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Operational Highlights:

• Telefónica Europe delivered a strong first quarter financial performance with a 11.7% growth in operating cash flow in a tough economic environment
• Revenue grew 4% while OIBDA rose 7% year-on-year, improving margin by 0.8 percentage points
• Improved balance across Telefónica Europe’s business portfolio, with increasing contribution from Germany and growing importance of DSL
• Total customer base up 9% to 46.7 million
• Telefónica O2 UK outperformed the market yet again, bucking trends with revenue and OIBDA growth of nearly 7% fuelled by increasing mobile data usage.  Contract churn at lowest-ever for UK market
• Telefónica O2 Germany maintained its recent turnaround in performance with a 3.6% year-on-year growth in total revenues and OIBDA up more than 24%

Matthew Key, Chairman & Chief Executive of Telefónica Europe, commented:
"Telefónica Europe continues to go from strength to strength, outperforming our competitors by investing in customer experience as a means to drive sustainable growth and emerge from this recession fitter and stronger than before. 

"In spite of a tough economic environment, we delivered a strong set of results in the first quarter in increasingly competitive markets.  We have, in particular, reported impressive cash flow growth, while maintaining our levels of investment to ensure the long-term health of the business.

"At the end of March 2009, Telefónica Europe’s total customer base reached 46.7 million (+9% year-on-year), with mobile customer net additions in the quarter of approaching 400,000.  This highlights an exceptional performance in the contract segment (up more than 12%) built on propositions around flat rates, SIM-only and mobile broadband, as well as successful retention activities across markets.  Revenues in the first quarter of 2009 continued to show resilient year-on-year growth of  4% in organic terms to reach €3.245 billion.
 
"Key to this ongoing success is the improved balance in our European business portfolio, particularly Germany where, as anticipated, we are continuing to build operational momentum thanks to the foundations we have put in place over the past year.  We are also seeing an increasing revenue contribution from our fixed DSL activities across the group.

"The UK business yet again outperformed in a slower market.  Telefónica O2 UK’s churn is the lowest the industry has ever known - helped by our constantly evolving range of innovative consumer and business propositions.  We added more than a quarter of a million contract customers in the first three months of 2009 - a growth of around 20% year-on-year - and at the end of March contract customers made up over 40% of the total base.  Significantly, non-SMS data revenues were up 42%, driven mainly by an increase in the number of mobile broadband connections and the continued success of high-end phones such as BlackBerry and the iPhone.

"The recovery in the performance of Telefónica O2 Germany continues.  Our mobile customer base reached 14.5 million at the end of March - an increase of 11.7% year-on-year.  The German operation delivered profitable growth, benefiting from our significant investment in own network build-out and increased distribution channels.   With the recent introduction of a ground-breaking new commercial proposition in the German market, based on a clear, simple and transparent tariff structure, I am convinced we will see this trend continue - keeping us on track to realising our full potential in Europe’s largest market.

"Ireland's difficult economic climate saw lower commercial activity across all sectors than in the same period of 2008.  However, more efficient management of the business allowed Telefónica O2 Ireland to marginally increase operating cash flow over the previous year.  Telefónica O2 Czech Republic drove very strong commercial activity in the first quarter of 2009 and, in Slovakia, we continued to report improved customer growth and financial performance.

"During the quarter, we also announced a milestone pan-European network infrastructure sharing collaboration with Vodafone which will deliver cost efficiencies amounting to hundreds of millions of euros.  We have now moved into the implementation phase of this wide-ranging programme"

-ends-

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: +44 (0)1753 628402

All Telefónica Europe news releases can be accessed at our web site: http://www.o2.com/

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