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Telefónica (TEF)

Full Year 2005 Earnings Conference Call

March 1st 2006, 10:00 AM.

Executives:

Ezequiel Nieto Baquera, Head of IR

Cesar Alierta, Executive Chairman, Chief Executive Officer and Member of Standing Committee

Santiago Fernandez Valbuena, CFO

Peter Erskine, O2 - Chief Executive

Julio Linares, Executive Chairman of Telefónica de España

Analysts:

Jesus Romero, Merrill Lynch

Brian Rusling, Cazenove

Luis Prota, Morgan Stanley

Terry Sinclair, Citigroup

David Wright, JP Morgan

John Karidis, Man Securities

Andrew Hogley, Lehman Brothers

Bosco Ojeda, UBS

James McKenzie, Fidentis

Jonathan Dann, Bear Stearns

Guy Peddy, Deutsche Bank

Mark Cardwell, Sanford Bernstein

Kevin Shields, Citigroup

Operator

Good afternoon ladies and gentlemen. And welcome to the Telefonica Full Year 2005 Results Conference Call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session and instructions will follow at this time. Operator Instructions Just to remind you all, this conference call is being recorded.

I would now like to hand over to the chairperson, Head of Investor Relations, Ezequiel

Nieto. Please begin your meeting and I will be standing by.

Ezequiel Nieto Baquera, Head of IR

Good afternoon ladies and gentlemen. Welcome to Telefonica’s conference call to discuss 2005 full year results.

Before proceeding, let me mention that this document contains financial information data reported under IFRS. The financial information contained in this document has been prepared under International Financial Reporting Standards. This financial information is unaudited and, therefore, is subject to potential future modifications. 2004 financial results were originally prepared under Spanish GAAP and have been translated into IFRS for comparison purposes only.

This presentation may contain announcements that constitute forward-looking statements, which are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward looking statements as a result of various factors.

We invite you to read the complete disclaimer included in the first page of this presentation which you will find in our website. We encourage you to review our publicly available disclosure documents filed with the relevant Securities markets regulators.

In addition, and to reflect the Group’s new structure, second half results for Terra versus the Spanish and Latin American units, are consolidated under Telefonica de Espana and Telefonica Latin America respectively, with first half figures reported under the caption other companies. Cesky Telecom starts to be consolidated as a separate business line in July 2005.

If you do not have a copy of the relevant press release and slides, please contact Telefonica’s Investor Relations team in Madrid by dialing the following telephone number, 34 91 584 47 13.

Now, let me turn the call over to our Chief Executive Officer, Mr. Cesar Alierta.

Cesar Alierta, Executive Chairman, Chief Executive Officer and Member of Standing Committee

Thank you Ezequiel. Good afternoon ladies and gentlemen. And thank you for attending Telefonica 2005 full year results conference call.

First, let me introduce Santiago Fernandez Valbuena, Telefonica’s Chief Financial Officer, with whom I will share the review of the Group performance.

During the questions and answer you will have the opportunity to ask questions directly to our Executive Committee. And I have today with me Julio Linares, General Manager for Coordination, Business Development and Synergies, Luis Lada, Chairman of Telefonica Espana, Jose Maria Alvarez Pallete, Head of Wireline in Latin America, Antonio Viana-Baptista, Chairman of Telefonica Moviles and Peter Erskine, Head of O2, who is connected from London.

Before turning to the numbers, I would like to stress once again that all the lines behind all core decisions to Group Telefonica have the best combination of growth and cash returns in the industry. An objective we stick to despite current skeptical opinions on the sector’s growth potential that we do not share. And we are taking actions on three dimensions to guarantee not only that we deliver on our commitments, as we always do, but also that we build real value for our shareholders.

First, by grabbing the clear growth opportunities, the sector has to drive revenues, namely mobile, broadband, value added solutions and mark-to-market and expansion to adjacent market industries. We are going to grow the number of clients and sell more revenues per client, thus coming more and more brighter clients.

Second, gaining efficiencies in a scale to improve, not only market positions, but also profitability through operational excellence. And finally, managing the bottom line continuing to support a high cash generation profile, and a very strong net income.

Please turn to slide number four. To start the analysis of 2005 results with the summary of the profit and loss, which I believe differentiates Telefonica from the rest of peers.

At the top line level Group sales grew by more than 25% year-on-year to end close to €38 million. Strong revenue uplift was based on a very solid underlying performance of all the business lines that pushed organic sales to grow above the 9% mark, plus the incorporation of additional assets in Cesky Telecom in January and July of the past year.

Operating income, before depreciation and amortization, increased by 25% on an annual basis, coming just below €15.3 billion. In organic terms, operating income before depreciation and amortization grew almost at 10%. At the end of 2005 the Company surpassed €8.5 billion in operating income, equivalent to a 30.5% nominal growth rate that remained close to 22% when translated into organic terms. As a proxy to cost flow generation, operating cash flow topped €9.9 billion for the January to December period. More than 17% the figure of 2004.

I would like to highlight the revenue growth. Operating income before depreciation amortization in operating income growth are fully flowing to net income, as the slide number five shows. 2005 net profit reached €4.4 billion, 40% above 2004 figure. Our active management of non-operating results is posting admirable rate to drop by 15 percentage points for operating income before depreciation and amortization to net income. Net income have exceeded €4.9 billion. And we do deduct the impact of the recent IPSE write down in Telefonica de Espana redundancy provision.

For a snapshot on organic revenue growth, please turn to slide number six. Organic revenue growth, that is consolidating BellSouth in Athens in January 2004 and Cesky Telecom since July 2004, has remained between 9% and 10% all along the last year. We bought six mobile acquisitions pushing sales up.

Looped wireline operators are moving away from current sector trends. So are we. We think that this will grow rate both in Spain and Latin America, after transformation towards broadband, continues to gain traction.

In Mobile organic revenue growth exceeds 14% for the year ending in December with a single digit growth in Spain, and being complementary to the 22% increase in certain revenues in Latin America in constant currency terms.

I would like to take this opportunity to remind you that general rates were adding close to 5 percentage points to consolidate sales growth in 2005 compared to the 2.5 percentage points cut registered in 2004.

Overall, a positive performance in revenue is the result of two complementary traits - the boost in growth in clients and a very solid growth of ARPU.

In addition to capturing clients, operating companies are keeping solid ARPU strengths, as the slide number seven presents. When in the portfolio of services we offer and selling them more efficiently, while keeping churn under control to maintain better quality client basis are the factors driving ARPUs up. In that respect, we are pushing to increase the number of services we sell to each client through one thing - a trend that is permitting us to offset the reduction in prices for the need in the business services that form the bundle, and keep total ARPU growing.

As you can see in the slide, average revenue per usage was on the upside in 2005 for all the main divisions. Plus 6% in Wireline in Spain, plus 19% in Wireline Latam and plus 3% in mobile in Spain. All the mobile in Latin America is 13% down, as the Company is experiencing a 34% increase in the number of clients.

The review of subscriber bases is presented in slide number eight. Telefonica is actively managing current industry growth levels, and capturing new clients, and extending the usage patterns in mature markets through broadband and benefiting from the existing penetration gap for traditional fixed and mobile services in the mark to market, namely Latin America.

In total we had close to 22 million clients last year, purely organic to end December with almost 145 million clients. Cesky Telecom is included, total client we’ll see 143 million.

Traditional fixed lines grew by 8% to close to 41 million clients, driven by emerging market. In mobile subscribers in Latin America increased by 34% to top the 74 million mark, where almost 1 million new players were added in Spain despite the strong competition.

In broadband, in retail, both fixed divisions were pushing clients up by close to 50% and 30% each with Telefonica de Espana and Telefonica Latin America exceeding 2.7 million and 2 million clients. Finally, the Company ended December with more than 200,000 Imagenio clients in Spain in line with direct carrier.

Turning to profitability, the major priority for the Group, in slide number nine, in the past 12 months profitability remains high at the Group level. And we have kept a stronghold on costs while driving the development of broadband and mobile general markets. As such, operating income before depreciation and amortization grew by almost 10% in organic terms, with consolidated OIBDA margin of 40% is stable year on year.

As for revenues, it is worth highlighting the positive contribution of the general rate to operating income before depreciation and amortization growth, adding 4.5 percentage points to organic growth last year.

Let’s turn to slide number 10 for a brief review of operating cash flow. January to December 2005 total CapEx reached close to €5 billion in nominal terms, close to two-thirds on growth and transformation. The figure close to €4.7 billion -- sorry, was excluded impact of both the general rates and the consolidation of Cesky Telecom in July, representing a 25% annual growth rate and coming close to an estimate of around €4.6 billion.

The push on Imagenio and mobile networks in Latin America explained the higher CapEx versus the original CapEx. However, operating cash flow increased by more than 70% year on year to exceed €9.9 billion at the end of December. The 10% growth in Wireline operating cash flow complemented the turn in mobile with growth escalating to 17%.

And we are delivering on our commitments to the financial market, as is presented in slide number 11. Telefonica has been one of the few European incumbents to upgrade guidance last year and a unique operator to revise the revenue target upwards. Even after the revision, we are exceeding our sales objectives by 2 percentage points to end revenue growth, excluding forex, at 17.2%.

With regard to operating income before depreciation and amortization and operating income growth in both metrics ended 2005 at the top end of guidance, at 12.3% and 16.1% respectively.

Delivering on guidance is an objective, all the Group is aligned to, with no subsidiary disappointing, as the slide number 12 shows. In Fixed Wireline, it is worth mentioning the very strong performance of Telefonica de Espana, with all the profit and loss metrics ending the year above target with growth rates in revenue, operating income before depreciation and amortization and operating income adjusted for guidance calculation above 4.5%, 5% and 21.5% respectively.

The Company is clearly confirming the success of its transformation to improvement, anticipating to competitors and sector trends.

In Wireline Latin America extracting value from the traditional business and the developing broadband by several experiences at the Group level are the factors behind this good performance. Revenues, operating income before depreciation amortization and operating income grew by more than 6%, 8% and 17% after adjustments for guidance calculation, are the top of guidance for each metric.

And finally, mobile has been excelling in revenue growth across the year ending 2004 -- 2005 above expectation at 37%. Despite investing for top line growth, operating income before depreciation amortization and operating income came within guidance for the 12 months ended December.

And I now I turn the call to Santiago for the reviews of the major business lines, cash flow and dividend.

Santiago Fernandez Valbuena, CFO

Thank you Cesar and good afternoon ladies and gentlemen. For a review of our operating companies please turn to slide 13, starting with Telefonica de Espana.

Top line growth reached the 4.6% mark, excluding Terra Spain, a unit which started to be consolidated in July. Therefore, the Company has made its full year guidance, which was first upgraded last quarter from the original 0.5% to 2% growth to a higher than 4% objective. In that respect Telefonica de Espana has clearly outperformed the rest of Western European incumbents.

The expansion of revenues from broadband in IT and Data Services with growth rates close to 27% and 12% respectively is behind the sound growth profile of Telefonica de Espana, which is taking the most from a highly competitive environment. The weight of Internet and broadband services reached 17% of parent company’s revenues, 3 percentage points above the 2004 figure.

It is worth highlighting that traditional revenues, that is Access plus Voice, remained almost stable, with the a monthly fee increase accounting for -- accounted for at the beginning of ’05 compensating for the decrease in Voice traffic and lines lost.

In slide number 14 we review cost and efficiency. Total expenses grew by 5% in 2005 ending the year at €7.2 billion driven by the Company’s initiatives to extend top line and, in particular, lead the broadband development.

Personnel expenses which were affected in the last quarter by both an additional provision for redundancies as close to 220 employees have joined the program later in the year and an adjustment to wages and salaries to match the 2005 cyclical growth. All that ended the year with just 0.8% decline.

OIBDA margin was maintained at 40.6% due to the lower redundancy provisions in year 2005. Whilst excluding these provisions in ’04 and ’05, the margin declined by just 0.8% percentage points to 45.7%, a reflection of apportioned revenues this year. The 4.5% OIBDA growth posted in ’05 becomes 5.1% once it is adjusted for guidance calculation. That is at the top of the guidance announced for the year. 4 percentage points of the OIBDA growth are related to the increase in sales, whereas just 1.1 percentage points came from a lower redundancy provision.

Slide number 15, shows the evolution of the traditional business through its main operating networks. Regarding access, 199,000 accesses were lost during 2005 with the last quarter of the year showing a slowdown in the pace of lines lost due to the positive effect of the free connection fee campaign, which was launched at the end of September.

ULL net adds are speeding up as broadband service providers are migrating from our ADSL wholesale service to shared unbundled. As a consequence, close to 320,000 lines were unbundled in 2005. 241,000 of which correspond to shared unbundled lines. ULL amounted to less than 3% of active traditional accesses at the end of December ’05.

With regard to pre-selection, pre-selected lines were reduced by almost 95,000 in 2005, mainly as a result of the success of the Company’s win back campaigns. A small proportion of pre-selected customers were fully migrated to our competitors’ networks.

In terms of traffic the lower decline of the market has eased the pressure on minutes with voice traffic ending the year with a 7% decline. International traffic was still growing above 13% after a year posting record high growth rates.

Now please turn to slide number 16 for a review of broadband. Telefonica de Espana has been able to maintain 2004 market share levels in the last 12 months reversing the trend of losses from the second quarter onwards. Telefonica de Espana’s efforts to grow the market have been clearly paying with total market net adds climbing in the fourth quarter to around 0.5m, the highest absolute increase ever in Spain. In this respect Imagenio has become the visible success.

Net adds reached a record high during Christmas and pushed total Imagenio subscribers beyond the 200,000 mark we had set for ourselves as a target for year end.

Even though ARPU from connectivity is being impacted by bundles and new commercial offers, retail broadband revenue growth exceed 36% in 2005, pushed by both subscriber growth and value added services that already represented 13% of revenues per user.

Turning now to the performance of Cesky Telecom in the slide number 17. We see that as we started to witness in the quarter, Cesky Telecom is clearly benefiting from the integration into the Telefonica Group. A process that is bringing further synergies in revenues, costs and CapEx, and under which the Company has recently implemented a new customer oriented organizational structure. As such, the Czech operator is experiencing a rapid turnaround of operations, improving its competitive positioning through innovation and a renovated commercial push gaining efficiencies.

From an operating standpoint Cesky Telecom is leading the Czech broadband market through the launch of new tariff schemes, new speeds and value added services that are proving to be successful in accelerating market dynamics. In just six months the Company has added 111,000 new broadband customers, 1.8 times above the first half figure and driving its ADSL market share over the 8% threshold.

In mobile Eurotel has regained a leading position in number of clients and has reinforced its rank as number one player by revenues, contract subscribers and Data Services. More than 256,000 new clients were captured in the July to December period, 10 times ahead of the first half net adds.

This solid operating performance coupled with emerging synergies is showing up in the P&L. In revenues a 3.2% decline in the first half of last year has been transformed into get a 0.8% positive growth rate in the fourth quarter. And operating income before D&A has been growing for the last two quarters in the 3% to 5% range, moving away from the 10% cut suffered in the first half of 2005.

In the next slide I will start with a review of the Wireline performance in Latin America. The Company ended 2005 with over €8 million in revenues, excluding Terra Latin American unit, which was first consolidated in July and added €111 million to the Group wireline sales in the region of last year.

This level of revenues implies a 21% year on year growth rate in the nominal terms, which is equivalent to an annual increase of 6.2% in constant currency terms, fully aligned with the year end guidance. It is worth mentioning that top line growth in local currency terms has remained consistently above 6% for the last three consecutive quarters. A performance that has been amplified by the positive evolution of major Latin American currencies, particularly the Brazilian Real. In 2005 local currency appreciation versus the euro added slightly more than 14.5 percentage points to revenue growth, or close to €1 billion.

With all operators growing sales, Telesp and TASA were standing out of the pack after posting revenue increases of close to 8% and 9% respectively. Extracting the value of the existing penetration gap in traditional services, while transforming towards broadband are the pillars of Telefonica Latin America’s strategy, as it is shown in the next slide.

The Company has reached more than 28 million total accesses at the end of December ’05, or just equivalent to a 7% growth on an annual basis. Traditional lines in services were still growing at 1.5%, mainly through pre-pay consumption controlled products helping traditional revenues to increase by close to 5% in constant currency terms, plus ARPU expansion is factored in.

In broadband total connections exceeded the 2.6 million mark last December with net adds bringing traction across the year to finally add 1.2 million new customers in 2005. The boost in total ADSL broadband connections pushed broadband revenues to grow by almost 54% year-on-year in constant currency terms.

And as the slide number 20 shows, growth is not being achieved at the expense of margins. Full year adjusted operating income before D&A reached €3.6 billion in 2005, up 23% year on year in nominal terms. Underlying growth remained at a healthy 8% rate with forex adding for €445 million to local currency operating income before D&A.

In terms of profitability, operating income before D&A margin grew by 1.7 percentage points annually to top 44% whilst deducting the positive impact of capital gains. In a context of raising margins for all local operators plus TASA, Telefonica del Peru showed the best relative performance in profit margin by 5 percentage points to 42%.

Turning now to the pure financial issues on slide number 21. We show that our financial expenses have remained flat, despite the average net financial debt having been up 19% on a debt in 2004, as you can see in the bottom left chart. This is a consequence of the currency exposure management that has been offsetting higher interest charges. Interest expense has been pushed up by €4.6 billion higher debt and by a 20 basis points increasing its average cost to 6.1%. This extra cost is mainly explained by the higher amount of debt denominated in Latin American currencies.

The impact of the Latin American currency debt on the interest expense has been more than offset by €162 million profit from keeping foreign exchange open positions playing the euro weakness relative to the Latin currencies and to the U.S. dollar.

At the year end 10% of our financial debt was denominated in U.S. dollar and 18% in Latin American currencies. This implies around €2.3 billion increase in absolute terms versus December ’04 with more than 50% explained by foreign currency appreciation versus the euro.

The fact that we funded in euros and hedged with options a substantial part of the Latin American cellular acquisitions made in 2004 and 2005 has limited that increase, while the value of our assets has increased in euro terms.

On slide number 22 we report on cash flow generation and explain changes in debt. Telefonica has generated €6.8 billion in free cash flow in 2005. As you can see on the bottom left chart, after adjusting for the pay down of pre-retirement commitments and adjusting for dividends paid up to minorities, mostly Telefonica Moviles, Telesp in Brazil and TPI, our Yellow Pages directories company, we arrive at a clean pre-cash flow figure of €7.1 billion.

On the fourth column on the upper chart you can read as those €7.1 billion of free cash flow, close to €4.5 billion, or 63% have gone to shareholder remuneration. The other factors driving up debt are €4.6 billion acquisitions before O2 net of anymore IPO proceeds. And €1.4 billion due to the translation into euros of the Latin American in U.S. dollar denominated debt, close to €1 billion for the debt in acquired companies and other minor factors.

This moved the net financial debt to €28.8 billion or 1.8 times OIBDA before taking into account the O2 acquisition. As we bought shares of O2 in the open market for close to €1.3 billion before the end of ’05, the final financial debt rouse to slightly above €30 billion or to €33.6 billion after commitments shown in the bottom right chart.

Upon completion of the O2 acquisition we estimate around €25 billion of extra debt, implying €55 billion for the pro forma financial debt at December ’05, which is roughly equivalent to 3 times pro forma operating income before D&A.

On slide 23 we report on the execution of our 2005/2007 €6 billion buyback program. At the end of ’05 Telefonica held 137 million shares in treasury, or 2.8% of share capital, roughly 50 million shares more than we last reported in November. An additional 39 million call options will be expiring in the first half of 2006. The majority of these options are out of the running as of today.

Now in the next three slides I would like to give you an update on our progress to integrate and extract value from our most recent acquisitions, namely Cesky Telecom and O2.

The process to integrate O2 and align the Company to Telefonica’s processes and systems is running at full speed in just one month since we closed the transaction. And this process is being supported at the top level, led personally by Julio Linares in his new role as General Manager of Coordination, Business Development and Synergies, and with the direct involvement of the Executive Committee.

Functional and business teams have already been set up and are working hand in hand with three basic objectives to be achieved before the end of May. First, aligning O2’s functional processes with Telefonica’s. Second, having 2006 synergies identified, quantified and in execution mode, and third, identifying 2007 to 2009 synergies and draw the plan for their complete implementation.

We’ll provide you with much more detailed information on numbers during our investment conference which is scheduled for May.

Please turn now to slide number 25 to have more color on the main functional and business initiatives underway. In additional to functional teams, which are centered on aligning processes and systems, and eliminating overlaps, business teams and working -- I’m sorry, business teams are working to generate operating synergies for mobile services within our German operations, for wholesale and international traffic in Cesky Telecom with the primary focus on quick wins.

These last three fields for synergies are additional to the ones we shared with you last November when we launched the offer. For Mobile Services progress is being made to transform potential sources of savings into tangible benefits for both revenues and costs. On the revenue side we will jointly approach multi nationals by pursuing those local clients that are already serviced at one end and by supporting the exchanges of data solutions.

Additionally, we will explore opportunities in roaming, both wholesale nice driven traffic within both networks and retail by implementing a common strategy for products services and campaigns. On the cost in CapEx side we will align vendors for the purchase of devices and suppliers for infrastructure.

In Germany, Telefonica Deutschland will be integrated in O2 and we are already working on revenue opportunities, such as cross selling and the potential for combined products between both companies. On the cost side we are planning to reduce network costs to integrate Customer Service and to optimize corporate functions. In the area of wholesale and international traffic we are progressing to extract savings for managing O2’s voice and multimedia traffic. And finally, we are moving forward to integrate Cesky Telecom into O2’s processes and systems.

I would not like to end this update on integration and synergies without referring to Cesky Telecom, our extensive progress has been made up to date, as is presented in slide number 26.

Since the takeover we have succeeded in extracting the full benefits from integrating Cesky into Telefonica with a focus on product development and marketing, particularly to drive the demand for broadband, procurement, technology and service platform and the redesign of processes and organizational structures. But we have gone a step further.

As announced today, we have decided to fully integrate Cesky Telecom and Eurotel into a new company to create a true convergent player ready to lead the opportunities of fixed and mobile in the Czech Republic. This combination will improve the Company’s client value proposition through the launch of convergent unbundled products that will enhance sales efficiency by promoting cross and up selling, and strengthening retention. It will also help to extract OpEx and CapEx synergies in sales and marketing network in IT and support functions.

We believe the net present value of expected synergies post integration would exceed by around 2.5 times €250 million to €280 million savings that were already communicated. And by implementing this process it is going to be neutral to operating income before D&A in 2006.

And now I hand back to our Chairman, Cesar Alierta, to conclude the call with a revision of the 2006 guidance.

Cesar Alierta, Executive Chairman, Chief Executive Officer and Member of Standing Committee

And now I would like to run you through our 2006 guidance, as presented in slide number 27. Before talking about numbers, let me stop a second to explain how these growth rates are calculated.

First, guidance is calculated based on 2005 reported numbers. These numbers include the full consolidation of Cesky Telecom for the six month period ending December. They exclude TPI as it will be reclassified as a discontinued operation if we were to finally sell or lose control in 2006, following our analysis of the strategic options for our stake in the Company. And O2 is not included in 2005 and, therefore, 2005 base for calculation is not pro forma.

Second, all operations refer to local currency and exclude changes in consolidation other than the incorporation of O2 in 2006. Please remember that O2 has started to be consolidated in February this year and will end this 2006 fiscal year in December.

And third, operating income before and after depreciation amortization, exclude exceptional revenues and expenses that we cannot anticipate in 2006. As such, the same categories of exceptional have also been deducted from 2000 operating income before and after depreciation amortization, leaving to €250 million cut to reported metrics.

Turning to numbers, 2006 Group financial outlook is summarized by first a 34% to 37% annual growth in revenues. Second, we expect operating income before depreciation amortization to go up by 26% to 29%. Operating income growth will reach a 26% to 30% range. And we anticipate CapEx to end 2006 close to €7.2 billion.

When adjusting your quarterly models please bear in mind that the guidance provided is an implied linear growth during the year based on the last year’s performance and on the different growth patterns by company expected in 2006. Quarterly growth rates will not be uniform during the year.

Please turn to the next slide for an overview of guidance by business lines, starting with our long established fixed and mobile divisions.

I will quickly go through Wireline expectations as mobile numbers were already presented yesterday by Antonio Viana-Baptista.

For Telefonica de Espana we are confident the Company will continue to grow its top line with revenues ending 2006 between 0.5% and 2% ahead of 2005 figure. Higher efficiencies will drive operating income before D&A to exceed 2005 level by 1% to 3%. And CapEx is expected to close the year around €1.5 billion.

With regard to Wireline in Latin America, earnings in operating income before D&A are expected to increase by 4% to 6% and 3% to 5% respectively, with 2006 CapEx remaining close to €1.2 billion. Please bear in mind that 2005 numbers provided to you in this slide for Telefonica de Espana and Telefonica Latin American already incorporates 12 months of Terra Spanish and Latin American units respectively.

Moving finally to Cesky Telecom and O2 in slide number 29. Cesky Telecom growth performance in 2005 and guidance for 2006 was presented by the Company itself at the end of last week had some progress when we took over in July last year. We are starting from a solid position. The total decline on revenues in operating income before D&A in 2006 and reach the same levels as in 2005 by taking profit from the new fixed mobile integration model just announced this morning, and extracting the full benefits of the Company incorporation into the Telefonica Group. Cesky Telecom is expected to invest around €235 million in 2006.

With respect to O2, top line growth will remain strong for its two major markets. In the United Kingdom we look forward for services revenues to grow between 6% and 9%, where we expect low double digit growth for German service revenues. In terms of profitability, we aim at keeping operating income before D&A margins to stable in both markets. O2 capital expenditures will reach a €2 billion to €2.3 billion level in February to December 2006.

I would like to warn you that O2 numbers correspond to what has been the structure of the Company today. We start including Cesky Telecom and Telefonica Deutschland.

To help you compare guidance on a like for like basis, we are presenting 2005 pro forma revenues in operating income before D&A in slide number 30. This number includes 12 months of Cesky Telecom, which has started to be consolidated in July last year. And 11 months of O2 we’re starting in February, when the Company will be incorporated into Telefonica cost related accounts. As already explaining, 2005 numbers exclude TPI.

In summary, first, our management of operations is focused on top line growth, efficiency and cash generation and is proving to be successful across the profit and light -- profit and loss, excuse me, with net income increasing by 40%.

Second, organic growth remains unique, backed by the strong performance in subscribers and ARPUs for all the divisions.

Sorry, third, we are delivering on our 2005 financial commitments after being one of the few incumbents raising guidance last year.

Fourth, margins and operating cash flow generations are kept at healthy levels, even in the context of renewed commercial effort and higher CapEx to lead the development of growth opportunities in our markets.

And finally, we are successfully turning around Cesky Telecom. A proof of our capacity to generate tangible benefit following integration -- integrating acquisition fast.

I firmly believe that the guidance we are presenting today shows that we’re a growth Company, a Company that has proven to be capable of capturing more clients, increasing the revenues, and gaining efficiency in order to achieve much better profits.

Before starting the question and answer, I would like the opportunity, to take the opportunity of this call to invite you all, personally, to the Company investor conference, which we have in Valencia, Spain next May, 25 and 26. I look forward to seeing you there and discuss the strategy, business outlook and long term projections. Thank you very much. And now we are ready to take your questions.

Question-and-Answer Session

Operator

Thank you. Operator Instructions. Our first question comes from Jesus Romero. Please go ahead with your question.

Q - Jesus Romero

Merrill Lynch in London. I have a couple of questions, the first one on O2. In Germany if you could give a little more detail on how you came up with your guidance considering the more competitive outlook? And if you could update on the CapEx and mergers given for the O2 in 2006? And then one question related to the convergence. You had a presentation this morning from Cesky Telecom what are the value of the MPV of the fact of the -- synergies of integrating both companies, wireless and wireline were quite impressive. I was wondering if you could give similar details assuming you did the same thing with Telefonica de Espana and Telefonica Moviles in Spain? And why not is this a big priority for the Group? Thank you.

A - Ezequiel Nieto Baquera

Mr. Cesar will answer on the second question and then the third will be answered by Peter.

A - Cesar Alierta

Well we already say to you we fully integrated the fixed mobile presence in Cesky Telecom because of the technicalities of the Czech market, which offers a unique opportunity. It is continuing with the operation of mobile and fixed were not very much aligned. And was in there a lot of value to create for integration to this Company. These conditions are now met in the other countries. And I think one of the strong points in Telefonica is the focus the management has on execution and delivering results. We have proven that quarter after quarter, and we are the only Company that, I think, that has a General Manager in charge of synergies which is Julio Linares, and which means that we are extremely aware with the two things which are important - delivery and synergies. And we think with this capital structure we can fit that perfectly. And now Peter if you would answer your question on.

Q - Jesus Romero

Mr. Cesar if I could ask something else on that point? Is the problem in Spain a regulatory problem, or is there something else? Because the size of the synergies or the MPV of that number you gave this morning seems very high. And probably I was just wondering if you could give a little more detail why you are saying that’s not possible?

A - Cesar Alierta

No it's if you’ve to understand that is the best thing for the business. It has been the best thing for the business. We have proven that. And it’s a question of having the people focused at all the levels. The execution in this Company is key and one of the strongest thing in this Company’s execution. Execution at all levels, middle management, we’ve got is important and we think we have the best middle management in the Telco industry. There is a reason we think we can deliver what we say. And they have worked very well is working very well and we having delivered synergies. And we don’t work with power point models we work with realities.

A - Peter Erskine

As far as the German question, it’s Peter Erskine here, as you know, over the last few months growth in Germany from our competitors has been quite nominal. Vodafone in their last set of results were flat, by despite putting a lot of customers. They had zero revenue growth. I think in ePlus recent reporting they are growing at about 3% or 4%, 4% and T-Mobile, I think report in the next day or so, so we don’t know. Our confidence is that by continuing to win a good share of customers, and as you know, we’ve got the best ARPU in the market. Despite price pressure there, we remain very confident that we can deliver low double-digit growth. So far as the CapEx, the overall O2 CapEx is up in pounds, probably compared to what we’ve guided the market in ‘05/6 by about £200 million to £300 million for the full 12 months. And really that’s the mixture of first of all, about £100 million extra on airway where we’ve won new contracts from the Government. And also we’ve got the confidence now to go a little faster in building our 3G network in Germany. Frankly partly because we think 3G will take off towards the end of ’06. But also we’ve got more customers than we expected to have at this stage. Any time soon our German business will go through 10 million customers, and its got there materially quicker than we expected, even a few months ago.

Q - Jesus Romero

Thank you.

A - Ezequiel Nieto Baquera

Thank you. Next question please.

Operator

Our next question comes from Brian Rusling. Please go ahead with your question, announcing your company name and location.

Q - Brian Rusling

Good afternoon it’s Brian Rusling from Cazenove in London. Two types of questions, the first one is on the O2 synergies that were set out by the Telefonica Group as €3.3 billion at the time of the acquisition. Can you tell us how that is going to be split between O2 and TEM? So looking at the historic numbers, so not including these new proposals you’ve outlined today. And also just to help us in terms of 2006, what level of costs are going to be related to those hitting the OIBDA numbers that you are pointing to us here? The second question is related to Telefonica de Espana and really the issue about, what we call IP migration, and it seems to be hurting all the other incumbents. Can you help us understand where you are in Spain on that process? How is the migration to IPVPN’s within the Spanish corporate market? Has it started, is it half-way through or are we yet to see that type of hit on revenues?

A - Ezequiel Nieto Baquera

Julio will answer the first question and Cesar Alierta then the second.

A - Julio Linares

Hello this is Julio Linares. In relationship to your first question must take into account that, we have been working together the people of Telefonica and O2 just for one month on synergies, trying to set up the different working teams. So it is too early to provide to you with very specific details. In any case, being more specific our relationship with your question, we are fully confident that synergies are going to benefit equally all companies involved. And this is going to be, for sure, a win to win process for the two major companies involved with the relationship with mobile synergies.

Q - Brian Rusling

Julio can I just clarify, does that mean of the €3.3 billion you outlined in the beginning of October, €10 billion will get at least to 1.6?

A - Julio Linares

Not exactly, it will let then of the different subjects that we are talking about and not necessarily is going to be just the relationship that you are mentioning. It could it will vary in different ways in the different topics that we are managing in relationship with synergies.

A - Cesar Alierta

With respect to the Voice over IP it will be center for Telefonica de Espana opportunity to enhance communication value proposition in terms of integrated voice, video and data communication into IP network. At the same time offer it additional value added services and faster broadband growth. As a result, we expect to maximize ARPU and increase royalty from our clients. That will compensate a possible cannibalization in access and in traffic. The Voice over IP in Spain has different approaches for the different market segments. The Corporate market, currently, we are developing end to end communication solutions. You are seeing a Voice over IP to integrate voice and data services into one IP network. In the smaller medium enterprises we have launched the Voice over IP service bundled with a broadband connectivity. And we are testing a new Centris IP service. And of course, in the residential we have launched the ADSL, plus Voice over IP to a rate. And second line associated to ADSL line. However, up to now we have not actively re-commercialized it because the market is not demanding this type of service. We are in focus on commercialization with Davel and Tribel offers that includes 24 hours flat rate for voice service. I think that will continually work on service improvement. And as a result the last quarter we launched an innovated Voice over IP line with multi-media capacities and assured a high-level quality service.

Q - Brian Rusling

Thank you.

A - Ezequiel Nieto Baquera

Next question please.

Operator

Our next question comes from Luis Prota. Please go ahead with your question, announcing your company name and location.

Q - Luis Prota

Yes hello, it’s Luis Prota from Morgan Stanley in Madrid. I have three quick questions. First is on the treasury stock. Is the treasury stock supposed to be for shareholder remuneration, or could it be used for acquisitions and more specifically for Telefonica Moviles? The second question is on headcount for 2006. What do you have included for guidance regarding headcount reduction? And finally on Imagenio what percentage of customers are new broadband customers? Thank you.

A - Ezequiel Nieto Baquera

Thank you Luis third question will be answered by Santiago and the other by Cesar Alierta.

A - Santiago Fernandez Valbuena

Thank you Luis. On the treasury stock, as you know, we hold treasury stock until we either cancel or distribute it as a way to compensate our shareholders. So for us it is part of the shareholder remuneration. We have tried in the past two years two different routes. One is the cancellation of shares, and the other is the distribution of those shares. And so far, we have committed to the €6 billion program, which is taking place and that will be finished before the end of ’07.

A - Cesar Alierta

In our forecast we more or less estimate that around 1,500 employees will join our redundancy program in 2006. Regarding this other question, I have not with me that figure. It will be provided by the investor relation people. But you must take into account that the Imagenio is in its infancy. I think that you could not extrapolate any present case to the future.

Q - Luis Prota

Okay. Thank you.

A - Ezequiel Nieto Baquera

Thank you. Next question please.

Operator

Our next question comes from Sergio Guerrero. Please go ahead with your question announcing your company name.

A - Ezequiel Nieto Baquera

Hello. Next question.

Operator

Hello this is a question from the line of Sergio Guerrero. Please go ahead with your question.

A - Ezequiel Nieto Baquera

Operator it seems that he is not going to ask. Please could you go for the next question, next participant please?

Operator

Just following the next question comes from Terry Sinclair. Please go ahead with your question, announcing your company name and location.

Q - Terry Sinclair

Good afternoon Terry Sinclair from Citigroup. Two questions. Margins in Latin America down next year. To what extent is that a function of the broadband roll out? And secondly O2 margins are flat in both the U.K. and Germany. This is quite a change on the margin growth story that O2 had when it was stand-alone. And I wonder if we could understand whether that’s a reaction to competitive pressure from outside, or whether it’s a change in policy?

A - Ezequiel Nieto Baquera

Thank you. Your first question will be answered by Julio Linares and the second by Peter please.

A - Julio Linares

Hi this is Julio Linares speaking, thank you for your question. First of all let me tell you that internally we are predicting flat margins next year, even though the range of the guidance may drive to another conclusion. So we will fight for margin stabilization next year. But if we were to have some erosion it would come from the fact that we will have no tariff increase in Argentina, and that we are suffering the increase in inflation in several items of the core structure. And on top of that we are busily launching broadband deployment in the region, together with an IPTV program in Chile. So we will have some pressure but we will be focusing on maintaining market next year.

A - Peter Erskine

So far as the O2 questions Terry, the margin in the U.K. that’s exactly on the policy we’ve run for the last two or three years. We said once we got the U.K. to the 29% 30% level, which we’ve done now for at least two years. We would hold it flat and invest any extra in growth. And that seems to have served us very well we’ve taken a lot of the growth in the last year. And obviously competition has been coming down pretty fast a bit so margin is up. In Germany as we said in September, we actually got faster in margin growth in ’05 and, therefore, we effectively got there a year earlier. We are still very focused on getting to the 30% in the out years. But basically in ’05 we got ahead of ourselves in margin and we’ve hence held it flat in ’06 while we continue to grow well ahead. And we expect to grow well ahead of competition.

Q - Terry Sinclair

Fine. And there’s no change to the trajectory based on that network roll out in Germany?

A - Peter Erskine

None at all.

Q - Terry Sinclair

Good. Thanks.

A - Ezequiel Nieto Baquera

Thank you. Next question please.

Operator

Our next question comes from David Wright. Please go ahead with your question, announcing your company name and location.

Q - David Wright

Yes it’s David from JP Morgan in London. Maybe a question to Julio as coordinator of the integrations and synergies. Is the ability to leverage synergy at all affected by the separate listing of Telefonica Moviles and its separation to O2 within the Telefonica Group? And then maybe directing that question onwards to the CEO or the CFO, perhaps on their current view of any need to buy in the minorities of Moviles or even Cesky Telecom, given the value that they are looking to create there? And then just also perhaps to the CFO, just on the dividend, obviously maintained at the lower end of the ’05 ’07 commitment. And it was maintained a little below consensus, if I’ve observed that correctly. Any reason that you did not choose to raise that? Is this part of a de-gearing effort this year? If you could just give us a little more color on your thought process there? Thank you.

A - Julio Linares

Well, that is very good question, we never had brilliant delivering synergies with our companies this is the case of Telesp or TASA, Telefonica del Peru or to the Telefonica Moviles or any other part of the Company, we never have proven delivery synergies. The synergies have been there and they are there. We are very happy with the level of this Company’s being quoted and we don’t, and we will repeat the reason we have always given. From the Cesky point of view we are already consolidating the Group. From the financial point of view we've got the minorities is very, very practically very well. And we are fairly confident with the present position as was said before. Julio Linares will say a little more on synergies. But I think, as I said before the facts are there. The history is there and other profit companies.

Operator

Our next question comes from.

A - Ezequiel Nieto Baquera

Sorry operator additional question to be answered.

A - Santiago Fernandez Valbuena

About dividend, well I think really our remuneration policy is very attractive. Bear in mind that we only have a survey program on top of the dividend. And both of them together is around 7%. I don’t what is your consideration about what is the cost of equity of Telefonica but in my opinion is not very far from there. And then, as I said before, we already have seen our net income growing by 40% and I said next year operating income is going to grow between 27% and 30%. So we feel we have a very strong remuneration policy plus a very strong growth there. And there what else can I say.

Q - David Wright

And will, just to follow on very quickly. Would it be reasonable to assume that, you would recognize the very strong growth in your net income in your operating income, within the dividend policy moving forward? Would you look to do that?

A - Santiago Fernandez Valbuena

Well you have to, what I said before I repeat 7% a little bit between the buy back and the dividend is very high. Our benchmark is in our peers or benchmark for the special dividends is obvious and they are both obvious and then the buyback is clearly a combination which we think together with the dividend it makes a very good remuneration policy of 7% which we feel is very strong. And that is a fact.

Q - David Wright

Okay. Thank you that’s fine.

A - Ezequiel Nieto Baquera

Thank you next question please.

Operator

Our next question comes from John Karidis. Please go ahead with your question, announcing your company name and location.

Q - John Karidis

Thank you very much its John Karidis from Man Securities in London. I just wondered given your very strong growth potential, and the rather low valuation of the stock right now, why is it that you don’t chose to do the buy back sooner rather than later and cancel the stock so as to capture this extra value that presents itself to you right now?

A - Cesar Alierta

Well it’s clear that we will have a share buyback when we see the level of the price. It’s clear that it’s a very good, it’s a very good endeavor for shareholders and very soon we have the share buyback program, establishing a share buyback program. And we always have said we were skewed to the level the price and the generation of program. We are committed to margin it and we will implement it, and we are doing it. And that’s it.

Q - John Karidis

Alright. Thanks.

A - Ezequiel Nieto Baquera

Thank you. Next question please.

Operator

Our next question comes from the line of Andrew Hogley. Please go ahead with your question, announcing the company name and location.

Q - Andrew Hogley

Good afternoon gentlemen. Andrew Hogley from Lehman Brothers. Very quick question for Peter probably. I was hoping he could give an update on the situation for O2 U.K. as regards the renewal or potential renewal of the contract with Hutch for the roaming onto 2G? Thank you.

A - Peter Erskine

Yes, frankly because it’s confidential it’s not officially up for renegotiation until next autumn, I really can’t say anything. We’ve got the business, we are keeping he business. I think, I am certain they will review it, if they tried their IPO sometime. And we would hope very much to win it. But at the moment it’s just business at usual and we are not at liberty to say the status.

Q - Andrew Hogley

Thank you.

A - Ezequiel Nieto Baquera

Next question please.

Operator

Our next question comes from Bosco Ojeda. Please go ahead with your question, announcing your company name and location.

Q - Bosco Ojeda

Hi good afternoon. Bosco Ojeda from UBS, a couple of question. The first one on Portugal Telecom. I wonder if you could comment on the recent bid on your 10% on your position there and also related with Vivo? And second question about CapEx. We have seen some projects on fiber deployment and I wonder if you consider a possibility of deployment on fiber, if you could elaborate there on the potential cost and the regulatory situation? Thanks.

A - Santiago Fernandez Valbuena

Okay Bosco thank you. As regards to Portugal Telecom we have not taken an official position yet, and we prefer to wait until we know the final outcome of the process. However, we feel very comfortable with nearly 10% position which has been currently evaluated. But I think also and strategically is more important than it was. And what I can tell you is that we leverage our position in the best interest of Telefonica shareholders and we will do it.

A - Ezequiel Nieto Baquera

And Cesar will answer on the question.

A - Cesar Alierta

Regarding the fiber, we have not disclosed our captives type or technology, or type of equipment that nevertheless I can tell you that we do not have a great plan to extent massively the fiber technology in 2006. So there is no relevant to give you.

Q - Bosco Ojeda

Thank you.

A - Ezequiel Nieto Baquera

Thank you. Next question please.

Operator

Our next question comes from James McKenzie. Please go ahead with your question, announcing your company name and location.

Q - James McKenzie

Hi its James McKenzie from Fidentis in Madrid, I’ve got three quick questions. One I don’t know if you could give us an update on both your acquisition disposal strategy for 2006, are there particularly of interest after why you’ll be selling TPI and are there any other assets that you would consider selling? Secondly there’s been some reports that there’s an EU investigation which is being announced into the broadband market. I’ve only seen press reports on that I was wondering if you could give me an update, if you have had any notification? And thirdly on the tax charge, I noticed that the cash tax charge is significantly higher this year in 2005 for 2005 than it was in 2004. As a percentage of the accounted tax in the P&L it’s also an awful lot higher. I wonder would it be possible to get a split down of that cash tax paid by geography? And maybe some guidance for the cash tax going forward?

A - Santiago Fernandez Valbuena

With regard to -- first let me tell you that we estimate 2006 to be a year of execution integration that we handed up to Telefonica rather than a year of M&M. After the O2 acquisition we are at Imagenio we are focused on integrating their core assets in the delivery and what we have said. So I am very happy because every time will be less in the rumors around Telefonica’s less which is good news. And with regards to TPI, we have taken the decision to explore different after markets for TPI including the sale of the company, because we think that this is a very good opportunity to add value for both the shareholders of Telefonica and the shareholders of TPI. TPI is a very well performing business, which is not linked to our core activities which is wireline and wireless. Market conditions we think are a very good set and both on the set of that and equity multiples for new operators business are very attractive. We have decided to announce the decision to uphold this decision on TPI so and to be prepared to this process. And let me remark that this decision is not linked to any other potential acquisition and that you shouldn’t expect any further shareholder remuneration because of this. Now Julio will answer the second question.

A - Julio Linares

We received the last week the dossier sent by the Commission. We are currently analyzing its content. We will show to the Commission that Telefonica de Espana is playing a fair business model where competitors can also develop other initiatives. And it is important to know that the prices, we think, is now feasible where wholesale pricing is regulated and retail offers are approved by the Regulator one by one.

Q - James McKenzie

Can I ask, just having read the press would it be possible to tell me what the complaint is related to?

A - Julio Linares

It was related to a prices quizzing after a claim from Wanadoo in 2003. You know that the present market conditions are very different, but at that time the wholesale and the retail prices were approved by the Regulator, both.

Q - James McKenzie

Okay. Thanks very much.

A - Santiago Fernandez Valbuena

Next question there for you James you were asking –

Q - James McKenzie

Yes that’s right.

A - Santiago Fernandez Valbuena

Yes thanks for the question, let me try and wrap up on the cash tax issue. You are right in pointing out that our cash flow statement shows that the proportion of cash taxes relative to the total tax accrued is significantly higher than it was in 2004. There are two reasons for that. One is that there is an increasing proportion of our net profit that, is coming from not sheltered assets. That is assets that is not within the Telefonica tax consolidated group in Spain, as a consequence of the incorporation of Venezuela, and the excellent result in Telesp in Brazil along with a major bumper year for CTC in Chile. Those companies have had the privilege of paying more taxes into their respective tax collection authorities. And then on our tax consolidation growth that explains, by the way, about two thirds of the total increase in cash taxes. And the remaining third can be roughly explained by the company having decided to use up some of the export deduction possibilities ahead of the consumption of the tax yields. This is a highly technical issue that we would like to post for a one by one conversation.

Q - James McKenzie

That’s fine.

A - Santiago Fernandez Valbuena

But has to do with an earlier taking of some deductions that otherwise would expire. So going forward you should expect, although we cannot provide any hard numbers, that a greater proportion of our gross profit is going to be coming from geographies and companies where, the tax consolidation is going to be slightly more difficult than it is as of today.

Q - James McKenzie

Thank you.

A - Ezequiel Nieto Baquera

Thank you next question please.

Operator

Our next question comes from Jonathan Dann. Please go ahead with your question, announcing your company name and location.

Q - Jonathan Dann

Hello Jonathan Dann from Bear Stearns. Just one question. Could you give us an indication of the size of the provision you expect to take for headcount reduction in Telefonica de Espana? And if you backed out the change in the provision what the underlying wireline EBITDA growth would be?

A - Santiago Fernandez Valbuena

In our forecast the provision that we foresee is about between €400 million and €500 million, of course.

Q - Jonathan Dann

Thank you very much.

A - Ezequiel Nieto Baquera

Thank you. Next question please.

Operator

Our next question comes from Guy Peddy. Please go ahead with your question, announcing you Company name and location.

Q - Guy Peddy

Good afternoon gentlemen, it’s Guy Peddy from Deutsche Bank here. Just one quick request. Next time you give your guidance for O2 I am wondering whether you could actually put it in the same context as Telefonica Moviles and Moviles de Espana for example, and decide whether you are going to give guidance for service revenue growth or total revenue growth as a division? A couple of questions on Telefonica de Espana. Can you just confirm again with me please the number you expect of people to leave in the early retirement plan in 2006? Because my understanding is as well, you are still targeting probably another 5,000 in total in ’06 and ’07. And given the number you said which, was below 2,000 that looks a bit of a struggle. And secondly are you assuming any monthly line rental increases in the middle of 2006 in your numbers in Telefonica de Espana? Thank you.

A - Santiago Fernandez Valbuena

Okay this is Santiago, let me answer to you on the coincidence or lack thereof between the format of O2 guidance and Telefonica de Espana guidance, the reason we have continued to provide O2’s guidance the way it used to be, is in order for you to be able to make the connection points between the way O2 used to report and then away. So probably next point on we will try our best to make the all the mobile assets match a number of KPI’s. But so far, we thought that continuing in the old metrics was the relevant way to go forward.

A - Cesar Alierta

Regarding the reduction the redundancy program I told you that for 2006 we expect that between 1,400, 1,500 will leave the Company. And take into account that our redundancy program for four years five years plan which have 15,000 employees, we think that for next year, for 2007 will offer that program to more or less 3,700 people that are the rest of the product. Regarding demand exceed we do not expect any increase during this year.

Q - Guy Peddy

Thank you very much gentlemen.

A - Ezequiel Nieto Baquera

Thank you. Next question please.

Operator

Our next question comes from Mark Cardwell. Please go ahead with your question, announcing your Company name and your location.

Q - Mark Cardwell

Thanks gentlemen. It’s Mark Cardwell from Sanford Bernstein in London. Two sets of questions, first of all going back to the guidance, both the wireline guidance for 2006 and the Moviles guidance we got yesterday are materially below on growth rates the ’04 to ’08 guidance that you gave in Barcelona. Could you just give us some thoughts on whether you are expecting a pick up in the future years to meet the Barcelona guidance? Or whether it’s been rebased, or how you are thinking about that? Secondly on the subject of line loss at TdE in Spain can you give us a sense of whether you think you can continue the low rates from the fourth quarter? And if so, will you continue to make connections free? If you do make connections free will that affect what you can charge at wholesale, or will you also have to make connections free for your competitors? Any thoughts on that subject please?

A - Cesar Alierta

Regards to Barcelona we are totally not comfortable because it a different generate an inventory consolidation. But if we were looking a few markets, remember we are giving are both of the numbers. So when same market, same perimeter and our guidance is in line or above Barcelona guidance. But for this year we think that the lie low pace will be maintained the same pace it attained the last year. In the range of 1% to 1.5%. What we’ve shown is that we are pushing a lot that double off under table offers and that’s the way to good retain more customers.

Q - Mark Cardwell

Thank you.

A - Ezequiel Nieto Baquera

Thank you. I think we have time for a last question please.

Operator

Our final question comes from Kevin Shields. Please go ahead with your question, announcing your Company name and location.

Q - Kevin Shields

I didn’t poll. It’s Kevin Shields, Citigroup. Actually my questions have been answered. Thank you.

A - Ezequiel Nieto Baquera

Thank you very much for all your questions. We will be pleased to in any way we have today see you to Valencia on the May 21 and May 26 for our business outlook and long-term projections. And we think its going to be very good. Thank you very much.

Operator

Ladies and gentlemen thank you for your participation. This concludes today’s conference. You may now disconnect your lines. Thank you.

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Source: Telefónica Full Year 2005 Earnings Conference Call Transcript (TEF)
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