Telefonica SA : Telefónica's General Shareholders' meeting approves shareholder remuneration by means of a scrip dividend

NOTA DE PRENSA PRESS RELEASE

Madrid, 14 May 2012

• César Alierta, the Chairman of Telefónica, reiterated the Company's unwavering commitment to its shareholders and expressed his conviction that the company remains an excellent investment choice even amid the current economic uncertainty.

• The Shareholders' Meeting approved all the resolutions submitted.

Over the course of the Shareholders' Meeting, which was held in Madrid, the Chairman of Telefónica and its Board of Directors, César Alierta, presented a report in which he described as exceptional the dividend yield offered by the Company, stating that it is "the highest return of the world's top one hundred companies by market capitalisation, underlining our Company's steadfast commitment to its shareholders." The proposed 2012 dividend totals 1.50 euros per share, including a cash payment of 1.30 euros, with a share buyback accounting for the remaining amount. According to César Alierta, this dividend "translates into a 13.3% yield at the current share price(*), which means that Telefónica remains an excellent investment opportunity even in the challenging current economic circumstances." Since 2005 Telefónica has steadily increased its dividend per share, earmarking over 40 billion euros for shareholder remuneration in this seven-year period.
César Alierta also reviewed the Company's solid earnings in 2011, which were in line with the targets announced, and underlined the importance of the geographical diversification undertaken in the difficult prevailing economic climate. "We are witnessing the rise of a new global economic order," the Chairman stated in his report, "driven chiefly by growth in the emerging economies, which are playing an increasingly prominent role in decision-making in a globalised world. This further underlines the important competitive advantage that geographic diversification affords our company. In this context, Telefónica has made progress towards its objective of capturing growth in all the different markets where it is present and the Company ended 2011 with over 306 million customers.

In his report, the Chairman of Telefónica highlighted to shareholders the bright prospects of the digital environment in which the Company operates, which is consistently outpacing global economic growth thanks to the ongoing digitisation process. This process extends beyond communication needs and is connected with the insatiable demand for digital applications and services in spheres such as public administration, education and entertainment with the aim of

enhancing efficiency and improving quality of life. In this context, the digitisation process was inextricably linked with developments in mobile telephony and broadband in 2011, a year when worldwide smartphone sales outstripped those of PCs. According to César Alierta: "we can conclude that Telefónica operates in an industry with outstanding growth prospects, and, rest assured, we will continue to deliver further improvements moving forward."
In addition, Telefónica's Chairman underlined the importance of extracting full benefit from the deals struck with sector companies and of forging partnerships that bolster our global position. Thanks to its strategic focus, Telefónica already boasts international partners of the calibre of China Unicom, via a strategic alliance, and Telecom Italia, through an industrial deal struck in
2007. Agreements are also in place with other major players including Etisalat, Bouygues and
Sunrise under the Partners Program which the Company heads.
The creation last September of Telefónica Digital is in perfect keeping with Telefónica's vow to "seize all available growth opportunities in the digital world, thus speeding up innovation, broadening and reinforcing our portfolio of products and services and maximising the advantages of our broad customer base", César Alierta explained in his speech distributed to shareholders. The creation of the new Global Resources operating unit, which will boost efficiency and sustainability, and the concentration of the business into two major geographic units, Telefónica Europa and Telefónica Latinoamérica will undoubtedly also strengthen the Company's strategy, enhancing its international positioning in the digital world and, in short, its global leadership. "Our aspiration," César Alierta concludes, "is to become the best global communications company in the digital world."

In addition to the scrip dividend, the Shareholders' Meeting also approved a reduction in the Company's share capital via the cancellation of treasury stock to 4,479,787,122 euros divided into the same number of ordinary shares. Share capital has been reduced by 84,209,363 euros charged to voluntary reserves.
Also, and in addition to sanctioning the annual financial statements and the reelection of the auditor, Telefónica's shareholders approved the reelection of the directors César Alierta Izuel, José María Álvarez-Pallete, Gonzalo Hinojosa Fernández de Angulo and Pablo Isla Álvarez de Tejera for an additional five-year period and ratified the interim appointment of Ignacio Moreno Martínez as a proprietary Director.
Finally, the Shareholders' Meeting also approved the proposed amendments to the articles of Telefónica's By-Laws and Regulations for the General Shareholders' Meeting, and the corporate website.

(*) 11.29 euros on 25 April 2012

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