved increases in share capital). Should such qualified majorities not be reached, a deadlock will occur and in some cases the resolutions will not be taken and in other cases, the relative resolutions can be passed by simple majority of votes, without prejudice to the right of dissenting shareholders to exit the shareholder base of Telco via a demerger, i.e. pro-rata assignation of assets and liabilities of Telco. With respect to Telecom Italia S.p.A., Telefónica will have the right to appoint two Directors. The agreements shall last three years, at the end of which, without prejudice to renewal, each shareholder may exit the shareholder base of Telco via a demerger, i.e. pro-rata assignation of assets and liabilities of Telco. On April 18, 2007, we agreed to sell 100% of Airwave O2 ltd (a subsidiary of O2 Holdings ltd), a leading provider of communications services and solutions to public safety users in the UK. The transaction was completed on April 20, 2007. The total value of Airwave O2 ltd (firm value) was 2,015 million British Pounds ( 2,982 million, exchange rate /GBP: 1.48), generating total nets proceeds for the Telefónica Group of 1,932 million British Pounds ( 2,860 million, exchange rate /GBP: 1.48) after Airwave O2 ltd s net debt and other liabilities. In connection with this transaction, we have assumed certain commitments, including possible tax liabilities and contributions to O2 s pension plans on behalf of the employees of Airwave.

II-52 PART II. CORPORATE INFORMATION I. OUTLINE OF THE LEGAL AND OTHER SYSTEMS IN THE HOME COUNTRY 1. Outline of the Corporate Law System (1) Corporate Law System of the Country to which the Company belongs The basic legal framework governing the Company is Book 2 of the Dutch Civil Code. The following is a summary of the principal provisions of the Dutch Civil Code applicable to corporations such as the Company. Incorporation Among the most important requirements for incorporation of a Dutch company are: (i) there must be one or more incorporators and each incorporator must participate in the company s capital by taking at least one share, unless the incorporation takes place by a deed of legal merger or legal division; (ii) a notarial deed in the Dutch language, containing the Articles of Association, must be executed by a Dutch civil law notary; and (iii) the Ministry of Justice must have approved the notarial deed through a statement of no objection before it is executed. A newly incorporated company must be registered with the trade register of the Chamber of Commerce in the district where the company has its corporate seat. The articles of association must contain at least the following information: The name of the company. The name must begin or end with the words "Naamloze Vennootschap" (meaning a public company with limited liability) or "Besloten Vennootschap met beperkte aansprakelijkheid" (meaning a private company with limited liability) (or "N.V." or "B.V."); The corporate seat of the company. The corporate seat must be in The Netherlands but does not have to be in the same city or town as the company s place of business; The objects of the company; The amount of authorized share capital and the number and denomination of the shares; and The manner in which the company would be provisionally managed if managing directors are absent or prevented from acting. The articles of association must also contain provisions concerning the place where shareholders meetings are to be held (if different from corporate seat), the financial year of the company (if different from the calendar year) and (in the case of a B.V. only) restrictions on the transfer of shares. In addition, the articles of association may contain provisions concerning a number

II-53 of other matters, such as the management structure and the power to represent the company, the liquidation of the company, etc. Shareholders The general meeting of shareholders has the authority which has not been conferred upon the managing board or on the other corporate bodies. Shareholders meetings must be held at least annually. This annual meeting must be held within six months after the end of the company s financial year. In addition to the annual meeting, other meetings of the shareholders can be held during the year. The meetings of the shareholders may be called by the managing board, supervisory board or by other persons designated in the articles of association. Each shareholder has the right to attend a general meeting and to exercise his voting rights. He can be represented by another person holding a written proxy, but this right of representation may be limited by the articles of association. Each Shareholder has at least one vote. Dutch law does not permit the issue of non-voting stock. Directors and Management The managing board is charged with the management of the company. The managing board consists of one or more managing directors. Legal entities may be managing directors. The first directors are appointed in the deed of incorporation. Following incorporation, the managing directors are appointed by the general meeting of shareholders, except in case of a "large company" ("structuurvennootschap") (which the Company is not) when the managing directors are appointed by the supervisory board. Managing directors are dismissed by the body which has the authority to appoint the managing directors. The managing directors are required to draw up the company's annual accounts for adoption by the general meeting of shareholders and file such accounts with the trade register of the Chamber of Commerce for public inspection. The EU Transparency Directive (prescribing minimum reporting obligations for EU-listed securities) generally requires issuers of debt securities admitted to trading on a "regulated market", such as the Company, to publish annual accounts and semi-annual accounts for the first six-moths of each financial year. Other EU Directives such as the Prospectus Directive and the Market Abuse Directive are also relevant to the disclosure of corporate and financial information. Under the Securities Markets Supervision Act, Dutch issuers, such as the Company, are generally required to file their annual accounts and any additional information with the Netherlands Authority for Financial Markets. While the articles of association may provide for a supervisory board, a "large company", as defined under the Dutch Civil Code, is required to have a supervisory board. The Company is not a large company and its Articles of Association do not provide for a supervisory board.

II-54 (2) Corporate System as Provided for in the Articles of Association of the Company The corporate system of the Company in addition to being determined by and provided for by Book 2 of the Dutch Civil Code is also determined by and provided for by the Company s Articles of Association, effective as of the date of incorporation, October 31, 1996, and amended for the last time on July 9, 2002. Share Capital The authorized share capital of the Company is EUR 46,000. The share capital is divided into one hundred (100) shares with a par value of EUR 460 each. Pursuant to the Articles of Association, the shares of the Company shall be in registered form and shall be consecutively numbered. No share certificates are issued. Shareholders The Company has one class of stock and each share of stock is entitled to one vote. The Articles of Association provide that: the general meeting of shareholders shall be held within six months after the end of the Company s fiscal year (December 31 of each year); shareholders may be represented by a proxy in writing at a general meeting; resolutions may be adopted by an absolute majority of the votes validly cast at a meeting of shareholders; and the adoption of the annual accounts by the shareholders at a general meeting shall constitute a discharge of the managing board for its actions, which are apparent from or included in the annual accounts, during the previous financial year. Directors and Management The name of the original member of the Company s Board of Managing Directors is contained in the Deed of Incorporation. In addition, the Articles of Association provide that (i) Managing Directors shall be appointed by the general meeting of shareholders and may be removed at any time; (ii) the business of the Company shall be managed by the Managing Directors; (iii) the Company shall be represented externally by one managing director if it has one managing director but by two managing directors acting jointly if the Company has more than one managing director; and (iv) the Board of Managing Directors needs the approval of the general meeting of shareholders for such Board resolutions as the general meeting of shareholders shall determine. Dividends The profits of the Company, shown in the annual accounts confirmed and adopted, shall be at the disposal of the general meeting of shareholders. The Company shall only then have power to

II-55 make distributions to shareholders and other persons entitled thereto, chargeable to the profits that qualify to be distributed, in so far as the company's equity is in excess of the portion of the share capital that has been paid up together with the reserves that must be maintained in accordance with provisions of law. No distribution of profits can be made to the Company itself for shares that the Company holds in its own share capital. Voting Rights Each share shall confer the right to cast one vote at the general meeting of shareholders. All shareholders resolutions shall be passed with an absolute majority of the votes validly cast. The right to vote attached to shares in the Company's share capital that are being held by the Company and/or its subsidiary companies shall not be capable of being exercised; they shall not count for the purpose of calculating a majority or a quorum. Transfer of Shares The transfer of a share or of a limited right to it shall be effected by means of a deed being executed for that purpose in the presence of a Dutch civil law notary which deed shall mention the persons involved as parties. The transfer of a share or of a limited right to it effected in accordance with such provision shall have effect vis-à-vis the Company legally. Except when the Company itself is a party to the legal transaction, the rights attached to the share may only be exercised after the Company has acknowledged the legal transaction or after an instrument of transfer has been served on the Company, or alternatively after the Company has acknowledged the transfer by recording it in the shareholders' register. Shares can only be transferred after the approval to do so has been obtained from the general meeting of shareholders. 2. Foreign Exchange Control System No approval, license, authorization or consent from any Dutch court, public authority or governmental agency is required for payments made or received by residents of The Netherlands to or from non-residents. However, pursuant to the 1994 External Financial Relations Act ("Wet financiële betrekkingen buitenland 1994") the Dutch Central Bank may impose certain reporting requirements on transnational payments made by residents of The Netherlands. Such residents must report transnational payments to the Dutch Central Bank in accordance with the General Reporting Instructions 2003 ( Rapportagevoorschriften betalingsbalansrapportages 2003 ). The reporting requirements are primarily meant to enable the Dutch Central Bank to draw up the balance of payments ("betalingsbalans"). The reporting requirements also apply to the netting of payment obligations. 3. Tax Treatment (1) The Netherlands Taxation Current taxation under the laws of The Netherlands is as follows:

II-56 (a) (b) All payments of interest and principal by the Issuer under the Bonds can be made free of withholding or deduction for any taxes of whatsoever nature imposed, levied, withheld or assessed by The Netherlands or any political subdivision or taxing authority thereof or therein, unless the Bonds qualify as debt effectively functioning as equity within the meaning of Article 10, paragraph 1, sub d of the Dutch Corporate Income Tax Act 1969 (Wet op de vennootschapsbelasting 1969). A Bondholder who derives income from a Note or who realises a gain on the disposal or redemption of a Note will not be subject to Dutch taxation on such income or capital gains unless: (i) (ii) (iii) (iv) the Bondholder is, or is deemed to be, resident in The Netherlands, or, where the Bondholder is an individual, such Bondholder has elected to be treated as a resident of the Netherlands; or such income or gain is attributable to an enterprise or a part thereof which is either effectively managed in The Netherlands or carried on through a permanent establishment (vaste inrichting) or a permanent representative (vaste vertegenwoordiger) in The Netherlands; or the Bondholder is not an individual who has, directly or indirectly, a substantial interest (aanmerkelijk belang) or a deemed substantial interest in the Issuer and such interest does not form part of the assets of an enterprise; or the Bondholder is an individual who has, directly or indirectly, a substantial interest in the Issuer or such income or gain qualifies as income from miscellaneous activities (belastbaar resultaat uit overige werkzaamheden) in The Netherlands as defined in the Dutch Income Tax Act 2001 (Wet inkomstenbelasting 2001). (c) Dutch gift, estate or inheritance taxes will not be levied on the occasion of the transfer of a Note by way of gift by, or on the death of, a Bondholder, unless: (i) (ii) (iii) the Bondholder is, or is treated as, resident of The Netherlands for the purpose of the relevant provisions; or the transfer is construed as an inheritance or as a gift made by, or on behalf of, a person who, at the time of the gift or death, is or is deemed to be, resident of The Netherlands for the purpose of the relevant provisions; or such Note, at the time of the gift or death, is attributable to an enterprise or a part thereof which is either effectively managed in the Netherlands or carried on through a permanent establishment or a permanent representative in The Netherlands. (d) (e) There is no Dutch value added tax imposed on a Bondholder in respect of payments upon the issue of a Note or in respect of the payment of interest, principal or premium (if any) under the Note or the transfer of the Note. There is no Dutch registration tax, stamp duty or any other similar tax or duty (other than charge for the courts) payable in The Netherlands by a Bondholder in respect of or in

II-57 connection with the execution and delivery of the relevant documents in respect of the issuance of the Bonds and/or enforcement by legal proceedings (including enforcement of any foreign judgment in the courts of The Netherlands) in respect of the performance of the Issuer's obligations under the Note or such relevant documents. (f) (g) A Bondholder will not be treated as resident of The Netherlands by reason only of the holding of a Note or the execution, performance, delivery and/or enforcement of the Note. In accordance with EC Council Directive 2003/48/EC on the taxation of savings income, The Netherlands will provide to the tax authorities of another Member State (and certain non-eu countries and associated territories specified in that directive) details of payments of interest or other similar income paid by a person within The Netherlands to, or collected by such a person for, an individual resident in such other state. (3) Japanese Taxation Any interest on the Bonds and any amount which a holder of Bonds may receive upon redemption of his Bond in excess of the purchase price of such Bond received by residents of Japan and Japanese corporations will be generally subject to Japanese taxation in accordance with existing Japanese tax laws and regulations. Gains derived from the sale of the Bonds will be added to taxable income if the seller is a corporation, while if the seller is an individual, such gains will not be subject to Japanese taxation.

II-58 4. Legal Opinion A legal opinion has been provided by Clifford Chance LLP, acting as the legal counsel of the Issuer in respect of Netherlands law substantially to the effect that, subject to certain assumptions and qualifications: (i) (ii) (iii) the Company is registered as: (a) a private limited liability company (besloten vennootschap met beperkte aansprakelijkheid), (b) duly incorporated on 31 October 1996 and (c) validly existing under the laws of The Netherlands; the Company has taken all internal corporate action required under Dutch law and the Company's articles of association to approve and to authorise (a) the proposed offering and issuance of the Bonds as described in the Securities Registration Statement and (b) the filing of the Securities Registration Statement by and on behalf of the Company with the Director General of the Kanto Local Finance Bureau; the statements in "Outline of the legal and other systems in the home country" in the Securities Registration Statement concerning Netherlands law are true and correct in all material respects.

II-59 II. OUTLINE OF THE COMPANY. 1. Trends in Major Operational Indices, etc. Net financial income (in thousands of Euro unless otherwise indicated) Year ended 31 December 2002 2003 2004 2005 2006 4,590 4,596 5,153 4,386 7,182 ( million) (750) (751) (842) (716) (1,173) Ordinary income 2,671 3,303 3,890 3,047 5,667 ( million) (436) (539) (635) (498) (926) Earning/(Loss) after taxation 1,599 1,347 1,923 2,072 3,973 ( million) (261) (220) (314) (338) (649) Total number of issued shares (shares) Financial fixed assets 100 100 100 100 100 10,062,013 10,658,850 8,053,100 7,178,763 17,238,213 ( million) (1,643,429) (1,740,910) (1,315,313) (1,172,507) (2,815,517) Total assets 12,124,533 12,842,942 11,531,151 10,273,613 19,206,762 ( million) (1,980,300) (2,097,638) (1,883,383) (1,677,989) (3,137,040) Long-term liabilities 10,061,963 10,658,850 8,053,100 7,178,763 17,238,213 ( million) (1,643,420) (1,740,910) (1,315,313) (1,172,507) (2,815,517) Share capital 46 46 46 46 46 ( million) (8) (8) (8) (8) (8) Shareholders equity 6,382 6,130 6,706 6,855 8,756 ( million) (1,042) (1,001) (1,095) (1,120) (1,430) Shareholder s equity per share 64 61 67 69 88 ( million) (10) (10) (11) (11) (14) Earnings/(Loss) per share 16 13 19 21 40 ( million) (3) (2) (3) (3) (7)

II-60 Dividends per share - 16 13 19 21 ( million) - (3) (2) (3) (3) Number of 3 3 3 3 2 employees

II-61 2. History of the Company The Company, a wholly-owned subsidiary of the Guarantor, was established under the laws of The Netherlands as a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) on October 31, 1996. The Ministry of Justice has given authorisation number B.V. 571058. The primary purpose of the Company is to finance the business operations of the Guarantor. The principal executive office of the Company is Strawinskylaan 1259, 1077 XX Amsterdam, The Netherlands. The Company is registered with the Commercial Register of the Amsterdam Chamber of Commerce under No. 24269798. Activities in Japan Not Applicable. 3. Nature of Business The Issuer was incorporated to facilitate the raising of finance for the Group and its principal activity is to act as a holding and finance company. In order to achieve its objectives, the Issuer is authorized to raise funds by issuing negotiable or non-negotiable obligations on the capital and money markets. 4. Affiliated Companies (1) Parent Company. The parent company of the Company is Telefónica, S.A. Telefónica, S.A. filed its annual Securities Report 2006 on June 19, 2007. (2) Subsidiaries. The Issuer own 100% of ordinary shares of Telefónica Finance USA LLC, established in June 2002 in Delaware (USA). 5. Employees The Company currently has 2 employees.

II-62 III. DESCRIPTION OF BUSINESS 1. Description of Performance, etc. (1) For the year ended December 31, 2006. Result During the period under review, the Company recorded a profit of EUR'000 3,973 (2005: EUR'000 2,072), which is set out in detail in the attached Statement of Income and Expenses. Since February, 2006 the utilization of the Syndicated Facility of GBP 18,000 million has lead the volume of assets and liabilities to grow substantially during the year, this increase of outstanding financial assets from EUR'000 10,013,058 to EUR'000 18.884,990, at the end of 2006, has lead to a higher Financial Margin to EUR'000 7,182 from EUR'000 4,386 (+ 64%). Subsequent events On May 22, 2007, the Company paid a dividend of EUR 3,973,354, reducing accordingly its Retained Earnings. The Company has signed in 2005 a multi currency Facility Agreement guaranteed by Telefónica S.A., with Citibank Global Markets Ltd., Goldman Sachs International and Royal Bank of Scotland Plc, as Underwriters. The total amount of the Facility was initially established at GBP 18,500 million. The Facility is divided in 2 tranches with different maturities: (i) Tranche A with maturity of October 31st, 2006, but extendable at the option of the Company for up to an additional period of 18 months and (ii) Tranche B with Maturity on October 31st, 2008. The original Facility has been partially repayed down during the year and as a consequence of that as of 14 of December the outstanding amount was GBP 7,000 million. As of that date, the Facility Agreement above mentioned was amended, resulting in a new Facility Agreement of GBP 7.000 million, encompassing 5 tranches (A, B, C, D, and E ), instead of 2, with new maturities and new interest costs. The maturities of the tranches are further explained in note 6 of the Notes to the 2006 Annual Accounts of the Issuer. Subsequently, as of January 31st, 2007, the Company has fully prepaid Tranch A (GBP 700 million equivalent). Therefore the current outstanding amount of the facility is GBP 6,300 million equivalent. 2. State of Production, Order Intake and Sale Not applicable. 3. Matters to be Resolved Not applicable. 4. Risks relating to Business

II-63 The Issuer is a financing subsidiary of the Guarantor which was incorporated to facilitate the raising of finance for the Telefónica Group and the Notes are guaranteed by TSA. Therefore, potential investors should carefully consider the information on the risks of the business of the Guarantor. included in the documents filed by the Guarantor mentioned under "PART III. I. 1.2(1)" below. There is no other material specific risk to be mentioned in relation to the business of the Issuer. 5. Material Contracts Relating to Business Not applicable. 6. Research and Development Being a finance company the Issuer has no research and development activities. 7. Analysis of Financial Conditions and Operating Results Please refer to "III. DESCRIPTION OF BUSINESS-1.Description of Performance, etc." above.

II-64 IV. CONDITION OF FACILITIES 1. Outline of Investment in Facilities, etc. Not applicable. 2. Principal Facilities The Company has its office at Strawinskylaan 1259, 1077 XX Amsterdam, The Netherlands. 3. Plans for Installation or Removal, etc. of Facilities Not applicable.

II-65 V. DESCRIPTION OF THE COMPANY 1. Description of Shares (1) Total Number of Shares No. of Authorized No. of Shares No. of Authorized Ordinary Shares on Issue But Unissued Shares 100 100 Nil. Registered or Bearer : Registered Par Value Shares or Shares without Par Value : EUR 460 Type : Ordinary shares Number of Shares on Issue : 100 Names of Stock Exchanges on which the Shares Are Listed : Not applicable Remarks : Not applicable

II-66 (2) Total Number of Shares Issued and Outstanding and Changes in the Share Capital Ordinary Shares Date (As at December 31) Number of Shares Increased/ Decreased Total Number of Shares on Issue Number of Outstanding Shares After Increase/ Decrease Amount of Share Capital Increased/ Decreased Share Capital (in Euro) Amount After Share Capital Increase/ Decrease Remarks 2001 0 100 0 45,378.02 2002 0 100 621.98 46,000 Redenomination of paid-in capital (Note) 2003 0 100 0 46,000 2004 0 100 0 46,000 2005 0 100 0 46,000 2006 0 100 0 46,000 June 1, 2007 0 100 0 46,000 Note: During 2002, the issued and paid-up capital of the Company was converted into euro, and also the Company changed its nominal value per share from approx. EUR 454 to EUR 460.

II-67 (3) By Type of Shareholders Number of Shareholders Percentage of Total (%) Number of Shares Percentage of Total (%) Telefónica, S.A. 1 100% 100 100 (Note) Telefónica, S. A. (the Guarantor) is the sole registered shareholder of the Company. (4) Major Shareholders Name of Major Shareholders Address Number of Shares Owned Percentage of Total (%) Telefónica, S.A. 28 Gran Via, 28013 Madrid, Spain 100 100 2. Dividend Policy Since 2003 the Company has been distributing a yearly dividend equal to the previous year Net Result after taxation, nevertheless the Company has no specific dividend policy, so dividend distribution could vary in the future. 3. Trends in Share Prices Not applicable.

II-68 4. Directors and Executive Officers Brief Resume of Directors and Number of Shares Owned Board of Directors Position Name and Date of Birth Number of Shares Owned Managing Director Managing Director Managing Director Miguel Escrig Meliá (date of birth: 5th of September, 1963) Maria Christina van der Sluijs-Plants (date of birth: 27th of March, 1955) Carlos David Maroto Sobrado (date of birth: 22nd of February, 1973) Nil Nil Nil (Note) The Company has no Supervisory Directors. Brief Personal History of Directors Mr. Miguel Escrig Meliá.- He is also Deputy General Manager of Financing and Capital Markets Managing Director of Telefónica S.A. B.V. Mrs. Maria Christina van der Sluijs-Plants.- She is also Managing Director of TMF Nederland Mr Carlos David Maroto Sobrado.- He is Executive Managing Director of the Issuer.

II-69 Directors' Emolument None of the Directors received any remuneration as director in respect of either of the years ended 31 December 2005 or 2006. 5. State of Corporate Governance Please refer to "I-1 (1) Corporate Law System of the Country to which the Company belongs" and (2) Corporate System as Provided for in the Articles of Association of the Company".

II-70 VI. FINANCIAL CONDITION (a) (b) (c) (e) The financial statements of the Issuer included in this document are prepared in accordance with generally accepted accounting principles in The Netherlands. The major differences of the accounting policies, procedures and presentation method adopted by the Issuer from those of Japan are described in "3. Major differences of accounting principles and procedures in The Netherlands from those of Japan". The accompanying financial statements of the Issuer are subject to the provision of paragraph 1 of Article 127 of "Regulations on the Terminology, Forms and Preparation Method of Financial Statements", Finance Ministry Ordinance No.59 of 1963 ("Regulations on Financial Statements, etc.") The accompanying financial statements of the Issuer in respect of the financial year ended December 31, 2006 and 2005 included in this document were audited by Ernst & Young Accountants B.V. which is an independent auditor in The Netherlands and its audit report is submitted together with the accompanying financial statements. The above financial statements are not audited by the certified public accountants nor audit corporation in Japan under the provision of Article 193-2 of the Securities and Exchange Law, in accordance with the provision of Article 1-3 of "Cabinet Office Ordinance concerning Audit Verification of the Financial Statements, etc." (Finance Ministry Ordinance No.12 of 1957) based on the provision of Article 35 of Enforcement Ordinance of the Securities and Exchange Law (Cabinet Order No.321 of 1965). The financial statements in the original are presented in Euro thousands. Major accounts are translated into Japanese yen using the exchange rate of EUR1= JPY163.33, which is a TTM in Tokyo foreign exchange market as at May 7, 2007. It does not mean that the amounts denominated in Euro can be converted into the corresponding amounts in Japanese yen at the above mentioned exchange rate. The amounts of each account are presented in millions of yen, with rounding fractions to the nearest million yen. Translated yen amounts and "3. Major Differences of Accounting Principles and Procedures in The Netherlands from those of Japan" are not included in the original financial statements of the Issuer and not subject to the audit described in the above paragraph (b).

II-71 Annual Financial Statements [FINANCIAL STATEMENTS FOR 2006 FINANCIAL YEAR WITH COMPARISON OF 2005 AMOUNTS ARE INCLUDED IN THE JAPANESE VERSION.]

II-72 2. Details of Principal Assets and Liabilities Please refer to the Notes (1) and (6) to the financial statements. 3. Major Differences of Accounting Principles and Procedures in The Netherlands from those of Japan Major differences of generally accepted accounting principles and procedures in The Netherlands from those of Japan are as follows: (1) Valuation method of the assets In The Netherlands, the assets are stated at historical costs in principle, but the tangible fixed assets, inventories and investments may be stated at historical cost or fair market value alternatively. Telefonica Europe B.V. applies the lower historical cost or underlying book equity amount. (2) Arrangement of asset and liability accounts In The Netherlands non-current items are presented prior to current items. 4. Other Not applicable.

II-73 VII. TREND OF FOREIGN EXCHANGE RATES Not applicable. VIII. SUMMARY OF ISSUER S SHARE HANDLING, ETC. IN JAPAN Not applicable. IX. REFERENCE INFORMATION OF ISSUER Not applicable.

II-74 PART III. INFORMATION ON GUARANTOR, ETC. I. INFORMATION ON GUARANTOR 1. Bonds covered by the Guarantee Not applicable. 2. Matters relating to Guarantor which is a Continuing Disclosure Company (1) Documents filed by the Guarantor Securities Report and attachments thereto in respect of the one-year period from January 1, 2006 to December 31, 2006 filed with the Director General of Kanto Local Finance Bureau on June 19, 2007 (2) The Place(s) at which Copies of the Documents referred to above are available for Public Inspection Name : Tokyo Stock Exchange Location : 2-1, Nihonbashi Kabutocho Chuo-ku, Tokyo 3. Matters relating to Guarantor which is not a Continuing Disclosure Company Not applicable. II. INFORMATION ON NON-GUARANTOR Not applicable III. INFORMATION ON INDICES ETC. Not applicable

II-75 PART IV. ADDITIONAL INFORMATION I. RECENT FINANCIAL STATEMENTS OF THE COMPANY (A Japanese translation of the financial statements for the financial years 2002 through 2005 is included.) II. FORM OF SECURITIES Not applicable. III. RECENT FINANCIAL STATEMENTS OF GUARANTOR Since the Guarantor is a continuing disclosure company, the information which would otherwise be required to be stated herein is omitted.