1. We are all innovators now Dr Mike Short Vice President –Telefónica Europe mike.short@O2.com

2. Ideas for the Digital journey ?

5. 4 Staff Services Finances Clients 1989 Geographies 2000 2010 (1) EPS: Earnings per share Integrated ICT solutions for all customer segments Basic telephone and data services Wireline and mobile voice, data and Internet services About 12 million subscribers About 288 million customers About 68 million customers Spain Operations in 25 countries Operations in 16 countries About 71,000 professionals About 270,000 professionals About 149,000 professionals Revenues: 4,273 M€ EPS (1) : 0.45 € Revenues: 60,737 M€ EPS (1) : : 2.25 € Revenues: 28,485 M€ EPS (1) : 0.67 € It has consistently grown at a strong rate, which has even accelerated since the beginning of the 21 st C

6. 5 Argentina: 22.2million Brazil: 77.6 million Central America: 7.1 million Colombia: 12.3 million Chile: 12.2 million Ecuador: 4.5 million Mexico: 20.7 million Peru: 17.1 million Uruguay: 1.7 million Venezuela: 10.1 million Data as of March 2011 Wireline market rank Mobile market rank Total Accesses (as of Mar11) 186.0 Mill. Notes: - Central America includes Guatemala, Panama, El Salvador, Nicaragua and Costa Rica - Total accesses figure includes Narrowband Internet accesses of Terra Brazil and Terra Colombia, and Broadband Internet accesses of Terra Brazil, Telefónica de Argentina, Terra Guatemala and Terra Mexico Telefónica is today a leader in the Latin American Telco market … 21 12 22 11 2 2 11 2 2 3

7. 6 Data as of March 2011 Spain: 47.6 million UK: 23.1 million Germany: 23.5 million Ireland: 1.7 million Czech Republic: 7.6 million Slovakia: 0.9 million 2 21 11 4 2 Wireline market rank Mobile market rank Total Accesses (as of Mar11) 104.5 Mill. 4 … enjoys a significant footprint in Europe … 3

8. 7 The largest worldwide strategic alliance in the industry. Combined accesses more than 610 million (March 2011), which is about 10% of world’s population 2nd integrated operator in China with a countrywide 3G licence (European standard) Mutual investment agreement Telefónica: 9.7% in China Unicom China Unicom: 1.37% in Telefónica Joint cooperation in different areas such as service provisioning, equipment & devices acquisition, R&D+i, sharing of best practices … Strategic & Industrial alliances Largest Telecom alliance in Europe, with ~18.5% market share (1) Combined presence in 7 European countries Combined accesses in Europe in March 2011 (millions of customers): Telefónica …………………………………….. 104.5 Telecom Italia …..………….………………… 62.3 Total industrial alliance..……….… 166.8 Business alliances … and it is widening its horizons for growth through strategic, industrial and business alliances RCS-e …

9. 8 (1) Plus Morocco (2) Plus U.S.A. and Puerto Rico (3) China, Italy and Portugal So, Telefónica shows today an unique portfolio within the Telco Industry … Revenues 1Q11: 15,435 Mill.€ OIBDA 1Q11: 5,574 Mill.€ Net Income 1Q11: 1,624 Mill.€ 290.5 million accesses 104.5 million in Europe 186.0 million in Latin America Operations in 26 countries 6 in Europe (1) 14 in Latin America (2) 3 through strategic and industrial alliances (3) About 285,000 professionals 29% in Europe 70% in Latin America 1% in other countries T-Spain 28.3% Others & Eliminations 1.1% T-Latam 45.5% T-Europe 18.4% T-Spain 34.5% Others & Eliminations 1.5% Accesses by Business Revenues by Region Accesses by Region T-Latam 64.0% T-Europe 19.6% T-Spain 16.4% T-Latam 45.4% T- Europe 25.2% OIBDA by Region Data as of March 2011

10. 9... both in terms of customer base size and revenues … Total accesses (as reported by companies) =Fixed Lines + Mobile Customers + Narrow and Broad Band Internet + Pay TV Vodafone’s Fixed Broadband accesses as of December 2010 ** Includes 50% customers of the JV with Orange in UK *** Axiata’s accesses as of December 2010 Top 10 - Total accesses worldwide Million accesses (as of March 2011) Top 10 - Total revenues worldwide Million Euros (FY 2010) internationalintegrated Telco bycustomer base 1 st Among the 75 largestcompanies in theworld byrevenues(Fortune Global500) FY 2010 revenues as reported companies Source for Exchange Rates: Bloomberg

12. China India Japan Brazil USA Germany Spain UK

13. 12 China GDPE 4104 B Population1330 M FixedE12.2 B22.3 % MobileE 60.3 B64.8 % BroadbandE 12.9 B9.5 % Vertically integrated – 3 main players : CM / CU / CT GSM largest market in the world with 862M, but different cordless and Internet needs Central planning heavily influenced by 5 year planning guidelines and Chinese standards. Converged players Moving towards more international reach, and support to Chinese vendors Some Cybersecurity concerns stretching beyond China

14. 13 India GDPE 1053B Population1173 M FixedE 2.4 B3 % MobileE 9.6 B63 % BroadbandE 4.3 B1 % 2 nd most populous in the world but GDP/head is 1/3 rd China Over 734 M mobile subscriptions, but fixed penetration is only 3% High outsourcing and revenue share options Poorly regulated and concerns about Cybersecurity High levels of competition, but VAS and 3G have a long way to go Broadband expected to have a strong wireless flavour

15. 14 Japan GDP E B Population Fixed E % Mobile E % Broadband E % GDPE 3672 B Population127 M FixedE 19.9 B35.6% MobileE 50.4 B92.2% BroadbandE 24.8 B26.2% Vertically integrated with late CPE liberalisation Pro investment, with 5 year plans. Early adopter of 3G and LTE Strong domestic electronics base High internet access but still low on smartphones Developed applications ecosystem 3 Mobile operators for 117 M customers

16. 15 Brazil GDPE 1299 B Population201 M FixedE 15.7 B20.8 % MobileE 18.9 B98.1 % BroadbandE 5.9 B6.5 % High growth market, but vertically integrated Strong fixed line market Strong mobile competition, been through CDMA/GSM changes - 197 M High innovation levels; 3G starting soon

17. 16 USA GDPE 10,526 B Population310 M FixedE 67.3 B42 % MobileE 111.7 B95.4 % BroadbandE 49.8 B27.7 % Largest national Telecomms services market in the world E 228.8 B but high GDP /head Vertically integrated but consolidated competition, although Cable TV is stronger than most nations Mobile 296 M Internet and smartphone leader Strong online sales / e commerce activity

18. 17 Germany GDPE 2528 B Population81.6 M FixedE 13.2 B57.4 % MobileE 22.3 B133 % BroadbandE 13.2 B33 % High GDP/head and high spend in telecomms – total market is E 48.7 B 4 major mobile players and many MVNO`S, but high market share for D1/ D2. High penetration...108 M Move towards convergent options Early deployment of LTE

19. 18 Spain GDPE 1051 B Population46.5 M FixedE 5.9 B42 % MobileE 14.3 B122 % BroadbandE 4.9 B23 % Economic slowdown, regulation and competition showed a reduction in Telecomms 25.1 B (25.5 B in 2009) High penetration of mobile with 4 MNO`s – 56.7 M

20. 19 UK GDPE 1649 B Population62.3 M FixedE 11.0 B50.6 % MobileE 18.1 B129 % BroadbandE 7.2 B31.5 % Economic slowdown, regulation and high competition slowed the market to E 36.3B ( E 36.5 B in 2009) From 5 to 4 MNO`S, but many MVNO`S, and widespread independent distribution. 81 M and high penetration. Highly regulated (UK and EU); rising Internet concerns High M2M growth and levels of data innovation Leader in eCommerce, satellite TV and wifi coverage Services versus network competition ?

21. 20 Europe Many EU national ICT markets are sub scale for 21 st century; even if Europe led with 2G Mobile USA leads today with Internet Growing cross sector ICT based opportunities need scale - ITS/ Smart Grid / Health / Education Internet leaders in Europe – avoid the patchwork quilt of 1G ? Need to adapt more rapidly to scale and globalisation Regulation of the Internet needs to be assessed for impact Research to implementation and investment needs to improve

23. Connected Roads Connected Homes Connected Cars Connected Learning Driving innovative new services

24. An increasing number of Connected Devices are foreseen

25. 24 … and we are strengthening our capabilities to capture the opportunities which the new Digital World offers Products & Services Global Units “Over The Top” Companies The leading digital media company in Latin America The most engaging social network in Spain The most innovative IP communication company Video & Digital HomeApplications Financial serviceseHealth Security M2MCloud Computing

26. GSMA Embedded Mobile Programme 25 Smart UtilitiesHealthcareConsumer Electronics/ mEducation Automotive Market Development Programme for key verticals launched in 2010

28. The Smart Santander consortium 27 EXPERIMENTAL FACILITY DESIGN AND DEPLOYMENT SERVICES AND APPLICATIONS DESIGN USE AND SUPPORT OF THE FACILITY Santander City Council & the Regional Government are also project partners Santander City Council & the Regional Government are also project partners Telefónica - Leads the consortium - Provides technology foundation - M2M communications - Service Integration Platforms Telefónica - Leads the consortium - Provides technology foundation - M2M communications - Service Integration Platforms

29. Conclusion 1. No markets are the same, but international scale really helps 2. Global standards help Investment; collaboration; unit costs; security; business development; digital economy 3. Data growth requires cross sector skills and policy backing 4. Cost reduction is also key to the data world (e.g. network sharing; careful GSM/3G/LTE transition; effective innovation) 5. We are all innovators now – services innovation is opening up 6. BUT Digital Europe is much more than spectrum and standards – we now need a pro investment pro innovation approach N.B. NEW - Developer Economics Report 2011 http://www.visionmobile.com/devecon.php http://www.visionmobile.com/devecon.php

30. Thank you Dr Mike SHORT Mike.Short@O2.com Mike.Short@O2.com