Press release

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Operational highlights

• Telefónica Europe met its 2008 financial targets at the top end of guidance:
  • 5.9% year-on-year growth in revenues (vs. guidance of 4% - 7%)
  • 4.7% year-on-year growth in OIBDA (vs. guidance of 2% - 6%)
• Total customer base up 9% to 46 million
• Best selling device iPhone tops 1 million sales in UK
• O2 outperforms UK market yet again in difficult economic times with over 10% growth in both revenues and OIBDA
• Customer satisfaction riding high – churn continues to fall to record levels while JD Power names Telefónica O2 UK #1 network operator in mobile pre- and postpay, fixed and mobile broadband
• Telefónica O2 Germany returns to positive revenue growth
• Marked improvement in overall performance across Telefónica Europe Group

Matthew Key, Chairman & Chief Executive of Telefónica Europe, commented:
“Telefónica Europe has met its 2008 financial targets at the top end of our yearly guidance in spite of highly competitive markets and in extremely difficult economic conditions. Delivery of six per cent year-on-year revenue growth and five per cent growth in OIBDA in the current market conditions demonstrates an extremely strong performance. This is further evidence of the resilience of the telecoms sector, although there is no room for complacency as our industry is by no means immune. It is critical that we continue to deliver propositions and services that add real value to our 46 million customers across Europe in these market conditions.

The UK business turned in yet another outstanding performance with double digit year-on-year growth and net mobile additions in the year up 45.3% reaching 1,087,866. In Q4 we added 499,000 fixed and mobile customers and ended 2008 with a total customer base approaching 22 million (including Tesco Mobile), representing growth of 7.5% year-on-year.

This great performance in the UK was fuelled by four key areas:

• Number one in customer satisfaction – evident in lowest ever churn levels;
• Our SIM-only Simplicity tariff, which accounted for approximately a quarter of new consumer contracts and now represents over 10% of our consumer postpay
  base;
• The success of our products at the top end of the market, including Blackberry and iPhone;
• The success of our broadband proposition where sales in 2008 accelerated fourfold to a customer base of more than 340,000 while delivering high levels of customer satisfaction that resulted in being named as No. 1 supplier by JD Power in fixed and mobile broadband.

Our businesses in Germany, Ireland and Czech Republic also reported robust year-end results. Telefónica O2 Germany, in particular, has turned its fortunes around and, in 2009, will build on a fourth quarter that saw it return to service revenue growth and deliver OIBDA margins that are on a par with the UK. This was a fitting end to a year in which we focused on putting in place the foundations of the business to achieve a balanced approach between growth and profitability in the German telecommunications market. Telefónica O2 Ireland weathered a steadily worsening economic environment and strong competition to record significant improvements in year-on-year trends. We recorded net additions of 14,589 in the fourth quarter to total 81,561 net additions in the year. The total customer base stood at 1.7 million at the end of December, 5.0% higher than a year ago. Telefónica O2 Czech Republic hit its annual guidance and achieved a positive turnaround in its fixed-line business.

While our results appear to be bucking economic trends, we remain concerned about the current trading environment which has resulted in an overall smaller market. In times like these, execution becomes even more critical in offering customers services and propositions that they value. I believe the telecoms sector can help fuel economic recovery, provided the right regulatory framework is given. We call upon politicians, regulators and the industry to work together to ensure the regulatory clarity that will favour investments in R&D and new infrastructure.”

Telefónica Europe Contacts:

David Nicholas      
Director of Communications      
Telefónica Europe plc      
david.nicholas@o2.com     
t: +44 (0) 771 575 9176     

Simon Lloyd
Head of Media Relations
Telefónica Europe plc
simon.lloyd@o2.com
t: +44 (0)1753 628335

Telefónica Europe press office: 01753 628402

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