OPERATIONAL HIGHLIGHTS:

Telefónica Europe continued to deliver top line growth and again outperformed across its key European markets. 

• Revenues of €10.1 billion in the year to September grew 1.4% in constant currency, accelerating to 3% in the third quarter, excluding mobile termination rate cuts

• Operating income before depreciation and amortization (OIBDA) for the first nine months increased 4.6% in organic terms to €2.9 billion, with Telefónica O2 Germany being the main contributor to this growth. OIBDA margin remained stable at 28.6%

• Operating cash flow amounted to €1.7 billion - a significant organic increase of 16.1% in the first nine months of 2009

• Total customer base was up 8% year on year at 48.6 million. 895,000 mobile customers were added in the third quarter, with nearly three quarters of all new customers in the contract segment. The acceleration in postpay growth underlines the company’s position as the home of the smartphone, as the introduction of the Palm Pre and Samsung Galaxy complemented the ongoing success of iPhone

• O2 continued to outperform its competitors in the UK, based on market-leading churn, driven by innovative offerings including O2 Money and O2 Priority, supported by the ongoing popularity of propositions such as “Simplicity” and high-end devices

• Telefónica O2 Germany maintained its improved performance, with highly successful newtariffs, a rapidly developing data business and one of the highest quality networks in Europe,as recently confirmed by “Connect” magazine’s independent network test. The magazine also ranked the company the best DSL provider in Germany

Matthew Key, Chairman & Chief Executive of Telefónica Europe, commented:
“Telefónica Europe has again delivered impressive results in a fast changing environment, with top
line organic growth accelerating thanks to our unwavering focus on the customer and maximising
the efficiency of our operations. With our businesses in both the UK and Germany now
outperforming, we are seeing further evidence that the rebalancing of our European business
portfolio is continuing to bear fruit.
“Despite the economic downturn, we have continued to invest in the market in order to drive
growth. Over the past 12 months, we have taken nearly 60% of all mobile net adds across our
markets. We have established O2 as the home of the smartphone and are now seeing firm evidence
of mobile data taking off, with more than 5 million of our UK customers regularly accessing the
internet on their phones and a 20-fold increase in data traffic on our network in the last year.

“Telefónica O2 UK maintained its market leadership, yet again outperforming its competitors in a
more competitive environment. We added 292,000 net mobile customers in the quarter, bringing
the mobile net adds for the first nine months of 2009 to 686,000, with an outstanding 22.5 per cent
year-on-year increase in the contract segment, which made up 44.5 per cent of the total customer
base at the end of September 2009. O2’s ongoing success in the UK is clearly down to our strategy
of putting the customer first – our levels of churn are the lowest in the market and the popularity of
our propositions such as “Simplicity” and our wide range of high-end devices continues to pay
dividends. The use of mobile internet is also driving growth as increasing smartphone numbers are
impacting on data ARPU figures – which rose 5.1 per cent in the third quarter.

“Telefónica O2 Germany is also clearly outperforming the market and is closing the gap on its
competitors in Europe’s biggest telecoms market, thanks largely to the new commercial approach of
the company and its focus on innovative and simple customer propositions, as well as its
significantly improved network quality. Telefónica O2 Germany has added more than 1.2 million
new mobile customers this year, bringing the mobile customer base to 15.4 million at the end of
September 2009. The successful introduction of the “O2o” tariff resulted in strong customer net
additions of 468,000 in the third quarter, with the contract segment now representing 48.3 per cent
of the customer base. Telefónica’s long-term investment in O2 is clearly paying off in Germany, as
the company is now the main growth driver of Telefónica Europe’s OIBDA. Following the recent
agreement to buy HanseNet, the company will be in a powerful position to capitalise on the
growing demand for integrated fixed and mobile broadband services in Germany.

“The economic climate has resulted in an extremely tough trading environment which is impacting
revenues for both Telefónica O2 Ireland and Telefónica O2 Czech Republic. Nonetheless, in
Ireland we continued to focus our commercial activity on the contract segment while posting a
significant improvement in operating cash flow generation, along with increases in both OIBDA
and margins in the quarter. Our Czech business continues to be negatively impacted by a
challenging environment and by additional mobile termination rate cuts, though the Company
maintained solid commercial momentum in fixed and mobile segments in a slower market. In
Slovakia, the Company sustained a good financial and operating performance.
In summary, Telefónica Europe has maintained its momentum and again delivered strong quarterly
results. While the current economic situation is clearly having an impact on all business, it is not
slowing down the digital revolution and we believe there is good growth going forward in our
industry. We have a very clear strategy to capture growth opportunities across all sectors – from
consumers to SME to multinational corporations – by placing the customer at the centre of
everything we do.”

Source: Telefonica