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Telefónica Ends 2012 With Net Profit Of 3,928 Million Euros After Write-Offs Totalling 2,536 Million

Fixed-line accesses reached 40.0 million at the end of 2012, with net additions of 181 thousand during the fourth quarter. Retail fixed broadband accesses reached 18.6 million at the end of the year, a 3% increase vs. December 2011, with 530 thousand net additions during 2012. In the fourth quarter, Telefónica Europe showed net additions for the first time since March 2011, thanks to the commercial momentum on fixed broadband at Telefónica España. Retail fixed broadband accesses reached a penetration rate of 46% over total fixed accesses.

Analysis of the income statement

It is important to note that Atento Group deconsolidated its results from Telefónica Group as of the end of November 2012 (following the disposal of the company during the fourth quarter of 2012), therefore affecting year-on-year comparisons of Telefónica's reported financial results.

Revenues in 2012 totalled 62,356 million euros, a 0.8% decrease vs. 2011, (-2.0% year-on-year in the fourth quarter), affected by adverse conditions in certain markets, both economic and those resulting from more intense competition, and the negative effect of regulation. Revenues increased 0.7% year-on-year in 2012, excluding the negative effect of regulation.

The Company's high diversification remains a key differentiating factor in the current environment, as demonstrated by the revenue breakdown. By regions, Telefónica Latinoamérica's revenues in 2012 continued to show strong year-on-year growth in organic terms (+6.7%), accelerating in the fourth quarter vs. the third quarter (+7.5% vs. +6.4%), and they now account for 49% of consolidated revenues (+2.9 percentage points vs. the previous year), exceeding the revenues from Telefónica Europe (48% of total). By services, mobile data revenues remained as growth driver in 2012 (+12.8% year-on-year), contributing more than 34% to mobile service revenues during the period.

Consolidated operating expenses amounted to 42,343 million euros, 4.9% less than in 2011. The reported year-on-year comparison is affected by the provision for expenses related to the redundancy program in Spain booked in the third quarter of last year (2,671 million euros). The trend in expenses improved in the fourth quarter, with a 3.1% decrease year-on-year, thanks to the efficiency and cost cutting measures introduced.

By concepts, supplies for full-year 2012 totalled 18,074 million euros, a 1.0% decrease in reported terms. In the fourth quarter of 2012, the decrease accelerated (-3.9% year-on-year in reported terms), reflecting lower mobile interconnection costs in all regions and lower handset upgrades in Spain and the UK. Subcontract expenses stood at 13,487 million euros while personnel costs stood at 8,569 million euros, a 22.7% decrease vs. 2011, being the year-on-year comparison affected by the provision for the redundancy program in Spain mentioned above. Excluding Atento, which was sold in the fourth quarter, Telefónica's average workforce stood at 131,468 employees.

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