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Reporting Model Telefónica European Communication Summit Brussels, June 2011 Telefónica S.A. Corporate Sustainability

Contents 01 CR Report as a value creation tool for stakeholders 02 Telefonica:18 countries and a unique strategy 03 The bet for integration in Telefonica: the three blocks The intersectorial approach The sectorial approach The local approach: two examples 04 Conclusions

Contents 01 CR Report as a value creation tool for stakeholders 02 Telefonica:18 countries and a sole strategy 03 The bet for integration in Telefonica: the three blocks The intersectorial approach The sectorial approach The local approach: two examples 04 Conclusions

01 What is the challenge for our CR Report? facing the gap between stakeholders and company, bringing the value of the company to the attention of all its stakeholders NGOs Stakeholders Global Media Customers Regulators Employees Investors Sectorial Local Value creation

01 Main objective: to improve the trust of the market More than 80 investors do demand from the SEC transparency in the Sustainability Report To standardize the publication of information on sustainability ( companies report annually on a comprehensive set of sustainability indicators comprised of both universally applicable and industry-specific components. To ensure consistent reporting, we would like Issuers to adhere to the highest reporting level of the current version of the Global Reporting Initiative (GRI) guidelines based on GRI guidelines G3 ) Relevant or material ( This would give companies guidance on reporting in general and particularly on emerging issues that GRI might not directly address. )

02 The annual CR Report is the best presentation of the different CR activities carried out, bringing the value of the company to all its stakeholders

02 that Telefonica implements in 18 different countries with a commitment of transparency and assurance Last year 18 reports were published, all of them with different levels of assurance according to the stage of development of CR in each country All of them present the same CR strategy AA 1000 Principles Inclusivity Materiality The company identifies its stakeholders and their importance the company knows what it s important for its stakehlders Responsiveness The company comunicate coherent responses to all the identified materiality issues

03 Telefonica bets for an integrated approach for the Report

03 Chapter 1: The Intersectorial approach Set of common requirements, comparable. Keeping an intersectorial approach which allows for comparability and improves transparency, as well as reflecting the improvements in the management maintaining the spirit of a progressive report.

03 Chapter 1: crossing Principles with indicators + Human Rights Pples. 1-2 HR1, HR2, HR3, HR4, HR6, HR7 SO3, SO4 Labour standards Pples. 3-6 LA4, LA5, LA6, LA7, LA8, LA9, LA10, LA11, LA12, LA13, PR1, PR2, IO3, HR1, HR2, HR5, HR6, HR7, EC5 3 Environmental Pples. 7-9 EC2, EN2, EN3, EN4, EN5, EN6, EN7, EN8, EN12, EN14, EN16, EN17, EN18, EN21, EN22, EN23, EN26, EN27, EN28, EN29, EN30, IO7, IO8, PA8, PA11, SO05 Corruption Pple. 10 HR3, HR4, SO2, SO3, SO4, SO5, SO6 1. Businesses should support and respect the protection of internationally proclaimed human rights. 2. Businesses should make sure they are not complicit in human rights abuses 3. Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining 4. Businesses should uphold the elimination of all forms of forced and compulsory labour. 5. Businesses should uphold the effective abolition of child labour. 6. Businesses should uphold the elimination of discrimination in respect of employment and occupation. 7. Businesses should support a precautionary approach to environmental challenges 8. Businesses should undertake initiatives to promote greater environmental responsibility 9. Businesses should encourage the development and diffusion of environmentally friendly technologies. 10. Businesses should work against corruption in all its forms, including extortion and bribery

03 Chapter 2: the sectorial approach Relevant issues for Telco. MATERIALITY MATRIX Providing a response to the principles of inclusiveness (identifying the stakeholders and evaluation for TelefOnica), of materiality (learning what is important to our stakeholders and what is important for Telefónica) and lastly the concept of the response (that is, providing a response to each material issue which is identified). All of this constitutes the assurance described in the AA1000 standard. Maintaining the adaptation of the report to the GRI Sustainability Reporting Guidelines 3.0 G3 Analysis of materiality at both Corporate and OBs levels (stakeholders dialogue).

03 Chapter 2: Materiality

03 Chapter 2: Index

03Chapter 2: crossing the strategy with materiality (I) Management Risks 1. Diversity (EC07, LA13, LA14) 2. Health & Safety (LA06, LA09, IO03 3. Integrity (EC04, HR01, HR03, HR04, HR07, HR08, HR09, SO02, SO03, SO04, SO05, SO06, SO08) 4. Privacy & Data protection (PR08, TA05) 5. Responsibility in the Supply Chain (EC06, HR02) 6. Protection of children (HR06) 7. Responsible advertising (PR04, PR06, PA10) 8. Electromagnetic fields (IO04, IO05, IO06, IO07, PA08, PA09) 9. Environmental management (EC02, EN01, EN02, EN03, EN04, EN05, EN06, EN07, EN08, EN12, EN13, EN14, EN16, EN17, EN18, EN19, EN22, EN23, EN24, EN30) Management Opportunities 1. Access to ICT (EC08, PA01, PA05, PA06) 2. Digital inclusion (IO01, PA02, PA03, PA07) 3. Green ICTs (EN06, EN25, EN27, EN29, IO08, PA11) Stakeholders engagement 1. Dialog 2.0 2. Dialog roundtables Crossing with the Business Principles Offices and Project Management Departments Relate the advances been made on corporate responsibility / sustainability issues at Telefonica

Management Risk: Diversity GOALS DESCRIPCIÓN DEL PROYECTO To position Telefónica internally and externally as a company that understands diversity as a management tool. BUSINESS PRINCIPLE LÍDER DEL AREA LEADER PROYECTO Human Rights Observance of Law Business Principles Offices + H&S Department OBJETIVOS GRI GRI INDICATORS Rotation index Number of women Number of women in senior management Directors Number of employees with disabilities Average age of staff 17

Management Risk: Health and Safety GOALS DESCRIPCIÓN DEL PROYECTO BUSINESS PRINCIPLE LÍDER DEL AREA LEADER PROYECTO To have a common prevention policy in all the company businesses.. Human Rights Observance of Law Health & Safety Business Principles Offices + H&S Department OBJETIVOS GRI GRI INDICATORS Injury rate Occupational disease rate Lost day rate Absentee rate Fatality rate 18

Management Risk: Responsibility in the Supply Chain GOALS DESCRIPCIÓN DEL PROYECTO To have a general procurement process for the whole group including sustainability aspects. BUSINESS PRINCIPLE LÍDER DEL AREA LEADER PROYECTO OBJETIVOS GRI NO GRI Responsibility in the supplier chain We require our suppliers to apply similar principles in running their businesses to our own business principles; and we require them to comply with the law. Business Principles Offices + Suppliers Number of awarded suppliers Number of audited suppliers Purchase volume Purchase volume locally awarded GRI INDICATORS Total number of suppliers NON GRI INDICATORS Satisfaction Global Index of suppliers 19

Management Risk: : Integrity DESCRIPCIÓN GOALS DEL PROYECTO To encourage Corporate Governance Policies to guarantee the integrity of Teléfónica`s activities. BUSINESS PRINCIPLE LÍDER DEL AREA LEADER PROYECTO Integrity Bussines Principles Offices GRI INDICATORS Percentage of employees trained in Business Principles GRI Incidents registered through confidential help facility related to corruption incidents Incidents registered through confidential help facility related to discrimination incidents Number of staff dismissed due to breach of our Business Principles 20

Management Risk: Privacy and Data Protection GOALS DESCRIPCIÓN DEL PROYECTO BUSINESS PRINCIPLE LÍDER DEL AREA LEADER PROYECTO To generate confidence on the digital society. To assure income increase from the digital society. To foster measures that guarantee protection of personal data at Telefonica`s companies. Honesty and Confidence Business Principles Offices + Legal Department GRI GRI INDICATORS Total number of substantiated complaints regarding breaches of customer privacy and losses of customer data 21

Management Risk: Responsible Marketing GOALS DESCRIPCIÓN DEL PROYECTO BUSINESS PRINCIPLE LÍDER DEL AREA LEADER PROYECTO To assure that all the company marketing activities for commercial or institutional objectives, meet and are coherent with the business principles of Telefónica.. Integrity and Trust - Human Rights Observance of Law Business Principles Offices + Marketing Deparments+ Legal GRI GRI INDICATORS Total number of incidents resulting from breaches of regulations on marketing communications, including advertising, promotion and sponsorship. 22

Management Risk: Environmental Management GOALS DESCRIPCIÓN DEL PROYECTO PRINCIPIO PRINCIPIO DE DE ACTUACIÓN ACTUACIÓN LÍDER DEL LIDER AREA PROYECTO OBJETIVOS GRI To implement the Global Environmental Management System an Environmental Performance Index (ICA) to assess Telefónica`s business environmental performance. Environment and Sustainability Development Business Principles Offices + Environment Department Revenues generated from Waste Waste management expenses Environmental impact assessments investment GRI INDICATORS Electromagnetic fields measurements investments Visual impact works investments Noise impact works investments Environmental maintenance expenses Other environmental expenses Environmental investments to compliance with legal requirements 23

03 Chapter 2: crossing the strategy with materiality (II) Building sustainable relations with with our professionals 1. Strategy and policy 2. Figures and KPIs (EC03, EC07, LA02, LA02, LA03,LA04,LA05, LA07, LA13, LA14) 3. Attracting and retaining talent (HR03, LA10,LA11, LA12) 4. Freedom of association (HR05, HR06) with Society 1. Economic impact (EC01, EC02, EC04, EC06, EC09) 2. Universal Service (EC08, IO02) 3. Social action (SO01) 4. Knowledge and education (SO01) 5. Innovation and technology (IO01, PA01, PA04) with customers 1. Structure of customer base 2. Customer experience programs (PR05, PA10) 3. Customer Satisfaction Index (PR05) 4. Products & service quality (IO03, PA03, PA11, PR01, PR02) 5. Response capacity with natural disasters (PA06) with regulators 1. Competitive context (PR01, PE2, PR03, PR04, SO07) 2. Regulatory context (PR07, PR08,PR09) with our suppliers 1. Strategy and policy 2. Figures and KPIs (EC06, HR02) 3. Impact on Telefonica s activities (PR08)

03 Chapter 3: The local approach

04 Conclusions The 3 Blocks Reporting Model: provides comparable and relevant information for overall sector and inter-sector comparability, sectoral relevance or materiality, and adaptation to local requirements. incorporate the requirements most demanded by the investment community and the existing global trends, which seek to make the report the cornerstone of transparency and reliability.