As
filed with the Securities and Exchange Commission on March 26, 2010
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
_______________
FORM
20-F
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(Mark
One)
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o
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REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b)
OR
(g) OF THE SECURITIES EXCHANGE ACT OF 1934
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OR
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2009
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OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from _____ to _____
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OR
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o
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SHELL
COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
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Commission
file number: 001-09531
TELEFÓNICA,
S.A.
(Exact
name of Registrant as specified in its charter)
KINGDOM
OF SPAIN
(Jurisdiction
of incorporation or organization)
Distrito
C, Ronda de la Comunicación, s/n
28050
Madrid, Spain
(Address
of principal executive offices)
Lucila
Rodriguez Jorge, Securities Legal Department
Distrito
C, Ronda de la Comunicación, s/n, 28050 Madrid, Spain
Tel.
+34 91 482 3734, Fax. +34 91 482 3768, e-mail: amv@telefonica.es
María
García-Legaz Ponce, Head of Investor Relations,
Distrito
C, Ronda de la Comunicación, s/n, 28050 Madrid, Spain
Tel.
+34 91 482 8700, Fax. +34 91 482 8600, e-mail: ir@telefonica.es
(Name,
Telephone, E-Mail and/or Facsimile number and Address of Company Contact
Person)
_______________
Securities
registered or to be registered pursuant to Section 12(b) of the
Act:
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Title
of each class
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Name
of each exchange on which registered
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Ordinary
Shares, nominal value €1.00 per share*
American
Depositary Shares, each representing three
Ordinary
Shares
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New
York Stock Exchange
New
York Stock Exchange
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Guarantees**
by Telefónica, S.A. of the $1,000,000,000 Fixed Rate Guaranteed Senior
Notes Due 2011; $750,000,000 Fixed Rate Guaranteed Senior Notes Due 2013;
$850,000,000 Floating Rate Guaranteed Senior Notes Due 2013;
$1,250,000,000 Fixed Rate Notes Due 2015; $1,250,000,000 Fixed Rate
Guaranteed Senior Notes Due 2016; $700,000,000 Fixed Rate Guaranteed
Senior Notes Due 2017; $1,000,000,000 Fixed Rate Notes Due 2019;
$2,000,000,000 Fixed Rate Guaranteed Senior Notes Due 2036; each of
Telefónica Emisiones, S.A.U.
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New
York Stock Exchange
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*
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Not
for trading, but only in connection with the listing of American
Depositary Shares, pursuant to the requirements of the New York Stock
Exchange.
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**
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Not
for trading, but only in connection with the listing of the $1,000,000,000
Fixed Rate Guaranteed Senior Notes Due 2011; $750,000,000 Fixed Rate
Guaranteed Senior Notes Due 2013; $850,000,000 Floating Rate Guaranteed
Senior Notes Due 2013; $1,250,000,000 Fixed Rate Notes Due 2015;
$1,250,000,000 Fixed Rate Guaranteed Senior Notes Due 2016; $700,000,000
Fixed Rate Guaranteed Senior Notes Due 2017; $1,000,000,000 Fixed Rate
Notes Due 2019; $2,000,000,000 Fixed Rate Guaranteed Senior Notes Due
2036; each of Telefónica Emisiones, S.A.U. (a wholly-owned subsidiary of
Telefónica, S.A.)
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Securities
registered or to be registered pursuant to Section 12(g) of the Act:
None
_______________
Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
_______________
The
number of outstanding shares of each class of capital stock of Telefónica, S.A.
at December 31, 2009 was:
Ordinary
Shares, nominal value €1.00 per share: 4,563,996,485
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes x No o
If this
report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
Yes o No x
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
Yes o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer” and “large accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large accelerated
filer x Accelerated
filer o Non-accelerated
filer o
Indicate
by check mark which basis of accounting the registrant has used to prepare the
financial statements included in this filing:
U.S. GAAP o
International Financial
Reporting Standards as Issued by the international Accounting Standards Board
x
Other o
If
“Other” has been checked in response to the previous question, indicate by check
mark which financial statement item the registrant has elected to
follow.
Item 17 o Item 18 o
If this
is an annual report indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
__________________
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i
This
Annual Report contains statements that constitute forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
Section 21E of the Securities Exchange Act of 1934, as amended, and the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. The
forward-looking statements in this Annual Report can be identified, in some
instances, by the use of words such as “will”, “expect”, “aim”, “hope”,
“anticipate”, “intend”, “believe” and similar language or the negative thereof
or by the forward-looking nature of discussions of strategy, plans or
intentions. These statements appear in a number of places in this Annual Report
including, without limitation, certain statements made in “Item 3. Key
Information—Risk Factors”, “Item 4. Information on the Company”, “Item 5.
Operating and Financial Review and Prospects” and “Item 11. Quantitative and
Qualitative Disclosures About Market Risk” and include statements regarding our
intent, belief or current expectations with respect to, among other
things:
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·
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the
effect on our results of operations of competition in telecommunications
markets;
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·
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trends
affecting our financial condition or results of
operations;
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·
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acquisitions
or investments which we may make in the
future;
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·
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our
capital expenditures plan;
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·
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our
estimated availability of funds;
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·
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our
ability to repay debt with estimated future cash
flows;
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·
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our
shareholder remuneration policies;
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·
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supervision
and regulation of the telecommunications sectors where we have significant
operations;
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·
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our
strategic partnerships; and
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·
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the
potential for growth and competition in current and anticipated areas of
our business.
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Such
forward-looking statements are not guarantees of future performance and involve
numerous risks and uncertainties, and actual results may differ materially from
those anticipated in the forward-looking statements as a result of various
factors. The risks and uncertainties involved in our business that could affect
the matters referred to in such forward-looking statements include but are not
limited to:
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·
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changes
in general economic, business or political conditions in the domestic or
international markets (particularly in Latin America) in which we operate
or have material investments that may affect demand for our
services;
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·
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changes
in currency exchange rates, interest rates or in credit risk in our
treasury investments or in some of our financial
transactions;
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·
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general
economic conditions in the countries in which we
operate;
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·
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existing
or worsening conditions in the international financial
markets;
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·
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failure
to maintain satisfactory working relationships with our joint venture
partners;
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·
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the
actions of existing and potential competitors in each of our
markets;
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·
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the
impact of current, pending or future legislation and regulation in
countries where we operate;
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·
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failure
to renew or obtain the necessary licenses, authorizations and concessions
to carry out our operations;
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·
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the
potential effects of technological
changes;
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·
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the
impact of limitations in spectrum
capacity;
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·
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failure
of suppliers to provide necessary equipment and services on a timely
basis;
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·
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the
impact of unanticipated network
interruptions;
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·
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the
effect of reports suggesting that radio frequency emissions cause health
problems;
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·
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the
impact of impairment charges on our goodwill and assets as a result of
changes in the regulatory, business or political environment;
and
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·
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the
outcome of pending litigation.
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Readers
are cautioned not to place undue reliance on those forward-looking statements,
which speak only as of the date of this Annual Report. We undertake no
obligation to release publicly the result of any revisions to these
forward-looking statements which may be made to reflect events or circumstances
after the date of this Annual Report including, without limitation, changes in
our business or acquisition strategy or planned capital expenditures, or to
reflect the occurrence of unanticipated events.
Our
ordinary shares, nominal value €1.00 per share, are currently listed on each of
the Madrid, Barcelona, Bilbao and Valencia stock exchanges under the symbol
“TEF”. They are also listed on various foreign stock exchanges such
as the London, Buenos Aires and Tokyo stock exchanges and are quoted through the
Automated Quotation System of the Spanish stock exchanges and through the SEAQ
International System of the London Stock Exchange. American Depositary Shares
(“ADSs”), each representing the right to receive three ordinary shares, are
listed on the New York Stock Exchange and on the Lima Stock Exchange. ADSs are
evidenced by American Depositary Receipts (“ADRs”) issued under a Deposit
Agreement with Citibank, N.A., as Depositary. Brazilian Depositary
Receipts (“BDRs”), each representing the right to receive one ordinary share,
are listed on the São Paulo Stock Exchange and are issued under a Deposit
Agreement with Banco Bradesco, S.A., as Depositary.
As used
herein, “Telefónica”, “Telefónica Group”, “Group” and terms such as “we”, “us”
and “our” mean Telefónica, S.A. and its consolidated subsidiaries, unless the
context requires otherwise.
As used
herein, “Atento” means Atento Holding, Inversiones y Teleservicios, S.A. and its
consolidated subsidiaries, unless the context requires otherwise.
Below are
definitions of certain technical terms used in this Annual Report:
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·
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“Access”
refers to a connection to any of the telecommunications services offered
by us. We present our customer base using this model because
the integration of telecommunications services in bundled service packages
has changed the way residential and corporate customers contract for our
services. Because a single customer may contract for multiple
services, we believe it is more accurate to count the number of accesses,
or services a customer has contracted for, as opposed to only counting the
number of our customers. For example, a customer that has fixed
line telephony service and broadband service represents two accesses
rather than a single customer. In addition, we fully count the
accesses of all companies over which we exercise control or joint
control. The following are the main categories of
accesses:
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·
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Fixed
telephony accesses: includes public switched telephone network, or PSTN,
lines (including public use telephony), and integrated services digital
network, or ISDN, lines and circuits. For purposes of calculating our
number of fixed line accesses, we multiply our lines in service as
follows: PSTN (x1); basic ISDN (x1); primary ISDN (x30, x20 or x10); 2/6
digital accesses (x30).
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·
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Internet
and data accesses: includes broadband accesses (retail asymmetrical
digital subscriber line “ADSL”, satellite, fiber optic and circuits over 2
Mbps), narrowband accesses (Internet service through the PSTN lines) and
other accesses, including the remaining non-broadband final client
circuits. “Naked ADSL” allows customers to subscribe for a broadband
connection without a monthly fixed line
fee.
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·
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Pay
TV: includes cable TV, direct to home satellite TV, or DTH, and Internet
Protocol TV, or IPTV.
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·
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Mobile
accesses: includes contract and pre-pay mobile telephony. In
2009 in order to align the criteria for the key performance indicators of
our mobile operations, the definition of mobile accesses (and, therefore,
of total accesses) was revised to include machine-to-machine
accesses. In addition, we revised the accounting criteria for
pre-pay mobile accesses at Telefónica O2 Czech Republic and Telefónica O2
Slovakia to conform to the accounting criteria for pre-pay mobile accesses
throughout the Group. In order to count a pre-pay mobile
access, such access must have been active in the most recent three months
prior to counting. As a result of both revisions, we restated
2008 mobile accesses. 2007 information is presented based on
our prior classifications.
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·
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Unbundled
local loop, or ULL: includes accesses to both ends of the copper local
loop leased to other operators to provide voice and DSL services (fully
unbundled loop, fully UL) or only DSL service (shared unbundled loop,
“shared UL”).
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·
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Wholesale
ADSL: means wholesale asymmetrical digital subscriber
line.
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·
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Other:
includes other circuits for other
operators.
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Certain
technical terms used with respect to our business are as follows:
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·
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“ARPU”
is the average revenue per user per month. ARPU is calculated by dividing
total service revenue (excluding inbound roaming revenue) from sales to
customers for the preceding 12 months by the weighted average number of
customers for the same period, and then divided by 12
months. ARPU is calculated using gross service revenue before
deduction of wholesale discounts.
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·
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“CDMA”
means Code Division Multiple Access, which is a type of radio
communication technology.
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·
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“Commercial
activity” includes the addition of new lines, replacement of handsets and
changes in types of contracts.
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·
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“Customer
revenue” means service revenue less interconnection
revenue.
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·
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“Duo
bundle” means broadband plus voice service. We measure “duo bundles” in
terms of units, where each bundle of broadband and voice service counts as
one unit.
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·
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“Final
clients accesses” means accesses provided to residential and corporate
clients.
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·
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“Gross
adds” means the gross increase in the customer base measured in terms of
accesses in a period.
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·
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“HSDPA”
means High Speed Downlink Packet Accesses, which is a 3G mobile telephony
communications protocol in the High-Speed Packet Access (HSPA) family,
which allows networks based on UMTS to have higher data transfers speeds
and capacity.
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·
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“Interconnection
revenue” means revenues received from other operators which use our
networks to connect to our
customers.
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·
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“ISP”
means Internet service provider.
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·
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“LMDS”
means local multipoint distribution
service.
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·
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“Local
loop” means the physical circuit connecting the network termination point
at the subscriber’s premises to the main distribution frame or equivalent
facility in the fixed public telephone
network.
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·
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“MOU”,
or minutes of use, is calculated by dividing the total number of voice
minutes for the preceding 12 months by the weighted average number of
mobile accesses for the same period, and then divided by 12
months. Over the past several years, we have experienced strong
growth in mobile accesses related primarily to data services (such as
accesses related to machine-to-machine and mobile broadband
devices). Such growth in mobile accesses related to data
services limits the use of MOU as an indicator of usage as it increases
the total number of mobile accesses in the relevant period without any
corresponding increase in the number of voice minutes related to such
accesses for the relevant period. As a result, for 2009 and
2008 we have decided to publish traffic evolution in absolute minutes of
use terms rather than MOU.
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·
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“MVNO”
means mobile virtual network operator, which is a mobile operator that is
not entitled to use spectrum for the provision of mobile services.
Consequently, an MVNO must subscribe to an access agreement with a mobile
network operator in order to provide mobile access to their
customers. An MVNO pays such mobile network operator for using
the infrastructure to facilitate coverage to their customers. There are
two types of MVNOs: (i) pure MVNOs, which are typically telecommunications
companies without licensed frequency allocation and want to complete their
telecommunications service portfolio (for example, ONO in Spain); and (ii)
reseller MVNOs which are companies that purchase wholesale mobile minutes
and resell to end-users, and use their brand and distribution channel (for
example, Carrefour in Spain).
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·
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“Net
adds” means the difference between the customer base measured in terms of
accesses at
the end of the period and the beginning of a
period.
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·
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“Revenues”
means net sales and rendering of
services.
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·
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“Service
revenues” means revenues less revenues from handset
sales.
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·
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“Traffic”
means voice minutes used by our customers over a given period, both
outbound and inbound. On-net traffic is only included once
(outbound), and promotional traffic (free minutes included in commercial
promotions) is included. Traffic not associated with our mobile
customers (roaming-in; MVNOs; interconnection of third parties and other
business lines) is excluded. To arrive at the aggregate traffic
for a given period, the individual components of traffic are not
rounded.
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·
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“Trio
bundle” means broadband plus voice service plus IPTV. We measure “trio
bundles” in terms of units, where each bundle of broadband, voice service
and IPTV counts as one unit.
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·
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“UMTS”
means Universal Mobile Telecommunications
System.
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·
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“VoIP”
means voice over Internet protocol.
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·
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“Wholesale
accesses” means accesses we provide to our competitors, who then sell such
accesses to their residential and corporate
clients.
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In this
Annual Report we make certain comparisons in local currency or on a “constant
euro basis” or “excluding foreign exchange rate effects” in order to present an
analysis of the development of our results of operations from year-to-year
without the effects of currency fluctuations. To make comparisons on
a local currency basis, we compare financial items in the relevant local
currency for the periods indicated as recorded in the relevant local currency
for such periods. To make comparisons on a “constant euro basis” or
“excluding foreign exchange rate effects”, we convert the relevant financial
item into euros using the prior year’s average euro to relevant local currency
exchange rate. In addition, we present certain financial information
excluding the effects of Venezuela being considered a hyperinflationary economy
in 2009 by eliminating all of the adjustments made as a result of such
consideration.
In this
Annual Report, references to “U.S. dollars”, “dollars” or “$”, are to United
States dollars, references to “pounds sterling”, “sterling” or “£” are to
British pounds sterling, references to “reais” refer to Brazilian reais and
references to “euro” or “€” are to the single currency of the participating
member states in the Third Stage of the European Economic and Monetary Union
pursuant to the treaty establishing the European Community, as amended from time
to time.
Our
consolidated financial statements as of December 31, 2008 and 2009, and for the
years ended December 31, 2007, 2008 and 2009 included elsewhere in this Annual
Report including the notes thereto (the “Consolidated Financial Statements”),
are prepared in conformity with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards Board (“IASB”),
which do not differ for the purposes of the Telefónica Group from IFRS as
adopted by the European Union.
Not
applicable.
Not
applicable.
Not
applicable.
Not
applicable.
The
following table presents our selected consolidated financial data. It
is to be read in conjunction with “Item 5. Operating and Financial
Review and Prospects” and the Consolidated Financial Statements. The
consolidated income statement and cash flow data for the years ended December
31, 2007, 2008 and 2009 and the consolidated statement of financial position
data as of December 31, 2008 and 2009 set forth below are derived from, and are
qualified in their entirety by reference to, the Consolidated Financial
Statements. The consolidated income statement and cash flow data for
the years ended December 31, 2005 and 2006 and the consolidated statement of
financial position data as of December 31, 2005, 2006 and 2007 set forth below
are derived from Telefónica, S.A.’s consolidated financial statements for such
years, which are not included herein.
Our
Consolidated Financial Statements have been prepared in accordance with IFRS as
issued by the IASB.
The basis
of presentation and principles of consolidation are described in detail in Notes
2 and 3.q., respectively, to our Consolidated Financial Statements.
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As
of or for the year ended December 31,
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||||||||||||||||||||
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2005(1)
|
2006(1)
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2007
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2008
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2009
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||||||||||||||||
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(in
millions of euros, except share data)
|
||||||||||||||||||||
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Revenues
|
37,383 | 52,901 | 56,441 | 57,946 | 56,731 | |||||||||||||||
|
Other
income
|
1,416 | 1,571 | 4,264 | 1,865 | 1,645 | |||||||||||||||
|
Supplies
|
(9,999 | ) | (16,629 | ) | (17,907 | ) | (17,818 | ) | (16,717 | ) | ||||||||||
|
Personnel
expenses
|
(5,532 | ) | (7,622 | ) | (7,893 | ) | (6,762 | ) | (6,775 | ) | ||||||||||
|
Other
expenses
|
(8,212 | ) | (11,095 | ) | (12,081 | ) | (12,312 | ) | (12,281 | ) | ||||||||||
|
Depreciation
and amortization
|
(6,693 | ) | (9,704 | ) | (9,436 | ) | (9,046 | ) | (8,956 | ) | ||||||||||
|
Operating
income
|
8,363 | 9,422 | 13,388 | 13,873 | 13,647 | |||||||||||||||
|
Share
of profit (loss) of associates
|
(128 | ) | 76 | 140 | (161 | ) | 47 | |||||||||||||
|
Net
financial expenses
|
(1,790 | ) | (2,795 | ) | (2,851 | ) | (2,821 | ) | (2,767 | ) | ||||||||||
|
Net
exchange differences
|
162 | 61 | 7 | 24 | (540 | ) | ||||||||||||||
|
Net
financial income (expense)
|
(1,628 | ) | (2,734 | ) | (2,844 | ) | (2,797 | ) | (3,307 | ) | ||||||||||
|
Profit
before taxes from continuing operations
|
6,607 | 6,764 | 10,684 | 10,915 | 10,387 | |||||||||||||||
|
Corporate
income tax
|
(1,904 | ) | (1,781 | ) | (1,565 | ) | (3,089 | ) | (2,450 | ) | ||||||||||
|
Profit
for the year from continuing operations
|
4,703 | 4,983 | 9,119 | 7,826 | 7,937 | |||||||||||||||
|
Profit
from discontinued operations after taxes
|
124 | 1,596 | — | — | — | |||||||||||||||
|
Profit
for the year
|
4,827 | 6,579 | 9,119 | 7,826 | 7,937 | |||||||||||||||
|
Non-controlling
interests
|
(381 | ) | (346 | ) | (213 | ) | (234 | ) | (161 | ) | ||||||||||
|
Profit
for the year attributable to equity holders of the parent
|
4,446 | 6,233 | 8,906 | 7,592 | 7,776 | |||||||||||||||
|
Weighted
average number of shares (thousands)
|
4,870,852 | 4,778,999 | 4,758,707 | 4,645,852 | 4,552,656 | |||||||||||||||
|
Basic
and diluted earnings per share from continuing operations attributable to
equity holders (euros)(2)
|
0.90 | 0.97 | 1.87 | 1.63 | 1.71 | |||||||||||||||
|
Basic
and diluted earnings per share attributable to equity holders of the
parent (euros)(2)
|
0.91 | 1.30 | 1.87 | 1.63 | 1.71 | |||||||||||||||
|
Earnings
per ADS (euros)(2)(3)
|
2.74 | 3.91 | 5.62 | 4.90 | 5.12 | |||||||||||||||
|
Weighted
average number of ADS (thousands)
|
1,623,617 | 1,592,999 | 1,586,236 | 1,548,617 | 1,517,552 | |||||||||||||||
|
Cash
dividends per ordinary share (euros)
|
0.50 | 0.55 | 0.65 | 0.90 | 1.00 | |||||||||||||||
|
Consolidated
Statement of Financial Position Data
|
||||||||||||||||||||
|
Cash
and cash equivalents
|
2,213 | 3,792 | 5,065 | 4,277 | 9,113 | |||||||||||||||
|
Property,
plant and equipment
|
27,993 | 33,887 | 32,460 | 30,545 | 31,999 | |||||||||||||||
|
Total
assets
|
73,174 | 108,982 | 105,873 | 99,896 | 108,141 | |||||||||||||||
|
Non-current
liabilities
|
35,126 | 62,645 | 58,044 | 55,202 | 56,931 | |||||||||||||||
|
Equity
(net)
|
16,158 | 20,001 | 22,855 | 19,562 | 24,274 | |||||||||||||||
|
Capital
stock
|
4,921 | 4,921 | 4,773 | 4,705 | 4,564 | |||||||||||||||
|
Consolidated
Cash Flow Data
|
||||||||||||||||||||
|
Net
cash from operating activities
|
11,139 | 15,414 | 15,551 | 16,366 | 16,148 | |||||||||||||||
|
Net
cash used in investing activities
|
(9,592 | ) | (28,052 | ) | (4,592 | ) | (9,101 | ) | (9,300 | ) | ||||||||||
|
Net
cash (used in) from financing activities
|
(435 | ) | 14,572 | (9,425 | ) | (7,765 | ) | (2,281 | ) | |||||||||||
|
(1)
|
Telefónica
Publicidad e Información, S.A. (TPI) was sold in 2006 and its results of
operations for 2006 and the gain we recorded on its sale are included
under “Profit from discontinued operations after taxes” for
2006. Figures for 2005 have been restated to present TPI’s
results under the same caption.
|
|
(2)
|
The
per share and per ADS computations for all periods presented have been
presented using the weighted average number of shares and ADSs,
respectively, outstanding for each period, and have been adjusted to
reflect the stock dividends which occurred during the periods presented,
as if these had occurred at the beginning of the earliest period
presented.
|
|
(3)
|
Each
ADS represents the right to receive three ordinary
shares. Figures do not include any charges of the
Depositary.
|
Exchange
Rate Information
As used
in this Annual Report, the term “Noon Buying Rate” refers to the rate of
exchange for euros, expressed in U.S. dollars per euro, in the City of New York
for cable transfers payable in foreign currencies as certified by the Federal
Reserve Bank of New York for customs purposes. The Noon Buying Rate certified by
the New York Federal Reserve Bank for the euro on March 19, 2010 was $1.3530 =
€1.00. The following tables describe, for the periods and dates indicated,
information concerning the Noon Buying Rate for the euro. Amounts are expressed
in U.S. dollars per €1.00.
|
Noon
Buying Rate
|
||||||||||||||||
|
Year
ended December 31,
|
Period
end
|
Average(1)
|
High
|
Low
|
||||||||||||
|
2005
|
1.1842 | 1.2400 | 1.3476 | 1.1667 | ||||||||||||
|
2006
|
1.3197 | 1.2661 | 1.3327 | 1.1860 | ||||||||||||
|
2007
|
1.4603 | 1.3797 | 1.4862 | 1.2904 | ||||||||||||
|
2008
|
1.3919 | 1.4698 | 1.6010 | 1.2446 | ||||||||||||
|
2009
|
1.4332 | 1.3955 | 1.5100 | 1.2547 | ||||||||||||
|
2010
(through March 19, 2010)
|
1.3530 | 1.3687 | 1.4536 | 1.3476 | ||||||||||||
Source:
Federal Reserve Bank of New York.
|
(1)
|
The
average of the Noon Buying Rates for the euro on the last day reported of
each month during the relevant
period.
|
|
Noon
Buying Rate
|
||||||||
|
Month
ended
|
High
|
Low
|
||||||
|
October
31, 2009
|
1.5029 | 1.4532 | ||||||
|
November
30, 2009
|
1.5085 | 1.4658 | ||||||
|
December
31, 2009
|
1.5100 | 1.4243 | ||||||
|
January
31, 2010
|
1.4536 | 1.3870 | ||||||
|
February
28, 2010
|
1.3955 | 1.3476 | ||||||
|
March
31, 2010 (through March 19, 2010)
|
1.3758 | 1.3516 | ||||||
Source: Federal Reserve Bank of New York.
Monetary
policy within the member states of the euro zone is set by the European Central
Bank. The European Central Bank has set the objective of containing
inflation and will adjust interest rates in line with this policy without taking
account of other economic variables such as the rate of
unemployment. It has further declared that it will not set an
exchange rate target for the euro.
Our
ordinary shares are quoted on the Spanish stock exchanges in
euro. Currency fluctuations may affect the dollar equivalent of the
euro price of our shares listed on the Spanish stock exchanges and, as a result,
the market price of our ADSs, which are listed on the New York Stock
Exchange. Currency fluctuations may also affect the dollar amounts
received by holders of ADSs on conversion by the depositary of any cash
dividends paid in euro on the underlying shares.
Our
consolidated results are affected by fluctuations between the euro and the
currencies in which the revenues and expenses of some of our consolidated
subsidiaries are denominated (principally the Brazilian real, the Venezuelan
Bolivar fuerte (see “Item 5. Operating and Financial Review and
Prospects—A. Operating Results—Significant Factors Affecting the
Comparability of our Results of Operations in the Periods Under
Review—Classification of Venezuela as a hyperinflationary economy”), pounds
sterling, the Czech koruna (crown), the Argentine peso, the Chilean peso, the
Peruvian nuevo sol, the Mexican peso and the Colombian peso).
Not
applicable.
Not
applicable.
In
addition to the other information contained in this Annual Report, prospective
investors should carefully consider the risks described below before making any
investment decision. The risks described below are not the only ones
that we face. Additional risks not currently known to us or that we
currently deem immaterial may also impair our business and results of
operations. Our business, financial condition, results of operations
and cash flow could be materially adversely affected by any of these risks, and
investors could lose all or part of their investment.
Risks
Relating to Our Business
A
material portion of our operations and investments are located in Latin America,
and we are therefore exposed to risks inherent in operating and investing in
Latin America.
At
December 31, 2009, approximately 35.7% of our assets were located in Latin
America. In addition, approximately 40.6% of our revenues for 2009
were derived from our Latin American operations. Our operations and
investments in Latin America (including the revenues generated by these
operations, their market value and the dividends and management fees expected to
be received therefrom) are subject to various risks linked to the economic,
political and social conditions of these countries, including risks related to
the following:
|
|
·
|
government
regulation or administrative polices may change unexpectedly and
negatively affect our interests in such
countries;
|
|
|
·
|
currencies
may be devalued or may depreciate or currency restrictions and other
restraints on transfer of funds may be
imposed;
|
|
|
·
|
the
effects of inflation or currency depreciation may result in certain of our
subsidiaries having negative equity, which would require them to undertake
a mandatory recapitalization or commence dissolution
proceedings;
|
|
|
·
|
governments
may expropriate or nationalize assets or increase their participation in
the economy and companies;
|
|
|
·
|
governments
may impose burdensome taxes or
tariffs;
|
|
|
·
|
political
changes may lead to changes in the economic conditions and business
environment in which we operate;
and
|
|
|
·
|
economic
downturns, political instability and civil disturbances may negatively
affect our operations.
|
For
instance, throughout 2009 and in the early part of 2010, certain factors
affecting the Venezuelan economy have had an impact on the accounting treatment
applied with respect to our subsidiaries in that country, notably the level of
inflation reached in 2009, the cumulative inflation rate over the last three
years, restrictions placed on the official foreign exchange market and the
devaluation of the Venezuelan Bolivar fuerte on January 8, 2010. As a
result, in accordance with IFRS, Venezuela was considered a hyperinflationary
economy in 2009, which has had a series of effects on our consolidated financial
statements as of and for the year ended December 31, 2009 and will have
additional effects on our consolidated financial statements as of and for the
year ended December 31, 2010. A more detailed description of these
effects is included in “Item 5. Operating and Financial Review and
Prospects—A. Operating Results—Significant Factors Affecting the
Comparability of our Results of Operations in the Periods Under
Review—Classification of Venezuela as a hyperinflationary economy” and Note 2 to
our Consolidated Financial Statements.
In
addition, our operations are dependent, in many cases, on concessions and other
agreements with existing governments in the countries in which we
operate. These concessions and agreements, including their renewal,
could be
directly affected by economic and political instability, altering the terms and
conditions under which we operate.
Our
financial condition and results of operations may be adversely affected if we do
not effectively manage our exposure to foreign currency exchange rate, interest
rate or financial investment risks.
We are
exposed to various types of market risk in the normal course of our business,
including the impact of changes in foreign currency exchange rates and the
impact of changes in interest rates, as well as the impact of changes of credit
risk in our treasury investments (in cash and cash equivalents) or in
some of our financial transactions. We employ risk management
strategies to manage this exposure, in part through the use of financial
derivatives such as foreign currency forwards, currency swap agreements and
interest rate swap agreements. If the financial derivatives market is
not sufficiently liquid for our risk management purposes, or if we cannot enter
into arrangements of the type and for the amounts necessary to limit our
exposure to currency exchange rate fluctuations and interest rate fluctuations
or if our counterparties fail to deliver on their commitments due to lack of
solvency or otherwise, such failure could adversely affect our financial
condition, results of operations and cash flow. Also, our other risk
management strategies may not be successful, which could adversely affect our
financial condition, results of operations and cash flow. Finally, if
the rating of our counterparties in treasury investments or in our structured
financial transactions deteriorates significantly or if any of such
counterparties were to fail in its obligations to us, we may suffer a loss of
value in our investments, incur unexpected losses and assume additional
financial obligations under these transactions, and such failure could adversely
affect our business, financial condition, results of operations and cash
flow.
For a
more detailed description of our financial derivatives transactions, see “Item
11. Quantitative and Qualitative Disclosures about Market Risk” and Note 16 to
our Consolidated Financial Statements.
Adverse
economic conditions could reduce purchases of our products and
services.
Our
business is impacted by general economic conditions and other similar factors in
each of the countries in which we operate. The current adverse global
economic environment and uncertainty about an economic recovery may negatively
affect the level of demand of existing and prospective customers, as our
services may not be deemed critical for these customers. Other
factors that could influence customer demand include access to credit,
unemployment rates, consumer confidence and other general macroeconomic
factors. Spanish gross domestic product, or GDP, contracted by 3.6%
in 2009 and, according to the Stability Program 2009-2013 forecasts from the
Spanish Ministry of Economy, the Spanish economy is expected to remain in
recession in 2010, which could have a material adverse effect on our business,
financial condition, results of operations and cash flow.
In
addition, there could be other possible follow-on effects from the financial
crisis on our business, including insolvency of key suppliers or
customers. A loss of customers or a reduction in purchases by our
current customers could have a material adverse effect on our business,
financial condition, results of operations and cash flow and may therefore
negatively affect our ability to meet our growth targets.
Existing
or worsening conditions in the international financial markets may limit our
ability to carry out our business plan.
The
development and distribution of our services as well as the operation, expansion
and upgrading of our networks, require substantial
financing. Moreover, our liquidity and capital resource requirements
may increase if we participate in other fixed line or mobile license award
processes or make acquisitions. We also have major capital resource
requirements relating to, among other things, the development of distribution
channels in new countries of operations and the development and implementation
of new technologies.
If our
ability to generate cash flow were to decrease, whether due to the current
worldwide financial and economic crisis or otherwise, we may need to incur
additional debt or raise other forms of capital to support our liquidity and
capital resource requirements for the ongoing development and expansion of our
business.
The
current state of the financial markets in terms of liquidity, cost of credit and
volatility has improved compared to
the situation in the second half of 2008 and during most of 2009. Nevertheless,
there remain several factors that could affect the ordinary performance of
financial markets, such as uncertainty about an economic recovery,
reorganization of the international banking system, and growing concern over
increases in government deficits, among other factors. Worsening conditions in
the international credit markets due to any of these factors may make it more
difficult and more expensive to refinance our financial debt (of which €8,647
million matures in 2010) or to incur additional debt.
In
addition, our capacity to raise capital in the international capital markets
would be impaired if our credit ratings were downgraded, whether due to
decreases in our cash flow or otherwise. Further, current market
conditions may make it more difficult to renew our unused bilateral credit
facilities scheduled to expire prior to December 31, 2010 (for an aggregate
amount of €2,779 million). The current financial situation may also
make it more difficult and costly for us to launch a rights issue to our current
shareholders or to raise additional equity capital if further funds were needed
for pursuing our business plans.
The
successful implementation of our strategy for our mobile operations in Brazil
depends on the development of our joint venture company with Portugal Telecom,
SGPS, S.A.
Our
mobile business in Brazil is conducted through a 50/50 joint venture company,
Brasilcel, N.V., or Brasilcel, which is jointly controlled by us and Portugal
Telecom SGPS, S.A., or Portugal Telecom. As a result of our less than
controlling interest in this joint venture, we do not have absolute control over
the operations of the venture. As a result, there is an inherent risk
for management or operational disruptions whenever a disagreement between us and
our partner arises. Therefore, we must cooperate with Portugal
Telecom in order to implement and expand upon our business strategies and to
finance and manage the operations of the joint venture. If we do not
manage to obtain the cooperation of Portugal Telecom or if a disagreement or
deadlock arises we may not achieve the expected benefits from this joint
venture, including economies of scale and opportunities to achieve potential
synergies and cost savings.
Risks
Relating to Our Industry
We
face intense competition in most of our markets, which could result in decreases
in current and potential customers, revenues and profitability.
We face
significant competition in all of the markets in which we operate, and we are
therefore subject to the effects of actions by our competitors in these
markets. Our competitors could:
|
|
·
|
offer
lower prices, more attractive discount plans or better services and
features;
|
|
|
·
|
develop
and deploy more rapidly new or improved technologies, services and
products;
|
|
|
·
|
launch
bundle offerings of one type of service with
others;
|
|
|
·
|
in
the case of the mobile industry, subsidize handset procurement;
or
|
|
|
·
|
expand
and enhance their networks more
rapidly.
|
Furthermore,
some of our competitors in certain markets have, and some potential competitors
may enjoy, in certain markets, competitive advantages, including the
following:
|
|
·
|
greater
brand name recognition;
|
|
|
·
|
greater
financial, technical, marketing and other
resources;
|
|
|
·
|
dominant
position or significant market
power;
|
|
|
·
|
better
strategic alliances;
|
|
|
·
|
larger
customer bases; and
|
|
|
·
|
well-established
relationships with current and potential
customers.
|
To
compete effectively with our competitors, we need to successfully market our
products and services and to anticipate and respond to various competitive
factors affecting the relevant markets, such as the introduction of new products
and services by our competitors, pricing strategies adopted by our competitors
and changes in consumer preferences and in general economic, political and
social conditions. If we are unable to effectively compete, it could
result in price reductions, lower revenues, under-utilization of our services,
reduced operating margins and loss of market share, any of which could have a
material adverse effect on our business, financial condition, results of
operations and cash flow.
We
operate in a highly regulated industry, which could adversely affect our
businesses.
As a
multinational telecommunications company that operates in regulated markets, we
are subject to different laws and regulations in each of the jurisdictions in
which we provide services. Such laws and regulations are promulgated
and enforced to varying degrees by supranational regulators such as the European
Union and national, state, regional and local authorities. Regulation
may be especially strict in the markets of those countries in which we hold a
significant market position. In this respect, regulatory authorities
regularly intervene in the retail and wholesale offering and pricing of our
products and services. Furthermore, such authorities may also adopt
further regulations or take additional actions that could adversely affect us,
including revocation of or failure to renew any of our licenses, authorizations
or concessions, implementation of changes to the spectrum allocated to us or the
granting or new licenses, authorizations or concessions to our competitors to
offer services in the relevant markets. Furthermore, regulations
could require us to reduce roaming prices and termination rates in mobile and
fixed line networks, require us to offer access to our network to other
operators,
and result in the imposition of fines if we fail to fulfill our service
commitments. Such regulations and regulatory actions could place
significant competitive and pricing pressure on our operations, and could have a
material adverse effect on our business, financial condition, results of
operations and cash flow.
In
addition, since we hold a leading market share in many of the counties where we
operate, we could face regulatory actions by antitrust or competition
authorities designed to enhance competition in the relevant
markets. These authorities could prohibit us from taking further
actions such as making further acquisitions or continuing to engage in
particular practices or impose fines or other penalties on us, which, if
significant, could result in loss of market share and harm to our financial
performance and future growth.
The
regulatory landscape in the European Union will change as a consequence of the
recent passage of a new common regulatory framework that is to be implemented by
Member States before June 2011. We believe based on the principles
set forth in such regulatory framework that the regulations adopted by Member
States may result in an increased focus on the development and maintenance of
competitive markets. This regulatory framework proposes the adoption
of measures, under exceptional circumstances and in specific situations, by
national authorities to establish functional separation between the retail and
wholesale operations of vertically integrated operators with significant market
power, by requiring them to offer equal wholesale conditions to related and
third party operators. The adoption of such regulatory framework in
Spain and the other European Union Members States where we operate could result
in requirements to modify our internal organization in the relevant markets,
which could result in additional costs to us. Additionally, our
industry may face new regulatory initiatives regarding lowering mobile
termination rates and the provision of data and audiovisual
services.
In
addition, we may also face pressure from regulatory initiatives in some European
countries in order to reallocate spectrum rights of use and to modify spectrum
allocation policies that may result, among other matters, in new tender
processes for spectrum allocation in the European Union.
Finally,
the recommendation that is being drafted by the European Commission on the
implementation of European regulation of new generation broadband networks may
reduce the incentives for operators to invest in broadband networks over the
short and medium term because operators that invest in broadband networks could
be required to provide access to such networks to third parties. This
could affect competition and business performance and future growth in such
services.
For
further information regarding the matters discussed above and other aspects of
the regulatory environments in which our businesses operate, see “Item 4.
Information on the Company—Business Overview—Regulation”.
We
operate under licenses, authorizations and concessions granted by government
authorities.
Most of
our operating companies require licenses, authorizations or concessions from the
governmental authorities of the countries in which they
operate. These licenses, authorizations and concessions specify the
types of services permitted to be offered by the operating company holding such
license, authorization or concession. The continued existence and
terms of our licenses, authorizations and concessions are subject to review by
regulatory authorities in each country and to interpretation, modification or
termination by these authorities. Moreover, authorizations, licenses
and concessions as well as their renewal terms and conditions may be affected by
political and regulatory factors.
The terms
of these licenses, authorizations and concessions granted to our operating
companies and conditions of the renewals of such licenses, authorizations and
concessions vary from country to country. Although license,
authorization and concession renewal is not usually guaranteed, most licenses,
authorizations and concessions do address the renewal process and terms, which
is usually related to the fulfillment of the commitments that were assumed by
the grantee. As licenses, authorizations and concessions approach the
end of their terms, we intend to pursue their renewal to the extent provided by
the relevant licenses, authorizations or concessions and, under certain
circumstances, we will operate under technically expired licenses,
authorizations or concessions under preexisting terms during the renewal
process. Failure to complete the renewal process successfully could
adversely affect our business, financial condition, results of operations and
cash flow.
Many of
our licenses, authorizations and concessions are revocable for public interest
reasons. The rules of some of the regulatory authorities with
jurisdiction over our operating companies require us to meet specified network
build-out requirements and schedules. In particular, our existing
licenses, authorizations and concessions typically require us to satisfy certain
obligations, including, amongst others, minimum specified quality standards,
service and coverage conditions and capital investment. Failure to
comply with these obligations could result in the imposition of fines or
revocation or forfeiture of the license, authorization or concession for the
relevant area. In addition, the need to meet scheduled deadlines may require our
companies to expend more resources than otherwise budgeted for a particular
network build-out.
For
further information regarding the licenses and concessions of our operating
companies, see “Item 4. Information on the Company—Business
Overview—Regulation”.
The
industry in which we operate is subject to rapid technological changes, which
requires us to continuously adapt to such changes and to upgrade our existing
networks. If we are unable to adapt to such changes, our ability to
provide competitive services could be materially adversely
affected.
Our
future success depends, in part, on our ability to anticipate and adapt in a
timely manner to technological changes. We expect that new products
and technologies will emerge on a continuous basis and that existing products
and technologies will further develop. These new products and
technologies may reduce the prices for our existing services or may be superior
to, and render obsolete, the products and services we offer and the technologies
we use and may consequently reduce the revenues generated by our products and
services and require investment in new technology. In addition, we
may be subject to competition in the future from other companies that are not
subject to regulation as a result of the convergence of telecommunications
technologies. As a result, it may be very expensive for us to upgrade
our products and technology in order to continue to compete effectively with new
or existing competitors. Such increased costs could adversely affect
our business, financial condition, results of operations and cash
flow.
In
particular, we must continue to upgrade our existing mobile and fixed line
telephony networks in a timely and satisfactory manner in order to retain and
expand our customer base in each of our markets, to enhance our financial
performance and to satisfy regulatory requirements. Among other
things, we could be required to upgrade the functionality of our networks to
accommodate increased customization of services, to increase coverage in some of
our markets, or to expand and maintain customer service, network management and
administrative systems.
Many of
these tasks are not entirely under our control and may be affected by applicable
regulations. If we fail to execute these tasks successfully, our
services and products may be less attractive to new customers and we may lose
existing customers to our competitors, which would adversely affect our
business, financial condition, results of operations and cash flow.
Spectrum
capacity may become a limiting factor.
Our
mobile operations in a number of countries may rely on spectrum
availability. Failure to obtain sufficient or adequate spectrum
coverage and, to a lesser extent, the costs related to obtaining this capacity
could have a material adverse impact on the quality of our services and on our
ability to provide new services, adversely affecting our business, financial
condition, results of operations and cash flow.
Our
business could be adversely affected if our suppliers fail to provide necessary
equipment and services on a timely basis.
We depend
upon a small number of major suppliers for essential products and services,
mainly network infrastructure and mobile handsets. These suppliers
may, among other things, extend delivery times, raise prices and limit supply
due to their own shortages and business requirements. Furthermore,
these suppliers may be adversely affected by current economic
conditions. If these suppliers fail to deliver products and services
on a timely basis, our business and results of operations could be adversely
affected. Similarly, interruptions in the supply of
telecommunications equipment for our networks could impede network development
and expansion, which in some cases could adversely affect our ability to satisfy
our license terms and requirements.
We
may be adversely affected by unanticipated network interruptions.
Unanticipated
network interruptions as a result of system failures whether accidental or
otherwise, including due to network, hardware or software failures, which affect
the quality of or cause an interruption in our service, could result in customer
dissatisfaction, reduced revenues and traffic and costly repairs, penalties or
other measures imposed by regulatory authorities, and could harm our
reputation. We attempt to mitigate these risks through a number of
measures, including backup systems and protective systems such as firewalls,
virus scanners and building security. However, these measures are not
effective under all circumstances and cannot avert every action or event that
could damage or disrupt our technical infrastructure. Although we
carry business interruption insurance, our insurance policy may not provide
coverage in amounts sufficient to compensate us for any losses we may
incur.
The
mobile industry may be harmed by reports suggesting that radio frequency
emissions cause health problems.
Over the
last few years, the debate about the alleged potential effects of radio
frequency emissions on human health has increased significantly. In
many cases, this has hindered the deployment of the infrastructures necessary to
ensure quality of service.
Institutions
and organizations, such as the World Health Organization (WHO), have stated that
exposure to radio frequency emissions generated by mobile telephony, within the
limits established, has no adverse effects on health. In fact, a
number of European countries, including Spain among others, have drawn up
complete regulations reflecting the Recommendation of the Council of the
European Union dated July 12, 1999. These add planning criteria for
new networks, thus ensuring compliance with the limits on exposure to radio
frequency emissions.
Whether
or not other research or studies conclude there is a link between radio
frequency emissions and health, popular concerns about radio frequency emissions
may discourage the use of mobile communication devices and may result in
significant restrictions on both the location and operation of cell sites,
either or both of which could have a detrimental impact on our mobile companies
and consequently on our financial condition, results of operations and cash
flow. While we are not aware of any evidence confirming a link
between radio frequency emissions and health problems and we continue to comply
with good practices codes and relevant regulations, there can be no assurance of
what future medical research may suggest.
Developments
in the telecommunications sector have resulted, and may in the future result, in
substantial write-downs of the carrying value of certain of our
assets.
We review
on an annual basis or more frequently where the circumstances require, the value
of each of our assets and subsidiaries to assess whether the carrying values of
such assets and subsidiaries can be supported by the future cash flows expected
to be derived from such assets and subsidiaries, including in some cases
synergies included in their acquisition costs. The current economic
environment and changes in the short and medium term, as well as changes in the
regulatory, business or political environment may result in the necessity of
recognizing impairment charges on our goodwill, intangible assets or fixed
assets.
Although
the recognition of impairments of tangible, intangible and financial assets
result in a non-cash charge on the income statement, such charge would adversely
affect our results of operations and consequently, our ability to achieve our
growth targets.
Other
Risks
We
are involved in disputes and litigation with regulators, competitors and third
parties.
We are
party to lawsuits and other legal, regulatory and antitrust proceedings in the
ordinary course of our business, the final outcome of which is generally
uncertain. Litigation and regulatory proceedings are inherently
unpredictable. An adverse outcome in, or any settlement of, these or
other proceedings (including any that may be asserted in the future) may have a
material adverse effect on our business, financial condition, results of
operations and cash flow.
For a
more detailed description of current legal proceedings, see “Item 8. Financial
Information—Legal Proceedings”.
Overview
Telefónica,
S.A., is a corporation duly organized and existing under the laws of the Kingdom
of Spain, incorporated on April 19, 1924. We are:
|
|
·
|
a
diversified telecommunications group which provides a comprehensive range
of services through one of the world’s largest and most modern
telecommunications networks;
|
|
|
·
|
mainly
focused on providing fixed and mobile telephony services;
and
|
|
|
·
|
present
principally in Spain, Europe and Latin
America.
|
The
following significant events occurred in 2009:
|
|
·
|
On
June 23, 2009, our Board of Directors agreed to initiate a process for the
purchase of the Telefónica de Argentina S.A. (“Telefónica de Argentina”)
shares held by unaffiliated parties, which amounted to 1.8% of Telefónica
de Argentina’s share capital. After following the procedures
set forth in Argentine Presidential Decree No. 677/01, Chapter VII, on
December 3, 2009, the Argentine securities regulator approved the
transaction, resulting in our acquisition on January 25, 2010 of these
shares for approximately €23 million. As a result of such
acquisition we beneficially own 100% of the share capital of Telefónica de
Argentina, and we delisted Telefónica de Argentina’s shares and ADSs from
the Buenos Aires and New York stock exchanges,
respectively.
|
|
|
·
|
On
August 31, 2009, we agreed to sell our 32.18% stake in Medi Telecom S.A.,
or Medi Telecom, together with its outstanding shareholder loans to our
local partners for total cash consideration of €400
million. This transaction closed on December 31,
2009.
|
|
|
·
|
On
September 6, 2009 we entered into a strategic alliance with China Unicom
(Hong Kong) Limited, or China Unicom, which provides for, among other
areas for cooperation, joint procurement of infrastructure and client
equipment, common development of mobile service platforms, joint
provisions of service to multinational customers, roaming, research and
development, sharing of best practices and technical, operational and
management know-how, joint development of strategic initiatives in the
area of network evolution, joint participation in international alliances
and exchanges of senior management. In furtherance of this
strategic alliance, on this same date, we entered into a mutual share
exchange agreement with China Unicom pursuant to which we agreed to invest
the equivalent of $1,000 million in the shares of China Unicom and China
Unicom agreed to invest the equivalent of $1,000 million in our
shares.
|
|
|
On
October 21, 2009, we exchanged 40,730,735 of our shares for 693,912,264
newly issued shares of China Unicom in satisfaction of the mutual share
exchange agreement described above. As a result of this
exchange, our voting interest in the share capital of China Unicom
increased from 5.38% to 8.06%, and China Unicom has a 0.87% voting
interest in our share capital at that date. As of the date of
this Annual Report, and after the capital reduction carried out by China
Unicom, we hold shares representing 8.37% of China Unicom’s voting share
capital and the right to appoint a member to its board of
directors.
|
|
|
·
|
On
November 25, 2009, we agreed with Promotora de Informaciones, or Prisa,
and Sogecable, S.A., or Sogecable, to acquire a 21% stake in DTS
Distribuidora de Televisión Digital, S.A., or DTS, which includes the pay
TV services (DIGITAL +) of the Prisa Group for a firm value of €2,350
million. After deduction of net debt, we expect that our total
investment will be approximately €470 million. In addition, on
this same date we entered into a shareholders’ agreement with Prisa and
Sogecable to govern the management of DTS. The acquisition is
subject, among other conditions, to obtaining regulatory
authorizations.
|
|
|
·
|
On
December 3, 2009, a subsidiary of Telefónica O2 Germany, Telefónica
Deutschland GmbH, signed an agreement to acquire all of the shares of
German company HanseNet Telekommunikation GmbH, or
HanseNet. The purchase price agreed by the parties was based on
a firm value of HanseNet of €900 million, subject to a series of
adjustments upon completion of the transaction. On February 16,
2010, having complied with the terms established in the agreement, we
completed the acquisition of 100% of the shares of
HanseNet. The final amount paid out by us was approximately
€912 million.
|
Business
areas
We have
implemented a regional, integrated management model based on three business
areas, with each area in charge of the fixed and mobile telephone and other
businesses within its borders:
|
|
·
|
Telefónica
Spain: oversees the fixed and mobile telephone, broadband, Internet, pay
TV and valued added services and data businesses in
Spain.
|
|
|
·
|
Telefónica
Europe: oversees the fixed and mobile telephone, broadband, Internet, pay
TV and value added services and data businesses in the United Kingdom,
Germany, Ireland, the Czech Republic, Slovakia and the Isle of
Man.
|
|
|
·
|
Telefónica
Latin America: oversees the fixed and mobile telephone, broadband,
Internet, pay TV and value added services and data businesses in Latin
America.
|
We are
also involved in the media and contact center segments through Telefónica de
Contenidos and Atento, respectively.
The
following chart shows the organizational structure of the principal subsidiaries
of the Telefónica Group at December 31, 2009, including their jurisdictions of
incorporation and our ownership interest. For further detail, see
Exhibit 8.1 to this Annual Report.
|
(1)
|
Ownership
in Telefónica Móviles España, S.A.U. is held directly by Telefónica,
S.A.
|
|
(2)
|
85.5%
representing voting interest.
|
|
(3)
|
Ownership
in Telefónica International Wholesale Services. S.L. (Spain) is held
92.51% by Telefónica, S.A. (Spain) and 7.49% by Telefónica Datacorp,
S.A.U. (Spain).
|
|
(4)
|
Ownership
in O2 (Europe) Ltd. is held directly by Telefónica,
S.A.
|
|
(5)
|
Companies
held indirectly by Telefónica, S.A.
|
Telefónica,
S.A., the parent company of the Telefónica Group, also operates as a holding
company with the following objectives:
|
|
·
|
coordinate
the Group’s activities;
|
|
|
·
|
allocate
resources efficiently among the
Group;
|
|
|
·
|
provide
managerial guidelines for the
Group;
|
|
|
·
|
manage
the Group’s portfolio of
businesses;
|
|
|
·
|
foster
cohesion within the Group; and
|
|
|
·
|
foster
synergies among the Group’s
subsidiaries.
|
Our
principal executive offices are located at Distrito C, Ronda de la Comunicación,
s/n, Las Tablas, 28050 Madrid, Spain, and our registered offices are located at
Gran Vía, 28, 28013 Madrid, Spain. Our telephone number is +34 900
111 004.
Capital
Expenditures and Divestitures
Our
principal capital expenditures excluding acquisitions during the three years
ended December 31, 2009 consisted of additions to property, plant and equipment
and additions to intangible assets. In 2009, 2008 and 2007, we made
capital expenditures of €7,257 million, €8,401 million and €8,027 million,
respectively.
Year
ended December 31, 2009
Our
capital expenditures decreased 13.6% to €7,257 million in 2009 compared to
€8,401 million in 2008, mainly as a result of investment containment in our
three regions of activity. Our investments in Spain were directed
toward further developing the broadband business and expanding mobile third
generation, or 3G. In Latin America capital
expenditures were directed toward satisfying increased customer demand in
broadband and pay TV and increasing coverage and capacity of our second
generation, or GSM, and mobile 3G networks. In Europe capital
expenditures were directed toward expanding the mobile 3G network
coverage, developing the broadband business and undertaking IT
projects.
Year
ended December 31, 2008
Our
capital expenditures increased 4.7% to €8,401 million in 2008 compared to €8,027
million in 2007, mainly as a result of investments made to support the growth in
Telefónica Latin America’s broadband and pay TV businesses and to further
develop ADSL and adapt existing loops to FTTx (fiber optic) technology in order
to enhance coverage for new services in Spain and expand the coverage and
capacity of our mobile networks in all regions.
Year
ended December 31, 2007
Capital
expenditures increased 0.2% to €8,027 million in 2007 from €8,010 million in
2006 principally related to our investments in Spain in our growing Internet and
broadband businesses, with significant investments related to ADSL and IP
services, such as Imagenio, our IPTV
business. In Latin America capital expenditures were directed toward
satisfying increased customer demand in our fixed line business (particularly in
broadband and pay TV) and increasing coverage and capacity of our second
generation, or GSM, networks and acquiring spectrum in Venezuela, Brazil and
Panama to expand coverage and guarantee service quality in areas where traffic
is heaviest. In 2007, capital expenditures in Europe decreased
primarily as a result of Telefónica O2 Germany bringing forward capital
investment from 2007 into 2006 as part of our build-out of our mobile third
generation, or 3G, network.
Financial
Investments and Divestitures
Our
principal financial investment in 2009 was the acquisition of an additional
stake in China Unicom (approximately $1,000 million as a consequence of a mutual
share exchange). Our principal divestiture in 2009 was the sale of
Medi Telecom (€400 million) as described above.
Our
principal financial investments in 2008 were made by Inversiones Telefónica
Internacional Holding, Ltda., which invested €640 million for the acquisition of
the additional 51.85% of CTC, and Vivo, which invested Brazilian reais 1,163
million (equivalent to approximately €429 million at the transaction date) for
the acquisition of 53.90% of the voting stock and 4.27% of the preferred stock
of Telemig Celular Participaçoes, S.A.
Our
principal financial investments in 2007 were made by Telefónica (€2,314 million
for the acquisition of indirect shareholding in Telecom Italia). Our
principal financial divestitures in 2007 were the sale of Airwave and Endemol
N.V., or Endemol, for £1,932 million (equivalent to approximately €2,841 million
at the transaction date) and €2,629 million, respectively.
Public
Takeover Offers
The
principal public takeover offer which occurred in 2009 and in 2010 through the
date of this Annual Report was the following:
|
|
·
|
On
September 17, 2008, we launched a tender offer through our Inversiones
Telefónica Internacional Holding, Ltda. subsidiary to acquire all the
outstanding shares of Compañía de Telecomunicaciones de Chile, S.A., or
CTC, that we did not already control directly or indirectly, amounting to
55.1% of CTC’s share capital. This included all CTC shares listed on the
Santiago de Chile and New York Stock Exchanges (represented by American
Depositary Shares). In January 2009, upon completion of the transaction,
our indirect ownership in CTC had increased to 97.89% of the total
outstanding shares, representing a total investment by us of approximately
€658 million.
|
Recent
Developments
The
principal events that have occurred since December 31, 2009 are set forth
below:
|
|
·
|
On
January 11, 2010, Telco, S.p.A., or Telco, arranged a €1,300 million loan
with Intesa Sanpaolo, S.p.A., Mediobanca, S.p.A., Société Générale, S.p.A.
and Unicredito, S.p.A. maturing on May 31, 2012, part of which is secured
with the Telecom Italia, S.p.A., or Telecom Italia, shares held by
Telco. The rest of Telco’s financing needs with respect to debt
maturities were met with a bridge loan granted by shareholders that was
repaid with the proceeds of a bond issuance subscribed by Telco’s
shareholders, on a pro rata basis in accordance with their interests in
Telco, on February 26, 2010 for an aggregate principal amount of €1,300
million. Our subscription amounted to an aggregate principal
amount of €600 million.
|
|
|
·
|
On
February 16, 2010, having complied with the terms established in the
agreement dated December 3, 2009 by the parties, we completed the
acquisition of 100% of the shares of HanseNet. The final amount
paid was approximately €912
million.
|
|
|
·
|
Following
the agreement between Prisa and Gestevisión Telecinco, S.A., or Telecinco,
for the sale by Prisa to Telecinco of a 22% stake in DIGITAL+, on January
29, 2010, we signed a new agreement with Prisa raising the percentage
stake to be acquired by us in DTS from 21% to 22%. Furthermore, we have
undertaken to renegotiate the terms of the shareholders’ agreement to
reflect the new shareholder structure of
DTS.
|
|
|
The
estimated total investment to be made by us for the 22% stake in DTS,
after deduction of net debt, is expected to be around €495 million, of
which approximately €230 million will be covered by the subordinated loan
agreement that currently exists between Telefónica de Contenidos, S.A.U.
(creditor) and Sogecable (debtor).
|
For
information related to our significant financing transactions completed in 2009
and through the date of this Annual Report, see “Item 5. Operating and Financial
Review and Prospects – Liquidity and Capital Resources – Anticipated Sources of
Liquidity”.
We
increased our customer base, measured in terms of total accesses, by 2.1% to
264.6 million accesses at December 31, 2009 from 259.1 million accesses at
December 31, 2008, which was a 13.3% increase from the 228.7 million accesses we
had at December 31, 2007. This growth from December 31, 2008 to
December 31, 2009 was primarily driven by a 3.3% increase in mobile accesses, a
8.2% increase in broadband accesses and a 9.8% increase in pay TV accesses,
which more than offset our 5.4% loss of fixed telephony accesses and 28.5% loss
of narrowband accesses as these technologies continue to be substituted by
customers for mobile and broadband technologies, respectively. Growth
in our total number of accesses from December 31, 2007 to December 31, 2008 was
primarily driven by strong growth in mobile and broadband accesses.
The
following table shows our total accesses at the dates indicated. The
classifications and explanatory notes below also apply, to the extent
applicable, to the tables detailing our accesses by business area and country
elsewhere in this section.
|
At
December 31,
|
||||||||||||
|
2007
|
2008(1)
|
2009(1)
|
||||||||||
|
(in
thousands)
|
||||||||||||
|
Fixed
telephony accesses(2)
|
43,433.6 | 42,930.8 | 40,606.0 | |||||||||
|
Internet
and data accesses
|
13,156.6 | 14,654.3 | 15,082.5 | |||||||||
|
Narrowband
accesses
|
2,678.7 | 1,997.2 | 1,427.5 | |||||||||
|
Broadband
accesses(3)
|
10,320.2 | 12,472.1 | 13,492.6 | |||||||||
|
Other
accesses(4)
|
157.7 | 185.0 | 162.4 | |||||||||
|
Mobile
accesses(5)(6)
|
167,781.1 | 195,818.6 | 202,332.5 | |||||||||
|
Pay
TV accesses
|
1,748.1 | 2,267.5 | 2,489.2 | |||||||||
|
Final
clients accesses
|
226,119.4 | 255,671.1 | 260,510.2 | |||||||||
|
Unbundled
local loop accesses
|
1,396.5 | 1,748.1 | 2,206.0 | |||||||||
|
Shared UL
accesses
|
776.4 | 602.3 | 447.7 | |||||||||
|
Full UL
accesses
|
620.1 | 1,145.8 | 1,758.3 | |||||||||
|
Wholesale
ADSL accesses(7)
|
571.7 | 534.7 | 463.4 | |||||||||
|
Other
accesses(8)
|
656.0 | 1,150.1 | 1,426.0 | |||||||||
|
Wholesale
accesses
|
2,624.2 | 3,433.0 | 4,095.3 | |||||||||
|
Total
accesses
|
228,743.6 | 259,104.1 | 264,605.5 | |||||||||
|
(1)
|
From
January 1, 2008, fixed wireless public use telephony accesses are included
under the caption “fixed telephony
accesses”.
|
|
(2)
|
PSTN
(including public use telephony) x1; ISDN basic access x1; ISDN primary
access; 2/6 access x30. Includes our accesses for internal use. It also
includes VOIP and naked ADSL
accesses.
|
|
(3)
|
Includes
ADSL, satellite, fiber optic, cable modem and broadband circuits and naked
ADSL accesses.
|
|
(4)
|
Includes
remaining non-broadband final client
circuits.
|
|
(5)
|
Includes
accesses of Telemig at December 31, 2008 and going
forward. Medi Telecom accesses are excluded at December
31, 2009.
|
|
(6)
|
In
2009 in order to align the criteria for the key performance indicators of
our mobile operations, the definition of mobile accesses (and, therefore,
of total accesses) was revised to include machine-to-machine
accesses. In addition, we revised the accounting
criteria for pre-pay mobile accesses at Telefónica O2 Czech Republic and
Telefónica O2 Slovakia to conform to the accounting criteria for pre-pay
mobile accesses throughout the Group. In order to count a
pre-pay mobile access, such access must have been active in the most
recent three months prior to counting. As a result of both
revisions, we restated 2008 mobile accesses, adding 0.2 million accesses
in the aggregate. Our
2007 information is presented based on our
prior classifications.
|
|
(7)
|
Includes
unbundled lines by Telefónica O2
Germany.
|
|
(8)
|
Includes
circuits for other operators.
|
Our
Services and Products
Fixed
business
The
principal services we offer in our fixed businesses in Spain, Europe and Latin
America are:
|
|
·
|
Traditional fixed
telecommunication services. Our principal traditional
fixed telecommunication services include PSTN lines; ISDN accesses; public
telephone services; local, domestic and international long distance and
fixed-to-mobile communications services; corporate communications
services; supplementary value-added services (including call waiting, call
forwarding, voice and text messaging, advanced voicemail services and
conference-call facilities); video telephony; business-oriented
value-added services; intelligent network services; leasing and sale of
terminal equipment; and telephony information
services.
|
|
|
·
|
Internet and broadband
multimedia services. Our principal Internet and
broadband multimedia services include Internet service provider service;
portal and network services; retail and wholesale broadband access through
ADSL; naked ADSL (a broadband connection without the monthly fixed line
fee); narrowband switched access to Internet for universal service, and
other technologies; residential-oriented value-added services (including
instant messaging, concerts and video clips by streaming video,
e-learning, parental control, firewall protection, anti-virus protection,
content delivery and personal computer sales); television services such as
Imagenio, our
IPTV business, cable television and satellite television;
companies-oriented value-added services, like puesto integral o puesto
informático, which includes ADSL, computer and maintenance for a
fixed price and VoIP services. Telefónica Spain is also providing services
based on Fiber to the Home (FTTH), including a new range of products and
services named “FUTURA”. This line of products includes high
speed Internet access (currently up to 30 Mb), which allows Telefónica
Spain to provide its customers with advanced IPTV services such as High
Definition (HDTV) channels, Multiroom (allowing clients to watch different
TV channels in different rooms) and Digital Video Recording
(DVR).
|
|
|
·
|
Data and business-solutions
services. Our data and business-solutions services
principally include leased lines; virtual private network, or VPN,
services; fiber optics services; the provision of hosting and application,
or ASP, service, including web hosting, managed hosting, content delivery
and application, and security services; outsourcing and consultancy
services, including network management, or CGP; and desktop services and
system integration and professional
services.
|
|
|
·
|
Wholesale services for
telecommunication operators. Our wholesale services for
telecommunication operators principally include domestic interconnection
services; international wholesale services; leased lines for other
operators’ network deployment; and local loop leasing under the unbundled
local loop regulation framework. It also includes bit stream
services, bit stream naked, wholesale line rental accesses and leased
ducts for other operators’ fiber
deployment.
|
Mobile
business
We offer
a wide variety of mobile and related services and products to personal and
business customers. Although the services and products available vary
from country to country, the following are our principal services and
products:
|
|
·
|
Mobile voice
services. Our principal service in all of our markets is
mobile voice telephony.
|
|
|
·
|
Value added
services. Customers in most of our markets have access
to a range of enhanced mobile calling features, including voice mail, call
hold, call waiting, call forwarding and three-way
calling.
|
|
|
·
|
Mobile data and Internet
services. Current data services offered include Short
Messaging Services, or SMS, and Multimedia Messaging Services, or MMS,
which allow customers to send messages with images, photographs and
sounds. Customers may also receive selected information, such
as news, sports scores and stock quotes. We also provide mobile
broadband connectivity and Internet access. Through mobile
Internet access, our customers are able to send and receive e-mail, browse
the Internet, download games, purchase goods and services in m-commerce
transactions and use our other data
services.
|
|
|
·
|
Wholesale
services. We have signed network usage agreements with
several MVNOs in different
countries.
|
|
|
·
|
Corporate
services. We provide business solutions, including
mobile infrastructure in offices, private networking and portals for
corporate customers that provide flexible on line
billing. Telefónica Móviles España, S.A.U., or Telefónica
Móviles España, offers corporate services through MoviStar Corporativo,
and other advanced solutions for data developed for specific
sectors.
|
|
|
·
|
Roaming. We
have roaming agreements that allow our customers to use their mobile
handsets when they are outside of our service territories, including on an
international basis.
|
|
|
·
|
Fixed
wireless. We provide fixed voice telephony services
through mobile networks in Venezuela, Argentina, Peru, Mexico, Ecuador, El
Salvador, Guatemala and Nicaragua.
|
|
|
·
|
Trunking and
paging. In Spain and Guatemala, we provide digital
mobile services for closed user groups of clients and paging
services.
|
The
following sections provide a description of the main markets in which we
operate. Customer information on the markets in which we operate,
including our market share based on accesses, are estimates that we have made
based on annual reports and press releases made public by our competitors or
information from local regulators in the respective markets.
Telefónica
Spain Operations
Telefónica
Spain provides fixed and mobile telephony services, Internet and data and pay TV
services in Spain.
Telefónica
Spain’s total accesses decreased 1.2% to 46.8 million accesses at December 31,
2009 from 47.3 million accesses at December 31, 2008. Total accesses
at December 31, 2009 included 23.5 million mobile accesses, 14.2 million fixed
telephony accesses, 5.7 million Internet and data accesses and 0.7 million pay
TV accesses. Additionally, it included 2.2 million unbundled local
loop accesses and 0.4 million of wholesale ADSL accesses.
The
following table presents, at the dates indicated, selected statistical data
relating to our operations in Spain.
|
At
December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
(in
thousands)
|
||||||||||||
|
Fixed
telephony accesses
|
15,918.8 | 15,326.3 | 14,200.1 | |||||||||
|
Internet
and data accesses
|
5,321.8 | 5,670.0 | 5,722.5 | |||||||||
|
Narrowband
accesses
|
660.8 | 388.0 | 219.5 | |||||||||
|
Broadband
accesses
|
4,614.0 | 5,246.4 | 5,476.8 | |||||||||
|
Other accesses
|
47.0 | 35.6 | 26.2 | |||||||||
|
Mobile
accesses
|
22,826.6 | 23,604.8 | 23,538.6 | |||||||||
|
Pre-pay
accesses
|
9,181.8 | 9,037.0 | 8,204.5 | |||||||||
|
Pay
TV accesses
|
511.1 | 612.5 | 703.0 | |||||||||
|
Final
clients accesses
|
44,578.2 | 45,213.6 | 44,164.2 | |||||||||
|
Wholesale
accesses
|
1,855.5 | 2,136.1 | 2,614.0 | |||||||||
|
Total
accesses
|
46,433.6 | 47,349.7 | 46,778.2 | |||||||||
Telefónica
Spain - Fixed business
Telefónica
Spain provides fixed telephony services in Spain through the operator Telefónica
de España, S.A., or Telefónica de España.
Operations
The
following table presents, at the dates indicated, selected statistical data
relating to the operations of Telefónica de España:
|
At
December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
(in
thousands)
|
||||||||||||
|
Fixed
telephony accesses
|
15,918.8 | 15,326.3 | 14,200.1 | |||||||||
|
Internet
and data accesses
|
5,321.8 | 5,670.0 | 5,722.5 | |||||||||
|
Narrowband
accesses
|
660.8 | 388.0 | 219.5 | |||||||||
|
Broadband
accesses
|
4,614.0 | 5,246.4 | 5,476.8 | |||||||||
|
Other accesses
|
47.0 | 35.6 | 26.2 | |||||||||
|
Pay
TV accesses
|
511.1 | 612.5 | 703.0 | |||||||||
|
Final
clients accesses
|
21,751.6 | 21,608.8 | 20,625.6 | |||||||||
|
Wholesale
line rental accesses
|
– | 9.5 | 97.4 | |||||||||
|
Unbundled
local loop accesses
|
1,353.9 | 1,698.0 | 2,153.8 | |||||||||
|
Shared UL
accesses
|
776.4 | 602.3 | 447.7 | |||||||||
|
Full UL
accesses
|
577.6 | 1,095.7 | 1,706.1 | |||||||||
|
Wholesale
ADSL accesses
|
495.5 | 423.8 | 359.0 | |||||||||
|
Other
accesses
|
6.0 | 4.7 | 3.7 | |||||||||
|
Wholesale
accesses
|
1,855.5 | 2,136.1 | 2,614.0 | |||||||||
|
Total
accesses
|
23,607.1 | 23,744.8 | 23,239.6 | |||||||||
In 2009,
the Spanish market for fixed telephony accesses was affected by an unfavorable
economic environment and showed an estimated decrease of 0.8% year-on-year based
on number of accesses. During the same period, Telefónica Spain’s
fixed telephony accesses decreased by 7.3% to 14.2 million accesses at December
31, 2009, from 15.3 million accesses at December 31, 2008, outpacing the total
market decline as a result of fierce competition. Telefónica Spain
had net fixed telephony accesses losses of 1.1 million in 2009, higher than the
0.6 million net fixed telephony accesses losses recorded in 2008.
Estimated
net adds in the total Spanish broadband market decreased 47.9% to 0.6 million in
2009 from 1.1 million in 2008. The total estimated Spanish broadband access
market was approximately 9.9 million accesses at December 31,
2009. Telefónica Spain’s broadband accesses increased 4.4% to 5.5
million at December 31, 2009 from 5.2 million accesses at December 31,
2008.
Unbundled
local loops made up approximately 21.1% of the broadband access market in Spain
at December 31, 2009 up from approximately 18.3% at December 31,
2008. Unbundled local loops at December 31, 2009 amounted to 2.2
million accesses, of which nearly 21% were shared access loops.
Telefónica
Spain’s total wholesale ADSL accesses were 0.4 million accesses at December 31,
2009, a decrease of 15.3% compared to the accesses at December 31, 2008, mainly
because of the migration to unbundled local loops.
In 2009,
Telefónica Spain continued to increase its presence in the pay TV market,
achieving a customer base of 0.7 million accesses at December 31, 2009 from 0.6
million accesses at December 31, 2008.
Since
2005 Telefónica Spain has bundled ADSL products with other products in Duo
bundles, which include voice and broadband services, and Trio bundles, which
include voice, broadband and pay TV services. The total number of Duo
and Trio bundles increased by 7.2% to 4.9 million units at December 31, 2009
from 4.5 million units at December 31, 2008. At December 31, 2009,
88% of Telefónica Spain’s broadband accesses were included in Duo or Trio
bundles compared to 85% at December 31, 2008.
Sales
and marketing
One of
our main priorities has been to satisfy customer needs and increase customer
loyalty by improving the quality of our customer service and offering a wide
range of integrated telecommunications services. We have reinforced
our strategy of customer segmentation in order to tailor our services to best
meet the specific needs of each customer segment.
In 2009
we marketed new products and promotions to strengthen our position in the market
for fixed-mobile convergence, both for residential and business
customers.
In 2009
we were also very active in capturing new fixed telephony customers (which, in
many cases, included broadband customers as well) through “free-connection fee”
campaigns. These campaigns stimulated new adds. At the same time, we improved
the value of fixed lines creating, for example, Línea 3, a new product that
offers our customers free national calls to their three most called
numbers.
During
2009 Telefónica Spain continued marketing bundled ADSL products, which included
voice and pay TV services, and Quadruple bundles, which include fixed telephony,
mobile telephony, broadband access and pay TV services, some of these new
bundles include:
|
|
·
|
Banda ancha total:
bundle of fixed and mobile broadband;
and
|
|
|
·
|
ADSL + voz móvil:
bundle of fixed broadband and free mobile traffic during the
weekends.
|
In
September 2009, the CMT modified the regulatory framework for retail offers
allowing Telefónica Spain to carry out promotions to its clients under certain
conditions and simplifying the replicability analysis of the quadruple
play.
In
October 2009 Telefónica Spain launched ADSL Libre, a new product
that allows customers to subscribe for a broadband connection without the
monthly fixed line fee (naked ADSL).
ADSL
commercial campaigns carried out to capture new broadband customers were very
intense during 2009. In particular, the Semana Loca campaigns
introduced new promotions with more attractive prices that allowed Telefónica
Spain to better defend its market share.
In the
business segment, we continued to promote our Puesto de Trabajo services,
which is a package of services designed to meet the voice, data and IT needs for
small- and medium-sized businesses.
The
customer service model employed by Telefónica Spain, which is focused on
achieving the highest degree of efficiency in customer service, has the
following features:
|
|
·
|
a
24-hour personal customer service line for purchasing any type of product
and service and handling customer
queries;
|
|
|
·
|
Telefónica
stores (Tiendas Telefónica)
where customers can test and buy the products we market, including the
opening in 2008 of our flagship store at the historic Telefónica
headquarters building on the Gran Vía (Madrid), which is the largest
telecommunications store in Spain;
|
|
|
·
|
the
Telefónica On Line Store, accessible by Internet (www.telefonica.es),
which offers customers the ability to order and purchase online the
majority of services and products we offer;
and
|
|
|
·
|
a
customer service system for corporate customers, with a dedicated sales
force.
|
Competition
Telefónica
Spain’s main competitors in the fixed telephony market fall within three main
categories:
|
|
·
|
cable
operators, such as Spanish nationwide cable operator ONO, which offers
bundles of voice, broadband and pay TV services, and regional cable
operators (Euskaltel, Telecable and Grupo
R);
|
|
|
·
|
ULL
operators, such as Orange, Jazztel and Vodafone;
and
|
|
|
·
|
large-business
oriented operators, such as British Telecom and Colt, which offer voice
and data virtual private networks
(VPNs).
|
Telefónica
Spain’s estimated market share at December 31, 2009 was as follows:
|
|
·
|
fixed
telephony accesses market share amounted to approximately 72% of retail
accesses (down from approximately 77% at December 31,
2008);
|
|
|
·
|
broadband
market share amounted to approximately 56% of retail accesses (down from
approximately 57% at December 31, 2008);
and
|
|
|
·
|
pay
TV market share amounted to approximately 17% of the market in terms of
accesses (up from approximately 14% at December 31,
2008).
|
In
November 2008, the CMT approved “Wholesale Access for Telephone Lines”, or AMLT,
a new product that allows operators to resell telephone lines to their final
customers. During 2009 this product has shown a very slow
growth.
Network
and technology
Telefónica
Spain has made significant investments to develop its broadband access business
through broadband technology, as well as in capacity and security of its
aggregation, transport and data network.
Telefónica
Spain - Mobile business (Spain)
Telefónica
Spain provides mobile services in Spain through the operator Telefónica Móviles
España.
Operations
The
Spanish mobile market exceeded 55.6 million accesses at December 31, 2009, which
represented a penetration rate of 121%, an increase of more than 5 percentage
points from December 31, 2008. The Spanish mobile market showed
growth as a result of data services development.
The
following table presents, at the dates or for the periods indicated, selected
statistical data relating to Telefónica Spain’s mobile business.
|
At
or for the year ended December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
Total
mobile accesses (in thousands)
|
22,826.6 | 23,604.8 | 23,538.6 | |||||||||
|
Pre-pay accesses (in
thousands)
|
9,181.8 | 9,037.0 | 8,204.5 | |||||||||
|
MOU
(minutes)
|
161 |
156
|
n.a.
|
|||||||||
|
Traffic
(millions of minutes)
|
n.a.
|
43,568 | 42,039 | |||||||||
|
ARPU
(in euros)
|
32.3 | 30.4 | 27.5 | |||||||||
Our
mobile customer base in Spain, measured in terms of accesses, stood at 23.5
million accesses at December 31, 2009, a decrease of 0.3% from 23.6 million at
December 31, 2008. This evolution was primarily driven by a 9.2%
decrease in accesses in the pre-pay segment, which was primarily driven by our
decision in December 2009 to disconnect 715 thousand pre-pay mobile accesses
from the customer base as a consequence of lower activity levels.
In the
context of an increasingly competitive market, with strong competition in number
portability and pressure on pricing, Telefónica Móviles España’s main commercial
objective was to maintain its market leadership in revenue share, based on its
competitive tariff scheme, strong focus on high value customers and effective
marketing and advertising strategies. Telefónica Spain’s mobile
business achieved negative net adds of 66 thousand accesses in 2009, compared to
positive net adds of 0.8 million accesses in 2008, with a noteworthy number of
net accesses gains in the contract segment, 0.8 million accesses in 2009, down
from 0.9 million in 2008.
In terms
of portability, which is customers transferring their number to Telefónica
Móviles España from a competitor, Telefónica Móviles España’s total net adds was
a negative figure of 0.2 million lines in 2009. However, by
continuing to focus on the higher value customer segments, net portability adds
of contract lines was a positive, though significantly smaller, figure of 8.1
thousand lines in 2009.
At
December 31, 2009, approximately 65% of our mobile accesses in Spain were
contract, which represents an increase of 3.4 percentage points from December
31, 2008.
ARPU for
Telefónica Spain’s mobile business decreased 9.7% to €27.5 in 2009 from €30.4 in
2008. The decrease was primarily driven by a decrease in voice ARPU
of 12.4% to €22.1 in 2009 from €25.2 in 2008 as a result of increased
competition, interconnection price cuts, roaming-out regulation and less
usage. Outgoing voice ARPU also decreased 10.3% to €19.0 in 2009 from
€21.2 in 2008. These decreases were partially offset by an increase
in data ARPU of 3.0% to €5.4 in 2009 from €5.2 in 2008, with outgoing data ARPU
growing 3.4% to €4.8 in 2009 from €4.7 in 2008.
Traffic
for 2009 decreased 3.5% to 42,039 million minutes compared to 43,568 million
minutes in 2008 mainly due to a lower voice usage as customers optimized their
consumption.
At
December 31, 2009, Telefónica Spain’s customers held more than 8.9 million
UMTS/HSDPA handsets, an increase of 12 percentage points from December 31,
2008.
Sales
and marketing
Telefónica
Spain is focused on key initiatives to preserve its position as a leading mobile
operator in the market, leading it to increase commercial efforts with measures
including:
|
|
·
|
in-depth
market segmentation, with a focus on customer
value;
|
|
|
·
|
programs
to promote customer loyalty; and
|
|
|
·
|
pricing
policies to stimulate usage, including launching segmented packages and
innovative tariff options.
|
Since
Telefónica Spain began providing mobile services in Spain, its sales and
marketing strategy has been to generate increased brand awareness and customer
satisfaction to achieve customer growth and increased
revenues. Telefónica Spain utilizes several types of marketing
channels, including television, radio, exterior billboards, telemarketing,
direct mail and Internet advertising. Telefónica Spain also sponsors
several cultural and sporting events in order to increase its brand
recognition.
During
2009 Telefónica Spain’s main marketing campaigns focused on boosting demand for
mobile broadband, with the launch of data flat rates for browsing the web by a
handset or small screen (to access contents, music, television, etc.) as well as
browsing the web with laptops or big screen, developing new concepts and
campaigns such as “try and buy”. In addition, Telefónica Spain offers
access to mobile broadband services with HSPA technology. These
favorable data rates and mobile broadband capable devices have been bundled by
Telefónica Spain in order to promote an increase in the number of accesses and
level of use of mobile broadband services in Spain. In order to help achieve
this goal:
|
|
·
|
In
June 2009, Telefónica launched mobile broadband services for pre-pay
customers.
|
|
|
·
|
In
September 2009,
Telefónica launched “mstore” with a
catalogue of more than 1,000 mobile telephony applications and services,
available to all Movistar customers, and ready to download to mobile
phones and computers.
|
|
|
·
|
Also,
in November 2009, Telefónica launched HSPA+ services and tariffs which
allow downloading at peak speeds of 21
Mbs.
|
Competition
Telefónica
Spain’s main competitors in the Spanish market for mobile communications service
are: Vodafone España, a subsidiary of Vodafone plc, Orange, which is the trade
name of France Telecom España S.A., Yoigo, whose principal shareholder is
TeliaSonera, and other MVNO operators.
Telefónica
Spain’s estimated market share in Spain in terms of mobile accesses was
approximately 42% at December 31, 2009 (down from approximately 44% at December
31, 2008).
Network
and technology
Telefónica
Spain’s digital network in Spain is based upon the GSM/UMTS
standard. The prevalence of the GSM standard, together with
Telefónica Spain’s international roaming agreements, enable its mobile customers
to make and receive calls in more than 200 countries
worldwide. Telefónica Spain’s GSM/UMTS based network provides its
customers with access to many of the most advanced mobile handsets and a full
range of services and products.
In 2009,
Telefónica Spain invested in building out and enhancing its networks in Spain
and developing its technological platforms and information
systems. At December 31, 2009, Telefónica Spain’s GSM/GPRS digital
network in Spain consisted of approximately 22,293 base stations of 2G. In 2009,
Telefónica Spain accelerated the expansion of its UMTS network with 1,547 new
base stations with a total of more than 10,820 UMTS base stations installed at
the end of the year.
Telefónica
Europe
Telefónica
Europe’s principal activities are the provision of fixed and mobile telephony
services, Internet and data services in the United Kingdom, Germany, the Czech
Republic and the Isle of Man, mobile telecommunications services in Ireland and
Slovakia and pay TV in Czech Republic.
The
following table presents, at the dates indicated, selected statistical data
relating to our operations in Europe.
|
At
December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
(in
thousands)
|
||||||||||||
|
Fixed
telephony accesses
|
2,130.0 | 1,952.7 | 1,827.5 | |||||||||
|
Internet
and data accesses
|
880.0 | 1,354.5 | 1,754.7 | |||||||||
|
Narrowband
accesses
|
202.4 | 163.4 | 137.3 | |||||||||
|
Broadband
accesses
|
670.3 | 1,158.7 | 1,589.1 | |||||||||
|
Other accesses
|
7.3 | 32.4 | 28.3 | |||||||||
|
Mobile
accesses
|
38,263.8 | 41,401.8 | 44,095.0 | |||||||||
|
Pay
TV accesses
|
73.2 | 114.5 | 137.6 | |||||||||
|
Final
clients accesses
|
41,347.0 | 44,823.5 | 47,814.9 | |||||||||
|
Wholesale
accesses
|
706.2 | 1,237.9 | 1,425.2 | |||||||||
|
Total
accesses
|
42,053.2 | 46,061.4 | 49,240.1 | |||||||||
Telefónica
Europe’s total accesses increased 6.9% to 49.2 million accesses at December 31,
2009 from 46.1 million accesses at December 31, 2008. Total accesses
at December 31, 2009 included 44.1 million mobile accesses, 1.8 million fixed
telephony accesses, 1.8 million Internet and data accesses and 0.1 million pay
TV accesses. Additionally, it included 1.4 million ADSL wholesale
accesses.
United
Kingdom – Telefónica O2 UK
Operations
The
following tables present, at the dates or for the periods indicated, selected
statistical data relating to our operations in the United Kingdom.
|
At
December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
(in
thousands)
|
||||||||||||
|
Internet
and data accesses
|
70.7 | 340.9 | 591.5 | |||||||||
|
Broadband
accesses
|
70.7 | 340.9 | 591.5 | |||||||||
|
Mobile
accesses
|
18,382.1 | 20,274.7 | 21,299.3 | |||||||||
|
Pre-pay
accesses
|
11,573.4 | 11,862.5 | 11,740.3 | |||||||||
|
Final
clients accesses
|
18,452.8 | 20,615.6 | 21,890.8 | |||||||||
|
Total
accesses
|
18,452.8 | 20,615.6 | 21,890.8 | |||||||||
|
Year
ended December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
MOU
(minutes)
|
190 | 207 |
n.a.
|
|||||||||
|
Traffic
(millions of minutes)
|
n.a.
|
46,585 | 53,856 | |||||||||
|
ARPU
(in euros)
|
34.4 | 29.0 | 24.7 | |||||||||
The
mobile penetration rate in the United Kingdom was approximately 126% at December
31, 2009, an increase of approximately 3 percentage points compared
to the penetration rate at December 31, 2008.
Total
accesses for Telefónica O2 UK, Telefónica Europe’s operating company in the
United Kingdom, increased 6.2% to 21.9 million accesses at December 31, 2009
compared to 20.6 million accesses at December 31, 2008 (excluding the Tesco
mobile customer base, which is the result of a joint venture in which Telefónica
O2 UK holds a 50% stake and whose customers use the Telefónica O2 UK
network). Telefónica O2 UK, had net adds of 1.3 million accesses in
2009, 41.0% less than its net additions in 2008.
Telefónica
O2 UK added 1.1 million mobile contract accesses in 2009, bringing the total at
December 31, 2009 to 9.6 million mobile contract accesses, an increase of 13.6%
from December 31, 2008. Pre-pay mobile accesses decreased from 11.9
million accesses from December 31, 2008 to 11.7 million accesses at December 31,
2009. At December 31, 2009 mobile contract accesses made up 44.9% of
Telefónica O2 UK’s mobile customer base, compared to 41.5% at December 31,
2008. At December 31, 2009 Telefónica O2 UK had 0.6 million broadband
accesses compared to 0.3 million broadband accesses at December 31,
2008.
Contract
ARPU decreased to €40.8 in 2009 from €48.6 in 2008 (a decrease of 5.9% in local
currency). Pre-pay ARPU decreased to €12.3 in 2009 from €15.5 in 2008
(a decrease of 11.0% in local currency). ARPU was €24.7 in 2009 down
from €29.0 in 2008 (a decrease of 4.4% in local currency). This
decrease in local currency ARPU was caused by MTR regulation (which resulted in
an average rate decrease of approximately 11% year-on-year) and customers’ usage
optimization. Traffic in 2009 increased 15.6% to 53,856 million
minutes compared to 46,585 million minutes in 2008.
Sales
and marketing
In the
United Kingdom, we use a broad range of marketing channels, including
television, radio, billboards, telemarketing, direct mail, internet advertising
and sponsorship to market Telefónica O2 UK’s products and services.
In 2009,
Telefónica O2 UK continued its focus on high-value customers across various
segments and offered a wide range of smart phones such as the iPhone
3GS and the Palm Pre, in addition to mobile and fixed broadband representing one
of the key drivers of revenue growth in 2009.
In 2009
Telefónica O2 UK was voted “Best Network” for the second consecutive year at
Mobile Awards 2009.
Competition
Telefónica
O2 UK’s estimated market share was approximately 26.2% at December 31, 2009
compared with approximately 25.9% at December 31, 2008, based on the number of
mobile accesses.
In
addition to Telefónica O2 UK, there are currently four other network operators
in the UK mobile telecommunications market: Vodafone UK, a subsidiary of
Vodafone plc, T-Mobile UK, a subsidiary of Deutsche Telecom AG, Orange, owned by
France Telecom, and 3, owned by Hutchison Whampoa. MVNOs operating in
the UK market include Virgin Mobile and Talk-Talk, owned by Virgin Media and The
Carphone Warehouse Group, respectively, which respectively use the T-Mobile UK
and Vodafone network, and Tesco Mobile, a joint venture in which Telefónica O2
UK holds a 50% stake, and which uses the Telefónica O2 UK network.
We
understand that a proposed joint venture between France Telecom and
Deutsche Telekom’s UK operators (Orange UK and T-Mobile UK, respectively) is
currently being analyzed by regulators.
At
December 31, 2009, Telefónica O2 UK also provides the network infrastructure for
LycaMobile, a mobile virtual network operator (MVNO) who competes with us
and pays Telefónica O2 UK to use its network.
Network
and technology
Telefónica
O2 UK’s digital network in the United Kingdom is based upon the GSM/UMTS
standard. The prevalence of the GSM standard, together with
Telefónica O2 UK’s international roaming agreements, enables Telefónica O2 UK’s
customers to make and receive calls in more than 200 countries
worldwide. At December 31, 2009, Telefónica O2 UK’s GSM/UMTS digital
network consisted of approximately 11,817 base stations.
Telefónica
O2 UK had rolled out ULL capabilities to 1,245 exchanges by the end of 2009,
giving its broadband network population coverage of 67.2% in terms of the UK
population.
Germany
– Telefónica O2 Germany
Operations
The
following tables present, at the dates or for the periods indicated, selected
statistical data relating to our operations in Germany.
|
At
December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
(in
thousands)
|
||||||||||||
|
Internet
and data accesses
|
74.7 | 214.8 | 285.1 | |||||||||
|
Broadband
accesses
|
74.7 | 214.8 | 285.1 | |||||||||
|
Mobile
accesses
|
12,471.5 | 14,198.5 | 15,507.4 | |||||||||
|
Pre-pay
accesses
|
6,235.0 | 7,231.5 | 7,807.0 | |||||||||
|
Final
clients accesses
|
12,546.2 | 14,413.3 | 15,792.5 | |||||||||
|
Wholesale
accesses
|
596.0 | 1,128.4 | 1,316.8 | |||||||||
|
Total
accesses
|
13,142.3 | 15,541.7 | 17,109.3 | |||||||||
|
Year
ended December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
MOU
(minutes)
|
131 | 138 |
n.a.
|
|||||||||
|
Traffic
(millions of minutes)
|
n.a.
|
22,313 | 23,257 | |||||||||
|
ARPU
(in euros)
|
20.4 | 17.4 | 15.6 | |||||||||
The
mobile penetration rate in Germany was approximately 132% at December 31, 2009,
similar to the penetration rate at December 31, 2008.
The total
customer base of Telefónica O2 Germany, Telefónica Europe’s operating company in
Germany, increased by 1.6 million accesses from December 31, 2008 to 17.1
million accesses at December 31, 2009. Telefónica O2 Germany’s joint
venture with Tchibo Mobile was responsible for 0.1 million of this increase in
accesses from December 31, 2008 to 1.4 million accesses at December 31, 2009,
while Telefónica O2 Germany’s “Fonic” low-cost brand, added 0.6 million accesses
from December 31, 2008, giving it a customer base of 1.3 million accesses at
December 31, 2009.
Telefónica
O2 Germany had net adds of 0.7 million mobile contract accesses and 0.6 million
mobile pre-pay accesses in 2009, bringing the contract and pre-pay customer base
at December 31, 2009 to 7.7 million accesses and 7.8 million accesses
respectively.
At
December 31, 2009, Telefónica O2 Germany had a customer base of 0.3 million
broadband accesses. Telefónica O2 Germany reported 1.3 million ULL lines at
December 31, 2009, an increase of 16.7% from 1.1 million ULL lines at December
31, 2008.
ARPU
continued to decline in 2009, decreasing 9.9% to €15.6 in 2009 from €17.4 in
2008, partly as a result of an approximately 14% regulated cut in MTRs in April
2009 and the fierce level of competition in the German
market. Contract ARPU decreased 10.0% to €26.1 in 2009 from €29.0 in
2008. Pre-pay ARPU decreased 4.4% to €5.7 in 2009 from €5.9 in 2008.
Traffic in 2009 increased 4.2% to 23,257 million minutes compared to 22,313
million minutes in 2008.
Sales
and marketing
During
2009 Telefónica O2 Germany revised its commercial model, replacing existing
tariffs such as “Genion S/M/L/XL”, with the new and innovative “O2 o”
proposition, where customers have contracts with no minimum spend, and a monthly
cap for voice and SMS. As a result of this new commercial proposition
“My Handy” has been introduced which separates the handset from the traditional
subsidized mobile phone contract, with customers acquiring a separate contract
for a handset. The “Inklusivpaket” plan continues to be marketed as a data
tariff.
Telefónica
O2 Germany continued to build on its core strategy of increasing its
distribution network, which was broadly in line with target at 940 shops at year
end.
Competition
Telefónica
O2 Germany’s estimated market share in Germany was approximately 14.3% at
December 31, 2009 compared to approximately 13.5% at December 31, 2008, based on
number of mobile accesses.
Telefónica
O2 Germany competes primarily with three other companies in the German market
for mobile telecommunications. These are T-Mobile, which is owned by
Deutsche Telecom AG, Vodafone Germany, a subsidiary of Vodafone plc, and E-Plus,
which is owned by KPN. Telefónica O2 Germany also competes with several
MVNOs.
Network
and technology
Telefónica
O2 Germany’s digital network in Germany is based upon the GSM/UMTS
standard. The prevalence of the GSM standard, together with
Telefónica O2 Germany’s international roaming agreements, enables Telefónica O2
Germany customers to make and receive calls in more than 200 countries
worldwide.
At
December 31, 2009, Telefónica O2 Germany’s GSM/UMTS digital network consisted of
approximately 17,210 base stations.
Czech
Republic and Slovakia – Telefónica O2 Czech Republic and Telefónica O2
Slovakia
Telefónica
Europe provides fixed line, pay TV, and mobile services in the Czech Republic
and mobile services in Slovakia, where it launched operations during the first
quarter of 2007.
Operations
The
following tables present, at the dates or for the periods indicated, selected
statistical data relating to our operations in the Czech Republic (data excludes
Slovakia).
|
At
December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
(in
thousands)
|
||||||||||||
|
Fixed
telephony accesses
|
2,069.2 | 1,893.4 | 1,770.6 | |||||||||
|
Internet
and data accesses
|
719.1 | 779.5 | 848.7 | |||||||||
|
Narrowband
accesses
|
202.4 | 163.4 | 137.6 | |||||||||
|
Broadband
accesses
|
509.4 | 583.7 | 683.2 | |||||||||
|
Other
accesses
|
7.3 | 32.4 | 28.3 | |||||||||
|
Mobile
accesses
|
5,125.4 | 4,802.1 | 4,944.6 | |||||||||
|
Pre-pay
accesses
|
2,881.5 | 2,282.8 | 2,130.2 | |||||||||
|
Pay
TV accesses
|
73.2 | 114.5 | 137.6 | |||||||||
|
Final
clients accesses
|
7,986.8 | 7,589.5 | 7,701.5 | |||||||||
|
Wholesale
accesses
|
110.2 | 109.5 | 108.4 | |||||||||
|
Total
accesses
|
8,097.0 | 7,698.9 | 7,810.0 | |||||||||
|
Year
ended December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
MOU
(minutes)
|
117 | 121 |
n.a.
|
|||||||||
|
Traffic
(millions of minutes)
|
n.a.
|
7,420 | 8,232 | |||||||||
|
ARPU
(in euros)
|
18.9 | 22.8 | 19.3 | |||||||||
The
mobile penetration rate in the Czech Republic was approximately 134% at December
31, 2009, approximately 3 percentage points higher than the penetration rate at
December 31, 2008.
Fixed
telephony accesses for Telefónica O2 Czech Republic, Telefónica Europe’s
operating company in the Czech Republic, decreased by 6.5% to 1.8 million
accesses at December 31, 2009 from 1.9 million accesses at December 31, 2008,
mainly as the result of fixed-to-mobile substitution.
Telefónica
O2 Czech Republic’s broadband accesses increased 17.0% compared to December 31,
2008 to 0.7 million accesses at December 31, 2009. The pay TV
customer base increased 20.2% to 0.1 million accesses at December 31, 2009.
These increases are primarily as a result of increased demand for these services
in the Czech Republic.
Telefónica
O2 Czech Republic’s mobile accesses increased 3.0% to 4.9 million accesses at
December 31, 2009, from 4.8 million accesses at December 31, 2008. Contract
mobile accesses accounted for 56.9% of these accesses at December 31, 2009, up
from 52.5% at December 31, 2008. The number of pre-pay mobile
accesses decreased 43.1%, to 2.1 million accesses at December 31, 2009 from 2.3
million accesses at December 31, 2008.
ARPU
decreased to €19.3 in 2009 from €22.8 in 2008 (a reduction of 10.5% in local
currency). Pre-pay ARPU decreased to €8.5 in 2009 from €11.4 in 2008
(a reduction of 21.9% in local currency), primarily due to customers optimizing
their tariffs and calling patterns. Contract ARPU decreased to €28.2
in 2009 from €33.5 in 2008 (a decrease of 12.0% in local currency), primarily
due to regulated MTR cuts (approximately 22.7% year-on-year) and customers
optimizing their spending. Traffic in 2009 increased 11.0% to 8,232
million minutes compared to 7,420 million minutes in 2008.
Sales
and marketing
During
2009 the dominant mobile proposition of Telefónica O2 Czech Republic remained
the “O2 Neon” tariffs launched in 2008, which are designed to stimulate traffic
through a simplified, flat tariff structure. In 2009 a new concept was launched
in fixed segment, called “O2 Home”, where subscribers can purchase DSL packages
without the need to have a fixed line. Within the O2 Home offering are options
to subscribe for bundled products, including mobile broadband, mobile tariffs
and IPTV at more advantageous prices.
Competition
There are
currently two other primary competitors in the Czech Republic mobile
telecommunications market, Vodafone Czech Republic, which is owned by Vodafone
plc., and T-Mobile, which is part of Deutsche Telecom AG.
Telefónica
O2 Czech Republic had an estimated mobile market share of approximately 39.2% at
December 31, 2009 compared to approximately 38.6% at December 31, 2008, based on
number of mobile accesses.
The fixed
telephony market in the Czech Republic consists of six large operators and a
number of other smaller providers. In voice the major competitors are
U:fon, UPC and other cable operators which also provide integrated voice,
Internet and pay TV offers. Internet service is offered by all major
mobile operators as well as a large volume of WiFi providers. Pay TV
is dominated by a number of cable and satellite companies, the biggest being
UPC.
Network
and technology
Telefónica
O2 Czech Republic’s digital network in the Czech Republic is based upon the
GSM/UMTS standard. The prevalence of the GSM standard, together with
Telefónica O2 Czech Republic’s international roaming agreements, enables its
customers to make and receive calls in more than 200 countries
worldwide.
At
December 31, 2009, Telefónica O2 Czech Republic’s GSM/UMTS digital network
consisted of 4,786 base stations.
Slovakia
At
December 31, 2009, Telefónica O2 Slovakia’s total number of mobile accesses
amounted to 0.6 million accesses, an increase of 69.9% compared to December 31,
2008. Contract mobile accesses accounted for 35.4% of these accesses
at December 31, 2009 compared to 30.4% at December 31,
2008. Throughout 2009, Telefónica O2 Slovakia continued with “O2 Fér”
plan, a simple tariff which unifies pre-pay and contract mobile rates and offers
SIM-only products without a handset subsidy.
In 2009,
Telefónica O2 Slovakia continued to roll out its own network infrastructure, and
by December 31, 2009 the company had 917 base stations, which fulfilled its
license conditions.
Ireland
– Telefónica O2 Ireland
Operations
The
following tables present, at the dates or for the periods indicated, selected
statistical data relating to our operations in Ireland:
|
At
December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
(in
thousands)
|
||||||||||||
|
Total
mobile accesses
|
1,646.1 | 1,727.7 | 1,714.3 | |||||||||
|
Pre-pay
accesses
|
1,090.9 | 1,084.6 | 1,022.5 | |||||||||
|
Year
ended December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
MOU
(minutes)
|
248 | 245 |
n.a.
|
|||||||||
|
Traffic
(millions of minutes)
|
n.a.
|
4,867 | 4,672 | |||||||||
|
ARPU
(in euros)
|
45.9 | 43.2 | 39.6 | |||||||||
The
mobile penetration rate in Ireland was approximately 120% at December 31, 2009,
approximately 1 percentage point lower than the penetration rate at December 31,
2008.
Telefónica
O2 Ireland had net losses of 13 thousand mobile accesses in
2009. Telefónica O2 Ireland’s customer base, in terms of mobile
accesses, decreased 0.8% from December 31, 2008 to 1.7 million mobile accesses
at December 31, 2009.
Telefónica
O2 Ireland had net adds of 49 thousand contract mobile accesses in its mobile
business in 2009, a decrease of 44.6% on December 31, 2008.
ARPU
decreased by 8.3% in 2009 to €39.6 from €43.2 in 2008. Contract ARPU
decreased 14.6% to €62.0 in 2009 from €72.5 in 2008 due to a different price
plan mix. Pre-pay ARPU decreased by 5.7% in 2009 to €25.5 in 2009
from €27.0 in 2008. Traffic in 2009 decreased 4.0% to 4,672 million
minutes compared to 4,867 million minutes in 2008 primarily due to voice to text
substitution.
Sales
and marketing
During
2009, Telefónica O2 Ireland continued to be the exclusive provider of the
iPhone, with the new version 3GS having been launched in June. The
second half of the year saw the launch of the new O2 exclusive Palm Pre phone,
and pre-pay mobile internet.
Competition
There are
currently three other primary competitors in the Irish mobile telecommunications
market: Vodafone Ireland, which is part of Vodafone plc, Meteor, which is part
of Eircom, and 3 Ireland, which is part of Hutchison Wampoa.
Telefónica
O2 Ireland had an estimated market share of the Irish mobile market of
approximately 32.3% at December 31, 2009 compared to approximately 32.5% at
December 31, 2008, based on number of mobile accesses.
Network
and technology
Telefónica
O2 Ireland’s digital network in Ireland is based upon the GSM/UMTS
standard. The prevalence of the GSM standard, together with
Telefónica O2 Ireland’s international roaming agreements, enables Telefónica O2
Ireland customers to make and receive calls in more than 200 countries
worldwide.
At
December 31, 2009, Telefónica O2 Ireland’s GSM/UMTS digital network consisted of
approximately 1,692 base stations.
Telefónica
Latin America
Telefónica
Latin America provides fixed and mobile telephony, Internet and data services
and pay TV services through the operators described in the following sections in
the main Latin American markets. In addition, Telefónica Latin
America’s other members include: Telefónica Empresas, Telefónica International
Wholesale Services (TIWS), the business unit responsible for other
telecommunications operators and for managing our international services and the
network which supports these services, and Terra Networks Latin
América.
The
following table presents statistical data relating to our operations in Latin
America:
|
At
December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
(in
thousands)
|
||||||||||||
|
Fixed
telephony accesses
|
25,381.0 | 25,644.5 | 24,578.3 | |||||||||
|
Internet
and data accesses
|
6,954.8 | 7,629.8 | 7,605.2 | |||||||||
|
Narrowband
accesses
|
1,815.6 | 1,445.8 | 1,070.6 | |||||||||
|
Broadband
accesses
|
5,035.9 | 6,067.0 | 6,426.8 | |||||||||
|
Other accesses
|
103.4 | 117.0 | 107.8 | |||||||||
|
Mobile
accesses
|
100,542.2 | 123,385.2 | 134,698.9 | |||||||||
|
Pay
TV accesses
|
1,163.8 | 1,540.5 | 1,648.6 | |||||||||
|
Final
clients accesses
|
134,041.8 | 158,200.1 | 168,531.1 | |||||||||
|
Wholesale
accesses
|
62.6 | 59.0 | 56.1 | |||||||||
|
Total
accesses
|
134,104.4 | 158,259.0 | 168,587.2 | |||||||||
Telefónica
Latin America’s total accesses increased 6.5% to 168.6 million accesses at
December 31, 2009 from 158.3 million accesses at December 31,
2008. Total accesses at December 31, 2009 include 134.7 million
mobile accesses, 24.6 million fixed telephony accesses, 7.6 million Internet and
data accesses and 1.6 million pay TV accesses. Additionally, it
includes 56 thousand wholesale accesses.
The
following table sets forth certain information at December 31, 2009 regarding
the principal Latin American operating companies of Telefónica Latin
America.
|
Country
|
Company
|
Population
|
Interest
|
|||||||
|
(in
millions)
|
(%)
|
|||||||||
|
Brazil
|
Telecomunicações
de São Paulo, S.A.—Telesp
|
41.26 | (*) | 87.95 | ||||||
|
Brasilcel,
N.V.(1)
|
192.3 | 50.00 | ||||||||
|
Mexico
|
Telefónica
Móviles México, S.A. de C.V.
|
110.6 | 100.00 | |||||||
|
Panama
|
Telefónica
Móviles Panamá, S.A.
|
3.5 | 100.00 | |||||||
|
Nicaragua
|
Telefónica
Móviles Nicaragua, S.A.
|
5.5 | 100.00 | |||||||
|
Guatemala
|
Telefónica
Móviles Guatemala, S.A.
|
13.7 | 99.98 | |||||||
|
El
Salvador
|
Telefónica
Móviles El Salvador, S.A. de C.V.
|
5.9 | 99.08 | |||||||
|
Venezuela
|
Telcel,
S.A.
|
28.4 | 100.00 | |||||||
|
Colombia
|
Colombia
Telecomunicaciones, S.A. ESP.
|
45.2 | 52.03 | |||||||
|
Telefónica
Móviles Colombia, S.A.
|
100.00 | |||||||||
|
Peru
|
Telefónica
del Perú, S.A.A.
|
28.2 | 98.34 | |||||||
|
Telefónica
Móviles Perú, S.A.C.
|
100.00 | |||||||||
|
Ecuador
|
Otecel,
S.A.
|
14.1 | 100.00 | |||||||
|
Argentina
|
Telefónica
de Argentina, S.A.
|
40.1 | 100.00 | |||||||
|
Telefónica
Móviles Argentina S.A.
|
100.00 | |||||||||
|
Chile
|
Telefónica
Chile, S.A.
|
16.7 | 97.89 | |||||||
|
Telefónica
Móviles Chile, S.A.
|
100.00 | |||||||||
|
Uruguay
|
Telefónica
Móviles Uruguay, S.A.
|
3.4 | 100.00 | |||||||
|
(*)
|
Concession
area only.
|
|
(1)
|
Jointly
controlled and managed by Telefónica and Portugal
Telecom. Brasilcel is the holding company which controls the
mobile operating company Vivo.
|
Brazil
The
following table presents, at the dates indicated, selected statistical data
relating to our operations in Brazil.
|
At
December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
(in
thousands)
|
||||||||||||
|
Fixed
telephony accesses
|
11,960.0 | 11,661.9 | 11,253.8 | |||||||||
|
Internet
and data accesses
|
3,288.6 | 3,625.8 | 3,440.2 | |||||||||
|
Narrowband
accesses
|
1,155.9 | 996.4 | 723.1 | |||||||||
|
Broadband
accesses
|
2,069.6 | 2,557.8 | 2,638.4 | |||||||||
|
Other accesses
|
63.1 | 71.6 | 78.7 | |||||||||
|
Mobile
accesses
|
33,483.5 | 44,945.0 | 51,744.4 | |||||||||
|
Pre-pay
accesses
|
27,236.4 | 36,384.0 | 41,960.7 | |||||||||
|
Pay
TV accesses
|
230.9 | 472.2 | 487.2 | |||||||||
|
Final
clients accesses
|
48,963.1 | 60,704.9 | 66,925.7 | |||||||||
|
Wholesale
accesses
|
37.4 | 34.1 | 34.2 | |||||||||
|
Total
accesses
|
49,000.5 | 60,739.1 | 66,959.8 | |||||||||
Telefónica
Latin America’s accesses in Brazil increased 10.2% to 67.0 million accesses at
December 31, 2009 from 60.7 million accesses at December 31, 2008. This growth
reflects a 15.1% year-on-year increase in Vivo’s (Telefónica Latin America’s
jointly-controlled Brazilian mobile business) customer base and, to a lesser
extent, the expansion of Telecomunicações de São Paulo, S.A.’s, or Telesp’s,
(Telefónica Latin America’s Brazilian fixed line business) broadband and pay TV
businesses. These increases were offset by a reduction in the number of fixed
telephony accesses at Telesp and a decrease in narrowband Internet accesses
primarily as a result of a modest migration to broadband accesses.
Brazil
Fixed Business – Telecomunicações de São Paulo, S.A. – Telesp
Operations
Telesp
provides fixed telephony and other telecommunications services in the Brazilian
state of São Paulo under concessions and licenses from Brazil’s federal
government.
Telesp’s
fixed telephony, Internet and data and pay TV accesses decreased 3.7% to 15.2
million accesses at December 31, 2009 from 15.8 million accesses at December 31,
2008, primarily due to the reduction in the number of fixed telephony accesses,
within the context of increased fixed-to-mobile substitution as a result of the
growth in Brazil’s mobile sector, and a decrease in narrowband Internet
accesses, as a result of migration to broadband solutions, that was not
compensated by broadband accesses increase. Telesp’s fixed telephony
accesses decreased 3.5% to 11.3 million accesses at December 31, 2009 from 11.7
million accesses at December 31, 2008. Of these, 25.8% were pre-pay
accesses or accesses with consumption limits.
The
Brazilian broadband market continued to grow in 2009. Telesp
increased its broadband customer base by 3.2% to 2.6 million accesses at
December 31, 2009. This moderate increase was affected by the
decision of ANATEL, the Brazilian telecommunications regulator, to suspend the
sale of Telesp’s broadband products from June 22, 2009 to August 27, 2009 as a
result of several technical problems on our network. Telesp offers
pay TV mainly through a DTH solution and, since the fourth quarter of 2007 after
the acquisition of Navy Tree, also offers MMDS technology, reaching 0.5 million
accesses at December 31, 2009, 15 thousand accesses more than at December 31,
2008.
Telesp’s
voice traffic, measured in minutes, decreased by 5.0% in 2009 compared to 2008,
mainly due to lower local and long distance traffic that was not compensated by
higher interconnection traffic coming primarily from mobile
networks. Fixed local traffic, measured in minutes, decreased 7.4% due to
lower fixed telephony accesses, and the implementation of flat rates and minutes
bundles. Fixed-to-mobile traffic, measured in minutes, fell 7.9% in 2009
compared to 2008 as a result of a migration of traffic to mobile
networks.
Sales
and marketing
In
Brazil, we employ a differentiated approach to marketing whereby we use a mix of
human and technological resources (a specialized team and business intelligence
tools, respectively), in addition to specific studies that allow us to target
various market segments according to the relevant needs of the customers in each
segment. We continuously monitor market trends in an effort to
develop new products and services that may address the future needs of our
customers.
Telefónica
Latin America employs the following strategies to deliver fixed telephony and
other telecommunications solutions to residential, small and medium enterprises,
or SMEs, and corporate customers in Brazil:
|
|
·
|
person-to-person
sales: customized sales services to achieve and preserve customer loyalty,
customized consulting telecommunication services and technical and
commercial support;
|
|
|
·
|
telesales:
a telemarketing channel;
|
|
|
·
|
indirect
channels: outsourced sales by certified companies in the
telecommunications and data processing segments to provide an adequately
sized network for our products and
services;
|
|
|
·
|
Internet:
the Telefónica website;
|
|
|
·
|
virtual
shop for corporate clients: a “gateway” for our corporate customers to
acquaint themselves with our portfolio through the Internet;
and
|
|
|
·
|
door-to-door:
door-to-door sales of services by consultants in the State of São Paulo in
order to approach more SMEs to convert them into Telefónica Negocios
clients.
|
We offer
bundled products, which include both local and long-distance traffic and minutes
bundled with broadband. We believe that the trend towards bundled
offers in Brazil will continue to grow, and that further developing such offers
will be important to maintaining our competitiveness in the market. Also, in
2009 Telesp launched its “X-treme” products, based on FTTX technology, and its
IPTV services as well.
Competition
Our fixed
telephony business in Brazil currently faces strong competition in the corporate
and premium residential segments in respect of several types of
services. In the corporate segment, there is strong competition in
both voice services (local and long distance) and data transmission, resulting
in greater retention costs to maintain client relationships.
Our main
competitors in the corporate fixed telephony line segment are Oi, Intelig and
Embratel, a subsidiary of Telmex International. In the high-income
residential service segment, we compete for long-distance customers with
Embratel and for broadband customers with cable TV providers, mainly NET
Serviços de Comunicação S.A., or Net. For the local voice and
high-income segments, we also face increasing competition from mobile
telecommunications services, which have lower rates for certain types of calls,
such as mobile-to-mobile calls. Such competition increases our
advertising and marketing costs. We are taking several steps to defend ourselves
from increasing competition. We are focused on improving our broadband products,
by offering bundled services that include voice, broadband and television, and
by increasing the access speed offered to our clients. In addition,
we are improving our market segmentation and developing more competitive
products intended to defend our client base from our competitors’ product
offerings and to defend our market share.
In the
low-income, local fixed telecommunications segment, we face less direct
competition due to the low profitability of this market. The most
significant competition is from pre-pay mobile telecommunications
providers.
Telesp
had an estimated market share in the fixed telephony market in the State of São
Paulo of approximately 74.4% at December 31, 2009 based on the number of fixed
telephony accesses, down from approximately 83.5%
at
December 31, 2008. This decrease is mainly due to intense competition
from Net, which offers its “Net Phone” service as part of its offer of pay TV
and broadband.
Network
and technology
During
the first half of 2009, Telesp had some problems with its network that affected
the quality of the service of some products, particularly
broadband. In order to guarantee the stability of the service, ANATEL
suspended the sale of “Speedy”, our broadband product, on June, 22,
2009. That suspension was temporary and subject to the implementation
by Telesp of an action plan to improve the service. Telesp presented
its action plan that included capital expenditures and customer care and network
expenses. As a result of this, the suspension was revoked on August,
27, 2009. In addition, Telesp continued through 2009 to develop its
ADSL network as long as the deployment of the fiber access network.
Brazil
mobile business – Brasilcel (Vivo)
Operations
With
approximately 174 million mobile accesses, Brazil ranked first in Latin America
in terms of number of mobile accesses at December 31, 2009. At
December 31, 2009, Brazil had an estimated mobile market penetration rate of
approximately 90.5%, compared to approximately 79% at December 31,
2008.
Telefónica
and Portugal Telecom are 50:50 shareholders in Brasilcel, a joint venture which
combines Telefónica’s and Portugal Telecom’s mobile businesses in
Brazil. This joint venture is the leading mobile operator in Brazil
in terms of number of mobile accesses at December 31, 2009. All of
the operating companies participating in the joint venture have been operating
under the brand name “Vivo” since April 2003. The licensed areas of
Brasilcel include 20 states in Brazil with an aggregate population of
approximately 192.3 million people.
Vivo’s
customer base, in terms of number of accesses, increased 15.1% to 51.7 million
accesses at December 31, 2009 from 44.9 million accesses at December 31, 2008.
Of these, 9.8 million were mobile contract accesses. The primary
factors contributing to this growth include the increasing importance of the new
mobile broadband accesses, the wider range of handsets available, Vivo’s
leadership in terms of brand and distribution chain, ongoing marketing campaigns
for pre-pay mobile traffic and an improved capacity to attract contract mobile
accesses first with Vivo
Escolha plans and with Vivo Voçe. Vivo Voçe, launched to
improve Vivo Escolha
plans, started to be commercialized at the end of November
2009. These plans are customized plans that allow customers to choose
the mix of services with an extra bunch of free voice minutes, messaging, or
mobile Internet access. Vivo Voçe also helped to
increase customer loyalty by encouraging increased minute consumption and
maintaining the perception on the market of Vivo’s lower prices than its
competitors. These plans are divided into different categories
depending on the number of minutes included as well as additional upgrade
features, such as extra SMS, extra minutes of long distance calls and extra MMS,
with the improvement of being able to choose two of these upgrades instead of
one as in the previous plans and include a 3G Internet upgrade
option.
|
Year
ended December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
Traffic
(millions of minutes)
|
n.a.
|
40,547 | 52,134 | |||||||||
|
ARPU
(in euros)
|
11.9 | 11.2 | 9.9 | |||||||||
Traffic
in 2009 increased 28.6% to 52,134 million minutes compared to 40,547 million
minutes in 2008 due to the characteristics of the promotions offered by Vivo in
2009, which focused on the pre-pay mobile segment and control lines, which
require minimum consumption and a prepaid “recharge” when such consumption is
complete.
ARPU was
€9.9 in 2009 compared to €11.2 in 2008 (a decrease of 8.6% in local
currency). The decrease in local currency reflected the increased
proportion of “SIM only” accesses in the pre-pay customer base and control
accesses in the contract customer base, despite the growth in data
consumption.
Sales
and marketing
Vivo
actively manages its distribution channels, which consisted of approximately
12,070 points of sale at December 31, 2009. Also, pre-pay mobile
customers have access to a wide range of “recharge” points. Credit
recharges can also be made by electronic transfers through the commercial
banking network. At December 31, 2009, approximately 18.9% of Vivo’s
customer base were contract mobile accesses and the remaining 81.1% were pre-pay
mobile accesses. Contract mobile accesses growth was driven by
customer acquisition and retention campaigns focused on high-value customers,
with an emphasis on the Vivo
Escolha and Vivo
Voçe plans.
Competition
Vivo was
the leading mobile operator in Brazil in terms of number of accesses at December
31, 2009. The growth of the Brazilian market was considerable during
the past years while being accompanied by an increase in competition due to the
introduction of new competitors in the regions in which Vivo
operates. Vivo’s major competitors are subsidiaries of Telecom
Italia, America Móvil and Oi.
Vivo’s
estimated market share in terms of mobile accesses in the Brazilian mobile
markets in which it operates was approximately 29.7% at December 31, 2009, down
from approximately 30.0% market share at December 31, 2008.
Network
and technology
The
licenses granted to the companies integrated under the Vivo brand allow
operations over the WCDMA, GSM, CDMA, CDMA 1XRTT, CDMA EVDO and TDMA
systems. Vivo offers both analog and digital services in the bands of
800 MHz, 1900 MHz and 2100 MHz. In 2009 migration from the CDMA to
the GSM network continued. Vivo’s GSM customer base at December 31,
2009 amounted to 40.7 million accesses, 78.7% of its total customer
base.
Venezuela
Venezuela
mobile business – Telcel, S.A. – Telcel
Operations
The
following table presents, at the dates indicated, selected statistical data
relating to our operations in Venezuela.
|
At
December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
(in
thousands)
|
||||||||||||
|
Total
mobile accesses
|
9,434.0 | 10,584.0 | 10,531.4 | |||||||||
|
Pre-pay
accesses
|
8,900.3 | 9,970.7 | 9,891.1 | |||||||||
|
Fixed
wireless accesses
|
995.9 | 1,312.8 | 1,214.3 | |||||||||
|
Pay
TV
|
–– | 8.5 | 62.8 | |||||||||
|
Total
accesses
|
10,429.9 | 11,905.3 | 11,808.5 | |||||||||
The
mobile penetration rate in Venezuela stood at an estimated 100.6% at December
31, 2009, an increase of approximately 0.5 percentage points from December 31,
2008.
Telefónica
Latin America operates in Venezuela through Telcel, S.A., or Telcel, whose
accesses decreased 0.8% to 11.8 million accesses at December 31, 2009 from 12.0
million accesses at December 31, 2008, mainly due to intense
competition.
|
Year
ended December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
Traffic
(millions of minutes)
|
n.a.
|
14,993 | 14,951 | |||||||||
|
ARPU
(in euros)
|
16.3 | 16.9 | 21.2 | |||||||||
Traffic
in 2009 decreased 0.3% to 14,951 million minutes from 14,993 million minutes in
2008, due to lower quality pre-pay mobile accesses and lower contract mobile
accesses usage.
ARPU for
2009 was €21.2 compared to €16.9 in 2008 (an increase of 19.2% in local currency
and excluding the effects of Venezuela being considered a hyperinflationary
economy in 2009). The increase in local currency and excluding the
effects of Venezuela being considered a hyperinflationary economy in 2009
reflected the increase in tariffs, the increased proportion of contract mobile
accesses in the customer base and the continued growth in data
revenues.
Sales
and marketing
In
Venezuela, we use a broad range of marketing channels, including television,
radio, billboards, telemarketing, direct mail and Internet advertising to market
our products. At December 31, 2009, 6.1% of our mobile accesses in
Venezuela were contract mobile accesses, while approximately 93.9% were pre-pay
mobile accesses.
In 2009
the company continued implementing its strategy of offering a wider range of
exclusive handsets, including the launch of several Blackberry
models.
Competition
The major
competitors in the Venezuela mobile business are Movilnet and
Digitel. Movilnet is a mobile services communication provider owned
by the public operator CANTV. Movilnet currently uses CDMA and GSM
technologies. In late December, it launched 3.5G
service. Digitel is a mobile communications provider that uses GSM
technology and focuses its strategy on mobile internet services based on
3G.
According
to the Comisión Nacional de
Telecomunicaciones de la República Bolivariana de Venezuela, or CONATEL,
CANTV is the incumbent operator in Venezuela with a 46% share of the mobile
market (through Movilnet) as of December 31, 2009. CANTV is
controlled by the government of Venezuela.
Telefónica’s
estimated market share in the Venezuelan mobile market, in terms of mobile
accesses, was approximately 36.9% at December 31, 2009, down from approximately
37.8% at December 31, 2008.
Network
and technology
In
Venezuela, we operate a digital network based on the CDMA and GSM
standard. In 2009, we deployed an overlay based on UMTS
/HSDPA. At December 31, 2009, approximately 66.2% of Telcel’s
accesses in Venezuela were based on the GSM network. Also, we offer
HSUPA technology that offers higher speed to upload data to the web, especially
while loading images, e-mails, videos, etc.
Argentina
The
following table presents, at the dates indicated, selected statistical data
relating to our operations in Argentina.
|
At
December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
(in
thousands)
|
||||||||||||
|
Fixed
telephony accesses
|
4,682.5 | 4,603.1 | 4,607.7 | |||||||||
|
Fixed
wireless accesses
|
104.3 | 22.4 | 36.2 | |||||||||
|
Internet
and data accesses
|
1,149.9 | 1,284.3 | 1,351.0 | |||||||||
|
Narrowband
accesses
|
312.2 | 182.8 | 112.7 | |||||||||
|
Broadband
accesses
|
819.3 | 1,082.0 | 1,238.3 | |||||||||
|
Other
accesses
|
18.4 | 19.5 | — | |||||||||
|
Mobile accesses
|
13,629.7 | 14,829.6 | 15,931.9 | |||||||||
|
Pre-pay
accesses
|
8,836.0 | 9,687.6 | 10,736.8 | |||||||||
|
Final
clients accesses
|
19,462.1 | 20,717.0 | 21,890.7 | |||||||||
|
Wholesale
accesses
|
9.3 | 10.0 | 9.3 | |||||||||
|
Total
accesses
|
19,471.4 | 20,726.9 | 21,900.0 | |||||||||
Telefónica
Latin America managed a total of 21.9 million accesses in Argentina at December
31, 2009, an increase of 5.7% from December 31, 2008. This increase
was underpinned by growth in mobile accesses, which increased by 7.4% to 15.9
million accesses at December 31, 2009 from 14.8 million accesses at December 31,
2008, and in the number of broadband accesses, which increased by 14.4% to 1.2
million accesses at December 31, 2009 from 1.1 million accesses at December 31,
2008.
Argentina
fixed business – Telefónica de Argentina S.A.
Operations
Telefónica
Latin America conducts its Argentine fixed business through Telefónica de
Argentina, the leading provider of fixed telephony services in Argentina in 2009
based on number of accesses, according to information provided by its
competitors and regulatory authorities.
Telefónica
de Argentina’s accesses increased 1.2% to 6.0 million accesses at December 31,
2009 from 5.9 million accesses at December 31, 2008. This modest
growth was primarily driven by a 14.4% increase in broadband accesses to 1.2
million accesses at December 31, 2009 from 1.1 million accesses at December 31,
2008. The growth in broadband accesses was accompanied by a slight
increase in fixed telephony accesses of 0.1% to 4.6 million accesses at December
31, 2009 from December 31, 2008.
Total
voice traffic (measured in minutes) declined 5.6% during 2009 as compared to
2008 despite the sharp growth of mobile-to-fixed traffic. Local and
interconnection fixed-to-fixed traffic (measured in minutes) decreased 5.9% and
4.5%, respectively, in the year ended December 31, 2009 compared to the year
ended December 31, 2008. Public use telephony traffic (measured in
minutes) in 2009 decreased by 18.4% compared to the year ended December 31,
2008.
Sales
and marketing
In
Argentina, Telefónica de Argentina uses a broad range of marketing channels,
including television, radio, billboards, telemarketing, direct mail and Internet
advertising to market its fixed telephony products and
services. Telefónica de Argentina continued answering customers’
needs through the development of its broadband business and by providing them
new value added services. Telefónica de Argentina also focused its
product strategy on bundles and packages supported by commercial offerings like
flat-rate plans (tarifa
plana). In 2009, we continued commercializing long distance
flat-rate plans. The flat-rate plan was primarily sold with the
bundling of broadband access together with a local traffic plan. At
December 31, 2009 approximately 67.0% of the broadband customer base subscribed
to broadband through a bundled package.
Competition
Telefónica
de Argentina is the incumbent provider of fixed telephony services in the
southern region of Argentina. However, other licensees currently
providing fixed telephony services include Telecom Argentina S.A., Telmex
Argentina S.A., Impsat S.A. (acquired by Global Crossing in May 2007) and
Port-Hable (Hutchison Telecommunications Argentina S.A.). Claro, a
mobile phone company owned by America Móvil, also competes in the fixed
telephony market.
Telefónica
de Argentina is using its expanded fiber-optic network in the northern region of
Argentina to carry long-distance traffic and a multiservice network to provide
local service in the three most important cities in the northern region of
Argentina where Telecom Argentina, S.A. is the incumbent
provider. Telefónica de Argentina expanded and improved its network
capacity by the construction of fixed wireless networks and the activation of
new lines.
Telefónica
de Argentina also competes with Grupo Clarín, a company with a growing broadband
and TV businesses as a result of the merger of its affiliate Cablevisión with
Multicanal in 2007.
Telefónica
had an estimated market share in the Argentine fixed telephony market of
approximately 47.8% at December 31, 2009 based on number of fixed telephony
accesses, down from approximately 48.1% at December 31, 2008.
Network
and technology
Telefónica
de Argentina invested in 2009 to develop its broadband access business through
ADSL technology, increasing the network coverage and capacity.
Argentina
mobile business – Telefónica Móviles Argentina S.A.
Operations
The
Argentine mobile market continued to grow at a strong pace in 2009, with an
increase in its penetration to approximately 120.3% at December 31, 2009, from
approximately 109.8% at December 31, 2008, based on number of mobile
accesses.
Telefónica
Latin America conducts its Argentine mobile business through Telefónica Móviles
Argentina S.A., or Telefónica Móviles Argentina, whose accesses increased 7.4%
to 15.9 million accesses at December 31, 2009 from 14.8 million accesses at
December 31, 2008. Telefónica Móviles Argentina also increased its
number of contract mobile accesses by 1.0% to 5.2 million accesses at December
31, 2009 from 5.1 million accesses at December 31, 2008.
|
Year
ended December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
Traffic
(millions of minutes)
|
n.a.
|
12,941 | 15,562 | |||||||||
|
ARPU
(in euros)
|
8.5 | 8.7 | 8.6 | |||||||||
Traffic
reached 15,562 million minutes in 2009, an increase of 20.2% compared to 12,941
million minutes in 2008, mainly driven by the growth in on-net
traffic.
ARPU was
€8.6 in 2009 compared to €8.7 in 2008 (an increase of 10.7% in local
currency). The increase in local currency reflected customer adoption
of new products and services (upgrades and more consumption), tariff increases
and the continued growth in data revenues.
Sales
and marketing
In
Argentina, Telefónica Móviles Argentina uses a broad range of marketing
channels, including television, radio, billboards, telemarketing, direct mail
and Internet advertising to market its products. At December 31,
2009,
approximately
32.6% of our accesses in Argentina were contract mobile
accesses. During 2009, Telefónica Móviles Argentina offered Internet
mobile service with plans with limited or unlimited usage.
Competition
We
currently have three competitors in the Argentine market for mobile
communications services, each of which provides services on a nationwide basis:
Telecom Personal, which is controlled by Telecom Italia through Telecom
Argentina; Claro, controlled by América Móvil; and Nextel, owned by NII Holdings
Inc.
Telefónica
Móviles Argentina’s estimated market share in the Argentine mobile market in
terms of mobile accesses was approximately 33.0% at December 31, 2009, down from
approximately 34.0% at December 31, 2008.
Network
and technology
In
Argentina we operate on digital networks based upon GSM and UMTS technology. At
December 31, 2009, GSM
accesses represented 98.6% of Telefónica Móviles Argentina’s
accesses. Also, Telefónica Móviles Argentina developed its mobile
broadband business through UMTS technology by increasing coverage.
Chile
The
following table presents, at the dates indicated, selected statistical data
relating to our operations in Chile.
|
At
December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
(in
thousands)
|
||||||||||||
|
Fixed
telephony accesses
|
2,172.4 | 2,121.0 | 2,028.0 | |||||||||
|
Internet
and data accesses
|
686.8 | 743.8 | 807.2 | |||||||||
|
Narrowband
accesses
|
31.8 | 18.7 | 15.9 | |||||||||
|
Broadband
accesses
|
646.0 | 716.6 | 783.2 | |||||||||
|
Other accesses
|
8.9 | 8.6 | 8.1 | |||||||||
|
Mobile
accesses
|
6,282.7 | 6,875.0 | 7,524.7 | |||||||||
|
Pre-pay
accesses
|
4,742.2 | 4,956.0 | 5,435.9 | |||||||||
|
Pay
TV accesses
|
219.9 | 263.0 | 285.1 | |||||||||
|
Final
clients accesses
|
9,361.7 | 10,002.7 | 10,645.0 | |||||||||
|
Wholesale
accesses
|
15.4 | 11.5 | 8.9 | |||||||||
|
Total
accesses
|
9,377.2 | 10,014.3 | 10,653.8 | |||||||||
At
December 31, 2009 Telefónica Latin America managed a total of 10.7 million
accesses in Chile, 6.4% more than at December 31, 2008, underpinned by growth in
mobile accesses, which increased by 9.5% to 7.5 million accesses at December 31,
2009 from 6.9 million accesses at December 31, 2008. Growth was also
driven, by a 9.3% increase in broadband accesses to 0.8 million accesses at
December 31, 2009 and an 8.4% increase in pay TV accesses to 0.3 million
accesses at December 31, 2009. Fixed telephony accesses decreased
4.4% to 2.0 million accesses at December 31, 2009 from 2.1 million accesses at
December 31, 2008.
Chilean
fixed business – Telefónica Chile S.A.
Operations
Telefónica
Latin America conducts its Chilean fixed business through Telefónica Chile S.A.,
or Telefónica Chile (formerly Compañía de Telecomunicaciones de Chile, or CTC
Chile), the leading fixed line telecommunications operator in Chile based on
number of accesses, according to information provided by its competitors and
regulatory authorities. Telefónica Chile’s accesses
decreased 0.3% to 3.1 million accesses at December 31,
2009. Telefónica Chile’s fixed telephony accesses decreased by 4.4%
from December 31, 2008 to 2.0 million accesses at December 31,
2009. Broadband and pay TV accesses continued to grow in 2009, and
Telefónica Chile managed 0.8 million broadband accesses at December 31, 2009
compared to 0.7 million at December 31, 2008.
Telefónica
Chile’s pay TV business grew to 0.3 million accesses at December 31,
2009. Telefónica Chile established itself as the third pay TV
operator in Chile, by number of accesses in 2009.
Sales
and marketing
One of
our main priorities is to satisfy customer needs by improving the quality of our
customer service. We continued our strategy of segmenting our
customers in order to tailor our services to best meet the specific needs of
each customer segment. With respect to broadband, Telefónica Chile launched
bundle services of broadband and voice to satisfy customer demand. Also double
and triple play bundles represented one of the drivers of revenue
growth.
The
customer service model developed by Telefónica Chile, which is aimed at
achieving the highest degree of efficiency in customer service, features the
following:
|
|
·
|
personal
customer service lines for purchasing any type of product and service and
handling customer queries;
|
|
|
·
|
Telefónica
stores (Tiendas
Telefónica) where customers can test and buy products marketed by
Telefónica;
|
|
|
·
|
Telefónica’s
“virtual” store, accessible by Internet, which offers customers the
ability to order and purchase online the majority of services and products
offered by Telefónica; and
|
|
|
·
|
a
sophisticated customer service system for corporate clients, ranging from
a telephone help line for small and medium-sized businesses to the
assignment of sales managers to address the needs of larger corporate
clients.
|
From
October 25, 2009, all fixed and/or mobile businesses products and services are
marketed under the brand “Movistar”, formerly used exclusively by the mobile
business.
Competition
The
competitive landscape in fixed telephony in Chile is marked by a significant
fixed-to-mobile substitution effect. The increased sales of Duo and
Trio bundles is the cornerstone of Telefónica Chile’s strategic focus, which
aims to increase the number of revenue generating units per customer and,
accordingly, revenue per customer. VTR is our principal competitor in the
Chilean fixed telephony market,
Telefónica
Chile’s estimated market share at December 31, 2009 was as follows:
|
|
·
|
approximately
47.1% of retail broadband accesses, down from approximately 49.4% at
December 31, 2008;
|
|
|
·
|
fixed
telephony accesses market share amounted to approximately 58.4% of retail
fixed telephony accesses, down from approximately 62.1% at December 31,
2008; and
|
|
|
·
|
pay
TV market share amounted to approximately 16.6% of the market by number of
pay TV accesses, down from 17.5% at December 31,
2008.
|
Network
and technology
Telefónica
Chile made improvements on its network to support broadband and TV accesses
growth, while updating it, as to be ready for the development of the fiber
access network, or FTTX.
Chilean
mobile business – Telefónica Móviles Chile, S.A.
Operations
The
mobile penetration rate in Chile stood at an estimated 105.6% at December 31,
2009, an increase of approximately 9.0 percentage points from December 31,
2008.
Telefónica
Latin America conducts its Chilean mobile business through Telefónica Móviles
Chile, S.A., or Telefónica Móviles Chile, whose customer base increased 9.5% to
7.5 million accesses at December 31, 2009. The number of contract
mobile accesses rose by 8.8% to 2.1 million mobile contract accesses at December
31, 2009 from 1.9 million contract mobile accesses at December 31,
2008.
|
Year
ended December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
Traffic
(millions of minutes)
|
n.a.
|
9,703 | 10,521 | |||||||||
|
ARPU
(in euros)
|
12.0 | 12.3 | 10.7 | |||||||||
Traffic
in 2009 increased 8.4% to 10,521 million minutes at December 31, 2009 from 9,703
million minutes at December 31, 2008, mainly driven by outgoing traffic,
primarily on-net.
ARPU was
€10.7 in 2009 compared to €12.3 in 2008 (a decrease of 10.7% in local
currency). The decrease in local currency was largely due to the
reduction of tariffs as a consequence of a regulatory decree mandating lower
interconnection rates, which went into effect at January 23, 2009 for mobile
termination and resulted in an average tariff decrease of approximately
44.6%.
Sales
and marketing
Telefónica
Móviles Chile offered promotional campaigns associated with recharges for
pre-pay mobile users while developing mobile broadband service.
Competition
We
currently have three primary competitors in the Chilean market for mobile
telephony, each of which provides services on a nationwide basis: Entel, Claro
and Nextel.
Telefónica
Móviles Chile’s estimated market share in the Chilean mobile sector in terms of
mobile accesses was approximately 42.8% at December 31, 2009, down from
approximately 43.3% at December 31, 2008.
Network
and technology
In Chile,
Telefónica Móviles Chile operates with GSM and 3G network, launched in December
2007.
Mexico
Mexico
mobile business – Telefónica Móviles México, S.A. de C.V.
Operations
The
following table presents, at the dates indicated, selected statistical data
relating to our operations in Mexico.
|
At
December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
(in
thousands)
|
||||||||||||
|
Total
mobile accesses
|
12,534.1 | 15,330.6 | 17,400.5 | |||||||||
|
Pre-pay
accesses
|
11,833.7 | 14,432.4 | 16,328.3 | |||||||||
|
Fixed
wireless accesses
|
3.6 | 133.6 | 334.3 | |||||||||
|
Total
accesses
|
12,537.6 | 15,464.2 | 17,734.8 | |||||||||
The
mobile penetration rate in Mexico was approximately 75.2% at December 31, 2009,
an increase of approximately 3.6 percentage points from December 31,
2008.
Telefónica
Latin America conducts its Mexican mobile business through Telefónica Móviles
México, S.A. de C.V., or Telefónica Móviles México. Telefónica
Móviles Mexico’s customer base increased 14.7% to 17.7 million accesses at
December 31, 2009 from 15.5 million accesses at December 31,
2008. This increase was mainly the result of a 13.1% increase of
pre-pay mobile accesses in 2009 compared to 2008. At December 31,
2009, approximately 93.8% of our mobile customers in Mexico were pre-pay mobile
accesses while 6.2% were contract mobile accesses.
|
Year
ended December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
Traffic
(millions of minutes)
|
n.a.
|
22,431 | 23,186 | |||||||||
|
ARPU
(in euros)
|
9.3 | 8.2 | 6.9 | |||||||||
Traffic
for 2009 increased 3.4% to 23,186 million minutes compared to 22,431 million
minutes in 2008. This increase was mainly due to commercial
promotions focusing on fee-per call (tariff per call rather than per minutes
used) that improved usage.
ARPU
declined to €6.9 in 2009 compared to €8.2 in 2008 (a decrease of 3.3% in local
currency). The decrease in local currency was largely due to the fact
that the increase of the customer base was motivated by lower tariff plans,
which had the effect of reducing the average consumption.
Sales
and marketing
During
2009, Telefónica Móviles México launched innovative products to maintain current
customers and attract additional ones. In addition, Telefónica
Móviles México focused on commercial activity and profitability while improving
the quality of its network, which enabled the company to maintain robust
customer growth during that year.
In
Mexico, we use a broad range of marketing channels, including television, radio,
billboards, telemarketing, direct mail and Internet advertising to market our
products and services.
Telefónica
Móviles México’s offer was completed with “Plan paga menos Xtra” in the pre-pay
segment, based on a price-per-call offer. This plan has lower prices
but generates consumption.
Competition
Telefónica
Móviles México is the second largest mobile operator in Mexico based on the
number of mobile accesses, and competes with various mobile operators at the
national level. Telefónica Móviles México’s principal competitor is
Telcel, a subsidiary of América Móvil. Other significant competitors
are Nextel and Iusacell.
Telefónica
Móviles México’s estimated market share in the Mexican mobile market in terms of
mobile accesses was approximately 20.8% at December 31, 2009, up from
approximately 19.5% at December 31, 2008.
Network
and technology
Telefónica
Móviles México has 100% of its accesses on its GSM network. Also,
Telefónica Móviles México provides UMTS services but spectrum constraints their
expansion.
Peru
The
following table presents, at the dates indicated, selected statistical data
relating to our operations in Peru.
|
At
December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
(in
thousands)
|
||||||||||||
|
Fixed
telephony accesses
|
2,843.4 | 2,986.5 | 2,971.2 | |||||||||
|
Fixed
wireless accesses
|
290.0 | 485.5 | 582.7 | |||||||||
|
Internet
and data accesses
|
623.1 | 728.9 | 800.6 | |||||||||
|
Narrowband
accesses
|
40.3 | 17.7 | 16.9 | |||||||||
|
Broadband
accesses
|
572.1 | 698.4 | 768.0 | |||||||||
|
Other
accesses
|
10.7 | 12.8 | 15.6 | |||||||||
|
Mobile
accesses
|
8,067.3 | 10,612.7 | 11,458.2 | |||||||||
|
Pre-pay
accesses
|
7,238.1 | 9,575.2 | 10,214.2 | |||||||||
|
Pay
TV accesses
|
640.0 | 654.5 | 686.3 | |||||||||
|
Final
clients accesses
|
12,173.8 | 14,982.6 | 15,916.3 | |||||||||
|
Wholesale
accesses
|
0.5 | 0.4 | 0.5 | |||||||||
|
Total
accesses
|
12,174.3 | 14,983,0 | 15,916.8 | |||||||||
At
December 31, 2009, Telefónica Latin America had 15.9 million accesses in Peru,
which represents an increase of 6.2% from December 31, 2008. This
growth in accesses was primarily driven by an 8.0% increase in mobile accesses
from December 31, 2008 to 11.5 million mobile accesses at December 31, 2009,
mostly in the pre-pay mobile segment. The IRIS project, a collaboration between
fixed telephony operators and mobile operators in Peru, which was launched in
March 2007 with the aim of increasing fixed telephony and broadband penetration,
also contributed to the overall growth in accesses.
Peruvian
fixed business – Telefónica del Perú, S.A.A.
Operations
Telefónica
Latin America conducts its Peruvian fixed telephony business through Telefónica
del Perú, S.A.A., or Telefónica del Perú, which at December 31, 2009 was the
leading fixed line telecommunications operator in Peru based on number of fixed
telephony accesses.
Telefónica
del Perú had total accesses of 4.5 million at December 31, 2009, an increase of
2.0% from December 31, 2008, due primarily to increases in fixed wireless
telephony and broadband accesses. Fixed telephony accesses decreased
0.5% from December 31, 2008 to 3.0 million accesses at December 31,
2009. Broadband accesses grew by 10.0% from December 31, 2008 to 0.8
million at December 31, 2009. In addition, pay TV accesses totaled
0.7 million accesses at December 31, 2009 recording growth of 4.9% from December
31, 2008 primarily due to increased cable pay TV subscriptions.
Sales
and marketing
Telefónica
del Perú’s commercial strategy is based on achieving and maintaining high levels
of market penetration by offering customized services to different customer
segments, with marketing campaigns focused on maintaining customer loyalty and
increasing the options available to potential customers. The primary
products offered by Telefónica del Perú include fixed telephony, broadband, pay
TV, data and IT services.
Telefónica
del Perú focuses its commercial strategy on penetration by targeting specific
market segments, commercializing Duos and Trios and leveraging on its customer
retention campaign.
Competition
In 2009,
Telmex and Americatel, Telefónica del Perú’s two primary competitors, focused on
offering bundled products (local and long distance telephony together with
broadband).
Telmex
implemented an aggressive strategy to enter the residential market by offering a
“triple play” service. The response from Telefónica del Perú
consisted of increasing Trio bundle options at lower prices.
Telefónica
del Perú had an estimated market share in the Peruvian fixed telephony market of
approximately 93.8% at December 31, 2009, based on number of fixed telephony
accesses, down from approximately 94.0% at December 31, 2008.
Network
and technology
Telefónica
del Peru invested to develop its broadband business through ADSL technology by
increasing coverage and speed. Additionally, it began deploying a new fiber
access network, called FTTX, which currently is offered on a limited basis to
large customers.
Peruvian
mobile business – Telefónica Móviles Perú, S.A.C.
Operations
The
estimated Peruvian mobile penetration rate reached approximately 64.5% at
December 31, 2009, an increase of approximately 3.9 percentage points compared
to December 31, 2008.
Telefónica
Latin America conducts its Peruvian mobile business through Telefónica Móviles
Perú, S.A.C., or Telefónica Móviles Perú, whose customer base increased 8.0%
from December 31, 2008 to 11.5 million accesses at December 31,
2009. This increase was primarily driven by a 6.7 % increase in the
number of pre-pay mobile accesses from December 31, 2008 to December 31,
2009.
|
Year
ended December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
Traffic
(millions of minutes)
|
n.a.
|
10,039 | 11,460 | |||||||||
|
ARPU
(in euros)
|
7.3 | 6.0 | 5.5 | |||||||||
Traffic
carried in 2009 increased 14.1% to 11,460 million minutes compared to 10,039
million minutes in 2008, primarily due to increases in on-net traffic, in line
with the strategy of offering better tariffs to this type of traffic as a
benefit of belonging to the largest mobile network of the country.
ARPU was
€5.5 in 2009 compared to €6.0 in 2008 (a decrease of 11.5% in local
currency). The decrease in local currency was largely a consequence
of reductions in both contract and pre-pay tariffs.
Telefónica
Móviles Perú uses a broad range of marketing channels, including television,
radio, billboards, telemarketing, direct mail and Internet advertising to market
its products. At December 31, 2009, approximately 89.1% of Telefónica
Móviles Perú’s mobile accesses were pre-pay mobile accesses, while approximately
10.9% were contract mobile accesses.
Sales
and marketing
Telefónica
Móviles Perú focused its marketing efforts on encouraging migrations from
pre-pay to contract services. In May 2009, it started to market
mobile broadband and in September 2009 launched the promotion “push to talk”,
which allows instant communications from a mobile device. Since
November 2009, we changed our marketing focus for the pre-pay segment to better
target each of the pre-pay clusters (defined by recharge frequency and money
spent) in order to avoid revenue cannibalization.
Competition
Telefónica
Móviles Perú currently has two primary competitors in the Peruvian market for
mobile telephony services: Claro, owned by América Móvil, and Nextel
Perú.
Telefónica’s
estimated market share in the Peruvian mobile market in terms of mobile accesses
was approximately 62.9% at December 31, 2009, up from approximately 62.6% at
December 31, 2008.
Network
and technology
At
December 31, 2009, Telefónica Móviles Perú operated both GSM and CDMA
technology. Its digital network is based upon the CDMA/CDMA 1XRTT
standard. Telefónica Móviles Perú continued the migration to GSM
technology, and at December 31, 2009, GSM accesses accounted for 93.4 % of its
total customer base, which represents an increase of 3.8 percentage points from
December 31, 2008.
Colombia
The
following table presents, at the dates indicated, selected statistical data
related to our operations in Colombia.
|
At
December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
(in
thousands)
|
||||||||||||
|
Fixed
telephony accesses
|
2,328.5 | 2,299.2 | 1,639.8 | |||||||||
|
Internet
and data accesses
|
200.3 | 395.9 | 428.4 | |||||||||
|
Narrowband
accesses
|
0.0 | 0.3 | 5.9 | |||||||||
|
Broadband
accesses
|
200.3 | 393.9 | 420.3 | |||||||||
|
Other
accesses
|
― | 1.7 | 2.2 | |||||||||
|
Mobile
accesses
|
8,372.1 | 9,963.1 | 8,964.6 | |||||||||
|
Pre-pay
accesses
|
6,612.9 | 8,327.3 | 7,203.2 | |||||||||
|
Pay
TV accesses
|
72.9 | 142.3 | 127.2 | |||||||||
|
Final
clients accesses
|
10,973.8 | 12,800.5 | 11,159.9 | |||||||||
|
Wholesale
accesses
|
― | 2.9 | 3.3 | |||||||||
|
Total
accesses
|
10,973.8 | 12,803.4 | 11,163.2 | |||||||||
Telefónica
Latin America managed a total of 11.2 million accesses in Colombia at December
31, 2009, a decrease of 12.8% from December 31, 2008. This decrease
was due to the drop in mobile accesses, which decreased 10.0% to 9.0 million
accesses at December 31, 2009 from 10.0 million accesses at December 31, 2008,
and by the 28.7% decrease in fixed telephony accesses from December 31, 2009 to
December 31, 2008. These decreases were not offset by the 6.7%
increase of broadband accesses to reach 0.4 million accesses at December 31,
2009 from 0.4 million accesses at December 31, 2008.
Colombian
fixed business - Colombia Telecomunicaciones, S.A. ESP
Operations
Telefónica
Latin America conducts its Colombian fixed telephony business through Colombia
Telecomunicaciones, S.A. ESP, or Colombia Telecom, which is present in
approximately 1,000 municipalities in Colombia.
Colombia
Telecom had 2.2 million accesses at December 31, 2009, which represents a
decrease of 22.6% from 2.8 million accesses at December 31, 2008, primarily due
to the decrease of 28.7% in fixed telephony accesses from December 31, 2008 to
1.6 million accesses at December 31, 2009, as a consequence of intense
competition and our decision to inactive certain dormant accounts from our
customer base. Broadband accesses increased 6.7% to 0.4 million
accesses at December 31, 2009 from December 31, 2008.
Colombia
Telecom also launched a pay TV product using satellite technology at the
beginning of 2007, allowing it to begin offering Trio bundles (voice, broadband
and pay TV). As of December 31, 2009, Colombia Telecom had 0.1
million pay TV accesses, a 10.6% decrease compared to December 31,
2008.
Colombia
Telecom has a finance lease agreement with PARAPAT. PARAPAT is the
consortium which owns the telecommunications assets and manages the pension
funds for the entities which were predecessors to Colombia Telecom and regulates
the operation of assets, goods and rights relating to the provision of
telecommunications services by Colombia Telecom. This finance lease
agreement includes the lease of the telecommunications assets and the transfer
of these assets to Colombia Telecom once the last installment of the lease has
been paid which, in accordance with the payment schedule, is expected to be in
2022.
Sales
and marketing
In
Colombia, Colombia Telecom uses a broad range of marketing channels, including
television, radio, billboards, telemarketing, direct mail and Internet
advertising to market its products. Additionally, Colombia Telecom is currently
pursuing a strategy to increase market penetration, by restructuring
distribution and communication channels, and by offering bundled products such
as “Trio Telefónica”. Also, it restructured the commercial offer to strengthen
the quality and quantity of television channels and improving broadband
capability.
Competition
Colombia
Telecom’s principal competitors in the Colombian market are Telmex and
ETB. Colombia Telecom had an estimated market share in the Colombian
fixed telephony market of approximately 22.4% at December 31, 2009 based on
number of fixed telephony accesses, down from approximately 29.2% at December
31, 2008. This decrease was mainly driven by a loss of customers as a
result of intense competition and our decision to inactivate certain dormant
accounts from our customer base.
Network
and technology
Colombia
Telecom continued expanding and upgrading the network to support a broader range
of product and services in 2009.
Colombian
mobile business – Telefónica Móviles Colombia, S.A.
Operations
At
December 31, 2009 the Colombian mobile market had an estimated penetration rate
of approximately 92.9%, an increase of 1.8 percentage points from December 31,
2008.
Telefónica
Latin America conducts its Colombian mobile business through Telefónica Móviles
Colombia, S.A., or Telefónica Móviles Colombia, whose customer base decreased by
10.0% from 10.0 million accesses at December 31, 2008 to 9.0 million accesses at
December 31, 2009. At December 31, 2009, approximately 19.6% of our
mobile accesses in Colombia were contract mobile accesses, compared to 16.4% at
December 31, 2008.
|
Year
ended December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
Traffic
(millions of minutes)
|
n.a.
|
13,568 | 13,665 | |||||||||
|
ARPU
(in euros)
|
8.8 | 6.8 | 5.9 | |||||||||
Traffic
for 2009 increased 0.7% to 13,665 million minutes compared to 2008.
ARPU was
€5.9 in 2009 compared to €6.8 in 2008 (a decrease of 10.2% in local
currency). The decrease in local currency was largely due to a
reduction in interconnection tariffs and competitive pressure on
tariffs.
Sales
and marketing
Telefónica
Móviles Colombia uses a broad range of marketing channels, including television,
radio, billboards, telemarketing, direct mail and Internet advertising to market
its products.
In 2009,
Telefónica Móviles Colombia implemented, in the contract segment, commercial
promotions to increase customer loyalty, and launched new tariff plans focused
on a single tariff to any destination with lower basic charges and other tariff
plans with preferential on net prices to attract
customers. Additionally, it launched the project “Tecnoferias”
(specific sales in strategic areas of major cities) to improve commercial
activity and to re-position the “Movistar” brand.
Competition
Telefónica
Móviles Colombia currently has two primary competitors in the Colombian market
for mobile communications services: Comcel, which is owned by América Móvil, and
Colombia Móvil, who operates under the brand “Tigo” and is owned by
Millicom.
Telefónica
Móviles Colombia’s estimated market share in the Colombian mobile market in
terms of mobile accesses was approximately 21.3% at December 31, 2009, down from
approximately 24.5% at December 31, 2008.
Network
and technology
TDMA was
switched off during 2008 and our CDMA network was working in
2009. The UMTS network experienced an increase in terms of coverage
by installing 504 new GSM sites, accounting for a total of 2,573 sites installed
and representing a coverage of 83% of the Colombian municipalities.
Central
America
Telefónica
Central America includes Panama, Guatemala, El Salvador and
Nicaragua. At the end of 2009, the mobile penetration rate of the
Central American market, where we operate, was approximately 89.7%, which
represents an increase of approximately 9.3 percentage points from December 31,
2008.
The
following table presents, at the dates indicated, selected statistical data
related to our operations in Central America.
|
At
December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
(in
thousands)
|
||||||||||||
|
Fixed
telephony accesses
|
393.4 | 437.2 | 444.5 | |||||||||
|
Internet
and data accesses
|
22.0 | 18.4 | 14.7 | |||||||||
|
Broadband
accesses
|
19.8 | 16.5 | 12.6 | |||||||||
|
Pay
TV accesses
|
— | — | ||||||||||
|
Mobile
accesses
|
5,009.9 | 5,702.0 | 5,806.5 | |||||||||
|
Total
accesses
|
5,425.3 | 6,157.6 | 6,265.8 | |||||||||
Telefónica
Central América’s customer base increased by 1.8% from December 31, 2008 to 6.3
million accesses at December 31, 2009, mainly due to an increase in mobile
accesses in 2009 compared to 2008.
|
Year
ended December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
Traffic
(millions of minutes)
|
n.a.
|
7,174 | 6,868 | |||||||||
|
ARPU
(in euros)
|
9.7 | 7.4 | 6.9 | |||||||||
Traffic
decreased by 4.3% compared to 2008 to 6,868 million minutes in
2009. This decrease was due primarily to lower voice usage as
customers optimized their consumption.
ARPU was
€6.9 in 2009 compared to €7.4 in 2008 (a decrease of 8.7% on a constant euro
basis). The decrease on a constant euro basis was largely due to
lower consumption.
Ecuador
Ecuadorian
mobile business – Otecel, S.A.
Operations
The
Ecuadorian mobile penetration rate reached approximately 92.8% at December 31,
2009, an increase of approximately 12.2 percentage points from December 31,
2008.
The
following table presents, at the dates indicated, selected statistical data
relating to our operations in Ecuador.
|
At
December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
(in
thousands)
|
||||||||||||
|
Total
mobile accesses
|
2,581.1 | 3,122.5 | 3,721.8 | |||||||||
|
Pre-pay
accesses
|
2,177.5 | 2,650.5 | 3,193.9 | |||||||||
|
Fixed
wireless accesses
|
1.3 | 89.4 | 84.7 | |||||||||
|
Total
accesses
|
2,582.4 | 3,211.9 | 3,806.4 | |||||||||
Telefónica
Latin America conducts its Ecuadorian mobile business through Otecel, S.A., or
Otecel, which had a customer base of 3.8 million accesses at December 31, 2009,
an increase of 18.5% from 3.2 million accesses at December 31,
2008. At December 31, 2009, approximately 85.8% of our mobile
accesses in Ecuador were pre-pay mobile accesses, while approximately 14.2% were
contract mobile accesses.
|
Year
ended December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
Traffic
(millions of minutes)
|
n.a.
|
2,800 | 3,744 | |||||||||
|
ARPU
(in euros)
|
6.6 | 6.7 | 6.8 | |||||||||
Traffic
carried in 2009 increased by 33.7% to 3,744 million minutes compared to 2008
mainly due to the increase in the number of both pre-pay and contract
accesses.
ARPU was
€6.8 in 2009 compared to €6.7 in 2008 (a decrease of 3.8% in local
currency). The decrease in local currency was largely due to lower
consumption.
Sales
and marketing
In
Ecuador, Otecel uses a broad range of marketing channels, including television,
radio, billboards, telemarketing, direct mail and Internet advertising to market
their products. In April 2009, Otecel launched “Total Plan” for
on-net calls for the contract segment. In the pre-pay segment, Otecel
continued with doubled and tripled
recharges,
along with the campaign “Multicolor” for off-net calls. The marketing
of mobile broadband and the service “push to talk” (Movitalk) were launched
in June 2009 and September 2009 respectively.
Competition
Otecel
currently has two primary competitors in market for mobile communications
services in Ecuador, Porta (América Móvil) and Alegro.
Telefónica’s
estimated market share in the Ecuadorian mobile market in terms of mobile
accesses was approximately 28.4% at December 31, 2009, up from approximately
26.6% at December 31, 2008.
Network
and technology
Otecel
operates both analog and digital networks. Its digital network is based upon the
GSM standard and CDMA standard. GSM accesses reached 91.8% of the
total customer base, representing an increase of 8.7 percentage points from
December 31, 2008.
Atento—Call
Center Business
Atento
offers integrated telephone assistance services as well as sophisticated
customer relationship management services, such as the development and
implementation of customer loyalty programs, telemarketing services and market
research. In addition, Atento rents call centers and provides staff for such
centers to third parties. Atento has sought to diversify its client
base and serves companies in the financial, consumer and energy sectors, as well
as public institutions. At December 31, 2009, Atento operated more
than 100 call centers and had 132,256 call center personnel in 15 countries on
three continents, including Europe (Spain and Czech Republic), America (Latin
America) and Africa (Morocco).
Strategic
Partnerships
China
Unicom
Since
2005, we have had a stake in China Unicom and its predecessor
company. On September 6, 2009 we entered into a strategic alliance
agreement with China Unicom, which provides for, among other areas for
cooperation, joint procurement of infrastructure and client equipment, common
development of mobile service platforms, joint provisions of service to
multinational customers, roaming, research and development, sharing of best
practices and technical, operational and management know-how, joint development
of strategic initiatives in the area of network evolution, joint participation
in international alliances and exchanges of senior management. In
furtherance of this strategic alliance we entered into a subscription agreement
with China Unicom, pursuant to which we increased our voting interest in the
share capital of China Unicom to 8.06% and China Unicom obtained 0.87% voting
interest in our share capital in October 2009.
Pursuant
to the strategic alliance agreement mentioned above, China Unicom has agreed to
use its best endeavors to maintain a listing of all the issued ordinary shares
of China Unicom on the Hong Kong Stock Exchange. For so long as the
strategic alliance agreement with us is in effect, China Unicom shall not (i)
offer, issue or sell any significant number of its ordinary shares (including
treasury shares), or any securities convertible into or other rights to
subscribe for or purchase a significant number of China Unicom’s
ordinary shares (including treasury shares), to any current major competitor of
Telefónica or (ii) make any significant investment, directly or indirectly, in
any current major competitor of Telefónica. We have made similar
undertakings.
The
strategic alliance agreement between us and China Unicom terminates on September
6, 2012 subject to automatic annual renewal, subject to either party’s right to
terminate on six months’ notice. Also, the strategic alliance
agreement may be terminated by China Unicom if our shareholding in China Unicom
drops below 5% of its issued share capital or if China Unicom’s shareholding in
us drops below 0.5% of our issued share capital. In addition, the
strategic alliance agreement is subject to termination in the event either party
is in default and automatically terminates on a change in control of China
Unicom.
As of the
date of this Annual Report, and after the capital reduction carried out by China
Unicom, we hold shares representing 8.37% of China Unicom’s voting share capital
and the right to appoint a member to its board of directors.
Portugal
Telecom
At
December 31, 2007, we held an 8.32% effective interest in Portugal Telecom (or
9.16% if shares held by Portugal Telecom in treasury are not counted as
outstanding), our joint venture partner in Brazil.
In
December 2008, Portugal Telecom bought back and cancelled 46,082,677 shares in
line with its share buyback program. This raised our direct and
indirect ownership interest to 10.48%. In accordance with Portuguese securities
regulation, which require us to dispose of any shares which bring our ownership
stake over 10%, we sold 4,264,394 shares of Portugal Telecom, thereby lowering
our stake to 10%. Our effective shareholding in Portugal Telecom at
December 31, 2009 was 9.86%.
Within
the framework of our business cooperation with Portugal Telecom, we provide
mobile services in Brazil (through Brasilcel, in which we hold a 50% interest
and share management responsibilities with Portugal Telecom, under the brand
name “Vivo”).
For more
information on these joint ventures, please see “—Telefónica Latin
America—Brazil—Brazil mobile business” above.
In
addition, Telefónica Spain provided mobile services in Morocco through Medi
Telecom, a Moroccan company in which Telefónica Móviles España held a 32.18%
interest and shared management responsibilities with Portugal
Telecom. On August 31, 2009, we agreed to sell our 32.18% stake in
Medi Telecom, together with its outstanding shareholder loans, to our local
partners for total cash consideration of €400 million. This
transaction closed on December 31, 2009.
Telecom
Italia
Through a
series of transactions from 2007 through 2009, we acquired an indirect holding
of 10.49% in the voting shares of Telecom Italia (7.21% of the dividend rights)
through our holdings in Telco. The Telecom Italia group is
principally engaged in the communications sector and, particularly, in telephone
and data services on fixed lines for final and wholesale customers, in the
development of fiber optic networks for wholesale customers in the provision of
broadband services and Internet services, in domestic and international mobile
telecommunications (especially in Brazil), in the television sector using both
analog and digital terrestrial technology and in the office products
sector. Telecom Italia operates primarily in Europe, the
Mediterranean basin and in South America.
For more
information, please see “Item 4. Information on the Company —History and
Development of the Company—Recent Developments”, “Item 5. Operating and
Financial Review and Prospects —Operating Results—Significant Factors Affecting
the Comparability of our Results of Operations in the Period Under Review” and
“Item 10. Additional Information—Material Contracts”. Telco, through
which we hold our stake in Telecom Italia, is included in our consolidated
financial statements using the equity method.
Regulation
As a
telecommunications operator, we are subject to sector-specific
telecommunications regulations, general competition law and a variety of other
regulations. The extent to which telecommunications regulations apply
to us depends largely on the nature of our activities in a particular country,
with traditional fixed telephony services usually subject to more extensive
regulations, which can have a direct and material effect on our business areas,
particularly in countries that favor regulatory intervention.
To
operate our networks, we must obtain general authorizations, concessions or
licenses from national regulatory authorities, or NRAs, in those countries in
which we operate. Licensing procedures also apply to our mobile
operations with respect to radio frequencies. The duration of any particular
license or spectrum right depends on the legal framework in the relevant
country.
Electronic
Communication Regulation in the EU
The EU
legal framework for electronic communications services has been developed with
the aim of reinforcing the liberalization of the market and improving the
functioning of the EU internal market for telecommunications networks and
services, which culminated in the adoption of the 2002 EU regulatory framework
for electronic communications sector (the “EU Framework”). Such
regulatory framework has been subsequently modified in order to take into
account technological changes through the adoption of certain new rules by the
European Parliament and the Council during the end of 2009. On
December 18, 2009 Regulation 1211/2009/EC was published, establishing the
framework for the creation of a European regulatory body for the
telecommunications industry. The Directive of Better Regulation
(Directive 2009/136/EC), which was also published on the same date, modifies the
following directives: (i) Directive 2002/21/EC of 7 March 2002 on a common
regulatory framework for electronic communications networks and service
(“Framework Directive”); (ii) Directive 2002/20/EC of the European Parliament
and of the Council of 7 March 2002 on the authorization of electronic
communications networks and services (“Authorization Directive”); (iii)
Directive 2002/19/EC of the European Parliament and of the Council of 7 March
2002 on access to, and interconnection of, electronic communications networks
and associated facilities (“Access Directive”).
The
passage and subsequent publication on December 18, 2009 of Directive
2009/140/EC, on citizens’ rights (“Citizens’ Rights Directive”)
modifies Directive 2002/22/EC of the European Parliament and of the Council of 7
March 2002 on universal service and users’ rights relating to electronic
communications networks and services (“Universal Service Directive”)
and the e-Privacy Directive (2002/58/EC) (the “e-Privacy Directive”)
complements and supplements the more general provisions of the Data Protection
Directive in the area of electronic communications. It provides for
basic obligations to ensure the security and confidentiality of communications
over EU electronic communications networks and gives consumers a set of tools to
protect their privacy and personal data. These Directives set forth
the main principles and procedures that NRAs should follow with respect to
regulation for the provision of electronic communications
services. The EU Framework establishes an authorization regime
containing measures to ensure the universal provision of basic services to
consumers and sets out the terms on which providers may access each other’s
networks and services.
In 2006,
the European Union established a new regulation regarding retention of
electronic communications data in order to ensure that electronic communication
data are available for the purpose of the investigation, detection and
prosecution of serious crimes. These data retention rules set minimum
standards for the type of data to be retained and the retention
period. The initial impact of this new regulation is estimated to be
significant, although it will depend on the requirements established at the
national level and the extent to which operators will be compensated for the
costs associated with its implementation. Some European countries, such as Spain
and Germany, have already adopted the new regulation at the national level. In
Spain, operators shall retain data from their pre-pay customers and extend the
data retention period. In Germany the implementation of such regulations has
been legally challenged for constitutional reasons and until a decision is made,
it will not be applicable. For further information regarding the matters
discussed above and other aspects of the regulatory risks derived from the new
regulation, see “Item 3. Key Information—Risk Factors—Risks related to our
business”.
Notably,
the EU Framework also harmonizes the rules for deciding when regulation may be
imposed on electronic communications providers. In particular, it
provides that electronic communications providers can generally only be subject
to specific regulation in markets in which they have “significant market power”,
or SMP. The concept of SMP, for these purposes, has been aligned to
the competition law concept of dominance, which essentially means a market
position which allows a company to act independently of customers, suppliers and
competitors.
Accordingly,
the European Commission has identified in a Recommendation a list of relevant
markets whose conditions may justify the application of ex ante specific
regulation. The Recommendation was published on February 2003 and it
has been modified by another Recommendation published in December 2007, which
reduces the relevant markets from 18 to seven. In order to determine
whether a company has SMP in any of the markets identified in the
Recommendations, NRAs must conduct a market analysis for the relevant
market. When an NRA determines a company has SMP in a relevant
market, that NRA must impose at least one obligation relating to price control,
transparency, non-discrimination, accounting separation or access
obligations.
Regulation with respect to voice
roaming tariffs in the EU entered into force on June 30, 2007. The
regulation introduces a maximum level for the charges that operators may levy at
wholesale level as well as maximum retail ceilings (referred to “Eurotariff”)
for making and receiving calls while roaming in the EU. In 2009
Regulation 544/2009 was also adopted, which extended tariff regulation through
2012 and also extended the scope of the previous roaming regulation to cover SMS
and data services. The wholesale tariff price cap has been set at
€0.26 per minute (excluding VAT) from July 2009 and will continue to decrease to
€0.22 and €0.18 from July 2010 and from July 2011, respectively. The
retail tariff price cap (excluding VAT) has been set at €0.43 per minute for
making a call and €0.19 per minute for receiving a call from July 2009, and
these prices will continue to decrease for making a call to €0.39 and €0.35, and
for receiving a call to €0.15 and €0.11 from July 2010 and from July 2011,
respectively. In addition, the new regulation mentioned above limits
the price for sending a text message for wholesale and for customers roaming
within the EU at €0.04 and at €0.11, respectively. Moreover, the
regulation subjects the cost of data transfers to a maximum wholesale cap of
€1.00 per megabyte downloaded from August 2009. This cap will be
reduced to €0.80 from July 2010 and to €0.50 from July
2011. Receiving an SMS in another EU country will remain free of
charge. The new rules will also require that operators protect
consumers from “bill shocks” by introducing a cut-off mechanism once a
customer’s bill reaches €50 (unless a customer chose another cut-off
limit). This cut-off mechanism, along with per second
billing after the first 30 seconds for calls
made and immediately for calls received must be implemented by March 31,
2010.
In
addition, the European Parliament and the Council approved Directive 372/87/EC
amending Council Directive 87/372/EEC on the frequency band 900 MHz in order to
allow the use of such band by systems capable of providing electronic
communication services not limited to GSM. Finally, the Commission
also adopted a Recommendation on termination rates for mobile and fixed
networks.
EU
Competition Law
The EU’s
competition rules have the force of law in EU Member States and are, therefore,
applicable to our operations in EU Member States.
The EC
Treaty prohibits “concerted practices” and all agreements for undertakings that
may affect trade between Member States and which restrict, or are intended to
restrict, competition within the EU. It also prohibits any abuse of a dominant
competitive position within the common market of the EU, or any substantial part
of it, that may affect trade between Member States.
The EU
Merger Regulation requires that all mergers, acquisitions and joint ventures
involving participants meeting certain turnover thresholds be submitted to the
EU Commission for review, rather than to the national competition
authorities. Under the amended EU Merger Regulation, market
concentrations will be prohibited if they significantly impede effective
competition in the EU common market. European Commission and the EU
Competition Commissioner are granted the authority to apply the European
Competition framework.
Similar
competition rules are set forth in each EU Member State’s legislation and are
enforced by each of their national competition authorities, or
NCAs. All European countries where we have activities and referred to
below are Member States of the EU.
Telefónica
Spain
Spain
General
regulatory framework
The legal
framework for the regulation of the telecommunications sector in Spain is
principally governed by the General Telecommunications Law (32/2003) and several
Royal Decrees. The General Telecommunications Law, among other
things, sets forth rules regarding the new system of notification for electronic
communications services, establishes the terms by which operators interconnect
their networks, defines the universal service provision regime and subjects
providers with SMP in particular telecommunications markets to specific
obligations.
Regulatory
supervision
The
Telecommunications Market Commission, or the CMT, is the NRA responsible for
regulating the telecommunications and audiovisual service markets in
Spain. The CMT supervises the specific obligations imposed on
operators in the telecommunications market, and it has the requisite power to
enforce its decisions whenever necessary.
The
Framework Directive requires that NRAs have the power to issue binding decisions
to resolve disputes arising in connection with obligations imposed under the
regulatory framework.
The
Spanish regulatory framework explicitly acknowledges the right for third parties
who are affected by a Spanish NRA decision to challenge this decision before the
appeal body.
Licenses
and concessions
Pursuant
to the EU Framework, parties intending to operate a telecommunications network
or engage in the provision of electronic communication services must notify the
CMT prior to commencing such activity. The CMT will register the
telecommunications operator in the Public Operator Registry. Every
three years, operators must notify the CMT of their intention to continue
offering electronic communications services or operating telecommunications
networks.
Concessions
to use spectrum are awarded on a non-discriminatory basis by way of a
competitive procedure. Telefónica Móviles España is entitled to provide mobile
services on several spectrum bands. Our main concessions
are:
|
Technology
|
Duration
|
Ending
Date
|
Extension
Period
|
|||
|
GSM
900
|
5
years
|
February
3, 2015
|
--
|
|||
|
E-GSM
900
|
15
years
|
June
6, 2020
|
5
years
|
|||
|
DCS-1800
|
25
years
|
July
24, 2023
|
5
years
|
|||
|
UMTS
|
20
years
|
April
18, 2020
|
10
years
|
Telefónica
Móviles España has obtained the extension of the GSM 900 right of use until
February 3, 2015.
Market
analysis
In
accordance with the EU Framework, the CMT should identify those markets which
lack effective competition, in which case it would impose specific obligations
upon operators with SMP. During 2008, the CMT conducted a second
round of market analyses to determine which operators have SMP in which markets,
the results of which are described below.
Fixed
markets
Retail
access to the public telephone network at a fixed location market; Retail market
for calls at a fixed location and Retail lease lines market
In March
2006, and following a market analysis, the CMT concluded that Telefónica de
España is an operator with SMP in the provision of retail access to the public
telephone network service at a fixed location market. As an SMP
operator, Telefónica de España has certain specific obligations and is subject
to certain restrictions, the most relevant of which are maximum price caps for
installation and monthly fees. Telefónica de España also has
obligations regarding carrier selection, cost accounting and accounting
separation.
With
respect to the retail market for calls at a fixed location market, on December
12, 2008, the CMT has determined that this market is competitive and, thus, it
has resolved to withdraw all obligations imposed on Telefónica de España with
respect to such market.
In 2006,
the CMT identified Telefónica de España as an operator with SMP in the retail
lease lines market, and imposed, among other obligations, the duty to provide
access to a minimum set of lease lines under price controls.
Wholesale
fixed call origination market
On March
22, 2007, the CMT adopted new regulations concerning call origination on the
wholesale fixed call origination market, introducing additional obligations for
Telefónica de España to provide wholesale access to its fixed network to other
operators, allowing competitors to use its networks to provide access services
and other associated services to their customers.
In
December 2008, the CMT concluded that Telefónica de España is an operator with
SMP in this market and it has requested that Telefónica de España offer
wholesale service to assist other operators in offering IP telephony services
and provide transparent information of migration to Next Generation Networks, or
NGN, centrals, which implies the provision of broad information to competitors
about network evolution.
Fixed
call termination market on individual networks
As an
operator with SMP in fixed call termination market on individual networks,
Telefónica de España is required to submit an “Interconnection Reference Offer
(OIR)” outlining the terms and conditions under which it will interconnect with
other operators.
In
December 2008, the CMT concluded that Telefónica de España is an operator with
SMP in this market. The CMT maintained its obligations for Telefónica
de España to submit an Interconnection Reference Offer (OIR). The CMT
also added the obligation that Telefónica de España provide transparent
information with respect to migration to NGN centrals, which implies the
provision of broad information to competitors about network
evolution.
Mobile
market
Mobile
voice call termination
In
September 2006, the CMT established a progressive reduction schedule for mobile
termination rates (the “glide path”) from October 2006 to September
2009. In July 2009, the CMT established a new glide path for mobile
voice call termination rates with an objective price of €0.04 per minute by
April 2012, through which the mobile voice call termination rates of the four
Spanish mobile operators will converge by 2012.
In
December 2008, Telefónica Móviles España was again identified by the CMT as an
operator with SMP in mobile voice call termination on individual mobile
networks, and therefore continues to be subject to the obligations already
imposed on it by the CMT and as well as the additional obligation to charge for
seconds of usage according to a single termination price established by the
CMT.
Mobile
voice call origination
MVNOs are
mobile operators that are not entitled to use spectrum for the provision of
mobile services. Consequently, they must reach an access agreement with a mobile
network operator in order to provide mobile access to their
customers.
On
February 2, 2006, the CMT established that mobile network operators collectively
hold a dominant position in the mobile access and voice call origination
market. Mobile operators are, therefore, obliged to negotiate
reasonable access to their network upon request from an MVNO, charging
reasonable prices for access services provided. MVNOs and mobile
operators negotiate an access agreement on a commercial basis. If
parties are unable to reach an agreement independently, the CMT may intervene to
resolve the dispute.
Wholesale
(physical) network infrastructures access
In
January 2009, the CMT concluded that Telefónica de España is an operator with
SMP in the wholesale (physical) network infrastructures access market, and
imposed the following obligations on Telefónica de España: access to full and
shared unbundled access to copper loops, sub-loops and ducts, cost oriented
tariffs and accounting separation, transparency and non-discrimination
obligations including an “Unbundling Reference Offer” and a “Ducts Reference
Offer”. In February 2008, the CMT imposed similar obligations with
respect to vertical access to buildings.
Wholesale
broadband access
In
January 2009, the CMT identified Telefónica de España as an operator with SMP in
the wholesale broadband access market, and consequently the CMT has imposed on
Telefónica de España the obligation to provide wholesale broadband access
service until 30 Mbps to other operators in copper and fiber infrastructure
.. The CMT also obliges Telefónica de España to publish a wholesale
broadband access reference offer, provide cost-oriented tariffs and accounting
separation, non-discrimination in network access and to communicate broadband
retail changes in services prior to offering them in the market.
Universal
service obligations
The
General Telecommunications Law outlines provisions to ensure that certain basic
telecommunications services are guaranteed to all Spanish citizens.
Universal
service is defined, under the law, as a set of communication services guaranteed
to all end users, irrespective of their geographic location, of a determined
quality and at an affordable price. Universal service ensures that
all citizens receive a connection to the fixed line public network and network
services, a telephone directory service, a sufficient number of public
telephones and functional Internet access. Additional provisions are
included under the scope of universal service obligation, or USO, in order to
ensure that users with disabilities and special social needs, including those
with low incomes, have access to the services enjoyed by the majority of
users.
In
December 2008, following applications by three operators, Telefónica de España
was awarded a tender for the provision of directory enquiry services for a
period of three years and it has also been designated for the provision of the
remaining universal service elements for a period of two years by virtue of
Order ITC/3808/2008.
To
finance the USO, the General Telecommunications Law stipulates that the CMT must
determine whether the net cost to provide universal service implies an unfair
burden for the operators. On September 2008, the CMT published a
resolution which established net cost of USO for the years 2003, 2004 and 2005,
the obligation of operators to contribute to USO funding and the amount of
contributions these operators must make. During 2009, the CMT
established the net cost of USO for the years 2006 and 2007.
Protection
of consumers
On
December 29, 2006, Law 44/2006 regarding the protection of consumers and users
was approved. Under this law, users may only be charged for services
actually used. Consequently, operators can only charge for the exact
seconds of usage. On May 22, 2009 a set of User’s Rights was adopted
through secondary legislation and it
constitutes
a holistic approach to users’ rights. Most of the content has been extracted
from the General Telecommunications Law 32/2003 (LGT), Royal Decree 424/2005 of
April 15, 2005 (RSU) and Order ITC/912/2006 (Quality Order).
Service
quality
On March
29, 2006, a regulation was approved which established certain quality of
service, or QoS, obligations for electronic communications service providers
such as including service level agreements, or SLAs, commitments in electronic
communication retail contracts. This regulation also requires
operators to provide adequate information to customers in relation to service
quality levels and detailed billing disclosure to
customers. Additionally, a standardized process for billing customers
has been implemented under this regulation.
Data
retention for law enforcement purposes
The 2006
Directive 2006/24/EC of the European Parliament and of the Council on the
retention of data generated or processed in connection with the provision of
publicly available electronic communications services or of public
communications networks (“Data Retention Directive”) was incorporated into
Spanish legislation on November 9, 2007. Electronic communications
operators are obliged to ensure the retention of data on electronic
communications for a period of twelve months.
Additionally,
Spain has implemented a register of pre-pay mobile customers in conjunction with
these requirements. Existing pre-pay customers have a period of two
years for the registration since the law entered into force and the new clients
must be registered immediately.
Public
Broadcasting TV funding mechanism
In August
2009, the Spanish Parliament approved a new funding policy for public
television, Radio Televisión Española (“RTVE”), which includes the
discontinuation of advertising on public television. The new law
includes a tax on telecommunications companies and television stations to help
fund the phasing out of advertising on RTVE.
The new
law applies a tax of 0.9% on the gross revenue of telecommunications companies
providing audiovisual services in Spain and 3.0% in the case of regular TV
broadcasters. Pay television stations will pay 1.5% of their gross
revenue. Both the Spanish regulator and competition authority have
questioned the legality of this funding mechanism in light of the national and
European regulatory framework. The EU Directorate General of
Competition has already opened an investigation to determine whether such
funding mechanism constitutes illegal state aid. Without prejudice to
the state aid investigation initiated in December 2009, the European Commission
sent on March 18, 2010 a formal request for information to the Spanish
government over the new charge imposed on telecommunications operators to offset
the discontinuation of advertising on RTVE. The Commission is
concerned that this administrative charge, based on authorized operators’ gross
revenue, may be incompatible with EU law since it does not appear to be related
to costs arising from regulatory supervision. The Commission’s
position takes the form of a “letter of formal notice under EU infringement
procedures” and provides the Spanish government with a two-month period to
reply. If no reply is received or if the response of the Spanish
government is not satisfactory, the Commission may issue a “reasoned opinion”
under EU infringement procedures requesting the Spanish government to amend its
legislation to ensure full compliance with EU rules.
Telefónica
Europe
United
Kingdom
The EU
Regulatory Framework was implemented in the United Kingdom by the Communications
Act in 2003. Under this act, responsibility for the regulation of electronic
communications networks and services rests with the Office of Communications, or
Ofcom.
Licenses
and concessions
Telefónica
O2 UK has provided GSM services since July 1994. Its GSM license is
of indefinite duration (GSM 900: 2 x 17.4 MHz and GSM 1800: 2 x 5.8
MHz). In April 2000 Telefónica O2 UK was awarded a UMTS license,
which expires on December 31, 2021 (2 x 10 MHz + 5 MHz).
The
license can be surrendered by the operator at any time. However,
Ofcom can only revoke the license if the licensee does not pay its fees, there
has been a breach of the license or for reasons related to the management of the
radio spectrum, provided that in such case the power to revoke may only be
exercised after one year’s notice is given in writing and after Ofcom has
considered any pertinent factors. The UK government may also revoke
the license for national security reasons or in order to comply with the United
Kingdom’s EU or other international obligations.
In
February 2009, Ofcom published a consultation document setting out Ofcom’s
proposal to require Vodafone and Telefónica O2 UK to release 2 x 2.5
MHz (each) of 900 MHz spectrum currently held to allow a third operator to have
access. Ofcom’s consultation also proposed that all 900 MHz and 1800
MHz licenses be enabled for UMTS services in line with the revisions to the GSM
Directive, which must be implemented in the United Kingdom by May 9,
2010. Ofcom’s consultation has subsequently been superseded by the UK
Government’s “Digital Britain” process.
In June
2009, the UK government published the “Digital Britain” final report, in which
it proposed to issue a Direction to Ofcom to convert UMTS licenses, which
currently expire in 2021, to indefinite licenses, subject to a yearly fee to be
charged beyond the end of the current term.
Following
the Digital Britain final report dated June 2009 and subsequent consultation by
the UK government’s Department for Business, Innovation and Skills (BIS), BIS
published in October 2009 a draft Statutory Instrument (“Draft SI”) which
provided for the Secretary of State to direct Ofcom to liberalize the 900 MHz
and 1800 MHz bands in the hands of the existing licensees, including
Telefónica. The Draft SI proposed that Ofcom be directed to include
certain wholesale access obligations into the varied 900 MHz
licenses. The Draft SI also proposed that Ofcom be directed to
convert the UMTS licenses, which currently expire in 2021, to indefinite
licenses subject to revised retail service obligations and subject to a yearly
fee, to be charged beyond the end of the current term.
Future
spectrum
In June
2009, Ofcom withdrew its decision to auction the 2600 MHz band in light of the
government’s Digital Britain proposals (see above). As a condition of
merger control clearance under the EU Merger Regulation for the Joint Venture
between T-Mobile UK and Orange UK, the merging parties have committed to divest
2x15 MHz of spectrum in the 1800 MHz band.
Under the
terms of the Draft SI, the Secretary of State will direct Ofcom to hold a
Combined Auction of spectrum in the 800 MHz (2x30 MHz in six 2x5 MHz lots) and
2600 MHz bands (2x70 MHz of FDD spectrum in seven lots of 2x10
MHz). Ofcom will be also directed to auction 50 MHz of TDD 2600 MHz
spectrum in one lot as soon as possible in advance of the Combined
Auction. A future consultation on a combined 800 MHz/2600 MHz auction
is awaited. The Draft SI includes provisions on the eligibility
requirements for auctioned spectrum (including caps on the amount of spectrum
held by any single party) and retail service / wholesale access obligations for
certain lots of spectrum. Parties will have the ability to relinquish
existing spectrum holdings in the 900 MHz and 1800 MHz bands and this spectrum
will be auctioned in the Combined Auction.
Market
reviews
On March
27, 2007, Ofcom published the charge controls to which mobile operators are
subject for the provision of mobile call termination services from April 1, 2007
until March 31, 2011. The charge control requires that Telefónica O2
UK’s average termination charges should be reduced to 5.1 pence per minute (at
2006-2007 prices) by the final year of the charge control period, and that the
reduction should be implemented in four equal steps across the four
years. Ofcom’s decision imposing the price controls was appealed by
British Telecommunications plc and Hutchison 3G UK Limited and, pursuant to
those appeals, the UK Competition
Commission
reduced the level of the price cap to 4.0 pence per minute (at 2006-2007 prices)
by the final year of the charge control period.
Germany
The EU
Regulatory Framework was implemented in Germany at the end of June 2004 by the
Telecommunications Act. Responsibility for regulation of electronic
communications networks and services rests with the telecommunications
regulator, Budesnetzagentur, or BNetzA.
Licenses
and concessions
Telefónica
O2 Germany was awarded a GSM license for 1800 MHz spectrum in October 1998, and
in February 2007 Telefónica O2 Germany was awarded 900 MHz GSM spectrum for GSM
use. Accordingly, Telefónica O2 Germany is now licensed to use GSM900
2 x 5 MHz and GSM 1800: 2 x 17.4 MHz. The GSM license expires on
December 31, 2016.
Under
Section 58 VIII TKG (the “German Telecommunications Act”) frequency assignments
are limited in time, although a renewal or extension of the term is
possible. The federal network agency has not yet decided on the
conditions for renewing the frequency assignments. However, before
expiration, we expect there to be a public hearing, and for BNetzA to set out
its approach to renewal, including the terms on which the licenses will be
extended (pricing, technology neutrality, etc.).
In August
2000, Telefónica O2 Germany was awarded a UMTS license, which expires on
December 31, 2020 (2 x 9.9 MHz).
Market
reviews
In August
2006, BNetzA completed its review of voice call termination on individual mobile
networks and concluded that, as an operator with SMP, the charges Telefónica O2
Germany made to other operators for terminating calls on Telefónica O2 Germany
network had to be reduced, requiring Telefónica O2 Germany to lower its call
termination charges from €1.24 per minute to €0.994 per minute. In
2007, Telefónica O2 Germany was required to reduce further its termination
charges from €0.994 per minute to €0.880 per minute. Telefónica O2
Germany has brought legal challenges against BNetzA’s 2006 and 2007 decision
that Telefónica O2 Germany has significant market power and against the
imposition of regulatory remedies. The Federal Administrative Court,
as the highest level of appeal, confirmed all regulatory remedies meaning that
the price controls stay in force for all mobile operators. All four
German mobile operators filed a Constitutional Complaint in order to challenge
the decision regarding significant market power. All other actions
(regarding the amount of MTRs) are pending and a decision by the Constitutional
Court is expected in the first or second quarter of 2010. The new
market analysis of BNetzA in 2008 again concluded that all mobile network
operators have SMP, and the decision on remedies does not contain changes in
comparison to 2006. This 2008 decision has also been challenged by
Telefónica O2 Germany.
In March
31, 2009 and as of April 1, 2009, BNetzA approved MTR for Telefónica O2 Germany
at €0.714 per minute for a period of 20 months (until November 30,
2010).
Spectrum
BNetzA
decided in February 2006 that Telefónica O2 Germany may use GSM 900 spectrum in
exchange for GSM 1800 spectrum. This decision is under the condition
that Telefónica O2 Germany provides access to spectrum to German Railways if it
is necessary for the European Train Control System (ETCS). Telefónica
O2 Germany took legal action against this condition. In the meantime,
this condition was repealed by BNetzA in April 2009, and therefore, Telefónica
O2 Germany declared the case as settled. However, German Railways,
Airdata and Inquam (providers of local networks) appealed the
decision. All cases have been dismissed in the first instance in
December 2007 and each party appealed its decision. In the German
Railways case, the Higher Administrative Court dismissed the appeal of German
Railways on September 16, 2009. German Railways did not appeal this
decision at the Federal Administrative Court, and the decision is legally
binding. In the Airdata case, the appeal to the Higher Administrative
Court has been dismissed. Airdata is now appealing at the Federal
Administrative Court. The case
is still
open. In the Inquam case, the Administrative Court dismissed the
claim of Inquam on October 21, 2009, and the decision is legally binding with no
further challenge possible.
In
October 2009, BNetzA decided to auction mobile spectrum at 2.6 GHz (70 MHz FDD /
50 MHz TDD ) together with available spectrum at 2.1 GHz (19,8 MHz FDD [ex.
Mobilcom + QUAM] /19.2 MHz TDD) and 1.8 GHz (10 MHz FDD [ex. O2 + eplus])
and 800 MHz (Digital Dividend). In the 800 MHz range, a bandwidth of
30 MHz paired spectrum will be auctioned off in six blocks of 5
MHz. The decision was published on October 21,
2009. BNetzA has separated the refarming and auction in two
procedures. Spectrum redistribution is not included in the refarming
process. A spectrum cap of 2x20 MHz for spectrum below 1 GHz has been
implemented. In favor of the D-Net-Operators, the spectrum cap has
been rounded up to 22.4 MHz (for T-Mobile and Vodafone
only). Telefónica O2 Germany filed a claim against that decision on
November 18, 2009. The Administrative Court of Cologne decided on
March 17, 2009 to dismiss the claims of Telefónica O2, Eplus and Airdata against
BNetzA’s decision regarding the design of the upcoming frequency
auction. Appeal to the next instance at the Federal Administrative
Court is allowed within one month period. The appeal is currently
being considered by the parties. Nevertheless, Telefónica O2 Germany
submitted an application for participation at the auction. The
auction is most likely to start on April 12, 2010.
Czech
Republic
The EU
Regulatory Framework was implemented in the Czech Republic in 2005 by the
Electronic Communications Act. Responsibility for regulation of
electronic communications networks and services rests with the Czech
Telecommunication Office, or CTO. Governmental responsibility for the
area of electronic communications lies with the Ministry of Industry and
Trade.
Several
changes occurred in the legal environment of the electronic communications
market in the Czech Republic in 2007. Act No. 127/2005 Coll. on
electronic communications and on amendment of related laws was amended in
respect of provisioning special price plans to the disabled as part of universal
service and radio and television broadcasting. Furthermore, an
amendment to the act on radio and television broadcasting was passed, primarily
to unblock the transition to terrestrial digital broadcasting. In
2008, another amendment to the Act No. 127/2005 Coll for the implementation of
Directive 2006/24/EC (Data Retention Directive) and the Regulation (EC) No
717/2007 on roaming on public mobile communications networks within the
Community.
Licenses
and concessions
Telefónica
O2 Czech Republic performs communication activities under the Electronic
Communications Act based on a notification to and a certificate from the CTO
number 516 as amended by later changes numbers 616/1, 516/2 and
516/3.
Mobile
segment
Telefónica
O2 Czech Republic provides mobile electronic communications services in the 900
and 1800 MHz frequency bands under the GSM standard on the basis of radio
frequency assignment from CTO valid until February 7, 2016; in the 2100 MHz
frequency band under the UMTS standard on the basis of radio frequency
assignment from CTO valid until January 1, 2022; and in the 450 MHz frequency
band using CDMA 2000 (Code Division Multiple Access, or CDMA) technology on the
basis of radio frequency assignment from CTO valid until February 7,
2011.
In March
2009 CTO conducted a tender for 32 free channels in the former E-GSM band with
participation of Telefónica O2 Czech Republic, T-Mobile and Vodafone. These 32
free channels were divided according to the conditions of the tender as
follows:
|
|
·
|
Telefónica
O2 Czech Republic - 7 channels
|
|
|
·
|
T-Mobile
- 6 channels
|
|
|
·
|
Vodafone
- 19 channels.
|
Telefónica
O2 Czech Republic was awarded the seven channels in June 2009 with the same
conditions as former GSM900 allotment (including date of
expiration). The fee for Telefónica O2 Czech Republic’s seven
channels was CZK 29,654,000.
Market
reviews
In
accordance with the market analyses performed by the CTO, Telefónica O2 Czech
Republic was designated an SMP entity in 12 Czech markets, both retail and
wholesale. The CTO started a second round of market analysis in
2007. In accordance with reviewed Commission Recommendation on
relevant product and service markets from December 2007, CTO decreased the
number of markets susceptible to ex ante regulation from 18 to
seven (one retail and six wholesale). Regulatory obligations on the
remaining markets were withdrawn in 2008 and 2009. Telefónica O2
Czech Republic was designated as an SMP on the wholesale broadband market in
2009. Market reviews of the remaining six relevant markets are in the
final phase, and the CTO proposes to designate Telefónica O2 Czech Republic as
SMP operator in all of them.
Prices
and tariffs
In April
2006, price regulations for access at a fixed point to the telephone network and
for calls in the fixed network were abolished. Subsequent analyses of
the relevant markets showed that no further price regulation was
necessary. Additionally, provision of access at a fixed location was
taken out of the scope of universal service in 2006. Besides the
absence of price controls at the retail level, CTO also refrained from price
controls on the wholesale broadband market during both market reviews it has
conducted.
Slovakia
Telefónica
O2 Slovakia performs electronic communication activities under Act No. 610/2003
Coll., the Electronic Communications Act, (as amended) and General Authorization
(as amended) issued by the Slovak NRA (the Telecommunications Office of Slovak
Republic) based on a notification, as well as a number of allocation
certificates issued by the NRA.
Responsibility
for regulation of electronic communications networks and services rests with the
Telecommunication Office of Slovakia. Governmental responsibility for the area
of electronic communications lies with the Ministry of Transport, Post and
Telecommunications of Slovakia.
Licenses
and concessions
On
September 7, 2006, Telefónica O2 Slovakia was granted a license to provide
electronic communications services by the means of the public electronic
communications network using the GSM and UMTS mobile telephone network standards
and became a third mobile operator in Slovakia after 10 years of duopoly of two
original mobile operators. The license has been granted for 20 years
and expires in September 2026. The commercial operations were
launched on February 2, 2007.
Market
analysis
In
accordance with the market review performed by the NRA, Telefónica O2 Slovakia
has been designated an SMP operator on the wholesale mobile termination market,
the only regulated mobile market in Slovakia. Wholesale termination
price regulation is effective from August 2009, and since February 2010 the
wholesale termination price regulation is based on the EU benchmarking
methodology. From September 2009, Telefónica O2 Slovakia as a new
entrant and market challenger also benefits from a shorter mobile number
portability process, a maximum length of which was set by the regulator to five
working days. No retail price regulation is applicable in
Slovakia.
Future
mobile spectrum
A tender
for 2.6 GHz frequencies, with potential of subsequent long-term operation, is
expected during the first half of 2011.
Ireland
In
Ireland responsibility for the regulation of electronic communications networks
and services rests with the Commission for Communications Regulation, or ComReg.
The main legislation under which Telefónica O2 Ireland operates includes: the
Wireless Telegraphy Act 1926, as amended, (45 of 1926), Post and
Telecommunications Services Act 1983 as amended, (24 of 1983),Communications
Regulation Acts 2002 (20 of 2002) and 2007 (22 of 2007), 3G Mobile Telephony
Licensing Regulations (340 of 2003) and GSM Mobile Telephony Licensing
Regulations (339 of 2003).
Licenses
and concessions
Telefónica
O2 Ireland has provided GSM services since March 1997 after having been awarded
a license in May 1996. Its GSM900 license has a duration of 15 years (GSM900: 2
x 7.2 MHz) from 1996. In 2000 it was awarded an additional GSM 1800
license (2 x 14.4 MHz), which also has a term of 15 years. In October
2002 Telefónica O2 Ireland was granted a UMTS license, which has duration of 20
years (2 x 15 MHz + 5 MHz).
The
license can be surrendered by the operator at any time. However,
ComReg can only revoke the license before its expiration date if the licensee
does not pay its fees or if there has been a substantial breach of the terms of
the license.
The
Minister for Communications, Energy and Natural Resources may also revoke the
license for national security reasons, or in order to comply with EU or other
international obligations.
Future
mobile spectrum
In March
2008, ComReg published a draft strategy document for spectrum management during
the period from 2008 through 2010. ComReg has published
three consultation documents in a process to decide the future licenses in the
900 MHz band. At present, ComReg is proposing to auction all of the
spectrum in this band in 2010. ComReg has also begun a consultation
process to determine how to allocate spectrum in the 2.3 GHz band, and a
consultation is expected in 2010 to determine the approach to assignment of the
2.6 GHz band (3G expansion band). ComReg is in favor of licensing the
800 MHz band (Digital Dividend), however, the timing for this is dependent on
the government finalizing a date for analogue TV switch-over.
Market
reviews
Telefónica
O2 Ireland has been found to have SMP in the market for mobile termination.
ComReg has previously decided to forebear from the imposition of regulated
pricing so long as it could reach agreement with the main operators for a “glide
path” for annual reductions in mobile termination rates. A glide path
is currently in place for all operators to cut mobile termination rates to €0.05
per minute by 2012/2013, subject to staying within €0.01 per minute, the
European regulators’ group average MTR.
Telefónica
Latin America
Brazil
Regulatory
framework
The
delivery of telecommunications services in Brazil is subject to regulation under
the regulatory framework provided in the General Telecommunications Law enacted
in July 1997.
The
National Agency for Telecommunications, ANATEL, is the principal regulatory
authority for the Brazilian telecommunications sector.
Licenses
and concessions
Concessions
are granted for services provided in the public regime and authorizations are
granted for services provided in the private regime. The only service
provided in both regimes is the switched fixed telephone service, or
STFC. All other services are provided only in the private
regime.
The main
differences between the public regime and the private regime relate to the
obligations imposed on the companies. The concessionaires in the
public regime, such as Telesp, have network expansion obligations (universal
services obligations) and continuity of service obligations. These
obligations are not imposed on the companies which provide services in the
private regime.
In the
state of São Paulo, Telesp provides local and long distance STFC under the
public regime. In the other Brazilian states, Telesp provides local
and long distance STFC under the private regime and broadband services under the
private regime.
Telesp’s
concession agreements (local and long distance) were extended in December 2005
for an additional period of 20 years. These agreements contemplate
possible revisions in their terms by ANATEL in 2010, 2015 and
2020. In 2009, Telesp presented comments and suggestions to ANATEL’s
public consultation regarding the 2010 concession contract revision, but ANATEL
has not presented the final version of the contract yet. Telesp’s terms of
authorization (local and long distance) were granted for an unlimited period of
time.
Under the
renewed concession agreements and during the 20-year renewal period, Telesp will
be required to pay a biannual fee equal to 2% of its annual net revenue
(excluding taxes and social contributions), for the provision of fixed-line
public telecommunications services in its concession area (State of São Paulo)
for the prior year.
Brazilian
telecommunications regulations require ANATEL to authorize private regime
companies to provide local, national, and international long distance
STFC.
On
November 20, 2008, the Presidential Decree 6,654 altered the General
Concessions’ Plan, enabling one economic group to hold two of the four existing
area concessions for providing STFC services. Thus, the Decree
increased the flexibility of telecommunications provider groups as STFC
concessionaries by allowing such providers to provide services in up to two
General Plan regions. Prior to the Decree telecommunications provider
groups could offer STFC services in only one region.
Telesp
also has an authorization to provide data and broadband services in the private
regime in the State of São Paulo.
On
December 4, 2002, ANATEL authorized the migration from the cellular mobile
service, or SMC, regime to a new licensing regime, personal mobile
service. Brasilcel’s operators replaced all their old licensing
titles granted under the old SMC regime with new personal mobile service
authorization titles. The new personal mobile service licenses
include the right to provide mobile services for an unlimited period of time but
restrict the right to use the spectrum according to certain schedules included
in the licenses. All Telefónica’s Brazilian mobile operating
companies (the existing ones and some new acquisitions) were renamed “Vivo” with
the exception of Telemig Celular. The following licenses are held by
our Brazilian mobile operating company, Vivo:
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Vivo-Rio
Grande do Sul (“A” Band) until 2022 (renewed in
2006);
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Vivo-Rio
de Janeiro (“A” Band) until 2020 (renewed in
2005);
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Vivo-Espírito
Santo (“A” Band) until 2023 (renewed in
2008);
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Vivo-Bahia
(“A” Band) and Vivo-Sergipe (“A” Band) until 2023 (renewed in
2008);
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Vivo-São
Paulo (“A” Band) until 2023 or 2024, for the cities of Ribeirão Preto and
Guatapará (renewed in 2008);
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Vivo-Paraná/Santa
Catarina (“B” Band) until 2013;
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Vivo-Distrito
Federal (“A” Band) until 2021, (renewed in
2006);
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Vivo-Acre
(“A” Band), Vivo-Rondônia (“A” Band), Vivo-Mato Grosso (“A” Band) and
Vivo-Mato Grosso do Sul (“A” Band) until 2024 (renewed in
2008);
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Vivo-Goiás/Tocantins
(“A” Band) until 2023 (renewed in
2008);
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Vivo-Amazonas/Roraima/Amapá/Pará/Maranhão
(“B” Band) until 2013;
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Telemig
Celular (Minas Gerais) (“A” Band) until 2023 (renewed in
2007);
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Telemig
Celular (for the cities where CTBC Telecom operates in the state of Minas
Gerais) (“E” Band) until 2020.
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For “A”
and “B” Bands, the renewal of licenses must be solicited 30 months before
expiration. Spectrum rights may be renewed only once for a 15-year period, after
which title to the license must be renegotiated.
For “E”
Band, the renewal of licenses must be solicited between 36 and 48 months before
expiration. Spectrum rights may be renewed only once for a 15-year
period, after which title to the license must be renegotiated. In
December 2007, ANATEL auctioned fifteen new licenses in the 1900 MHz radio
frequency band, denominated as “L” Band. Vivo acquired 13 spectrum licenses in
“L” Band.
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Vivo-Rio
Grande do Sul (“L” Band) until 2022 (renewed in 2006) or 2022 for the
cities of the metropolitan area of
Pelotas;
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Vivo-Rio
de Janeiro (“L” Band) until 2020 (renewed in
2005);
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Vivo-Espírito
Santo (“L” Band) until 2023 (renewed in
2008);
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Vivo-Bahia
(“L” Band) and Vivo-Sergipe (“L” Band) until 2023 (renewed in
2008);
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Vivo-São
Paulo (“L” Band) until 2023 or 2024, for the cities of Ribeirão Preto and
Guatapará (renewed in 2008) or 2022 for the cities where CTBC Telecom
operates in the state of São Paulo;
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Vivo-Paraná
(excluding the cities of Londrina and Tamarana)/Santa Catarina (“L” Band)
until 2013;
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Vivo-Distrito
Federal (“L” Band) until 2021, (renewed in
2006);
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Vivo-Acre
(“L” Band), Vivo-Rondônia (“L” Band), Vivo-Mato Grosso (“L” Band) and
Vivo-Mato Grosso do Sul (“L” Band) until 2024 (renewed in 2008) or 2022
for the city of Paranaíba of Mato Grosso do Sul;
and
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Vivo-Goiás/Tocantins
(“L” Band) until 2023 (renewed in 2008) or 2022 for the cities where CTBC
Telecom operates in the state of Goiás; and Vivo-Alagoas/Ceará/Paraíba/Piauí/Pernambuco/Rio
Grande do Norte (“L” Band), until
2022.
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For “L”
Band, the renewal of licenses must be solicited between 36 and 48 months before
expiration. Spectrum rights may be renewed only once for a 15-year
period, after which title to the license must be renegotiated.
In April
2008, ANATEL auctioned 36 new licenses in the 1900-2100 MHz radio frequency
bands (3G licenses). Vivo was awarded seven spectrum licenses in Band J and
Telemig Celular was awarded two licenses.
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Vivo-Rio
Grande do Sul (including the cities of the metropolitan area of Pelotas)
(“J” Band) until 2023;
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Vivo-Rio
de Janeiro (“J” Band) until 2023;
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Vivo-Espírito
Santo (“J” Band) until 2023;
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Vivo-Bahia
(“J” Band) and Vivo-Sergipe (“J” Band) until
2023;
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Vivo-São
Paulo (including the cities of Ribeirão Preto and Guatapará and the cities
where CTBC Telecom operates in the state of São Paulo) (“J” Band) until
2023;
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Vivo-Paraná
(including the cities of Londrina and Tamarana)/Santa Catarina (“J” Band)
until 2023;
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Vivo-Distrito
Federal (“J” Band) until 2023;
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Vivo-Acre
(“J” Band), Vivo-Rondônia (“J” Band), Vivo-Mato Grosso (“J” Band) and
Vivo-Mato Grosso do Sul (including the city of Paranaíba) (“J” Band) until
2023;
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Vivo-Goiás
(including the cities where CTBC Telecom operates in the state of
Goiás)/Tocantins (“J” Band) until
2023;
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Vivo-Alagoas/Ceará/Paraíba/Piauí/Pernambuco/Rio
Grande do Norte (“J” Band), until
2023;
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Vivo-Amazonas/Roraima/Amapá/Pará/Maranhão
(“J” Band) until 2023; and
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Telemig
Celular (including the cities where CTBC Telecom operates in the state of
Minas Gerais) (“J” Band) until
2023.
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For “J”
Band, the renewal of licenses must be solicited between 36 and 48 months before
expiration. Spectrum rights may be renewed only once for a 15-year period, after
which title to the license must be renegotiated.
Prices
and tariffs
ANATEL
regulates rates for the STFC provided in the public regime. Operators
with licenses to operate under the personal mobile regime are authorized to
increase basic plan tariffs only for inflation and only on an annual
basis. Operators are also allowed to establish non-basic tariffs and
modify them without ANATEL’s prior approval.
Interconnection
In July
2005, ANATEL published a new regulation for interconnection among providers of
telecommunications services, which require operators to issue a public document
disclosing all of the conditions for the establishment of interconnection for
all classes and types of services.
The SMP
regime allows operators to freely negotiate interconnection rates with other
operators. If they fail to reach an agreement, each operator may call
upon ANATEL to determine the terms and conditions of
interconnection.
Competition
law
Brazilian
competition regulation is based on Law No. 8,884 of June 11, 1994 which
prohibits any practice aimed at restricting free competition, dominating the
relevant market of goods or services, arbitrarily increasing profits, or
abusively exercising dominant market position. The Economic Law
Office, or SDE, the Secretariat for Economic Monitoring, or SEAE, and the
Administrative Council for Economic Defense, or CADE, are the agencies
authorized to enforce the competition rules.
Mexico
Regulatory
framework
The
provision of all telecommunication services in Mexico is governed by the Federal
Telecommunication Law and various service-specific regulations. The
governmental agencies which oversee the telecommunications industry in Mexico
are the Secretariat of Communications and Transportation, or SCT, and the
Federal Telecommunications Commission, or COFETEL.
Licenses
and concessions
In
Mexico, authorizations to provide mobile telephony services (mobile and personal
communication services, or PCS, for the 800 MHz and 1.9 GHz bands, respectively)
are granted through concessions. Currently, regarding the mobile
concessions (800 MHz), only one Band A and one Band B service provider may
provide mobile telephony services in each of the nine regions of the
country. Regarding PCS concessions, there is no exclusivity in the
provision of service, in each region by more than one operator. In
fact, there are currently three operators in each region. These
concessions were granted in 1998 and 2005 for a period of twenty years, and may
be renewed for additional 20-year periods, subject to the fulfillment by the
operator of certain terms and conditions.
In total,
Telefónica Móviles México, and its subsidiaries and participated companies have
22 licenses granted by SCT, which enable it to provide telecommunications
services:
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Telefónica
Móviles México’s mobile operating companies have been granted concessions
to operate mobile telephony services on Band A until 2010. SCT
granted licenses to Baja Celular Mexicana, S.A. de C.V., or Bajacel, dated
July 17, 1990; Movitel del Noroeste, S.A. de C.V., or Movitel, also dated
July 17, 1990; Telefonía Celular del Norte, S.A. de C.V., or Norcel, dated
July 23, 1990; and Celular de Telefonía, S.A. de C.V., or Cedetel, dated
August 2, 1990. The renewal of these four concessions was
requested in 2005. We presented in 2005 four requests for
extension of these concessions before SCT. The concessions of
Bajacel, Movitel y Norcel have been renewed for 15 years from
2010. The terms and conditions of the renewed concessions are
consistent with those concessions that SCT has recently assigned and to
those
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terms
and conditions that it will establish in future concessions. As
of the date of this report, we are expecting the formality of receiving
the concessions. In respect of Cedetel, the proposal for
renewal was notified by the STC, and it is expected that Cedetel will
acept the proposal in due course. Any further delay in the
renewal process to obtain the requested extensions will be attributed to
the SCT.
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Furthermore,
SCT granted to Telefónica Móviles México, through Pegaso Comunicaciones y
Sistemas, S.A. de C.V. a concession to provide public telecommunications
services, on June 23, 1998, and nine spectrum licenses, dated October 7,
1998, in the 1900 Mhz band to provide personal communication services in
each of the nine PCS service region, and valid until
2018. Those licenses may be extended for additional twenty-year
periods. For all of these licenses renewal was requested in 2008, the
renewal decision is still pending, and we are permitted to continue
operating under the terms of the expired licenses until the renewal has
been approved. On April 21, 2005, SCT granted Telefónica México
four more spectrum licenses in the same 1900 MHz band, to provide the PCS
service and have more bandwidth in regions 3, 5, 7 and 8, valid for 20
years, and with the possibility be renewed for up to 20 additional
years. On September 7, 2009, a modification to Pegaso’s
concession was authorized to provide trunked radio
services.
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SCT
also granted to Grupo de Telecomunicaciones Mexicanas, S.A. de C.V., or
GTM, a company in which Telefónica Móviles México has an interest, several
licenses:
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i)
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on
June 24, 1998, to install microwave links in 23 GHz frequencies, for a
period of 20 years;
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ii)
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on
December 13, 1999, to install microwave links in 7 GHz frequencies, for a
period of 20 years, and that can be
renewed;
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iii)
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on
June 5, 2003, to install a public telecommunication network to provide
domestic and international long distance service granted, for a period of
15 years, and that can be renewed;
and
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iv)
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on
March 28, 2006, GTM was authorized a renewal of the concession to provide
fixed telephony and public telephony, nationwide for a period of 15 years,
that can be renewed.
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Prices
and tariffs
Tariffs
charged to customers are not regulated. They are set by mobile
operating companies and must be registered with COFETEL. Rates do not
enter into force until registered by COFETEL.
Interconnection
Mexican
telecommunications regulations obligate all telecommunications network
concessionaires to execute interconnection agreements on specific terms when
requested by other concessionaires. Interconnection rates and
conditions may be negotiated by the parties. However, should the
parties fail to agree, COFETEL must fix the unresolved issues, including
tariffs.
Foreign
ownership/restrictions on transfer of ownership
Mexican
foreign investment law restricts foreign investment in local fixed service and
other telecommunications services to a maximum of 49% of the voting stock,
unless the Mexican National Commission of Foreign Investment approves a higher
percentage participation, which it can do only in the case of mobile
telecommunications companies.
Bajacel,
Movitel, Norcel, Cedetel and Pegaso, as mobile telecommunications companies,
received the required approvals from the National Commission of Foreign
Investment permitting our ownership of more than 49% of their outstanding voting
capital.
GTM, a
company in which Telefónica México has an interest, provides local fixed and
long distance services. This operator complies with Mexican foreign
investment law, and has a stock structure that includes the participation of its
Mexican partner, Enlaces del Norte. S.A. de C.V., which has 51% of the voting
stock.
Competition
law
The
Federal Economic Competition Law enacted in 1992 and amended on June 28, 2006
prohibits monopolies and any practices that tend to diminish, harm or impede
competition in the production, processing, distribution or marketing of goods
and services. The Federal Competition Commission, or COFECO, is the
administrative body empowered to enforce the Law.
Venezuela
On June
1, 2000, the national legislative commission approved the Telecommunication Law.
On February 1, 2006, the national legislative commission approved the Ley Habilitante that grants
the President of the Republic capacity to enact decrees in relation to the
telecommunication sector, though no formal modification to current law has been
made.
On
December 2009, a new regulation applicable to all subscription TV service
providers was enacted by CONATEL in order to stipulate a new obligation
concerning a mandatory percentage of inclusion (12%) of national production
services (channels in which both reception and diffusion of sound and images
take place in the country to later transmit it by means of subscription TV
service providers) in the regular programming packages. The
calculation of the mandatory percentage is to be made on the basis of the
totality of the TV channels. Qualification of a channel as a
“national productions service” is a task of CONATEL, who must keep an updated
record of those services.
An
Administrative Decision on Services Agreements (Providencia n° 1302 sobre
Condiciones Generales de los Contratos de Servicios de
Telecomunicaciones) was adopted. As a consequence of this
regulation (2009), Telcel proceeded to adapt all of its nine services agreements
to fulfill all the conditions and impositions established, mainly related to
consumer protection. We have currently received regulator
observations of two of the agreements (TV service and radio localization
service), and we are in process of including the modifications based on the
observations.
Licenses
and concessions
Telcel
has been granted a mobile telephony concession to operate and offer mobile
services in the 800 MHz band with national coverage, granted in 1991 and
expiring on May 31, 2011 that may be extended for a term no longer than 20-year,
subject to CONATEL’s discretion. Telcel also holds a private network
services concession, granted in 1993 and renewed on November 28, 2007, until
December 15, 2025, that allows Telcel to offer point-to-point or
point-to-multipoint private telecommunication services to
corporations. In 2000, Telcel was granted a general license (Habilitación General) to
offer local telephony services, national long distance services and
international long distance services and to otherwise operate telecommunications
networks for a 25-year period expiring on December 15, 2025. In 2001,
Telcel obtained a concession to offer fixed wireless access services nationwide
using wireless local loop technology.
On
November 28, 2007, the National Telecommunications Commission, or CONATEL, in
accordance with the Telecommunications Law, incorporated into the general
license the rest of the services provided by Telcel: mobile, private networks,
Internet access and transport. On that same date, Telcel was granted
a concession to operate in the 1990 MHz band for a period of 15 years, until
November 22, 2022, renewable for a period of ten years.
Prices
and tariffs
Under
Venezuelan regulations, telecommunications operators are free to determine and
set prices for the services that they offer, within the price cap established by
the regulator. However, exemptions to the free pricing regime may be
applicable to market dominant operators, universal services projects or as a
result of market distortions caused by anti-competitive conduct as determined by
the Competition Agency.
Competition
law
Venezuelan
law governing competition is the Promotion and Protection of Free Competition
Act 1992. It prohibits monopolistic and oligarchic practices and
other means that could impede, restrict, falsify, or limit the
enjoyment
of economic freedom. The Office of the Superintendent for the
Promotion and Protection of Free Competition is the agency empowered to apply
the Competition Act.
Chile
Regulatory
framework
The
General Telecommunications Law No. 18,168 of 1982, as amended, establishes the
legal framework for the provision of telecommunications services in
Chile.
The main
regulatory authority in Chile is the Under-Secretary of Telecommunications, or
SUBTEL.
Licenses
and concessions
Under the
General Telecommunications Law, companies must obtain licenses in order to
provide fixed telecommunications services. Licenses granted for
public and intermediate services generally have 30-year terms and may be renewed
indefinitely for 30-year periods at the request of the operator, though certain
licenses held by Telefónica Chile have longer terms.
Telefónica
Chile holds the following licenses for the provision of telecommunications
services:
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Local telephony public service
licenses. Telefónica Chile holds a license for local
telephone service in all regions of Chile for a 50-year renewable period
which began on December 1982, except Regions X and XI, which were
incorporated to such license in 1995. In addition, Telefónica
Chile holds various other renewable license for nationwide local telephone
services oriented, exclusively, for rural localities Telefónica
Chile also holds a nationwide public service renewable license for data
transmission for a 30-year period beginning as of July 1995, and four
other public service renewable licenses for data transmission for a
30-year period beginning as of June
2008.
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Multicarrier long-distance
licenses. Under the Multicarrier System, Telefónica
Chile’s former long-distance subsidiary, Telefónica Mundo Larga Distancia
S.A. (before Telefónica Mundo), held 30-year renewable licenses, for a
period beginning as of November 1989, to install and operate a nationwide
fiber-optic network, a network of base stations and other transmission
equipment, and to provide domestic and international long-distance
services, including voice, data and image transmission, throughout
Chile. In addition, Telefónica Mundo Larga Distancia S.A. held
30-year renewable licenses, for a period beginning as of June 1993, to
nationwide public service data transmission. Telefónica Chile’s
other long-distance subsidiary, Globus, also held licenses for an
indefinite term to provide domestic and international long-distance
services through central switches and cable and fiber-optic networks
nationwide. After the merger of these subsidiaries in 2006, all
the aforementioned licenses remain under the ownership of the same
company, which is now known as Telefónica Larga
Distancia.
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Public service data
transmission. In addition to the 30-year data
transmission license previously mentioned, Telefónica Chile, through
Telefónica Empresas, holds, as of March 1987, nationwide public service
data transmission licenses for an indefinite
term.
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Public service mobile
telephony licenses. Telefónica Móviles Chile holds
licenses with indefinite terms, beginning as of November 1989, to provide
public service mobile telephony services throughout Chile in the 800
megahertz frequency range. Telefónica Móviles Chile also holds
three concessions for the provision of mobile telecommunications services
nationwide in the 1900 MHz band. These concessions may be
renewed for successive thirty-year periods as of 2002 at the request of
the holder.
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Limited television
license. Telefónica Chile’s subsidiary Telefónica
Multimedia, has a license to establish, operate, and use a part of the
spectrum of the 2.6 GHz bandwidth in Santiago, Chile, for an intermediate
telecommunications service concession, authorizing the frequencies used to
communicate voice, data and images, for a 30-year period beginning as of
May 2008 Telefónica Multimedia also holds a license authorized by
Resolution No. 47 enacted on November 28, 1990, amended by Resolution No.
1536 of 1994, and Resolution 1453 of 2002, to provide limited television
service in 2,6 GHz. Since December
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2005,
Telefónica Chile, through Telefónica Multimedia, holds a nationwide 10-year
renewable license to provide limited satellite television
service. Additionally, in January of 2006, Telefónica Chile, through
Telefónica Multimedia, was assigned a limited television service license to
provide the service nationwide in the main municipalities, except Region III,
through Telefónica Chile’s xDSL broadband network for an indefinite
period. Moreover, in March 2007, a limited television service license
was granted in order to provide this service, through the DSL broadband network,
in the Santiago Metropolitan area, for an indefinite period.
Prices
and tariffs
Under the
General Telecommunications Law, maximum tariffs for telephony services are set
every five years by the Ministry of Transport and Telecommunications and the
Ministry of Economy. In addition, the Competition Tribunal may
subject any telephony service to price regulation, except for mobile telephone
services to the public that are expressly exempted under the General
Telecommunications Law.
The
Competition Tribunal ruled in January 2009 that only some local telephone
services were to be subject to tariff regulation (line connections, monthly
fixed charges, variable traffics charges, and public payphone services are
excluded). Accordingly, it was determined that every local telephone
company, within its service zones, would be regulated with respect to tariff
levels and structure. In addition, Telefónica Chile, in its capacity
as a “dominant operator” (except in regions where other companies are the
dominant operators), is regulated on a non-price basis, with requirements that
it not engage in discriminatory pricing and that it give previous notice of
plans and packages.
Interconnection
Interconnection
is obligatory for all license holders with the same type of public
telecommunications services and between telephony public services and
intermediate services that provide long distance services. The same
requirement applies to holders of those intermediate service licenses, who are
required to interconnect their networks to the local telephone
network.
A
“calling party pays” tariff structure was implemented on February 23,
1999. Under this tariff structure, local telephone companies pay
mobile telephone companies an access charge for calls placed from fixed networks
to mobile networks. Local telephone companies may pass this interconnection
charge on to their customers. Every five years, SUBTEL sets the
applicable tariffs for services provided through the interconnected
networks.
Competition
law
The
principal regulation concerning competition in Chile is Decree No. 211 of 1973,
whose current text was established in Decree Nº 1 of 2005. Pursuant
to the provisions of this law, acts or behavior involving economic activities
that constitute abuse of a dominant market position, or limit, restrain, or
distort free competition in a manner that injures the common economic interest
in the national territory are prohibited. The Competition Tribunal
deals with infringements of competition law.
Argentina
Regulatory
framework
The basic
legal framework for the provision of telecommunications services in Argentina is
set forth in the National Telecommunications Law (No. 19,798) of 1972 and in the
specific regulations governing each type of telecommunications
service. Also, Decree 264/98 established a transitory period from a
monopolistic market towards a free market, promoting the protection of small
operators while imposing obligations on basic services licensees. Decree 764/00,
established the new and actual regulatory framework rules for a free market, and
includes interconnection, licenses, universal service and spectrum
rules.
The
following regulatory authorities oversee the Argentine telecommunications
industry:
|
|
·
|
the
National Communications Commission, or CNC, supervises compliance with
licenses and regulations, and approves changes to mandatory goal and
service requirements; and
|
|
|
·
|
the
Secretariat of Communications, or SECOM, grants new licenses, regulates
the bidding and selection processes for radio-spectrum authorizations, and
approves the related bidding terms and
conditions.
|
Licenses
and concessions
Telefónica
de Argentina holds licenses for fixed line services, all granted for an
unlimited period of time, which entitle it to provide fixed line
telecommunications services; international telecommunications services; local
services in the northern and southern regions; long distance, international and
data transmission telecommunications services in the northern region; and
Internet access and international data transmission services.
Telefónica
Móviles de Argentina’s licenses for the provision of mobile services include PCS
licenses and corresponding authorizations for use of spectrum for different
regions, licenses and corresponding authorizations for use of spectrum for
mobile telephone services for different regions; and licenses for trunking, or
closed user group, services for different cities.
These
licenses do not expire, but may be cancelled by the SECOM as the result of failure
to comply with the terms of its license.
Prices
and tariffs
On
October 21, 2003, Law No. 25,790 became effective, extending the term for the
renegotiation of concession or licensing agreements with public utilities until
December 31, 2004, which was subsequently extended until December 31,
2011. This law also established that the decisions made by the
Argentine government during the renegotiation process shall not be limited by,
nor subject to, the stipulations contained in the regulatory frameworks
currently governing concession or licensing agreements for the respective public
utilities. Renegotiated agreements may cover some aspects of
concession or licensing agreements and may contain formulas to adjust such
agreements or temporarily amend them. As an investor in Argentina
through Telefónica de Argentina, we commenced arbitration proceedings against
the Republic of Argentina based on the Reciprocal Protection of Investments
Treaty between Spain and Argentina for damages suffered by us because of the
measures adopted by the Argentine government. On August 21, 2009, the
parties requested the Tribunal, in accordance with Rule 43 of the ICSID
Arbitration Rules, declare a resolution of the termination of the proceedings.
The agreement of the parties envisages the possibility of a new request for
arbitration under the ICSID Convention being submitted by Telefónica. Such
request would be processed in accordance with the ICSID Convention and the
Center’s normal rules and procedures taking note of the discontinuance issued by
the Tribunal on September 24, 2009.
Additionally,
Decree No. 764/00 established that providers of telephone services may freely
set rates and/or prices for their service which shall be applied on a
non-discriminatory basis. However, until the Secretary of
Communications determines that there is effective competition for
telecommunications services, the “dominant” providers in the relevant areas
(which include Telefónica de Argentina) must respect the maximum tariffs
established in the general tariff structure. Providers may freely set
their rates by areas, routes, long distance legs and/or customer groups so long
as they are below the amounts established by the general tariff
structure.
Also, the
guidelines set forth in article 26 of Decree No. 1185/90 continue in effect for
operators with significant market power. These guidelines establish
information obligations with which operators must comply with respect to
tariffs, both toward clients and the national regulator. This Decree
also establishes the powers the regulator has to revise or revoke such
tariffs.
Tariffs
charged to customers for mobile services are not regulated in
Argentina.
Interconnection
Decree
No. 764/00 approved new rules for national interconnection and established
interconnection standards and conditions with which telephone service providers
must comply regardless of pre-existing agreements. The rules for
national interconnection set forth that interconnection agreements are to be
freely negotiated between the relevant service providers, on a
non-discriminatory basis. The regulations also establish the
obligation for dominant and significant market operators to unbundle their local
loops and to allow competitors to use them on a reasonable basis.
Competition
law
Law
25,156, on Protection of Competition prohibits any acts or behaviors related to
the production or trade of goods or services, whose purpose or effect is to
prevent, restrict or distort competition or market access, or that constitute
abuse of dominant position in a market. The National Commission for
the Defense of Competition is the authority entrusted with application of the
law.
Colombia
Regulatory
framework
In
Colombia, telecommunications are a public service, subject to state regulation
and oversight. Law 1341/09 reformed the legal framework, establishing the
general regime for information and communication technologies. Under
this law, providers of network and telecommunications services in Colombia must
register with the Information and Communication Technologies
Minister. In addition, operators must obtain a concession from the
National Television Commission in order to provide television
services.
Law
1341/09 established a transition period in which operators can: (i) preserve the
original titles (licenses, contracts, permissions, authorizations) until their
expiration or (ii) adopt the regime of general authorization stated by the law
and the corresponding registration and preserve the necessary permissions in
order to use the spectrum.
During
2009 the Colombian telecommunications regulator, Comisión de Regulación de
Comunicaciones or CRC, identified the telecommunications relevant markets
and operators with dominant position and established some remedies via ex ante
regulations.
Licenses
and concessions
Concessions
for mobile services in the Eastern Region, the Caribbean Coast Region and the
Western Region were granted in March 1994 for a ten-year period and extended for
ten years until March 28, 2014. Before 2014 and because of the
transition period set forth under Law 1341/2009, Telefónica Móviles Colombia can
renounce its concessions, renew the permission for spectrum use for one period
of ten years and subsequently renegotiate an extension. If Telefónica Móviles
Colombia continues with its current concessions until 2014, in that year it must
register as a telecommunications provider and request permission for spectrum
use.
Additionally,
Telefónica Móviles Colombia holds concessions for carrier services nationwide,
granted in June and November 1998 (initially for ten years and extended once for
an additional ten years). Due to decree 2870 of 2007, these
concessions were transformed into a convergent title. The Ministry of
Communications granted Telefónica Móviles Colombia on November 6, 2008 a
convergent title to render carrier services for an additional ten-year period
(which can be extended for an additional ten years). Like in the case of
concessions for mobile services, these licenses are in force until the end of
their validity, or Telefónica Móviles can decide to renounce and register as an
operator under the general authorization granted by law.
With
respect to fixed line services, Law 1341/2009 preserves the indefinite
permission for all operators to operate as local exchange carriers in the
national area that Law 142/94 had established. Colombia Telecom must register as
a telecommunication provider before the CRC. This registration also
covers the general authorization to provide other telecommunications services
like long-distance carrier services, value added services, carrier services
nationwide and mobile services, among others.
Interconnection
Mobile
and fixed operators in Colombia have the right to interconnect to other
operators’ networks. Before the intervention of regulatory
authorities, operators must attempt direct
negotiations. Interconnection must assure compliance with the
objectives of non-discriminatory treatment, transparency, prices based on costs
plus a reasonable profit and promotion of competition.
Prices
and tariffs
Mobile
tariffs charged to customers are not regulated, although they may not be
discriminatory. Nevertheless fixed-to-mobile tariffs are subject to a
price cap. Rates are fixed by mobile operating companies and must be
registered with the Comisión
de Regulación de Telecomunicaciones. The regulator set a price
cap of 392 Colombian pesos per minute for fixed to mobile tariffs since November
1, 2006, and in 2009 the CRC reduced the tariff to 198.4 Colombian pesos per
minute. Local tariffs are regulated, but operators have the
opportunity to offer several alternative plans that are not regulated although
they must be registered.
Due to
market regulation process, the Telecommunications Commission in December 2008,
published a proposed amendment to modify the price cap of 392 to 200 Colombian
pesos per minute for fixed to mobile communications. This proposed amendment is
currently subject to discussion with operators.
Television
services
In
January 2007, Colombia Telecom signed a concession agreement with the Television
Commission to provide DTH services for ten years. This is a
concession granted with a national scope.
In
December 2008, the Television Commission published Agreement No.
006. By this disposition the carry obligations of operators of closed
television has been modified to require that regional channels be broadcast only
in the cover area of the channel and only if it is possible
technically.
Competition
law
The
Colombian Competition Law is incorporated in the Law No. 155/59, Decree No
2153/92 and Law 1340/09 on Restrictive Trade Practices. The law
prohibits entering in any agreement or engaging in any type of practice,
procedure, or system that aims to limit free competition and abuse of a dominant
position. The Superintendent of Industry and Commerce is the
Colombian competition authority.
Peru
Regulatory
framework
The
provision of telecommunications services in Peru is governed by the
Telecommunications Law and related regulations.
Licenses
and concessions
Telefónica
del Perú provides fixed line telecommunications services based on concessions
granted by the Ministry of Transportation and Communications, or TMC. The
concession term is for 20 years, which may be renewed totally or partially at
Telefónica del Perú’s request. Total renewal is for an additional
20-year period. Partial renewal is for periods of up to five additional
years. Three partial renewals have been approved, extending the
concession term until 2027.
Providers
of mobile services seeking to operate in Peru must obtain a non-exclusive
license from the TMC. Licenses are granted by means of a license agreement
entered into between the TMC and the licensee and set forth the licensee’s
rights and obligations, including the regions where the licensee is authorized
to operate. Licenses are granted either by application or through a
bidding process.
Telefónica
Móviles Perú has a concession for the provision of mobile services on Sub Band A
of the 850 MHz Band and Sub Band of 1900 MHz (in these bands, Telefónica Móviles
Perú can also provide fixed wireless services) for a 20-year period, renewable
upon request for identical periods. It also holds concessions for
offering international and domestic long distance carrier services, granted in
February 2002 for a 20-year period. Additionally, it has a concession for the
provision of wireless fixed telephony services on the 450 MHz and 900 MHz band
for a 20-year period. Both concessions were granted on March 3, 2008.
It also holds the concessions for local carrier services, which expire between
2016 and 2022. Concessions for domestic and international carrier
services expire on February 5, 2019. In addition, it has a concession for local
fixed telephony services for national coverage, granted on August 10, 1999 for a
20 year period. These concessions may be renewed for an additional
20-year period.
Under the
concessions to provide mobile services, mobile operators are obligated to meet
certain quality service requirements with respect to call failure,
radio-electric coverage and quality of communications. These
requirements are established on a yearly basis and are gradually increased in
order to improve the quality of the service provided.
Prices
and tariffs
Tariffs
for fixed telephony services must be approved by the National Regulatory
Authority, the Organization for Supervision of Private Investment in
Telecommunications, or OSIPTEL, in accordance with a price cap formula based on
a productivity factor. Rates charged by mobile providers to their
customers have been subject to a free tariff regime supervised by
OSIPTEL. Tariffs must be reported to OSIPTEL prior to
implementation.
Interconnection
Mobile
service providers are required, upon request, to interconnect with other
concession holders. According to the principles of neutrality and
non-discrimination contemplated in the Telecommunications Law, the conditions
agreed upon in any interconnection agreement will apply to third parties in the
event that those conditions are more beneficial than terms and conditions agreed
upon separately.
Competition
law
The
general competition framework in Peru is based on the Legislative Decree No.
1034. This law prohibits any monopolistic practices, controls, and
restraints on free competition and it is applied, in the telecommunication
sector, by OSIPTEL.
Ecuador
Regulatory
framework
The
Special Telecommunications Law and the General Regulation to the Special
Telecommunications Law establish the regulatory regime applicable to the
provision of telecommunications services in Ecuador.
Licenses
and concessions
After a
new agreement with the Ecuadorian government, Otecel renewed its mobile
telephony services concession which now allows Otecel to provide advanced mobile
services, including 3G services. The concession will expire on
November 29, 2023 and may be extended for a subsequent 15-year
period.
Beside
the above mentioned concession, Otecel holds a concession to provide fixed and
mobile services carrier services, which expires on April 22, 2017 and may be
extended for a subsequent 15-year period. The different licenses for
the provision of mobile value added services and Internet mobile access, each of
which expires on
February
21, 2010, are now under the scope of the new agreement with the Ecuadorian
government described in the previous paragraph. It also holds a
license to provide conventional Internet services, which expires on January 25,
2011 and may be extended for a subsequent ten-year period.
A monthly
fee amounting to 1% of the invoiced revenues of mobile services must be paid by
all operators holding concessions to the National Secretary of
Telecommunications as a contribution to support universal service. Under its
contract, Otecel may cancel such fee by giving services to agreed
zones within the National Plan for Universal Service.
Prices
and tariffs
The
mobile services concession of Otecel is subject to a maximum rate of $0.50 per
minute for mobile services and a maximum rate of $0.10 per minute for rural
public telephony. Otecel may set rates freely so long as it does
not exceed these rates, and provided that it notifies the correspondent
regulatory body 24 hours ahead of any price increase.
Otecel
may set rates freely under its carrier services concession.
Other
business lines in Latin America
|
Country
|
License/Concession
and authorizations
|
Type
of service
|
Spectrum
|
Band
|
Expiration
|
||||
|
El
Salvador
|
Concession
|
Telecommunications
services (1)
|
25
MHz/800 MHz
|
B
Band
|
2018(2)
|
||||
|
Concession
|
Telecommunications
services (1)
|
30
MHz/1900 MHz
|
C
Band
|
2021
|
|||||
|
Guatemala
|
Concession
|
Telecommunications
services (1)
|
80
MHz/1900 MHz
|
B,
C, E and F Bands
|
2014(3)
|
||||
|
Concession
|
Telecommunications
services (1)
|
2014(3)
|
|||||||
|
Concession
|
Telecommunications
services (1)
|
2014(3)
|
|||||||
|
Nicaragua
|
Concession
|
Mobile
telecommunications services
|
800
MHz
|
A
Band
|
2013(4)
|
||||
|
Concession
|
Mobile
telecommunications services
|
Additional
spectrum 1900
|
D
Band
|
2013
|
|||||
|
Panama
|
Concession
|
GSM/UMTS
|
800/1900
Mhz
|
A
Band
|
2016(5)
|
||||
|
Uruguay
|
License
|
Mobile
telephony
|
25
MHz 800 MHz
|
2022-2024(6)
|
|
(1)
|
According
to the Telecommunications Law all of such concessions were granted to
provide any telecommunications
services.
|
|
(2)
|
Concessions
for use of spectrum are granted for a 20-year period and may be renewed
for additional 20-year periods upon execution of the proceedings set forth
in the Telecommunications Law.
|
|
(3)
|
All
of such concessions are granted for a 15-year term and may be renewed for
subsequent fifteen-year terms at the request of the holder. In
order to renew a title, the holder must demonstrate before the regulatory
body, that the spectrum was effectively used during the previous 15-year
term. All of these titles are set to expire in
2014.
|
|
(4)
|
Telefónica
Móviles Nicaragua was granted a concession in 1992 for a ten-year period
for the use of 25 MHZ of spectrum in the 800 MHz Band A to provide mobile
telecommunications services, the regulatory entity granted to Telefónica
Nicaragua 10 Mhz of additional spectrum in the 1900 Band
D. This concession was renewed for another ten-year period in
1998, and will expire on July 31, 2013. The concession may be
renewed for another ten-year period through negotiation with TELCOR two
years prior to the expiration of the current concession, subject to the
fulfillment of certain terms and conditions by the
operator.
|
|
(5)
|
The
concession period is for 20 years and expires in 2016. This can
be extended for another period in accordance with the concession
contract. The Panamanian government granted us the right to use
10 MHz (5+5) in the 1900 MHz Band until 2016, which can be extended for
another period.
|
|
(6)
|
The
expiration date depends on the spectrum concession: band 800 MHz (12.5 MHz
+ 12.5 MHz) – 20 years from July 2004; band 1900 MHz (5 MHz + 5 MHz) – 20
years from December 2002; and band 1900 MHz (5 MHz + 5 MHz) – 20 years
from July 2004.
|
Seasonality
Our main
business is not significantly affected by seasonal trends.
Patents
Our
business is not materially dependent upon the ownership of patents, commercial
or financial contracts or new manufacturing processes.
See
“—History and Development of the Company” and “—Business Overview.”
In 2007,
we moved to our new central headquarters for the Telefónica Group, “Distrito C”,
in Las Tablas (Madrid), Spain.
Fixed
Networks
We own
fixed networks in Spain, Latin America and Europe, having an incumbent role in
Spain, Argentina (the greater Buenos Aires metropolitan area and the southern
portion of the country), Brazil (São Paulo), Chile, Peru, Colombia and the Czech
Republic.
Following
market trends, competitive environments, evolution of technologies and new
multimedia and broadband services demanded by our customers, we have upgraded
our networks in recent years in the following manners:
|
|
·
|
progressive
introduction of broadband access technologies over copper: ADSL, ADSL2+,
VDSL2, etc., increasing the bandwidth capacity provided to our broadband
clients several times in the last four
years;
|
|
|
·
|
introduction
of fiber access technologies (xPON) across different deployment scenarios:
fiber to the home (FTTH), fiber to the building (FTTB), fiber to the curb
(FTTC), fiber to the node (FTTN), etc., increasing the access speed up to
100 Mbps;
|
|
|
·
|
service
support based on powerful Internet Protocol/ Multiprotocol
Label Switching (IP/MPLS) backbones, providing full connectivity to the
rest of the network layers, such as access and control, to support
services for business and customer market segments (fixed and
mobile);
|
|
|
·
|
migration
of the legacy time division multiplexing (TDM) switching networks (PSTN
and ISDN) to new generation network (NGN) over all-IP packet
networks;
|
|
|
·
|
migration
from legacy transport technologies, such as asynchronous transfer mode
(ATM), frame relay (FR), low-rate leased lines , plesiochronous digital
hierarchy (PDH) and synchronous digital hierarchy (SDH), to the new
generation of optical transport ones, such as dense wavelength division
multiplexing (DWDM), coarse wavelength division multiplexing (CWDM) and
new generation - synchronous digital hierarchy
(NG-SDH);
|
|
|
·
|
introduction
of IMS (Internet Multimedia Subsystem) in many countries to simplify the
control of the network and ease the deployment of new services over the
all-IP converged network;
|
|
|
·
|
empowerment
of the intelligence of the network to better manage its use, to
avoid saturations and frauds and to identify new business
opportunities;
|
|
|
·
|
convergence
of fixed and mobile networks, services and support systems from
both technological and operational points of view;
and
|
|
|
·
|
deployment
of new services such as pay TV, under the Imagenio brand, to
customers connected through broadband accesses in Spain, Czech Republic,
Peru, Chile, Colombia and Brazil.
|
Mobile
Networks
We
operate mobile networks in Spain, the United Kingdom, Germany, Ireland, the
Czech Republic, Slovakia, Brazil, Argentina, Venezuela, Chile, Peru,
Colombia, Mexico, Guatemala, Panama, El Salvador, Nicaragua, Ecuador and
Uruguay. In the case of Brazil (Vivo) the ownership of the networks
is shared 50/50 with Portugal Telecom.
We use a
number of mobile technologies in the countries in which we operate, namely: GSM
and UMTS in Spain, the United Kingdom, Ireland, Germany, Czech Republic,
Slovakia and Latin America; CDMA 1X in other countries in Latin America (such
as, Brazil, Venezuela and Colombia) and, in the Czech Republic (CDMA 450 Mhz).
We continue the work of upgrading our mobile networks in line with market
trends, the demand of new services from customers and the evolution of
technologies. The main steps we are currently taking include:
|
|
·
|
progressive
migration from CDMA technologies to GSM or UMTS technologies in markets
where we still exploit these legacy
technologies;
|
|
|
·
|
introduction
of broadband into mobile access using technologies such as UMTS, HSDPA,
HSUPA and HSPA+;
|
|
|
·
|
deployment
of new services such as mobile television and distribution services for
next generation music, video and
games;
|
|
|
·
|
exploration
of the adequacy of new technologies such as HSPA and LTE (Long
Term Evolution) to provide mobile accesses with increased bandwidth, in
particular:
|
|
|
·
|
HSPA:
we have been committed to the deployment of this technology in countries
in which we have a presence and as of December 31, 2009, we have extended
our coverage up to the majority of the urban/suburban areas, and we have
increased the capacity of the network by upgrading the network technology
to the latest available releases of UMTS standards 3GPP REL 6 and REL
7;
|
|
|
·
|
LTE:
together with main vendors and sharing experience with other operators, we
have extensively analyzed the opportunities LTE will bring as 4G mobile
technology is used to complement current network technology by creating
higher capacity at lower relative cost by user/traffic unit, and, in this
regard, we have deployed the first demonstration trials in
2009, which have been successful so far;
and
|
|
|
·
|
convergence
of fixed and mobile networks, services and support systems from both
technological and operational points of
view.
|
Satellite
communications
We hold a
13.23% interest in Hispasat, which leases capacity to Eutelsat, Intelsat, New
Sky Satellite and occasionally ArabSat.
The
services provided using satellite platforms include television contribution
signal to feed cable and IPTV head ends, DTH television, VSAT mainly for
telephony and Internet access in rural areas, emergency solutions, corporate
communications and international communications with some countries in Africa
and in Asia.
Submarine
cables
We are
one of the world’s largest submarine cable operators. We participate in
approximately 25 international underwater cable systems (nine of which are
moored in Spain) and own eleven domestic fiber optic cables.
There are
submarine cable connections between Spain and Africa, America, Asia and Europe,
respectively, that are jointly owned by us with other telecom
operators. The SAM-1 cable, which we own, has a length of
approximately 22,000 kilometers underwater and 3,000 kilometers terrestrial and
links different countries such as the United States, Puerto Rico, Ecuador,
Guatemala, Peru, Chile, Brazil, Argentina and Colombia.
The
principal services using the capacity of submarine cables are voice circuits,
Internet and dedicated circuits for international traffic and for corporations
and business customers.
Not
applicable.
Overview
We have
implemented a regional, integrated management model based on three business
areas, with each area in charge of the fixed and mobile telephone and other
businesses within its borders. Our areas are:
|
|
·
|
Telefónica
Spain: oversees the fixed and mobile telephone, broadband, Internet, pay
TV and valued added services and data businesses in
Spain.
|
|
|
·
|
Telefónica
Europe: oversees the fixed and mobile telephone, broadband, Internet, pay
TV and value added services and data businesses in the United Kingdom,
Germany, Ireland, the Czech Republic, Slovakia and the Isle of
Man.
|
|
|
·
|
Telefónica
Latin America: oversees the fixed and mobile telephone, broadband,
Internet, pay TV and value added services and data businesses in Latin
America.
|
We are
also involved in the media and contact center segments through Telefónica de
Contenidos and Atento, respectively.
Presentation
of Financial Information
The
information in this section should be read in conjunction with our Consolidated
Financial Statements and the notes thereto, included elsewhere in this Annual
Report. Our Consolidated Financial Statements have been prepared in
accordance with IFRS as issued by the IASB.
At its
meeting on July 26, 2006, our Board of Directors agreed to restructure the way
in which we are managed in order to respond to the increasing convergence of
fixed and mobile telephony in the markets in which we operate. In
order to adapt to this new environment, we have developed a regional, integrated
management model, combining fixed line and mobile telephony services in order to
offer customers the best integrated solutions and support in an era of
fixed-mobile convergence. We are managed as three business areas:
Telefónica Spain, Telefónica Europe and Telefónica Latin America, each of which
oversees the integrated fixed and mobile telephone and other
businesses in its region. Our three business areas form the basis of
our segment reporting in our Consolidated Financial Statements.
Non-GAAP
financial information
Operating
income before depreciation and amortization
Operating
income before depreciation and amortization, or OIBDA, is calculated by
excluding depreciation and amortization expenses from our operating income in
order to eliminate the impact of generally long-term capital investments that
cannot be significantly influenced by our management in the short
term. Our management believes that OIBDA is meaningful for investors
because it provides an analysis of our operating results and our segment
profitability using the same measure used by our management. OIBDA
also allows us to compare our results with
those of
other companies in the telecommunications sector without considering their asset
structure. We use OIBDA to track our business evolution and establish
operational and strategic targets. OIBDA is also a measure commonly
reported and widely used by analysts, investors and other interested parties in
the telecommunications industry. OIBDA is not an explicit measure of
financial performance under IFRS and may not be comparable to other similarly
titled measures for other companies. OIBDA should not be considered
an alternative to operating income as an indicator of our operating performance,
or an alternative to cash flows from operating activities as a measure of our
liquidity.
The
following table provides a reconciliation of our OIBDA to operating income for
the periods indicated.
|
Year
ended December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
(in
millions of euros)
|
||||||||||||
|
Operating
income before depreciation and amortization
|
22,824 | 22,919 | 22,603 | |||||||||
|
Depreciation
and amortization expense
|
(9,436 | ) | (9,046 | ) | (8,956 | ) | ||||||
|
Operating
income
|
13,388 | 13,873 | 13,647 | |||||||||
The
following tables provide a reconciliation of OIBDA to operating income for us
and each of our business areas for the periods indicated.
|
Year
ended December 31, 2009
|
||||||||||||||||||||
|
Telefónica
Spain
|
Telefónica
Latin
America
|
Telefónica
Europe
|
Others
and
Eliminations
|
Total
|
||||||||||||||||
|
(in
millions of euros)
|
||||||||||||||||||||
|
Operating
income before depreciation and amortization
|
9,757 | 9,143 | 3,910 | (207 | ) | 22,603 | ||||||||||||||
|
Depreciation
and amortization expense
|
(2,140 | ) | (3,793 | ) | (2,895 | ) | (128 | ) | (8,956 | ) | ||||||||||
|
Operating
income
|
7,617 | 5,350 | 1,015 | (335 | ) | 13,647 | ||||||||||||||
|
Year
ended December 31, 2008
|
||||||||||||||||||||
|
Telefónica
Spain
|
Telefónica
Latin
America
|
Telefónica
Europe
|
Others
and
Eliminations
|
Total
|
||||||||||||||||
|
(in
millions of euros)
|
||||||||||||||||||||
|
Operating
income before depreciation and amortization
|
10,285 | 8,445 | 4,180 | 9 | 22,919 | |||||||||||||||
|
Depreciation
and amortization expense
|
(2,239 | ) | (3,645 | ) | (3,035 | ) | (127 | ) | (9,046 | ) | ||||||||||
|
Operating
income
|
8,046 | 4,800 | 1,145 | (118 | ) | 13,873 | ||||||||||||||
|
Year
ended December 31, 2007
|
||||||||||||||||||||
|
Telefónica
Spain
|
Telefónica
Latin
America
|
Telefónica
Europe
|
Others
and
Eliminations
|
Total
|
||||||||||||||||
|
(in
millions of euros)
|
||||||||||||||||||||
|
Operating
income before depreciation and amortization
|
9,448 | 7,121 | 4,977 | 1,278 | 22,824 | |||||||||||||||
|
Depreciation
and amortization expense
|
(2,381 | ) | (3,559 | ) | (3,386 | ) | (110 | ) | (9,436 | ) | ||||||||||
|
Operating
income
|
7,067 | 3,562 | 1,591 | 1,168 | 13,388 | |||||||||||||||
Net
financial debt and net debt
We
calculate net financial debt by deducting the positive mark-to-market value of
derivatives with a maturity beyond one year from the relevant balance sheet date
and other interest-bearing assets (each of which are components of non-current
financial assets in our consolidated statement of financial position), current
financial assets and cash and cash equivalents from the sum of (i) current and
non-current interest-bearing debt (which includes the negative mark-to-market
value of derivatives with a maturity beyond one year) and (ii) other payables (a
component of non-current trade and other payables in our consolidated statement
of financial position). We calculate net debt by adding to net
financial debt those commitments related to financial guarantees, not considered
as net
financial debt, and those related to workforce reduction. We believe
that net financial debt and net debt are meaningful for investors because they
provide an analysis of our solvency using the same measures used by our
management. We use net financial debt and net debt to calculate internally
certain solvency and leverage ratios used by management. Neither net
debt nor net financial debt as calculated by us should be considered an
alternative to gross financial debt (the sum of current and non-current
interest-bearing debt) as a measure of our liquidity.
The
following table provides a reconciliation of our net financial debt and net debt
to gross financial debt at the dates indicated:
|
As
of December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
(in
millions of euros)
|
||||||||||||
|
Non-current
interest-bearing debt
|
46,942 | 45,088 | 47,607 | |||||||||
|
Current
interest-bearing debt
|
6,986 | 8,100 | 9,184 | |||||||||
|
Gross
financial debt
|
53,928 | 53,188 | 56,791 | |||||||||
|
Other
payables
|
327 | 477 | 515 | |||||||||
|
Non-current
financial assets(1)
|
(2,284 | ) | (4,439 | ) | (2,736 | ) | ||||||
|
Current
financial assets
|
(1,622 | ) | (2,216 | ) | (1,906 | ) | ||||||
|
Cash
and cash equivalents
|
(5,065 | ) | (4,277 | ) | (9,113 | ) | ||||||
|
Net
financial debt
|
45,284 | 42,733 | 43,551 | |||||||||
|
Commitments
related to financial guarantees
|
365 | 365 | 71 | |||||||||
|
Net
commitments related to workforce reduction
|
3,289 | 2,687 | 2,261 | |||||||||
|
Net
debt
|
48,938 | 45,785 | 45,883 | |||||||||
|
(1)
|
Positive
mark-to-market value of derivatives with a maturity beyond one year from
the relevant statement of financial position date and other
interest-bearing assets.
|
Significant
Factors Affecting the Comparability of our Results of Operations in the Periods
Under Review
During
the years ended December 31, 2007, 2008 and 2009, various changes occurred in
our composition that affect the comparability of our operating results between
the periods. See Appendix I to our Consolidated Financial Statements
for a detailed description of the principal changes in our composition affecting
our financial statements during the periods under review covered by our
Consolidated Financial Statements. The most significant factors
affecting the comparability of our results of operations in the periods under
review are discussed below.
Classification
of Venezuela as a hyperinflationary economy
Throughout
2009 and in the early part of 2010, a number of factors arose in the Venezuelan
economy that led us to reconsider the treatments we follow with the respect to
the translation of the financial statements of our investees, as well as the
recovery of our financial investments in that country. Within these
factors it is worth highlighting the level of inflation reached in 2009 and the
cumulative inflation over the last three years, the restrictions to the official
foreign exchange market and, finally, the devaluation of the Bolivar fuerte on
January 8, 2010.
As a
result, in accordance with IFRS Venezuela must be considered a hyperinflationary
economy in 2009. The main implications of this are as
follows:
|
|
·
|
The
2008 figures should not be
restated.
|
|
|
·
|
Adjustment
of the historical cost of non-monetary assets and liabilities and the
various items of equity of Venezuelan companies from the date of
acquisition or inclusion in Telefónica’s consolidated statement of
financial position to the end of the year to reflect the changes in
purchasing power of the currency caused by
inflation.
|
The
cumulative impact of the accounting restatement to adjust for the effects of
hyperinflation for years prior to 2009 is reflected in the translation
differences at the beginning of the 2009 financial year.
|
|
·
|
Adjustment
of the income statement to reflect the financial loss caused by the impact
of inflation in the year on net monetary assets (loss of purchasing
power).
|
|
|
·
|
The
various components in the income statement and statement of cash flows
have been adjusted for the inflation index since their generation, with a
balancing entry in net financial results and a reconciling item in the
statement of cash flows,
respectively.
|
|
|
·
|
All
components of the financial statements of the Venezuelan companies have
been translated at the closing exchange rate, which at December 31, 2009
was 2.15 Bolivar fuerte per dollar (3.1 Bolivar fuerte per
euro).
|
The main
effects on the Telefónica Group’s consolidated financial statements for 2009
derived from the items mentioned above are as follows:
|
Million
of euros
|
|||||
|
Revenue
|
267 | ||||
|
Operating
income excluding the impact of depreciation and amortization
cost
|
64 | ||||
|
Net
profit
|
(548 | ) | |||
|
Translation
differences
|
1,224 | ||||
|
Impact
on equity
|
676 | ||||
Regarding
the devaluation of the Venezuelan Bolivar fuerte on January 8, 2010 (see Note 2
to our Consolidated Financial Statements), the two main factors to consider with
respect to the Telefónica Group’s 2010 financial statements will
be:
|
|
·
|
The
decrease in the Telefónica Group’s net assets in Venezuela as a result of
the new exchange rate, with a balancing entry in equity of the
Group. This effect is estimated at approximately €1,810
million.
|
|
|
·
|
The
translation of results and cash flows from Venezuela at the new devalued
closing exchange rate.
|
Finally,
on January 19, 2010, the Venezuelan Authorities announced that they would grant
a preferential rate of 2.60 Bolivar fuerte per dollar for new items, among which
payment of dividends is included, as long as the request for Authorization of
Acquisition of Foreign Exchange was filed before January 8, 2010. To
that date, we had in fact requested authorizations related to the distribution
of dividends of prior years (see Note 16 to our Consolidated Financial
Statements).
Tax
amortization of goodwill
In
December 2007, the European Commission opened an investigation involving the
Kingdom of Spain relating to the potential consideration of the deduction for
tax amortization of financial goodwill arising on certain foreign shareholding
acquisitions as government aid under the provisions of article 12.5 of the
revised Spanish Income Tax Law (“TRLIS”). This investigation led to
widespread uncertainties regarding the effect any decision by the European
Commission would have on, among others, the Telefónica Group.
In the
case of the Telefónica Group, as a result of this uncertainty we deemed it
necessary to recognize a liability as the deduction had been applied in the
consolidated financial statements pending completion of the
investigation.
In
December 2009, the European Commission released its decision regarding the
investigation, deeming the deduction as state aid. However, this
decision does not affect investments made before December 21, 2007, which is the
case with the investments made by the Telefónica Group in companies such as
O2, Bellsouth’s Latin America operators, Colombia Telecomunicaciones, S.A. ESP
and Cesky Telecom. As a result of this decision, and considering the
corporate structure of these investments, income tax in our consolidated income
statement for the year ended December 31, 2009 is €591 million lower due to the
reversal of this liability.
Share
exchange between Telefónica, S.A. and China Unicom Limited, and signing of
strategic alliance.
On
October 21, 2009, pursuant to our previously described strategic alliance
agreement with China Unicom, we exchanged 40,730,735 of our shares for
693,912,264 newly issued shares of China Unicom. As a result of this
exchange, our voting interest in the share capital of China Unicom increased
from 5.38% to 8.06%, and China Unicom has a 0.87% voting interest in our share
capital at that date. As of the date of this Annual Report, and after
the capital reduction carried out by China Unicom, we hold shares representing
8.37% of China Unicom’s voting share capital and the right to appoint a member
to its board of directors.
As a
result, our investment in China Unicom is now accounted for using the equity
method. The cumulative amount of this investment at December 31, 2009
was €2,301 million.
Tender
offer for all the remaining outstanding shares of Compañía de Telecomunicaciones
de Chile, S.A.
On
September 17, 2008, we launched a tender offer through our subsidiary Telefónica
Internacional to acquire all the outstanding shares of CTC that we did not
already control directly or indirectly, amounting to 55.1% of CTC’s share
capital.
Once the
acceptance period had ended and the transaction had been settled on October 30,
2008 our indirect ownership in CTC increased from 44.9% to
96.75%. This is the percentage that appears as the percentage of
ownership as of December 31, 2008 in the accompanying Consolidated Financial
Statements.
Subsequently,
pursuant to Chilean law, on December 1, 2008, Telefónica Internacional launched
a new tender offer for all the shares of CTC that it did not own directly or
indirectly after settlement of the first offer, on the same economic
terms. The acceptance period for the second offer ended December 31,
2008, but was then extended to January 6, 2009, as allowed by Chilean
law.
Upon the
end of the acceptance period of the second tender offer, our indirect ownership
percentage in CTC’s share capital had increased from 96.75% of all CTC’s
outstanding shares, as reached in the first tender offer, to
97.89%. The total payment for the two tranches was 558.55 million
Chilean pesos, equivalent to approximately €658 million.
Sale
of shareholding in Airwave O2, Ltd.
In April
2007, Telefónica O2 Europe, Plc, our wholly-owned subsidiary, sold 100% of the
share capital of the UK company, Airwave O2, Ltd, for £1,932 million (equivalent
to €2,841 million at the transaction date). The sale produced a gain
of €1,296 million, recognized under “Other income” in our consolidated income
statement for 2007. See Note 19 to our Consolidated Financial
Statements.
Sale
of shareholding in Endemol Investment Holding, B.V.
In May
2007, we signed an agreement to sell our 99.7% stake in the Dutch company
Endemol Investment Holding, B.V. to a consortium owned by Mediacinco Cartera,
S.L., Cyrte Fond II, B.V. and G.S. Capital Partners VI Fund, L.P, for €2,629
million. The transaction was completed on July 3, 2007, producing a
gain of €1,368 million, recognized under “Other income” in our consolidated
income statement for 2007. See Note 19 to our Consolidated Financial
Statements.
Acquisition
of indirect shareholding in Telecom Italia
On April
28, 2007, we, together with our partners Assicurazioni Generali, S.p.A., Intesa
Sanpaolo, S.p.A., Mediobanca, S.p.A. and Sintonía, S.A., entered into a
co-investment agreement and shareholders’ agreement which established the terms
and conditions of our acquisition of an indirect shareholding in Telecom Italia
through an Italian company, Telco, in which we have a 42.3%
interest. Both agreements were modified on October 25, 2007 to
include the Assicurazioni Generali Group companies, and the shareholders’
agreement was further amended on November 19, 2007.
On
October 25, 2007 Telco acquired 100% of Olimpia, S.p.A., which held 18% of the
voting shares of Telecom Italia. Also on that date, Assicurazioni Generali
S.p.A. (together with its group companies Alleanza Assicurazioni S.p.A., INA
Assitalia S.p.A., Volksfürsorge Deutsche Lebenversicherung A.G. and Generali Vie
S.A.) and Mediobanca S.p.A. contributed an aggregate of 5.6% of Telecom Italia’s
voting shares to Telco.
On
December 10, 2007, an agreement was reached to merge Olimpia, S.p.A. into Telco,
as a result of which Telco’s entire stake in the voting shares of Telecom Italia
(23.6%) became a direct stake.
In March
2008, Telco acquired an additional 121.5 million shares of Telecom Italia
(representing 0.9% of its share capital), bringing its ownership to 24.5% of the
voting rights and 16.9% of the dividend rights. As a result, we
indirectly hold 10.49% of Telecom Italia voting rights and 7.21% of its dividend
rights. We account for our investment in Telco using the equity
method.
On
December 22, 2009, Telco and Sintonia completed (i) the acquisition in cash by
Sintonia of the Telecom Italia shares held by Telco attributable to it on a pro
rata basis (approximately 275.1 million Telecom Italia ordinary shares, equal to
2.06% of the ordinary share capital) at a price of €2.2 per share, a total
purchase price of approximately €605 million; and (ii) the acquisition by Telco
of Sintonia’s entire shareholding in Telco (approximately 162.8 million class A
shares, equal to 8.39% of Telco’s share capital). For additional
information on this acquisition see Note 2 to our Consolidated Financial
Statements and “Item 10. Additional Information—Material
Contracts”.
Significant
Changes in Accounting Policies
The
accounting policies applied in the preparation of our consolidated annual
financial statements as of and for the year ended December 31, 2009 are
consistent with those used in the preparation of our consolidated annual
financial statements as of and for the year ended December 31, 2008, except for
the adoption of new standards, amendments to standards and interpretations
published by the International Accounting Standards Board (IASB) and the IFRIC
(International Financial Reporting Interpretations Committee), effective as of
January 1, 2009, noted below.
Amendment
to IAS 23: Borrowing Costs
The
amendment consists of the elimination of the possibility to immediately
recognize in profit or loss the borrowing costs related to the production or
development of qualifying assets. This amendment has had no impact on the
accounting policies applied by us.
Amendment
to IAS 1: Presentation of Financial Statements: A Revised
Presentation
The
revised standard separates owner from non-owner changes in equity. The statement
of changes in equity includes only details of transactions with owners, with
non-owner changes presented as a single line item. In addition, the standard
introduces the “statement of comprehensive income”, which can be presented in
one single statement or in two linked statements. We elected to present two
statements. This change is not mandatory, but we have decided to use the
proposed titles, which are:
|
|
·
|
“statement
of financial position”, instead of “balance
sheet”
|
|
|
·
|
income
statement
|
|
|
·
|
“statement of comprehensive
income”, instead of “statement of recognized income and
expense”
|
|
|
·
|
“statement
of changes in equity” instead of “movements in
equity”
|
|
|
·
|
“statement
of cash flows” instead of “cash flow
statement”
|
Amendment
to IFRS 2: Share-based Payment: Vesting Conditions and
Cancellations
This
amendment clarifies the definition of vesting conditions and prescribes the
accounting treatment of an award that is cancelled because a non-vesting
condition is not met. The adoption of this amendment did not have any impact on
our financial position or performance.
Amendments
to IAS 32 and IAS 1: Presentation of Financial Statements — Puttable Financial
Instruments and Obligations Arising on Liquidation
These
amendments include a limited scope exemption for puttable financial instruments
to be classified as equity if they fulfill specified criteria. The adoption of these amendments did not
have any impact on our financial position or performance.
Improvements
to IFRSs (issued by the IASB in May 2008)
These
improvements establish a broad range of amendments to current IFRSs with the
primary aim of removing inconsistencies and clarifying wording. These amendments
have not had any impact on our
financial position or performance.
Amendments
to IFRS 7: Financial Instruments: Disclosures
This
amendment enhances the disclosures required about fair value measurements and
liquidity risk. The amendment requires the classification of fair value
measurements using a three-level hierarchy that reflects the significance of the
inputs used in making the measurement, as well as the disclosure of any eventual
change in valuation techniques and the reasons for making such change. These
amendments have not had any impact on our financial position or
performance.
Amendments
to IFRIC 9 and IAS 39: Embedded derivatives
These
amendments clarify the impact that a reclassification of a financial asset out
of the fair value through
profit or loss category has on the assessment of whether an embedded
derivative shall be separated from its host contract. Additionally, it prohibits
the reclassification when the embedded derivative is not subject to a separate
valuation upon the moment of reclassification of a hybrid contract out of the
aforementioned category. These amendments have not had any impact on our
financial position or performance.
IFRIC
12: Service Concession Arrangements
This
interpretation provides guidance on the accounting by operators for obligations
assumed and related rights acquired under service concession arrangements. The
adoption of this interpretation did not have any impact on our financial
position or performance.
IFRIC
13: Customer Loyalty Programs
This
interpretation establishes that entities that have programs which award points
or credits to their customers as the result of a commercial transaction, which
in the future will be redeemed for free or discounted products or services, must
treat these points as part of the commercial transaction that generates them. In
other words, it is a transaction with multiple components, comprising the sale
of the product or service itself and the sale of points or credits, therefore
such that a part of the amount earned must be allocated to the points awarded
and its recognition deferred until their redemption. The portion corresponding
to the points will be determined by reference to their fair value. The adoption
of this interpretation did not have a significant impact on our financial
position or performance.
IFRIC
15: Agreements for the Construction of Real Estate
This
interpretation refers to agreements for the construction of real estate and
addresses two related issues: (i) whether the construction of real estate is
within the scope of IAS 11, Construction Contracts, or IAS 18, Revenue and (ii)
when revenue from the construction of real estate should be recognized. The
adoption of this interpretation did not have any impact on our financial
position or performance.
IFRIC
16: Hedges of a Net Investment in a Foreign Operation
This
interpretation establishes the criteria for the recognition of hedges of a net
investment in foreign operations, including the foreign currency risks that
qualify for hedge accounting in the hedge of a net investment, where within the
group the hedging instruments can be held and how an entity should determine the
amount of foreign currency gain or loss relating to both the hedging instrument
and the hedged item that must be recognized in profit or loss on disposal of the
investment. The adoption of this interpretation did not have any impact on our
financial position or performance.
IFRIC
18: Transfers of Assets from Customers
This
interpretation applies to deliveries of assets from customers as of July 1,
2009. This interpretation establishes the criteria for accounting for
transactions in which an entity receives from a customer an item of property,
plant and equipment (or cash for their acquisition or construction) that the
entity must use either to connect the customer to a network and/or to provide
the customer with ongoing access to a supply of goods or services. The adoption
of this interpretation did not have any impact on our financial position or
performance.
In
addition to this, an amendment to IAS 39 concerning intersegment hedge
accounting included in the Improvements to IFRSs issued by the IASB in April
2009 is effective for annual periods beginning on or after January 1, 2009, but
is not endorsed by the European Union as of the date of publication of these
consolidated financial statements. This amendment clarifies that hedge
accounting not be applied to transactions between segments in accordance with
the principle in IAS 39, which does not allow hedge of intragroup transactions
in the consolidated financial statements. The application of this amendment
would not have had any impact on the 2009 consolidated financial
statements.
Finally,
the following IFRS and IFRIC interpretations were issued but not effective at
the date of preparation of our Consolidated Financial Statements:
|
Standards
and amendments
|
Mandatory
application:
annual
periods beginning
on
or after
|
|||
|
IFRS
9
|
Financial
Instruments
|
January
1, 2013
|
||
|
Revised
IFRS 3
|
Business
Combinations
|
July
1, 2009
|
||
|
Amendment
to IAS 27
|
Consolidated
and Separate Financial Statements
|
July
1, 2009
|
||
|
Improvements
to IFRS (April 2009)
|
January
1, 2010 (*)
|
|||
|
Revised
IAS 24
|
Related
Party Disclosures
|
January
1, 2011
|
||
|
Amendments
to IAS 39
|
Eligible
Hedged Items
|
July
1, 2009
|
||
|
Amendment
to IFRS 2
|
Group
Cash settled Share-based Payments
|
January
1, 2010
|
||
|
Amendment
to IFRS 1
|
Additional
Exemptions for First-time adopters
|
January
1, 2010
|
||
|
Amendments
to IAS 32
|
Classification
of Rights Issues
|
February
1, 2010
|
||
|
(*)
|
The
amendments to IFRS 2, IAS 38 (relating to intangible assets acquired in
business combinations) IFRIC 9 and IFRIC 16 are effective for all fiscal
years beginning July 1, 2009. There is no mandatory application date for
the additional guidance to the appendix of IAS 18 on the determination of
agent/principal because this appendix is not part of the
standard.
|
|
Interpretations
|
Mandatory
application:
annual
periods beginning
on
or after
|
|||
|
IFRIC
17
|
Distributions
of Non-cash Assets to Owners
|
July
1, 2009
|
||
|
IFRIC
19
|
Extinguishing
Financial Liabilities with Equity Instruments
|
July
1, 2010
|
||
|
Amendment
to IFRIC 14
|
The
limit of a Defined Benefit Asset, Minimum Funding Requirement and their
Interaction
|
January
1, 2011
|
We are
currently assessing the impact of the application of these standards, amendments
and interpretations. From
the analyses made, we estimate that their adoption will not have a significant
impact on our consolidated financial statements in the initial period of
application. However, the changes introduced by the revised IFRS 3
and amendments to IAS 27 will affect future acquisitions and transactions with
non-controlling interests carried out on or after January 1,
2010. The changes introduced by IFRS 9 will affect financial assets
and future transactions with financial assets carried out on or after January 1,
2013.
Critical
Accounting Policies and Estimates
The
preparation of financial statements in conformity with IFRS requires management
to make estimates and assumptions that affect the amounts reflected in the
Consolidated Financial Statements and accompanying notes. We base our
estimates on historical experience, where applicable, and other assumptions that
we believe are reasonable under the circumstances. Actual results may
differ from those estimates under different assumptions or
conditions.
We
consider an accounting estimate to be critical if:
|
|
·
|
it
requires us to make assumptions because information was not available at
the time or it included matters that were highly uncertain at the time we
were making our estimate; and
|
|
|
·
|
changes
in the estimate or different estimates that we could have selected may
have had a material impact on our financial condition or results of
operations.
|
The
various policies that are important to the portrayal of our financial condition,
results of operations and cash flows include:
|
|
·
|
accounting
for long-lived assets, including
goodwill;
|
|
|
·
|
deferred
taxes;
|
|
|
·
|
provisions;
and
|
|
|
·
|
revenue
recognition.
|
Accounting
for long-lived assets, including goodwill
Property,
plant and equipment and intangible assets, other than goodwill, are recorded at
acquisition cost. If such assets are acquired in a business combination, the
acquisition cost is the estimated fair value of the acquired property, plant and
equipment or intangible assets. Property, plant and equipment and
intangible assets with definite useful lives are depreciated or amortized on a
straight-line basis over their estimated useful lives.
Intangible
assets with indefinite useful lives are not amortized, but are, instead, subject
to an impairment test on a yearly basis and whenever there is an indication that
such assets may be impaired.
Accounting
for long-lived assets and intangible assets involves the use of estimates for
determining: (a) the fair value at the acquisition date in the case of such
assets acquired in a business combination, and (b) the useful lives of the
assets over which they are to be depreciated or amortized. We believe
that the estimates we make to determine an asset’s useful life are “critical
accounting estimates” because they require our management to make estimates
about technological evolution and competitive uses of assets.
When an
impairment in the carrying amount of an asset occurs, non-scheduled write-downs
are made. We perform impairment tests of identifiable intangible and
long-lived assets whenever there is reason to believe that the carrying value
may exceed the recoverable amount, which is the higher of the asset’s fair value
less costs to sell and its value in use. Furthermore, previously
recognized impairment losses may be reversed when changes in the estimates used
to determine the asset’s recoverable amount indicate that an impairment loss
recognized in prior periods no longer exists or may have decreased.
The
determination of whether the impairment of long-lived and intangible assets is
necessary involves the use of significant estimates and judgment that includes,
but is not limited to, the analysis of the cause of potential impairment in
value, the timing of such potential impairment and an estimate of the amount of
the impairment, which requires the estimation of the future expected cash flows,
discount rates and the fair value of the assets.
Specifically,
management has to make certain assumptions in respect of uncertain matters, such
as growth in revenues, changes in market prices, operating margins, and
technology developments and obsolescence, discontinuance of services and other
changes in circumstances that indicate the need to perform an impairment
test. Management’s estimates about technology and its future
development require significant judgment because the timing and nature of
technological advances are difficult to predict.
Goodwill
arises when the cost of a business combination exceeds the acquirer’s interest
in the net fair value of the identifiable assets acquired and liabilities and
contingent liabilities assumed. Goodwill is not amortized, but is,
instead, subject to an impairment test on a yearly basis and whenever there is
an indication that the goodwill may be impaired.
Non-scheduled
write-downs of goodwill are made when an impairment in the carrying amount of
goodwill occurs. We review, on a regular basis, the performance of
our cash-generating units. We compare the carrying amount of the
cash-generating unit to which the goodwill has been allocated with its
recoverable amount. The determination of the recoverable amount of
the cash-generating unit involves extensive use of estimates and significant
management judgment is involved. Methods commonly used by us for
valuations include discounted cash flow methods.
A
significant change in the facts and circumstances that we relied upon in making
our estimates may have a material impact on our operating results and financial
condition.
Deferred
taxes
Management
assesses the recoverability of deferred tax assets on the basis of estimates of
our future taxable profit. The recoverability of deferred tax assets
ultimately depends on our ability to generate sufficient taxable profit during
the periods in which the deferred tax assets are utilized. In making
this assessment, our management considers the scheduled reversal of deferred tax
liabilities, projected taxable profit and tax planning strategies.
This
assessment is carried out on the basis of internal projections, which are
updated to reflect our most recent operating trends. In accordance
with applicable accounting standards, a deferred tax asset must be recognized
for all deductible temporary differences and for the carry-forward of unused tax
credits and unused tax losses to the extent that it is probable that taxable
profit will be available against which the deductible temporary difference can
be utilized. Our current and deferred income taxes are impacted by
events and transactions arising in the normal course of business as well as in
connection with special and non-recurring items. Assessment of the
appropriate amount and classification of income taxes is dependent on several
factors, including estimates of the timing and realization of deferred tax
assets and the timing of income tax payments. Actual collections and
payments may materially differ from these estimates as a result of changes in
tax laws as well as unanticipated future transactions impacting our income tax
balances.
Provisions
Provisions
are recorded when, at the end of the period, we have a present obligation as a
result of past events, whose settlement requires an outflow of resources that is
considered probable and can be measured reliably. This obligation may
be legal or constructive, arising from, but not limited to, regulation,
contracts, common practice or public commitments, which have created a valid
expectation for third parties that we will assume certain
responsibilities. The amount recorded is the best estimation
performed by the management in respect of the expenditure that will be required
to settle the obligations, considering all the information available at the
closing date, including the advice of external experts, such as legal advisors
or consultants.
If we are
unable to reliably measure the obligation, no provision is recorded and
information is then presented in the notes to the Consolidated Financial
Statements.
Because
of the inherent uncertainties in this estimation, actual expenditures may be
different from the originally estimated amount recognized.
Revenue
recognition
Connection
fees
Revenues
from connection fees originated when customers connect to our network are
deferred over the average expected length of the customer
relationship.
The
expected customer relationship period is estimated based on recent historical
experience of customer churn rates. Significant changes in our
estimations may result in differences in the amount and timing of revenues
recognized.
Multiple-element
arrangements
Arrangements
involving the delivery of bundled products or services are assessed to determine
whether it is necessary to separate the arrangement into individual component
deliverables, each with its own revenue recognition criteria.
Revenue
relating to the bundled contract is allocated to the different deliverables
identified, based on their relative fair values (i.e., the fair value of each
individual component deliverables in relation to the total fair value of the
bundled deliverables). Given that the handsets and airtime are
price-sensitive and volatile in a competitive marketplace, the determination of
fair values in the mobile phone business is quite complex.
Additionally,
a significant change in the facts and circumstances upon which we based our fair
value estimates may have an impact on the allocation of revenue among the
different deliverables identified and, consequently, on future
revenues.
Operating
Environment
Our
results of operations are dependent, to a large extent, on the level of demand
for our services in the countries in which we operate. Demand for
services in those countries is affected by the performance of their respective
economies, including changes in gross domestic product, or GDP, inflation, or
CPI, external accounts and unemployment rates.
Operating
environment by country
Spain
In 2009,
Spanish GDP contracted by 3.6%, compared with a positive average annual growth
rate of 3.6% in the period 1998 through 2008. This slowdown was explained by a
strong deceleration of internal demand, both household consumption which
contracted at an annual rate of 5.0% during 2009 compared to average growth of
3.3% during the period 1998 through 2008, and investment which contracted at an
annual rate of 15.0% in 2009 compared to average annual growth of 3.4% during
the period 1998 through 2008. Inflation averaged -0.3% in 2009,
compared with 4.1% in 2008 and 2.8% in 2007. Despite the lower
average annual inflation rate, prices in 2009 experienced a high degree of
volatility through the year, reaching a minimum of -1.4% in July and increasing
up to 0.8% by the end of the year. The current account deficit for
2009 reached 5.6% of GDP, almost half the percentage in the prior two years
(9.5% of GDP in 2008 and 10.0% in 2007). This improvement was mostly
explained by the trade balance (imports fell significantly more than exports due
to the sharp slowdown in domestic demand). The unemployment rate
reached 18.8% at the end of the year, notably higher than the average rate of
13.9% in 2008 and 8.6% in 2007. The increase in the unemployment rate
was mostly explained by the poor employment performance during 2009; 1.2 million
jobs were lost, twice the number of 2008 (619,000) and a reversal
from 2007 when 475,000 jobs were created in Spain.
United
Kingdom
In 2009,
the British economy, measured in terms of GDP, contracted by 4.8%, compared with
a positive growth rate of 0.6% in 2008 and 2.6% in 2007. A sharp
slowdown in domestic demand in 2009 explained the negative GDP
growth. In addition, during 2009, fixed capital investment contracted
at an annual rate of 14.6%, compared to a contraction of 3.5% in 2008 and growth
of 7.9% in 2007. Private consumption deteriorated less severely,
falling at an annual rate of 3.1% in 2009, compared with a positive annual
growth rate of 0.9% in 2008 and 2.1% in 2007. The CPI increased by an
average annual growth rate of 2.2% in 2009, compared with 3.6% in 2008 and 2.3%
in 2007. The deceleration in the rate of average annual CPI growth
was partially explained a temporary VAT reduction of 2.5 percentage points (from
17.5% to 15.0%) and worsening consumer demand. During the first ten
months of 2009, employment decreased at an annual rate of 1.6%, compared to an
annual increase of 0.7% in both 2008 and 2007 (Labor Force
Survey). As a result, the unemployment rate reached 7.8% in December
2009, compared to an average annual rate of 5.7% in 2008 and 5.3% in
2007.
Germany
In 2009,
the German economy contracted 5.0%, after growing 1.3% in 2008 and 2.5% in 2007.
This significant slowdown was due to a contraction in fixed
income investment of 8.6% in 2009, and the negative contribution of the
external sector to GDP growth (exports decreased 14.6% while imports contracted
just 8.9%). Because of this, the current account balance declined to 4.2% of GDP
in 2009, from 6.6% of GDP in 2008 and 8.0% of GDP in 2007. Inflation averaged
0.3% in 2009, which was significantly less than the average in 2008
and 2007 (2.6% and 2.3%, respectively) At the end of 2009, inflation stood
at 0.8%. During 2009, the unemployment rate stood at 8.2%, slightly higher than
the rate in 2008 (7.8%) but not reaching 2007 levels (9.0%). However, in 2009,
186,000 jobs were lost, compared to a positive job creation of 296,000 in 2008
and 591,000 in 2007.
Czech
Republic
The Czech
economy contracted by 4.1% in 2009 as opposed to growth of 2.5% in 2008 and 6.1%
in 2007. Internal demand in 2009 underperformed with respect to
previous years mainly due to investment, which decreased by 8.3% in 2009
compared to a decrease of 1.5% in 2008 and growth of 10.8% in
2007. Household consumption contracted 0.1% in 2009, compared to
growth of 3.5% and 4.9% in 2008 and 2007, respectively. Inflation, as
measured by the CPI, grew 1% in December 2009 compared to December 2008, well
below the Central Bank objective (2%) and well below the 6.3% and 2.9% levels
reached in 2008 and 2007, respectively. The current account had a
€1.5 billion deficit for 2009, higher than the €1 billion deficit recorded in
2008 but lower than the €4 billion deficit of 2007. However, net
foreign direct investment was clearly lower than in past
years. During 2009, net foreign direct investment decreased 35% with
respect to 2008 (€1 billion in 2009 compared to €1.5 million in
2008). The increase in global risk aversion negatively affected the
Czech crown, with the average Czech crown to euro exchange rate for 2009
depreciating by 6% against the euro in 2009, contrasting with a 10.1%
appreciation in 2008 and 2.1% in 2007.
Brazil
Brazil’s
2009 GDP was negatively affected by the economic downturn, which began in the
last quarter of 2008. As expected by economic forecasters surveyed by
Focus Economics, positive quarterly growth in GDP since the second quarter of
2009 did not compensate for the contraction in the previous
quarters. As a result, Brazilian GDP decreased 0.2% in 2009, after
posting growth of 5.1% in 2008 and 6.1% in 2007. The same forecasters
expect the expansion of private consumption in 2009 to be 3.0%, less
then half of the 7.0% growth rate reached in 2008 and the 6.3% recorded in
2007. Investment decreased by 9.9% in 2009, after rising by 13.4% in
the previous year and 13.9% in 2007. Inflation, as measured by the CPI, slowed
down to an increase of 4.3% in 2009, below the inflation target established by
the Central Bank, of 4.5%, and lower than the 5.9% posted in 2008 and 4.5% in
2007. Due to the deceleration of economic activity and inflation, the
basic interest rate, the SELIC, was reduced from 13.75% to 8.75%. The
current account deficit reached $24.3 billion in 2009, compared to $28.2 billion
in 2008 and a surplus of $1.6 billion in 2007. This deficit in 2009
was financed by capital inflows, such as foreign direct investments of $25.9
billion and portfolio investments of $46.7 billion. As a consequence,
international reserves rose by $32.2 billion in 2009, to a record level of
$239.1 billion. The improvement in domestic economic data, along with
increased liquidity in the international capital markets, led to a decrease in
country risk. The J.P. Morgan Emerging
Markets
Bond Index Plus (EMBI + Brazil) ended 2009 at 197 basis points, from 428 basis
points at the end of 2008 and 221 basis points at the end of 2007. As
the risk reduced and capital inflows gained strength, the exchange rate
restarted its appreciation trend, as observed since 2004. The
Brazilian real appreciated against the U.S. dollar by 25.6% in 2009,
reaching an exchange rate of R$1.74/ $1.00 on December 31, 2009, from R$2.34 per
$1.00 by the end of 2008 and R$1.77 per $1.00 at the end of 2007.
Mexico
Mexico’s
real GDP shrank 6.5% in 2009 compared to a previous growth of 1.4% in 2008 and
3.3% in 2007. Inflation, as measured by the CPI, grew 3.6% in
December 2009 compared to December 2008, slightly above the central bank’s
target of 3% but within its tolerance range of 2% to 4%. Inflation
was highly reduced with respect to 2008 (6.5% growth in December 2008 with
respect to December 2007) due to a fall in agricultural prices and to the
introduction of fuel subsidies by the government during 2009. Mexico
has been the country with the most severe contraction in Latin America,
suffering from its high exposure to the U.S. economy and from the swine flu
epidemic that reduced tourism and the already declining capital
inflows. However, this recession differs from previous ones in that
Mexico has been better prepared, having sound macroeconomic fundamentals
including a solvent fiscal position, a floating exchange rate system and an
independent central bank committed to price stability. Moreover, the
lines provided by the U.S. Federal Reserve and the International Monetary Fund,
or IMF, contributed to greater financial resilience. Despite the
harsh economic downturn, the second half of 2009 was promising. The
Mexican economy, in terms of GDP, grew 2.9% quarter-on-quarter during the third
quarter of 2009 and 2.0% quarter-on-quarter during the fourth quarter of
2009. The trade balance posted a deficit of $4.7 billion, $12.9
billion lower than in 2008 due to a higher fall in imports as a consequence of
the internal demand collapse. These external imbalances were well
financed by capital inflows, which grew in the last quarter, and international
reserves held by the central bank reached a new record of $90.9 billion in 2009
(amounting to 10.2% of GDP). The exchange rate relative to the U.S. dollar
reached a maximum in March 2009 of 15.56 Mexican pesos to the U.S. dollar, a
level never seen before. However, from that moment the exchange rate
relative to the U.S. dollar appreciated. It closed at 13.06 Mexican
pesos to the U.S. dollar at the end of 2009, 4.3% more compared to the end of
2008 but 20% less with respect to the end of 2007.
Venezuela
The
Venezuelan economy reversed from the positive results demonstrated during the
previous five years. In 2009, GDP contracted approximately 3.3% as a
result of lower oil prices in the first part of the year and high
inflation. Both factors had a negative impact on private consumption,
which decreased by 3.2% in 2009, compared to growth of 7.1% in 2008 and 18.7% in
2007. The rest of the components of aggregate demand, also slowed
markedly below the figures recorded in 2008 and 2007. In 2009,
investment dropped 20.0% (growth of 2.5% in 2008 and 23.0% in 2007), public
consumption grew 2.3% (growth of 6.7% in 2008 and 6.1% in 2007), exports fell
12.9% (decreases of -2.7% in 2008 and -7.0% in 2007), and imports faced dramatic
contraction of 19.6% (growth of 3.8% in 2008 and 29.9% in 2007). In
terms of inflation, the national CPI rose to 25.1% in 2009, which represents a
lower figure in comparison with 30.9% in 2008 and 22.5% in 2007 (The national
CPI was created in 2008 and because of that, 2007 variation corresponded to
Caracas CPI); however, Venezuela continues with the highest levels of inflation
in Latin America. The unemployment rate reached 6.6% at the end of
2009, which was higher than the 6.1% observed in December 2008 and 6.2% in
December 2007, because of the fall in economic activity. The external
accounts suffered a negative impact as a result of lower oil prices, with the
current account surplus decreasing to $8.6 billion in 2009, in comparison with
$37.4 billion in 2008 and $18.1 billion in 2007. On the other side,
the capital account deficit reached $14.0 billion, which was lower than the
deficit in 2008 ($24.8 billion) and 2007 ($22.1 billion). This
performance generated a reduction in the central bank’s stock of international
reserves to $35.0 billion at the end of 2009. Finally, the parallel
exchange rate was 2.8 times over the official exchange rate, as a result of the
reduction imposed by CADIVI (the Venezuelan Commission for Currency
Administration) on hard currency disbursements during the year.
Chile
Due to
the international financial crisis, the Chilean economy, in terms of GDP,
contracted by an estimated 1.7% in 2009 compared to growth of 3.1% and 4.7% in
2008 and 2007, respectively. This contraction in 2009 is explained by
a 6.8% decrease in domestic demand, mainly caused by a 16.4% decrease in
investment and an
historical
reduction in inventories. Employment contracted by an average of 0.7% in 2009
resulting in an average unemployment rate of 9.7% (with a peak of 10.8% in the
first half of the year) compared to 7.7% and 7.0% in 2008
and 2007, respectively. In the worst phase of the recession, economic activity
plunged 5.1% year-on-year in April 2009. A $4 billion (2.8% of GDP)
stimulus program that included temporary tax cuts, cash bonuses, and employment
subsidies was implemented by fiscal authorities to avoid a further
decline. The Chilean central bank, on its side, cut its monetary rate
by 775 basis points down to 0.5% in an effort to ease local financial
conditions. Both, monetary and fiscal measures fueled activity in the
second half of 2009. Inflation, as measured by the CPI, which was the main
concern in previous years, dropped sharply and decreased by 1.4% compared to
2008, the first negative data in 75 years. Despite a reduction in
export volume, the trade balance had a surplus of $13.3 billion in 2009
(compared to $8.8 billion in 2008 and $23.6 billion in 2007), mostly explained
by the strong increase in cooper prices (a commodity that represents
approximately half of Chilean total exports) and a fall in imports (volume and
prices). The fears of a sudden stop of financial inflows receded
quickly as foreign direct investment net inflows for 2009 reached $4 billion, an
amount that, however, represents less than a half compared to $9.9 billion and
$9.6 billion in 2008 and 2007, respectively. At the end of 2009, the
nominal Chilean peso to U.S. dollar exchange rate was 506.7, an appreciation of
20% with respect to the exchange rate at the end of 2008 (629.1 pesos per U.S.
dollar), that was driven by copper prices, growing opportunities derived from
the strong recovery of shares and the fiscal funding needs (mostly satisfied
with dollar selling in the local market). For the first time since 2003, the
country had a public deficit of around 4.5% of GDP, mostly explained by the
countercyclical measures implemented to mitigate the recession as previously
mentioned. As a proof of its solid financial position the Chilean
government financed this deficit almost exclusively with savings, its sovereign
Economic and Social Stabilization Fund was reduced by an aggregate amount of $9
billion, from an initial balance of $20 billion.
Argentina
Argentina’s
GDP grew 0.9% in 2009 according to official statistics, although private
estimates suggest that GDP contracted 4.3% in the period. This data
contrasts with the average annual growth rates of approximately 8.5% achieved
during each of the six preceding years (from 2003 through 2008). The
Argentine peso depreciated 10.1% relative to the U.S. dollar, closing at 3.8
Argentine pesos per U.S. dollar at the end of 2009 compared to 3.45 Argentine
pesos per U.S. dollar at the end of 2008 and 3.15 Argentine pesos per U.S.
dollar at the end of 2007. The official CPI increased 7.7% in 2009
(compared to 7.2% in 2008 and 8.5% in 2007), although private entities estimate
that the true increase was 14.3%. The current account balance showed
a surplus of $11.3 billion in 2009, which is 60.5% and 52.9% higher compared to
2008 and 2007, respectively. The trade balance contributed
significantly to this result since imports decreased 31.9%, more than the 20.4%
decline in exports over the same period. Economic conditions also
affected unemployment, which increased to 8.4% at the end of 2009 from 7.3% at
the end of 2008 and 7.5% at the end of 2007.
Colombia
After the
deceleration in GDP growth in 2008 (2.5% year-on-year compared with 7.5%
year-on-year in 2007), in 2009 the Colombian economy entered into a recession as
a result of the global financial crisis, an upsurge in its trade deficit and
deterioration of neighboring economies. In particular, industry and
retail sales were especially affected. The unemployment rate averaged
12% in 2009, moderately higher than the average rate in the prior two years
(11.3% in 2008 and 11.2% in 2007). For 2009 analysts forecast GDP
growth near 0.1% which may be explained by a better than expected last
quarter. The incipient recovery is dependent upon a recovery in
consumer confidence, a strong decrease in the CPI year-on-year (which increases
real income), expansionary monetary policy implemented by the Colombian central
bank in 2009 and further decreases in imports to lower trade
imbalances. The current account deficit dropped from 2.8% of GDP in
2008 (same level in 2007) to 2.0% of GDP in 2009. During 2009, the Colombian
peso appreciated relative to the U.S. dollar by 8.9% compared to a depreciation
of 11.4% in 2008 and an appreciation of 10% in 2007. This
appreciation was supported by a smaller than expected decrease in foreign
investment (especially in the mining and oil sectors) and U.S. dollar inflows
from the central government and Ecopetrol. The deceleration in the
rate of annual CPI growth was partially explained by the weak aggregate demand
in 2009 compared to 2008. In addition, food and regulated sector
inflation moved prices below the low band of the Colombian central bank’s target
of 4.5%. Year-on-year CPI dropped from 7.7% for 2008 compared to 2007
to 2.0% for 2009 compared to 2008.
Peru
During
2009, the Peruvian economy, in terms of GDP, grew by 0.9% compared to 9.8% in
2008 and 8.9% in 2007, well-above the region’s results. The deceleration in GDP
growth was mainly driven by a fall in domestic demand of 2.9%, with a
significant decrease in private investment of 15.2%, while private consumption
grew at only 1.9%. However, the fiscal stimulus implemented by the
Peruvian government in 2009 contributed significantly to economic activity, with
government spending growing 16.5% in 2009. Consumer prices, as measured by the
CPI, increased by 0.3% in 2009, 0.7 percentage points below the lower limit of
the central bank’s target, compared with 6.7% in 2008 and 3.9% in 2007. The
fiscal deficit was 2.1% of GDP, compared to the surplus of 2.1% in 2008, and a
surplus of 3.1% in 2007, while net foreign direct investment decreased by 30%,
compared with a gain of 14% in 2008 and 56% in 2007. In the foreign exchange
market, the Peruvian nuevo sol appreciated 8% against the U.S. dollar in 2009,
reaching 2.89 Peruvian nuevo sol per U.S. dollar at the end of the year,
compared with a depreciation of 4.8% in 2008. Country risk, measured by the J.P.
Morgan Emerging Markets Bond Index (EMBI Peru), fell 344 basis points to 165
basis points in 2009, explained by a gradual decrease in risk aversion to
emerging markets, mainly in the first half of the year. Finally, Moody’s
Investors Service assigned investment grade status to Peruvian Long Term Foreign
Currency Debt (BBB-/outlook stable), due to solid macroeconomic fundamentals,
highlighted by sound public finances, financial markets dynamism, and a
reduction of external vulnerabilities.
Ecuador
Ecuador’s
real GDP growth reached approximately 0.98% in 2009, compared to the growth of
6.5% in 2008 and 2.5% in 2007, as a result of the underperformance of several
domestic demand components, primarily private consumption and investment.
Consumer prices, as measured by CPI, rose 4.3% in 2009 (8.8% in 2008 and 3.3% in
2007), explained by lower food and beverages prices. In the external sector, the
trade balance reached a deficit of $332 million in 2009, almost $1,240 million
less than the surplus 2008, mainly as a result of the sharp correction in oil
prices during the first half of 2009 and due to global economic slowdown, which
had a negative effect over the country’s non-oil exports. Ecuador’s non-oil
trade deficit grew by 34% to $4.9 billion in 2009 from $7.5 billion in 2008 and
$4.3 billion in 2007. Consequently, the dollarization regime under which the
country has operated since 2000 will likely be under stress during the beginning
of 2010 and for as long as the still uncertain external environment (volatility
in commodity prices and global economic weakness) affects Ecuador’s external and
fiscal accounts. During 2009, Ecuador lost $0.7 billion of its free disposable
international reserves. Nevertheless, Ecuador’s public finances have been
supported by an improvement in tax revenues, multilateral agencies’ loans and
bilateral investment agreements. Finally, country risk, measured by J.P. Morgan
Emerging Markets Bond Index (EMBI Ecuador), fell 3,962 points to 769 points
during 2009, due to an improvement in the country’s external net debt position
and to a gradual reduction in the risk aversion to emerging
markets.
Exchange
Rate Fluctuations
We
publish our Consolidated Financial Statements in euro. Because a
substantial portion of our assets, liabilities, revenues and profit are
denominated in currencies other than the euro, we are exposed to fluctuations in
the values of these currencies against the euro. Currency
fluctuations have had and may continue to have a material impact on our
financial condition, results of operations and cash flows.
We
estimate that in 2009 variations in currencies increased our consolidated cash
flows by approximately €269 million and decreased our consolidated revenues by
approximately 3.1%. Currency fluctuations can also have a significant
impact on our statement of financial position, particularly equity attributable
to equity holders of the parent, when translating the financial statements of
subsidiaries located outside the euro zone into euro. For example, in 2009
equity attributable to equity holders of the parent increased by €2,238 million
due to the translation of the financial statements of our foreign subsidiaries,
principally due to the appreciation of the Brazilian real and the pound sterling
relative to the euro, and the effect of the devaluation in
Venezuela.
We
estimate that in 2008 variations in currencies decreased our consolidated cash
flows by approximately €302 million and decreased our consolidated revenues by
approximately 3%. Currency fluctuations can also have a significant
impact on our statement of financial position, particularly equity attributable
to equity holders of the parent, when translating the financial statements of
subsidiaries located outside the euro zone into euro. For
example,
in 2008 equity attributable to equity holders of the parent decreased by €3,708
million due to the translation of the financial statements of our foreign
subsidiaries, principally due to the depreciation of the pound sterling and
Brazilian real relative to the euro.
We
estimate that in 2007 variations in currencies decreased our consolidated cash
flows by approximately €261 million and decreased our consolidated revenues by
approximately 1.2%. In addition, in 2007 equity attributable to
equity holders of the parent decreased by €1,427 million due to the translation
of the financial statements of our foreign subsidiaries, principally due to the
depreciation of the dollar and pound sterling relative to the euro and the
appreciation of the Brazilian real and the Czech crown relative to the
euro.
The table
below sets forth the average exchange rates against the euro of the dollar and
the key currencies that impacted our consolidated results of operations for the
periods indicated. Positive percentage changes represent a decline in
the value of the applicable currency relative to the euro, and negative
percentage changes represent increases in the value of the applicable currency
relative to the euro.
|
2007(1)
Average
|
2008(1)
Average
|
2009(1)
Average
|
%
change 2007
to
2008
Average
|
%
change 2008
to
2009
Average
|
|||||||||||||||||
|
Pound
Sterling
|
0.68 | 0.79 | 0.89 | 16.12 | % | 12.04 | % | ||||||||||||||
|
U.S.
Dollar
|
1.37 | 1.46 | 1.39 | 6.94 | % | (5.00 | )% | ||||||||||||||
|
Brazilian
Real
|
2.66 | 2.66 | 2.76 | (0.09 | )% | 3.68 | % | ||||||||||||||
|
Argentine
Peso
|
4.26 | 4.63 | 5.17 | 8.67 | % | 11.70 | % | ||||||||||||||
|
Peruvian
Nuevo Sol
|
4.28 | 4.29 | 4.18 | 0.29 | % | (2.56 | )% | ||||||||||||||
|
Chilean
Peso
|
714.64 | 758.73 | 775.80 | 6.15 | % | 2.25 | % | ||||||||||||||
|
Mexican
Peso
|
14.95 | 16.24 | 18.78 | 8.60 | % | 15.63 | % | ||||||||||||||
|
Venezuelan
Bolivar fuerte
|
2.94 | 3.15 | 2.99 | 6.98 | % | (5.00 | )% | ||||||||||||||
|
Czech
Crown
|
27.76 | 24.97 | 26.44 | (10.04 | )% | 5.87 | % | ||||||||||||||
|
Colombian
Peso
|
2,837.13 | 2,873.56 | 2,985.07 | 1.15 | % | 3.88 | % | ||||||||||||||
|
Guatemalan
Quetzal
|
10.50 | 11.07 | 11.33 | 5.40 | % | 2.37 | % | ||||||||||||||
Source:
Central treasury bank of the respective countries.
|
(1)
|
These
exchange rates are used to convert the income statements of our
subsidiaries from local currency to
euro.
|
In the
comparison below of our results of operations, we have provided certain
comparisons at constant exchange rates in order to present an analysis of the
development of our results of operations from year-to-year without the effects
of currency fluctuations. To make such comparisons, we have converted
into euro certain financial items for the relevant year using the prior year’s
average exchange rate. We refer to such comparisons as being made on
a “constant euro basis” or “excluding foreign exchange rate
effects”.
We also
make certain comparisons on a local currency basis. To make
comparisons on a local currency basis, we compare financial items in the
relevant local currency for the periods indicated as recorded in the relevant
local currency for such periods.
We
describe certain risks relating to exchange rate fluctuations in “Item 3. Key
Information—Risk Factors”, and we describe our policy with respect to limiting
our exposure to short-term fluctuations in exchange rates under “Item 11.
Quantitative and Qualitative Disclosures About Market Risk”.
Regulation
We are
subject to regulation in the different markets where we operate, particularly
with regard to the prices we can charge for certain of our goods and services in
certain jurisdictions as well as our need to comply with certain obligations,
which has a significant effect on our profitability. For more
information regarding regulation in the markets in which we operate, see “Item
4. Information on the Company—Business Overview—Regulation”.
Group
Results of Operations
A summary
of our results of operations for 2007, 2008 and 2009 and certain consolidated
revenue and expense items as a percentage of revenues for the periods indicated
is shown below.
|
Year
ended December 31,
|
|||||||||||||||||||||||||||
|
2007
|
2008
|
2009
|
|||||||||||||||||||||||||
|
Total
|
Percentage
of
revenues
|
Total
|
Percentage
of
revenues
|
Total
|
Percentage
of
revenues
|
||||||||||||||||||||||
|
(in
millions of euros, except percentage of revenues)
|
|||||||||||||||||||||||||||
|
Revenues
|
56,441 | 100.0 | % | 57,946 | 100.0 | % | 56,731 | 100.0 | % | ||||||||||||||||||
|
Other
income
|
4,264 | 7.6 | % | 1,865 | 3.2 | % | 1,645 | 2.9 | % | ||||||||||||||||||
|
Supplies
|
(17,907 | ) | (31.7 | )% | (17,818 | ) | (30.7 | )% | (16,717 | ) | (29.5 | )% | |||||||||||||||
|
Personnel
expenses
|
(7,893 | ) | (14.0 | )% | (6,762 | ) | (11.7 | )% | (6,775 | ) | (11.9 | )% | |||||||||||||||
|
Other
expenses
|
(12,081 | ) | (21.4 | )% | (12,312 | ) | (21.2 | )% | (12,281 | ) | (21.6 | )% | |||||||||||||||
|
Operating
income before depreciation and amortization (OIBDA)(1)
|
22,824 | 40.4 | % | 22,919 | 39.6 | % | 22,603 | 39.8 | % | ||||||||||||||||||
|
Depreciation
and amortization
|
(9,436 | ) | (16.7 | )% | (9,046 | ) | (15.6 | )% | (8,956 | ) | (15.8 | )% | |||||||||||||||
|
Operating
income
|
13,388 | 23.7 | % | 13,873 | 23.9 | % | 13,647 | 24.1 | % | ||||||||||||||||||
|
Share
of profit (loss) of associates
|
140 | 0.2 | % | (161 | ) | (0.3 | )% | 47 | 0.1 | % | |||||||||||||||||
|
Net
financial income (expense)
|
(2,844 | ) | (5.0 | )% | (2,797 | ) | (4.8 | )% | (3,307 | ) | (5.8 | )% | |||||||||||||||
|
Corporate
income tax
|
(1,565 | ) | (2.8 | )% | (3,089 | ) | (5.3 | )% | (2,450 | ) | (4.3 | )% | |||||||||||||||
|
Profit
for the year from continuing operations
|
9,119 | 16.2 | % | 7,826 | 13.5 | % | 7,937 | 14.0 | % | ||||||||||||||||||
|
Income
(loss) from discontinued operations
|
— | — | — | — | — | — | |||||||||||||||||||||
|
Profit
for the year
|
9,119 | 16.2 | % | 7,826 | 13.5 | % | 7,937 | 14.0 | % | ||||||||||||||||||
|
Non-controlling
interest
|
(213 | ) | (0.4 | %) | (234 | ) | (0.4 | )% | (161 | ) | (0.3 | )% | |||||||||||||||
|
Profit
for the year attributable to equity holders of the parent
company
|
8,906 | 15.8 | % | 7,592 | 13.1 | % | 7,776 | 13.7 | % | ||||||||||||||||||
|
(1)
|
For
a reconciliation of OIBDA to operating income, see “—Operating
Results—Presentation of Financial Information—Non-GAAP financial
information—Operating income before depreciation and
amortization”.
|
Overview
We
increased our customer base, measured in terms of total accesses, by 2.1% to
264.6 million accesses at December 31, 2009 from 259.1 million accesses at
December 31, 2008, which was a 13.3% increase from the 228.7 million accesses we
had at December 31, 2007. This growth from December 31, 2008 to
December 31, 2009 was primarily driven by a 3.3% increase in mobile
accesses, an 8.2% increase in broadband accesses and a 9.8% increase in pay TV
accesses, which more than offset our 5.4% loss of fixed telephony accesses and
28.5% loss of narrowband accesses as these technologies continue to be
substituted by customers for mobile and broadband technologies,
respectively. Growth in our total number of accesses from December
31, 2007 to December 31, 2008 was primarily driven by strong growth in mobile
and broadband accesses.
The
growth in our customer base in terms of accesses from December 31, 2008 to
December 31, 2009 under difficult economic circumstances did not, however,
result in a corresponding increase in revenues, which decreased 2.1% in 2009
compared to 2008. However, excluding foreign exchange rate effects
(i.e., by converting into euro relevant items for 2009 using 2008’s average
exchange rates) and the effects of Venezuela being considered a
hyperinflationary economy in 2009, revenues would have increased 0.3% in 2009
compared to 2008. In Spain and Europe, the competitive environment
remained intense and continued to put downward pressure on our tariff
structures, which resulted in revenue growth not keeping pace with access
growth. In addition, further downward pressure was placed on our
revenues from mobile accesses as a result of regulatory action in the European
Union and certain Latin American countries, which resulted in decreased
interconnection and roaming rates during the period. This decrease in
revenues led to a 1.4% decrease in OIBDA to €22,603 million in 2009 from €22,919
million 2008. Nonetheless, excluding foreign exchange rate effects and excluding
the effects of Venezuela being considered a hyperinflationary economy in 2009,
OIBDA would have increased 0.5% in 2009 compared to
2008.
Operating
income decreased 1.6% to €13,647 million in 2009 from €13,873 million in 2008,
while profit for the year attributable to equity holders of the parent company
increased 2.4% to €7,776 million in 2009 from €7,592 million in 2008 primarily
as a result of our share of profit of associates and lower corporate income tax
primarily related to the reversal of a tax liability.
At
December 31, 2008, our customer base, measured in terms of total accesses,
increased 13.3% to 259.1 million accesses from the 228.7 million accesses we had
at December 31, 2007. Growth in our total number of accesses from
December 31, 2007 to December 31, 2008 was primarily driven by strong growth in
mobile and broadband accesses. The strong growth in our customer base
from December 31, 2007 to December 31, 2008 under difficult economic
circumstances translated into a moderate increase of 2.7% in revenues in 2008
compared to 2007. Negative exchange rate effects resulted in a
reduction of our revenue growth by 3.0 percentage points. This modest
increase in revenues led to a small increase in OIBDA to €22,919 million in 2008
from €22,824 million in 2007, which amount in 2007 included non-recurring gains
on the sales of Airwave (€1,296 million) and Endemol (€1,368
million). Operating income rose 3.6% to €13,873 million in 2008 from
€13,388 million in 2007, while profit for the year attributable to equity
holders of the parent company decreased 14.8% to €7,592 million in 2008 from
€8,906 million in 2007. This decrease in profit for the year
attributable to equity holders of the parent company was primarily the result of
the inclusion in 2007 of non-recurring gains on the sales of Airwave and Endemol
and an increase in corporate income tax from €1,565 million in 2007 to €3,089
million in 2008.
By
geographic area, Telefónica Europe had the largest percentage increase in
accesses with an increase of 6.9% to 49.2 million accesses at December 31, 2009
from 46.1 million accesses at December 31, 2008, primarily driven by a 6.5%
increase in mobile accesses. Telefónica Latin America had the largest
percentage increase in accesses from December 31, 2007 to December 31, 2008,
with an increase of 18.0% to 158.3 million accesses at December 31, 2008 from
134.1 million accesses at December 31, 2007, primarily driven by strong growth
in its mobile business, increased broadband sales and an expanding pay TV
customer base.
By access
type, we increased mobile accesses by 3.3% to 202.3 million (excluding 9.0
million accesses of Medi Telecom, which we sold in December 2009) at December
31, 2009 from 195.8 million at December 31, 2008, which was a 16.7% increase
from the 167.8 million mobile accesses we had at December 31,
2007. Contributions to mobile net adds from December 31, 2008 to
December 31, 2009, by country, were led by Brazil (6.8 million additional mobile
accesses), Mexico (2.1 million additional mobile accesses), Germany (1.3 million
additional mobile accesses), Argentina (1.1 million additional mobile accesses)
and the United Kingdom (1.0 million additional mobile accesses). In the same
period, Colombia was the worst performer with negative mobile net adds of 1.0
million. Contributions to mobile net adds from December 31, 2007 to
December 31, 2008, by country, were also dominated by countries in Latin
America, with the highest growth in Brazil (7.5 million additional mobile
accesses, excluding mobile accesses of Telemig), Mexico (2.8 million additional
mobile accesses), and Peru (2.5 million additional mobile
accesses). In Europe, Germany was a strong contributor to the growth
in mobile accesses with 1.7 million additional mobile accesses from December 31,
2007 to December 31, 2008. We also increased broadband accesses by 8.2% to 13.5
million at December 31, 2009 from 12.5 million at December 31, 2008, which was a
20.9% increase from the 10.3 million broadband accesses we had at December 31,
2007. We increased our number of broadband accesses from December 31,
2007 to December 31, 2009 primarily as a result of robust demand for Duo and
Trio bundles, including broadband, pay TV and fixed telephony, which have made a
significant contribution to the development of the broadband market and to
increased customer loyalty. From December 31, 2008 to December 31,
2009, we increased broadband accesses by 4.4% in Spain to 5.5 million, by 5.9%
to 6.4 million in Latin America and by 37.1% to 1.6 million in
Europe. At December 31, 2009, in Spain 88% of our broadband accesses
were included in Duo or Trio bundles, while in Latin America the weight of
packaged products continued to grow, with 56% of broadband accesses bundled in
Duo and Trio bundles at the same date. This growth in broadband
accesses more than offset the continued decrease in narrowband accesses from 2.7
million accesses at December 31, 2007 to 2.0 million accesses at December 31,
2008 to 1.4 million accesses at December 31, 2009.
Finally,
we increased pay TV accesses by 9.8% to 2.5 million at December 31, 2009 from
2.3 million at December 31, 2008, which was a 29.7% increase from the 1.7
million pay TV accesses we had at December 31, 2007. The continued
growth in pay TV accesses from December 31, 2007 to December 31, 2009 was
primarily as a result of further market penetration in the areas in which this
service is available, which as of December 31, 2009,
included
Spain, the Czech Republic, Peru, Chile, Colombia, Brazil and Venezuela, and the
success of bundling this service with others.
The
inflation index reached in 2009, the cumulative inflation index over the last
three years, restrictions in the official foreign exchange market, and the
devaluation of the Bolivar fuerte on January 8, 2010, led us to consider
Venezuela a hyperinflationary economy for 2009. Such classification
had several effects on our Consolidated Financial Statements as explained in
more detail under “—Significant Factors Affecting the Comparability of our
Results of Operations in the Period Under Review—Classification of Venezuela as
a hyperinflationary economy” and Note 2 to our Consolidated Financial
Statements.
Year
ended December 31, 2009 compared to year ended December 31, 2008
Revenues
Revenues
decreased 2.1% to €56,731 million in 2009 compared to €57,946 million in
2008. Excluding foreign exchange rate effects and excluding the
effects of Venezuela being considered a hyperinflationary economy in 2009,
revenues would have increased 0.3% in 2009 compared to 2008.
By
geographic area, Telefónica Latin America contributed the greatest percentage to
our revenues in 2009, accounting for 40.5% of the total, which represents an
increase of 2.2 percentage points from 2008. Telefónica Spain
contributed 34.7% of our 2009 revenues (36.0% in 2008) and Telefónica Europe
contributed 23.9% (24.7% in 2008).
Other
income
Other
income decreased 11.8% to €1,645 million in 2009 compared to €1,865 million in
2008. Excluding foreign exchange rate effects and excluding the
effects of Venezuela being considered a hyperinflationary economy in 2009, other
income would have decreased 9.7% in 2009 compared to 2008. Other
income in 2009 included a €220 million gain on the sale of our stake in Medi
Telecom. In 2008, other income included a €143 million gain on the
sale of our stake in Sogecable.
Total
expenses
Total
expenses include supplies, personnel expenses and other expenses (mainly
external services and taxes). Total expenses do not include depreciation and
amortization.
Our total
expenses decreased 3.0% to €35,773 million in 2009 compared to €36,892 million
in 2008. Excluding foreign exchange rate effects and excluding the
effects of Venezuela being considered a hyperinflationary economy in 2009, total
expenses would have decreased 0.4% in 2009 compared to 2008.
Supplies. Supplies
decreased 6.2% to €16,717 million in 2009 compared to €17,818 million in
2008. Excluding foreign exchange rate effects and excluding the
effects of Venezuela being considered a hyperinflationary economy in 2009,
supplies would have decreased 3.1% from 2008 to 2009. This decrease
is primarily due to lower interconnection costs associated with lower
fixed-mobile traffic and the reduction of mobile termination rates.
Personnel
expenses. Personnel expenses increased 0.2% to €6,775 million
in 2009 compared to €6,762 million in 2008. Excluding foreign
exchange rate effects and excluding the effects of Venezuela being considered a
hyperinflationary economy in 2009, personnel expenses would have increased 2.7%
from 2008 to 2009. This increase was primarily due to increases in
our work force and wages over the period. The average workforce during 2009
reached 255,151 employees, with a net increase of 3,376 employees compared to
2008, mainly due to the workforce increases within Atento. Excluding
employees of Atento, our average number of employees in 2009 would have
increased by 381 employees to 125,266 employees compared to 2008.
Other
expenses. Other expenses are mainly comprised of external
services, which consist of commercial expenses related to our business (such as
commissions to distributors of services, marketing and advertising expenses and
customer service related expenses), network maintenance expenses, general
administrative expenses and subcontracted services expenses, as well as certain
types of taxes. Other expenses also include changes in
operating
allowances and other operating expenses. Other expenses decreased
0.2% to €12,281 million in 2009 from €12,312 million in 2008. Excluding foreign
exchange rate effects and excluding the effects of Venezuela being considered a
hyperinflationary economy in 2009, other expenses would have increased 2.0% in
2009 compared to 2008. This increase was principally driven by higher customer,
network and IT management expenses in Telefónica Latin America.
Operating
income before depreciation and amortization (OIBDA)
As a
result of the foregoing, our OIBDA decreased 1.4% to €22,603 million in 2009
compared to €22,919 million in 2008. Excluding foreign exchange rate
effects and excluding the effects of Venezuela being considered a
hyperinflationary economy in 2009, OIBDA would have increased 0.5% from 2008 to
2009.
Of our
2009 OIBDA, Telefónica Spain contributed 43.2% (44.9% in 2008), while Telefónica
Latin America and Telefónica Europe contributed 40.5% (36.8% in 2008) and 17.3%
(18.2% in 2008), respectively.
Our OIBDA
margin increased to 39.8% in 2009 compared to 39.6% in 2008. For a
reconciliation of OIBDA to operating income, see “—Presentation of Financial
Information—Non-GAAP financial information—Operating income before depreciation
and amortization”.
Depreciation
and amortization
Our
depreciation and amortization decreased 1.0% to €8,956 million in 2009 compared
to €9,046 million in 2008. Excluding foreign exchange rate effects
and excluding the effects of Venezuela being considered a hyperinflationary
economy in 2009, depreciation and amortization would have increased 1.3% from
2008 to 2009, principally driven by Telefónica Latin America and Telefónica
Europe depreciation and amortization increases. Telefónica Europe
depreciation and amortization in 2009 includes the amortization of the purchase
price allocation made following the acquisitions of the O2 Group (€635 million
in 2009 compared to €689 million in 2008) and Telefónica O2 Czech Republic (€89
million in 2009 compared to €131 million in 2008).
Operating
income
As a
result of the foregoing, our operating income decreased 1.6% to €13,647 million
in 2009 from €13,873 million in 2008. Excluding foreign exchange rate
effects and excluding the effects of Venezuela being considered a
hyperinflationary economy in 2009, operating income would have remained constant
in 2009 compared to 2008.
Share
of profit (loss) of associates
Our share
of profit (loss) of associates amounted to a gain of €47 million in 2009
compared to a loss of €161 million in 2008, primarily as a result of share of
profits we recorded in respect to our interest in Portugal Telecom and lower
share of loss we recorded in respect to our interest in Telco. In
2008, the loss in our share of profit (loss) of associates was primarily the
result of the net adjustment Telco made to the valuation of its investment in
Telecom Italia. To estimate the adjustment to be recorded by the
Telefónica Group, we took the value of the estimated synergies that we expected
to achieve by improving certain processes in our operations in Europe as a
result of certain alliances reached with Telecom Italia. As a result
of this revaluation, we recorded a loss of €209 million in 2008, which more than
offset the share of profits we recorded in respect of our interest in
Portugal Telecom in that year.
Net
financial income (expense)
Net
financial expense increased 18.2% to €3,307 million in 2009 compared to €2,797
million in 2008. The average cost of net debt of the Group, which we
measure as net financial expense divided by our average net debt, was 7.3% in
2009 compared to 5.95% in 2008. The effects derived
from the consideration of Venezuela as a hyperinflationary economy as
described in “Item 5. Operating and Financial Review and Prospects—A.
Operating Results—Significant Factors Affecting the Comparability of our
Results of Operations in the Periods Under Review—Classification of
Venezuela as a Hyper inflationary Economy”, resulted in an increase in net
financial expense of €630 million in 2009. Excluding such
effects in 2009 and the negative
exchange
differences, our average cost of net debt in 2009 would have been 5.54% and net
financial expense would have decreased 4.3% in 2009 compared to 2008 primarily
as a result of:
|
|
·
|
A
decrease of €298 million in 2009 compared to 2008 due to a decrease in the
average interest rates applicable to our outstanding debt (mainly in
European currencies) over the
period.
|
|
|
·
|
A
decrease of €104 million in 2009 compared to 2008 due to a 3.7% decrease
in our average debt outstanding over the
period.
|
|
|
·
|
A
decrease of €85 million in 2009 compared to 2008 as a result of a decrease
in the actual value of commitments (principally related to pre-retirement
plans).
|
|
|
·
|
Changes
in the foreign exchange gains and losses for 2009 with respect to the same
period in 2008 yielded a higher cost of about €197
million.
|
Corporate
income tax
Corporate
income tax decreased to €2,450 million in 2009 compared to €3,089 million in
2008, implying an effective tax rate of 23.6% compared to 28.3% in
2008. This decrease was primarily the result of the reversal of a
€591 million tax liability recorded in 2007 with respect to an investigation by
the European Commission involving the Kingdom of Spain with respect to the tax
treatment of goodwill. In December 2009, the European Commission
released its decision regarding the investigation, deeming certain deductions
for the amortization of goodwill as state aid. However, this decision
(and considering the corporate structure of these investments) did not apply to
investments made before December 21, 2007, such as our investments in O2,
BellSouth’s Latin American operators, Colombia Telecomunicaciones, ESP and
Telefónica O2 Czech Republic.
Non-controlling
interests
Our
non-controlling interests amounted to a negative figure of €161 million in 2009
compared to a negative figure of €234 million in 2008, primarily as a result of
lower profits at Telesp and Telefónica Chile and higher loss at Colombia
Telecom, which we account for as non-controlling interests.
Profit
for the year attributable to equity holders of the parent company
As a
result of the above, our profit for the year attributable to equity holders of
the parent company increased 2.4% to €7,776 million in 2009 compared to €7,592
million in 2008.
Results
of Operations by Business Area for 2008 and 2009
The table
below sets forth the contribution to our results of operations by each of our
three principal business areas and other companies for 2008 and
2009. Revenues and related expenses for each of the business areas
are presented after elimination of sales to other members of the Telefónica
Group belonging to the same business area. See Note 4 to our
Consolidated Financial Statements.
|
Year
ended December 31,
|
|||||||||||||
|
2008
|
2009
|
%
Change
|
|||||||||||
|
(in
millions of euros)
|
|||||||||||||
|
Revenues
|
57,946 | 56,731 | (2.1 | )% | |||||||||
|
Telefónica
Spain
|
20,838 | 19,703 | (5.4 | )% | |||||||||
|
Telefónica
Europe
|
14,309 | 13,533 | (5.4 | )% | |||||||||
|
Telefónica
Latin America
|
22,174 | 22,983 | 3.6 | % | |||||||||
|
Other
companies & eliminations
|
625 | 512 | (18.1 | )% | |||||||||
|
Other
income
|
1,865 | 1,645 | (11.8 | )% | |||||||||
|
Telefónica
Spain
|
348 | 497 | 42.8 | % | |||||||||
|
Telefónica
Europe
|
395 | 234 | (40.8 | )% | |||||||||
|
Telefónica
Latin America
|
609 | 646 | 6.1 | % | |||||||||
|
Other
companies & eliminations
|
513 | 268 | (47.8 | )% | |||||||||
|
Expenses(1)
|
(36,892 | ) | (35,773 | ) | (3.0 | )% | |||||||
|
Telefónica
Spain
|
(10,901 | ) | (10,443 | ) | (4.2 | )% | |||||||
|
Telefónica
Europe
|
(10,524 | ) | (9,857 | ) | (6.3 | )% | |||||||
|
Telefónica
Latin America
|
(14,338 | ) | (14,486 | ) | 1.0 | % | |||||||
|
Other
companies & eliminations
|
(1,129 | ) | (987 | ) | (12.6 | )% | |||||||
|
Depreciation
and amortization
|
(9,046 | ) | (8,956 | ) | (1.0 | )% | |||||||
|
Telefónica
Spain
|
(2,239 | ) | (2,140 | ) | (4.4 | )% | |||||||
|
Telefónica
Europe
|
(3,035 | ) | (2,895 | ) | (4.6 | )% | |||||||
|
Telefónica
Latin America
|
(3,645 | ) | (3,793 | ) | 4.1 | % | |||||||
|
Other
companies & eliminations
|
(127 | ) | (128 | ) | 0.8 | % | |||||||
|
Operating
income
|
13,873 | 13,647 | (1.6 | )% | |||||||||
|
Telefónica
Spain
|
8,046 | 7,617 | (5.3 | )% | |||||||||
|
Telefónica
Europe
|
1,145 | 1,015 | (11.4 | )% | |||||||||
|
Telefónica
Latin America
|
4,800 | 5,350 | 11.5 | % | |||||||||
|
Other
companies & eliminations
|
(118 | ) | (335 | ) | — | ||||||||
|
(1)
|
Expenses
as used in this table and in the below discussion include supplies
expenses, personnel expenses and other expenses. It does not include
depreciation and amortization.
|
In the
discussion that follows revenues and related expenses for each business included
within a particular business area are presented gross of any eliminations due to
sales to other businesses in such business area or other members of the
Telefónica Group.
Results
of Operations by Business Area for 2008 and 2009
Telefónica
Spain
Revenues
Telefónica
Spain’s revenues decreased 5.4% to €19,703 million in 2009 from €20,838 million
in 2008.
Revenues
from Telefónica Spain’s fixed business decreased 3.3% to €12,167 million in 2009
from €12,581 million in 2008 principally due to the decrease in the revenues of
traditional voice service and accesses.
|
|
·
|
Revenues
from traditional accesses include all revenues from our customers for
rental and connection to public switched telephone network (PSTN) lines
(for basic telephony service), ISDN lines (for integration of voice, data
and video services), corporate services, PUT, additional recharges and
advertising in
|
102
|
|
|
telephone
booths. Revenues from traditional accesses decreased 5.2% to
€2,792 million in 2009 compared to €2,944 million in 2008, as a result of
the reduction in the number of accesses which was partially offset by
revenues derived from recognizing receipt of universal service for the
period 2006 to 2008 (€223
million).
|
|
|
·
|
Revenues
from traditional voice services decreased 10.2% to €3,983 million in 2009
compared to €4,436 million in 2008. This evolution is mainly
affected by lower fixed-to-mobile traffic, the decrease of international
traffic and the increasing importance of traffic included in national flat
tariff plans.
|
|
|
·
|
Revenues
from Internet and broadband services decreased 1.9% to €2,960 million in
2009 compared to €3,017 million in 2008. Retail broadband
service revenues decreased 1.7% in 2009 compared to 2008, due to a
reduction in the average revenue per customer that was not offset by
accesses growth. Wholesale broadband service revenues increased
3.3% in 2009 compared to 2008 reflecting growth in the customer base for
unbundled local loop in 2009.
|
|
|
·
|
Revenues
from data services grew 8.7% to €1,294 million in 2009 from €1,190 million
in 2008, driven by increased revenues from leased circuits to mobile
operators, mainly Telefónica Móviles España, as a result of the rapid
growth in mobile broadband.
|
|
|
·
|
Revenues
from information technology services grew 14.7% to €508 million in 2009
from €443 million in 2008.
|
Revenues
from Telefónica Spain’s mobile business decreased 7.4% to €8,965 million in 2009
from €9,684 million in 2008, due to lower minutes used by customers and lower
prices. Customer revenues decreased 5.4% to €6,571 million in 2009
from €6,943 million in 2008 due to lower usage
patterns. Interconnection revenues decreased 19.5% to €1,001 million
in 2009 from €1,243 million in 2008, due primarily to regulated interconnection
price cuts. Roaming-in revenues fell 22.8% to €153 million in 2009
from €198 million in 2008 due to the downward trend in roaming consumption and
wholesale prices. Revenues from handset sales decreased 7.3% to
€1,137 million from €1,227 million in 2008.
Expenses
Telefónica
Spain’s total expenses decreased 4.2% to €10,443 million in 2009 from €10,901
million in 2008 principally due to lower supplies expenses, as described
below.
|
|
·
|
Supplies
decreased 6.7% to €4,293 million in 2009 from €4,604 million in 2008,
mainly due to lower interconnection
expenses.
|
|
|
·
|
Personnel
expenses decreased 3.0% to €2,305 million in 2009 from €2,375 million in
2008, principally due to the revision of the estimates of redundancy
program provision accounts made in previous years, which resulted in lower
expenses of €90 million.
|
|
|
·
|
Other
expenses decreased 2.0% to €3,845 million in 2009 from €3,922 million in
2008, principally due to a 3.4% decrease in external expenses to €3,102
million in 2009 from €3,212 million in 2008, as a result of containment in
commercial expenses. This decrease was partially offset by an
increase in other expenses in 2009 due to expenses related to the
provision of universal service (€155
million).
|
In the
fixed business, total expenses decreased 3.4% to €6,567 million in 2009 from
€6,799 million in 2008 principally due to lower expenses across categories, as
described below.
|
|
·
|
Supplies
decreased 6.0% to €2,786 million in 2009 from €2,962 million in 2008
mainly due to lower interconnection expenses as a result of lower
fixed-to-mobile traffic usage and a reduction in mobile termination
rates.
|
|
|
·
|
Personnel
expenses decreased 0.9% to €2,052 million in 2009 from €2,071 million in
2008, mainly due to the revision of redundancy program provision accounts
made in previous years, which resulted in
lower
|
103
|
|
|
personnel
expenses of €58 million. The average number of employees for
the fixed business in 2009 was 31,111, a 0.4% reduction in comparison with
the average number of employees in
2008.
|
|
|
·
|
Other
expenses decreased 2.1% to €1,729 million in 2009 from €1,766 million in
2008, principally due to a 2.7% decrease in external expenses to €1,300
million in 2009 from €1,336 million in 2008. This decrease was
partially offset by an increase in expenses related to the provision of
universal service.
|
Telefónica
Spain’s total expenses related to its mobile business decreased 4.0% to €5,281
million in 2009 from €5,502 million in 2008 principally due to lower supplies
expenses, as described below.
|
|
·
|
Supplies
decreased 8.9% to €2,430 million in 2009 from €2,667 million in 2008 due
to decreases in interconnection and roaming expenses as result of lower
traffic and to a reduction in mobile termination
rates.
|
|
|
·
|
Personnel
expenses decreased 16.3% to €250 million in 2009 from €299 million in
2008, mainly due to the revision of redundancy program provision accounts
made in previous years, which resulted in lower expenses of €32
million. The average number of employees for the mobile
business in 2009 was 4,199, a 6.0% reduction in comparison with the
average number of employees in
2008.
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|
|
·
|
Other
expenses increased 2.5% to €2,601 million in 2009 from €2,537 million in
2008 mainly due to higher customer management expenses and expenses
related to the provision of universal service in
2009.
|
Operating
income before depreciation and amortization (OIBDA)
As a
result of the foregoing, Telefónica Spain’s OIBDA decreased 5.1% to €9,757
million in 2009 from €10,285 million in 2008. Telefónica Spain’s
OIBDA, as a percentage of Telefónica Spain’s revenues, was 49.5% in 2009
compared to 49.4% in 2008.
Depreciation
and amortization
Telefónica
Spain’s depreciation and amortization decreased 4.5% to €2,140 million in 2009
from €2,239 million in 2008, principally due to variations in the useful lives
of assets subject to depreciation in 2009 compared to 2008 in line with the
periodic revision of the Group’s policies, based on historical
experience.
Operating
income
As a
result of the foregoing, Telefónica Spain’s operating income decreased 5.3% to
€7,617 million in 2009 from €8,046 million in 2008.
Telefónica
Europe
Revenues
Telefónica
Europe’s revenues decreased 5.4% to €13,533 million in 2009 from €14,309 million
in 2008. Telefónica Europe’s 2009 revenue were negatively affected by
lower mobile termination rates (MTRs), the adverse economic environment and the
decline of the average pound sterling to euro exchange rate.
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|
·
|
Revenues
derived from Telefónica O2 UK decreased to €6,512 million in 2009 from
€7,052 million in 2008 (an increase of 3.5% in local
currency). The local currency increase in revenue was primarily
driven by an increase in Telefónica O2 UK’s customer base and partially
offset by a decrease in ARPU.
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|
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·
|
Revenues
derived from Telefónica O2 Germany increased 4.2% to €3,746 million in
2009 from €3,595 million in 2008. The positive evolution was mainly the
result of an increase in the customer base due to new offerings (O2o, My
O2 Handy and broadband), but was adversely impacted by lower
MTRs.
|
|
|
·
|
Revenues
derived from Telefónica O2 Czech Republic, including Slovakia operations,
decreased by 12.4% to €2,260 million in 2009 from €2,581 million in 2008
(a decrease of 7.3% in local currency). Slovakia continued to
grow mobile revenues while Czech revenues from fixed and mobile services
decreased (9.3%
|
and
6.3% in local currency, respectively) due to MTR cuts, customers reducing
spending and fixed-to-mobile substitution.
|
|
·
|
Revenues
derived from Telefónica O2 Ireland decreased 5.5% to €905 million in 2009
compared to €957 million in 2008. The decrease was mainly the
result of lower customer spending and lower usage in terms of
traffic.
|
Expenses
Telefónica
Europe’s total expenses decreased 6.3% to €9,857 million in 2009 from €10,523
million in 2008.
|
|
·
|
Supplies
decreased 6.4% to €6,189 million in 2009 from €6,611 million in 2008,
mainly due to the decline of the pound sterling to euro exchange rate over
the period and lower MTRs.
|
|
|
·
|
Personnel
expenses decreased 2.6% to €1,304 million in 2009 from €1,340 million in
2008 despite increased expenses associated with restructuring programs in
Telefónica O2 UK and Telefónica O2 Germany. The decline of the pound
sterling to euro exchange rate over the period also contributed to the
decrease.
|
|
|
·
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Other
expenses decreased 8.1% to €2,364 million in 2009 from €2,573 million in
2008, mainly due to the decrease in external services as a result of cost
efficiencies. The decline of the pound sterling to euro exchange rate over
the period also contributed to the
decrease.
|
Operating
income before depreciation and amortization (OIBDA)
As a
result of the foregoing, Telefónica Europe’s OIBDA decreased 6.4% to €3,910
million in 2009 from €4,180 million in 2008. OIBDA in 2008 included
€174 million as the result of the release in 2008 of provisions made in respect
of potential contingencies which were not realized once these risks had
dissipated.
|
|
·
|
OIBDA
in Telefónica O2 UK decreased 8.7% to €1,680 million in 2009 from €1,839
million in 2008 (an increase of 2.3% in local
currency).
|
|
|
·
|
OIBDA
in Telefónica O2 Germany increased 19.3% to €918 million in 2009 from €770
million in 2008.
|
|
|
·
|
OIBDA
in Telefónica O2 Czech Republic, including Slovakia operations, decreased
9.2% to €1,053 million in 2009 from €1,159 million in 2008 (a decrease of
3.8% in local currency).
|
|
|
·
|
OIBDA
in Telefónica O2 Ireland increased 0.3% to € 302 million in 2009 from €301
million in 2008.
|
Depreciation
and amortization
Telefónica
Europe’s depreciation and amortization decreased 4.6% to €2,895 million in 2009
from €3,035 million in 2008 mainly due to the decline of the average pound
sterling to euro exchange rate.
Operating
income
As a
result of the foregoing, Telefónica Europe’s operating income decreased 11.3% to
€1,015 million in 2009 from €1,145 million in 2008. The decrease was
the result of the 6.4% decrease in OIBDA which was not offset by the lower
decrease (4.6%) in depreciation and amortization.
Telefónica
Latin America
Revenues
Revenues
at Telefónica Latin America increased 3.7% to €22,983 million in 2009 from
€22,174 million in 2008 (an increase of 5.6% excluding foreign exchange rate
effects and excluding the effects of Venezuela being considered a
hyperinflationary economy in 2009). On a constant euro basis and
excluding the effects of Venezuela
being
considered a hyperinflationary economy in 2009, the countries contributing most
to this revenue growth were Venezuela (2.5 percentage points),
Argentina (1.7 percentage points) and Mexico (0.7 percentage
points).
In 2009,
Brazil continued to make the largest contribution to Telefónica Latin America’s
revenues (36.4%) followed by Venezuela (16.4%) and Argentina
(11.4%).
|
|
·
|
Telefónica
Latin America’s revenues from Brazil decreased to €8,376
million in 2009 from €8,606
million in 2008 (an increase of 0.9% in local currency). The
local currency increase was primarily due
to mobile businesses and broadband and pay TV business growth. With
respect to Vivo, Telefónica
Latin America’s
mobile business in Brazil, revenues increased to €3,036
million in 2009 from €2,932
million in 2008 (an increase of 7.4% in local currency), driven by growth
in the customer base, increasing outgoing revenues
focused on on-net tariffs, and data business. With respect to Telesp,
Telefónica
Latin America’s
fixed line business in Brazil, revenues decreased to €5,766
million in 2009 from €6,085
million in 2008 (a decrease of 1.8% in local
currency). This decrease
was due to lower traditional business revenues that were not offset by the
growth of new services. Broadband, pay TV and data/IT services
revenues increased as a percentage of total revenues (19.2% in 2009
compared to 16.3% in 2008). Traditional
fixed line revenues decreased (5.9%
in local currency), mainly driven
by lower local and
long distance traffic that was not compensated by higher interconnection
traffic revenues coming primarily from
mobile networks. Telesp’s
performance was also negatively
affected by the decision of ANATEL, the Brazilian regulator, to
suspend the
commercialization of Speedy, Telesp’s
broadband service, from June 22, 2009 to August 27, 2009 as a result of
quality
problems.
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|
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·
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Telefónica
Latin America’s revenues from Venezuela increased to €3,773 million in
2009 from €2,769 million in 2008 (an increase of 20.4% in local currency
and excluding the effects of Venezuela being considered a
hyperinflationary economy in 2009), primarily driven by higher growth in service revenues in 2009 (an increase of 24.2% in
local currency and excluding the effects of Venezuela being considered a
hyperinflationary economy in 2009). This growth in local
currency was due mainly to an integrated telecommunication offer (mobile,
fixed, pay TV and broadband) and tariff
increases.
|
|
|
·
|
Telefónica
Latin America’s revenues from Argentina increased to €2,609 million in
2009 from €2,527 million in 2008 (an increase of 15.3% in local currency)
with both fixed and mobile businesses contributing. Of this,
Telefónica Móviles Argentina’s revenues increased to €1,643 million in
2009 from €1,585 million in 2008 (an increase of 15.8% in local
currency). This increase was primarily driven by an increase of
5.7% in service revenues in 2009 (an increase of 18.1% in local
currency). This growth in local currency was mainly due to data
revenue growth and tariff increases. Revenues in the fixed line
business increased to €1,047 million in 2009 from €1,027 million in 2008
(an increase of 13.9% in local currency), with the traditional fixed line
business contributing 3.9 percentage points to this growth, the Internet
business contributing 6.7 percentage points and data and IT businesses
contributing 2.8 percentage points.
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|
|
·
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Telefónica
Latin America’s revenues from Chile decreased to €1,831 million in 2009
from €1,936 million in 2008 (a decrease of 3.3% in local currency) as a
result of the reduction of tariffs as a consequence of a regulatory decree
affecting interconnection rates, which went into effect at January 23,
2009 for mobile termination (an average tariff decrease of 44.6%), while
on May 7 the decree governing fixed telephony accesses/operator charges
was also enacted. This entailed an additional reduction in fixed telephony
termination rates. With respect to Telefónica Móviles Chile, Telefónica
Latin America’s mobile business in Chile, revenues decreased to €1,010
million in 2009 from €1,051 million in 2008 (a decrease of 1.8% in local
currency) largely due to a tariff decree established from January 23,
2009. Service revenues decreased 5.3% in 2009 (a decrease of
3.2% in local currency), because of this tariff decree. With
respect to Telefónica Chile, Telefónica Latin America’s fixed line
business in Chile, revenues in 2009 decreased to €893 million in 2009 from
€974 million in 2008 (a decrease of 6.3% in local
currency). Broadband, pay TV, data and IT businesses growth did
not offset the decrease in revenues from the traditional fixed telephony
business.
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·
|
Telefónica
Latin America’s revenues from Mexico decreased to €1,552 million in 2009
from €1,631 million in 2008 (an increase of 10.0% in local
currency). This growth in local currency was underpinned by
service revenues growth of 17.8% in 2009 as a result of
the customer base increase and new tariff
plans.
|
This
increase in local currency was greater than the 14.7% rate of growth in the
customer base over the same period.
|
|
·
|
Telefónica
Latin America’s revenues from Peru increased to €1,716 million in 2009
from €1,627 million in 2008 (an increase of 3.0% in local
currency). Revenue growth was primarily driven by outgoing
revenues in the pre-pay mobile segment
and broadband services and pay TV and IT services in the fixed line
business. With respect to Telefónica Móviles Perú, Telefónica
Latin America’s mobile business in Peru, revenues increased to €840
million in 2009 from €773 million in 2008 (an increase of 6.1% in local
currency), driven primarily by revenue growth in the pre-pay mobile
segment
as a result of the increase in accesses and higher
consumption. Service revenues increased 5.4% in 2009 (an
increase of 3.0% in local currency). With respect to Telefónica
del Perú, Telefónica Latin America’s fixed line business in Peru, revenues
increased to €1,006 million in 2009 from €977 million in 2008 (an increase
of 0.6% in local currency). This increase was primarily due to
broadband and pay TV businesses revenues growth (6.2% and 9.2% in local
currency, respectively). Also revenues of the public telephony
business increased (2.3% in local currency) in 2009 principally due to an
increase in usage caused by tariff reductions, especially to fixed
lines.
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|
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·
|
Telefónica
Latin America’s revenues from Colombia decreased to €1,269 million in 2009 from
€1,490 million in 2008 (a
decrease of 11.6% in local currency). This evolution is the
consequence of a highly competitive environment both in mobile and fixed
telephony. With respect to Telefónica Móviles Colombia,
Telefónica Latin America’s mobile business in Colombia, revenues decreased
to €685 million in
2009 from €815 million in 2008 (a decrease of 12.7% in local currency),
primarily as the result of the loss of 1.0 million mobile accesses.
Service revenues decreased 13.6% in 2009 compared to 2008 (a decrease of
10.3% in local currency). With respect to Colombia Telecom,
Telefónica Latin America’s fixed line telephony business in Colombia,
revenues decreased to €615 million in 2009 from €710
million in 2008 (a decrease of 10.0% in local currency) primarily due to
the lower revenues from traditional fixed telephony services as a result
of lower accesses and a decrease in traffic, not compensated by increased
broadband and pay TV
revenues.
|
|
|
·
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Telefónica
Latin America’s revenues from Central America decreased to €565 million in
2009 from €568 million in 2008 (a decrease of 2.5% on a constant euro
basis). This decrease on a constant euro basis was mainly due
to a highly competitive environment, that also affected service revenues
that decreased 1.4% in constant euro
terms.
|
|
|
·
|
Telefónica
Latin America’s revenues from Ecuador increased to €337 million in 2009
from €318 million in 2008 (an increase of 0.6% in local
currency). Service revenues increased 14.2% in 2009 (an increase
of 9.5% in local currency).
|
Expenses
Telefónica
Latin America’s total expenses increased 1.0% in 2009 to €14,486 million from
€14,338 million in 2008 (an increase of 3.1% excluding foreign exchange rate
effects and excluding the effects of Venezuela being considered a
hyperinflationary economy in 2009).
|
|
·
|
Supplies
decreased 2.9% to €6,188 million in 2009 from €6,371 million in 2008 (a
decrease of 1.4% excluding foreign exchange rate effects and excluding the
effects of Venezuela being considered a hyperinflationary economy in
2009), mainly due to a decrease in supplies in Chile, Mexico and Colombia,
which offset the increase in Venezuela, as described
below.
|
Supplies
for Telefónica Latin America in Brazil decreased to €2,440 million in 2009 from
€2,479 million in 2008 (an increase of 2.0% in local currency). The
local currency increase was principally due to higher interconnection
costs.
Supplies
for Telefónica Latin America in Venezuela increased to €978 million in 2009 from
€770 million in 2008 (an increase of 6.6% in local currency and excluding the
effects of Venezuela being considered a hyperinflationary economy in 2009),
principally due to higher content providers expenses, equipment costs
and
expenses associated with value added services such as RIM licenses, TV licenses
and mobile SMS premium applications as a result of higher exchange
rates.
Supplies
for Telefónica Latin America in Argentina decreased to €613 million in 2009 from
€650 million in 2008 (an increase of 5.3% in local currency). This
increase in local currency was principally due to higher interconnection costs
in the fixed line business, as a result of higher traffic and capacity needs,
and equipment costs in the mobile business.
Supplies
for Telefónica Latin America in Chile decreased to €416 million in 2009 from
€503 million in 2008 (a decrease of 15.5% in local currency), principally due to
lower mobile interconnection costs caused by the previously described tariff
decree.
Supplies
for Telefónica Latin America in Mexico decreased to €584 million in 2009 from
€716 million in 2008 (a decrease of 5.8% in local currency). This
decrease in local currency was primarily driven by lower equipment costs as a
consequence of lower commercial activity.
Supplies
for Telefónica Latin America in Peru increased to €414 million in 2009 from €413
million in 2008 (a decrease of 2.0% in local currency). This decrease
in local currency was primarily driven by a reduction in equipment costs in the
mobile business as a consequence of lower commercial activity.
Supplies
for Telefónica Latin America in Colombia decreased to €298 million in 2009 from
€394 million in 2008 (a decrease of 21.4% in local currency), principally due
to, in the mobile business, a lower equipment cost as a consequence of lower
commercial activity, and lower interconnection costs in both fixed and mobile
businesses.
Supplies
for Telefónica Latin America in Central America reached €178 million in
2009.
Supplies
for Telefónica Latin America in Ecuador decreased to €101 million in 2009 from
€112 million in 2008 (a decrease of 14.6% in local currency), due to lower
equipment costs as a consequence of lower commercial activity and to lower
interconnection costs.
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|
·
|
Personnel
expenses for Telefónica Latin America increased 3.1% to €1,789 million in
2009 from €1,735 million in 2008, (an increase of 5.8% excluding foreign
exchange rate effects and excluding the effects of Venezuela being
considered a hyperinflationary economy in 2009), principally due to
increases in Venezuela and Argentina as a result of the effects of higher
inflation on wages as described
below.
|
Personnel
expenses for Telefónica Latin America in Brazil decreased to €439 million in
2009 from €513 million in 2008 (a decrease of 11.3% in local currency),
primarily as a result of a decrease in the fixed line business average number of
employees following the 2008 restructuring program and the revision of
contingencies related to employees.
Personnel
expenses for Telefónica Latin America in Venezuela increased to €203 million in
2009 from €131 million in 2008 (an increase of 36.8% in local currency and
excluding the effects of Venezuela being considered a hyperinflationary economy
in 2009). This increase in local currency was principally due to the
effects of higher inflation on wages.
Personnel
expenses for Telefónica Latin America in Argentina increased to €321 million in
2009 from €303 million in 2008 (an increase of 18.4% in local
currency). This increase in local currency was principally due to the
effects of higher inflation on wages.
Personnel
expenses for Telefónica Latin America in Chile stood at €182 million in 2009,
the same as in 2008 (an increase of 1.8% in local currency). This evolution in
local currency was primarily driven by the increase of compensation expenses due
to the integration of fixed-mobile structures.
Personnel
expenses for Telefónica Latin America in Mexico decreased to €82 million in 2009
from €96 million in 2008 (a decrease of 1.3% in local currency) principally due
to a lower average number of employees and wage containment.
Personnel
expenses for Telefónica Latin America in Peru increased to €171 million in 2009
from €159 million in 2008 (an increase of 4.9% in local currency), mainly due to
the increase in the variable remuneration associated with both the fixed and
mobile businesses’ financial performance.
Personnel
expenses for Telefónica Latin America in Colombia decreased to €115 million in
2009 from €122 million in 2008 (a decreased of 1.5% in local currency),
primarily driven by a lower average number of employees at the fixed line
business.
Personnel
expenses for Telefónica Latin America in Central America reached €41 million in
2009.
Personnel
expenses for Telefónica Latin America in Ecuador increased to €30 million in
2009 from €26 million in 2008 (an increase of 8.7% in local currency),
principally due to an increase in the average number of employees.
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|
·
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Other
expenses for Telefónica Latin America increased 4.4% to €6,508 million in
2009 from €6,232 million in 2008 (an increase of 6.9% excluding foreign
exchange rate effects and excluding the effects of Venezuela being
considered a hyperinflationary economy in 2009), mainly due to Venezuela
and to a lesser extent to Brazil, as described
below.
|
Other
expenses for Telefónica Latin America in Brazil increased to €2,628 million in
2009 from €2,543 million in 2008 (an increase of 7.1% in local
currency). This increase in local currency was primarily driven by
higher sales and commissions in the mobile business due to commercial activity
and higher FISTEL (a regulatory tax linked to net adds of customers) costs due
to customer base growth in Vivo. Other expenses also increased in the
fixed line business mainly due to higher call center and maintenance expenses,
primarily as a result of the action plan put in place in the second half of the
year to deal with network quality problems.
Other
expenses for Telefónica Latin America in Venezuela increased to €787 million in
2009 from €553 million in 2008 (an increase of 23.8% in local currency and
excluding the effects of Venezuela being considered a hyperinflationary economy
in 2009), driven primarily by increased network expenses and higher operational
taxes.
Other
expenses for Telefónica Latin America in Argentina increased to €715 million in
2009 from €678 million in 2008 (an increase of 17.9% in local currency),
principally as a result of higher inflation affecting the prices of external
services.
Other
expenses for Telefónica Latin America in Chile decreased to €516 million in 2009
from €556 million in 2008 (a decrease of 5.2% in local
currency). This decrease in local currency was principally due to
cost containment, particularly network maintenance, and lower
commissions.
Other
expenses for Telefónica Latin America in Mexico decreased to €381 million in
2009 from €430 million in 2008 (an increase of 2.4% in local
currency). This increase in local currency was principally due to
higher commissions and customer services costs.
Other
expenses for Telefónica Latin America in Peru decreased to €459 million in 2009
from €467 million in 2008 (a decrease of 4.1% in local
currency). This decrease in local currency was principally due to
cost containment.
Other
expenses for Telefónica Latin America in Colombia increased to €531 million in
2009 from €515 million in 2008 (an increase of 7.1% in local currency),
principally due to higher bad debt provisions in both mobile and fixed
businesses.
Other
expenses for Telefónica Latin America in Central America reached €126 million in
2009.
Other
expenses for Telefónica Latin America in Ecuador increased to €114 million in
2009 from €93 million in 2008 (an increase of 17.1% in local currency),
principally due to higher commission costs driven by the increase of top
ups.
Operating
income before depreciation and amortization (OIBDA)
As a
result of the foregoing, Telefónica Latin America’s OIBDA, increased 8.3% to €9,143 million
in 2009 from €8,445 million in 2008 (an increase of 10.3% excluding foreign
exchange rate effects and excluding the effects of Venezuela being considered a
hyperinflationary economy in 2009). By country,
(excluding foreign exchange rate effects and excluding the effects of
Venezuela being considered a hyperinflationary economy in 2009), Venezuela contributed most to OIBDA growth (4.0
percentage points), followed by Mexico (2.7 percentage points) and
Argentina (2.2 percentage
points). In absolute terms, in 2009 Brazil was the largest
contributor to Telefónica Latin America’s OIBDA, accounting for 34.3% of the total, followed by
Venezuela at 20.0%, Argentina at 10.8% and Mexico at 6.2%.
Telefónica
Latin America’s OIBDA in 2009 as a percentage of Telefónica Latin America’s
revenues for the same period was 39.8%, 1.7 percentage points
higher than in 2008.
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·
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Telefónica
Latin America’s OIBDA in Brazil decreased to €3,139 million in 2009 from
€3,359 million in 2008 (a decrease of 3.1% in local
currency).
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·
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Telefónica
Latin America’s OIBDA in Venezuela increased to €1,818 million in 2009
from €1,328 million in 2008 (an increase of 25.4% in local currency and
excluding the effects of Venezuela being considered a hyperinflationary
economy in 2009).
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|
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·
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Telefónica
Latin America’s OIBDA in Argentina increased to €986 million in 2009 from
€919 million in 2008 (an increase of 19.9% in local
currency).
|
|
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·
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Telefónica
Latin America’s OIBDA in Chile increased to €763 million in 2009 from €740
million in 2008 (an increase of 5.5% in local
currency).
|
|
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·
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Telefónica
Latin America’s OIBDA in Mexico increased to €564 million in 2009 from
€420 million in 2008 (an increase of 55.2% in local
currency).
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|
|
·
|
Telefónica
Latin America’s OIBDA in Peru increased to €712 million in 2009 from €621
million in 2008 (an increase of 12.0% in local
currency).
|
|
|
·
|
Telefónica
Latin America’s OIBDA in Colombia decreased to €397 million in 2009 from
€515 million in 2008 (a decrease of 20.0% in local
currency).
|
|
|
·
|
Telefónica
Latin America’s OIBDA in Central America increased to €241 million in 2009
from €217 million in 2008 (an increase of 9.0% on a constant euro
basis).
|
|
|
·
|
Telefónica
Latin America’s OIBDA in Ecuador increased to €100 million in 2009 from
€92 million in 2008 (an increase of 3.0% in local
currency).
|
Depreciation
and amortization
Telefónica
Latin America’s depreciation and amortization increased 4.1% to €3,793 million in 2009 from €3,645
million in 2008, (an increase of
5.3% excluding foreign exchange rate effects and excluding the effects
of Venezuela being considered a hyperinflationary economy in 2009) primarily as a result of
increases in Venezuela and Brazil.
Operating
income
As a
result of the foregoing, Telefónica Latin America’s operating income increased
11.5% to €5,350 million in 2009 from €4,800 million in 2008, (an
increase of 14.1% excluding foreign exchange rate effects and excluding the effects
of Venezuela being considered a hyperinflationary economy in 2009).
Atento
Revenues
Atento’s
revenues increased by 1.6% to €1,321 million in 2009 from €1,301 million in
2008. The increase in revenues was primarily driven by an increase in
the activity of its main customers, other members of the Telefónica Group and
BBVA, and in the activity of the financial sector in Brazil.
Expenses
Atento’s
expenses increased 4.4% to €1,169 million in 2009 from €1,120 million in 2008
primarily due to the increase in structural costs from the leasing of
capacityand the increase of personnel expenses in many Latin American countries,
where the majority of Atento’s employees are allocated.
Operating
income before depreciation and amortization
Atento’s
OIBDA decreased 17.4% to €154 million in 2009 from €186 million in 2008, due to
margin shrinkage and higher personnel expenses.
Operating
income
Atento’s
operating income decreased 20.9% to €122 million in 2009 from €154 million in
2008.
Year
ended December 31, 2008 compared to year ended December 31, 2007
Revenues
The
strong growth in our customer base translated into a mild increase of 2.7% in
revenues to €57,946 million in 2008 compared to €56,441 million in
2007. Negative exchange rate effects resulted in a reduction of our
revenue growth by approximately 3.0 percentage points, while changes in our
consolidation perimeter reduced such growth by another 1.2 percentage
points. Revenue growth was also affected by a high level of
competition in every market in which we operate.
By
geographic area, Telefónica Latin America contributed the greatest percentage to
our revenues in 2008, accounting for 38.3% of the total, which represents an
increase of 2.7 percentage points from 2007. Telefónica Spain
contributed 36.0% of our 2008 revenues and Telefónica Europe contributed the
remaining 24.7%.
Other
income
Other
income decreased to €1,865 million in 2008 compared to €4,264 million in
2007. Other income in 2008 included the €143 million gain on the sale
of our stake in Sogecable. In 2007, other income mainly included the
gains on the sales during the year of our holdings in Airwave and Endemol for
€1,296 million and €1,368 million, respectively.
Total
expenses
Total
expenses include supplies, personnel expenses and other expenses (mainly
external services and taxes). Total expenses do not include depreciation and
amortization.
Our total
expenses decreased 2.6% to €36,892 million in 2008 compared to €37,881 million
in 2007. On a constant euro basis, total expenses would have
increased 0.9% from 2007 to 2008, less than the growth in revenues over the same
period, primarily as a result of our efficiency initiatives and a general
downward trend in expenses.
Supplies. Supplies
decreased 0.5% to €17,818 million in 2008 compared to €17,907 million in
2007. On a constant euro basis, supplies would have grown 3.6% from
2007 to 2008, primarily as a result of higher interconnection expenses at
Telefónica Latin America and Telefónica O2 UK.
Personnel
expenses. Personnel expenses decreased 14.3% to €6,762 million
in 2008 compared to €7,893 million in 2007 (a decrease of 12.4% on a constant
euro basis). Our 2007 personnel expenses were affected by non-recurring
personnel reorganization expenses of €1,199 million. The average
workforce during 2008 reached 251,775 employees, with a net increase of 7,723
employees compared to 2007, mainly due to the workforce increases within
Atento. Excluding employees of Atento, our average number of
employees in 2008 would have decreased by 2,218 employees to 124,885 employees
compared to 2007, partly due to the exclusion of Airwave and Endemol from our
2008 consolidation perimeter.
Other
expenses. Other expenses are mainly comprised of external
services, which consist of commercial expenses related to our business (such as
commissions to distributors of services, marketing and advertising expenses and
customer service related expenses), network maintenance expenses, general
administrative expenses and subcontracted services expenses, as well as certain
types of taxes. Other expenses also include changes in operating
allowances and other operating expenses. Other expenses increased
1.9% to €12,312 million in 2008 from €12,081 million in 2007, principally driven
by higher other expenses from Telefónica Latin America, mainly in Brazil,
Venezuela and Chile due to outsourcing activities and commissions, as well as
the increased costs associated with the acquisition and retention of customers
in Telefónica Europe due to fierce competition.
Operating
income before depreciation and amortization (OIBDA)
As a
result of the foregoing, our OIBDA increased 0.4% to €22,919 million in 2008
compared to €22,824 million in 2007.
Telefónica
Spain contributed 44.9% of our 2008 OIBDA, while Telefónica Latin America and
Telefónica Europe contributed 36.8% and 18.2%, respectively.
Our OIBDA
margin decreased to 39.6% in 2008 compared to 40.4% in 2007. OIBDA
for 2007 was affected by the inclusion of non-recurring capital gains recorded
on the disposition of Airwave and Endemol. For a reconciliation of
OIBDA to operating income, see “—Presentation of Financial Information—Non-GAAP
financial information—Operating income before depreciation and
amortization”.
Depreciation
and amortization
Our
depreciation and amortization decreased 4.1% to €9,046 million in 2008 compared
to €9,436 million in 2007, with Telefónica Europe and Telefónica Spain primarily
responsible for the decrease as a result of exchange rate effects and a decrease
in the average value of plant subject to depreciation,
respectively. Depreciation and amortization in 2008 includes the
amortization of the purchase price allocation made following the acquisitions of
the O2 Group (€689 million) and Telefónica O2 Czech Republic (€131
million).
Operating
income
As a
result of the foregoing, our operating income increased 3.6% to €13,873 million
in 2008 from €13,388 million in 2007.
Share
of profit (loss) of associates
Our share
of profit (loss) of associates amounted to a loss of €161 million in 2008
compared to a gain of €140 million in 2007, primarily as a result of the net
adjustment Telco made to the valuation of its investment in Telecom
Italia. To estimate the adjustment to be recorded by the Telefónica
Group, we took the value of the estimated synergies we expect to achieve by
improving certain processes in our operations in Europe as a result of certain
alliances reached with Telecom Italia. As a result of this
revaluation, we recorded a loss of €209 million in 2008, which more than offset
share of profits we recorded in respect of our interest in Portugal
Telecom.
Net
financial income (expense)
Net
financial expense decreased 1.6% to €2,797 million in 2008 compared to €2,844
million in 2007, primarily as a result of a €240 million reduction in financial
expenses due to the decrease of average total debt outstanding in 2008 compared
to 2007, which was partially offset by an increase in financial expenses of €218
million in 2008 compared to 2007 as a result of an increase in the average
interest rate on our average net debt for 2008 to 5.95% (6.00%, excluding
positive exchange rate differences) compared to 5.59% in
2007. Management of the present value of pre-retirement plan
commitments and other positions associated to mark-to-market positions, also had
a positive impact of €93 million, which was €9 million more than in
2007. Positive exchange rate differences were €24 million in 2008
compared to €7 million in 2007, reflecting the impact of higher profit on the
U.S. dollar positions at December 31, 2008 compared to December 31,
2007. Excluding the impact of positive exchange rate differences, net
financial expense was €2,821 million in 2008 and €2,851 million in
2007.
Corporate
income tax
Corporate
income tax increased to €3,089 million in 2008 compared to €1,565 million in
2007, implying an effective tax rate of 28.3%, while our cash outflow with
respect to taxes was lower than the provision in 2008 due to our application of
tax losses generated in previous years and pending deductions. The
primary reason for our significantly lower tax provision in 2007 was our
disposal of Endemol in 2007, which generated a loss for tax
purposes.
Non-controlling
interests
Our
non-controlling interests increased by 10.2% to a negative figure of €234
million in 2008 compared to a negative figure of €213 million in 2007, primarily
as a result of higher profits at Telesp and Telefónica O2 Czech Republic, which
we account for as non-controlling interests.
Profit
for the year attributable to equity holders of the parent company
As a
result of the above, our profit for the year attributable to equity holders of
the parent company decreased 14.8% to €7,592 million in 2008 compared to €8,906
million in 2007. One of the major factors contributing to our lower
profit for the year attributable to equity holders of the parent company in 2008
compared to 2007 was our inclusion of non-recurring capital gains from the
dispositions of Airwave and Endemol in our 2007 profit for the year attributable
to equity holders of the parent company.
Results
of Operations by Business Area for 2007 and 2008
The table
below sets forth the contribution to our results of operations by each of our
three principal business areas and other companies for 2007 and 2008. Revenues
and related expenses presented for each of the business areas are presented
after elimination of sales to other members of the Telefónica
Group. See Note 4 to our Consolidated Financial
Statements.
|
Year
ended December 31,
|
|||||||||||||
|
2007
|
2008
|
%
Change
|
|||||||||||
|
(in
millions of euros)
|
|||||||||||||
|
Revenues
|
56,441 | 57,946 | 2.7 | % | |||||||||
|
Telefónica
Spain
|
20,683 | 20,838 | 0.7 | % | |||||||||
|
Telefónica
Europe
|
14,458 | 14,309 | (1.0 | )% | |||||||||
|
Telefónica
Latin America
|
20,078 | 22,174 | 10.4 | % | |||||||||
|
Other
companies & eliminations
|
1,222 | 625 | (48.9 | )% | |||||||||
|
Other
Income
|
4,264 | 1,865 | (56.3 | )% | |||||||||
|
Telefónica
Spain
|
466 | 348 | (25.3 | )% | |||||||||
|
Telefónica
Europe
|
1,518 | 395 | (74.0 | )% | |||||||||
|
Telefónica
Latin America
|
648 | 609 | (6.0 | )% | |||||||||
|
Other
companies & eliminations
|
1,632 | 513 | (68.6 | )% | |||||||||
|
Expenses
(1)
|
37,881 | 36,892 | (2.6 | )% | |||||||||
|
Telefónica
Spain
|
11,701 | 10,901 | (6.8 | )% | |||||||||
|
Telefónica
Europe
|
10,999 | 10,524 | (4.3 | )% | |||||||||
|
Telefónica
Latin America
|
13,605 | 14,338 | 5.4 | % | |||||||||
|
Other
companies & eliminations
|
1,576 | 1,129 | (28.4 | )% | |||||||||
|
Depreciation
and amortization
|
9,436 | 9,046 | (4.1 | )% | |||||||||
|
Telefónica
Spain
|
2,381 | 2,239 | (6.0 | )% | |||||||||
|
Telefónica
Europe
|
3,386 | 3,035 | (10.4 | )% | |||||||||
|
Telefónica
Latin America
|
3,559 | 3,645 | 2.4 | % | |||||||||
|
Other
companies & eliminations
|
110 | 127 | 15.5 | % | |||||||||
|
Operating
income
|
13,388 | 13,873 | 3.6 | % | |||||||||
|
Telefónica
Spain
|
7,067 | 8,046 | 13.9 | % | |||||||||
|
Telefónica
Europe
|
1,591 | 1,145 | (28.0 | )% | |||||||||
|
Telefónica
Latin America
|
3,562 | 4,800 | 34.8 | % | |||||||||
|
Other
companies & eliminations
|
1,168 | (118 | ) | — | |||||||||
|
(1)
|
Expenses
as used in this table and in the below discussion include supplies
expenses, personnel expenses and other expenses. It does not include
depreciation and amortization.
|
In the
discussion that follows revenues and related expenses for each business included
within a particular business area are presented gross of any eliminations due to
sales to other businesses in such business area or other members of the
Telefónica Group.
Telefónica
Spain
Revenues
Beginning
January 1, 2008, Telefónica Spain changed the business model for its PUT service
and related contracts in order to maximize its operations within the scope of
the applicable regulatory framework (PUT revenues were 0.7% of Telefónica
Spain’s 2007 revenues). As a result, this business is now managed on
a pure wholesale basis, and net margin is recorded as
revenues. During 2007, this business was managed on a retail basis
and we recorded both gross revenues and the associated sales and marketing
expenses required to promote PUT traffic through resellers as separate line
items.
Telefónica
Spain’s revenues increased 0.7% to €20,838 million in 2008 from €20,683 million
in 2007.
114
Revenues
from Telefónica Spain’s fixed business increased 1.4% to €12,581 million in 2008
from €12,401 million in 2007 principally due to the growth of Internet and
broadband service revenues.
|
|
·
|
Revenues
from traditional accesses include all revenues from our customers for
rental and connection to public switched telephone network (PSTN) lines
(for basic telephony service), ISDN lines (for integration of voice, data
and video services), corporate services, PUT, additional recharges and
advertising in telephone booths. Revenues from traditional
accesses increased 6.2% to €2,944 million in 2008 compared to €2,772
million in 2007, partially as a result of revenues derived from
recognizing the Universal Service Cost provided for the period 2003
through 2005, which we accounted for in 2008 as revenues of €182.8
million.
|
|
|
·
|
Revenues
from traditional voice services decreased 7.4% to €4,436 million in 2008
compared to €4,792 million in 2007. Excluding the impact of the
change in the business model applicable to PUT services, as described
above, traditional voice revenues would have decreased by
3.5%. This evolution is mainly affected by lower
fixed-to-mobile traffic, the decrease of effective prices in international
traffic and the increasing importance of traffic included in national flat
tariff plans.
|
|
|
·
|
Revenues
from Internet and broadband services increased 8.7% to €3,017 million in
2008 compared to €2,775 million in 2007. Retail broadband
service revenues increased 11.6% in 2008 compared to 2007, and accounted
for 2.2 percentage points of Telefónica Spain’s, fixed business revenues
growth. At the same time, wholesale broadband service revenues
increased 2.6% in 2008 compared to 2007, mainly due to revenues associated
with our larger customer base for unbundled local loop in
2008.
|
|
|
·
|
Revenues
from data services grew 2.6% to €1,190 million in 2008 from €1,160 million
in 2007.
|
|
|
·
|
Revenues
from information technology services grew 1.2% to €443 million in 2008
from €437 million in 2007.
|
Revenues
from Telefónica Spain’s mobile business decreased 0.1% to €9,684 million in 2008
from €9,693 million in 2007, due to lower consumption by customers in terms of
MOU and lower incoming revenues in terms of ARPU. Customer revenues
increased 1.2% to €6,943 million in 2008 from €6,863 million in 2007, while
interconnection revenues decreased 9.4% to €1,243 million in 2008 from €1,372
million in 2007, due primarily to the reduction in interconnection
rates. Roaming-in revenues fell 9.9% to €198 million in 2008 from
€220 million in 2007 due to the downward trend in roaming and wholesale
prices. Revenue from handset sales increased 3.6% to €1,227 million
from €1,184 million in 2007.
Expenses
Telefónica
Spain’s total expenses decreased 6.8% to €10,901 million in 2008 from €11,701
million in 2007, principally due to lower personnel expenses, as described
below.
|
|
·
|
Supplies
decreased 0.7% to €4,604 million in 2008 from €4,639 million in 2007,
mainly due to lower interconnection
expenses.
|
|
|
·
|
Personnel
expenses decreased 23.7% to €2,375 million in 2008 from €3,111 million in
2007. Personnel expenses were affected in 2007 by non-recurring
reorganization costs of €667
million.
|
|
|
·
|
Other
expenses decreased 0.7% to €3,922 million in 2008 from €3,951 million in
2007, principally due to a 2.3% decrease in external expenses to €3,212
million in 2008 from €3,287 million in 2007. This decrease in
external expenses was mainly as a result of the change in the business
model applicable to PUT services, as well as the fact that external
expenses were affected in 2007 by Telefónica Spain’s recording of an EU
fine provision of €151.9 million in that year. This decrease
was partially offset by an increase in other expenses in 2008 primarily
due to the recognition in 2008 of the Universal Service Cost for the
period 2003 through 2005.
|
In the
fixed business, total expenses decreased 9.7% to €6,799 million in 2008 from
€7,532 million in 2007, principally due to a decrease in personnel
expenses.
|
|
·
|
Supplies
decreased 1.5% to €2,962 million in 2008 from €3,008 million in 2007
mainly due to lower interconnection expenses and fewer equipment
purchases.
|
|
|
·
|
Personnel
expenses decreased 21.6% to €2,071 million in 2008 from €2,642 million in
2007, principally due to the non-recurrence in 2008 of personnel
restructuring charges recorded in 2007. The average number of
employees for the fixed business in 2008 was 31,243, a 6.0% reduction in
comparison with the average number of employees in
2007.
|
|
|
·
|
Other
expenses decreased 6.1% to €1,766 million in 2008 from €1,881 million in
2007, principally due to a 5.4% decrease in external expenses to €1,336
million in 2008 from €1,413 million in 2007 partially as a result of the
change in the business model applicable to PUT services as well as the
inclusion in 2007 of the non-recurring EU fine provision described
above. This decrease was partially offset by an increase in
other expenses in 2008 primarily due to the recognition of the Universal
Service Cost in 2008 for the period 2003 through 2005 in an amount of €73
million.
|
Telefónica
Spain’s total expenses related to its mobile business decreased 0.7% to €5,502
million in 2008 from €5,541 million in 2007. Total expenses in 2007
were affected by the provision of €154 million related to a personnel
reorganization program. Excluding this provision in 2007, Telefónica
Spain’s expenses related to its mobile business would have increased by 2.1%
from €5,387 million in 2007 to €5,502 million in 2008:
|
|
·
|
Supplies
decreased 0.4% to €2,667 million in 2008 from €2,677 million in 2007 due
to decreases in interconnection and roaming
expenses.
|
|
|
·
|
Personnel
expenses decreased 34.6% to €299 million in 2008 from €457 million in
2007, principally due to the non-recurrence in 2008 of personnel
restructuring charges recorded in 2007. Excluding the
aforementioned provision, personnel expenses would have decreased by 1.5%
to €299 million in 2008 from €304 million in
2007.
|
|
|
·
|
Other
expenses increased 5.4% to €2,537 million in 2008 from €2,407 million in
2007 due to higher customer management expenses, the growth in network
costs and the impact of the recognition in 2008 of the Universal Service
Cost for the period 2003 through
2005.
|
Operating
income before depreciation and amortization
As a
result of the foregoing, Telefónica Spain’s OIBDA increased 8.9% to €10,285
million in 2008 from €9,448 million in 2007. Telefónica Spain’s
OIBDA, as a percentage of Telefónica Spain’s revenues, was 49.4% in 2008
compared to 45.7% in 2007.
Depreciation
and amortization
Telefónica
Spain’s depreciation and amortization decreased 6.0% to €2,239 million in 2008
from €2,381 million in 2007, principally due to a decrease in the average value
of assets subject to depreciation in 2008 compared to 2007.
Operating
income
As a
result of the foregoing, Telefónica Spain’s operating income increased 13.9% to
€8,046 million in 2008 from €7,067 million in 2007. The decrease was
the result of the 16% decrease in OIBDA, primarily due to the previously
described sale of Airwave in 2007, which was offset by a decrease of 10.4% in
depreciation and amortization.
Telefónica
Europe
Revenues
Telefónica
Europe’s revenues decreased 1.0% to €14,309 million in 2008 from €14,458 million
in 2007. Telefónica Europe’s 2008 revenues were negatively affected
by the decline of the pound sterling to euro exchange rate.
|
|
·
|
Revenues
derived from Telefónica O2 UK decreased to €7,052 million in 2008 from
€7,403 million in 2007 (an increase of 10.6% in local currency). The local
currency increase in revenues was primarily driven by an increase in
Telefónica O2 UK’s customer base and ARPU
growth.
|
|
|
·
|
Revenues
derived from Telefónica O2 Germany increased 1.5% to €3,595 million in
2008 from €3,541 million in 2007. The increase was mainly the result of
the increase of broadband revenues in
2008.
|
|
|
·
|
Revenues
derived from Telefónica O2 Ireland decreased 3.4% to €957 million in 2008
compared to €991 million in 2007. The decrease was mainly the result of a
lower customer spending in terms of euros and lower usage in terms of
minutes.
|
|
|
·
|
Revenues
derived from Telefónica O2 Czech Republic, including Slovakia operations,
increased by 14.4% to €2,581 million in 2008 from €2,257 million in 2007
(an increase of 2.9% in local currency) driven by growth in Slovakia in
the year after launch of mobile services in that
market. Revenues in the Czech fixed line segment increased 0.2%
in local currency compared to 2007, while the mobile business was the key
driver of growth with an increase in revenues of 2.8% in local
currency.
|
Expenses
Telefónica
Europe’s total expenses decreased 4.3% to €10,523 million in 2008 from €10,999
million in 2007.
|
|
·
|
Supplies
decreased 2.6% to €6,611 million in 2008 from €6,787 million in 2007,
mainly due to the decline of the pound sterling to euro exchange rate over
the period.
|
|
|
·
|
Personnel
expenses decreased 14.9% to €1,340 million in 2008 from €1,575 million in
2007 principally due to the non-recurrence in 2008 of personnel
restructuring charges recorded in
2007.
|
|
|
·
|
Other
expenses decreased 2.4% to €2,573 million in 2008 from €2,637 million in
2007, mainly due to the decrease in external
services.
|
Operating
income before depreciation and amortization
As a
result of the foregoing, Telefónica Europe’s OIBDA decreased 16.0% to €4,180
million in 2008 from €4,977 million in 2007. OIBDA in 2007 included
non-recurring capital gains from the sale of Airwave of €1,296 million and
personnel reorganization and other non-recurring charges totaling €338 million
related to the UK, Irish and German businesses. OIBDA in 2008
included €174 million as the result of the release in 2008 of provisions made in
respect of potential contingencies which were not realized once these risks had
dissipated.
|
|
·
|
OIBDA
in Telefónica O2 UK decreased 4.3% to €1,839 million in 2008 from €1,923
million in 2007 (an increase of 11.1% in local
currency).
|
|
|
·
|
OIBDA
in Telefónica O2 Germany increased 62.9% to €770 million in 2008 from €473
million in 2007. The increase was the result of cost reduction
measures and the inclusion in 2007 of non-recurring personnel
reorganization expenses.
|
|
|
·
|
OIBDA
in Telefónica O2 Ireland decreased 4.7% to €301 million in 2008 from €316
million in 2007.
|
|
|
·
|
OIBDA
in Telefónica O2 Czech Republic, including Slovakia operations, increased
14.7% to €1,159 million in 2008 from €1,010 million in 2007 (an increase
of 3.2% in local currency).
|
Depreciation
and amortization
Telefónica
Europe’s depreciation and amortization decreased 10.4% to €3,035 million in 2008
from €3,386 million in 2007 mainly due to exchange rate effects.
Operating
income
As a
result of the foregoing, Telefónica Europe’s operating income decreased 28.1% to
€1,145 million in 2008 from €1,591 million in 2007.
Telefónica
Latin America
Revenues
Revenues
at Telefónica Latin America increased 10.4% to €22,174 million in 2008 from
€20,078 million in 2007 (an increase of 14.2% on a constant euro basis). On a
constant euro basis, the countries contributing most to this revenue growth were
Brazil (4.7 percentage points), Venezuela (2.8 percentage points) and Argentina
(2.4 percentage points).
In 2008,
Brazil continued to make the largest contribution to Telefónica Latin America’s
revenues (38.8%) followed by Venezuela (12.5%) and Argentina
(11.4%).
|
|
·
|
Telefónica
Latin America’s revenues from Brazil increased to €8,606 million in 2008
from €7,662 million in 2007 (an increase of 12.2% in local currency), with
both fixed and mobile businesses contributing (increases of 8.2% and
22.3%, respectively, in local currency). With respect to Vivo,
Telefónica Latin America’s mobile business in Brazil, revenues increased
to €2,932 million in 2008 from €2,396 million in 2007 (an increase of
22.3% in local currency), driven by strong growth in the customer base, an
increase in outgoing revenues as a result of plan upgrades by existing
customers, increased focus on mobile broadband, and by the acquisition of
Telemig in the second quarter of 2008. With respect to Telesp,
Telefónica Latin America’s fixed line business in Brazil, revenues
increased to €6,085 million in 2008 from €5,619 million in 2007 (an
increase of 8.2% in local currency). This increase was due to
the growth of broadband, pay TV and data/IT services, which have increased
as a percentage of total revenues (16.3% in 2008 compared to 12.9% in
2007). Traditional fixed line revenues also grew (2.7% in local
currency), mainly driven by higher fixed-to-mobile traffic and more value
added services, which helped to offset the decrease in accesses and public
telephony revenues.
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|
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·
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Telefónica
Latin America’s revenues from Venezuela increased to €2,769 million in
2008 from €2,392 million in 2007 (an increase of 23.9% in local currency),
primarily driven by higher growth in service revenues of 14.6% (an
increase of 22.6% in local currency). This growth in local
currency was greater than the 14.1% rate of growth in the customer base
over the same period.
|
|
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·
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Telefónica
Latin America’s revenues from Argentina increased to €2,527 million in
2008 from €2,264 million in 2007 (an increase of 21.3% in local
currency). Of this, Telefónica Móviles Argentina’s revenues
increased to €1,585 million in 2008 from €1,353 million in 2007 (an
increase of 27.3% in local currency). This increase was
primarily driven by an increase of 18.0% in service revenues (an increase
of 28.2% in local currency). Revenues in the fixed line
business increased to €1,027 million in 2008 from €984 million in 2007 (an
increase of 13.5% in local currency), with the traditional fixed line
business contributing 3.1 percentage points to this growth, the Internet
business contributing 5.8 percentage points and data and IT businesses
contributing 3.0 percentage points.
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|
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·
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Telefónica
Latin America’s revenues from Chile increased to €1,936 million in 2008
from €1,814 million in 2007 (an increase of 13.3% in local
currency). Growth was primarily driven by the mobile, broadband
and pay TV businesses, which offset the decline in the traditional fixed
telephony business. With respect to Telefónica Móviles Chile,
Telefónica Latin America’s mobile business in Chile, revenues increased to
€1,051 million in 2008 from €930 million in 2007 (an increase of 20.0% in
local currency). Service revenues increased 13.4% in 2008 (an
increase of 20.3% in local currency), driven by growth in
ARPU. This trend was underpinned by migration to GSM
technology, growth in the contract customer base
(27.9%
|
| of Telefónica Móviles Chile’s mobile accesses were contract access at December 31, 2008 compared to 24.5% at December 31, 2007), plan upgrades and the sale of minute bundles and value added services. With respect to Telefónica Chile, Telefónica Latin America’s fixed line business in Chile, revenues in 2008 remained relatively unchanged from 2007 at €974 million (an increase of 6.1% in local currency). Pay TV services growth and increased broadband penetration drove the local currency increase in Internet and broadband revenues, offsetting a decrease in revenues from the traditional fixed telephony business. |
|
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·
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Telefónica
Latin America’s revenues from Mexico increased to €1,631 million in 2008
from €1,431 million in 2007 (an increase of 23.8% in local
currency). This growth was underpinned by service revenues
growth of 21.6% in 2008 (an increase of 32.1% in local
currency). This increase in local currency was greater than the
22.8% rate of growth in the customer base over the same
period.
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|
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·
|
Telefónica
Latin America’s revenues from Peru increased to €1,627 million in 2008
from €1,513 million in 2007 (an increase of 7.6% in local
currency). Revenue growth was primarily driven by outgoing
revenues in the pre-pay segment of the mobile business and broadband
services and by pay TV in the fixed line business. With respect
to Telefónica Móviles Perú, Telefónica Latin America’s mobile business in
Peru, revenues increased to €773 million in 2008 from €603 million in 2007
(an increase of 28.4% in local currency), driven primarily by revenue
growth in the pre-pay segment. Service revenues increased 20.0%
in 2008 (an increase of 20.1% in local currency). With respect
to Telefónica del Perú, Telefónica Latin America’s fixed line business in
Peru, revenues decreased to €977 million in 2008 from €1,031 million in
2007 (a decrease of 5.1% in local currency). This decrease was
primarily due to a decrease in revenues from public use telephony and
fixed telephony as a consequence of Telefónica del Perú no longer being
the default provider of long distance services as well as the continued
migration of customers to mobile rather than fixed services. In
the second half of 2008, Telefónica del Perú lowered the rates on calls
from public use telephony to mobile, which slowed the pace of revenue
decreases from public use telephony. In contrast, revenues from
broadband and pay TV increased over the same period (21.0% and 6.0% in
local currency, respectively).
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|
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·
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Telefónica
Latin America’s revenues from Colombia decreased to €1,490 million in 2008
from €1,569 million in 2007 (a decrease of 3.9% in local
currency). The growth in Internet and broadband revenues in the
fixed business and service revenues derived from the mobile business did
not offset the reduction of interconnection tariffs implemented in
December 2007. With respect to Telefónica Móviles Colombia,
Telefónica Latin America’s mobile business in Colombia, revenues decreased
to €815 million in 2008 from €869 million in 2007 (a decrease of 5.1% in
local currency). Service revenues decreased 6.6% in 2008 (a decrease of
5.5% in local currency) primarily due to a regulated reduction of
interconnection tariffs. Revenues for the fixed line telephony business
decreased to €710 million in 2008 from €739 million in 2007 (a decrease of
2.9% in local currency) primarily due to the lower revenues from
traditional fixed telephony services not compensated by increased
broadband and pay TV revenues.
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·
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Telefónica
Latin America’s revenues from Central America decreased to €568 million in
2008 from €585 million in 2007 (an increase of 4.2% on a constant euro
basis). This growth on a constant euro basis was primarily
driven by improved commercial performance in the
region. Service revenues grew 5.2% on a constant euro basis in
2008 compared to 2007.
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·
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Telefónica
Latin America’s revenues from Ecuador increased to €318 million in 2008
from €291 million in 2007 (an increase of 16.8% in local
currency). Service revenues increased 13.1% in 2008 (an
increase of 20.8% in local
currency).
|
Expenses
Telefónica
Latin America’s total expenses increased 5.4% in 2008 to €14,338 million from
€13,605 million in 2007.
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·
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Supplies
increased 7.0% to €6,371 million in 2008 from €5,953 million in 2007,
mainly due to higher interconnection costs and an increase in the cost of
handsets driven by growth of gross adds and
upgrades.
|
Supplies
for Telefónica Latin America in Brazil increased to €2,479 million in 2008 from
€2,045 million in 2007 (an increase of 21.1% in local currency),
principally due to the increase of interconnection mobile costs as a result of
outgoing traffic growth and higher co-billing costs in the fixed line business
as a result of higher services traffic and more data services out of São
Paulo.
Supplies
for Telefónica Latin America in Venezuela decreased to €770 million in 2008 from
€780 million in 2007 (an increase of 5.5% in local currency), principally due to
lower handsets costs (generally, GSM handsets are less expensive than CDMA
handsets) that partially compensated for higher roaming interconnection
costs.
Supplies
for Telefónica Latin America in Argentina increased to €650 million in 2008 from
€556 million in 2007 (an increase of 27.0% in local currency), principally due
to higher interconnection costs as a result of higher traffic and capacity needs
as well as higher inflation.
Supplies
for Telefónica Latin America in Chile increased to €503 million in 2008 from
€472 million in 2007 (an increase of 13.0% in local currency), principally due
to higher inflation, mobile interconnection costs, mobile handsets upgrades,
purchases of pay TV content and the construction of increased broadband
capacity.
Supplies
for Telefónica Latin America in Mexico decreased to €716 million in 2008 from
€732 million in 2007 (an increase of 6.3% in local currency). This increase in
local currency was primarily due to an increase in interconnection costs driven
by the growth of traffic and an increase in contract segment commercial
activity.
Supplies
for Telefónica Latin America in Peru increased to €413 million in 2008 from €386
million in 2007 (an increase of 6.9% in local currency). This increase was
primarily driven by increased marketing efforts in both the mobile and fixed
line businesses, and an increase in mobile traffic and interconnection
tariffs.
Supplies
for Telefónica Latin America in Colombia decreased to €394 million in 2008 from
€530 million in 2007 (a decrease of 24.8% in local currency), principally due to
a reduction in interconnection tariffs implemented by Colombian regulation in
December 2007.
Supplies
for Telefónica Latin America in Ecuador increased to €112 million in 2008 from
€109 million in 2007 (an increase of 9.5% in local currency), principally due to
an increase in interconnection costs driven by a growth of traffic.
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·
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Personnel
expenses for Telefónica Latin America decreased 8.0% to €1,735 million in
2008 from €1,886 million in 2007, principally due to the non-recurrence in
2008 of personnel restructuring charges recorded in
2007.
|
Personnel
expenses for Telefónica Latin America in Brazil decreased to €513 million in
2008 from €547 million in 2007 (a decrease of 6.3% in local currency), primarily
as a result of the non-recurrence in 2008 of expenses associated with Telesp’s
program for restructuring its workforce in 2007.
Personnel
expenses for Telefónica Latin America in Venezuela increased to €131 million in
2008 from €108 million in 2007 (an increase of 30.4% in local currency),
principally due to the effects of higher inflation on wages.
Personnel
expenses for Telefónica Latin America in Argentina decreased to €303 million in
2008 from €323 million in 2007 (an increase of 2.0% in local currency). This
increase in local currency was due to higher expenses in the mobile business
which offset reduced expenses in the fixed line business due to reduced
headcount as a result of restructuring of the workforce realized during
2007.
Personnel
expenses for Telefónica Latin America in Chile increased to €182 million in 2008
from €169 million in 2007 (an increase of 14.7% in local currency). This
increase was primarily driven by the implementation in 2008 of new labor
legislation in Chile and higher inflation.
Personnel
expenses for Telefónica Latin America in Mexico increased to €96 million in 2008
from €86 million in 2007 (an increase of 20.7% in local currency) principally
due to an increase in the average number of employees in 2008 compared to 2007
and an increase in average wages.
Personnel
expenses for Telefónica Latin America in Peru decreased to €159 million in 2008
from €251 million in 2007 (a decrease of 36.7% in local currency). 2007
personnel expenses were affected by a non-recurring €108 million charge related
to workforce restructuring.
Personnel
expenses for Telefónica Latin America in Colombia decreased to €122 million in
2008 from €123 million in 2007 (an increase of 0.4% in local currency),
primarily driven by workforce restructuring costs in both the mobile and fixed
line businesses.
Personnel
expenses for Telefónica Latin America in Ecuador increased to €26 million in
2008 from €24 million in 2007 (an increase of 16.4% in local currency),
principally due to an increase in the average number of employees.
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·
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Other
expenses for Telefónica Latin America increased 8.1% to €6,232 million in
2008 from €5,767 million in 2007, principally due to an increase in
customer service activities and higher costs associated with the retention
and acquisition of customers.
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Other
expenses for Telefónica Latin America in Brazil increased to €2,543 million in
2008 from €2,354 million in 2007 (an increase of 9.3% in local
currency). This increase was primarily driven by higher sales and
recharge commissions in the mobile business due to commercially aggressive
offers and higher FISTEL (a regulatory tax linked to net adds of customers)
costs due to stronger customer base growth in Vivo. Other expenses
also increased in the fixed line business mainly due to higher call center and
maintenance expenses, primarily as a result of the growth of broadband and pay
TV clients.
Other
expenses for Telefónica Latin America in Venezuela increased to €553 million in
2008 from €449 million in 2007 (an increase of 31.7% in local currency), driven
primarily by increased network expenses due to the launch of a GSM network and
higher operational taxes and acquisition costs.
Other
expenses for Telefónica Latin America in Argentina increased to €678 million in
2008 from €626 million in 2007 (an increase of 17.1% in local currency),
principally as a result of higher inflation and a broader range of services
offered.
Other
expenses for Telefónica Latin America in Chile increased to €556 million in 2008
from €477 million in 2007 (an increase of 18.6% in local currency), principally
due to increased customer service activities and network upgrades and
repairs.
Other
expenses for Telefónica Latin America in Mexico decreased to €430 million in
2008 from €468 million in 2007 (a decrease of 1.1% in local currency), due to
the implementation of measures to control commissions and marketing and
logistics costs.
Other
expenses for Telefónica Latin America in Peru increased to €467 million in 2008
from €404 million in 2007 (an increase of 11.2% in local currency), principally
due to the higher commission expenses, increased customer service activities and
mobile advertising as a result of higher commercial activity.
Other
expenses for Telefónica Latin America in Colombia increased to €515 million in
2008 from €476 million in 2007 (an increase of 9.6% in local currency),
principally due to higher bad debt allowances in the mobile
business.
Other
expenses for Telefónica Latin America in Ecuador increased to €93 million in
2008 from €86 million in 2007 (an increase of 15.4% in local currency),
principally due to an increase in commercial activity and the tax paid for the
renewal of the mobile license.
Operating
income before depreciation and amortization
As a
result of the foregoing, Telefónica Latin America’s OIBDA, increased 18.6% to
€8,445 million in 2008 from €7,121 million in 2007 (an increase of 22.5% on a
constant euro basis). By country, Venezuela contributed most to OIBDA
growth (5.1 percentage points), followed by Brazil (4.0 percentage points) and
Mexico (3.9 percentage points). In absolute terms, in 2008 Brazil was
the largest contributor to Telefónica Latin America’s OIBDA, accounting for
39.7% of the total, followed by Venezuela at 15.7% and Argentina at
10.9%.
Telefónica
Latin America’s OIBDA in 2008 as a percentage of Telefónica Latin America’s
revenues for the same period was 38.1%, 2.6 percentage points higher than in
2007.
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·
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Telefónica
Latin America’s OIBDA in Brazil increased to €3,359 million in 2008 from
€3,056 million in 2007 (an increase of 9.8% in local
currency).
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·
|
Telefónica
Latin America’s OIBDA in Venezuela increased to €1,328 million in 2008
from €1,060 million in 2007 (an increase of 34.0% in local
currency).
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·
|
Telefónica
Latin America’s OIBDA in Argentina increased to €919 million in 2008 from
€788 million in 2007 (an increase of 26.7% in local
currency).
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·
|
Telefónica
Latin America’s OIBDA in Chile increased to €740 million in 2008 from €716
million in 2007 (an increase of 9.7% in local
currency).
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·
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Telefónica
Latin America’s OIBDA in Mexico increased to €420 million in 2008 from
€179 million in 2007 (an increase of 154.2% in local currency). The
increase was the result of cost control measures and revenue
growth.
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·
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Telefónica
Latin America’s OIBDA in Peru increased to €621 million in 2008 from €482
million in 2007 (an increase of 29.0% in local
currency).
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·
|
Telefónica
Latin America’s OIBDA in Colombia increased to €515 million in 2008 from
€503 million in 2007 (an increase of 3.6% in local
currency).
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·
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Telefónica
Latin America’s OIBDA in Central America decreased to €217 million in 2008
from €236 million in 2007 (a decrease of 1.5% on a constant euro
basis).
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|
·
|
Telefónica
Latin America’s OIBDA in Ecuador increased to €92 million in 2008 from €73
million in 2007 (an increase of 35.0% in local
currency).
|
Depreciation
and amortization
Telefónica
Latin America’s depreciation and amortization increased 2.4% to €3,645 million
in 2008 from €3,559 million in 2007.
Operating
income
As a
result of the foregoing, Telefónica Latin America’s operating income increased
34.8% to €4,800 million in 2008 from €3,562 million in 2007.
Atento
Revenues
Atento’s
revenues increased by 10.8% to €1,301 million in 2008 from €1,174 million in
2007. The increase in revenues was primarily driven by an increase in the
customer activity of Telefónica, primarily in Brazil, Peru, Morocco and Central
America, partially offset by a lower activity in Spain.
Expenses
Atento’s
expenses increased 10.0% to €1,120 million in 2008 from €1,018 million in 2007
primarily due to the increase in structural costs from the leasing of capacity
associated with the growth of the business. This growth in expenses was
partially offset by migrating services from the Spanish market to Latin American
markets, which limited the growth of personnel expenses.
Operating
income before depreciation and amortization
Atento’s
OIBDA increased 15.4% to €186 million in 2008 from €161 million in 2007, driven
by an increase in activity and a slower growth rate for operational
expenses.
Operating
income
Atento’s
operating income increased 17.4% to €154 million in 2008 from €131 million in
2007.
Cash
Flow Analysis
The table
below sets forth consolidated cash flow information for the periods indicated.
Positive figures refer to cash inflows and those in parenthesis refer to cash
outflows.
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Year
ended December 31,
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||||||||||||
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2007
|
2008
|
2009
|
||||||||||
|
IFRS
|
(in
millions of euros)
|
|||||||||||
|
Net
cash from operating activities
|
15,551 | 16,366 | 16,148 | |||||||||
|
Net
cash used in investing activities
|
(4,592 | ) | (9,101 | ) | (9,300 | ) | ||||||
|
Net
cash used in financing activities
|
(9,425 | ) | (7,765 | ) | (2,281 | ) | ||||||
Net
cash from operating activities
Net cash
from operating activities decreased 1.3% to €16,148 million in 2009 from €16,366
million in 2008. In 2008, the increase was 5.2% from €15,551 million
in 2007.
In 2009,
we had cash received from customers (€67,358 million) less cash paid to
suppliers and employees (€46,198 million) totaling €21,160 million, 2.9% more
than the €20,560 million generated in 2008. This increase was largely
driven by our extensive business diversification, our execution skills in a
challenging environment and efficient management of both operating expenses and
capital expenditure. Our strong commercial efforts also helped to
drive modest growth in total accesses (primarily in mobile and broadband
accesses). In 2008, cash received from customers less cash paid to
suppliers and employees (€20,560 million) rose 2.3% compared to €20,105 million
in 2007, due mostly to our strong position in our main markets, extensive
business diversification and strategic commitment to growth in our operating
markets.
Cash
received from customers decreased by 2.5% to €67,358 million in 2009 from
€69,060 million in 2008. This decrease was in line with the decline in
revenues. In 2008, cash received from customers increased by 2.9% to
€69,060 million from €67,129 million in 2007. This growth was the
result of modestly higher revenue due to the growth in accesses, which in turn
was due to the success of the commercial campaigns to win and retain
customers.
Cash paid
to suppliers and employees in 2009 decreased 4.8% to €46,198 million from
€48,500 million in 2008. This reduction is the result of the drive to
contain expenses and to maximize the efficiency of the cost
structure. In addition, cash paid to employees in 2009 and 2008 was
broadly in line with the evolution of the average headcount. In 2008
cash paid to suppliers and employees rose 3.1% to €48,500 million from €47,024
million in 2007. This increase was primarily attributable to greater
commercial efforts in the various geographic areas while maximizing the
efficiency of the cost structure and to higher interconnection
charges.
Payments
for net interest and other finance expenses decreased by 25.0% to €2,170 million
in 2009 from €2,894 million in 2008, due to the decline in average interest
rates applicable to our debt during the year and the reduction in our financial
debt outstanding during the year. These figures do not include
payments to be made on the main issuances of our debt securities made in 2009,
with interest payments that will begin to become due in 2010. In 2008
payments for net interest and other finance expenses decreased 10.2% to €2,894
million from €3,221 million in 2007 mostly due to the decrease in our debt
outstanding over the period.
Taxes
paid in 2009 increased by 108.2% to €2,942 million from €1,413 million in 2008
due to the €1,297 million payment made by Telefónica, S.A. in the
year. The increase was mainly due to the absence in 2009 of tax
credits in Group companies. Taxes paid in 2008 fell 3.0% to €1,413
million from €1,457 million in 2007.
Net
cash used in investing activities
Net cash
used in investing activities in 2009 increased by 2.2% to €9,300 million from
€9,101 million in 2008, mainly due to the investment of certain short-term cash
surpluses in higher yielding financial investments.
Net cash
used in investing activities increased by €4,509 million in 2008 to €9,101
million from €4,592 million in 2007. This net increase was primarily
attributable to the following investments in 2008: the acquisitions of Telemig
by Brasilcel for €347 million, of shares of CNC and China Unicom for €688
million and €424 million, respectively, and of a 51.8% interest in CTC from
minority shareholders for €640 million. This net increase was
partially offset by a 22.2% decrease in payments on investments in companies,
net of cash and cash equivalents acquired, from €2,798 million in 2007 to €2,178
million in 2008. The main investment in 2007 was for a 42.3% stake in Telco for
€2,314 million.
Payments
on investment in property, plant and equipment and intangible assets in 2009
decreased by 3.8% to €7,593 million from €7,889 million in 2008. This
decrease was in line with the evolution of the investment in capital
expenditures in the period. Payments on investment in property, plant
and equipment and intangible assets in 2008 totaled €7,889 million, an increase
of €615 million from 2007, driven by further investment in fiber optics, 3G
technology, pay TV technology and ADSL.
Proceeds
on disposals of companies, net of cash and cash equivalents disposed amounted to
€34 million in 2009. Proceeds on disposals of companies, net of cash
and cash equivalents disposed, amounted to €686 million in 2008 mainly due to
the €648 million obtained from the sale of Sogecable. In 2007, the
figure was €5,346 million, as a result of our disposals of stakes in Airwave and
Endemol for €2,841 million and €2,107 million, respectively.
Interest
received on cash surpluses not included under cash equivalents in 2009 amounted
€548 million. Net disposals of these investment in 2008 and 2007
amounted €76 million and €74 million, respectively.
Net
cash used in financing activities
Net cash
used in financing activities in 2009 decreased by 71% to €2,281 million from
€7,765 million in 2008, mainly due to the increase of proceeds from the issuance
of debentures and bonds in 2009 for aggregate proceeds of €8,617 million
compared to aggregate proceeds of €1,317 million raised in 2008.
Net cash
used in financing activities in 2008 totaled €7,765 million, down from €9,425
million in 2007. The €1,660 million decline is primarily due to a
decrease in the repayment of financing as a result of a decrease in our average
outstanding net debt in 2008 to €45,785 million compared to €48,938 million in
2007.
Anticipated
Uses of Funds
Our
principal liquidity and capital resource requirements consist of the
following:
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·
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capital
expenditures for existing and new
operations;
|
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·
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acquisitions
of new licenses or other operators or companies engaged in complementary
or related businesses;
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·
|
costs
and expenses relating to the operation of our
business;
|
|
|
·
|
dividend,
other shareholder remuneration, and pre-retirement payments;
and
|
|
|
·
|
debt
service requirements relating to our existing and future
debt.
|
We have
announced a capital expenditure target in the range of €7,450 million to
€7,650 million for 2010. This target range was proposed based on
constant 2009 exchange rates and excludes the effects of Venezuela being
considered a hyperinflationary economy in 2009 and any effects should it remain
a hyperinflationary economy in 2010. This target range also excludes
any spectrum licenses which we may acquire and investments in our Real Estate
Efficiency Program in Spain, a multi-year program related to the optimization of
our real estate assets and rented properties in Spain. In 2010, we
expect to continue investing mainly in our 3G and broadband networks to meet
existing growth opportunities related to broadband, increased network traffic
and the offering of new products and services utilizing new or evolving
technologies. By region, our capital expenditures will be mainly
directed to Latin America, as we view this region to possess the most growth
potential for the Group, but we will manage spending depending on the needs of
each country and return on potential investments, as our main goal is to sustain
cash flow generation. Nevertheless, we expect to continue to make
investments in our mobile and fixed networks due to increased usage and the need
to offer new services and greater functionality afforded by new or evolving
technologies. Our principal capital expenditures are described in
“Item 4. Information on the Company”. Our anticipated amounts of
capital expenditures and investments in affiliates and the underlying
assumptions are subject to risks and uncertainties, and actual capital
expenditures and investments in affiliates may be less than or exceed these
amounts. See “Cautionary Statement Regarding Forward-Looking
Statements”.
We may
also use funds to acquire new licenses or other operators or companies engaged
in complementary or related businesses.
We also
have liquidity requirements related to the costs and expenses relating to the
operation of our business, our payment of dividends, shareholder remuneration
and pre-retirement payment commitments and financial and real estate
investments. In 2009, with respect to these items, we had the
following principal cash expenditures: €4,557 million in connection with the
payment of dividends on Telefónica S.A. shares, €1,178 million in connection
with financial and real estate net investments, €959 million in connection with
our share buyback program and €793 million in connection with commitments under
pre-retirement plans.
We also
have liquidity requirements related to debt service requirements in connection
with our existing and future debt. At December 31, 2009, we had gross
financial debt of €56,791 million compared with €53,188 million at December 31,
2008. For the amortization schedule of our consolidated gross
financial debt at December 31, 2009, see “—Anticipated Sources of Liquidity”
below. Our net financial debt increased to €43,551 million at
December 31, 2009 compared to €42,733 million at December 31,
2008. For a reconciliation of net financial debt to gross financial
debt (the sum of current and non-current interest-bearing liabilities), see
“—Presentation of Financial Information—Non-GAAP financial information—Net
financial debt and net debt”.
For a
discussion of our liquidity risk management policy, see Note 16 to our
Consolidated Financial Statements.
Anticipated
Sources of Liquidity
Cash
flows from operations are our primary source of cash funding for existing
operations, capital expenditures, interest obligations and principal
payments. We also rely on external borrowings, including a variety of
short- and medium-term financial instruments, principally bonds and debentures,
and borrowings from financial institutions. Cash and cash equivalents
are mainly held in euro and euro-denominated instruments. We believe
that, in addition to internal generation of funds, our medium-term note program,
our euro commercial paper program, our corporate domestic promissory note
program and available lines of credit will provide us with substantial
flexibility for our future capital requirements as existing debt is
retired. As of the date of this Annual Report, our management
believes that our working capital is sufficient to meet our present
requirements.
The
following table shows the amortization schedule of our consolidated gross
financial debt at December 31, 2009, as stated in euro using the European
Central Bank buying rate for euro on such date. We may have exchange
rate
financial derivatives instruments assigned to the underlying debt
instruments. In 2009, the average cost of net debt, which we measure
as net financial expense divided by our average net debt, was
7.31%. The effects derived from Venezuela as a
hyperinflationary economy as described in “Item 5. Operating and Financial
Review and Prospects—A. Operating Results—Significant Factors Affecting the
Comparability of our Results of Operations in the Periods Under Review—Classification of
Venezuela as a Hyper inflationary Economy”, resulted in an increase in net
financial expense of €630 million in 2009. Excluding such
effects in 2009 and negative exchange differences, our average cost of
net debt in 2009 would have been 5.54%. The table below includes the
fair value of those derivatives classified as financial liabilities (negative
mark-to-market) under IFRS (€1,432 million). It does not include the
fair value of derivatives classified as financial assets (positive
mark-to-market) under IFRS (€537 million). For a further description
of liquidity risk faced by us, see Note 16 to our Consolidated Financial
Statements, and for a description of our financial liabilities, see Note 13 to
our Consolidated Financial Statements.
|
AMORTIZATION
SCHEDULE FOR THE YEAR ENDED DECEMBER 31,
|
||||||||||||||||||||||||||||
|
2010
|
2011
|
2012
|
2013
|
2014
|
Subsequent
|
Total
|
||||||||||||||||||||||
|
(in
millions of euros)
|
||||||||||||||||||||||||||||
|
Non-convertible
euro and foreign currency debentures and bonds
|
5,090 | 3,275 | 1,749 | 4,174 | 4,763 | 13,911 | 32,962 | |||||||||||||||||||||
|
Promissory
notes and commercial paper
|
812 | — | — | — | — | — | 812 | |||||||||||||||||||||
|
Other
marketable debt securities
|
61 | 54 | — | — | — | 1,954 | 2,069 | |||||||||||||||||||||
|
Loans
and other payables (principal and interest accrued)
|
1,789 | 6,132 | 3,695 | 1,433 | 513 | 4,396 | 17,958 | |||||||||||||||||||||
|
Derivatives
financial liabilities
|
1,432 | 255 | 106 | 65 | 63 | 1,069 | 2,990 | |||||||||||||||||||||
|
Total
|
9,184 | 9,716 | 5,550 | 5,672 | 5,339 | 21,330 | 56,791 | |||||||||||||||||||||
|
(*)
|
Estimated
future interest payments as of December 31, 2009 on our
interest-bearing-debt are as follows: €2,382 million in 2010, €2,074
million in 2011, €1,818 million in 2012, €1,620 million in 2013, €1,355
million in 2014 and €8,190 million in subsequent years. With respect to
floating rate debt, we estimate future interest payments as the forward
rates derived from yield curves quoted for the different currencies on
December 31, 2009.
|
During
2009, we obtained financing of over €14,000 million (excluding financing under
short-term commercial paper programs), mainly in connection with refinancing
2009 maturities and pre-financing part of the 2010 debt maturities.
In 2009,
as a part of our refinancing plan to enhance our flexibility, primarily, we
issued: (i) five-year bonds in an aggregate principal amount of €2,000 million,
with an annual interest rate of 5.431%, on February 3, 2009; (ii) seven-year
bonds in an aggregate principal amount of €1,000 million, with an annual
interest rate of 5.496%, on April 1, 2009 increased up to an aggregate principal
amount of €1,500 million, on June 3, 2009; (iii) six-year bonds in an aggregate
principal amount of €400 million, which bear interest at a floating rate based
on three-month EURIBOR plus a margin of 1.825%, on June 2, 2009 (iv) ten-year
bonds in an aggregate principal amount of $1,000 million, with an annual
interest rate of 5.877%, on July 6, 2009; (v) five and a half-year bonds in an
aggregate principal amount of $1,250 million, with an annual interest rate of
4.949%, on July 6, 2009; (vi) ten-year bonds in an aggregate principal amount of
€1,750 million, with an annual interest rate of 4.693%, on November 11, 2009;
(vii) 13-year bonds in an aggregate principal amount of 650 million pounds
sterling, with an annual interest rate of 5.289%, on December 10, 2009; (viii)
five-year bonds in an aggregate principal amount of €100 million, which bear
interest at a floating rate based on three-month EURIBOR plus a margin of 0.7%,
on December 23, 2009. In 2009, some of our Latin American companies
issued bonds with an aggregate principal amount equivalent to approximately
€2,000 million.
In
addition, on February 13, 2009, Telefónica, S.A. signed an agreement with the
banks involved in its €6,000 million credit facility granted on June 28, 2005
and maturing on June 28, 2011, to extend the maturity of €4,000
million of the €6,000 million drawn-down in exchange for the payment of
additional fees and an upward adjustment in interest rates, as follows: (i) the
maturity date for €2,000 million outstanding was extended to June 28, 2012 and
(ii) the maturity date for the remaining €2,000 million outstanding was extended
to June 28, 2013.
During
2009, we have continued to be active under certain commercial paper programs
(domestic and European) (with an outstanding balance of €800 million at December
31, 2009).
At
December 31, 2009, we had unused committed credit lines of approximately €7,200
million, all of which bear interest at a floating rate based on market indices,
principally the Euro Interbank Offered Rate, or EURIBOR and the London Interbank
Offered Rate, or LIBOR. An aggregate of €2,779 million in principal
amount of such credit lines are scheduled to expire prior to December 31,
2010.
On March
24, 2010 we issued five-year bonds in an aggregate principal amount of €1,400
million, with an annual interest rate of 3.406%.
Our
borrowing requirements are not significantly affected by seasonal
trends.
The table
below sets forth the ratings of our short- and long-term debt as of the date of
this Annual Report. A credit rating is not a recommendation to buy,
sell or hold securities, may be subject to revision at any time and should be
evaluated independently of any other rating.
|
Rating
Agency
|
Issuer
|
Long-Term
Debt
|
Short-Term
Debt
|
Outlook
|
Last
Update
|
|||||
|
Moody’s
|
Telefónica,
S.A.
|
Baa1
|
P-2
|
Positive
|
February
17, 2009
|
|||||
|
JCR
|
Telefónica,
S.A.
|
A
|
-
|
Stable
|
December
17, 2008
|
|||||
|
Standard
& Poor’s
|
Telefónica,
S.A.
|
A-
|
A-2
|
Stable
|
December
2, 2008
|
|||||
|
Fitch
|
Telefónica,
S.A.
|
A-
|
F-2
|
Stable
|
November
25, 2008
|
|
|
·
|
Moody’s,
on February 17, 2009, raised Telefónica S.A.’s rating outlook to
“Baa1/positive outlook” from “Baa1/stable
outlook”.
|
|
|
·
|
JCR,
the Japanese rating agency, on December 17, 2008, upgraded its credit
rating for Telefónica, S.A. to “A/stable outlook” from “A-/stable
outlook”.
|
|
|
·
|
Standard
& Poor’s, on December 2, 2008, upgraded its rating of Telefónica S.A.
from “BBB+/positive outlook” to “A-/stable
outlook”.
|
|
|
·
|
Fitch,
on November 25, 2008, upgraded its rating from “BBB+/positive outlook” to
“A-/stable outlook”.
|
Our
ability to use external sources of financing will depend in large part on our
credit ratings. We believe that we are well-positioned to raise
capital in financial markets. However, negative conditions in the
financial markets or a downgrade of any of the ratings of our debt by any of
Fitch, Moody’s, JCR and/or Standard & Poor’s may increase the cost of our
future borrowing or may make it more difficult to access the public debt
markets. In connection with the credit rating agencies’ review of our
debt ratings, the rating agencies may give considerable weight to the general
macroeconomic and political conditions, the performance of our businesses in
countries where we operate, our financial and shareholder remuneration policy,
our acquisition policy, our ability to integrate acquisitions and our ability to
refinance debt.
For a
discussion of our liquidity and country risk management policy, see Note 16 to
our Consolidated Financial Statements.
Intragroup
Loans
We lend
funds to our operating subsidiaries, directly or through holding companies that
head our different lines of business. At December 31, 2009, we had
loans outstanding totaling €5,975 million (€13,594 million at December 31, 2008)
to companies in the Telefónica Group (including subsidiaries located in Latin
American countries). These funds are derived from retained cash
flows, loans, bonds and other sources (such as asset disposals).
We
continue to be firmly committed to technological innovation as a key tool for
achieving sustainable competitive advantage, preempting market trends and
differentiating our products. Through the introduction of new
technologies
and the development of new products and business processes, we seek to become
more effective, efficient and customer-oriented.
We have
developed an open model for the management of technological innovation in order
to promote the application of technical research to the development of
commercial products and services. We focus on certain applied
research and development, or R&D, priorities which are aligned with our
strategy. This model promotes open innovation initiatives such as the
creation of a venture capital fund and participation in enterprise collaboration
forums, among other things. It also makes use of the knowledge
developed at technological centers, universities, and start-up companies, among
other sources, and encourages innovation in collaboration with other agents, who
will become “technological partners”, including clients, universities, public
administrations, suppliers, content providers and other companies. We
believe that differentiating our products from those of our competitors and
improving our market position cannot be based solely on acquired
technology. We also believe it is important to foster R&D
activities in an effort to achieve this differentiation and to advance other
innovation activities. Our R&D policy is aimed at:
|
|
·
|
developing
new products and services in order to gain market
share;
|
|
|
·
|
fostering
customer loyalty;
|
|
|
·
|
increasing
revenues;
|
|
|
·
|
improving
management;
|
|
|
·
|
improving
business practices; and
|
|
|
·
|
increasing
the quality of our infrastructure and services to improve customer service
and reducing costs.
|
In 2009,
we undertook technological innovation projects focusing on profitable
innovation, process efficiency, the creation of new sources of revenues,
customer satisfaction, the consolidation of our presence in new markets and
technological leadership.
Our
technological innovation activities are an integral part of our strategy to
create value through broadband, IP network, wireless and new generation (fiber
optic) networks communications and services.
In 2009
we undertook projects to promote increased access to information technology, new
services focused on new Internet business models, advanced user interfaces,
mobile TV and other broadband services. These projects, among others,
were undertaken based on our objective to quickly identify emerging technologies
that might have a relevant impact on our businesses, and to test such
technologies with trials relating to new services, applications and platform
prototypes.
In 2009,
new business and operational support systems were developed and existing systems
were improved.
Most of
our R&D activities are carried out by Telefónica Investigación y Desarrollo
S.A.U., or Telefónica I+D, our wholly owned subsidiary, which works principally
for our lines of business. In performing its functions, Telefónica
I+D receives assistance from other companies and
universities. Telefónica I+D’s mission focuses on improving our
competitiveness through technological innovation and product
development. Telefónica I+D leads experimental and applied research
and product development to increase the range of our services and reduce
operating costs. It also provides technical assistance to our Latin
American and European operations. Telefónica I+D’s activities include
the following:
|
|
·
|
development
of new products and fixed telephone services, particularly the development
of such value added services as broadband, digital home, mobile
communications and Internet services for the public, corporate, mobile TV
and multimedia sectors;
|
|
|
·
|
development
of new modes of communications for communities, telemedicine, home and
company telemonitoring and new infrastructure to provide such services,
such as the Internet protocol environment and new generation networks,
such as fiber optics;
|
|
|
·
|
development
of innovative solutions for the real time provisioning, operating and
billing of our networks and services, which includes the development of
management systems designed to strengthen infrastructure and its quality
providing security, privacy and
trust;
|
|
|
·
|
development
of business support systems to better identify customer characteristics in
order to provide personalized and innovative solutions;
and
|
|
|
·
|
applied
research to undertake, understand and develop those aspects, opportunities
and specialty new technologies for the evolution of our different
businesses.
|
In 2009,
approximately 41% of Telefónica I+D’s funding assigned to R&D was for the
benefit of the business in Spain, 33% for businesses in Latin America, 13% for
Telefónica (primarily the Corporate Innovation Program, which includes projects
with a medium- to long-term focus involving two or more business units), 6% for
Telefónica Europe and 7% to third-party customers.
At
December 31, 2009, Telefónica I+D had 1,221 employees, who also collaborated
with qualified professionals from 84 companies and more than 50
universities.
Our total
R&D expenses were €594 million, €668 million and €693 million in 2007, 2008
and 2009, respectively. These expenses represented 1.1%, 1.2% and
1.2% of our consolidated revenues, respectively. These figures have
been calculated using the guidelines set out in the OECD
Manual. These guidelines include expenses for research and
development that, because of timing of projects or accounting classifications,
we do not include in their entirety in our consolidated statement of financial
position.
During
2009, Telefónica registered 57 patents, 48 of which were registered at Spanish
Patent Office and nine of which were registered at European or U.S. patent
offices.
We are an
integrated diversified telecommunications group that offers a wide range of
services, mainly in Spain, Europe, and Latin America. Our activity is
based upon providing fixed and mobile services, Internet and data, pay TV and
value added services, among others. In addition, our holdings in
China Unicom and Telecom Italia create opportunities for strategic alliances
that reinforce our competitive position, scale and efficiency.
Our
business is impacted by general economic conditions and other similar factors in
each of the countries in which we operate. The continuing recession
in Spain and uncertainty about an economic recovery elsewhere may negatively
affect the level of demand of existing and prospective customers, as our
services may not be deemed critical for these customers.
As a
multinational telecommunications company that operates in regulated markets, we
are subject to different laws and regulations in each of the jurisdictions in
which we provide services. We can expect the regulatory landscape to
change in Europe as a consequence of the revised regulations resulting from the
implementation of the review of the common regulatory framework currently in
place in the European Union. In addition, we may also face pressure
from regulatory initiatives in some European countries regarding tariffs, the
reform of rights of spectrum use and allocation, issues related to the quality
of service and the regulatory treatment of new broadband infrastructure
deployments.
We face
intense competition in most of our markets, and we are therefore subject to the
effects of actions taken by our competitors. The intensity of the
competition may deepen, having an impact on tariff structures, consumption,
market share and commercial activity, which could result in decreases in current
and potential customers, revenues and profitability.
However,
we are in a strong competitive position in most of the markets where we
operate. We intend to continue to seek and take advantage of growth
opportunities, such as by boosting both fixed and mobile broadband services and
by furthering the development of services beyond connectivity, information
technology services and related businesses. We seek to lead the
industry by anticipating trends in the new digital environment.
We will
continue transforming our operating model to increase our operational efficiency
and capture the synergies arising from our integrated approach to businesses,
processes and technologies and will maintain a regional approach to tackle this
transformation more efficiently. At the same time, we will continue
to be strongly committed to technological innovation as a key tool for achieving
sustainable competitive advantages, anticipating market trends and
differentiating our products. We continually seek to become a more
efficient and customer-oriented Group, by introducing new technologies and
developing new products and business processes.
In Spain,
we will continue to intensify our commercial focus on offering higher quality
services, by increasing the effectiveness of our sales channels and further
improving our networks to increase customer satisfaction. We will
seek to strengthen relations with our customers through targeted commercial
offerings. We will focus on boosting mobile and fixed broadband
growth and bundling services more effectively, taking into account the different
geographical areas in which we operate. Efficiency will continue to
play a very important role in all areas of management, both in commercial and
operational areas, including systems, networks and processes.
In Latin
America, our strategy is based on a regional model that captures growth and
efficiency of scale without losing sight of the local management of the
client. The mobile business will continue to play a fundamental role
as an engine of regional growth. That is why we continue to further
improve the capacity and coverage of our networks, adapting our distribution
network to enhance the quality of our offer both in voice and data in order to
keep and attract high value customers. With regard to the fixed
telephony business, we will encourage the increase of broadband speed and expand
the supply of bundled services. We will further advance efficiency, in
operational and commercial terms and attempt to achieve further synergies by
implementing global, regional and local projects.
In
Europe, customers will remain at the center of our strategy and management
priorities in the region. With the objective of offering our
customers the best value, we will boost the mobile and fixed broadband services
to strengthen our market position. Various initiatives will be
implemented to improve our operating efficiency.
In
summary, in the context of continued economic uncertainty, intense competition
and regulatory pressure on pricing, we will continue strengthening our business
model to make it more efficient and capture the synergies arising from the
integrated approach of businesses, processes and technologies, while focusing
even more on the client.
We have
commitments that could require us to make material payments in the
future. These commitments are not included in our consolidated
statement of financial position at December 31, 2009 although they are described
in the notes to our Consolidated Financial Statements. These
commitments primarily relate to put rights pursuant to which third parties can
require us to purchase some or all of their interests in certain of our
subsidiaries or joint ventures, as in the case of Brasilcel, and contingent
obligations in the form of guarantees. For additional detail on our
off-balance sheet commitments, see Note 21(b) to our Consolidated Financial
Statements.
The
following table describes our contractual obligations and commitments with
definitive payment terms which may require significant cash outlays in the
future. The amounts payable (including accrued interest payments) are
as of December 31, 2009. For additional information, see our
Consolidated Financial Statements included elsewhere herein.
|
Payments
Due by Period
|
||||||||||||||||||||
|
Total
|
Less
than 1 year
|
1-3
years
|
3-5
years
|
More
than 5 Years
|
||||||||||||||||
|
(in
millions of euros)
|
||||||||||||||||||||
|
Financial
liabilities (1)(2)
|
56,791 | 9,184 | 15,266 | 11,011 | 21,330 | |||||||||||||||
|
Operating
lease obligations (3)
|
6,547 | 1,023 | 1,700 | 1,327 | 2,497 | |||||||||||||||
|
Purchase
obligations (4)
|
3,151 | 1,305 | 769 | 395 | 682 | |||||||||||||||
|
Other
liabilities (5)
|
1,695 | 296 | 1,399 | — | — | |||||||||||||||
|
Total
|
68,184 | 11,808 | 19,134 | 12,733 | 24,509 | |||||||||||||||
|
(1)
|
Capital
(finance) lease obligations are not calculated separately and are instead
included as part of our long-term debt
obligations.
|
|
(2)
|
This
item includes the fair value of those derivatives classified as financial
liabilities (negative mark-to-market) under IFRS (€1,432
million). Future interest payments as of December 31, 2009 on
our interest-bearing-debt are as follows: €2,382 million in 2010, €2,074
million in 2011, €1,818 million in 2012, €1,620 million in 2013, €1,355
million in 2014 and €8,190 million in subsequent years. With
respect to floating rate debt, we estimate future interest payments as the
forward rates derived from yield curves quoted for the different
currencies on December 31, 2009. It does not include the fair value of
derivatives classified as financial assets (positive mark-to-market) under
IFRS (€537 million). For a more detailed description of our
financial derivative transactions, see “Item 11. Quantitative and
Qualitative Disclosures About Market Risk” and Note 16 to our Consolidated
Financial Statements.
|
|
(3)
|
Our
operating lease obligations have in some cases extension options
conditioned on the applicable law of each country. Accordingly,
we have included only those amounts that represent the initial contract
period.
|
|
(4)
|
This
item includes definitive payments due for agreements to purchase goods
(such as network equipment) and
services.
|
|
(5)
|
“Other
liabilities” include long-term obligations that require us to make cash
payments, excluding financial debt obligations included in the table under
“Financial Liabilities” above. Because of the nature of the
risks covered by “Other liabilities” such as “Other provisions”, it is not
possible to determine a reliable schedule of potential payments, if
any. For details of the composition of “other provisions” see
Note 15 to our Consolidated Financial
Statements.
|
In
addition, at December 31, 2009, we have short and long term employee benefits
provisions amounting to €667 million and
€3,594
million, respectively.
For
details of the composition of, and changes in, our debt, see “—Liquidity and
Capital Resources—Anticipated Sources of Liquidity” and Note 13 to our
Consolidated Financial Statements.
During
2009, our Board of Directors met 13 times. At March 25, our Board of Directors
had met three times during 2010. At March 25, 2010, our directors,
their respective positions on our Board and the year they were appointed to such
positions were as follows:
|
Name
|
Age
|
First
Appointed
|
Current
Term Ends
|
|||
|
Chairman
|
||||||
|
César
Alierta Izuel(1)
|
64
|
1997
|
2012
|
|||
|
Vice-chairmen
|
||||||
|
Isidro
Fainé Casas(1)(2)
|
67
|
1994
|
2011
|
|||
|
Vitalino
Manuel Nafría Aznar(3)(4)(5)(6)(7)
|
59
|
2005
|
2011
|
|||
|
Members
(vocales)
|
||||||
|
Julio
Linares López(1)(8)
|
64
|
2005
|
2011
|
|||
|
José
María Abril Pérez (1)(3)(5)
|
58
|
2007
|
2013
|
|||
|
José
Fernando de Almansa Moreno-Barreda(5)(6)(9)
|
61
|
2003
|
2013
|
|||
|
Jose
María Álvarez –Pallete López
|
46
|
2006
|
2012
|
|||
|
David
Arculus (5)(6)
|
63
|
2006
|
2011
|
|||
|
Eva
Castillo Sanz (6)(9)(11)
|
47
|
2008
|
2013
|
|||
|
Carlos
Colomer Casellas(1)(8)(10)(11)
|
65
|
2001
|
2011
|
|||
|
Peter
Erskine(1)(8)(9)(10)
|
58
|
2006
|
2011
|
|||
|
Alfonso
Ferrari Herrero (1)(4)(5)(6)(7)(10)(11)
|
68
|
2001
|
2011
|
|||
|
Luiz
Fernando Furlán(5)
|
63
|
2008
|
2013
|
|||
|
Gonzalo
Hinojosa Fernández de Angulo (1)(4)(5)(7)(9)(10)(11)
|
64
|
2002
|
2012
|
|||
|
Pablo
Isla Álvarez de Tejera(6)(7)(8)(10)(11)
|
46
|
2002
|
2012
|
|||
|
Antonio
Massanell Lavilla(2)(4)(7)(8)(11)
|
55
|
1995
|
2011
|
|||
|
Francisco
Javier de Paz Mancho (1)(5)(6)(7)
|
51
|
2007
|
2013
|
|
(1)
|
Member
of the Executive Commission of the Board of
Directors.
|
|
(2)
|
Nominated
by Caja de Ahorros y Pensiones de Barcelona (“La
Caixa”).
|
|
(3)
|
Nominated
by Banco Bilbao Vizcaya Argentaria, S.A.
(“BBVA”).
|
|
(4)
|
Member
of the Audit and Control Committee of the Board of
Directors.
|
|
(5)
|
Member
of the International Affairs
Committee.
|
|
(6)
|
Member
of the Regulation Committee.
|
|
(7)
|
Member
of the Human Resources and Corporate Reputation and Responsibility
Committee.
|
|
(8)
|
Member
of the Innovation Committee.
|
|
(9)
|
Member
of the Strategy Committee.
|
|
(10)
|
Member
of the Nominating, Compensation and Corporate Governance
Committee.
|
|
(11)
|
Member
of the Service Quality and Customer Service
Committee.
|
Board
Committees
At March
25, 2010, the committees of our Board of Directors and members thereof are as
follows:
Executive
Commission
Our Board
of Directors has expressly delegated all of its authority and power to the
Executive Commission except as prohibited by Spanish corporate law, under our
Articles of Association, or under our Board Regulations. This
commission is made up of fewer directors and meets more frequently than our
Board of Directors. The members of the Executive Commission are Mr.
César Alierta Izuel, Mr. Isidro Fainé Casas, Mr. Julio Linares López, Mr. José
María Abril Pérez, Mr. Carlos Colomer Casellas, Mr. Peter Erskine, Mr. Alfonso
Ferrari Herrero,
Mr.
Gonzalo Hinojosa Fernández de Angulo, Mr. Francisco Javier de Paz Mancho and Mr.
Ramiro Sánchez de Lerín García-Ovies, as secretary.
Audit
and Control Committee
The Audit
and Control Committee functions are regulated by our bylaws and our Board
Regulations. The Audit and Control Committee has the primary
objective of providing support to our Board of Directors in its supervisory and
oversight functions, specifically having the following
responsibilities:
|
|
·
|
to
report, through its chairman, to our general meeting of shareholders on
matters raised at the general meeting of shareholders relating to the
functions and matters of competence of the
committee;
|
|
|
·
|
to
propose to our Board of Directors to submit to our general meeting of
shareholders the appointment of our auditors referred to in Article 204 of
the Stock Company Act, as well as, when appropriate, the terms of their
engagement, scope of professional assignment and revocation or non-renewal
of their appointment;
|
|
|
·
|
to
supervise the internal audit
services;
|
|
|
·
|
to
have an understanding of the process for gathering financial information
and the internal control systems;
and
|
|
|
·
|
to
maintain the necessary relations with the auditors to receive information
on all matters that may put their independence at risk, and any other
matters related to the process of auditing our accounts, as well as to
receive information and maintain communication with our auditors as
required by laws relating to the audit process and with respect to
technical regulations on auditing.
|
The Audit
and Control Committee meets at least once per quarter and as many times as
considered necessary. During 2009, the Audit and Control Committee met ten times
and, as of the date of this Annual Report, had met three times in
2010. The members of the Audit and Control Committee are Mr. Gonzalo
Hinojosa Fernández de Angulo (chairman), Mr. Antonio Massanell Lavilla, Mr.
Alfonso Ferrari Herrero and Mr. Vitalino Manuel Nafría Aznar.
Nominating,
Compensation and Corporate Governance Committee
The
Nominating, Compensation and Corporate Governance Committee is responsible for,
among other things, reporting to our Board of Directors with respect to
proposals for the appointment, re-election and removal of directors, members of
the Executive Committee and the other committees of our Board of Directors and
top members of our management and management of our subsidiaries. In
addition, the Nominating, Compensation and Corporate Governance Committee is
responsible for proposing to the Board of Directors, within the framework
established in the bylaws, the compensation for the directors and reviewing it
periodically to ensure that it is in keeping with the tasks performed by them,
as provided in Article 35 of the Board Regulations, to propose to the Board of
Directors, within the framework established in the bylaws, the extent and amount
of the compensation, rights and remuneration of a financial nature, of the
Chairman, the executive directors and the senior executive officers of
Telefónica, including the basic terms of their contracts, for purposes of
contractual implementation thereof and to supervise compliance with Telefónica’s
internal rules of conduct and the corporate governance rules thereof in effect
from time to time.
The
members of the Nominating, Compensation and Corporate Governance Committee are
Mr. Alfonso Ferrari Herrero (chairman), Mr. Carlos Colomer Casellas, Mr. Peter
Erskine, Mr. Gonzalo Hinojosa Fernández de Angulo and Mr. Pablo Isla Álvarez de
Tejera. During 2009, the Nominating, Compensation and Corporate Governance
Committee met nine times, and as of the date of this Annual Report, had met four
times in 2010.
Human
Resources and Corporate Reputation and Responsibility Committee
The Human
Resources and Corporate Reputation and Responsibility Committee is responsible
for reviewing our personnel policy and making proposals to our Board of
Directors regarding our personnel policy, corporate reputation, responsibility
and the promotion of our values within the Telefónica Group. The
Human Resources and
Corporate
Reputation and Responsibility Committee met five times during 2009, and as
of the date of this Annual Report had met once in 2010. The
members of the Human Resources and Corporate Reputation and Responsibility
Committee are Mr. Francisco Javier de Paz Mancho (chairman), Mr. Alfonso Ferrari
Herrero, Mr. Gonzalo Hinojosa Fernández de Angulo, Mr. Pablo Isla Álvarez de
Tejera, Mr. Antonio Massanell Lavilla and Mr. Vitalino Manuel Nafría
Aznar.
Regulation
Committee
The
Regulation Committee’s main objective is to monitor the main regulatory matters
which affect us. Another responsibility of the Regulation Committee
is to act as a communication and information channel between our management team
and our Board of Directors concerning regulatory matters. The members
of the Regulation Committee are Mr. Pablo Isla Álvarez de Tejera (chairman), Mr.
José Fernando de Almansa Moreno-Barreda, Mr. David Arculus, Ms. Eva Castillo
Sanz, Mr. Alfonso Ferrari Herrero, Mr. Vitalino Manuel Nafría Aznar and Mr.
Francisco Javier de Paz Mancho. During 2009, the Regulation Committee met six
times, and as of the date of this Annual Report, had met once in
2010.
Service
Quality and Customer Service Committee
The
Service Quality and Customer Service Committee is responsible for monitoring and
reviewing the standards of quality of the main services we
provide. The Service Quality and Customer Service Committee acts as
an information channel between our senior management team and our Board of
Directors. The members of the Service Quality and Customer Service
Committee are Mr. Antonio Massanell Lavilla (chairman), Ms. Eva Castillo Sanz,
Mr. Carlos Colomer Casellas, Mr. Alfonso Ferrari Herrero, Mr. Gonzalo Hinojosa
Fernández de Angulo, and Mr. Pablo Isla Álvarez de Tejera. During 2009 the
Service Quality and Customer Service Committee met four times, and as of the
date of this Annual Report, had met once in 2010.
International
Affairs Committee
The
International Affairs Committee is responsible for analyzing international
events and matters that affect the Telefónica Group and reporting these events
and possible consequences to our Board of Directors. The
International Affairs Committee pays close attention to events taking place in
countries where we have operations and which may affect our competitive
position, corporate image and financial results. The International
Affairs Committee also oversees our non-profit foundations in such
countries. The members of the International Affairs Committee are Mr.
José Fernando de Almansa Moreno-Barreda (chairman), Mr. José María Abril Pérez,
Mr. David Arculus, Mr. Alfonso Ferrari Herrero, Mr. Luiz Fernando Furlán, Mr.
Gonzalo Hinojosa Fernández de Ángulo, Mr. Vitalino Manuel Nafría Aznar and Mr.
Francisco Javier de Paz Mancho. During 2009, the International
Affairs Committee met four times, and as of the date of this Annual Report had
met once in 2010.
Innovation
Committee
The
Innovation Committee is responsible for advising and assisting in all matters
regarding innovation. Its main object is to examine, analyze and
periodically monitor the Group’s innovation projects, provide guidance and help
ensure the implementation and development of innovation initiatives across the
Group. The members of the Innovation Committee are Mr. Carlos Colomer
Casellas (chairman), Mr. Pablo Isla Álvarez de Tejera, Mr. Antonio Massanell
Lavilla, Mr. Peter Erskine and Mr. Julio Linares López. During 2009,
the Innovation Committee met eight times, and as of the date of this Annual
Report, had met three times in 2010.
Strategy
Committee
Without
prejudice to any other tasks that the Board of Directors may assign thereto, the
primary duty of the Strategy Committee is to support the Board of Directors in
the analysis and implementation of the global strategy policy of the Telefónica
Group. The members of the Strategy Committee are Mr. Peter Erskine
(chairman), Mr. José Fernando de Almansa Moreno-Barreda, Ms. Eva Castillo Sanz
and Mr. Gonzalo Hinojosa Fernández de Angulo. The Strategy Committee met ten
times during 2009, and as of the date of this Annual Report, had met three times
in 2010.
Biographies
of Directors
Mr. César Alierta Izuel serves
as our Executive Chairman and Chairman of our Board of Directors.
Mr. Alierta began his career in 1970 as general manager of the capital
markets division at Banco Urquijo, S.A. in Madrid, where he worked until 1985.
Subsequently, he founded and served as chairman of Beta Capital Sociedad de
Valores, S.A. which he combined as from 1991 with his post as chairman of the
Spanish Financial Analysts’ Association (Asociación Española de Analistas
Financieros). Between 1996 and 2000, he was director and
chairman of Tabacalera, S.A. At that time Tabacalera, S.A. changed its name into
Altadis, S.A. (following its merger with the French Group, Seita-Société
Nationale D’Éxplotation Industrielle des Tabacs et Allumettes) and he became
director and chairman of Altadis, S.A. He has also been a member of the board of
directors of the Madrid Stock Exchange (Bolsa de Madrid), Plus Ultra
Compañía de Seguros y Reaseguros, S.A. and of Iberia, S.A. On January
1997, Mr. Alierta was appointed as a director of Telefónica and on July 26,
2000, he was appointed as our Executive Chairman. Mr. Alierta is
director of Telecom Italia since November 8, 2007 and of China Unicom (Hong
Kong) Limited since October 15, 2008. Mr. Alierta holds a law degree
from the University of Zaragoza and an MBA from Columbia University (New York)
and is currently a member of the Columbia Business School Board of
Overseers.
Mr. Isidro Fainé Casas serves
as Vice-Chairman of our Board of Directors. For over 40 years, Mr. Fainé has
worked in several financial institutions, including amongst others: Banco
Atlántico, S.A., (1964), Banco de Asunción (Paraguay) (1969), Banco Riva y
García, S.A. (1973), Banca Jover, S.A. (1974), and Banco Unión, S.A.
(1978). Mr. Fainé is currently chairman of Caja de Ahorros y
Pensiones de Barcelona (“la Caixa”) and of Criteria CaixaCorp, S.A.,
vice-chairman of Abertis Infraestructuras, S.A. and of Confederación Española de
Cajas de Ahorros, and second vice-chairman of Repsol YPF, S.A. He is
also a member of the board of directors of Banco Portugués de Investimento, S.A.
(BPI), Hisusa, Holding de Infraestructuras y Servicios Urbanos, S.A., Grupo
Financiero Inbursa and a non-executive director of Bank of East
Asia. Mr. Fainé holds a doctorate degree in economics, a diploma in
Alta Dirección (Senior
Management) from IESE Business School (Instituto de Estudios Superiores de
la Empresa) and an ISMP in business administration from Harvard
University. He is a member of the Real Academia de Ciencias Económicas
y Financieras.
Mr. Vitalino Manuel Nafría
Aznar serves as Vice-Chairman of our Board of Directors. In
1966 he joined Banco de Vizcaya, S.A. In 1983, Mr. Nafría Aznar was appointed
general manager of Induban, S.A. (Banco de Financiación Industrial) in
Bilbao. In 1988 he worked as regional manager for Aragón, Navarra y
Rioja at Banco Bilbao Vizcaya (BBV). In 1990, he was appointed business manager
of BBV. In April 1998, he was appointed director of the board of
directors and general manager of BBV in Mexico. In July 2000, he was
appointed chief executive officer and director of the board of directors of
Grupo Financiero BBA Bancomer (GFBB). In December 2001, he was
appointed member of the executive committee of BBVA and in January 2003 he
became general manager of BBVA America. Since January 2005 he has
been the Retail Banking Manager in Spain and Portugal for BBVA. He is
now in early retirement. Since February 2009, he is chairman of the board of
directors of Metrovacesa, S.A.
Mr. Julio Linares López serves
as a director of our Board of Directors and as our Chief Operating Officer since
December 19, 2007. In May 1970, he joined our Research and
Development Center, where he held several positions until he was appointed head
of our Technology Department. In April 1990, he was appointed General
Manager of Telefónica Investigación y Desarrollo, S.A. In December
1994, he became deputy general manager of the Marketing and Services Development
department in the commercial area and subsequently, deputy general manager for
Corporate Marketing. In July 1997, he was appointed chief executive
officer of Telefónica Multimedia S.A. and chairman of Telefónica Cable and
Producciones Multitemáticas, S.A. In January 2000, he was appointed
executive chairman of Telefónica de España, S.A., a position which he held until
December 2005, when he was appointed our managing director for Coordination,
Business Development and Synergies. He is currently member of the
board of directors of Telecom Italia. Mr. Linares holds a degree in
telecommunications engineering from the Polytechnic University of Madrid (Universidad Politécnica de
Madrid).
Mr. José María Abril Pérez
serves as a director of our Board of Directors. From 1975 to 1982 he
served as financial manager of Sociedad Anónima de Alimentación
(SAAL). Since then, and until he joined the Banco Bilbao Vizcaya
Argentaria Group (BBVA), he was financial manager of Sancel-Scott Ibérica, S.A.
In 1985 he joined Banco Bilbao, S.A. as managing director of Investment
Corporate Banking. From January to April 1993, he was appointed
executive
coordinator of Banco Español de Crédito, S.A. In 1998, he became
general manager of the Industrial Group of BBVA. In 1999, he was appointed
member of the executive committee of the BBVA Group. He has also been
a member of the board of directors of Repsol, S.A., Iberia, S.A. and Corporación
IBV. In 2002 he became managing director of the Wholesale and
Investment Banking Division and a member of the executive committee of BBVA, and
he is now in early retirement. Until July 2007, he was vice president
of Bolsas y Mercados Españoles, S.A. He is currently a member of the board of
directors of Advancell, S.A. He holds a degree in economics from the
University of Deusto (Bilbao, Spain) and he has been professor at such
university for nine years.
Mr. José Fernando de Almansa
Moreno-Barreda serves as a director of our Board of
Directors. In December 1974 he joined the Spanish Diplomatic Corps
(Cuerpo Diplomático)
and served from 1976 to 1992 as Secretary of the Spanish Embassy in Brussels,
Cultural Counselor of the Spanish Delegation to Mexico, Chief Director for
Eastern European Affairs, Director of Atlantic Affairs in the Spanish Foreign
Affairs Ministry, Counselor to the Spanish Permanent Representation to NATO in
Brussels, Minister-Counselor of the Spanish Embassy in the Soviet Union, General
Director of the National Commission for the 5th Centennial of the Discovery of
the Americas and Deputy General Director for Eastern Europe Affairs in the
Spanish Foreign Affairs Ministry. From 1993 to 2002, Mr. Fernando de
Almansa was appointed Chief of the Royal Household by His Majesty King Juan
Carlos I, and is currently personal advisor to His Majesty the
King. He is also a substitute director of BBVA Bancomer México, S.A.
de C.V.. He holds a law degree from the University of Deusto (Bilbao,
Spain).
Mr. José María Álvarez-Pallete
López serves as a director of our Board of Directors and, since July
2006, as Chairman of Telefónica Latin America. He began his career at
Arthur Young Auditors in 1987. In 1988, he joined Benito & Monjardín/Kidder,
Peabody & Co., where he held various positions in the research and corporate
finance departments. In 1995, he joined Valenciana de Cementos Portland, S.A.
(Cemex) as head of the Investor Relations and Studies department. In 1996 he was
promoted to chief financial officer of Cemex Group in Spain, and in 1998, to
chief administration and financial officer of Cemex in Indonesia, headquartered
in Jakarta, and he was appointed member of the Board of Cemex Asia,
Ltd. In February 1999 he joined the Telefónica Group as general
manager of Finance for Telefónica International, S.A. In September of
the same year he was promoted to chief financial officer of Telefónica. In July
2002, he was appointed chairman and chief executive officer of Telefónica
Internacional, S.A. Mr. Álvarez-Pallete holds a degree in economics from the
Complutense University of Madrid. He also studied economics at the
Université Libre de Belgique and holds an International Management Program from
the Pan-American Institute of Executive Business Administration (IPADE) and an
advance research degree from the Universidad Complutense of Madrid.
Sir David Arculus serves as a
director of our Board of Directors. From 1998 to 2001, he was chairman of Severn
Trent Plc. and IPC Group Ltd. From 2002 to 2004, he was chairman of Earls Court
and Olympia Ltd. From 2004 to January 2006, he served as chairman of O2 (now
Telefónica Europe). Sir David Arculus was deputy president of the Confederation
of British Industry (CBI) until 2006 and is currently a member of the board of
directors of Pearson, Plc. He is also chairman of Numis, Plc. In 1972
he received an MBA from the London Business School. In 1996, he
received his master’s degree in engineering and economics from Oriel College,
Oxford, and in 2003 he received a degree Honoris Causa from the
University of Central England.
Ms. Eva Castillo Sanz serves
as a director of our Board of Directors. Ms. Castillo began her career at the
Spanish broker Beta Capital Sociedad de Valores, S.A., where she worked for five
years. After that, she worked for another five years for Goldman
Sachs International in London in the International Equities
department. In 1997 Ms. Castillo joined Merrill Lynch as head of
Equity Markets for Spain and Portugal. In 1999, she was promoted to Country
Manager for Spain and Portugal and in 2000 she became chief executive officer of
Merrill Lynch Capital Markets Spain. After that, Ms. Castillo was
appointed chief operating officer for EMEA Equity Markets. In October
2003 she was appointed head of Global Markets & Investment Banking in Spain
and Portugal, as well as president of Merrill Lynch Spain. Until
December 2009, she headed Global Wealth Management business
operations in Europe, the Middle East and Africa, including Merrill Lynch Bank
(Suisse) and the International Trust and Wealth Structuring
business. She was a member of the Merrill Lynch EMEA Executive
Committee, the Global Wealth Management Executive and Operating
Committees. Ms. Castillo holds degrees in business, economics and law
(ICADE – 3) from the Universidad Pontificia de Comillas of Madrid.
Mr. Carlos Colomer Casellas
serves as a director of our Board of Directors. Mr. Colomer began his
career in 1970 as marketing vice-chairman of Henry Colomer, S.A. In
1980, he was appointed chairman and general manager
of Henry
Colomer, S.A. and Haugron Cientifical, S.A. In 1986, he was also
appointed president of Revlon for Europe. In 1989, he became chairman
of Revlon International and in 1990, he was appointed executive vice-president
and chief operating officer of Revlon Inc. In 2000, he was appointed
chairman and chief executive officer of the Colomer Group. Mr. Colomer is
chairman of the Colomer Group. He is also chairman of Ahorro
Bursátil, S.A. SICAV and Inversiones Mobiliarias Urquiola, S.A.
SICAV. Mr. Colomer has a degree in economics from the University of
Barcelona and an MBA from IESE Business School (Instituto de Estudios Superiores de
la Empresa).
Mr. Peter Erskine serves as a
director of our Board of Directors. He began his career in the field
of marketing and brand management in Polycell and in Colgate
Palmolive. He worked for several years at the Mars Group, serving as
vice-chairman for Europe of Mars Electronics. In 1990 he was
appointed vice-president of Marketing and Sales of Unitel. From 1993 to 1998, he
held a number of senior positions, including director of British
Telecom (BT) Mobile and president and chief executive officer of
Concert. In 1998 he became managing director of BT
Cellnet. Subsequently, in 2001 he became chief executive officer and
a director of the board of directors of Telefónica O2 Europe, Plc (now
Telefónica Europe). In 2006 he became executive chairman of
Telefónica O2 Europe, Plc and from July 2006 until December 2007 he served as
general manager of the business unit Telefónica Europe. In 2008, he joined the
Telecom Advisory Boards of Apax Partners and MacQuarie European Infrastructure
Fund, and become a member of the Strategy Advisory Committee of Henley
Management Centre. In January 2009 he joined the Board of Ladbrokes
P.L.C. as a non executive director. Currently, he is also member of
the advisory board of Henley Management Centre. In 1973, he received
a degree in psychology from Liverpool University.
Mr. Alfonso Ferrari Herrero
serves as a director of our Board of Directors. From 1968 to 1969 he was
assistant to the financial manager of Hidroeléctrica del Cantábrico, S.A. From
1969 to 1985, he worked in Banco Urquijo, S.A. holding several positions as
analyst, manager of Industrial Investments and as a representative in several
subsidiaries in his capacity as member of the board of directors of Banco
Urquijo, S.A. From 1985 to 1996 he was a member of the board of
directors and manager of Corporate Finance of Beta Capital Sociedad de Valores,
S.A., of which Mr. Ferrari was a co-founder. From 1996 until 2000
served as chairman and chief operating officer of Beta Capital,
S.A. He has a doctorate in industrial engineering from the Industrial
Engineers Technical School of the Polytechnic University of Madrid (Escuela Técnica Superior de
Ingenieros Industriales de la Universidad Politécnica de
Madrid) and holds an MBA from Harvard University.
Mr. Luiz Fernando Furlán
serves as a director of our Board of Directors. Throughout his career
he has been a member of the board of directors of several companies in Brazil
and abroad such as Sadia, S.A., Embraco, S.A. (Brasmotor Group-Brazil) and
Panamco (Pan American Beverages, Inc. – USA). He was also member of
the consulting board of IBM in Latin America and of ABN Amro Bank in Brazil, as
well as chairman of Brazilian Chicken Exporters Association (ABEF), Brazilian
Association of Public Owned Companies (ABRASCA) and of Mercosur European Union
Business Forum (MEBF). He also was vice-president of Sao Paulo Entrepreneurs
Association (FIESP). From 2003 to 2007 he was Minister of
Development, Industry and Foreign Trade of Brazil. Currently he is also chairman
of the board of directors of Brasil Foods, S.A. and of Amazonas Sustainability
Foundation and member of the board of directors of Redecard S.A. and Amil
Participações S.A., and member of the Advisory/Consultive Board of Panasonic
(Japan) and McLarty & Associates (USA). He holds a degree in
chemical engineering from the Industrial Engineering Faculty of São Paulo and in
business administration from University of Santana (São Paulo), with
specialization in financial administration from Fundação Getúlio Vargas (São
Paulo).
Mr. Gonzalo Hinojosa Fernández de
Angulo serves as a director of our Board of Directors. He
began his career in 1966 in Cortefiel, S.A. and served in several management
positions since then. From 1976 to 1985 Mr. Hinojosa was general
manager of Cortefiel, S.A. and from 1985 until 2006 he served as chief executive
officer of the company, a post which he combined with his appointment as
chairman since 1998. From 1991 through 2002, he served as a director
of Banco Central Hispano Americano, S.A. and as a director of Portland
Valderribas, S.A. He has also served as a director of Altadis, S.A.
and of Dinamia Capital Privado, S.A., SCR. Mr. Hinojosa
has a degree in industrial engineering from the Industrial Engineers Technical
School of the Polytechnic University of Madrid (Escuela Técnica Superior de
Ingenieros Industriales de la Universidad Politécnica de
Madrid).
Mr. Pablo Isla Álvarez de
Tejera serves as a director of our Board of Directors. Mr.
Isla began his career in 1988 as Government Attorney (Abogado del Estado), and he
joined the Body of Government Attorneys that year, in the first position of the
candidates, for the Spanish Ministry of Transportation, Tourism and
Communications. In 1991 he moved to the General Management of the
Legal Services of the Spanish Government (Dirección General
del Servicio Jurídico del
Estado). From 1992 to 1996, Mr. Isla served as general manager
of the Legal Services Department of Banco Popular, S.A. In 1996, he was
appointed general manager of the National Heritage Department of the Treasury
Department of Spain (Ministerio de Economía y
Hacienda). He also served as General Secretary of Banco
Popular Español, S.A. from 1998 to 2000. In July 2000, Mr. Isla was
appointed chairman of the board of Grupo Altadis and co-chairman of the
company. Since June 2005, Mr. Isla is the deputy chairman and chief
executive officer of Inditex, S.A. Mr. Isla has a degree in law from the
Universidad Complutense of Madrid.
Mr. Antonio Massanell Lavilla
serves as a director of our Board of Directors. In 1971 he joined the Caja de
Ahorros y Pensiones de Barcelona (“la Caixa”), where he held several posts and
in 1990, he was appointed assistant manager and secretary of the Steering
Committee. In the same year, he was appointed member of the board of
directors of VidaCaixa, S.A., Seguros de la Caixa, S.A., Socredit (Monaco), and
Sociedad Española de Medios de Pago, S.A. From 1992 to 1994, Mr. Massanell
served as Chairman of the Steering Committee of Sistema 6000 de la Confederación Española de Cajas de
Ahorros. Mr. Massanell is currently executive deputy general
manager of la Caixa and a member of the boards of directors of e-la Caixa 1,
S.A., Boursorama, S.A., Caixa Capital Risc, S.G.E.C.R., S.A., and Serveis
Informátics “La Caixa”, S.A. He is also chairman of Port Aventura
Entertainment, S.A. and Barcelona Digital Centre Tecnológic (former Fundació
Barcelona Digital). Mr. Antonio Massanell Lavilla holds a degree in
economics from the University of Barcelona.
Mr. Francisco Javier De Paz
Mancho serves as a director of our Board of Directors. From 1990 to 1993,
he was Secretary to the Board of the Spanish Consumers Association (Unión de Consumidores de
España, UCE). From 1993 to 1996, he served as general manager
of Internal Trade of the Spanish Ministry of Tourism and
Commerce. From 1994 to 1996, he was chairman of the Observatory of Trading
of the Spanish Ministry of Tourism and Commerce (Observatorio de la Distribución
Comercial del Ministerio de Comercio y Turismo); from 1996 to 2004, he
was corporate strategy manager of the Panrico Donuts Group. From 1998 to 2004,
he served as director of Mutua de Accidentes de Zaragoza (MAZ) and of the
Panrico Group. From 2004 to 2006, he was director of Tunel de Cadí,
S.A.C. and from 2003 to 2004, he served as chairman of the Patronal Pan y
Bollería Marca (COE). From 2004 to 2007, he was chairman of the
National Company MERCASA. He has also been a member of the board of directors of
Altadis, S.A., and of the Economic and Social Board and its permanent
commission. From July 2006, he has been a member of the Executive
Committee of the Chambers Board (Consejo Superior de
Cámaras). Mr. de Paz has a diploma in publicity and
information and followed studies in law. He followed a Programa de Alta Dirección de
Empresas from the IESE Business School (Instituto de Estudios Superiores de
la Empresa, University of Navarra).
Executive
Officers/Management Team
At March
25, 2010, our executive management team was composed of six general managers, in
addition to our three executive officers who are also directors on our Board of
Directors.
|
Name
|
Position
|
Appointed
|
Age
|
|||
|
Mr.
César Alierta Izuel
|
Chairman
of the Board of Directors and Chief Executive Officer
|
2000
|
64
|
|||
|
Mr.
Julio Linares López
|
Chief
Operating Officer
|
2007
|
64
|
|||
|
Mr.
José María Álvarez –Pallete López
|
Chairman
of Telefónica Latin America
|
2002
|
46
|
|||
|
Mr.
Guillermo Ansaldo Lutz
|
Chairman
of Telefónica Spain
|
2007
|
48
|
|||
|
Mr.
Matthew Key
|
Chairman
of Telefónica Europe
|
2007
|
47
|
|||
|
Mr.
Santiago Fernández Valbuena
|
General
Manager of Finance and Corporate Development
|
2002
|
52
|
|||
|
Mr.
Luis Abril Pérez
|
Technical
General Secretary to the Chairman
|
2002
|
62
|
|||
|
Mr.
Calixto Ríos Pérez
|
General
Manager of Internal Audit
|
2002
|
65
|
|||
|
Mr.
Ramiro Sánchez de Lerín García-Ovies
|
General
Legal Secretary and Secretary to the Board
|
2003
|
55
|
Biographies
of the Executive Officers and Senior Management
We
present below the biographies of our executive officers and senior management
who do not also serve on our Board of Directors.
Mr. Guillermo Ansaldo Lutz
serves as Chairman of Telefónica Spain since December 2007, and he is also
member of the Executive Committee of Telefónica. From 1989 to 2000 he worked for
McKinsey & Company holding different positions in Spain and Argentina. In
1995, he was appointed partner of McKinsey & Company in Argentina. From 2000
to 2004 he was the chief executive officer of Telefónica de Argentina, S.A. and
since April 2005, he held the position of chief executive officer of Telefónica
de España, S.A. He holds a degree in industrial engineering from the Universidad
de Buenos Aires and an MBA from The Amos Tuck School of Business Administration,
Dartmouth College.
Mr. Matthew Key serves as
Chairman of Telefónica Europe and is a member of the Executive Committee of
Telefónica. From 1984 until 1998 he held various positions of
responsibility in Arthur Young, the Grand Metropolitan Plc (1988), Coca Cola
& Schweppes Beverages Ltd (1993-1995), Kingfisher Plc and finally, from 1998
to 2002, Vodafone Plc. From 2000 to 2002 he worked as non-executive
director of Vodafone Egypt. He has served as chairman and
non-executive director of Telco Mobile since 2003. From 2003 to 2005 he was
non-executive director of Link Stores. In February 2002, he was
appointed chief financial officer of Telefónica O2 UK until December
2004. In January 2005, he was appointed chief executive officer
of Telefónica O2 UK. He holds a degree in economics from Birmingham
University.
Mr. Santiago Fernández
Valbuena serves as General Manager of Finance and Corporate Development
since December 2002 and is a member of the Executive Committee of
Telefónica. He has served as our chief financial officer since July
2002. He joined Telefónica Group in 1997 as chief executive officer
of Fonditel, Telefónica’s pension assets manager. Previously, he was
the managing director of Societé Génerale Equities, and also head of Equities
& Research at Beta Capital in Madrid. Mr. Fernández Valbuena
served as president of the Research Commission at the Spanish Institute of
Financial Analysts. He has held senior teaching positions with the
MBA programs of the Manchester Business School and Instituto de
Empresa. He holds a degree in economics from the Universidad
Complutense of Madrid and he also holds an M.S. and a PhD degree in economics
and finance from Northeastern University in the United States.
Mr. Luis Abril Pérez serves as
our Technical General Secretary to the Chairman. Mr. Abril started
his professional career as a microeconomics professor in the Universidad
Comercial de Deusto, where he went on to head its Finance Department. In 1978,
he moved to Banco de Vizcaya, S.A., as treasury director and then worked as head
of the president’s technical department. During his work with the
Banco Bilbao Vizcaya Group (1988 to 1991), he acted as general director for the
Asset Management division. From 1994 to 1999, Mr. Abril acted as
general director for Banco Español de Crédito, S.A. (Banesto), and he later
acted as general director for communications for Banco Santander Central
Hispano, S.A. (1999 to 2001). Mr. Abril holds a degree in economics
and a law degree from the Universidad Comercial de Deusto and he also holds an
MBA from the North European Management Institute, Oslo, Norway.
Mr. Calixto Ríos Pérez serves
as our General Manager of Internal Audit. In 1973, Mr. Ríos joined Banco
Exterior de España, S.A. as the General Manager of Extebank in New York
City. Subsequently he was appointed chief executive officer and chief
operating officer of Extebandes in Venezuela. Later, Mr. Ríos
returned to Madrid as the general manager of International Banking Subsidiaries
of Banco Exterior de España, S.A. In 1990, he was appointed chief
executive officer responsible for overseeing the construction, management and
marketing of the Olympic Village for the Olympic games of Barcelona and a year
later was appointed chief financial officer of Tabacalera, S.A. After
the merger of Tabacalera with the French company, Seita, he was appointed
advisor to the chairman and head of Strategy and Planning. In
November 2000, he joined the Telefónica Group as general manager for
Institutional Relations, and in July 2002 he was appointed general manager for
Internal Auditing and Communications. He holds a degree in economics
from the Universidad Complutense of Madrid.
Mr. Ramiro Sánchez de Lerín
García-Ovies serves as our General Secretary and Secretary to our Board
of Directors. He began his career in Arthur Andersen, first working
for its audit department and later for its tax department. In 1982,
he became a Government Attorney (Abogado del Estado) and
started working for the local tax authorities in Madrid (Delegación de Hacienda de
Madrid). Afterwards he was assigned to the State Secretariat
for the European Communities and later to the Foreign Affairs
Ministry. He has been general secretary and secretary of the Board of
Elosúa, S.A., Tabacalera, S.A., Altadis, S.A. and Xfera Móviles,
S.A. He has also held teaching positions in Instituto Católico de
Administración y Dirección de Empresas (ICADE), Instituto de Empresa and Escuela
de Hacienda Pública.
Directors
The
compensation of our directors is governed by Article 28 of our bylaws, which
states that the aggregate compensation amount that we may pay to all of our
directors as remuneration and attendance fees shall be fixed by the shareholders
at the general meeting of shareholders, and such amount shall remain unchanged
until the shareholders decide to modify it. The Board of Directors
shall determine the exact amounts to be paid within such limit and the
distribution thereof among the directors. In this respect, on April
11, 2003, our shareholders set the maximum gross annual amount to be paid to the
Board of Directors at €6 million. This includes fixed payments and
fees for attending meetings of the Board of Directors’ advisory or control
committees described above. In addition, the compensation provided
for above is in addition to other professional or employment compensation
accruing to the directors by reason of any executive or advisory duties that
they perform for the Group, other than the supervision and collective
decision-making duties inherent in their capacity as directors.
Therefore,
the compensation paid to our directors in their capacity as members of the Board
of Directors, the Executive Commission and/or any of the advisory and control
committees consists of a fixed amount payable monthly plus fees for attending
the meetings of the Board’s advisory or control committees. In this
respect, executive board members, other than the Chairman, only receive
compensation for discharging their executive duties as stipulated in their
respective contracts and not in their capacity as directors.
The
following table presents the fixed annual amounts paid to directors for
membership in the Board of Directors, Executive Commission and any advisory or
control committees.
|
Position
|
Board
of Directors
|
Executive
Commission
|
Advisory
or Control Committees
|
|||||||||
|
(in
euros)
|
||||||||||||
|
Chairman
|
300,000 | 100,000 | 28,000 | |||||||||
|
Vice
Chairman
|
250,000 | 100,000 | — | |||||||||
|
Board
member (vocal):
|
||||||||||||
|
Executive
|
— | — | — | |||||||||
|
Proprietary
|
150,000 | 100,000 | 14,000 | |||||||||
|
Independent
|
150,000 | 100,000 | 14,000 | |||||||||
|
Other
external
|
150,000 | 100,000 | 14,000 | |||||||||
In
addition, each director is paid a fee of €1,250 for attendance at each meeting
of an advisory or control committee.
Total
compensation paid to our directors for discharging their duties in 2009 amounted
to €4,081,333 in fixed compensation and €252,500 in fees for attending advisory
or control committee meetings. It should also be noted that the
compensation paid to our directors for serving as members on the boards of
directors of other Telefónica Group companies amounted to
€1,791,104. In addition, the directors who are members of the
regional advisory committees, including the Telefónica Corporate University
Advisory Council, received additional aggregate compensation of €553,750 in
2009.
The
following table presents the breakdown by item of the compensation and benefits
paid to Telefónica directors for discharging their duties in 2009:
|
|
|
|
Other
Board
Committees
|
|
||||||||||||||||
|
Board
Members
|
Board
of Directors
|
Executive
Commission
|
Fixed
payment
|
Attendance
fees
|
Total
|
|||||||||||||||
|
(in
euros)
|
||||||||||||||||||||
|
Chairman
|
||||||||||||||||||||
|
César
Alierta Izuel
|
300,000 | 100,000 | — | — | 400,000 | |||||||||||||||
|
Vice
chairmen
|
||||||||||||||||||||
|
Isidro
Fainé Casas
|
250,000 | 100,000 | — | — | 350,000 | |||||||||||||||
|
Vitalino
Manuel Nafría Aznar
|
250,000 | — | 56,000 | 22,500 | 328,500 | |||||||||||||||
|
Members
|
||||||||||||||||||||
|
Julio
Linares López
|
— | — | — | — | — | |||||||||||||||
|
José
María Abril Pérez
|
150,000 | 100,000 | 14,000 | 1,250 | 265,250 | |||||||||||||||
|
José
Fernando de Almansa Moreno-Barreda
|
150,000 | — | 56,000 | 21,250 | 227,250 | |||||||||||||||
|
José
María Álvarez-Pallete López
|
— | — | — | — | — | |||||||||||||||
|
David
Arculus
|
150,000 | — | 28,000 | 11,250 | 189,250 | |||||||||||||||
|
Eva
Castillo Sanz
|
150,000 | — | 14,000 | 10,000 | 174,000 | |||||||||||||||
|
Carlos
Colomer Casellas
|
150,000 | 100,000 | 56,000 | 16,250 | 322,250 | |||||||||||||||
|
Peter
Erskine
|
150,000 | 100,000 | 56,000 | 25,000 | 331,000 | |||||||||||||||
|
Alfonso
Ferrari Herrero
|
150,000 | 100,000 | 84,000 | 38,750 | 372,750 | |||||||||||||||
|
Luiz
Fernando Furlán
|
150,000 | — | 14,000 | 3,750 | 167,750 | |||||||||||||||
|
Gonzalo
Hinojosa Fernández de Angulo
|
150,000 | 100,000 | 98,000 | 42,500 | 390,500 | |||||||||||||||
|
Pablo
Isla Álvarez de Tejera
|
150,000 | — | 84,000 | 16,250 | 250,250 | |||||||||||||||
|
Antonio
Massanell Lavilla
|
150,000 | — | 65,333 | 28,750 | 244,083 | |||||||||||||||
|
Francisco
Javier de Paz Mancho
|
150,000 | 100,000 | 56,000 | 15,000 | 321,000 | |||||||||||||||
|
Total
|
2,600,000 | 800,000 | 681,333 | 252,500 | 4,333,833 | |||||||||||||||
In
addition, the breakdown of the total paid to executive directors Mr. César
Alierta Izuel, Mr. Julio Linares López and Mr. José María Álvarez-Pallete López
for discharging their executive duties by item is as follows:
|
Item
|
2009
|
|||
|
(in
euros)
|
||||
|
Salaries
|
5,947,604 | |||
|
Variable
compensation
|
8,058,179 | |||
|
Compensation
in kind(1)
|
100,051 | |||
|
Contributions
to pension plans
|
25,444 | |||
|
(1)
|
“Compensation
in kind” includes life and other insurance premiums (general medical and
dental insurance).
|
In
addition, under the Pension Plan for Senior Executives, we made total
contributions in 2009 on behalf of executive directors of
€1,925,387. The Pension Plan for Senior Executives is wholly funded
by us. This plan envisages annual defined contributions equivalent to
specific percentages of the relevant executives’ fixed remuneration, in
accordance with their professional category, and extraordinary contributions in
accordance with the circumstances of each such executive as detailed in the
plan. See Note 21 to the Consolidated Financial
Statements.
Our
executive directors also receive compensation under the Performance Share Plan
approved at the general shareholders’ meeting of June 21, 2006 and described in
more detail below. The maximum number of shares corresponding to the
second, third and fourth phases of the Performance Share Plan will be granted on
July 1, 2010, July 1, 2011, and July 1, 2012 respectively, to each of our
executive directors if all the terms established for such delivery are met as
follows: for Mr. César Alierta Izuel, 116,239, 148,818 and 173,716 shares,
respectively; for Mr. Julio Linares López, 57,437, 101,466 and 130,287 shares,
respectively; and for Mr. José María Álvarez-Pallete López, 53,204, 67,644 and
78,962 shares, respectively. With respect to the payout under the
first phase of the Performance Share Plan in July 2009, the beneficiaries
received, in accordance with the general terms and conditions of the Performance
Share Plan, all the shares assigned to them as follows: to Mr. César Alierta
Izuel, 129,183 shares; to Mr. Julio Linares López, 65,472 shares; and to Mr.
José María Álvarez-Pallete López, 62,354 shares. This maximum payout
was made because our total shareholder return, or TSR (as defined in the
Performance
Share Plan) exceeded that of the relevant comparison group. See Note
21 to the Consolidated Financial Statements.
It should
be noted that the non-executive directors do not receive and did not receive in
2009 any compensation in the form of pensions or life insurance, nor do they
participate in the share-based payment plans linked to our share
price.
In
addition, we do not grant and did not grant in 2009 any advances, loans or
credits to the directors, or to our top executives, in accordance with the
requirements of the Sarbanes-Oxley Act.
Executive
Officers and Senior Management
In 2009,
our six executive officers (excluding those that are also Directors) were paid a
total compensation package of €10,533,852 in the aggregate.
Contributions
made on behalf of these six executives under the Pension Plan for Senior
Executives mentioned above amounted to an aggregate amount of €922,728 in
2009.
In
addition, the maximum number of shares corresponding to the second, third and
fourth phases of the Performance Share Plan, described below, to be delivered to
these senior executives as a group, if all the established terms are met, is
130,911 shares, 306,115 shares and 394,779 shares,
respectively. Similarly, as explained above, these senior executives
received a total of 284,248 shares in 2009 as a result of satisfaction of the
TSR requirement for the first phase under the Performance Share
Plan.
Finally,
executive officer contracts, including those of executive directors, generally
include a severance clause entitling such executives to three years of salary
plus another year based on the length of service with us. The annual
salary on which the indemnity is based is the director’s last fixed salary and
the average amount of the last two variable payments received by
contract.
Incentive
Plans
In each
of 2007, 2008 and 2009, the Telefónica Group had the following incentive payment
plans linked to the share price of Telefónica, S.A. in effect.
Telefónica,
S.A. share plan: “Performance Share Plan”
At our
general meeting of shareholders on June 21, 2006, our shareholders approved the
introduction of a long-term incentive plan for managers and senior executives of
Telefónica, S.A. and other Telefónica Group companies (the “Performance Share
Plan”). Under the Performance Share Plan, selected participants who
meet the qualifying requirements are given a certain number of our shares as a
form of variable compensation.
The
Performance Share Plan was initially intended to last seven years. It
is divided into five phases, each three years long, beginning on July 1 (the
“Start Date”) and ending on June 30 three years later (the “End
Date”). At the start of each phase the number of shares to be awarded
to Performance Share Plan beneficiaries is determined based on their success in
meeting targets set. The shares are delivered, assuming targets are
met, at the End Date of each phase. Each phase is independent from
the others. The first started on July 1, 2006 (with all shares
delivered on July 1, 2009, as described above) and the fifth phase begins
on July 1, 2010 (with any shares earned delivered from July 1,
2013).
Award of
the shares is subject to a number of conditions:
|
|
·
|
The
beneficiary must continue to work for us throughout the three years of the
phase, subject to certain special conditions related to
departures.
|
|
|
·
|
The
actual number of shares awarded at the end of each phase will depend on
success in meeting targets and the maximum number of shares assigned to
each executive. Success is measured by comparing TSR, which
includes both the share price of and dividends on our shares, with the
TSRs of a basket of listed
|
| telecommunications companies that comprise the comparison group. Each employee who is a member of the plan is assigned at the start of each phase a maximum number of shares. The actual number of shares awarded at the end of the phase is calculated by multiplying this maximum number by a percentage reflecting degree of success at the date in question. This will be 100% if the TSR of Telefónica is equal to or better than that of the third quartile of the comparison group and 30% if Telefónica’s TSR is in line with the average. The percentage rises on a linear basis for all points between these two benchmarks. If the TSR is below average no shares are awarded. |
The end
of the first phase of the Performance Share Plan was on June 30, 2009, which
included the following maximum number of shares allocated:
|
Phase
|
Number
of shares
|
Unit
value (euros)
|
End
date
|
|||
|
1st
phase July 1, 2006
|
6,530,615
|
6.43
|
June
30, 2009
|
With the
expiration of the first phase of the Performance Share Plan in July 2009 a total
of 3,309,968 shares (corresponding to a total of 4,533,393 gross shares less a
withholding of 1,224,610 shares prior to delivery) were delivered to our
directors included in the first phase. The shares delivered were
deducted from our treasury shares in 2009.
All the
shares delivered under the first phase of the Performance Share Plan were hedged
with a derivative instrument acquired in 2006. The cost of this
instrument was €46 million, which in unit terms is €6.43 per
share. At June 30, 2009, the bank with whom the financial instrument
was contracted delivered to us the shares contracted. These were
initially accounted for as treasury shares.
The
maximum number of the shares issuable in each of the three outstanding phases at
December 31, 2009 is as follows:
|
Phase
|
Number
of shares
|
Unit
value (euros)
|
End
date
|
|||
|
2nd
phase July 1, 2007
|
5,556,234
|
7.70
|
June
30, 2010
|
|||
|
3rd
phase July 1, 2008
|
5,286,980
|
8.39
|
June
30, 2011
|
|||
|
4th
phase July 1, 2009
|
6,356,597
|
8.41
|
June
30, 2012
|
The
Performance Share Plan is equity-settled via the delivery of shares to the
participants. Accordingly, an expense of €23 million, €38 million and
€43 million of employee benefits was recorded in 2007, 2008 and 2009,
respectively.
To ensure
that we had enough shares to meet our obligations at the end of the first phase
begun in 2006, we bought an instrument from a financial institution that
delivered to us, at the end of the phase, a number of shares determined using
the same measure of success as the plan, i.e. an instrument that mirrored the
features of the first phase of the plan. The cost of this instrument
was €46 million, which in unit terms is €6.43 per share, assuming the maximum
number of shares under this instrument. See Note 20 to our
Consolidated Financial Statements.
We have
not arranged for any similar derivative for the second phase.
For the
third phase, we have arranged a financial instrument under the same conditions
as for the first phase, with possible delivery to us of up to 2,500,000 shares
under such instrument. The cost of the financial instrument is €25
million, equivalent to €9.96 per share assuming the maximum number of shares
under this instrument. See Note 20 to our Consolidated Financial
Statements.
For the
fourth phase of the Performance Share Plan, we have acquired an instrument from
a financial institution with the same features of the fourth phase of the
Performance Share Plan, whereby at the end of the phase, we may obtain part of
the shares necessary to settle the phase (4,000,000 shares). The cost
of the financial instrument was €34 million, equivalent to €8.41 per
share. See Note 20 to our Consolidated Financial
Statements.
Telefónica,
S.A. share option plan targeted at Telefónica Europe employees: “Performance
Cash Plan”
In
addition to the Performance Share Plan, another plan called the “Performance
Cash Plan”, operating under the same conditions as the Performance Share Plan is
targeted at employees of Telefónica Europe. This plan entails
delivery to Telefónica Europe executives of a specific number of theoretical
options in Telefónica, S.A., which are cash-settled at the end of each phase via
a payment equivalent to the market value of the shares on settlement date up to
a maximum of three times the value of the theoretical options, established for
each phase, of the shares at the delivery date.
The value
of the theoretical options is established as the average share price in the 30
days immediately prior to the start of each phase, except for the first phase,
where the average share price during the 30 days immediately prior to May 11,
2006 (€12.83) was taken as the reference.
The
estimated duration of this plan is also seven years, with five phases, each of
three years, commencing on July 1 of each year, starting in 2006.
Like the
Performance Share Plan, the performance rate for setting payments is measured
based on the TSR of Telefónica shares with respect to the comparison group’s
TSRs. Payments will be made in line with the following
criteria:
|
·
|
Below
average
|
0%
|
|
·
|
Average
|
30%
|
|
·
|
Equal
to or higher than the third quartile
|
100%
|
The
aggregate number of options assigned to the three phases outstanding at December
31, 2009 was 412,869.
The fair
value at December 31, 2009 of the options delivered in each phase in force at
that time was €19.55 per option. This value is calculated by taking
our share price and including the estimated TSR and is updated at each year
end.
Please
see “—Directors and Senior Management” above.
Employees
and Labor Relations
The table
below sets forth the average number of employees at the dates indicated for the
Telefónica Group during 2007, 2008 and 2009 and each of the consolidated
companies of the Group which comprise our different lines of business and other
consolidated subsidiaries.
|
2007
|
2008
|
2009
|
||||||||||||||||||||||
|
Average
|
Year-end
|
Average
|
Year-end
|
Average
|
Year-end
|
|||||||||||||||||||
|
Telefónica
Spain
|
37,688 | 35,792 | 35,708 | 35,562 | 35,318 | 35,338 | ||||||||||||||||||
|
Telefónica
Latin America
|
48,844 | 49,946 | 49,990 | 49,849 | 50,709 | 51,606 | ||||||||||||||||||
|
Telefónica
Europe
|
29,249 | 29,305 | 28,828 | 28,888 | 28,249 | 27,023 | ||||||||||||||||||
|
Subsidiaries
and other companies
|
128,271 | 133,444 | 137,249 | 142,736 | 140,875 | 143,459 | ||||||||||||||||||
|
Total
|
244,052 | 248,487 | 251,775 | 257,035 | 255,151 | 257,426 | ||||||||||||||||||
The
number of employees shown in the table above corresponds to the consolidated
companies. It is also worth highlighting the large number of
employees at the various companies of the Atento Group performing call center
activities included in the total numbers above, with an average of 129,885 in
2009 and 132,256 at December 31, 2009.
Of our
total employees at December 31, 2009, approximately 51.8 % were women (50.8% at
December 31, 2008).
Employee
Benefits
We have a
pension plan for our Spanish employees. Our contribution corresponds
to 4.51% of an employee’s fixed salary (for those employees who joined
Telefónica de España S.A.U. before June 30, 1992 the amount is
6.87%). The obligatory minimum employee contribution is 2.2%. This
plan is fully funded.
As of
December 31, 2009, 52,912 of our employees were members of the pension plan
managed by our subsidiary Fonditel Entidad Gestora de Fondos y Pensiones, S.A.
(54,819 employees as of December 31, 2008 and 57,675 at December 31,
2007). The total amount contributed in 2009 by the different
Telefónica Group companies was €97 million (€98 million and €95 million in
2008 and 2007 respectively).
In
addition, in 2006, we approved a Management Benefits Plan (Retirement Plan) for
senior executives, wholly funded by us, which complements the current pension
plan. This Management Benefits Plan envisages annual defined
contributions by Telefónica equivalent to specific percentages of the
executives’ fixed remuneration, in accordance with such executive’s professional
category, and extraordinary contributions in accordance with the circumstances
of each executive, payable in line with the conditions of this
plan.
No
provision was made for this Management Benefits Plan by us, as its operation has
been fully outsourced to an investment fund that is responsible for its
operation.
At March
25, 2010, the following members of our Board of Directors beneficially owned
directly or indirectly an aggregate of 6,429,677 shares, representing
approximately 0.141% of our capital stock.
|
Name
|
Percentage
of Shares Beneficially Owned
|
|||
|
Mr.
César Alierta Izuel(1)
|
0.089 | % | ||
|
Mr.
Isidro Fainé Casas
|
0.010 | % | ||
|
Mr.
Vitalino Manuel Nafría Aznar
|
— | |||
|
Mr.
Julio Linares López
|
0.006 | % | ||
|
Mr.
José María Abril Pérez
|
— | |||
|
Mr.
José Fernando de Almansa Moreno-Barreda
|
— | |||
|
Mr.
Jose María Álvarez-Pallete López
|
0.004 | % | ||
|
Mr.
David Arculus
|
— | |||
|
Ms.
Eva Castillo Sanz
|
0.002 | % | ||
|
Mr.
Carlos Colomer Casellas(2)
|
0.001 | % | ||
|
Mr.
Peter Erskine
|
0.002 | % | ||
|
Mr.
Alfonso Ferrari Herrero(3)
|
0.013 | % | ||
|
Mr.
Luiz Fernando Furlán
|
— | |||
|
Mr.
Gonzalo Hinojosa Fernández de Angulo
|
0.011 | % | ||
|
Mr.
Pablo Isla Alvarez de Tejera
|
— | |||
|
Mr.
Antonio Massanell Lavilla
|
— | |||
|
Mr.
Francisco Javier de Paz Mancho
|
0.001 | % | ||
|
(1)
|
Since
March 2, 2007, Mr. Alierta Izuel holds 8,200,000 European call options
over our shares with an exercise price of €22, which, if exercised, must
be exercised on March 2, 2011 and settled in cash. In addition
to this, since April 11, 2008, he holds 2,000,000 European call options
over our shares with an exercise price of €30, which, if exercised, must
be exercised on March 2, 2011 and settled in
cash.
|
|
(2)
|
On
April 6, 2009, Mr. Colomer Casellas reported to the Spanish Securities
Markets Commission (CNMV) the sale of 14,815 puts over Telefónica, S.A.
shares, with an exercise price of €13.50, as well as the sale of 24,000
puts over Telefónica, S.A. shares with an exercise price of
€12.50. On August 6, 2009 Mr. Colomer Casellas reported to the
CNMV the purchase of the above-mentioned 14,815 puts over our shares which
were sold on April 6, 2009. On August 6, 2009 he reported the
sale of 33,334 puts over our shares, with an exercise price of €15 that,
if exercised, must be exercised on 31 May, 2010. On September
21, 2009 Mr. Colomer Casellas reported the purchase of the above-mentioned
24,000 puts over our shares, which were sold on April 6,
2009.
|
|
(3)
|
In
connection with his acquisition of 485,000 shares of Telefónica S.A. made
on October 11, 2007, Mr. Ferrari Herrero holds 485,000 put warrants over
our shares with an exercise price of €18.48 that, if exercised, must be
exercised on October 11, 2010.
|
At March
25, 2010, members of our executive management team (excluding members of our
Board of Directors listed above) beneficially owned an aggregate 878,888 of our
shares, representing approximately 0.0193% of our capital stock.
None of
our directors or executive officers beneficially owned shares representing one
percent or more of our share capital at March 25, 2010.
None of
our directors and executive officers held options in respect of shares
representing one percent or more of our share capital at March 25,
2010.
General
At March
25, 2010, we had 4,563,996,485 shares outstanding, each having a nominal value
of €1.00 per share. All outstanding shares have the same rights.
At March
25, 2010, according to information provided to us or to the Spanish National Securities Commission,
the CNMV, beneficial owners of 3% or more of our voting stock were as
follows:
|
Name
of Beneficial Owner
|
Number
of Shares
|
Percent
|
||||||
|
Banco
Bilbao Vizcaya Argentaria, S.A.(1)
|
252,999,646 | 5.54 | % | |||||
|
Caja
de Ahorros y Pensiones de Barcelona (“la Caixa”)(2)
|
235,973,505 | 5.17 | % | |||||
|
Blackrock,
Inc.(3)
|
177,257,649 | 3.88 | % | |||||
|
Capital
Research and Management Company(4)
|
144,578,826 | 3.16 | % | |||||
|
(1)
|
Based
on the information provided by Banco Bilbao Vizcaya Argentaria,
S.A. as
at December 31, 2009 for the 2009 Annual Report on Corporate
Governance.
|
|
(2)
|
Based
on information provided by Caja de Ahorros y Pensiones de Barcelona, “la
Caixa” as at December 31, 2009 for the 2009 Annual Report on Corporate
Governance. The 5.16% indirect shareholding in Telefónica is
owned by Criteria CaixaCorp, S.A.
|
|
(3)
|
According
to notification sent to the Spanish National Securities Commission, the
CNMV, dated February 4, 2010.
|
|
(4)
|
According
to notification sent to the Spanish National Securities Commission, the
CNMV, dated May 20, 2009.
|
To the
extent that our shares are represented by account in the book-entry form, we do
not keep a shareholder registry and our ownership structure cannot be known
precisely. Based on the information available to us there is no
individual or corporation that directly or indirectly through one or more
intermediaries may exercise any type of control over
us. Nevertheless, we have certain shareholders whose holdings are
considered material.
At
December 31, 2009, approximately 171,523,317 of our shares were held in the form
of ADSs by 917 holders of record, including Cede & Co., the nominee of the
Depository Trust Company. The number of ADSs outstanding was
57,174,439 at December 31, 2009.
Ownership
Limitations
There are
no limitations with respect to the ownership of our assets or share capital
except those derived from the application of the reciprocity
principle. Article 6 of the General Telecommunications Law, or the
GTL, provides for the application of the reciprocity principle under existing
international treaties or agreements signed and ratified by
Spain. The Spanish government, upon request, may authorize exceptions
to the reciprocity principle contained in the GTL.
During
2009 and through the date of this Annual Report, none of our directors and no
member of our management team has been involved in any related party
transactions with us.
Our Board
of Directors' Regulations grant the Board of Directors the exclusive
power to authorize any transactions with major shareholders or with our
directors. Prior to authorizing any such transaction, our Board will
receive an opinion from the Nominating, Compensation and Corporate Governance
Committee addressing the fairness of the transaction to our shareholders and
us. Any of our directors that may have an interest in the proposed
transaction must abstain from voting on the proposed transaction.
Two of
our major shareholders are financial institutions. We have entered
into related party transactions with both companies within our ordinary course
of business, and always on arm’s length terms. During 2009, the
executed
transactions were generally loans or capital markets transactions provided to us
by these financial institutions and agreements for us to provide
telecommunications and broadband services to such institutions.
Related
Party Transactions with Significant Shareholders
The main
transactions between Telefónica Group companies and our significant shareholders
were the following:
Banco
Bilbao Vizcaya Argentaria, S.A. and subsidiaries comprising its consolidated
group “BBVA”:
|
|
·
|
Financing
transactions arranged under market conditions, with approximately €531
million drawn down at December 31, 2009 (€436 million at December 31,
2008).
|
|
|
·
|
Time
deposits under market conditions amounting to €878 million at December 31,
2009 (€355 million at December 31,
2008).
|
|
|
·
|
Derivative
transactions arranged at market conditions, for a total nominal amount of
approximately €7,824 million at December 31, 2009 (€6,930 million at
December 31, 2008).
|
|
|
·
|
Guarantees
granted by BBVA under market conditions for approximately €237 million at
December 31, 2009 (€13 million at December 31,
2008).
|
|
|
·
|
Dividends
and other benefits paid to BBVA in 2009 for €287 million (€279 million in
2008).
|
|
|
·
|
Services,
mainly telecommunications and telemarketing, rendered by Telefónica Group
companies to the BBVA Group, under market
conditions.
|
Caja de
Ahorros y Pensiones de Barcelona, “la Caixa”, and subsidiaries comprising the
consolidated group:
|
|
·
|
Financing
transactions arranged under market conditions, with approximately €643
million drawn down at December 31, 2009 (€682 million at December 31,
2008).
|
|
|
·
|
Time
deposits under market conditions amounting to €1,293 million at December
31, 2009 (€368 million at December 31,
2008).
|
|
|
·
|
Derivative
transactions entered into under market conditions, for a total nominal
amount of approximately €800 million in 2009. There was no
amount in 2008.
|
|
|
·
|
Dividends
and other benefits paid to La Caixa in 2009 for €260 million (€237 million
in 2008).
|
|
|
·
|
Guarantees
granted by La Caixa under market conditions for approximately €17 million
at December 31, 2009 (€1 million at December 31,
2008).
|
|
|
·
|
The
telecommunications services rendered by Telefónica Group companies to La
Caixa group companies, under market
conditions.
|
Intra-Group
Loans
We are
the parent company of the Telefónica Group and operate through our subsidiaries
and affiliated companies. We coordinate group policies, including
financial policy and, in some cases, actual financial management is conducted by
us. Most of the transactions we perform with other members of the
Telefónica Group relate to financing transactions, including covering their
needs for funds and providing interest rate and exchange rate
hedges.
At
December 31, 2009, as recorded in our parent company accounts, we loaned a total
of €5,975 million (€13,594 million at December 31, 2008) to companies of the
Telefónica Group while companies of the Telefónica Group and their associates
loaned us a total of €45,280 million (€46,694 million at December 31, 2008), of
which €10,767 million (€12,331 million at December 31, 2008) was loaned to us by
Telefónica Europe, B.V. and €24,532 million
(€17,771
million at December 31, 2008) was loaned to us by Telefónica Emisiones S.A.U.,
our financing subsidiaries devoted to raising funds in the capital markets, and
€8,915 million (€12,671 million at December 31, 2008) was loaned to us by
Telefónica Finanzas, S.A.U., our subsidiary in charge of financial support for
Telefónica Group companies.
With
respect to the balances with associated companies, the line item
“Loans to Associates” on the consolidated statement of financial
position at December 31, 2009, presents an amount of €18 million (€126 million
at December 31, 2008).
Not
applicable.
Consolidated
Financial Statements
Please
see Item 18.
Legal
Proceedings
Telefónica
and its group companies are party to several legal proceedings which are
currently in progress in the courts of law and the arbitration bodies of the
various countries in which we are present.
Based on
the advice of our legal counsel it is reasonable to assume that these legal
proceedings will not materially affect our financial position or solvency,
regardless of the outcome. We highlight the following unresolved
legal proceedings or those underway in 2009:
Contentious
proceeding in connection with the merger between Terra Networks, S.A. and
Telefónica, S.A.
On
September 26, 2006, Telefónica was notified of the claim filed by former
shareholders of Terra Networks, S.A. (Campoaguas, S.L., Panabeni, S.L. and
others) alleging breach of contract in respect of the terms and conditions set
forth in the prospectus of the initial public offering of shares of Terra
Networks, S.A. dated October 29, 1999. This claim was rejected
by a ruling issued on September 21, 2009, and the appellants ordered to pay
court costs. This ruling was appealed on December 4,
2009.
Claim
before the Center for Settlement of Investment Disputes (ICSID) against the
Argentine government
As a
result of the enactment by the Argentine government of Public Emergency and
Exchange Rules Reform Law 25,561, of January 6, 2002, Telefónica considered that
the terms and conditions of the share transfer agreement approved by Decree
2332/90 (the “Transfer Agreement”) and the pricing agreement ratified by Decree
2585/91, both of which were executed by Telefónica with the Argentine
government, had been affected appreciably, since the law rendered ineffective
any dollar or other foreign currency adjustment clauses, or indexation clauses
based on price indexes of other countries, or any other indexation mechanism in
contracts with the public authorities. The law also required that
prices and rates derived from such clauses be denominated in pesos at an
exchange rate of one peso to one U.S. dollar.
Accordingly,
since negotiations with the Argentine Government were unsuccessful, on May 14,
2003, Telefónica filed a request for arbitration with the International Center
for Settlement of Investment Disputes (ICSID) pursuant to the Agreement for the
Promotion and Reciprocal Protection of Investments between the Argentine
Republic and the Kingdom of Spain. On December 6, 2004, Telefónica
filed the “Memorial” or claim with the ICSID.
On
February 15, 2006, Telefónica de Argentina signed a memorandum of understanding
with the Argentine government as a prerequisite to reaching an agreement to
renegotiate the Transfer Agreement pursuant to the provisions of Article 9 of
Law 25,561. Among other issues, the memorandum of understanding
envisaged the suspension by Telefónica de Argentina and Telefónica for a certain
period of all claims, appeals and demands
planned
or underway, based on events or measures taken as a result of emergency
situation established by Law No. 25,561 with regard to the Transfer Agreement
and the license granted to Telefónica de Argentina.
On August
21, 2009, after successive extensions of the period of suspension included in
the memorandum of understanding, Telefónica and the Argentine government agreed
to consider this arbitration proceeding concluded. As a result, both
parties requested the ICSID Court to suspend the proceeding, which the court
agreed to on September 24, 2009.
Appeal
for judicial review of the Spanish Competition Court (TDC) ruling of April 1,
2004
On April
1, 2004, the TDC ruled that Telefónica de España had engaged in unfair trade
practices prohibited under Article 6 of Antitrust Law 16/1989, dated July 17,
and Article 82 of the EC Treaty, consisting in the abuse of a dominant market
position, by conditioning the provision of certain services to the non-existence
of predialing arrangements with rival operators and running disloyal advertising
campaigns. It imposed a fine of €57 million.
Telefónica
de España filed an appeal for judicial review of this decision. On
January 31, 2007, the National Appellate Court ruled in favor of the appeal,
thereby overturning the TDC’s ruling. The State attorney filed an
appeal to overturn the Supreme Court ruling on January 15, 2008, which
Telefónica contested in July of 2008. This court has set April 6,
2010 as the judgment date.
Cancellation
of the UMTS license granted to Quam GMBH in Germany
In
December 2004, the Germany Telecommunications Market Regulator revoked the UMTS
license granted in 2000 to Quam GmbH, in which Telefónica has a
stake. After obtaining a suspension of the revocation order, on
January 16, 2006, Quam GmbH filed a suit against the order with the German
courts. This claim sought to overturn the revocation order and, if
this failed, to be reimbursed for the total or partial payment of the original
amount paid for the license.
This
claim was rejected by the Cologne Administrative Court. Quam GmbH has
appealed the decision before the Supreme Administrative Court of North
Rhine-Westphalia, which also rejected its appeal.
Finally,
Quam GmbH filed a new claim in third instance before the Federal Supreme court
for Administrative Cases, which was not admitted for processing. Quam
GmbH appealed this decision on August 14, 2009, and is currently awaiting
another decision by this court.
Appeal
against the European Commission ruling of July 4, 2007 against Telefónica de
España’s broadband pricing policy
On
February 22, 2006, we were sent a statement of objections, initiating
disciplinary proceedings for conduct that goes against Article 82 of EC Treaty
rules. Subsequently, on July 9, 2007, the European Commission issued
a decision, imposing a fine of €152 million on us and Telefónica de
España. The ruling charged us with applying a margin squeeze between
the prices we charged competitors to provide regional and national wholesale
broadband services and our retail broadband prices using ADSL technology from
September 2001 to December 2006.
On
September 10, 2007, we and Telefónica de España both filed appeals to overturn
the decision before the Court of First Instance of the European
Community. The Kingdom of Spain also lodged an appeal to overturn the
decision. Meanwhile, France Telecom and the Spanish Association of
Bank Users (AUSBANC) filed requests to intervene, to which we have submitted our
comments.
Appeal
against the decision by Agencia Nacional de Telecomunicações (ANATEL) regarding
the inclusion of interconnection and network usage revenues in the Fundo de
Universalização de Serviços de Telecomunicações (FUST).
Brasilcel,
N.V. (Vivo) Group operators, together with other Brazilian wireless operators,
appealed ANATEL’s decision of December 16, 2005, to include interconnection and
network usage revenues and expenses in the calculation of the amounts payable
into the Fund for Universal Access to Telecommunications Services (Fundo de Universalização de Serviços
de Telecomunicações, or FUST for its initials in Portuguese), a fund to
pay for the
obligations
to provide universal service, with retroactive application from
2000. On March 13, 2006, the Brasilia Federal Regional Court granted
the injunction requested by the appellants, preventing ANATEL’s decision from
being applied. On March 6, 2007, a ruling in favor of the mobile
operators was issued, stating that it was not appropriate to include the
revenues received from other operators in the taxable income for the FUST
calculation and rejecting the retroactive application of ANATEL’s
decision. ANATEL filed an appeal to overturn this decision with the
Brasilia Regional Federal Court no.1. This appeal is pending
resolution.
At the
same time, Telesp and Telefónica Empresas, S.A., together with other fixed line
operators through ABRAFIX (Associação Brasileira de
Concessionárias de Serviço Telefonico Fixo Comutado) appealed ANATEL’s
decision of December 16, 2005, also obtaining injunctions. On June
21, 2007, Federal Regional Court no. 1 ruled that it was not appropriate to
include the interconnection and network usage revenues and expense in FUST
taxable income and rejected the retroactive application of ANATEL’s
decision. ANATEL filed an appeal to overturn this ruling on April 29,
2008 before Brasilia Federal Regional Court no. 1. This appeal is
pending resolution.
Proceeding
before the Prague District Court against the ruling of the Czech
Telecommunications Office dated December 22, 2003.
On
December 22, 2003, the Czech Telecommunications Office issued a ruling that
required Cesky Telecom (now Telefónica O2 Czech Republic) to pay T-Mobile Czech
Republic, a.s. 898 million Czech crowns (equivalent to approximately €26
million) in interconnection fees (call termination) for the period from January
to November 2001.
Although
the administrative procedure filed by Telefónica O2 Czech Republic against this
resolution had yet to be resolved, in 2007 T-Mobile Czech Republic asked the
Prague District Court no. 3 to enforce the decision, entailing an amount of
approximately 1,859 million Czech crowns (approximately €57.3 million) of
principal and interest. The Prague District Court accepted the
petition and on May 23, 2007, issued a ruling initiate the execution of against
any asset of Telefónica O2 Czech Republic. Telefónica O2 Czech
Republic requested that the execution ordered by the Prague District Court 3 be
limited to certain assets or be ruled inadmissible. No definitive
ruling has yet been made. Telefónica O2 Czech Republic paid approximately 2,023
million Czech crowns (approximately €82 million) to prevent a potential order of
execution and to remove the preventive embargo on its
assets. Nonetheless, the procedure continued in the
courts. In April 2009, an agreement was reached between T-Mobile
Czech Republic and Telefónica O2 Czech Republic that ended the procedure,
whereby T-Mobile Czech Republic returned approximately 1,053 million Czech
crowns (approximately €40 million) to Telefónica O2 Czech Republic. All disputes
and related proceedings between T-Mobile and Telefónica O2 Czech Republic
regarding interconnection fees in 2001 were terminated according to this
settlement agreement. The relevant courts issued decisions on termination of all
related proceedings during May and June 2009.
Public
civil procedure by the Sao Paulo government against Telesp for alleged repeated
malfunctioning in the services provided by Telesp requesting compensation for
damages to the customers affected.
In
February 3, 2009, the Public Ministry of the State of Sao Paulo initiated
proceedings against Telesp for alleged repeated malfunctioning in the
telecommunication services provided by Telesp. The proceedings sought
compensation for damages to the customers affected. A general claim
was filed by the Public Ministry of the State of Sao Paulo suggesting an
indemnification of 1,000 million Brazilian reais, calculated on the company’s
revenue base over the last five years. Telesp’s potential
responsibility will only be known in the calculation and enforcement of the
award by affected consumers.
This
proceeding was suspended via resolution dated November 5, 2009, for a period of
90 days, to assess the proposed agreement being negotiated between the
parties. As no agreement was reached, the suspension was lifted and
the procedure remains in the courts. It is not currently possible to evaluate
the amount involved in this lawsuit.
Tax
proceedings.
For
information on legal proceedings related to tax matters, see Note 17 to our
Consolidated Financial Statements.
Dividend
information and shareholders’ return
Dividend
background
The table
below sets forth the annual cash dividends declared per share and the year to
which such dividends correspond. Generally, the dividend for a given
year is paid in two tranches, one in the second-half of the relevant year and
the other during the first half of the following year.
|
Year
ended December 31,
|
Cash
dividends per share
|
|||
|
(euro)
|
||||
|
2009(1)
|
1.15 | |||
|
2008
|
1.00 | |||
|
2007
|
0.75 | |||
|
2006
|
0.60 | |||
|
2005(2)
|
0.52 | |||
|
(1)
|
On
January 28, 2009, our Board of Directors approved a proposal to increase
the dividend for 2009 to a total amount of €1.15 per share, to be payable
in two tranches. In accordance with this, a cash dividend of
€0.50 per share was paid on November 11, 2009, charged against
unrestricted reserves. In addition, the appropriate corporate
resolutions will be passed during 2010 to complete the committed dividend
payment for 2009.
|
|
(2)
|
This
amount includes a cash dividend of €0.27 per share paid on November 11,
2005 and charged against share premium. Additionally, there was
a distribution on June 2005 of our treasury stock among our shareholders
in the proportion of one share for every 25 shares held, also charged
against share premium.
|
At our
Seventh Investor Conference held on October 10, 2009, in Madrid, we announced a
proposal to distribute a dividend of €1.40 per share for 2010. This
dividend will be payable in two tranches. Additionally, we announced
that we had set as a target to increase, up to a minimum of €1.75 per share, the
dividend for 2012.
Payments
of any future dividends will be dependent on our results of operations,
liquidity and capital resources and market conditions at the time, all of which
may be influenced by a variety of factors. See “Cautionary Statement
Regarding Forward-Looking Statements”.
Treasury
shares and share buyback program
We held
the following Telefónica, S.A. shares as treasury shares at the dates
indicated:
|
Number
of shares
|
Acquisition
price
(euro
per share)
|
Trading
price
(1)
(euro
per share)
|
Market
value(2)
(in
millions of euros)
|
Percentage
of
our
capital stock (3)
|
||||||||||||||||
|
Treasury
shares at December 31, 2009
|
6,329,530 | 16.81 | 19.52 | 124 | 0.13868 | % | ||||||||||||||
|
Treasury
shares at December 31, 2008
|
125,561,011 | 16.68 | 15.85 | 1,990 | 2.66867 | % | ||||||||||||||
|
Treasury
shares at December 31, 2007
|
64,471,368 | 16.67 | 22.22 | 1,433 | 1.35061 | % | ||||||||||||||
|
(1)
|
Closing
price of our shares on the Automated Quotation System of the Spanish stock
exchange at the indicated dates.
|
|
(2)
|
Market
value is calculated as trading price times number of shares held on
treasury at the indicated dates.
|
|
(3)
|
Calculated
using capital stock at each date.
|
Telefónica
S.A. is the only Group company which owns any Telefónica, S.A.
shares.
The
following transactions involving treasury shares were carried out in 2008 and
2009:
|
Number
of shares
|
||||
|
Treasury
shares at December 31, 2009
|
6,329,530 | |||
|
Acquisitions
|
65,809,222 | |||
|
Share
exchange of Telefónica, S.A. shares for China Unicom
shares
|
(40,730,735 | ) | ||
|
Performance
Share Plan
|
(3,309,968 | ) | ||
|
Share
cancellation
|
(141,000,000 | ) | ||
|
Treasury
shares at December 31, 2008
|
125,561,011 | |||
|
Acquisitions
|
129,658,402 | |||
|
Disposals
|
(68,759 | ) | ||
|
Share
cancellation
|
(68,500,000 | ) | ||
|
Treasury
shares at December 31, 2007
|
64,471,368 | |||
The
amount paid to acquire Telefónica, S.A. shares in 2009 was €1,005 million
(€2,225 million in 2008).
At
December 31, 2009, we held call options on 150 million Telefónica, S.A.
shares. At December 31, 2008, we held put options on 6 million
Telefónica, S.A. shares.
On
February 27, 2008, and within our shareholder remuneration policy, our Board of
Directors announced the launching of a new 2008 share buyback program for a
total amount of 100 million Telefónica, S.A. shares. On October 13,
2008, we announced an increase in the program size by 50%, implying the
acquisition of 50 million shares in addition to the 100 million shares already
bought since the beginning of 2008. At March 31, 2009, we completed
the second tranche of the program. Therefore the share buyback
program for a total amount of 150 million shares was concluded.
In
accordance with our commitment to cancel the shares purchased as part of share
buyback programs, our annual general shareholders’ meeting held on April 22,
2008, approved the reduction of our share capital by €68,500,000, by cancelling
68,500,000 shares of treasury stock. This capital reduction was
completed in July 2008.
Further,
our annual general shareholders’ meeting held on June 23, 2009 approved the
reduction of our share capital by the amount of €141,000,000 by means of the
cancellation of 141,000,000 shares of our treasury stock. This capital reduction
was completed in December 2009. This capital reduction required us to
amend Article 5 of our bylaws, relating to share capital, which as of the date
of this Annual Report stands at €4,563,996,485, made up of an equal number of
ordinary shares, all of a single series and with a nominal value of €1.00 per
share, totally paid in.
General
Our
ordinary shares, nominal value €1.00 each, are currently listed on each of the
Madrid, Barcelona, Bilbao and Valencia stock exchanges and are quoted through
the Automated Quotation System under the symbol “TEF”. They are also
listed on various foreign exchanges such as the London, Buenos Aires and Tokyo
stock exchanges. Our BDRs are listed on the São Paulo Stock
Exchange. Our ADSs are listed on the New York Stock Exchange and the
Lima Stock Exchange.
The table
below sets forth, for the periods indicated, the reported high and low quoted
closing prices, as adjusted for all stock splits, for our shares on the Madrid
Stock Exchange, which is the principal Spanish market for our shares, and our
ADSs on the New York Stock Exchange:
|
Per
Share
(in
euros)
|
Per
ADS
(in
dollars)
|
|||||||||||||||
|
High
|
Low
|
High
|
Low
|
|||||||||||||
|
Year
ended December 31, 2005
|
14.560 | 12.320 | 56.63 | 43.41 | ||||||||||||
|
Year
ended December 31, 2006
|
16.400 | 11.920 | 64.91 | 44.34 | ||||||||||||
|
Year
ended December 31, 2007
|
23.260 | 15.200 | 103.11 | 60.44 | ||||||||||||
|
Year
ended December 31, 2008
|
22.780 | 12.730 | 101.92 | 47.65 | ||||||||||||
|
Year
ended December 31, 2009
|
19.750 | 13.690 | 89.08 | 51.73 | ||||||||||||
|
Quarter
ended March 31, 2008
|
22.780 | 17.890 | 101.92 | 82.18 | ||||||||||||
|
Quarter
ended June 30, 2008
|
19.540 | 16.760 | 91.87 | 78.79 | ||||||||||||
|
Quarter
ended September 30, 2008
|
17.950 | 15.990 | 83.26 | 72.02 | ||||||||||||
|
Quarter
ended December 31, 2008
|
17.350 | 12.730 | 72.74 | 47.65 | ||||||||||||
|
Quarter
ended March 31, 2009
|
16.420 | 13.690 | 68.09 | 51.73 | ||||||||||||
|
Quarter
ended June 30, 2009
|
16.250 | 14.410 | 68.66 | 56.29 | ||||||||||||
|
Quarter
ended September 30, 2009
|
19.060 | 15.605 | 84.03 | 65.37 | ||||||||||||
|
Quarter
ended December 31, 2009
|
19.750 | 18.480 | 89.08 | 80.63 | ||||||||||||
|
Month
ended September 30, 2009
|
19.060 | 17.210 | 84.03 | 73.58 | ||||||||||||
|
Month
ended October 31, 2009
|
19.340 | 18.480 | 86.81 | 80.63 | ||||||||||||
|
Month
ended November 30, 2009
|
19.650 | 18.755 | 88.51 | 83.33 | ||||||||||||
|
Month
ended December 31, 2009
|
19.750 | 19.040 | 89.08 | 82.13 | ||||||||||||
|
Month
ended January 31, 2010
|
19.820 | 17.275 | 85.65 | 71.60 | ||||||||||||
|
Month
ended February 28, 2010
|
17.500 | 16.440 | 73.01 | 67.58 | ||||||||||||
|
Month
ended March 31, 2010 (through March 23, 2010)
|
18.065
|
17.470
|
73.99
|
70.87
|
||||||||||||
Source:
Madrid Stock Exchange Information and Bloomberg.
On March
23, 2010, the closing price of our shares on the Automated Quotation System of
the Spanish stock exchanges was €17.750 per share, equal to $24.02 at the Noon
Buying Rate on March 19, 2010 for cable transfers in euro as certified for
customs purposes by the Federal Reserve Bank of New York on that
date.
Our ADSs
are listed on the New York Stock Exchange under the symbol
“TEF”. Citibank, N.A. is the Depositary issuing ADSs in form of
certificated ADSs (American Depositary Receipts, or ADRs) or uncertificated ADSs
pursuant to the deposit agreement dated as of November 13, 1996, as amended as
of December 3, 1999 and as further amended as of June 23, 2000 and as of March
9, 2007 among Telefónica, the Depositary and the holders from time to time of
ADSs (the “Deposit Agreement”). Each ADS represents the right to
receive three shares.
At
December 31, 2009, approximately 171,523,317 of our shares were held in the form
of ADSs by 917 holders of record, including Cede & Co., the nominee of The
Depository Trust Company. The number of ADSs outstanding was
57,174,439 at December 31, 2009.
Spanish
Securities Market Legislation
The
Spanish Securities Markets Act (Ley del Mercado de Valores,
or the LMV), enacted in 1988 and further amended, regulates the primary and
secondary securities markets in Spain by establishing principles for their
organization
and operation, rules governing the activities of persons and institutions
operating in these markets and a system for their supervision. This legislation
and the regulation implementing it (mainly, as far as private issuers are
concerned, Royal Decree 1310/2005, of November 4, in relation to the issuance of
securities and its admission to listing in official secondary markets, and Royal
Decree 1362/2007, of October 19, concerning the transparency requirements in
relation to information about issuers whose securities are admitted to trading
on a regulated market):
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establishes
an independent regulatory authority, the CNMV, to supervise the securities
markets;
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establishes
the rules for surveillance, supervision and sanction provided for the
representation of transferable securities by book entries or by
certificate;
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establishes
a framework for the issuance of
securities;
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establishes
a framework for trading activities;
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establishes
the disclosure obligations of issuers, particularly the obligation to file
annual audited financial statements and to make public quarterly financial
information;
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establishes
the framework for tender offers;
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establishes
the code of conduct for all market participants;
and
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regulates
market abuse infringements.
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On March
11, 2005 Royal Decree Law 5/2005 was approved, modifying the LMV in order to
implement the Directive 2003/71/EC of the European Parliament and of the Council
on the prospectus to be published when securities are offered to the public or
admitted to trading. The Directive: (i) harmonizes the requirements for the
process of approval of the prospectuses in order to grant to the issuer a single
passport for such document, valid throughout the European Union; (ii)
incorporates the application of the country of origin principle by which the
prospectus will be approved by the Member States of the European Union where the
issuer has its registered office but it also introduces as a new matter the
possibility that in certain circumstances, such as issues with high minimum
denominations (€1,000 or more), the issuer may designate the relevant European
Union competent authority for prospectus approval.
Subsequently,
Royal Decree 1310/2005 partially developed the LMV in relation to the admission
to trading of securities in the official secondary markets, the sales or
subscription public offers and the prospectus required to those
effects.
Royal
Decree 1333/2005 developed the LMV in relation to market abuse, implementing
Directive 2003/6/EC of the European Parliament and of the Council, relating
insider dealing and market manipulation practices (“market abuse”).
On April
12, 2007 Law 6/2007 was approved, modifying the LMV in order to implement the
Directive 2004/25/EC of the European Parliament and of the Council relating to
public tender offers and the Directive 2004/109/EC relating to the transparency
of issuers. Law 6/2007 intends: (i) to encourage an efficient market for
corporate control, while protecting the rights of minority shareholders of
listed companies and (ii) to enforce transparency in financial
markets.
In
relation to public tender offers, Law 6/2007 (i) establishes the cases in which
a company must launch a takeover bid over the whole share capital of the
relevant company; (ii) establishes that takeover bids shall be launched once a
specific stake on the share capital of the company has been reached; (iii) adds
new obligations for the board of directors of the target companies of the
takeover bid in terms of defensive measures against the takeover bid; (iii)
regulates the squeeze-out and sell-out procedure when a 90% of the share capital
is held following a takeover bid. Royal Decree 1066/2007 completes the
regulation currently in place for takeover bids in Spain.
Regarding
transparency of issuers whose shares are accepted to trading on an official
market, Law 6/2007 (i) modifies the reporting requirements of the periodic
financial information of listed companies and issuers of listed
securities;
(ii) establishes a new disclosure regime for significant shareholders; (iii)
adds new information and disclosure requirements for issuers of listed
securities; (iv) establishes a civil liability procedure of the issuer and board
of directors in connection with the financial information disclosed by issuers
of securities; and (v) confers new supervisory powers upon the CNMV with respect
to the review of accounting information.
On
December 19, 2007 Law 47/2007 was approved, modifying the LMV in order to
implement the Directive 2004/39/EC of the European Parliament and of the
Council, on Markets in Financial Instruments (MiFID); the Directive 2006/73/EC
of the European Parliament and of the Council on organizational requirements and
operating conditions regarding the Market in Financial Instruments Directive,
and the Directive 2006/49/EC of the European Parliament and of the Council on
the capital adequacy of investment firms and credit institutions. Its principal
aim is to establish a general legal framework for financial markets in the
European Union, in particular with regard to financial services, as well as to
ensure appropriate transparency for investors through a regular flow of the
relevant information concerning security issuers. Amongst other things, the new
regime (i) establishes new multilateral trading facilities for listing shares
apart from the stock markets; (ii) reinforces the measures for the protection of
investors; (iii) establishes new organizational requirements for investment
firms; (iv) implements new supervisory powers for CNMV, establishing cooperation
mechanisms amongst national supervisory authorities.
On July
4, 2009, Law 3/2009, regarding structural modifications on Spanish Corporations
(Ley 3/2009, de 3 de abril,
sobre modificaciones estructurales de las sociedades mercantiles) came
into force, modifying the maximum threshold established in the
Spanish Corporation Act as to the number of treasury shares held by listed
companies and their subsidiaries from 5% up to 10% of their total
capital outstanding.
Securities
Trading in Spain
The
Spanish securities market for equity securities consists of four stock exchanges
located in Madrid, Bilbao, Barcelona and Valencia and the Automated Quotation
System, or Mercado
Continuo. During 2009, the Automated Quotation System accounted for the
majority of the total trading volume of equity securities on the Spanish stock
exchanges.
Automated
Quotation System
The
Automated Quotation System links the four Spanish stock exchanges, providing
those securities listed on it with a uniform continuous market that eliminates
certain of the differences among the local exchanges. The principal features of
the system are the computerized matching of buy and sell orders at the time of
entry of the order. Each order is executed as soon as a matching order is
entered, but can be modified or canceled until executed. The activity of the
market can be continuously monitored by investors and brokers. The Automated
Quotation System is operated and regulated by Sociedad de Bolsas, S.A., a
corporation owned by the companies that manage the stock exchanges. All trades
on the Automated Quotation System must be placed through a brokerage firm, an
official stock broker or a dealer firm that is a member of a Spanish stock
exchange. Beginning January 1, 2000, Spanish banks were allowed to become
members of Spanish stock exchange and, therefore, can trade through the
Automated Quotation System.
In a
pre-opening session held from 8:30 a.m. to 9:00 a.m. each trading day, an
opening price is established for each security traded on the Automated Quotation
System based on a real-time auction. The regime concerning opening prices was
changed by an internal rule issued by the Sociedad de Bolsas. The new regime
sets forth that all references to maximum changes in share prices will be
substituted by static and dynamic price ranges for each listed share, calculated
on the basis of the most recent historical volatility of each share, and made
publicly available and updated on a regular basis by the Sociedad de Bolsas. The
computerized trading hours are from 9:00 a.m. to 5:30 p.m., during which
time the trading price of a security is permitted to vary by up to the stated
levels. If, during the open session, the quoted price of a share exceeds these
static or dynamic price ranges, Volatility Auctions are triggered, resulting in
new static or dynamic price ranges being set for the share object of the same.
Between 5:30 p.m. and 5:35 p.m. a closing price is established for each
security through an auction system similar to the one held for the pre-opening
early in the morning.
Trading
hours for block trades are also from 9:00 a.m. to 5:30 p.m. Between 5:30 p.m.
and 8:00 p.m., certain trades may occur outside the computerized matching system
without prior authorization from Sociedad de Bolsas,
S.A. at a
price within the range of 5% above the higher of the average price and closing
price for the day and 5% below the lower of the average price and closing price
for the day if there are no outstanding bids or offers, respectively, on the
system matching or bettering the terms of the proposed off-system transaction
and, if, among other things, the trade involves more than €300,000 and more than
20% of the average daily trading volume of the stock during the preceding three
months. These trades must also relate to individual orders from the same person
or entity and be reported to the Sociedad de Bolsas, S.A. before 8:00 p.m. At
any time trades may take place (with the prior authorization of the Sociedad de
Bolsas, S.A.) at any price if:
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the
trade involves more than €1.5 million and more than 40% of the average
daily volume of the stock during the preceding three
months;
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the
transaction derives from a merger or spin-off process, or from the
reorganization of a group of
companies;
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the
transaction is executed for the purposes of settling a litigation or
completing a complex group of contracts;
or
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Sociedad
de Bolsas, S.A. finds other justifiable
cause.
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Information
with respect to the computerized trades between 9:00 a.m. and 5:30 p.m. is made
public immediately, and information with respect to trades outside the
computerized matching system is reported to Sociedad de Bolsas, S.A. by the end
of the trading day and published in the Boletín de Cotización and in
the computer system by the beginning of the next trading day.
Please
note that the regime set forth above may be subject to change, as article 36 of
the LMV, which defines trades in Spanish Exchanges, has been recently revised,
in virtue of Law 47/2007. Thus, the Spanish stock exchanges are currently
reviewing their trading rules in light of this new regulation.
Clearance
and settlement system
The Sociedad de Gestión de los Sistemas
de Registro, Compensación y Liquidación de
Valores S.A.U., formerly Iberclear, was created by the Ley 44/2002 de Medidas de Reforma
del Sistema Financiero, enacted on November 22, 2002 to increase the
efficiency of the Spanish financial markets. Such law introduced a new article,
44-bis to the LMV which established the framework for the constitution of Sociedad de Gestión de los Sistemas
de Registro, Compensación y Liquidación de Valores S.A.U.
Iberclear
is regulated by the Spanish Securities Act and where appropriate by Royal Decree
505/1987 of April 3, 1987, Royal Decree 166/1992 of February 14, 1992, and by
any other related regulation. This company, which is a wholly owned subsidiary
of Bolsas y Mercados Españoles, Sociedad Holding de Mercados y Sistemas
Financieros, S.A. (Bolsas y
Mercados Españoles), has the following functions:
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bookkeeping
of securities represented by means of book entries admitted to trading in
the stock markets or in the public debt book entry
market;
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managing
the clearance and settlement system for the brokerage transactions in the
stock markets and at the public debt book entry market;
and
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providing
technical and operational services directly linked to the registry,
clearance and settlement of securities, or any other service required by
Iberclear to be integrated with any other registry, clearance, and
settlement systems.
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Iberclear
will provide the CNMV, the Bank of Spain and the Ministry of Economy with the
information that these entities may request regarding the registry clearance and
settlement performed within the systems managed by Iberclear.
Transactions
carried out on the Spanish stock exchanges are cleared and settled through
Iberclear.
Only
members of the system are entitled to use Iberclear, and membership is
restricted to authorized broker members of the Spanish stock exchanges, the Bank
of Spain (when an agreement, approved by the Spanish Ministry of Economy and
Finance, is reached with Iberclear) and, with the approval of the CNMV, other
brokers not members of the Spanish stock exchanges, banks, savings banks and
foreign settlement and clearing systems. The clearance and settlement system and
its members are responsible for maintaining records of purchases and sales under
the book-entry system. Shares of listed Spanish companies are held in book-entry
form. Iberclear, which manages the clearance and settlement system, maintains a
registry reflecting the number of shares held by each of its member entities
(each, an entidad
participante) as well as the amount of such shares held on behalf of
beneficial owners. Each member entity, in turn, maintains a registry of the
owners of such shares. Spanish law considers the legal owner of the shares to be
the member entity appearing in the records of Iberclear as holding the relevant
shares in its own name or the investor appearing in the records of the member
entity as holding the shares.
The
settlement of any transactions must be made three business days following the
date on which the transaction was carried out.
Obtaining
legal title to shares of a company listed on a Spanish stock exchange requires
the participation of a Spanish official stockbroker, broker-dealer or other
entity authorized under Spanish law to record the transfer of shares. To
evidence title to shares, at the owner’s request, the relevant member entity
must issue a certificate of ownership. In the event the owner is a member
entity, Iberclear is in charge of the issuance of the certificate with respect
to the shares held in the member entity’s name.
Brokerage
commissions are not regulated. Brokers’ fees, to the extent charged, will apply
upon transfer of title of shares from the Depositary to a holder of ADRs in
exchange for such ADSs, and upon any later sale of such shares by such holder.
Transfers of ADSs do not require the participation of an official stockbroker.
The Deposit Agreement provides that holders depositing shares with the
Depositary in exchange for ADSs or withdrawing shares in exchange for ADSs will
pay the fees of the official stockbroker or other person or entity authorized
under Spanish law applicable both to such holder and to the
Depositary.
Not
applicable.
Please
see “—Offer and Listing Details” above.
Not
applicable.
Not
applicable.
Not
applicable.
Not
applicable.
Our
bylaws (estatutos) have
been amended as our share capital was reduced in December
2009. According to this amendment, article 5 was amended to reflect
this change as follows:
1. The
share capital is €4,563,996,485, represented by 4,563,996,485 ordinary shares in
a single series and with a nominal value of one euro each, which have been fully
paid up.
2. The
shareholders acting at the general shareholders’ meeting may, subject to the
requirements and within the limits established by law for such purpose, delegate
to the Board of Directors the power to increase the share capital.
The
following summary describes certain material considerations concerning our
capital stock and briefly describes certain provisions of our bylaws and Spanish
law.
Corporate
Objectives
Article 4
of Title I of our bylaws sets forth our corporate purposes:
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The
provision and operation of all kinds of public or private
telecommunications services and, for such purpose, the design,
installation, maintenance, repair, improvement, acquisition, disposition,
interconnection, management, administration of, and any other activity not
included in the preceding enumeration with respect to, all kinds of
telecommunications networks, lines, satellites, equipment, systems and
technical infrastructure whether now existing or to be created in the
future, including the premises in which any and all of the foregoing items
are located;
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the
provision and operation of all kinds of services that are ancillary or
supplemental to or result from telecommunications
services;
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the
research and development, promotion and application of all kinds of
component principles, equipment and systems directly or indirectly used
for telecommunications;
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manufacturing
and production activities and, in general, all other forms of industrial
activity in connection with telecommunications;
and
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acquisition,
disposition and, in general, all other forms of commercial activity in
connection with telecommunications.
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Director
Qualification
In order
to be elected as a director, a person must have held a number of our shares
representing a nominal value of no less than €3,000 for at least three years
prior to his or her election. These shares may not be transferred so
long as such person remains a director. This requirement does not
apply to any person who, at the time of his or her appointment, has either a
labor or professional relationship with the company or is expressly exempted
from such requirement by a vote of at least 85% of the Board of
Directors.
Interested
Transactions
When a
director or persons related to him or her has an interest in a transaction with
us or with any of the companies of our Group, such transaction (if unrelated to
the ordinary course of our business or if not performed on an arm’s length
basis) must be presented to the Nominating, Compensation and Corporate
Governance Committee. Such committee shall assess the transaction from the point
of view of equal treatment of shareholders and the arm’s length basis of the
transaction. The performance of such transactions require the
authorization of our Board of Directors, after the favorable report of the
committee. The interested director must refrain from participating in
votes that affect such transaction.
Significant
Differences in Corporate Governance Practices
Corporate
governance guidelines
In Spain,
companies with securities listed on a Spanish stock exchange are expected to
follow the Conthe Code published in May 2006, which contains corporate
governance and shareholder disclosure recommendations. It combines
and substitutes the former Spanish Corporate Governance Codes: the Olivencia
Code of Good Governance and the Aldama Report. Spanish listed companies are
required by law to publish an Annual Report on Corporate Governance and also to
publish corporate governance information on their websites. We base
our corporate governance procedures on the recommendations of the Conthe
Code. As part of our corporate governance procedures, we have adopted
regulations for our Board of Directors that govern, among other things, director
qualification standards, responsibilities, compensation, access to management
information, the Board of Directors’ purpose and each of our Board committee’s
purpose and responsibilities. Moreover, we have a Regulation of the
General Shareholders’ Meeting that aims to reinforce its transparency, providing
shareholders with a framework guaranteeing and facilitating exercise of their
rights. The Annual Report on Corporate Governance published by us
provides a detailed explanation of our corporate governance procedures and
explains the role and duties of our Board of Directors and Board
Committees. For a more detailed description regarding our corporate
governance practices see “Item 16G. Corporate Governance”.
Description
of Our Capital Stock
Description
of share capital
At Mach
25, 2010, our issued share capital consisted of 4,563,996,485 ordinary
registered shares with a nominal value of €1.00 each. Pursuant to the
resolution adopted by our shareholders at their annual general meeting, in June
2009, the Board of Directors was authorized to execute a capital reduction by
the amount of €141,000,000, by means of the cancellation of 141,000,000
Telefónica S.A. shares held as treasury shares. The Board of
Directors on December 16, 2009 resolved to execute the capital reduction by the
cancellation of Telefónica S.A. shares held as treasury shares thereby reducing
our share capital by €141,000,000 to € 4,563,996,485, made up of an equal number
of ordinary shares.
Our
shareholders have delegated to the Board of Directors the authority to issue up
to 2,460,565,198 new shares. The Board of Directors is authorized to
exclude preemptive rights, in whole or in part, pursuant to the applicable
provisions of the Spanish Corporation Law. The Board’s authorization
to issue new shares expires on June 21, 2011.
Meetings
and voting rights
We hold
our ordinary general shareholders’ meeting during the first six months of each
fiscal year on a date fixed by the Board of Directors. Extraordinary
general shareholders’ meetings may be called, from time to time, at the
discretion of our Board of Directors or upon the request of shareholders
representing 5% of our paid-in share capital. We publish notices of
all ordinary and extraordinary general shareholders’ meetings in the Official
Gazette of the Commercial Registry and in at least one newspaper in Madrid at
least one month before the relevant meeting.
Each
share of Telefónica, S.A. entitles the holder to one vote. However,
only registered holders of shares representing a nominal value of at least €300
(which currently equals at least 300 shares) are entitled to attend a general
shareholders’ meeting. Holders of shares representing a nominal value
of less than €300 (less than 300 shares), may aggregate their shares by proxy
and select a representative that is a shareholder to attend a general
shareholders’ meeting or delegate his or her voting rights by proxy to a
shareholder who has the right to attend the shareholders’
meeting. However, under our bylaws, no shareholder may vote a number
of shares exceeding 10% of our total outstanding voting capital.
Any share
may be voted by proxy. Proxies must be in writing and are valid only
for a single meeting.
Only
holders of record five days prior to the day on which a general meeting of
shareholders is scheduled to be held may attend and vote at the
meeting. Under the deposit agreement for our ADSs, our depositary
accepts voting instructions from holders of ADSs. The depositary
executes such instructions to the extent permitted by law and by
the terms
governing the shares. The depositary or its nominee, whichever is
applicable, will be entitled to vote by proxy the shares represented by the
ADSs.
Shareholders
representing, in person or by proxy, at least 25% of our subscribed voting
capital constitute a quorum for a general meeting of shareholders. If a quorum
is not present at the first call, then the meeting can be held on second
call. Regardless of the number of shareholders present at the meeting
on second call, they are deemed to constitute a quorum.
Shareholders
representing, in person or by proxy, at least 50% of our subscribed voting
capital constitute a quorum on a first call for shareholders’ meetings at which
shareholders will be voting on any of the following actions:
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issuance
of bonds;
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increase
or reduction of share capital;
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amendment
of corporate purpose;
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any
other amendment of our bylaws; or
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merger,
split or spin-off of Telefónica.
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When a
quorum is present on the first call, these special resolutions must be adopted
by the affirmative vote of shareholders representing a majority of our present
subscribed voting capital.
If a
quorum for the meeting is not present after the first call, upon a second call
for the meeting, 25% of our subscribed voting capital will constitute a
quorum. When shareholders representing less than 50% of the
subscribed voting capital are in attendance, these special resolutions must be
adopted by a vote of two-thirds of those shareholders present.
Dividends
Shareholders
vote on final dividend distributions at the shareholders’ meeting. Distributable
profits are equal to:
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net
profits for the year; plus
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profits
carried forward from previous years;
plus
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distributable
reserves; minus
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losses
carried forward from previous years;
minus
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amounts
allocated to reserves as required by law or by our
bylaws.
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The
amount of distributable profits is based on our unconsolidated financial
statements prepared in accordance with Spanish GAAP, which differ from the
Consolidated Financial Statements prepared in accordance with IFRS included
elsewhere in this Annual Report.
The Board
of Directors can approve interim dividend payments without a prior shareholder
vote on the issue. However, under those circumstances, the dividend
is limited to distributable net profits of the current year and is subject to
certain legal requirements.
Unclaimed
dividends revert to us five years from their date of payment.
Registration
and transfers
Our
shares are in registered book-entry form. Transfers executed through stock
exchange systems are implemented pursuant to the stock exchange clearing and
settlement procedures carried out by the Spanish clearing
institution. Transfers executed outside of stock exchange systems,
that is, over the counter, are implemented pursuant to the general legal regime
for book-entry transfer, including registration by the Spanish clearing
institution.
There are
no restrictions with respect to the transfer of our shares.
Liquidation
rights
Under
Spanish law, upon our liquidation, the shareholders would be entitled to
receive, on a pro rata
basis, any assets remaining after the payment of our debts and taxes and
liquidation expenses.
Material
Contracts Related to Our Investment in Telecom Italia
On April
28, 2007, we, together with a group of Italian investors (the “Italian
Investors”), made up of Assicurazioni Generali S.p.A. (“Generali”), Sintonia
S.A.(“Sintonia”), Intesa Sanpaolo S.p.A. (“Intesa Sanpaolo”) and Mediobanca
S.p.A. (“Mediobanca”), entered into a co-investment agreement, or the
Co-Investment Agreement, to establish the terms and conditions for our
participation in what is now Telco. Through Telco, on October 23,
2007, we and the Italian Investors purchased the entire share capital of Olimpia
S.p.A., or Olimpia, which held approximately 18% of the ordinary share capital
of Telecom Italia. As of the date of this Annual Report, the Italian
Investors hold a total of 57.7% of Telco’s share capital and we hold the
remaining 42.3%.
In
addition to Telco’s participation in Telecom Italia’s ordinary share capital
through its interest in Olimpia, pursuant to the Co-Investment Agreement, on
October 25, 2007 Generali and Mediobanca contributed to Telco ordinary shares of
Telecom Italia they held on that date. These shares in the aggregate
amounted to 5.6% of Telecom Italia’s ordinary share capital and brought Telco’s
direct and indirect participation in Telecom Italia’s ordinary share capital to
approximately 23.6%.
On April
28, 2007, the Italian Investors also entered into a shareholders’ agreement, or
the Shareholders’ Agreement, which establishes, among other things, the
principles of corporate governance of Telco and Olimpia, respectively, the
principles related to the transfer of Telco’s shares and any Olimpia shares or
Telecom Italia shares directly or indirectly owned by Telco and the principles
of designation, among the parties, of candidates to be included in a common list
for the appointment of directors of Telecom Italia under the voting list
mechanism provided for by Telecom Italia’s by-laws.
On
November 19, 2007 the parties to the Shareholders’ Agreement amended the
Shareholders’ Agreement as well as the bylaws of Telco to include the specific
limitations imposed by ANATEL as initially posted on its website on October 23,
2007 and subsequently published on November 5, 2007 as ANATEL’s “Ato” no. 68,276
dated October 31, 2007. We refer to such agreement as the Amendment
to the Shareholders’ Agreement.
Pursuant
to the Shareholders’ Agreement, we entered into an option agreement, or the
Option Agreement, with Telco on November 6, 2007, which provides that, in the
event that a decision to dispose, directly or indirectly, in any form or manner
(including through measures with equivalent effect, such as mergers and
demergers of Telco or Olimpia) or encumber Telecom Italia shares or Olimpia
shares or any rights attached thereto, including but not limited to voting
rights, is taken by the board of directors of Telco by a simple majority
resolution according to the procedure specifically provided for by the
Shareholders’ Agreement and we are a dissenting party, then we will have the
right, to be exercised within 30 days of such decision being taken, to buy from
Telco the Telecom Italia shares or the Olimpia shares, as the case may be, at
the same price and conditions offered by the third party offering to acquire
such Telecom Italia shares or Olimpia shares.
On
December 10, 2007, an agreement was reached to merge Olimpia into Telco, as a
result of which Telco’s entire stake in the voting shares of Telecom Italia
(23.6%) became a direct stake. In March 2008, Telco acquired
121.5
million additional shares of Telecom Italia, equivalent to 0.9% of its share
capital, bringing its total direct interest to 24.5% of Telecom Italia voting
shares.
On
October 28, 2009 Sintonia requested, pursuant to the Shareholders
Agreement, the non-proportional de-merger of Telco, with the withdrawal of its
pro rata share of the assets and liabilities of Telco (comprised of Telecom
Italia shares held by Telco representing approximately 2.06% of Telecom Italia’s
share capital). The terms of Sintonia’s exit were approved on
November 26, 2009, and the transaction closed on December 22,
2009. Upon Sintonia’s exit, Telco’s interest in Telecom Italia was
reduced to 22.4% of Telecom Italia’s share capital. At the same time,
our stake in Telco increased from 42.3% to 46.18%, thereby allowing us to
maintain our indirect interest in Telecom Italia at 10.49% of Telecom Italia’s
voting rights (7.21% of the dividend rights).
On
October 28, 2009 Telco investors, other than Sintonia, entered into an
agreement, or the Renewal Agreement, through which they agreed (i) not to
request the non-proportional de-merger of Telco with the withdrawal of their
corresponding share of Telecom Italia shares held by Telco at that time (as was
previously done by Sintonia) and (ii) to extend and modify the Shareholders
Agreement, which we refer to as the “Renewal Agreement”, for an additional term
of three years until April 27, 2013 (effective as of April 28, 2010)
substantially on the same terms and conditions, except to provide (a) that the
right of Telco’s investors to request the non-proportional de-merger of Telco
will only be exercisable in the period between October 1, 2012 and
October 28, 2012, and (b) for an early withdrawal right period
exercisable between April 1, 2011 and April 28, 2011. On
the same date and in connection with the Renewal Agreement, separately, we
entered into an Amendment Deed to the Call Option Agreement with Telco
(i) to extend the term of the Option Agreement to coincide with the
expiration date of the Renewal Agreement and (ii) to exempt certain
transactions regarding the Telecom Italia shares, namely those related to the
exercise of de-merger and early withdrawal rights pursuant to the Renewal
Agreement.
On
January 11, 2010, Telco arranged a €1,300 million loan with Intesa Sanpaolo,
Mediobanca, Société Générale, S.p.A. and Unicredito, S.p.A. maturing on May 31,
2012, part of which is secured with the Telecom Italia shares held by
Telco. The lending
banks have granted Telco shareholders, including ourselves, a call option on the
Telecom Italia shares that they may be entitled to receive as a result of the
potential execution of the pledge.
In line
with the commitments assumed by Telco shareholders, on December 22, 2009, the
rest of Telco’s financing needs with respect to debt maturities were met with a
bridge loan granted by shareholders, including ourselves, Intesa Sanpaolo and
Mediobanca for approximately €902 million, and a bank bridge loan granted by
Intesa Sanpaolo and Mediobanca for the remaining €398 million.
The
financing from the bridge loans described above was cancelled with the proceeds
of a bond issuance subscribed by Telco’s shareholders, on a pro rata basis in
accordance with their interests in Telco, on February 19, 2010 for an aggregate
principal amount of €1,300 million. Our subscription amounted to an
aggregate principal amount of €600 million.
Material
Contract Related to Our Investment in China Unicom
On
September 6, 2009, Telefónica and China Unicom entered into a subscription
agreement, or the Subscription Agreement, pursuant to which each party
conditionally agreed to invest the equivalent of $1 billion in the other
party through the acquisition of shares in the other party. Moreover,
both parties entered into a strategic alliance agreement which provides for,
among other areas for cooperation, joint procurement of infrastructure and
client equipment, common development of mobile service platforms, joint
provisions of service to multinational customers, roaming, research and
development, sharing of best practices and technical, operational and management
know-how, joint development of strategic initiatives in the area of network
evolution, joint participation in international alliances and exchanges of
senior management.
On
October 21, 2009, the mutual share exchange pursuant to the Subscription
Agreement was implemented through the subscription by Telefónica Internacional
of 693,912,264 newly issued shares of China Unicom and a contribution in kind to
China Unicom of 40,730,735 shares of Telefónica.
Following
the completion of the transaction, we increased our share of China Unicom’s
voting share capital from 5.38% to 8.06% and obtained the right to appoint a
member to its board of directors, while China Unicom
became
owner of approximately 0.87% of our voting share capital at that
date. Subsequently, after a capital reduction carried out by China
Unicom, we reached a shareholding equivalent to 8.37% of the company’s voting
share capital.
Under the
Subscription Agreement, we agreed with China Unicom that for a period of one
year from completion of the acquisition of the mutual share exchange, we shall
not, directly or indirectly, sell, transfer or dispose of any of the China
Unicom shares held, directly or indirectly, by us or any of our subsidiaries
(save for the transfer of such shares to any member of the Telefónica
group). China Unicom has made an analogous undertaking with respect
to its participation in our share capital.
In
addition, subject to Telefónica or any of its subsidiaries holding in aggregate,
directly or indirectly, not less than 5% of the issued share capital of China
Unicom from time to time and to the extent not prohibited under applicable law,
the articles of association of China Unicom and the Hong Kong Listing Rules, we
shall be entitled to nominate one representative to the Board of Directors of
China Unicom.
Finally,
with effect from completion, and for so long as the strategic alliance agreement
is in effect, China Unicom shall not (i) offer, issue or sell any significant
number of its ordinary shares (including those held in treasury by the company
itself, if any), or any securities convertible into or other rights to subscribe
for or purchase a significant number of China Unicom’s ordinary shares
(including those held in treasury by the company itself, if any), to any of our
current major competitors or (ii) make any significant investment, directly or
indirectly, in any of our current major competitors. We have made
similar undertakings.
The
strategic alliance agreement between the parties terminates on the third
anniversary and automatically renews thereafter for one year terms, subject to
either party’s right to terminate on six month’s notice. Also, the
strategic alliance agreement may be terminated by China Unicom if we sell our
shares in China Unicom causing it to own less than 5% of the issued share
capital of China Unicom or by us if China Unicom sells our shares and ceases to
own at least 0.5% of our issued share capital. In addition, the
strategic alliance agreement is subject to termination in the event either party
is in default and automatically terminates on a change in control of China
Unicom.
Exchange
Controls and Other Limitations Affecting Security Holders
Ownership
limitations
There are
no limitations with respect to the ownership of our assets or share capital
except those derived from the application of the reciprocity principle as
described above.
Trading
by us in our own shares or shares of companies under our control
Consistent
with applicable Spanish laws and regulations and the authorization of our
shareholders, from time to time we or our affiliates engage in transactions
involving securities of members of our Group. These transactions may
include purchases of shares of group members, forward contracts with respect to
these shares and other similar transactions.
At
December 31, 2008, we held 125,561,011 shares of treasury stock, representing
2.66867% of our capital stock. At December 31, 2009, we held
6,329,530 shares of treasury stock, representing 0.13868% of our capital
stock. As a part of our shareholders’ remuneration policy, we have
implemented various share buyback programs since 2003. For further
description about our shareholders’ return, see “Item 8. Financial
Information—Dividend Information and Share Buyback Programs”.
The
Spanish Corporations Law prohibits the purchase by us and our subsidiaries of
shares in the secondary market except in the following limited
circumstances:
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the
purchase of shares must be authorized by a general meeting of our
shareholders and, in the case of a purchase of shares by a subsidiary,
also by a general meeting of shareholders of the
subsidiary;
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the
shares so purchased have no economic or voting rights while held by us and
have no voting rights while held by our
subsidiaries;
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the
purchaser must create reserves equal to the purchase price of any shares
that are purchased and, if a subsidiary is the acquirer, the reserve must
also be recorded by the parent company;
and
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the
total number of shares held by us and our subsidiaries may not exceed 10%
of our total capital.
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Any
acquisition of our shares exceeding, or that causes us and our subsidiaries’
holdings to exceed, 1% of our voting rights must be reported to the
CNMV.
At our
annual general shareholders meeting held on June 23, 2009, our shareholders
extended their prior authorization to the Board of Directors to acquire our
shares for an additional 18 months from the date of such meeting. The
authorization also applies to companies under our control. Pursuant
to the authorization, the aggregate nominal value of our shares held by us or
any of our subsidiaries cannot exceed the limit established by applicable laws
(which is, as of the date of this Annual Report, 10% of our outstanding
capital).
Other
restrictions on acquisitions of shares
A person
or group of persons that directly or indirectly exercises beneficial ownership
or control of 3% or more of the voting rights, or which increases or decreases
the number of shares which it owns or controls to an amount which equals or
exceeds 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%, 45%, 50%, 60%, 70%, 75%, 80% and
90% of such voting rights, must inform us and the CNMV of such
ownership.
A person
or group of persons that fails to inform any of the above entities after
reaching any of the indicated thresholds may incur fines and
penalties. A person or group that is a member of our Board of
Directors or a member of our Executive Commission must report any
acquisition or transfer of our capital stock, regardless of the amount of shares
acquired or transferred.
For
reporting requirements concerning acquisitions by us or our affiliates of our
shares, see “—Trading by us in our own shares or shares of companies under our
control” above.
Dividend
and Liquidation Rights
According
to Spanish law and our bylaws, dividends may only be paid out of profits or
distributable reserves if the value of our net worth is not, and as a result of
such distribution would not be, less than our capital stock. Pursuant
to Spanish law, we are required to reserve 10% of our fiscal year net income
until the amount in our legal reserve reaches 20% of our capital. Our
legal reserve is currently at 20%.
Dividends
payable by us to non-residents of Spain ordinarily are subject to a Spanish
withholding tax. For the tax implications of dividends, see
“—Taxation”.
Upon our
liquidation, our shareholders would be entitled to receive pro rata any assets
remaining after the payment of our debts and taxes and expenses of such
liquidation. Any change in the rights of shareholders to receive
dividends and payment upon liquidation would require an amendment to our bylaws
by resolution adopted by a general meeting of shareholders. If there
were more than one class of shares, such amendment would also require the
approval of each class of shareholders affected by the amendment.
Preemptive
Rights and Increases of Share Capital
Pursuant
to the Spanish Corporations Law, shareholders have preemptive rights to
subscribe for any new shares and for bonds convertible into
shares. Such rights may not be available under special circumstances
if waived by a resolution passed at a general meeting of shareholders in
accordance with Article 159 of the Spanish Corporations Law, or the Board of
Directors, if authorized. Further, such rights, in any event, will
not be available in the event of an increase in capital to meet the requirements
of a convertible bond issue or a merger in which shares are issued as
consideration. Such rights:
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are
transferable;
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may
be traded on the Automated Quotation System;
and
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may
be of value to existing shareholders because new shares may be offered for
subscription at prices lower than prevailing market
prices.
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Absent an
exemption from registration, shares issuable upon exercise of rights must be
registered under the Securities Act of 1933 in order to be offered to holders of
ADRs. If we decided not to register the shares, the rights would not
be distributed to holders of ADRs. Pursuant to the Deposit Agreement,
however, holders of ADRs are entitled to receive their proportionate share of
the proceeds, if any, from sale by the Depositary of any rights accruing to
holders of ADRs.
The
following is a general summary of the material Spanish and U.S. federal income
tax consequences to U.S. Holders (as defined below) of the ownership and
disposition of shares or ADSs. This summary is based upon Spanish and U.S. tax
laws (including the U.S. Internal Revenue Code of 1986, as amended (the “Code”),
final, temporary and proposed Treasury regulations, rulings, judicial decisions
and administrative pronouncements), and the Convention Between the United States
of America and the Kingdom of Spain for the Avoidance of Double Taxation and the
Prevention of Fiscal Evasion with Respect to Taxes on Income, signed February
22, 1990, (the “Treaty”), all as of the date hereof and all of which are subject
to change or changes in interpretation, possibly with retroactive effect. In
addition, the summary is based in part on representations of the Depositary and
assumes that each obligation provided for in or otherwise contemplated by the
Deposit Agreement or any other related agreements will be performed in
accordance with its terms.
As used
herein, the term “U.S. Holder” means a beneficial owner of one or more shares or
ADSs:
(a) that
is, for U.S. federal income tax purposes, one of the following:
i. a
citizen or resident of the United States,
ii. a
corporation (or other entity taxable as a corporation) created or organized in
or under the laws of the United States or any political subdivision thereof,
or
iii. an
estate or trust the income of which is subject to U.S. federal income taxation
regardless of its source;
(b) who
is entitled to the benefits of the Treaty under the Limitation on Benefits
provisions contained in the Treaty;
(c) who
holds the shares or ADSs as capital assets for U.S. federal income tax
purposes;
(d) who
owns, directly, indirectly or by attribution, less than 10% of the share capital
or voting stock of Telefónica; and
(e) whose
holding is not effectively connected with a permanent establishment in
Spain.
This
summary does not address all of the tax considerations that may apply to holders
that are subject to special tax rules, such as U.S. expatriates, insurance
companies, tax-exempt organizations, certain financial institutions, persons
subject to the alternative minimum tax, dealers and certain traders in
securities, persons holding shares or ADSs as part of a straddle, hedging,
conversion or other integrated transaction, persons who acquired their shares or
ADSs pursuant to the exercise of employee stock options or otherwise as
compensation, partnerships or other entities classified as partnerships for U.S.
federal income tax purposes or persons whose functional currency is not the U.S.
dollar. Such holders may be subject to U.S. federal income tax consequences
different from those set forth below.
If a
partnership holds shares or ADSs, the tax treatment of a partner generally will
depend upon the status of the partner and the activities of the partnership. A
partner in a partnership that holds shares or ADSs is urged to consult its own
tax advisor regarding the specific tax consequences of owning and disposing of
the shares or ADSs.
The U.S.
Treasury has expressed concerns that parties to whom American depositary
receipts are released before shares are delivered to the depositary
(“pre-release”), or intermediaries in the chain of ownership between holders and
the issuer of the security underlying the American depositary receipts, may be
taking actions that are inconsistent with the claiming of foreign tax credits by
U.S. holders of American depositary receipts. Such actions would also be
inconsistent with the claiming of the reduced rate of tax applicable to
dividends received by certain non-corporate U.S. Holders. Accordingly, the
availability of foreign tax credits to U.S. Holders of ADSs and the reduced tax
rate for dividends received by certain non-corporate U.S. Holders of ADSs, each
as described below, could be affected by actions taken by such parties or
intermediaries.
For
purposes of the Treaty and U.S. federal income tax, U.S. Holders of ADSs will
generally be treated as owners of the underlying shares represented by such
ADSs. Accordingly, no gain or loss will be recognized if a U.S. Holder exchanges
ADSs for the underlying shares represented by those ADSs.
This
discussion assumes that Telefónica is not, and will not become, a passive
foreign investment company (“PFIC”), as discussed below under “—U.S. Federal
Income Tax Considerations—Passive Foreign Investment Company
Rules.”
U.S.
Holders of shares or ADSs should consult their own tax advisors concerning the
specific Spanish and U.S. federal, state and local tax consequences of the
ownership and disposition of shares or ADSs in light of their particular
situations as well as any consequences arising under the laws of any other
taxing jurisdiction. In particular, U.S. Holders are urged to consult their own
tax advisors concerning whether they are eligible for benefits under the
Treaty.
Spanish
Tax Considerations
Taxation
of dividends
Under
Spanish law, dividends paid by Telefónica to U.S. Holders of ordinary shares or
ADSs are subject to Spanish Non-Resident Income Tax, withheld at source,
currently at an 19% tax rate. For these purposes, upon distribution of the
dividend, Telefónica or its paying agent will withhold an amount equal to the
tax due according to the rules set forth above (i.e., applying the general
withholding tax rate of 19%).
However,
under the Treaty, if you are a U.S. Holder, you are entitled to a reduced
withholding tax rate of 15%.
To
benefit from the Treaty-reduced rate of 15%, you must provide to Telefónica
through its paying agent in Spain, before the tenth day following the end of the
month in which the dividends were payable, a certificate from the U.S. Internal
Revenue Service (“IRS”) stating that, to the best knowledge of the IRS, such
U.S. Holders are residents of the United States within the meaning of the Treaty
and entitled to its benefits.
If the
certificate referred to in the above paragraph is not provided within said term,
you may afterwards obtain a refund of the amount withheld in excess of the rate
provided for in the Treaty.
Spanish
Refund Procedure
According
to Spanish Regulations on Non-Resident Income Tax, approved by Royal Decree
1776/2004 dated July 30, 2004, as amended, a refund for the amount withheld in
excess of the Treaty-reduced rate can be obtained from the relevant Spanish tax
authorities. To pursue the refund claim, if you are a U.S. Holder, you are
required to file:
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the
corresponding Spanish tax form,
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the
certificate referred to in the preceding section,
and
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evidence
of the Spanish Non-Resident Income Tax that was withheld with respect to
you.
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The
refund claim must be filed within four years from the date in which the withheld
tax was collected by the Spanish tax authorities.
U.S.
Holders are urged to consult their own tax advisors regarding refund procedures
and any U.S. tax implications thereof.
Additionally,
under Spanish law, the first €1,500 of dividends obtained by individuals who are
not resident in Spain for tax purposes, and do not operate through a permanent
establishment in Spain, will be exempt from taxation in certain circumstances.
U.S. Holders should consult their tax advisors to determine whether this
exemption is available.
Taxation
of capital gains
As of
January 1, 2010, the rate applicable to capital gains of non-residents of Spain
who are not entitled to the benefit of any applicable treaty for the avoidance
of double taxation and who do not operate through a fixed base or a permanent
establishment in Spain is 19% under Spanish law.
Under the
Treaty, capital gains realized by U.S. Holders arising from the disposition of
shares or ADSs will not be taxed in Spain, provided that the seller has not
maintained a direct or indirect holding of 25% or more in our capital during the
12 months preceding the disposition of the shares or ADSs. U.S. Holders will be
required to establish that they are entitled to the exemption from tax under the
Treaty by providing to the relevant Spanish tax authorities a certificate of
residence issued by the IRS stating that to the best knowledge of the IRS, such
U.S. Holder is a U.S. resident within the meaning of the Treaty.
Spanish
wealth tax
Individual
U.S. Holders who hold shares or ADSs located in Spain are subject to the Spanish
Wealth Tax (Impuesto sobre el
Patrimonio) (Spanish Law 19/1991), which imposes tax on property located
in Spain on the last day of any year. As of January 1, 2008 a 100%
tax allowance has been approved by Law 4/2008 dated December 23, 2008, to any
resident or non resident tax payer.
Inheritance
and gift tax
Transfers
of shares or ADSs on death and by gift to individuals are subject to Spanish
inheritance and gift taxes (Impuesto sobre Sucesiones y
Donaciones), respectively, if the transferee is a resident of Spain for
tax purposes, or if the shares or ADSs are located in Spain at the time of
death, regardless of the residence of the heir or beneficiary. The applicable
tax rate, after applying relevant personal, family and wealth factors ranges
from between 7.65% and 81.6% for individuals. While inheritance and gift taxes
are generally state taxes, certain autonomous communities have the right to
establish their own tax rates and deductions and to control the management and
settlement of such taxes.
Gifts
granted to corporations non-resident in Spain are subject to Spanish
Non-Resident Income Tax at an 19% tax rate on the fair market value of the
shares as a capital gain. If the donee is a United States resident corporation,
the exclusions available under the Treaty described in the section “—Taxation of
Capital Gains” above will be applicable.
Expenses
of Transfer
Transfers
of shares or ADSs will be exempt from any transfer tax (Impuesto sobre Transmisiones
Patrimoniales) or value added tax. Additionally, no stamp tax will be
levied on such transfers.
U.S.
Federal Income Tax Considerations
Taxation
of dividends
Distributions
received by a U.S. Holder on shares or ADSs, including the amount of any Spanish
taxes withheld, other than certain pro rata distributions of
shares to all shareholders (including ADS holders), will constitute foreign
source dividend income to the extent paid out of Telefónica’s current or
accumulated earnings and profits (as determined for U.S. federal income tax
purposes). Because Telefónica does not maintain calculations of its earnings and
profits under U.S. federal income tax principles it is expected that
distributions generally will be reported to U.S. Holders as dividends. The
amount of the dividend a U.S. Holder will be required to include in income will
equal the U.S. dollar value of the euro, calculated by reference to the exchange
rate in effect on the date the payment is received by the Depositary (in the
case of ADSs) or by the U.S. Holder (in the case of shares), regardless of
whether the payment is converted into U.S. dollars on the date of
receipt. If the dividend is converted to U.S. dollars on the date of
receipt, a U.S. holder should not be required to recognize foreign currency gain
or loss in respect of the dividend income. A U.S. Holder may have
foreign currency gain or loss if the dividend is converted into U.S. dollars
after the date of its receipt. If a U.S. Holder realizes gain or loss on a sale
or other disposition of euro, it will be U.S. source ordinary income or loss.
Corporate U.S. Holders will not be entitled to claim the dividends-received
deduction with respect to dividends paid by Telefónica. Subject to applicable
limitations and the discussion above regarding concerns expressed by the U.S.
Treasury, dividends received by certain non-corporate U.S. Holders in taxable
years beginning before January 1, 2011 will be taxable at a maximum rate of 15%.
Non-corporate U.S. Holders should consult their own tax advisors to determine
whether they are subject to any special rules that limit their ability to be
taxed at this favorable rate.
Certain
pro rata distributions of shares to all shareholders (including ADS holders) are
not generally subject to tax.
Spanish
income taxes withheld from dividends on shares or ADSs at a rate not exceeding
the rate provided in the Treaty will be creditable against a U.S. Holder’s U.S.
federal income tax liability, subject to applicable restrictions and limitations
that may vary depending upon the U.S. Holder’s circumstances and the discussion
above regarding concerns expressed by the U.S. Treasury. Spanish taxes withheld
in excess of the rate applicable under the Treaty will not be eligible for
credit against a U.S. Holder’s federal income tax liability. See “Spanish Tax
Considerations—Taxation of dividends” above for a discussion of how to obtain
the applicable treaty rate. Instead of claiming a credit, a U.S. Holder may
elect to deduct foreign taxes (including the Spanish taxes) in computing its
taxable income, subject to generally applicable limitations. An
election to deduct foreign taxes (instead of claiming foreign tax credits)
applies to all taxes paid or accrued in the taxable year to foreign countries
and possessions o the United States. The limitations on foreign taxes
eligible for credit is calculated separately with respect to specific classes of
income. The rules governing foreign tax credits are complex. Therefore, U.S.
Holders should consult their own tax advisors regarding the availability of
foreign tax credits in their particular circumstances.
Taxation
upon sale or other disposition of shares or ADSs
A U.S.
Holder will generally recognize U.S. source capital gain or loss on the sale or
other disposition of shares or ADSs, which will be long-term capital gain or
loss if the U.S. Holder has held such shares or ADSs for more than one year. The
amount of the U.S. Holder’s gain or loss will be equal to the difference between
such U.S. Holder’s tax basis in the shares or ADSs sold or otherwise disposed of
and the amount realized on the sale or other disposition, as determined in U.S.
dollars.
As
discussed under “Spanish Tax Considerations—Taxation of capital gains” above,
gain realized by a U.S. Holder on the sale or other disposition of shares or
ADSs will be exempt from Spanish tax on capital gains under the Treaty. If a
U.S. Holder is eligible for the exemption from Spanish tax on capital gains but
does not follow appropriate procedures for obtaining the exemption, such holder
will not be entitled to credit the amount of Spanish tax on capital gains paid
against its U.S. Federal income tax liability. U.S. Holders should consult their
own tax advisors regarding the potential Spanish tax consequences of a sale or
other disposition of shares or ADSs and the procedures available for an
exemption from such tax.
Passive
foreign investment company rules
Telefónica
believes that it was not a PFIC for U.S. federal income tax purposes for its
2009 taxable year. However, because PFIC status depends upon the composition of
a company’s income and assets and the market value of its assets (including,
among others, less than 25% owned equity investments) from time to time, there
can be no assurance that Telefónica will not be considered a PFIC for any
taxable year. If Telefónica were treated as a PFIC for any taxable
year during which a U.S. Holder held a share or ADS, certain adverse tax
consequences could apply to the U.S. Holder.
If
Telefónica were treated as a PFIC for any taxable year during which a U.S.
Holder held a share or ADS, gain recognized by a U.S. Holder on a sale or other
disposition of a share or ADS would be allocated ratably over the U.S. Holder’s
holding period for the share or ADS. The amounts allocated to the
taxable year of the sale or other disposition and to any year before Telefónica
became a PFIC would be taxed as ordinary income. The amount allocated
to each other taxable year would be subject to tax at the highest rate in effect
for individuals or corporations, as appropriate, and an interest charge would be
imposed on the resulting tax liability. The same treatment would
apply to any distribution in respect of shares or ADSs to the extent it exceeds
125% of the average of the annual distributions on shares or ADSs received by
the U.S. Holder during the preceding three years or the U.S. Holder’s holding
period, whichever is shorter. Certain elections may be available that
would result in alternative treatments (such as mark-to-market treatment) of the
shares or ADSs.
In
addition, if Telefónica were treated as a PFIC in a taxable year in which it
pays a dividend or in the prior taxable year, the favorable dividend rate
discussed above with respect to dividends paid to certain non-corporate U.S.
Holders would not apply.
Information
reporting and backup withholding
Payments
of dividends and sales proceeds that are made within the United States or
through certain U.S.-related financial intermediaries generally are subject to
information reporting and to backup withholding unless the U.S. Holder is a
corporation or other exempt recipient or, in the case of backup withholding, the
U.S. Holder provides a correct taxpayer identification number and certifies that
it is not subject to backup withholding. The amount of any backup withholding
from a payment to a U.S. Holder will be allowed as a credit against the U.S.
Holder’s U.S. federal income tax liability and may entitle such U.S. Holder to a
refund, provided that the required information is timely furnished to the
IRS.
Not
Applicable.
Not
Applicable.
Where
You Can Find More Information
We file
Annual Reports on Form 20-F and furnish periodic reports on Form 6-K to the
SEC. You may read and copy any of these reports at the SEC’s public
reference room in Washington, D.C. Please call the SEC at
1-800-SEC-0330 for further information on the public reference
rooms. Our SEC filings are also available to the public from
commercial document retrieval services. Some of our SEC filings are
also available at the website maintained by the SEC at
“http://www.sec.gov”.
Our ADSs
are listed on the New York Stock Exchange under the symbol “TEF”. You
may inspect any periodic reports and other information filed with or furnished
to the SEC by us at the offices of the New York Stock Exchange, 20 Broad Street,
New York, New York 10005.
As a
foreign private issuer, we are exempt from the rules under the Exchange Act
which prescribe the furnishing and content of proxy statements, and our
officers, directors and principal shareholders are exempt from the reporting and
“short-swing” profit recovery provisions contained in Section 16 of the Exchange
Act.
We are
subject to the informational requirements of the Spanish securities commission
and the Spanish stock exchanges, and we file reports and other information
relating to our business, financial condition and other matters with the Spanish
securities commission and the Spanish stock exchanges. You may read
such reports, statements and other information, including the annual and
biannual financial statements, at the public reference facilities maintained in
Madrid and Barcelona. Some of our Spanish securities commission
filings are also available at the website maintained by the Spanish securities
commission at http://www.cnmv.es.
We have
appointed Citibank, N.A. to act as Depositary for the Telefónica ADSs. Citibank
will, as provided in the Deposit Agreement, arrange for the mailing of summaries
in English of such reports and communications to all record holders of the ADSs
of Telefónica. Any record holder of Telefónica ADSs may read such
reports and communications or summaries thereof at Citibank’s office located at
111 Wall Street, New York, New York 10043.
Not
applicable.
We are
exposed to various financial market risks as a result of: (i) our ordinary
business activity, (ii) debt incurred to finance our business, (iii) our
investments in companies, and (iv) other financial instruments related to the
above commitments.
The main
market risks affecting us are as follows:
|
|
·
|
Exchange rate
risk
|
|
|
·
|
Exchange
rate risk arises primarily from (i) our international presence, through
our investments and businesses in countries that use currencies other than
the euro (primarily in Latin America, but also in the United Kingdom and
the Czech Republic), and (ii) debt denominated in currencies other than
that of the country where the business is conducted or the home country of
the company incurring such debt.
|
|
|
·
|
Interest rate
risk
|
|
|
·
|
Interest
rate risk arises primarily from changes in interest rates affecting (i)
financial expenses on floating rate debt (or short-term debt likely to be
renewed), due to changes in interest rates and (ii) the value of long-term
liabilities at fixed interest
rates.
|
|
|
·
|
Share price
risk
|
|
|
·
|
Share
price risk arises primarily from changes in the value of our equity
investments that may be bought, sold or otherwise involved in
transactions, from changes in the value of derivatives associated with
such investments, from changes in the value of our treasury shares and
from equity derivatives.
|
We are
also exposed to liquidity risk if a mismatch arises between our financing needs
(including operating and financial expense, investment, debt redemptions and
dividend commitments) and our sources of finance (including revenues,
divestments, credit lines from financial institutions and capital market
transactions). The cost of financing could also be affected by
movements in credit spreads (over benchmark rates) demanded by
lenders.
Finally,
we are exposed to “country risk” (which overlaps with market and liquidity
risks). This refers to the possible decline in the value of assets,
cash flows generated or cash flows returned to the parent company as a result of
political, economic or social instability in the countries where we operate,
especially in Latin America.
We seek
to actively manage these risks through the use of derivatives (primarily on
exchange rates, interest rates and share prices) and by incurring debt in local
currencies, where appropriate, with a view to stabilizing cash flows, our income
statement and, to a lesser extent, part of the value of our
investments. In this way, we attempt to protect our solvency,
facilitate financial planning and take advantage of investment
opportunities.
We manage
our exchange rate risk and interest rate risk in terms of net debt and net
financial debt as calculated by us. We believe that these parameters
are more appropriate to understanding our debt position. Net debt and
net financial debt take into account the impact of our cash balance and cash
equivalents including derivatives positions with a positive value linked to
liabilities. Neither net debt nor net financial debt as calculated by
us should be considered an alternative to gross financial debt (the sum of
current and non-current interest-bearing debt) as a measure of our
liquidity. For a more detailed description on reconciliation of net
debt and net financial debt to gross financial debt, see “Item 5. Operating and
Financial Review and Prospects—Presentation of Financial Information—Non-GAAP
financial information—Net financial debt and net debt”.
For a
more detailed description on quantitative and qualitative disclosures about
market risks see Note 16 to our Consolidated Financial Statements.
The
Depositary of our ADR program is Citibank, N.A., and the address of its
principal executive office is 388 Greenwich Street, 14th Floor, New York, New
York 10013.
Our ADSs
are listed on the New York Stock Exchange under the symbol
“TEF”. Each ADS represents the right to receive three shares of
capital stock of €1.00 nominal value each, of Telefónica, S.A. The
Depositary issues ADSs in form of certificated ADSs (American Depositary
Receipts, or ADRs) or uncertificated ADSs pursuant to the Deposit
Agreement.
Under the
terms of the Deposit Agreement, as of the date of this Annual Report, an ADS
holder may have to pay the following services fees to the
Depositary.
|
Category
|
Depositary
Actions
|
Associated
Fee / By Whom Paid
|
||
|
(a)
Depositing or substituting the underlying shares
|
Issuance
of ADSs upon the deposit of shares
|
Up
to U.S.$5.00 for each 100 ADSs (or portion thereof) evidenced by the new
ADSs delivered (charged to person depositing the shares or receiving the
ADSs)(1)
|
||
|
(b)
Receiving or distributing dividends
|
Distribution
of cash dividends or other cash distributions; distribution of share
dividends or other free share distributions; distribution of securities
other than ADSs or rights to purchase additional ADSs
|
Up
to U.S.$5.00 for each 100 ADSs (or portion thereof) held (in the case of
cash distributions, deducted from the relevant distribution; in the case
of all other distributions, billed to the relevant holder)(2)
|
||
|
(c)
Selling or exercising rights
|
Distribution
or sale of securities
|
Up
to U.S.$5.00 for each 100 ADSs (or portion thereof) held (billed to the
relevant holder)
|
||
|
(d)
Withdrawing an underlying security
|
Acceptance
of ADSs surrendered for withdrawal of deposited securities
|
Up
to U.S.$5.00 for each 100 ADSs (or portion thereof) evidenced by the ADSs
surrendered (charged to person surrendering or to person to whom withdrawn
securities are being delivered)(1)
|
||
|
Category
|
Depositary
Actions
|
Associated
Fee / By Whom Paid
|
|
(e)
Transferring, splitting or grouping receipts
|
Transfers
|
Up
to U.S.$1.50 per ADS so presented (charged to person presenting
certificate for transfer)
|
||
|
(f)
General depositary services, particularly those charged on an annual
basis
|
Other
services performed by the Depositary in administering the
ADSs
|
Up
to U.S.$5.00 for each 100 ADSs (or portion thereof) held on the applicable
record date (billed to person holding ADSs on applicable record date
established by the Depositary)(2)
|
||
|
(g)
Expenses of the Depositary
|
Certain
fees and expenses incurred by the depositary bank and certain taxes and
governmental charges in connection with:
·
compliance with foreign exchange control regulations or any law or
regulation relating to foreign investment;
·
the Depositary or its custodian’s compliance with applicable law,
rule or regulation;
·
stock transfer or other taxes and other governmental
charges;
·
cable, telex, facsimile transmission/delivery;
·
expenses of the Depositary in connection with the conversion of
foreign currency into U.S. dollars (which are paid out of such foreign
currency);
·
any other charge payable by Depositary or its
agents.
|
Expenses
payable at the sole discretion of the Depositary (billed or deducted from
cash distributions to person holding ADSs on applicable record date
established by the Depositary)
|
|
(1)
|
In
the case of ADSs issued by the Depositary into The Depository Trust
Company (“DTC”) or presented to the Depositary via DTC, the ADS issuance
and cancellation fees will be payable to the Depositary by DTC
Participant(s) receiving the ADSs from the Depositary or the DTC
Participant(s) surrendering the ADSs to the Depositary for cancellation,
as the case may be, on behalf of the beneficial owner(s) and will be
charged by the DTC Participant(s) to the account(s) of the applicable
beneficial owner(s) in accordance with the procedures and practices of the
DTC participant(s) as in effect at the
time.
|
|
(2)
|
For
ADSs held through DTC, the Depositary fees for distributions other than
cash and the Depositary service fee are charged by the Depositary to the
DTC Participants in accordance with the procedures and practices
prescribed by DTC from time to time and the DTC Participants in turn
charge the amount of such fees to the beneficial owners for whom they hold
ADSs.
|
The
Depositary has agreed to reimburse or pay on behalf of Telefónica, S.A, certain
reasonable expenses related to our ADS program and incurred by us in connection
with the program (such as NYSE listing fees, legal and accounting fees incurred
with preparation of Form 20-F and on going SEC compliance and listing
requirements, distribution of proxy materials, investor relations expenses,
etc). The Depositary has covered all such expenses incurred by us
during 2009 for an amount of $2,283,245. The amounts the Depositary
reimbursed or paid are not perforce related to the fees collected by the
depositary from ADS holders.
As part
of its service to us, the Depositary has agreed to waive fees for the standard
costs associated with the administration of our ADS program, associated
operating expenses and investor relations advice estimated to total
$125,000.
None.
Not
applicable.
Disclosure
Controls and Procedures
Our Chief
Executive Officer and our Chief Financial Officer, after evaluating the
effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period
covered by this Form 20-F, have concluded that, as of such date, our disclosure
controls and procedures were effective.
Management’s
Annual Report on Internal Control over Financial Reporting
The
management of Telefónica is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rule 13a–15(f)
under the Securities Exchange Act of 1934. Telefónica’s internal
control system is designed to provide reasonable assurance as to the reliability
of financial reporting and the preparation of the published financial statements
under generally accepted accounting principles.
Any
internal control system, no matter how well designed, has inherent limitations,
including the possibility of human error and the circumvention or overriding of
the controls and procedures, which may not prevent or detect
misstatements.
Telefónica
management assessed the effectiveness of Telefónica’s internal control over
financial reporting as of December 31, 2009. In making this
assessment, it used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control – Integrated
Framework. Based on its assessment and those criteria, Telefónica
management believes that, at December 31, 2009 Telefónica’s internal control
over financial reporting is effective.
Report
of the Independent Registered Public Accounting Firm
Telefónica’s
independent registered public accounting firm, Ernst & Young S.L., has
issued a report on the effectiveness of the company’s internal control over
financial reporting. The report is included on page
F-1.1.
Changes
in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting during the
period covered by this Annual Report that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
Our Board
of Directors has determined that Mr. Antonio Massanell Lavilla meets the
requirements of an “audit committee financial expert” as defined by the
SEC.
In
December 2006, we adopted a code of business conduct and ethics, the Telefónica
Business Principles, which apply to all Telefónica Group
employees. In March 2008, we decided to modify such Business
Principles in order to gather in them all components of the code of ethics
definition in Section 406 of Sarbanes-Oxley Act, and consequently our code of
ethics for senior officers was replaced by the Telefónica Business
Principles. A copy of the Telefónica Business Principles is filed as
an Exhibit to this Annual Report. For more information, please see
“Item 16G. Corporate Governance—Code of Ethics.”
The
expenses accrued in respect of the fees for services rendered in 2008 and 2009
of various member firms of the Ernst & Young international organization, to
which Ernst & Young, S.L. (the auditors of the Telefónica Group) belongs,
amounted to €24.45 million and €24.07 million, respectively.
The
detail of these amounts is as follows:
|
Year
ended December 31,
|
||||||||
|
2008
|
2009
|
|||||||
|
(in
millions of euros)
|
||||||||
|
Audit
services (1)
|
22.79 | 22.62 | ||||||
|
Audit-related
services (2)
|
1.65 | 1.40 | ||||||
|
Tax
services (3)
|
— | 0.01 | ||||||
|
All
other services (4)
|
0.01 | 0.04 | ||||||
|
Total
Fees
|
24.45 | 24.07 | ||||||
|
(1)
|
Audit
services: services included under this heading are mainly the audit of the
annual and review of the interim financial statements, work to comply with
the requirements of the Sarbanes-Oxley Act (Section 404) and the review of
our annual report on Form 20-F.
|
|
(2)
|
Audit-related
services: services included under this heading are mainly related to the
review of the information required by regulatory authorities, agreed
financial reporting procedures not requested by legal or regulatory bodies
and the review of corporate responsibility
reports.
|
|
(3)
|
Tax
services: services included under this heading are related to a tax
compliance.
|
|
(4)
|
All
other services: services included under this heading relate to
training.
|
The above
includes expenses accrued in respect of certain fees of fully and
proportionately consolidated Telefónica Group companies. A total of
€1.39 million and €1.17 million corresponding to 50% of the expenses accrued in
respect of the fees of proportionally consolidated companies were included in
2008 and 2009, respectively.
The
Audit and Control Committee’s Pre-Approval Policies and Procedures
The
engagement of any service rendered by our external auditor or any of its
affiliates must always have the prior approval of our Audit and Control
Committee. Such Committee has developed a Pre-approval Policy
regarding the engagement of professional services by our external auditor, in
accordance with the Spanish Audit Law and the Sarbanes-Oxley
Act. This Policy establishes the obligation to obtain prior approval
from our Audit and Control Committee for any service to be rendered by our
external auditor to Telefónica or any of its subsidiaries.
This
Policy sets forth restrictions on engaging our external auditor for the
performance of non-audit services, according to which the engagement of our
external auditor for the provision of such services is only permitted when there
is no other firm available to provide the needed services at a comparable cost
and with a similar level of quality. Moreover, this Policy prohibits
the engagement of our external auditor for the provision of certain type of
services that would be considered as “prohibited services”.
In
addition, the Audit and Control Committee oversees the total amount of fees paid
to our external auditor for the provision of non-audit services in order to
assure that such fees do not exceed a certain percentage of the total amount of
fees paid for the provision of audit services.
Not
applicable.
|
Year
ended December 31, 2009
|
||||||||||||
|
Period
of Fiscal Year
|
Total
Number of Shares Purchased
|
Average
Price Paid per Share (euros)
|
Total
Number of Shares (or Units) Purchased as Part of Publicly Announced Plans
or Programs(1)(2)
|
|||||||||
|
January
1 to January 31
|
12,059,322 | 14.69 | 12,059,322 | |||||||||
|
February
1 to February 28
|
2,000,000 | 14.24 | 2,000,000 | |||||||||
|
March
1 to March 31
|
8,375,000 | 14.69 | 8,375,000 | |||||||||
|
April
1 to April 30
|
2,550,000 | 14.84 | — | |||||||||
|
May
1 to May 31
|
1,000,000 | 14.88 | — | |||||||||
|
June
1 to June 30
|
6,825,000 | 15.60 | — | |||||||||
|
July
1 to July 31
|
12,300,000 | 10.52 | — | |||||||||
|
August
1 to August 31
|
1,600,000 | 17.08 | — | |||||||||
|
September
1 to September 30
|
7,400,000 | 18.69 | — | |||||||||
|
October
1 to October 31
|
8,499,900 | 18.95 | — | |||||||||
|
November
1 to November 30
|
1,250,000 | 18.84 | 1,250,000 | |||||||||
|
December
1 to December 31
|
1,950,000 | 19.46 | 1,106,597 | |||||||||
|
Total
|
65,809,222 | 16.04 | 24,790,919 | |||||||||
|
(1)
|
The
number of shares of treasury stock at December 31, 2009 amounted to
6,329,530 (125,561,011 at December 31,
2008).
|
|
(2)
|
As
part of our shareholder remuneration policy, in 2008, we announced plans
to buy back up to 150 million of our shares, which we concluded in the
first quarter of 2009. For a further description of our share
buyback programs, see “Item 8. Financial Information—Dividend Information
and Share Buyback Programs”. We managed the share price risk of
our share buyback programs by setting the timetable for execution in
accordance with the pace of cash flow generation, the share price and
other market conditions, and subject to any applicable limitations
established by law, regulations or our
bylaws.
|
In
addition, a maximum of 2,356,597 shares could be assigned for the fourth phase
(Start Date: July 1, 2009) of the Performance Share Plan.
For a
more detailed description of our plans or programs, see “Item 8. Financial
Information—Dividend Information and Share Buyback Programs” and “Item 11.
Quantitative and Qualitative Disclosures About Market Risk—Share Price
Risk”.
During
the years ended December 31, 2008 and 2009 and through the date of this Annual
Report, the principal independent accountant engaged to audit our financial
statements, Ernst & Young S.L., has not resigned, indicated that it has
declined to stand for re-election after the completion of its current audit or
been dismissed. For each of the years ended December 31, 2008 and
2009, Ernst & Young S.L. has not expressed reliance on another accountant or
accounting firm in its report on our audited annual accounts for such
periods.
Significant
Differences in Corporate Governance Practices
Corporate
governance guidelines
In Spain,
companies with securities listed on a Spanish stock exchange are expected to
follow the Conthe Code published in May 2006, which contains corporate
governance and shareholder disclosure recommendations. It combines and
substitutes the former Spanish Corporate Governance Codes: the Olivencia Code of
Good Governance and the Aldama Report. Spanish listed companies are required by
law to publish an Annual Report on Corporate Governance and also to publish
corporate governance information on their websites. We base our
corporate governance procedures on the recommendations of the Conthe
Code. As part of our corporate governance procedures, we have adopted
regulations for our Board of Directors that govern, among other things, director
qualification
standards, responsibilities, compensation, access to management information, the
Board of Directors’ purpose and each of our Board Committee’s purpose and
responsibilities. Moreover, we have a Regulation of the General
Shareholders’ Meeting that aims to reinforce its transparency, providing
shareholders with a framework guaranteeing and facilitating exercise of their
rights. The Annual Report on Corporate Governance published by us
provides a detailed explanation of our corporate governance procedures and
explains the role and duties of our Board of Directors and Board
Committees. Our Annual Report on Corporate Governance is available on
our website at www.telefonica.com. None of the information contained on our
website is incorporated in this Annual Report.
Committees
We have
had an Audit and Control Committee since 1997. Our Audit and Control Committee
is composed of four non-executive directors, all of whom are deemed Rule 10A-3
independent by our Board of Directors. The Committee’s functions and
duties are similar to those required by the New York Stock
Exchange. The Audit and Control Committee shall consist of not less
than three nor more than five directors appointed by our Board of Directors. All
Committee members shall be external directors. When appointing such
members, our Board of Directors shall take into account the appointees’
knowledge and experience in matters of accounting, auditing and risk
management.
We have
had a Nominating, Compensation and Corporate Governance Committee since 1997,
which is composed of five external directors. The functions,
composition and competencies of this Committee are regulated by the Board of
Directors’ Regulations and are very similar to those required by the
NYSE. The Nominating, Compensation and Corporate Governance Committee
shall consist of not less than three nor more than five directors appointed by
the Board of Directors. All members of the Committee must be external
directors and the majority thereof must be independent (The Chairman of the
Nominating, Compensation and Corporate Governance Committee, who shall in all
events be an independent director, shall be appointed from among its
members).
Additionally
we have a Human Resources and Corporate Reputation and Responsibility Committee,
a Regulation Committee, a Service Quality and Customer Service Committee, an
International Affairs Committee, an Innovation Committee and a Strategy
Committee. The functions, composition and competencies are regulated by the
Board of Directors’ Regulations.
Independence
of the Board
As of the
date of this Annual Report, we have 17 directors, out of which eight have been
deemed independent by our Board of Directors attending to the director’s
classification contained in the Conthe Corporate Governance Code. A significant
majority of our current directors, 14, are non-executive
directors. We, in accordance with the Conthe Code, assess the
independence of our directors. Among other things, independent directors: (i)
shall not be, past employees or executive directors of any of the Group
companies, unless three or five years have elapsed, respectively, (ii) shall not
receive any payment or other form of compensation from us or our group on top of
their directors’ fees, unless the amount involved is not significant, (iii)
shall not be partners, now or on the past three years, in the external auditor
or in the firm responsible for the audit report, (iv) shall not be executive
directors or senior officers of another company where one of our executive
directors or senior officers is an external director, (v) shall not have
material business dealings with us or any other company in our group, (vi) shall
not be spouses, nor partners maintaining an analogous affective relationship,
nor close relative of any of our executive directors or senior officers and
(vii) shall not stand in any of the situations listed in (i), (v) or (vi) above
in relation to a significant shareholder or a shareholder with board
representation.
The
classification of each director shall be explained by the Board of Directors to
the shareholders at the general shareholders’ meeting at which the appointment
thereof must be made or ratified. Furthermore, such classification
shall be reviewed annually by our Board of Directors after verification by the
Nominating, Compensation and Corporate Governance Committee, and reported in the
Annual Corporate Governance Report.
Internal
Audit Function
We have
an Internal Audit Department responsible for internal audit matters and for
ensuring the efficiency of the internal audit control process of our different
units. This Internal Audit Department reports directly to the Audit
and Control Committee, thus supporting the adequate performance of all its
functions.
Non-Executive
Director Meetings
Pursuant
to the NYSE listing standards, non-executive directors of U.S. listed companies
must meet on a regular basis without management present and Telefónica must
disclose a method for any interested parties to communicate directly with the
non-executive directors. As a group, our non-executive directors do
not meet formally without management present. Nevertheless, every
committee of the Board of Directors is composed exclusively of non-executive
directors (other than the Innovation Committee, which includes Julio Linares,
one of our executive directors), thus giving each of these committees, the
chance to analyze and discuss any matter related to our management, within its
respective area of responsibility.
Whistleblowing
We have
procedures in place that allow any employee to anonymously and confidentially
report instances of fraud, alterations of financial information or specific
risks to Telefónica and its subsidiaries.
Code
of Ethics
The NYSE
listing standards require U.S. companies to adopt a code of business conduct and
ethics for directors, officers and employees, and promptly disclose any waivers
of the code for directors or executive officers. In 2004 we adopted, as required
by the Sarbanes-Oxley Act, a code of ethics that applied to our principal
executive officer, principal financial officer and to our senior financial
officers. In December 2006, we adopted a code of business conduct and
ethics, the “Telefónica Business Principles”, which apply to all Telefónica
Group employees. On March 2008, we decided to modify such Business
Principles in order to incorporate within them all components of the code of
ethics definition in Section 406 of Sarbanes Oxley Act, and consequently our
code of ethics for senior officers was replaced by such Business
Principles.
We also
have an Internal Code of Conduct for securities markets issues to prevent
insider trading misconduct and to control possible conflicts of
interest. In addition, the Regulations of the Board of Directors set
out in detail our directors’ main obligations relating to conflicts of interest
concerning business opportunities, misappropriation of our assets,
confidentiality and non-competition.
We have
responded to Item 18 in lieu of responding to this Item.
Please
see pages F-1.1 through F-122.
|
Exhibit
Number
|
Description
|
|
|
1.1
|
Amended
and Restated bylaws (English translation)
|
|
|
4.1
|
Shareholders’
Agreement dated as of April 28, 2007 among Telefónica S.A., Assicurazioni
Generali S.p.A., Sintonia S.A., Intesa Sanpaolo S.p.A., Mediobanca
S.p.A.*
|
|
|
4.2
|
Co-investment
Agreement dated as of April 28, 2007 among Telefónica S.A., Assicurazioni
Generali S.p.A., Sintonia S.A., Intesa Sanpaolo S.p.A., Mediobanca
S.p.A.*
|
|
|
4.3
|
Call
Option Agreement, dated November 6, 2007, between Telefónica, S.A. and
Telco**
|
|
|
4.4
|
Amendment
to the Shareholders’ Agreement and Bylaws, dated November 19, 2007 among
Telefónica S.A., Generali, Sintonia S.A., Intesa Sanpaolo S.p.A. and
Mediobanca S.p.A.**
|
|
|
4.5
|
Renewal
Agreement, dated October 28, 2009, by and among Telefónica S.A.,
Assicurazioni Generali S.p.A. (on its own behalf and on behalf of its
subsidiaries Generali Vie S.A., Alleanza Toro S.p.A., INA Assitalia
S.p.A., Generali Lebensversicherung A.G.), Intesa Sanpaolo S.p.A. and
Mediobanca S.p.A. ***
|
|
|
4.6
|
Amendment
Deed to the Call Option, dated October 28, 2009, by and between Telefónica
S.A. and Telco S.p.A. ***
|
|
|
4.7
|
Subscription
Agreement, dated September 6, 2009 between Telefónica, S.A. and China
Unicom (Hong Kong) Limited****
|
|
|
8.1
|
Subsidiaries
of Telefónica (see Note 1 to the Consolidated Financial Statements and
Appendix V thereto)
|
|
|
11.1
|
Code
of Ethics (“Telefónica Business Principles”)
|
|
|
12.1
|
Certification
of César Alierta Izuel, Chief Executive Officer of Telefónica, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
12.2
|
Certification
of Santiago Fernández Valbuena, Chief Financial Officer of Telefónica,
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
13.1
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|
|
|
*
|
Incorporated
by reference to Telefónica’s Annual Report on Form 20-F for the fiscal
year ended December 31, 2006.
|
|
**
|
Incorporated
by reference to Telefónica’s Schedule 13D/A filed on November 26,
2007.
|
|
***
|
Incorporated
by reference to Telefónica’s Schedule 13D/A filed on November 23,
2009.
|
|
****
|
Incorporated
by reference to Telefónica’s Schedule 13D/A filed on September 17,
2009.
|
We agree
to furnish to the SEC upon request, copies of the instruments defining the
rights of the holders of our long-term debt and of our subsidiaries’ long-term
debt.
SIGNATURES
The
registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and has duly caused and authorized the undersigned to sign this Annual
Report on its behalf.
|
TELEFÓNICA,
S.A.
|
|||
|
By:
|
/s/
César Alierta Izuel
|
||
|
Name:
|
César
Alierta Izuel
|
||
|
Title:
|
Chairman
and Chief Executive Officer
|
||
|
TELEFÓNICA,
S.A.
|
|||
|
By:
|
/s/
Santiago Fernández Valbuena
|
||
|
Name:
|
Santiago
Fernández Valbuena
|
||
|
Title:
|
Chief
Financial Officer
|
||
Date: March
26, 2010
TELEFÓNICA, S.A. AND SUBSIDIARIES COMPOSING
THE
TELEFÓNICA GROUP
|
CONSOLIDATED ANNUAL FINANCIAL
STATEMENTS
(CONSOLIDATED ANNUAL
ACCOUNTS)
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of
Directors and Shareholders of
Telefónica,
S.A.
We
have audited Telefónica, S.A.’s internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Telefónica,
S.A.’s management is responsible for maintaining effective
internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the
accompanying Annual Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on Telefónica, S.A.’s internal control
over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In
our opinion, Telefónica, S.A. maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2009, based on the
COSO criteria.
We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated statements of
financial position of Telefónica, S.A. and subsidiaries as of December 31, 2009
and 2008, and the related consolidated statements of income, comprehensive
income, changes in equity, and cash flows for each of the three years in the
period ended December 31, 2009 and our report dated March 18, 2010 expressed an
unqualified opinion thereon.
ERNST & YOUNG,
S.L.
|
/s/ José Luis Perelli
Alonso
|
|
|||
|
José Luis
Perelli Alonso
|
|
|||
|
|
|
|||
Madrid, Spain
March 18,
2010
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of
Directors and Shareholders of
Telefónica,
S.A.
We
have audited the accompanying consolidated statements of financial position of
Telefónica, S.A. and subsidiaries as of December 31, 2009 and 2008, and the
related consolidated statements of income, comprehensive income, changes in
equity, and cash flows for each of the three years in the period ended December
31, 2009. These consolidated financial statements are the responsibility of the
Telefónica, S.A.’s Directors. Our responsibility is to express an opinion on
these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Telefónica, S.A. and
subsidiaries as of December 31, 2009 and 2008, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2009, in conformity with International Financial Reporting
Standards as issued by the International Accounting Standards
Board.
We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), Telefónica S.A.’s internal
control over financial reporting as of December 31, 2009, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated March
18, 2010 expressed an unqualified opinion thereon.
ERNST & YOUNG,
S.L.
|
/s/ José Luis Perelli
Alonso
|
|
|||
|
José Luis
Perelli Alonso
|
|
|||
|
|
|
|||
Madrid,
Spain
March 18,
2010
TELEFÓNICA GROUP
CONSOLIDATED STATEMENT OF FINANCIAL
POSITION AT DECEMBER 31
(MILLIONS OF EUROS)
|
ASSETS
|
NOTE
|
2009
|
2008
|
||||||
|
A)
NON-CURRENT ASSETS
|
84,311 | 81,923 | |||||||
|
Intangible
assets
|
(Note
6)
|
15,846 | 15,921 | ||||||
|
Goodwill
|
(Note
7)
|
19,566 | 18,323 | ||||||
|
Property,
plant and equipment
|
(Note
8)
|
31,999 | 30,545 | ||||||
|
Investment
properties
|
5 | 1 | |||||||
|
Investments
in associates
|
(Note
9)
|
4,936 | 2,777 | ||||||
|
Non-current
financial assets
|
(Note
13)
|
5,988 | 7,376 | ||||||
|
Deferred
tax assets
|
(Note
17)
|
5,971 | 6,980 | ||||||
|
B) CURRENT
ASSETS
|
23,830 | 17,973 | |||||||
|
Inventories
|
934 | 1,188 | |||||||
|
Trade
and other receivables
|
(Note
11)
|
10,622 | 9,315 | ||||||
|
Current
financial assets
|
(Note
13)
|
1,906 | 2,216 | ||||||
|
Tax
receivables
|
(Note
17)
|
1,246 | 970 | ||||||
|
Cash
and cash equivalents
|
(Note
13)
|
9,113 | 4,277 | ||||||
|
Non-current
assets held for sale
|
9 | 7 | |||||||
|
TOTAL ASSETS (A +
B)
|
108,141 | 99,896 | |||||||
|
EQUITY AND
LIABILITIES
|
NOTE
|
2009
|
2008
|
||||||
|
A)
EQUITY
|
24,274 | 19,562 | |||||||
|
Equity
attributable to equity holders of the parent
|
21,734 | 17,231 | |||||||
|
Non-controlling
interests
|
(Note
12)
|
2,540 | 2,331 | ||||||
|
B)
NON-CURRENT LIABILITIES
|
56,931 | 55,202 | |||||||
|
Non-current
interest-bearing debt
|
(Note
13)
|
47,607 | 45,088 | ||||||
|
Non-current
trade and other payables
|
(Note
14)
|
1,249 | 1,117 | ||||||
|
Deferred
tax liabilities
|
(Note
17)
|
3,082 | 3,576 | ||||||
|
Non-current
provisions
|
(Note
15)
|
4,993 | 5,421 | ||||||
|
C)
CURRENT LIABILITIES
|
26,936 | 25,132 | |||||||
|
Current
interest-bearing debt
|
(Note
13)
|
9,184 | 8,100 | ||||||
|
Current
trade and other payables
|
(Note
14)
|
14,023 | 13,651 | ||||||
|
Current
tax payables
|
(Note
17)
|
2,766 | 2,275 | ||||||
|
Provisions
|
(Note
15)
|
963 | 1,106 | ||||||
|
TOTAL EQUITY AND LIABILITIES
(A+B+C)
|
108,141 | 99,896 | |||||||
The
accompanying Notes 1 to 25 and Appendices I to V are an integral part of these
consolidated statements of financial position
TELEFÓNICA GROUP
CONSOLIDATED INCOME STATEMENTS FOR THE
YEARS ENDED DECEMBER 31
(MILLIONS OF EUROS)
|
INCOME
STATEMENT
|
NOTE
|
2009
|
2008
|
2007
|
|||||||||
|
Revenue
from operations
|
(Note
19)
|
56,731 | 57,946 | 56,441 | |||||||||
|
Other
income
|
(Note
19)
|
1,645 | 1,865 | 4,264 | |||||||||
|
Supplies
|
(16,717 | ) | (17,818 | ) | (17,907 | ) | |||||||
|
Personnel
expenses
|
(6,775 | ) | (6,762 | ) | (7,893 | ) | |||||||
|
Other
expenses
|
(Note
19)
|
(12,281 | ) | (12,312 | ) | (12,081 | ) | ||||||
|
Depreciation
and amortization
|
(Note
19)
|
(8,956 | ) | (9,046 | ) | (9,436 | ) | ||||||
|
OPERATING
INCOME
|
13,647 | 13,873 | 13,388 | ||||||||||
|
Share
of profit (loss) of associates
|
(Note
9)
|
47 | (161 | ) | 140 | ||||||||
|
Finance
income
|
814 | 827 | 703 | ||||||||||
|
Exchange
gains
|
3,085 | 6,189 | 4,645 | ||||||||||
|
Finance
costs
|
(3,581 | ) | (3,648 | ) | (3,554 | ) | |||||||
|
Exchange
losses
|
(3,625 | ) | (6,165 | ) | (4,638 | ) | |||||||
|
Net
financial expense
|
(Note
16)
|
(3,307 | ) | (2,797 | ) | (2,844 | ) | ||||||
|
PROFIT
BEFORE TAX FROM CONTINUING OPERATIONS
|
10,387 | 10,915 | 10,684 | ||||||||||
|
Corporate
income tax
|
(Note
17)
|
(2,450 | ) | (3,089 | ) | (1,565 | ) | ||||||
|
PROFIT
FOR THE YEAR FROM CONTINUING OPERATIONS
|
7,937 | 7,826 | 9,119 | ||||||||||
|
Profit
after tax from discontinued operations
|
(Note
18)
|
- | - | - | |||||||||
|
PROFIT
FOR THE YEAR
|
7,937 | 7,826 | 9,119 | ||||||||||
|
Non-controlling
interests
|
(Note
12)
|
(161 | ) | (234 | ) | (213 | ) | ||||||
|
PROFIT
FOR THE YEAR ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT
|
7,776 | 7,592 | 8,906 | ||||||||||
|
Basic
and diluted earnings per share from continuing operations attributable to
equity holders of the parent (euros)
|
(Note
19)
|
1.71 | 1.63 | 1.87 | |||||||||
|
Basic
and diluted earnings per share attributable to equity holders of the
parent (euros)
|
(Note
19)
|
1.71 | 1.63 | 1.87 | |||||||||
The
accompanying Notes 1 to 25 and Appendices I to V are an integral part of these
consolidated income statements
|
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
|
Year
ended December 31
|
|||||||||||
|
(MILLIONS OF
EUROS)
|
2009
|
2008
|
2007
|
|||||||||
|
Profit
for the year
|
7,937 | 7,826 | 9,119 | |||||||||
|
Other
comprehensive income
|
||||||||||||
|
Gain
(loss) on measurement of available-for-sale investments
|
638 | (1,167) | (75) | |||||||||
|
Reclassification
of (losses) gains included in the income statement
|
(4) | (142) | 107 | |||||||||
|
Income
tax impact
|
(105) | 281 | 24 | |||||||||
| 529 | (1,028) | 56 | ||||||||||
|
(Losses)
gains on hedges
|
(794) | 1,302 | 875 | |||||||||
|
Reclassification
of (losses) gains included in the income statement
|
(77) | 50 | 17 | |||||||||
|
Income
tax impact
|
262 | (402) | (292) | |||||||||
| (609) | 950 | 600 | ||||||||||
|
Translation
differences
|
1,982 | (4,051) | (1,375) | |||||||||
|
Actuarial
gains and losses and impact of limit on assets for defined benefit pension
plans
|
(189) | (182) | 54 | |||||||||
|
Income
tax impact
|
53 | 55 | (17) | |||||||||
| (136) | (127) | 37 | ||||||||||
|
Share
of income (loss) recognized directly in equity of
associates
|
233 | (59) | (3) | |||||||||
|
Income
tax impact
|
2 | (13) | (11) | |||||||||
| 235 | (72) | (14) | ||||||||||
|
Total
other comprehensive income
|
2,001 | (4,328) | (696) | |||||||||
|
Total comprehensive income
recognized in the year
|
9,938 | 3,498 | 8,423 | |||||||||
|
Attributable
to:
|
||||||||||||
|
Equity
holders of the parent
|
9,418 | 3,612 | 8,158 | |||||||||
|
Non-controlling
interests
|
520 | (114) | 265 | |||||||||
| 9,938 | 3,498 | 8,423 | ||||||||||
The
accompanying Notes 1 to 25 and Appendices I to V are an integral part of these
consolidated statements of comprehensive income
|
CONSOLIDATED STATEMENT OF CHANGES
IN EQUITY (MILLIONS OF EUROS)
|
Attributable to equity holders of
the parent
|
||||||||||||
|
Share
capital
|
Share
premium
|
Legal
reserve
|
Revaluation
reserve
|
Treasury
shares
|
Retained
earnings
|
Available-for-sale
investments
|
Hedges
|
Equity of
associates
|
Translation
differences
|
Total
|
Non-controlling
interests
|
Total
equity
|
|
|
Financial position at December 31,
2008
|
4,705
|
460
|
984
|
172
|
(2,179)
|
16,069
|
(566)
|
1,413
|
(216)
|
(3,611)
|
17,231
|
2,331
|
19,562
|
|
Profit
for the year
|
-
|
-
|
-
|
-
|
-
|
7,776
|
-
|
-
|
-
|
-
|
7,776
|
161
|
7,937
|
|
Other
comprehensive income (loss)
|
-
|
-
|
-
|
-
|
-
|
(136)
|
527
|
(609)
|
235
|
1,625
|
1,642
|
359
|
2,001
|
|
Total
comprehensive income
|
7,640
|
527
|
(609)
|
235
|
1,625
|
9,418
|
520
|
9,938
|
|||||
|
Dividends
paid (Note 12)
|
-
|
-
|
-
|
-
|
-
|
(4,557)
|
-
|
-
|
-
|
-
|
(4,557)
|
(295)
|
(4,852)
|
|
Hyperinflation
restatement to 01/01/09
|
613
|
613
|
-
|
613
|
|||||||||
|
Net
movement in treasury shares
|
-
|
-
|
-
|
-
|
(656)
|
-
|
-
|
-
|
-
|
-
|
(656)
|
-
|
(656)
|
|
Acquisitions
and disposals of Non-controlling interests
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(122)
|
(122)
|
|
Capital
reduction (Note 12)
|
(141)
|
-
|
-
|
-
|
2,308
|
(2,167)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Other
movements
|
-
|
-
|
-
|
(15)
|
-
|
(300)
|
-
|
-
|
-
|
-
|
(315)
|
106
|
(209)
|
|
Financial position at December 31,
2009
|
4,564
|
460
|
984
|
157
|
(527)
|
16,685
|
(39)
|
804
|
19
|
(1,373)
|
21,734
|
2,540
|
24,274
|
|
Financial position at December 31,
2007
|
4,773
|
522
|
984
|
180
|
(232)
|
13,025
|
457
|
463
|
(144)
|
97
|
20,125
|
2,730
|
22,855
|
|
Profit
for the year
|
-
|
-
|
-
|
-
|
-
|
7,592
|
-
|
-
|
-
|
-
|
7,592
|
234
|
7,826
|
|
Other
comprehensive income (loss)
|
-
|
-
|
-
|
-
|
-
|
(127)
|
(1,023)
|
950
|
(72)
|
(3,708)
|
(3,980)
|
(348)
|
(4,328)
|
|
Total
comprehensive income
|
7,465
|
(1,023)
|
950
|
(72)
|
(3,708)
|
3,612
|
(114)
|
3,498
|
|||||
|
Dividends
paid (Note 12)
|
-
|
-
|
-
|
-
|
-
|
(4,165)
|
-
|
-
|
-
|
-
|
(4,165)
|
(333)
|
(4,498)
|
|
Net
movement in treasury shares
|
-
|
1,074
|
-
|
-
|
(3,151)
|
(232)
|
-
|
-
|
-
|
-
|
(2,309)
|
-
|
(2,309)
|
|
Acquisitions
and disposals of Non-controlling interests
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(42)
|
(42)
|
|
Capital
reduction (Note 12)
|
(68)
|
(1,136)
|
-
|
-
|
1,204
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Other
movements
|
-
|
-
|
-
|
(8)
|
-
|
(24)
|
-
|
-
|
-
|
-
|
(32)
|
90
|
58
|
|
Financial position at December 31,
2008
|
4,705
|
460
|
984
|
172
|
(2,179)
|
16,069
|
(566)
|
1,413
|
(216)
|
(3,611)
|
17,231
|
2,331
|
19,562
|
|
Financial position at December 31,
2006
|
4,921
|
2,869
|
984
|
1,358
|
(329)
|
5,717
|
401
|
(137)
|
(130)
|
1,524
|
17,178
|
2,823
|
20,001
|
|
Profit
for the year
|
-
|
-
|
-
|
-
|
-
|
8,906
|
-
|
-
|
-
|
-
|
8,906
|
213
|
9,119
|
|
Other
comprehensive income (loss)
|
-
|
-
|
-
|
-
|
-
|
37
|
56
|
600
|
(14)
|
(1,427)
|
(748)
|
52
|
(696)
|
|
Total
comprehensive income
|
8,943
|
56
|
600
|
(14)
|
(1,427)
|
8,158
|
265
|
8,423
|
|||||
|
Dividends
paid (Note 12)
|
-
|
-
|
-
|
-
|
-
|
(3,077)
|
-
|
-
|
-
|
-
|
(3,077)
|
(324)
|
(3,401)
|
|
Net
movement in treasury shares
|
-
|
(13)
|
-
|
-
|
(2,105)
|
(13)
|
-
|
-
|
-
|
-
|
(2,131)
|
-
|
(2,131)
|
|
Acquisitions
and disposals of Non-controlling interests
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(95)
|
(95)
|
|
Capital
reduction (Note 12)
|
(148)
|
(2,054)
|
-
|
-
|
2,202
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Other
movements
|
-
|
(280)
|
-
|
(1,178)
|
-
|
1,455
|
-
|
-
|
-
|
-
|
(3)
|
61
|
58
|
|
Financial position at December 31,
2007
|
4,773
|
522
|
984
|
180
|
(232)
|
13,025
|
457
|
463
|
(144)
|
97
|
20,125
|
2,730
|
22,855
|
|
The
accompanying Notes 1 to 25 and Appendices I to V are an integral part of
these consolidated statements of changes in
equity.
|
TELEFÓNICA GROUP
CONSOLIDATED STATEMENT OF CASH FLOWS FOR
THE YEARS ENDED DECEMBER 31
(MILLIONS OF EUROS)
|
NOTE
|
2009
|
2008
|
2007
|
||||||||||
|
Cash
flows from operating activities
|
|||||||||||||
|
Cash
received from customers
|
67,358 | 69,060 | 67,129 | ||||||||||
|
Cash
paid to suppliers and employees
|
(46,198 | ) | (48,500 | ) | (47,024 | ) | |||||||
|
Dividends
received
|
100 | 113 | 124 | ||||||||||
|
Net
interest and other financial expenses paid
|
(2,170 | ) | (2,894 | ) | (3,221 | ) | |||||||
|
Taxes
paid
|
(2,942 | ) | (1,413 | ) | (1,457 | ) | |||||||
|
Net
cash from operating activities
|
(Note
23)
|
16,148 | 16,366 | 15,551 | |||||||||
|
Cash
flows from investing activities
|
|||||||||||||
|
Proceeds
on disposals of property, plant and equipment and intangible
assets
|
242 | 276 | 198 | ||||||||||
|
Payments
on investments in property, plant and equipment and intangible
assets
|
(7,593 | ) | (7,889 | ) | (7,274 | ) | |||||||
|
Proceeds
on disposals of companies, net of cash and cash equivalents
disposed
|
34 | 686 | 5,346 | ||||||||||
|
Payments
on investments in companies, net of cash and cash equivalents
acquired
|
(48 | ) | (2,178 | ) | (2,798 | ) | |||||||
|
Proceeds
on financial investments not included under cash
equivalents
|
6 | 31 | 14 | ||||||||||
|
Payments
made on financial investments not included under cash
equivalents
|
(1,411 | ) | (114 | ) | (179 | ) | |||||||
|
Interest
(paid) received on cash surpluses not included under cash
equivalents
|
(548 | ) | 76 | 74 | |||||||||
|
Government
grants received
|
18 | 11 | 27 | ||||||||||
|
Net
cash used in investing activities
|
(Note
23)
|
(9,300 | ) | (9,101 | ) | (4,592 | ) | ||||||
|
Cash
flows from financing activities
|
|||||||||||||
|
Dividends
paid
|
(Note
12)
|
(4,838 | ) | (4,440 | ) | (3,345 | ) | ||||||
|
Transactions
with equity holders
|
(947 | ) | (2,241 | ) | (2,152 | ) | |||||||
|
Proceeds
on issue of debentures and bonds
|
(Note
13)
|
8,617 | 1,317 | 4,209 | |||||||||
|
Proceeds
on loans, borrowings and promissory notes
|
2,330 | 3,693 | 6,658 | ||||||||||
|
Cancellation
of debentures and bonds
|
(Note
13)
|
(1,949 | ) | (1,167 | ) | (1,756 | ) | ||||||
|
Repayments
of loans, borrowings and promissory notes
|
(5,494 | ) | (4,927 | ) | (13,039 | ) | |||||||
|
Net
cash flow used in financing activities
|
(Note
23)
|
(2,281 | ) | (7,765 | ) | (9,425 | ) | ||||||
|
Effect
of foreign exchange rate changes on collections and
payments
|
269 | (302 | ) | (261 | ) | ||||||||
|
Effect
of changes in consolidation methods and other non-monetary
effects
|
- | 14 | - | ||||||||||
|
Net
increase (decrease) in cash and cash equivalents during the
period
|
4,836 | (788 | ) | 1,273 | |||||||||
|
CASH
AND CASH EQUIVALENTS AT JANUARY 1
|
4,277 | 5,065 | 3,792 | ||||||||||
|
CASH
AND CASH EQUIVALENTS AT DECEMBER 31
|
(Note
13)
|
9,113 | 4,277 | 5,065 | |||||||||
|
RECONCILIATION
OF CASH AND CASH EQUIVALENTS WITH THE STATEMENT OF FINANCIAL
POSITION
|
|||||||||||||
|
BALANCE
AT JANUARY 1
|
4,277 | 5,065 | 3,792 | ||||||||||
|
Cash
on hand and at banks
|
3,236 | 2,820 | 2,375 | ||||||||||
|
Other
cash equivalents
|
1,041 | 2,245 | 1,417 | ||||||||||
|
BALANCE
AT DECEMBER 31
|
(Note
13)
|
9,113 | 4,277 | 5,065 | |||||||||
|
Cash
on hand and at banks
|
3,830 | 3,236 | 2,820 | ||||||||||
|
Other
cash equivalents
|
5,283 | 1,041 | 2,245 | ||||||||||
The
accompanying Notes 1 to 25 and Appendices I to V are an integral part of these
consolidated statements of cash flow
TELEFÓNICA, S.A. AND SUBSIDIARIES COMPOSING THE
TELEFÓNICA GROUP
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (CONSOLIDATED ANNUAL ACCOUNTS) FOR THE YEAR
ENDED DECEMBER 31, 2009
|
(1)
|
BACKGROUND AND GENERAL
INFORMATION
|
Telefónica Group organizational
structure
Telefónica,
S.A. and its subsidiaries and investees make up an integrated group of companies
(the “Telefónica Group,” “Telefónica”, or “the Group”)
operating mainly in the telecommunications, media and contact center
industries.
The
parent company of this Group is Telefónica, S.A. (“Telefónica” or “the
Company”), a public limited company incorporated on April 19, 1924 for an
indefinite period. Its registered office is at Gran Vía 28, Madrid
(Spain).
Appendix
V lists the subsidiaries, associates and investees in which the Telefónica Group
has direct or indirect holdings, their corporate purpose, country, functional
currency, share capital, the Telefónica Group’s effective shareholding and their
method of consolidation.
Corporate structure of the
Group
Telefónica’s
basic corporate purpose, pursuant to Article 4 of its Bylaws, is the provision
of all manner of public or private telecommunications services, including
ancillary or complementary telecommunications services or related services. All
the business activities that constitute this stated corporate purpose may be
performed either in Spain or abroad and wholly or partially by the Company,
either through shareholdings or equity interests in other companies or legal
entities with an identical or a similar corporate purpose.
The
Telefónica Group follows a regional, integrated management model through three
business areas defined by the geographical markets in which it operates, and
with an integrated view of the wireline and wireless businesses:
|
|
-
|
Telefónica
Spain
|
|
|
-
|
Telefónica
Latin America
|
|
|
-
|
Telefónica
Europe
|
The
business activities carried out by most of the Telefónica Group companies are
regulated by broad ranging legislation, pursuant to which permits, concessions
or licenses must be obtained in certain circumstances to provide the various
services.
In
addition, certain wireline and wireless telephony services are provided under
regulated rate and price systems.
A more
detailed segmentation of the activities carried out by the Group is provided in
Note 4.
|
(2)
|
BASIS OF PRESENTATION OF THE
CONSOLIDATED FINANCIAL
STATEMENTS
|
The
accompanying consolidated financial statements were prepared from the accounting
records of Telefónica, S.A. and of each of the companies comprising the
Telefónica Group, whose individuals financial statements were
prepared in accordance with the generally accepted accounting principles
prevailing in the various countries in which they are located, and for
purposes
of these consolidated financial statements are presented in accordance with the
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB) which do not differ for the
purposes of the Telefónica Group from
IFRS as adopted by the European Union, to give a true and fair view of the
consolidated equity and financial position at December 31, 2009, and of the
consolidated results of operations, changes in consolidated equity and the
consolidated cash flows obtained and used in the year then ended. The figures in
these consolidated financial statements are expressed in millions of euros,
unless otherwise indicated, and therefore may be rounded. The euro is the
Group’s reporting currency.
The
accompanying consolidated financial statements for the year ended December 31,
2009 were prepared by the Company’s Board of Directors at its meeting on
February 24, 2010 for submission for approval at the General Shareholders’
Meeting, which is expected to occur without modification.
Note 3
contains a description of the most significant accounting policies used to
prepare these consolidated financial statements.
For
comparative purposes, the accompanying financial statements for 2009 include the
consolidated statement of financial position at December 31, 2008 and the
consolidated income statement, the consolidated statement of comprehensive
income, the consolidated statement of changes in equity and the consolidated
statement of cash flows, and the notes thereto for the years ended December 31,
2008 and 2007.
Comparative information and main changes
in the consolidation scope
The
accompanying consolidated statements of comprehensive income and consolidated
statements of changes in equity for the year ended December 31, 2009 are
presented in accordance with the amendment to IAS 1 “Revised Presentation of
Financial Statements” (see Note 3.s). Accordingly, the information presented for
the years ended December 31, 2008 and 2007 has been adapted to such amendment,
and, therefore, differs, on a presentation basis, from the information contained
in the approved 2008 and 2007 consolidated financial statements.
The main
changes in the consolidation scope affecting comparability of the consolidated
information for 2009 and 2008 (see Appendix I for a more detailed explanation of
the changes in consolidation scope in both years and the main transactions in
2007) are as follows:
2009
|
a)
|
Classification of Venezuela as a hyperinflationary
economy
|
Throughout
2009 and in the first days of 2010, a number of factors arose in the Venezuelan
economy that led the Telefónica Group to reconsider the treatment it follows
with respect to the translation of the financial statements of investees, as
well as the recovery of its financial investments in that country. Within these
factors it is worth highlighting the level of inflation reached in 2009 and the
cumulative inflation over the last three years; the restrictions to the official
foreign exchange market and, finally, the devaluation of the Bolivar fuerte on
January 8, 2010 (see Note 24).
As a
result, in accordance with IFRS, Venezuela must be considered a
hyperinflationary economy in 2009. The main implications of this are as
follows:
|
|
·
|
That
the 2008 figures should not be
restated.
|
|
|
·
|
Adjustment
of the historical cost of non-monetary assets and liabilities and the
various items of equity of these companies from their date of acquisition
or inclusion in the
|
|
consolidated
statement of financial position to the end of the year to reflect the
changes in purchasing power of the currency caused by
inflation.
|
The
cumulative impact of the accounting restatement to adjust for the effects of
hyperinflation for years prior to 2009 is reflected in the translation
differences at the beginning of the 2009 financial year.
|
|
·
|
Adjustment
of the income statement to reflect the financial loss caused by the impact
of inflation in the year on net monetary assets (loss of purchasing
power).
|
|
|
·
|
The
various components of the income statement and statement of cash flows
have been adjusted for the inflation index since their generation, with a
balancing entry in financial results and a reconciling item in the
statement of cash flows,
respectively.
|
|
|
·
|
All
components of the financial statements of the Venezuelan companies have
been translated at the closing exchange rate, which at December 31, 2009
was 2.15 Bolivares fuertes per dollar (3.1 Bolivares fuertes per
euro).
|
The main
effects on the Telefónica Group’s consolidated financial statements for 2009
derived from the items mentioned above are as follows:
|
Millions of
euros
|
|
|
Revenue
|
267
|
|
Operating
income excluding the impact of depreciation and amortization
cost
|
64
|
|
Net
profit
|
(548)
|
|
Translation
differences
|
1,224
|
|
Impact
on equity
|
676
|
|
b)
|
Tax amortization of
goodwill
|
In
December 2007, the European Commission opened an investigation involving the
Kingdom of Spain with respect to the potential consideration as state aid of the
tax deduction for the tax basis amortization of goodwill generated on certain
foreign investments under the provisions of article 12.5 of the revised Spanish
corporate income tax law (“TRLIS”). This investigation led to widespread
uncertainties regarding the scope of the European Commission’s decision on the
future for, among others, the Telefónica Group.
In the
case of the Telefónica Group, as a result of this uncertainty the Company deemed
it necessary to recognize a liability as the deduction was applied in the
consolidated financial statements until the investigation was
concluded.
In
December 2009, the text of the European Commission’s decision
regarding the investigation was released, which deems the deduction as state
aid. Investments made prior to December 21, 2007 (as is the case for the
Telefónica Group’s investments in O2 Group companies, the operators acquired
from BellSouth, Colombia Telecomunicaciones, S.A., ESP and Telefónica O2 Czech
Republic, a.s.) are not affected by this decision. As a result of this decision,
and considering the corporate structure of these investments, the consolidated
income statement of the Telefónica Group for the year ended December 31, 2009
reflects a lower income tax expense due to the reversal of this liability in an
amount of 591 million euros.
|
c)
|
Share exchange between Telefónica,
S.A. and China Unicom Limited, and signing of strategic
alliance
agreement
|
On
September 6, 2009, Telefónica and the Chinese telecommunications company, China
Unicom (Hong Kong) Limited (“China Unicom”) entered into a wide strategic
alliance which includes, among others, the areas of: the joint procurement of
infrastructure and client equipment; common development of mobile service
platforms; joint provision of services to multinational customers; roaming;
research and development; co-operation and sharing of best practices and
technical, operational and management know-how; joint development of strategic
initiatives in the area of the network evolution and joint participation in
international alliances; and exchange of senior management.
In
addition, on the same date, Telefónica and China Unicom executed a mutual share
exchange agreement through which each party agreed to invest the equivalent of
1,000 million US dollars in ordinary shares of the other party.
On
October 21, 2009, the mutual share exchange was implemented through the
subscription by Telefónica, S.A., through its wholly owned subsidiary Telefónica
Internacional, S.A.U., of 693,912,264 newly issued shares of China Unicom,
satisfied by a contribution in kind to China Unicom of 40,730,735 shares of
Telefónica, S.A. (see Note 12).
Following
the completion of the transaction, Telefónica increased its share of China
Unicom’s voting share capital from 5.38% to 8.06% and obtained the right to
appoint a member to its board of directors, while China Unicom became owner of
approximately 0.87% of Telefónica’s voting share capital at that date.
Subsequently, after a capital reduction carried out by China Unicom, the
Telefónica Group reached a shareholding equivalent to 8.37% of the company’s
voting share capital.
The
investment in China Unicom is now included in the consolidation scope under the
equity method. The total amount of this investment at December 31, 2009 amounts
to 2,301 million euros.
2008
|
a)
|
Tender offer for all the remaining
outstanding shares of Telefónica Chile, S.A.
|
On
September 17, 2008, Telefónica launched a tender offer through its subsidiary
Inversiones Telefónica Internacional Holding, Ltda. to acquire all the
outstanding shares of Telefónica Chile, S.A. (“CTC”) that it did not control
directly or indirectly, amounting to 55.1% of CTC’s share
capital.
Once the
acceptance period had ended and the transaction had been settled, Telefónica’s
indirect ownership in CTC increased from 44.9% to 96.75%.
Subsequently,
pursuant to Chilean law, on December 1, 2008, Inversiones Telefónica
Internacional Holding, Ltda. launched a new tender offer for all the shares of
CTC that it did not own directly or indirectly after settlement of the first
offer, under the same economic terms as the initial offer. The acceptance period
for the second offer ended on December 31, 2008, but was then extended to
January 6, 2009, as allowed by Chilean law.
Upon the
end of the acceptance period of the second tender offer, Telefónica’s indirect
ownership percentage in CTC’s share capital increased from 96.75% of all of
CTC’s
outstanding
shares, reached in the first tender offer, to 97.89%. The total payment for the
two tranches amounted to 558,547 million Chilean pesos, equivalent to 658
million euros.
|
(3)
|
ACCOUNTING
POLICIES
|
The
principal accounting policies used in preparing the accompanying consolidated
financial statements are as follows:
|
a)
|
Translation
methodology
|
The
financial statements of the Group’s foreign subsidiaries were translated to
euros at the year-end exchange rates, except for:
|
|
1.
|
Capital
and reserves, which were translated at historical exchange
rates.
|
|
|
2.
|
Income
statements, which were translated at the average exchange rates for the
year.
|
|
|
3.
|
Statements
of cash flow, which were translated at the average exchange rate for the
year.
|
Goodwill
and statement of financial position items remeasured to fair value when a stake
is acquired in a foreign operation are recognized as assets and liabilities of
the company acquired and therefore translated at the closing exchange
rate.
The
exchange rate differences arising from the application of this method are
included in “Translation differences” under “Equity attributable to equity
holders of the parent” in the accompanying consolidated statements of financial
position, net of the portion of said differences attributable to non-controlling
interests, which is shown under “Non-controlling interests.” When a foreign
operation is sold, totally or partially, or contributions are reimbursed,
cumulative translation differences since January 1, 2004 (the IFRS transition
date) related to such operation recognized in equity are taken proportionally to
the income statement as a gain or loss on the disposal.
The
financial statements of Group companies whose functional currency is the
currency of a hyperinflationary economy are adjusted for inflation in accordance
with the procedure described in the following paragraph prior to their
translation to euros. Once restated, all the items of the financial statements
are converted to euros using the closing exchange rate. Amounts shown for prior
years for comparative purposes are not modified.
To
determine the existence of hyperinflation, the Group assesses the qualitative
characteristics of the economic environment of the country, such as the trends
in inflation rates over the previous three years. The financial statements of
companies whose functional currency is the currency of a hyperinflationary
economy are adjusted to reflect the changes in purchasing power of the local
currency, such that all items in the statement of financial position not
expressed in current terms (non-monetary items) are restated by applying a
general price index at the financial statement closing date, and all income and
expense, profit and loss are restated monthly by applying appropriate adjustment
factors. The difference between initial and adjusted amounts is taken to profit
or loss.
|
b)
|
Foreign currency
transactions
|
Monetary
transactions denominated in foreign currencies are translated to euros at the
exchange rates prevailing on the transaction date, and are adjusted at year end
to the exchange rates then prevailing.
All
realized and unrealized exchange gains or losses are taken to the income
statement for the year, with the exception of gains or losses arising from
specific-purpose financing of investments in foreign investees designated as
hedges of foreign currency risk to which these investments are exposed (see Note
3 i), and exchange gains or losses on intra-group loans
considered
part of the investment in a foreign operation, which are included under the
“Translation differences” component of “Equity” in the consolidated statement of
financial position.
|
c)
|
Goodwill
|
For
acquisitions after January 1, 2004, the IFRS transition date, goodwill
represents the excess of the acquisition cost over the acquirer’s interest, at
the acquisition date, in the fair values of identifiable assets, liabilities and
contingent liabilities acquired from a subsidiary or joint venture. After
initial measurement, goodwill is carried at cost, less any accumulated
impairment losses.
In the
transition to IFRS, Telefónica availed itself of the exemption allowing it not
to restate business combinations taking place before January 1, 2004. As a
result, the accompanying consolidated statements of financial position include
goodwill net of amortization deducted until December 31, 2003, arising before
the IFRS transition date, from the positive consolidation difference between the
amounts paid to acquire shares of consolidated subsidiaries, and their carrying
amounts plus increases in the fair value of assets and liabilities recognized in
equity.
In all
cases, goodwill is recognized as an asset denominated in the currency of the
company acquired.
Goodwill
is tested for impairment annually or more frequently if there are certain events
or changes indicating the possibility that the carrying amount may not be fully
recoverable.
The
potential impairment loss is determined by assessing the recoverable amount of
the cash-generating unit (or group of cash-generating units) to which the
goodwill relates when originated. If this recoverable amount is less than the
carrying amount, an irreversible impairment loss is recognized in income (see
Note 3 f).
|
d)
|
Intangible
assets
|
Intangible
assets are stated at acquisition or production cost, less any accumulated
amortization or any accumulated impairment losses.
The
useful lives of intangible assets are assessed individually to be either finite
or indefinite. Intangible assets with finite lives are amortized systematically
over the useful economic life and assessed for impairment whenever events or
changes indicate that their carrying amount may not be recoverable. Intangible
assets with indefinite useful lives are not amortized, but are tested for
impairment annually, or more frequently in the event of indications that their
carrying amount may not be recoverable (see Note 3 f).
Management
reassesses the indefinite useful life classification of these assets on an
annual basis.
Amortization
methods and schedules are revised annually at year end and, where appropriate,
adjusted prospectively.
Research
and development costs
Research
costs are expensed as incurred. Costs incurred in developing new products to be
marketed or used for the Group’s own network, and whose future economic
viability is reasonably certain, are capitalized and amortized on a
straight-line basis over the period during which the related project is expected
to generate economic benefits, starting upon its completion.
Recoverability
is considered to be reasonably assured when the Group can demonstrate the
technical feasibility of completing the intangible asset, whether it will be
available for use or sale, its intention to complete and its ability to use or
sell the asset and how the asset will generate future economic
benefits.
As long
as intangible assets developed internally are not in use, the associated
capitalized development costs are tested for impairment annually or more
frequently if there are indications that the carrying amount may not be fully
recoverable. Costs incurred in connection with projects that are not
economically viable are charged to the consolidated income statement for the
year in which this circumstance becomes known.
Service
concession arrangements
These
arrangements relate to the acquisition cost of the licenses granted to the
Telefónica Group by various public authorities to provide telecommunications
services and to the value assigned to licenses held by certain companies at the
time they were included in the Telefónica Group.
These
concessions are amortized on a straight-line basis over the duration of related
licenses from the moment commercial exploitation commences.
Customer
base
This
represents the allocation of acquisition costs attributable to customers
acquired in business combinations. Amortization is on a straight-line basis over
the estimated period of the customer relationship.
Software
Software
is stated at cost and amortized on a straight-line basis over its useful life,
generally estimated at three years.
|
e)
|
Property, plant and
equipment
|
Property,
plant and equipment is stated at cost less any accumulated depreciation and any
accumulated impairment in value. Land is not depreciated.
Cost
includes external and internal costs comprising warehouse materials used, direct
labor used in installation work and the allocable portion of the indirect costs
required for the related investment. The latter two items are recorded as
revenues under “Other income - Own work capitalized.” Cost includes, where
appropriate, the initial estimate of decommissioning, retirement and site
reconditioning costs when the Group is under obligation to incur such costs due
to the use of the asset.
Interest
and other financial expenses incurred and directly attributable to the
acquisition or construction of qualifying assets are capitalized. Qualifying
assets at the Telefónica Group are those assets that require a period of at
least 18 months to bring the assets to their intended use or sale.
The costs
of expansion, modernization or improvement leading to increased productivity,
capacity or efficiency or to a lengthening of the useful lives of assets are
capitalized when recognition requirements are met.
Upkeep
and maintenance expenses are expensed as incurred.
The
Telefónica Group assesses the need to write down, if appropriate, the carrying
amount of each item of property, plant and equipment to its recoverable amount,
whenever there are indications that the assets’ carrying amount exceeds the
higher of its fair value less costs to sell or its value in use. The impairment
provision is not maintained if the factors giving rise to the impairment
disappear (see Note 3 f).
The
Group’s subsidiaries depreciate their property, plant and equipment once they
are in full working condition using the straight-line method based on the
assets’ estimated useful lives, calculated in accordance with technical studies
which are revised periodically based on technological advances and the rate of
dismantling, as follows:
|
Years of
estimated
|
|
|
useful
life
|
|
|
Buildings
|
25 – 40
|
|
Plant
and machinery
|
10 – 15
|
|
Telephone
installations, networks and subscriber equipment
|
5 – 20
|
|
Furniture,
tools and other items
|
2 – 10
|
Assets’
estimated residual values and methods and depreciation periods are reviewed, and
adjusted if appropriate, prospectively at each financial year end.
|
f)
|
Impairment of non-current
assets
|
Non-current
assets, including property, plant and equipment, goodwill and intangible assets
are evaluated at each reporting date for indications of impairment losses.
Wherever such indications exist, or in the case of assets which are subject to
an annual impairment test, a recoverable amount is estimated, as the
higher of fair value less costs to sell and value in use. In assessing
value in use, the
estimated future cash flows deriving from the use of the asset or its cash
generating unit, as applicable, are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time value
of money and the risks specific to the asset. When the carrying amount of an
asset exceeds its recoverable amount, the asset is considered to be impaired. In
this case, the carrying amount is written down to recoverable amount and the
resulting loss is taken to the income statement. Future depreciation or
amortization charges are adjusted for the asset’s new carrying amount over its
remaining useful life. Each asset is assessed individually for impairment,
unless the asset does not generate cash inflows that are largely independent of
those from other assets (or cash-generating units).
The Group
bases the calculation of impairment on the business plans of the various
cash-generating units to which the assets are allocated. These business plans
generally cover a period of three to five years. For longer periods, an expected
constant or decreasing growth rate is applied to the projections based on these
plans from the fifth year. The growth rates used in 2009 are as
follows:
|
Rates
|
2009
|
|
Businesses
in Spain
|
0.88%-0.94%
|
|
Businesses
in Latin America
|
1.21%-3.25%
|
|
Businesses
in Europe
|
1.00%-2.00%
|
The main
variables used by management to determine recoverable amounts are ARPU (average
revenues per user), customer acquisition and retention costs, share of net adds
in accesses, market shares, investments in non-current assets, growth rates and
discount rates.
Pre-tax
discount rates adjusted for country and business risks are applied. The
following ranges of rates were used in 2009:
|
Rates
|
2009
|
|
Businesses
in Spain
|
6.8%-7.3%
|
|
Businesses
in Latin America
|
8.6%-19.4%
|
|
Businesses
in Europe
|
6.3%-8.5%
|
When
there are new events or changes in circumstances that indicate that a previously
recognized impairment loss no longer exists or has been decreased, a new
estimate of the asset’s recoverable amount is made. A previously recognized
impairment loss is reversed only if there has been a change in the estimates
used to determine the asset’s recoverable amount since the last impairment loss
was recognized. If that is the case, the carrying amount of the asset is
increased to its recoverable amount. The reversal is limited to the net carrying
amount that would have been determined had no impairment loss been recognized
for the asset in prior years. Such reversal is recognized in profit or loss and
the depreciation charge is adjusted in future periods to allocate the asset’s
revised carrying amount. Impairment losses relating to goodwill cannot be
reversed in future periods.
|
g)
|
Leases
|
The
determination of whether an arrangement is, or contains a lease is based on the
substance of the agreement and requires an assessment of whether the fulfillment
of the arrangement is dependent on the use of a specific asset and the agreement
conveys a right to the Telefónica Group to the use of the asset.
Leases
where the lessor does not transfer substantially all the risks and benefits of
ownership of the asset are classified as operating leases. Operating lease
payments are recognized as an expense in the income statement on a straight-line
basis over the lease term.
Leases
are classified as finance leases when the terms of the lease transfer
substantially all the risks and rewards incidental to ownership of the leased
item to the Group. These are classified at the inception of the lease, in
accordance with its nature and the associated liability, at the lower of the
present value of the minimum lease payments or the fair value of the leased
property. Lease payments are apportioned between the finance costs and reduction
of the principal of lease liability so as to achieve a constant rate of interest
on the remaining balance of the liability. Finance costs are reflected in the
income statement over the lease term.
|
h)
|
Investments in
associates
|
The
Telefónica Group’s investments in companies over which it exercises significant
influence (evidenced via representation on the board of directors or agreements
with shareholders) but does not control or manage jointly with third parties are
accounted for using the equity method. The carrying amount of investments in
associates includes related goodwill and the consolidated income statement
reflects the share of profit or loss from operations of the associate. If the
associate recognizes any gains or losses directly in equity, the Group also
recognizes the corresponding portion of these gains or losses directly in its
own equity.
|
i)
|
Financial assets and
liabilities
|
Financial
investments
All
normal purchases and sales of financial assets are recognized in the statement
of financial position on the trade date, i.e. the date that the Company commits
to purchase or sell the asset. The Telefónica Group classifies its financial
instruments into four categories for initial recognition purposes: financial
assets at fair value through profit or loss, loans and receivables,
held-to-maturity investments and available-for-sale financial assets. When
appropriate, the Company re-evaluates the designation at each financial year
end.
Financial
assets held for trading, i.e., investments made with the aim of realizing
short-term returns as a result of price changes, are included in the category
financial assets at fair value
through profit or loss and presented as current assets. Derivatives are
classified as held for trading unless they are designated as effective hedging
instruments. The Group also classifies certain financial instruments under this
category when doing so eliminates or mitigates measurement or recognition
inconsistencies that could arise from the application of other criteria for
measuring assets and liabilities or for recognizing gains and losses on
different bases. Also in this category are financial assets for which an
investment and disposal strategy has been designed based on their fair value.
Financial instruments included in this category are recorded at fair value and
are remeasured at subsequent reporting dates at fair value, with any realized or
unrealized gains or losses recognized in the income statement.
Financial
assets with fixed maturities that the Group has the positive intention and
ability (legal and
financial) to hold until maturity are classified as held-to-maturity and
presented as “Current
assets” or “Non-current
assets,” depending on the time left until settlement. Financial assets
falling into this category are measured at amortized cost using the effective
interest rate method. Gains and losses are recognized in the income statement
when the investments are settlement or impaired, as well as through the
amortization process.
Financial
assets which the Group intends to hold for an unspecified period of time and
could be sold at any time to meet specific liquidity requirements or in response
to interest-rate movements are classified as available-for-sale. These
investments are recorded under “Non-current assets,” unless it is probable and
feasible that they will be sold within 12 months. Financial assets in this
category are measured at fair value. Gains or losses arising from changes in
fair value are recognized in equity at each financial year end until the
investment is derecognized or determined to be impaired, at which time the
cumulative gain or loss previously reported in equity is recognized in profit or
loss. Dividends from available-for-sale
investments are recognized in the income statement when the Group has the right
to receive the dividend. Fair value is determined in accordance with the
following criteria:
|
1.
|
Listed
securities on active markets:
|
|
| Fair value is considered to be the quoted market price at the closing date. | ||
|
2.
|
Unlisted securities: | |
| Fair value is determined using valuation techniques such as discounted cash flow analysis, option valuation models, or by reference to arm’s length market transactions. When fair value cannot be reliably determined, these investments are carried at cost. |
Loans and receivables include
financial assets with fixed or determinable payments that are not quoted in an
active market and do not fall into any of the previous categories. These assets
are carried at amortized cost using the effective interest rate method. Gains
and losses are recognized in the income statement when the loans and receivables
are derecognized or impaired, as well as through the amortization process. Trade
receivables are recognized at the original invoice amount. A provision is
recorded when there is objective evidence of customer collection risk. The
amount of the provision is calculated as the difference between the carrying
amount of the doubtful trade receivables and their recoverable amount. As a
general rule, current trade receivables are not discounted.
The Group
assesses at each reporting date whether a financial asset is impaired. If there
is objective evidence that an impairment loss on a financial asset carried at
amortized cost has been incurred, the amount of the loss is measured as the
difference between the asset’s carrying amount and the present value of
estimated future cash flows (excluding future expected credit losses that have
not been incurred) discounted at the financial asset’s original effective
interest rate.
For
equity instruments included in available-for-sale financial
assets, the Company assesses individually for each security whether there is any
objective evidence that an asset is impaired
as a
result of one or more events indicating that the carrying amount of the security
will not be recovered. If there is objective evidence that an available-for-sale financial
instrument is impaired, the cumulative loss recognized in equity, measured as
the difference between the acquisition cost (net of any principal payments and
amortization made) and the fair value at that date, less any impairment loss on
that investment previously recognized in the income statement.
Financial
assets are only fully or partially derecognized when:
|
|
1.
|
The
rights to receive cash flows from the asset have
expired;
|
|
|
2.
|
An
obligation to pay the cash flows received from the asset to a third party
has been assumed; or
|
|
|
3.
|
The rights
to receive cash flows from the asset have been transferred to a third
party and all the risks and rewards of the asset have been substantially
transferred.
|
Cash
and cash equivalents
Cash and
cash equivalents comprise cash on hand and at banks, demand deposits and other
highly liquid investments with an original maturity of three months or less.
These items are stated at historical cost, which does not differ significantly
from realizable value.
For the
purpose of the consolidated statement of cash flows, cash and cash equivalents
are shown net of any outstanding bank overdrafts.
Preferred
stock
Preferred
shares are classified as a liability or equity instrument depending on the
issuance terms. A preferred share issue is considered equity only when the
issuer is not obliged to give cash or another financial instrument in the form
of either principle repayment or dividend payment, whereas it is recorded as a
financial liability on the statement of financial position whenever the
Telefónica Group does not have the right to avoid cash payments.
Issues
and interest-bearing debt
These
debts are recognized initially at the fair value of the consideration received
less directly attributable transaction costs. After initial recognition, these
financial liabilities are measured at amortized cost using the effective
interest rate method. Any difference between the cash received (net of
transaction costs) and the repayment value is recognized in the income statement
over the life of the debt. Interest-bearing debt is considered non-current when
its maturity is over 12 months or the Telefónica Group has full discretion to
defer settlement for at least another 12 months from the reporting
date.
Financial
liabilities are derecognized when the obligation under the liability is
discharged, cancelled or expires. Where an existing financial liability is
replaced by another from the same lender under substantially different terms,
such an exchange is treated as a derecognition of the original liability and the
recognition of a new liability, and the difference between the respective
carrying amounts is recognized in the income statement.
Derivative
financial instruments and hedge accounting
Derivative
financial instruments are initially recognized at fair value, normally
equivalent to cost. Their carrying amounts are subsequently remeasured at fair
value. Derivatives are carried as assets when the fair value is positive and as
liabilities when the fair value is negative. They are classified as current or
non-current depending on whether they fall due within less than or after one
year, respectively. Derivatives that meet all the criteria for consideration as
long-term
hedging
instruments are recorded as non-current assets or liabilities, depending on
their positive or negative values.
The
accounting treatment of any gain or loss resulting from changes in the fair
value of a derivative depends on whether the derivative in question meets all
the criteria for hedge accounting and, if appropriate, on the nature of the
hedge.
The Group
designates certain derivatives as:
|
|
1.
|
Fair value hedges, when
hedging the exposure to changes in the fair value of a recognized asset or
liability;
|
|
|
2.
|
Cash flow hedges, when
hedging exposure to variability in cash flows that is either attributable
to a particular risk associated with a recognized asset or liability or a
forecast transaction; or
|
|
|
3.
|
Hedges
of a net investment in a
foreign operation.
|
A hedge
of the foreign currency risk in a firm commitment is accounted for as either a
fair value or a cash flow hedge.
Changes
in fair value of derivatives that qualify as fair value hedges are recognized in
the income statement, together with changes in the fair value of the hedged
asset or liability attributable to the risk being hedged.
Changes
in the fair value of derivatives that qualify and have been assigned to hedge
cash flows, which are highly effective, are recognized in equity. The portion
considered ineffective is taken directly to the income statement. Fair value
changes from hedges that relate to firm commitments or forecast transactions
that result in the recognition of non-financial assets or liabilities are
included in the initial measurement of those assets or liabilities. Otherwise,
changes in fair value previously recognized in equity are recognized in the
income statement in the period in which the hedged transaction affects profit or
loss.
An
instrument designed to hedge foreign currency exposure from a net investment in
a foreign operation is accounted for in a similar manner to cash flow
hedges.
The
application of the Company’s corporate risk-management policies could result in
financial risk-hedging transactions that make economic sense, yet do not comply
with the criteria and effectiveness tests required by accounting policies to be
treated as hedges. Alternatively, the Group may opt not to apply hedge
accounting criteria in certain instances. In these cases, gains or losses
resulting from changes in the fair value of derivatives are taken directly to
the income statement. Transactions used to reduce the exchange rate risk
relating to the income contributed by foreign subsidiaries are not treated as
hedging transactions.
From
inception, the Group formally documents the hedging relationship between the
derivative and the hedged item, as well as the associated risk management
objectives and strategies. The documentation includes identification of the
hedge instrument, the hedged item or transaction and the nature of the risk
being hedged. In addition, it states how it will assess the hedging instrument’s
effectiveness in offsetting the exposure to changes in the hedged item’s fair
value or cash flows attributable to the hedged risk. Hedge effectiveness is
assessed, prospectively and retrospectively, both at the inception of the hedge
relationship and on a systematic basis throughout the life of the
hedge.
Hedge
accounting is discontinued whenever the hedging instrument expires or is sold,
terminated or settled, the hedge no longer meets the criteria for hedge
accounting or the Company revokes the designation. In these instances, gains or
losses accumulated in equity are not taken to the income statement until the
forecast transaction or commitment affects profit or loss. However, if the
hedged transaction is no longer expected to occur, the cumulative gains or
losses recognized directly in equity are taken immediately to the income
statement.
The fair
value of the derivative portfolio includes estimates based on calculations using
observable market data, as well as specific pricing and risk-management tools
commonly used by financial entities.
|
j)
|
Inventories
|
Materials
stored for use in investment projects and inventories for consumption and
replacement are valued at the lower of weighted average cost and net realizable
value.
When the
cash flows associated with the purchase of inventory are effectively hedged, the
corresponding gains and losses accumulated in equity become part of the cost of
the inventories acquired.
Obsolete,
defective or slow-moving inventories have been written down to estimated net
realizable value. The recoverable amount of inventory is calculated based on
inventory age and turnover.
|
k)
|
Treasury
shares
|
Treasury
shares are stated at cost and deducted from equity. Any gain or loss obtained on
the purchase, sale, issue or cancellation of treasury shares is recognized
directly in equity.
|
l)
|
Provisions
|
Pensions
and other employee obligations
Provisions
required to cover the accrued liability for defined-benefit pension plans are
determined using “the projected unit credit” actuarial valuation method. The
calculation is based on demographic and financial assumptions for each country
considering the macroeconomic environment. The discount rates are determined
based on market yield curves. Plan assets are measured at fair value. Actuarial
gains and losses on post-employment defined-benefit plans are recognized
immediately in equity.
For
defined-contribution pension plans, the obligations are limited to the payment
of the contributions, which are taken to the income statement as
accrued.
Provisions
for post-employment benefits (e.g. early retirement or other) are calculated
individually based on the terms agreed with the employees. In some cases, these
may require actuarial valuations based on both demographic and financial
assumptions.
Other
provisions
Provisions
are recognized when the Group has a present obligation (legal or constructive),
as a result of a past event, it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation and a
reliable estimate can be made of the amount of the obligation. When the Group
expects some or all of a provision to be reimbursed, for example under an
insurance contract, the reimbursement is recognized as a separate asset, but
only when the reimbursement is virtually certain. The expense relating to any
provision is presented in the income statement net of any reimbursement. If the
effect of the time value of money is material, provisions are discounted, and
the corresponding increase in the provision due to the passage of time is
recognized as a finance cost.
|
m)
|
Share-based
payments
|
The Group
has compensation systems linked to the market value of its shares, providing
employees share options. Certain compensation plans are cash-settled, while
others are equity-settled.
For
cash-settled share-based transactions, the total cost of the rights granted is
recognized as an expense in the income statement over the vesting period with
recognition of a corresponding liability (“Performance period”). The total cost
of the options is measured initially at fair value at the grant date using
statistical techniques, taking into account the terms and conditions established
in each share option plan. At each subsequent reporting date, the Group reviews
its estimate of fair value and the number of options it expects to be exercised,
remeasuring the liability, with any changes in fair value recognized in the
income statement
For
equity-settled share option plans, fair value at the grant date is measured by
applying statistical techniques or using benchmark securities. The cost is
recognized, together with a corresponding increase in equity, over the vesting
period. At each subsequent reporting date, the Company reviews its estimate of
the number of options it expects to vest, with a corresponding adjustment to
equity.
|
n)
|
Corporate income
tax
|
This
heading in the accompanying consolidated income statement includes all the
expenses and credits arising from the corporate income tax levied on the Spanish
Group companies and similar taxes applicable to the Group’s foreign
operations.
The
income tax expense of each year includes both current and deferred taxes, where
applicable.
Current
tax assets and liabilities for the current and prior periods are measured at the
amount expected to be recovered from or paid to the taxation authorities. The
tax rates and tax laws used to compute the amount are those that are enacted or
substantively enacted by the reporting date.
Deferred
taxes are calculated based on a statement of financial position analysis of the
temporary differences generated as a result of the difference between the tax
bases of assets and liabilities and their respective carrying
amounts.
The main
temporary differences arise due to discrepancies between the tax bases and
carrying amounts of plant, property and equipment, intangible assets, and
non-deductible provisions, as well as differences in the fair value and tax
bases of net assets acquired from a subsidiary, associate or joint
venture.
Furthermore,
deferred taxes arise from unused tax credits and tax loss
carryforwards.
The Group
determines deferred tax assets and liabilities by applying the tax rates that
will be effective when the corresponding asset is received or the liability is
settled, based on tax rates and tax laws that are enacted (or substantively
enacted) at the reporting date.
Deferred
income tax assets and liabilities are not discounted to present value and are
classified as non-current, irrespective of the date of their
reversal.
The
carrying amount of deferred income tax assets is reviewed at each reporting date
and reduced to the extent that it is no longer probable that sufficient taxable
profit will be available to allow all or part of the deferred income tax asset
to be utilized. Unrecognized deferred income tax assets are reassessed at each
reporting date and are recognized to the extent that it has become probable that
future taxable profit will allow the deferred tax asset to be
recovered.
Deferred
tax liabilities on investments in subsidiaries, branches, associates and joint
ventures are not recognized if the parent company is in a position to control
the timing of the reversal and if the reversal is unlikely to take place in the
foreseeable future.
Deferred
income tax relating to items directly recognized in equity is recognized in
equity. Deferred tax assets and liabilities resulting from business combinations
are recognized in connection with the purchase price allocation. Subsequent
increases in required deferred tax assets are deducted from
goodwill.
Deferred
tax assets and liabilities are offset if a legally enforceable right exists to
set off current tax assets against current tax liabilities and the deferred
taxes relate to the same taxable entity and the same taxation
authority.
|
o)
|
Revenue and
expenses
|
Revenue
and expenses are recognized on the income statement based on an accruals basis;
i.e. when the goods or services represented by them take place, regardless of
when actual payment or collection occurs.
The
Telefónica Group principally obtains revenues from providing the following
telecommunications services: traffic, connection fees, regular (normally
monthly) network usage fees, interconnection, network and equipment leasing,
handset sales and other services, value-added services (e.g. text or data
messaging) and maintenance. Products and services may be sold separately or in
promotional packages (bundled).
Revenues
from calls carried on Telefónica’s networks (traffic) entail an initial call
establishment fee plus a variable call rate, based on call length, distance and
type of service. Both wireline and wireless traffic is recognized as revenue as
service is provided. For prepaid calls, the amount of unused traffic generates a
deferred revenue recognized in “Trade and other payables” on the statement of
financial position. Prepaid cards generally expire within 12 months and any
deferred revenue from prepaid traffic is taken directly to the income statement
when the card expires as the Group has no obligation to provide service after
this date.
Revenue
from traffic sales and services at a fixed rate over a specified period of time
(flat rate) are recognized on a straight-line basis over the period of time
covered by the rate paid by the customer.
Connection
fees arising when customers connect to the Group’s network are deferred and
taken to the income statement throughout the average estimated customer
relationship period, which varies by type of service. All related costs, except
those related to network enlargement expenses, administrative expenses and
overhead, are recognized in the income statement as incurred.
Installment
fees are taken to the income statement on a straight-line basis over the related
period. Equipment leases and other services are taken to profit or loss as they
are consumed.
Interconnection
fees from wireline-wireless and wireless-wireline calls and other customer
services are recognized in the period in which the calls are made.
Revenues
from handset and equipment sales are recognized once the sale is considered
complete, i.e., generally when delivered to the end customer.
In the
wireless telephony business there are loyalty campaigns whereby customers obtain
points for the telephone traffic they generate. The amount assigned to points
awarded is recognized as deferred income until the points are exchanged and
recognized as sales or services based on the product or service chosen by the
customer. This exchange can be for discounts on the purchase of handsets,
traffic or other types of services based on the number of points earned and the
type of contract involved. The accompanying consolidated statements of
financial
position include the related deferred revenue, based on an estimate of the value
of the points accumulated at year end, under “Trade and other
payables.”
Bundle
packages, which include different elements, are sold in the wireline, wireless
and internet businesses. They are assessed to determine whether it is necessary
to separate the separately identifiable elements and apply the corresponding
revenue recognition policy to each element. Total package revenue is allocated
among the identified elements based on their respective fair values (i.e. the
fair value of each element relative to the total fair value of the
package).
As
connection or initial activation fees, or upfront non-refundable fees, cannot be
separately identifiable as elements in these types of packages, any revenues
received from customer for these items are allocated to the remaining elements.
However, amounts contingent upon delivery of undelivered elements are not
allocated to delivered elements.
All
expenses related to mixed promotional packages are taken to the income statement
as incurred.
|
p)
|
Use of estimates, assumptions and
judgments
|
The key
assumptions concerning the future and other relevant sources of uncertainty in
estimates at the reporting date that could have a significant impact on the
consolidated financial statements within the next financial year are discussed
below.
A
significant change in the facts and circumstances on which these estimates and
related judgments are based could have a material impact on the Group’s results
and financial position.
Property,
plant and equipment, intangible assets and goodwill
The
accounting treatment of investments in property, plant and equipment and
intangible assets entails the use of estimates to determine the useful life for
depreciation and amortization purposes and to assess fair value at their
acquisition dates for assets acquired in business combinations.
Determining
useful life requires making estimates in connection with future technological
developments and alternative uses for assets. There is a significant element of
judgment involved in making technological development assumptions, since the
timing and scope of future technological advances are difficult to
predict.
When an
item of property, plant and equipment or an intangible asset is considered to be
impaired, the impairment loss is recognized in the income statement for the
period. The decision to recognize an impairment loss involves estimates of the
timing and amount of the impairment, as well as analysis of the reasons for the
potential loss. Furthermore, additional factors, such as technological
obsolescence, the suspension of certain services and other circumstantial
changes are taken into account.
The
Telefónica Group evaluates its cash-generating units’ performance regularly to
identify potential goodwill impairments. Determining the recoverable amount of
the cash-generating units to which goodwill is allocated also entails the use of
assumptions and estimates and requires a significant element of
judgment.
Income
taxes
The Group
assesses the recoverability of deferred tax assets based on estimates of future
earnings. The ability to recover these taxes depends ultimately on the Group’s
ability to generate taxable earnings over the period for which the deferred tax
assets remain deductible. This analysis is based on the estimated schedule for
reversing deferred tax liabilities, as well as
estimates
of taxable earnings, which are sourced from internal projections and are
continuously updated to reflect the latest trends.
The
appropriate classification of tax assets and liabilities depends on a series of
factors, including estimates as to the timing and realization of deferred tax
assets and the projected tax payment schedule. Actual Group company income tax
receipts and payments could differ from the estimates made by the Group as a
result of changes in tax legislation or unforeseen transactions that could
affect tax balances.
Provisions
Provisions
are recognized when the Group has a present obligation as a result of a past
event, it is probable that an outflow of resources will be required to settle
the obligation and a reliable estimate can be made of the amount of the
obligation. This obligation may be legal or constructive, deriving from inter alia regulations,
contracts, normal practices or public commitments that lead third parties to
reasonably expect that the Group will assume certain responsibilities. The
amount of the provision is determined based on the best estimate of the outflow
of resources required to settle the obligation, bearing in mind all available
information at the statement of financial position date, including the opinions
of independent experts such as legal counsel or consultants.
Given the
uncertainties inherent in the estimates used to determine the amount of
provisions, actual outflows of resources may differ from the amounts recognized
originally on the basis of the estimates.
Revenue
recognition
Connection
fees
Connection
fees, generated when customers connect to the Group’s network, are deferred and
recognized as revenue over the average estimated customer relationship
period.
The
estimate of the average estimated customer relationship period is based on the
recent history of customer churn. Potential changes in estimates could lead to
changes in both the amount and timing of the future recognition of
revenues.
Bundled
offers
Bundled
offers that combine different elements are assessed to determine whether it is
necessary to separate the different identifiable components and apply the
corresponding revenue recognition policy to each element. Total package revenue
is allocated among the identified elements based on their respective fair
values.
Determining
fair values for each identified element requires estimates that are complex due
to the nature of our business.
A change
in estimates of fair values could affect the apportionment of revenue among the
elements and, as a result, revenues in future years.
|
q)
|
Consolidation
methods
|
The
consolidation methods applied are as follows:
|
|
-
|
Full
consolidation method for companies over which the Company controls either
by exercising effective control or by virtue of agreements with the other
shareholders.
|
|
|
-
|
Proportionate
consolidation method for companies which are jointly controlled with third
parties (joint ventures). Similar items are grouped together such that the
corresponding proportion of these companies’ overall assets, liabilities,
expenses and revenues, and cash flows are integrated on a line by line
basis into the consolidated financial
statements.
|
|
|
-
|
Equity
method for companies in which there is significant influence, but not
control or joint control with third
parties.
|
In
certain circumstances, some of the Group’s investees may require a qualified
majority to adopt certain resolutions. This, together with other factors, is
taken into account when selecting the consolidation method.
All
material accounts and transactions between the consolidated companies were
eliminated on consolidation. The returns generated on transactions involving
capitalizable goods or services by subsidiaries with other Telefónica Group
companies were eliminated on consolidation.
The
financial statements of the consolidated companies have the same financial year
end as the parent company’s individual financial statements and are prepared
using the same accounting policies. In the case of Group companies whose
accounting and valuation methods differed from those of Telefónica, adjustments
were made on consolidation in order to present the consolidated financial
statements on a uniform basis.
The
consolidated income statement and consolidated statement of cash flows include
the revenues and expenses and cash flows of companies that are no longer in the
Group up to the date on which the related holding was sold or the company was
liquidated, and those of the new companies included in the Group from the date
on which the holding was acquired or the company was incorporated through year
end.
Revenue
and expenses associated with discontinued operations are presented in a separate
line on the consolidated income statement. Discontinued operations are those
with identifiable operations and cash flows (for both operating and management
purposes) and that represent a line of business or geographic unit which has
been disposed of or is available for sale.
The share
of non-controlling interests in the equity and results of the fully consolidated
subsidiaries is presented under “Non-controlling
interests” on
the consolidated statement of financial position and income statement,
respectively.
|
r)
|
Acquisitions and disposals of
non-controlling
interests
|
Acquisitions of equity shares of
subsidiaries from non-controlling interests:
The
Telefónica Group treats increases in equity investments of companies already
controlled by the Group via purchases of non-controlling interests by
recognizing any difference between the acquisition price and the carrying amount
of the minority interest’s participation as goodwill.
Disposals
of investments in subsidiaries without relinquishing control:
In
transactions involving the sale of investments in subsidiaries in which the
Group retains control, the Telefónica Group derecognizes the carrying amount of
the shareholding sold, including any related goodwill. The difference between
this amount and the sale price is recognized as a gain or loss in the
consolidated income statement.
Commitments
to acquire non-controlling interests (put options):
Put
options granted to non-controlling interests of subsidiaries are measured at the
exercise price and classified as a financial liability, with a deduction from
non-controlling interests on the consolidated
statement of financial position. Where the exercise price exceeds the balance of
non-controlling interests, the difference is recognized as an increase in the
goodwill of the
subsidiary.
At each reporting date, the difference is adjusted based on the exercise price
of the options and the carrying amount of non-controlling
interests.
|
s)
|
New IFRS and interpretations of
the International Financial Reporting Interpretations Committee
(IFRIC)
|
The
accounting policies applied in the preparation of the financial statements for
the year ended December 31, 2009 are consistent with those used in the
preparation of the Group’s consolidated annual financial statements for the year
ended December 31, 2008, except for the adoption of new standards, amendments to
standards and interpretations published by the International Accounting
Standards Board (IASB) and the International Financial Reporting Interpretations
Committee (IFRIC), and adopted by the European Union, effective as of January 1,
2009, noted below:
|
|
§
|
Amendment to IAS 23, Borrowing
costs
|
The amendment consists of the
elimination of the possibility to immediately recognize in profit or loss the
borrowing costs related to the production or development of qualifying assets.
This amendment has had no impact on the accounting policies applied by
Telefónica.
|
|
§
|
Amendment to IAS 1, Revised
Presentation
of Financial Statements
|
The revised standard separates owner from non-owner
changes in equity. The statement of changes in equity includes only details of
transaction with owners, with non-owner changes presented as a single line. In
addition, the standard introduces the statement of
comprehensive income which can be presented in one single statement or in two
linked statements. Telefónica has elected to present two statements.
This change is not mandatory, but the Group has decided to use the proposed titles,
which are:
|
|
§
|
statement of financial position,
instead of “balance sheet”
|
|
|
§
|
income
statement
|
|
|
§
|
statement of comprehensive income,
instead of “statement of recognized income and
expense”
|
|
|
§
|
statement of changes in equity
instead of “movements in
equity”
|
|
|
§
|
statement of cash
flows instead of “cash flow
statement”
|
|
|
§
|
Amendment to IFRS
2,
Share-based Payment: Vesting Conditions and
Cancellations
|
This amendment clarifies the definition
of vesting conditions and prescribes the accounting treatment of an award that
is cancelled because a non-vesting condition is not met. The adoption of this
amendment has not had any impact on the financial position or performance of the Group.
|
|
§
|
Amendments to IAS 32, Financial
Instruments: Presentation and IAS 1 Presentation
of Financial Statements - Puttable Financial Instruments and Obligations
Arising on Liquidation
|
These
amendments include a limited scope exemption for puttable financial instruments
to be classified as equity if they fulfill specified criteria. The adoption of this amendment has not
had any impact on the financial position or performance of the Group.
|
|
§
|
Improvements
to IFRSs (May 2008)
|
These
improvements establish a broad amount of amendments to current IFRSs with the
aim of removing inconsistencies and clarifying wording. These improvements did
not have any impact on the
financial position or performance of the Group.
|
|
§
|
Amendment to IFRS 7,
Financial Instruments:
Disclosures
|
This amendment enhances the disclosure
required about fair value measurements and liquidity risk. In addition, it
introduces a three-level hierarchy of fair value measurement and the requirement
to disclose any kind of change in the method of measuring fair value and the
reasons behind it. The adoption of this amendment has not had any impact
on the
financial position or
performance of the Group.
|
|
§
|
Amendments to IAS 39
and IFRIC 9,
Embedded derivatives
|
These amendments clarify the impact that
a reclassification of a financial asset out of the fair value through
profit or loss category has
on the assessment of whether an embedded derivative shall be separated from its
host contract. Additionally, it prohibits the reclassification when the
embedded derivative is not subject to a separate valuation upon the moment of
reclassification of a hybrid contract out of the aforementioned category. The adoption of this amendment has not
had any impact on the financial position or performance of the Group.
|
|
§
|
IFRIC
12, Service
Concession
Arrangements
|
This interpretation provides guidance on the accounting by
operators for obligations assumed and related rights acquired under service
concession arrangements.The
adoption of this amendment has not had any impact on the financial position or performance of the Group.
|
|
§
|
IFRIC
13, Customer
Loyalty
Programmes
|
This interpretation establishes that
entities that have programs which award points or credits to their customers as
the result of a commercial transaction, which in the future will be redeemed for
free or discounted products or services, must treat these points as part of the
commercial transaction that generates them. In other words, it is a transaction
with multiple components, combining the sale of the product or service itself
and the sale of points or credits, therefore such that a part of the amount
earned must be allocated to the points awarded and its recognition deferred
until their redemption. The portion corresponding to the points will be
determined by reference to their fair value. The adoption of this amendment has
not had a significant impact on the financial position or performance of the Group.
|
|
§
|
IFRIC
15, Agreements for
the Construction of Real
Estate
|
This interpretation refers to agreements
for the construction of real estate and addresses to related issues: it
determines whether the construction of real estate is within the scope of IAS
11, Construction
Contracts, or IAS 18,
Revenue and, when revenue from the construction
of real estate should be recognized. The adoption of this amendment has not had
any impact on the financial
position or performance of
the Group.
|
|
§
|
IFRIC
16, Hedges of a
Net
Investment in a
Foreign
Operation
|
This interpretation
establishes the criteria for the recognition of
hedges of a net investment in foreign operations, including the foreign currency
risks that qualify for hedge accounting in the hedge of a net investment, where
within the group the hedging instruments can be held and how an entity should
determine the amount of foreign currency gain or loss relating to both the
hedging instrument and the hedged item that must be recognized in profit or loss
on disposal of the investment. The adoption of this amendment has not had any
impact on the financial
position or performance of the Group.
|
|
§
|
IFRIC
18,
Transfers of Assets
from
Customers
|
This interpretation applies to
deliveries of assets from customers as of July 1, 2009. This interpretation
establishes the criteria for accounting transactions in which an entity receives
from a customer an item of property, plant and equipment (or cash for their
acquisition or construction) that the entity must use either to connect the
customer to a network and/or to
provide the customer with ongoing access
to a supply of goods or services. The adoption of this amendment has not had any
impact on the financial
position or performance of the Group.
In
addition, the Amendment to IAS
39
Hedges of Transactions between
Segments,
included in Improvements to IFRS
published in April 2009, is effective for annual periods beginning on or
after January 1, 2009, but has not been adopted by the European Union at the
date of preparation of these consolidated financial statements. This amendment
clarifies that hedge accounting may not be applied to transactions between
segments in accordance with the principle of IAS 39, which does not allow hedge
accounting to be applied to intragroup transactions in the consolidated
financial statements. The application of this interpretation would not have had
an impact on the 2009 consolidated financial statements.
New IFRS and Interpretations of the International
Financial Reporting Interpretations Committee (IFRIC) not effective as of
December 31, 2009
At the date of preparation of the
accompanying consolidated financial statements, the following IFRS and IFRIC
interpretations had been published, but their application was not
mandatory:
|
Standards and
amendments
|
Mandatory application: annual
periods beginning on or after
|
|
|
IFRS 9
|
Financial Instruments
|
January 1,
2013
|
|
Revised IFRS
3
|
Business Combinations
|
July 1,
2009
|
|
Amendment to IAS
27
|
Consolidated and Separate
Financial Statements
|
July 1,
2009
|
|
Improvements to IFRSs (April
2009)
|
January 1, 2010
(*)
|
|
|
Revised IAS
24
|
Related Party
Disclosures
|
January 1,
2011
|
|
Amendments to IAS
39
|
Eligible Hedged
Items
|
July 1,
2009
|
|
Amendment to IFRS
2
|
Group Cash-Settled Share-Based Payment Transactions
|
January 1,
2010
|
|
Amendments to IAS
32
|
Classification of Rights
Issues
|
February 1,
2010
|
|
(*) The amendments to IFRS
2, IAS 38 (regarding intangible assets acquired in business combinations)
IFRIC 9 and IFRIC 16 become effective for all annual periods beginning on
or after July 1, 2009. In addition, no effective date has
been established for the additional guidance to the appendix to IAS 18 for
determining whether an entity is acting as a principal or as an agent, as
this appendix does not form part of the
standard.
|
|
Interpretations
|
Mandatory application: annual
periods beginning on or after
|
|
|
IFRIC 17
|
Distributions of Non-Cash Assets to Owners
|
July 1,
2009
|
|
IFRIC 19
|
Extinguishing Financial Liabilities with Equity Instruments
|
July 1,
2010
|
|
Amendment to IFRIC
14
|
Prepayment of Minimum Funding Requirements
|
January 1,
2011
|
The Group
is currently assessing the impact of the application of these standards,
amendments and interpretations. Based on the analyses made to date, the Group
estimates that their adoption will not
have a
significant impact on the consolidated financial statements in the initial
period of application. However, the changes introduced by the revised IFRS 3 and
amendments to IAS 27 will affect future acquisitions and transactions with
non-controlling interests carried out on or after January 1, 2010, as well as
the subsequent recognition of tax assets acquired in business combinations prior
to that date, as provided for in the transitional provisions. Meanwhile, the
changes introduced by IFRS 9 will affect financial assets and future
transactions with financial assets carried out on or after January 1,
2013.
|
(4)
|
SEGMENT
INFORMATION
|
Combining
the wireline and wireless telephony services underscores the need to manage the
business by region in order to offer customers the best integrated solutions and
support wireless-wireline convergence.
To
implement this management model, the Group has three large business areas:
Telefónica Spain, Telefónica Europe and Telefónica Latin America, with each
overseeing the integrated business. This forms the basis of the segment
reporting in these consolidated financial statements.
Telefónica
Spain oversees the wireline and wireless telephony, broadband, internet, data,
broadband TV, value added services operations and their development in
Spain.
Telefónica
Latin America oversees the same operations in Latin America.
Telefónica
Europe oversees the wireline, wireless, broadband, value added services and data
operations in the UK, Germany, the Isle of Man, Ireland, the Czech Republic and
the Slovak Republic.
The
Telefónica Group is also involved in the media and contact center businesses
through investments in Telefónica de Contenidos and Atento, included under
“Other and eliminations” together with the consolidation
adjustments.
The
segment reporting takes into account the impact of the purchase price allocation
(PPA) to assets acquired and the liabilities assumed from the companies included
in each segment. The assets and liabilities presented in each segment are those
managed by the heads of each segment.
The
Telefónica Group manages its borrowing activities and tax implications
centrally. Therefore, it does not disclose the related assets, liabilities,
revenue and expenses breakdown by reportable segments.
For the
presentation of the segment reporting, revenue and expenses arising from the use
of the trademark and management services and that do not affect the Group’s
consolidated results have been eliminated from the operating results of each
Group segment.
Inter-segment
transactions are carried out at market prices.
Key
information for these segments is as follows:
|
2009
|
|||||
|
Millions of
euros
|
Telefónica Spain
|
Telefónica Latin America
|
Telefónica
Europe
|
Other and
eliminations
|
Total
Group
|
|
Revenue
from operations
|
19,703
|
22,983
|
13,533
|
512
|
56,731
|
|
External
sales
|
19,354
|
22,786
|
13,468
|
1,123
|
56,731
|
|
Inter-segment
sales
|
349
|
197
|
65
|
(611)
|
-
|
|
Other
operating income and expenses
|
(9,946)
|
(13,840)
|
(9,623)
|
(719)
|
(34,128)
|
|
Depreciation
and amortization
|
(2,140)
|
(3,793)
|
(2,895)
|
(128)
|
(8,956)
|
|
OPERATING
INCOME
|
7,617
|
5,350
|
1,015
|
(335)
|
13,647
|
|
CAPITAL
EXPENDITURE
|
1,863
|
3,450
|
1,728
|
216
|
7,257
|
|
INVESTMENTS
IN ASSOCIATES
|
3
|
2,453
|
-
|
2,480
|
4,936
|
|
NON-CURRENT
ASSETS
|
14,082
|
25,016
|
26,962
|
1,351
|
67,411
|
|
TOTAL
ALLOCATED ASSETS
|
26,156
|
44,678
|
32,097
|
5,210
|
108,141
|
|
TOTAL
ALLOCATED LIABILITIES
|
13,363
|
22,862
|
6,435
|
41,207
|
83,867
|
|
2008
|
|||||
|
Millions of
euros
|
Telefónica Spain
|
Telefónica Latin America
|
Telefónica
Europe
|
Other and
eliminations
|
Total
Group
|
|
Revenue
from operations
|
20,838
|
22,174
|
14,309
|
625
|
57,946
|
|
External
sales
|
20,518
|
21,974
|
14,253
|
1,201
|
57,946
|
|
Inter-segment
sales
|
320
|
200
|
56
|
(576)
|
-
|
|
Other
operating income and expenses
|
(10,553)
|
(13,729)
|
(10,129)
|
(616)
|
(35,027)
|
|
Depreciation
and amortization
|
(2,239)
|
(3,645)
|
(3,035)
|
(127)
|
(9,046)
|
|
OPERATING
INCOME
|
8,046
|
4,800
|
1,145
|
(118)
|
13,873
|
|
CAPITAL
EXPENDITURE
|
2,208
|
4,035
|
2,072
|
86
|
8,401
|
|
INVESTMENTS
IN ASSOCIATES
|
99
|
107
|
-
|
2,571
|
2,777
|
|
NON-CURRENT
ASSETS
|
14,372
|
21,959
|
27,265
|
1,193
|
64,789
|
|
TOTAL
ALLOCATED ASSETS
|
32,273
|
37,942
|
32,726
|
(3,045)
|
99,896
|
|
TOTAL
ALLOCATED LIABILITIES
|
20,754
|
21,998
|
6,420
|
31,162
|
80,334
|
|
2007
|
|||||
|
Millions of
euros
|
Telefónica Spain
|
Telefónica Latin America
|
Telefónica
Europe
|
Other and
eliminations
|
Total
Group
|
|
Revenue
from operations
|
20,683
|
20,078
|
14,458
|
1,222
|
56,441
|
|
External
sales
|
20,423
|
19,901
|
14,417
|
1,700
|
56,441
|
|
Inter-segment
sales
|
260
|
177
|
41
|
(478)
|
-
|
|
Other
operating income and expenses
|
(11,235)
|
(12,957)
|
(9,481)
|
(*)
56
|
(33,617)
|
|
Depreciation
and amortization
|
(2,381)
|
(3,559)
|
(3,386)
|
(110)
|
(9,436)
|
|
OPERATING
INCOME
|
7,067
|
3,562
|
1,591
|
1,168
|
13,388
|
|
CAPITAL
EXPENDITURE
|
2,381
|
3,343
|
2,125
|
178
|
8,027
|
|
INVESTMENTS
IN ASSOCIATES
|
95
|
70
|
-
|
3,023
|
3,188
|
|
NON-CURRENT
ASSETS
|
14,451
|
23,215
|
31,658
|
1,226
|
70,550
|
|
TOTAL
ALLOCATED ASSETS
|
34,423
|
37,618
|
39,144
|
(5,312)
|
105,873
|
|
TOTAL
ALLOCATED LIABILITIES
|
22,014
|
22,205
|
10,215
|
28,584
|
83,018
|
(*)
“Other operating income and expenses” for the “Other and inter-group
eliminations” segment includes the 1,368 million euro gain on the sale of
Endemol (see Note 19).
The breakdown of the segment revenues from operations by business and the main countries in which the Group operates is as follows:
|
Millions
of euros
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Country
|
Wireline
|
Wireless
|
Other
and eliminations
|
Total
|
Wireline
|
Wireless
|
Other
and eliminations
|
Total
|
Wireline
|
Wireless
|
Other
and eliminations
|
Total
|
|
Spain
|
12,167
|
8,965
|
(1,429)
|
19,703
|
12,581
|
9,684
|
(1,427)
|
20,838
|
12,401
|
9,693
|
(1,411)
|
20,683
|
|
Latin
America
|
22,983
|
22,174
|
20,078
|
|||||||||
|
Brazil
|
5,766
|
3,036
|
(426)
|
8,376
|
6,085
|
2,932
|
(411)
|
8,606
|
5,619
|
2,396
|
(353)
|
7,662
|
|
Argentina
|
1,047
|
1,643
|
(81)
|
2,609
|
1,027
|
1,585
|
(85)
|
2,527
|
984
|
1,353
|
(73)
|
2,264
|
|
Chile
|
893
|
1,010
|
(72)
|
1,831
|
974
|
1,051
|
(89)
|
1,936
|
974
|
930
|
(90)
|
1,814
|
|
Peru
|
1,006
|
840
|
(130)
|
1,716
|
977
|
773
|
(123)
|
1,627
|
1,031
|
603
|
(121)
|
1,513
|
|
Colombia
|
615
|
685
|
(31)
|
1,269
|
710
|
815
|
(35)
|
1,490
|
739
|
869
|
(39)
|
1,569
|
|
Mexico
|
N/A
|
1,552
|
N/A
|
1,552
|
N/A
|
1,631
|
N/A
|
1,631
|
N/A
|
1,431
|
N/A
|
1,431
|
|
Venezuela
|
N/A
|
3,773
|
N/A
|
3,773
|
N/A
|
2,769
|
N/A
|
2,769
|
N/A
|
2,392
|
N/A
|
2,392
|
|
Remaining
operators and inter-segment eliminations
|
1,857
|
1,588
|
1,433
|
|||||||||
|
Europe
|
13,533
|
14,309
|
14,458
|
|||||||||
|
UK
|
70
|
6,442
|
-
|
6,512
|
33
|
7,019
|
N/A
|
7,052
|
10
|
7,393
|
N/A
|
7,403
|
|
Germany
|
558
|
3,188
|
-
|
3,746
|
496
|
3,099
|
N/A
|
3,595
|
353
|
3,188
|
N/A
|
3,541
|
|
Czech
Republic
|
1,015
|
1,248
|
(3)
|
2,260
|
1,183
|
1,388
|
10
|
2,581
|
1,067
|
1,192
|
(2)
|
2,257
|
|
Ireland
|
1
|
904
|
N/A
|
905
|
N/A
|
957
|
N/A
|
957
|
N/A
|
991
|
N/A
|
991
|
|
Remaining
operators and inter-segment eliminations
|
110
|
124
|
266
|
|||||||||
|
Other
and inter-segment eliminations
|
512
|
625
|
1,222
|
|||||||||
|
Total
|
56,731
|
57,946
|
56,441
|
|||||||||
|
(5)
|
BUSINESS
COMBINATIONS AND ACQUISITIONS OF NON-CONTROLLING
INTERESTS
|
Business
combinations:
2009
No
significant business combinations were carried out in 2009 that had been
completed as of December 31, 2009.
2008
On April
8, 2008, VIVO, through its subsidiary Tele Centro Oeste IP, S.A. (TCO IP, S.A.),
launched a voluntary tender offer for shares representing up to one third of the
free float of the preferred stock of Telemig Celular Participaçoes, S.A. and its
subsidiary Telemig Celular, S.A. at a price per share of 63.90 and 654.72
Brazilian reais, respectively. This offer, which concluded on May 15, 2008,
reached a level of acceptance of close to 100%, which implied the acquisition by
TCO IP, S.A. of 31.9% and 6% of the preferred shares of Telemig Celular
Participaçoes, S.A. and Telemig Celular, S.A., respectively.
Furthermore,
in accordance with Brazilian Corporations law, TCO IP, S.A. submitted a
mandatory tender offer on July 15, 2008, for all the voting stock in Telemig
Celular Participaçoes, S.A. and Telemig Celular, S.A. at a price per share
equivalent to 80% of the purchase price of the voting
stock of
these companies. After this offer VIVO owned, directly and indirectly, 90.65% of
the share capital of Telemig Celular, S.A. and 58.9% of the share capital of
Telemig Celular Participaçoes, S.A. Both companies are included in the
Telefónica Group’s consolidation scope using proportionate
consolidation.
After the
acquisition of these shareholdings, the purchase price was allocated to the
assets acquired and the liabilities assumed using generally accepted measurement
methods for each type of asset and/or liability based on the best information
available.
The fair
value of the licenses was determined using the Multi-period Excess Earnings
Method (MEEM) by discounting the estimated future cash flows of the company’s
wireless business based on the assumptions contained in the Business Economic
Valuation (BEV) prepared in accordance with Brazilian corporation
law.
The
calculation only considered estimated revenue generated by new customers in the
business plan and not existing customers in the portfolio at the time of the
transaction. All applicable costs are deducted from the estimated revenue, while
the impact on cash flows of changes in working capital and the acquisition of
assets is also considered, thus obtaining the estimated net cash flow
attributable to the asset.
The
carrying amounts, fair values, goodwill and acquisition prices of the assets
acquired and the liabilities assumed in this transaction at the date control was
obtained bearing considering the effects of proportionality, were the
following:
|
Millions
of euros
(Data
at 50%)
|
Telemig
Group
|
|
|
Carrying
amount
|
Fair
value
|
|
|
Intangible
assets
|
18
|
562
|
|
Property,
plant and equipment
|
126
|
183
|
|
Other
assets
|
376
|
477
|
|
Deferred
tax liabilities
|
3
|
208
|
|
Other
liabilities
|
265
|
263
|
|
Net
asset value
|
252
|
751
|
|
Non-controlling
interests
|
119
|
335
|
|
Acquisition
cost
|
451
|
|
|
Goodwill
(Note 7)
|
35
|
|
The
amount paid for the acquisition in 2008 was 522 million euros. Acquisition cost
was calculated bearing in mind the exchange rate effect of the difference
between the exchange rate applied upon the initial inclusion of Telemig’s assets
and liabilities in the Telefónica Group’s consolidated financial statements and
the average exchange rate of the payments made in the acquisition of the
shareholding.
The
impact of this acquisition on cash and cash equivalents was as
follows:
|
Millions
of euros
|
Telemig
Group
|
|
Cash
and cash equivalents of companies acquired
|
175
|
|
Cash
paid in the acquisition plus related costs
|
522
|
|
Total
net cash outflow (Note 23)
|
347
|
Acquisitions
of non-controlling interests:
2009
There
were no acquisitions of significant non-controlling interests in 2009. The
detail of transactions carried out in the year is provided in Appendix I (see
Note 24).
2008
The
effect of the tender offer for CTC’s non-controlling interests was recognized in
2008. The impact of this acquisition on equity attributable to non-controlling
interests amounted to 397 million euros (see Note 12); while the related
goodwill was 277 million euros (see Note 7).
|
(6)
|
INTANGIBLE
ASSETS
|
Movements
in the items comprising net intangible assets in 2009 and 2008 are as
follows:
|
Millions
of euros
|
|||||||
|
Balance
at
12/31/08
|
Additions
|
Amortization
|
Disposals
|
Transfers
and
other
|
Translation
differences
and hyperinflation adjustments
|
Balance
at 12/31/09
|
|
|
Development
costs
|
175
|
84
|
(81)
|
(2)
|
(14)
|
-
|
162
|
|
Service
concession arrangements
|
8,697
|
10
|
(786)
|
-
|
(8)
|
929
|
8,842
|
|
Software
|
2,394
|
964
|
(1,312)
|
-
|
772
|
130
|
2,948
|
|
Customer
base
|
3,046
|
-
|
(512)
|
-
|
24
|
123
|
2,681
|
|
Other
intangible assets
|
1,229
|
81
|
(170)
|
(1)
|
(51)
|
51
|
1,139
|
|
Prepayments
on intangible assets
|
380
|
166
|
-
|
-
|
(479)
|
7
|
74
|
|
Net
intangible assets
|
15,921
|
1,305
|
(2,861)
|
(3)
|
244
|
1,240
|
15,846
|
|
Millions
of euros
|
|||||||||
|
Balance
at
12/31/07
|
Additions
|
Amortization
|
Disposals
|
Transfers
and
other
|
Translation
differences
and hyperinflation adjustments
|
Inclusion
of
companies
|
Exclusion
of companies
|
Balance
at
12/31/08
|
|
|
Development
costs
|
177
|
96
|
(81)
|
-
|
(14)
|
(3)
|
-
|
-
|
175
|
|
Service
concession arrangements
|
9,670
|
293
|
(757)
|
-
|
50
|
(1,103)
|
544
|
-
|
8,697
|
|
Software
|
2,452
|
933
|
(1,111)
|
(15)
|
276
|
(160)
|
22
|
(3)
|
2,394
|
|
Customer
base
|
4,153
|
1
|
(585)
|
-
|
(136)
|
(387)
|
-
|
-
|
3,046
|
|
Other
intangible assets
|
1,534
|
16
|
(209)
|
(3)
|
108
|
(218)
|
3
|
(2)
|
1,229
|
|
Prepayments
on intangible assets
|
334
|
292
|
-
|
-
|
(233)
|
(14)
|
1
|
-
|
380
|
|
Net
intangible assets
|
18,320
|
1,631
|
(2,743)
|
(18)
|
51
|
(1,885)
|
570
|
(5)
|
15,921
|
F-33
The gross
cost, accumulated amortization and impairment losses of intangible assets at
December 31, 2009 and 2008 are as follows:
|
Millions of
euros
|
Balance at December 31,
2009
|
|||
|
Gross cost
|
Accumulated
amortization
|
Impairment
losses
|
Net intangible
assets
|
|
|
Development
costs
|
1,613
|
(1,451)
|
-
|
162
|
|
Service
concession arrangements
|
14,074
|
(5,232)
|
-
|
8,842
|
|
Software
|
11,175
|
(8,226)
|
(1)
|
2,948
|
|
Customer
base
|
5,476
|
(2,795)
|
-
|
2,681
|
|
Other
intangible assets
|
2,143
|
(973)
|
(31)
|
1,139
|
|
Prepayments
on intangible assets
|
74
|
-
|
-
|
74
|
|
Net intangible
assets
|
34,555
|
(18,677)
|
(32)
|
15,846
|
|
Millions of
euros
|
Balance at December 31,
2008
|
|||
|
Gross cost
|
Accumulated
amortization
|
Impairment
losses
|
Net intangible
assets
|
|
|
Development
costs
|
1,613
|
(1,438)
|
-
|
175
|
|
Service
concession arrangements
|
12,430
|
(3,733)
|
-
|
8,697
|
|
Software
|
9,207
|
(6,813)
|
-
|
2,394
|
|
Customer
base
|
5,072
|
(2,026)
|
-
|
3,046
|
|
Other
intangible assets
|
2,055
|
(822)
|
(4)
|
1,229
|
|
Prepayments
on intangible assets
|
380
|
-
|
-
|
380
|
|
Net intangible
assets
|
30,757
|
(14,832)
|
(4)
|
15,921
|
Within
the “Additions” column, the main additions in 2009 and 2008 relate to
investments in software.
“Additions”
of service concession arrangements in 2009 include the renewal of the operator’s
license in Nicaragua for an amount equivalent to 10 million euros, and in 2008
the spectrum license at VIVO for 225 million euros and the operator’s license in
Ecuador for 90 million US dollars, equivalent to 62 million euros.
“Inclusion
of companies” in 2008 mainly reflects the impact of the inclusion of the Telemig
Group in the consolidation scope (see Note 5).
At
December 31, 2009 and 2008, the Company carried intangible assets with
indefinite useful lives of 111 and 104 million euros, respectively, related
primarily to permanent licenses to operate wireless telecommunications services
in Argentina.
Intangible
assets are also subject to impairment tests whenever there are indications of a
potential loss in value and, in any event, at the end of each year. There was no
significant impairment recognized in the consolidated financial statements for
2009 or 2008 as a result of these impairment tests.
“Other
intangible assets” includes the amounts allocated to trademarks acquired in
business combinations, of 1,477 and 1,411 million euros at December 31, 2009 and
2008 (901 and 999 million euros net of the related accumulated
amortization).
|
(7)
|
GOODWILL
|
The
movement in this heading assigned to each Group segment was the
following:
|
Millions of
euros
|
|||||
|
2009
|
Balance at
12/31/08
|
Acquisitions
|
Disposals
|
Translation differences and
hyperinflation adjustments
|
Balance at
12/31/09
|
|
Telefónica
Spain
|
3,238
|
-
|
-
|
-
|
3,238
|
|
Telefónica
Latin America
|
5,450
|
23
|
(209)
|
1,056
|
6,320
|
|
Telefónica
Europe
|
9,452
|
-
|
-
|
358
|
9,810
|
|
Other
|
183
|
7
|
-
|
8
|
198
|
|
Total
|
18,323
|
30
|
(209)
|
1,422
|
19,566
|
|
Millions of
euros
|
||||
|
2008
|
Balance at
12/31/07
|
Acquisitions
|
Translation differences and
other
|
Balance at
12/31/08
|
|
Telefónica
Spain
|
3,233
|
5
|
-
|
3,238
|
|
Telefónica
Latin America
|
5,524
|
406
|
(480)
|
5,450
|
|
Telefónica
Europe
|
10,830
|
5
|
(1,383)
|
9,452
|
|
Other
|
183
|
16
|
(16)
|
183
|
|
Total
|
19,770
|
432
|
(1,879)
|
18,323
|
Goodwill
generated in the acquisition of foreign companies is treated as an asset
denominated in the currency of the company acquired, and is therefore subject to
exchange rate differences, which are included under “Translation
differences.”
The
impairment tests carried out did not identify the need to recognize any material
write-downs to goodwill at the 2009 and 2008 year ends as the recoverable
amount, in all cases based on value in use, was higher than carrying
amount.
In
addition, sensitivity analyses were performed on changes reasonably expected to
occur in the primary valuation variables, and the recoverable amount remained
above the net carrying amount.
2009
The
primary disposals in 2009 correspond to the measurement of the purchase
commitment for non-controlling interests of Colombia de Telecomunicaciones, S.A.
for 90 million euros (see Note 21) and the impact of the corporate restructuring
carried out at the VIVO Group.
In
addition, the favorable evolution of exchange rates applied to goodwill has led
to an increase in this line item of 719 million euros in the year, and the
impact of recognizing Venezuela as a hyperinflationary economy (see Note 2) led
to an increase in goodwill of 713 million euros.
2008
The
primary acquisitions of goodwill in 2008 correspond to the acquisition of the
Telemig Group, which led to the recognition of 35 million euros of goodwill, and
the first tranche of the buyout by CTC’s non-controlling interests, which
generated 277 million euros of goodwill.
In 2008,
“Translation differences and other” had a major impact on the movement in the
year owing to currency depreciation in several countries in which the Group
operates, especially the pound sterling, which resulted in a decrease in
goodwill of 1,343 million euros.
|
(8)
|
PROPERTY, PLANT AND
EQUIPMENT
|
The
composition and movement of the items comprising net “Property, plant and
equipment” in 2009 and 2008 was the following:
|
Millions of
euros
|
||||||||
|
Balance at
12/31/08
|
Additions
|
Depreciation
|
Disposals
|
Transfers and
other
|
Translation
differences and hyperinflation
adjustments
|
Inclusion of
companies
|
Balance at
12/31/09
|
|
|
Land
and buildings
|
7,031
|
34
|
(454)
|
(19)
|
(852)
|
352
|
-
|
6,092
|
|
Plant
and machinery
|
19,250
|
1,356
|
(4,980)
|
(100)
|
4,607
|
1,254
|
4
|
21,391
|
|
Furniture,
tools and other items
|
1,546
|
285
|
(661)
|
(6)
|
362
|
134
|
-
|
1,660
|
|
Total
PP&E in service
|
27,827
|
1,675
|
(6,095)
|
(125)
|
4,117
|
1,740
|
4
|
29,143
|
|
PP&E
in progress
|
2,485
|
3,973
|
-
|
(4)
|
(3,937)
|
102
|
-
|
2,619
|
|
Advance
payments on PP&E
|
6
|
6
|
-
|
-
|
(2)
|
-
|
-
|
10
|
|
Installation
materials
|
227
|
298
|
-
|
(3)
|
(297)
|
2
|
-
|
227
|
|
Net
PP&E
|
30,545
|
5,952
|
(6,095)
|
(132)
|
(119)
|
1,844
|
4
|
31,999
|
|
Millions of
euros
|
||||||||
|
Balance at
12/31/07
|
Additions
|
Depreciation
|
Disposals
|
Transfers and
other
|
Translation
differences
|
Inclusion of
companies
|
Balance at
12/31/08
|
|
|
Land
and buildings
|
7,289
|
68
|
(628)
|
(166)
|
850
|
(385)
|
3
|
7,031
|
|
Plant
and machinery
|
20,814
|
2,520
|
(4,977)
|
(117)
|
2,352
|
(1,429)
|
87
|
19,250
|
|
Furniture,
tools and other items
|
1,784
|
397
|
(654)
|
(15)
|
129
|
(162)
|
67
|
1,546
|
|
Total
PP&E in service
|
29,887
|
2,985
|
(6,259)
|
(298)
|
3,331
|
(1,976)
|
157
|
27,827
|
|
PP&E
in progress
|
2,274
|
3,406
|
-
|
(16)
|
(2,957)
|
(250)
|
28
|
2,485
|
|
Advance
payments on PP&E
|
15
|
6
|
-
|
-
|
(15)
|
-
|
-
|
6
|
|
Installation
materials
|
284
|
373
|
(44)
|
28
|
(403)
|
(11)
|
-
|
227
|
|
Net
PP&E
|
32,460
|
6,770
|
(6,303)
|
(286)
|
(44)
|
(2,237)
|
185
|
30,545
|
The gross
cost, accumulated depreciation and impairment losses of property, plant and
equipment at December 31, 2009 and 2008 are as follows:
|
Balance at December 31,
2009
|
||||
|
Gross cost
|
Accumulated
depreciation
|
Impairment
losses
|
Net
PP&E
|
|
|
Land
and buildings
|
11,560
|
(5,456)
|
(12)
|
6,092
|
|
Plant
and machinery
|
87,017
|
(65,548)
|
(78)
|
21,391
|
|
Furniture,
tools and other items
|
6,184
|
(4,534)
|
10
|
1,660
|
|
Total
PP&E in service
|
104,761
|
(75,538)
|
(80)
|
29,143
|
|
PP&E
in progress
|
2,619
|
-
|
-
|
2,619
|
|
Advance
payments on PP&E
|
10
|
-
|
-
|
10
|
|
Installation
materials
|
260
|
-
|
(33)
|
227
|
|
Net
PP&E
|
107,650
|
(75,538)
|
(113)
|
31,999
|
|
Balance at December 31,
2008
|
||||
|
Gross cost
|
Accumulated
depreciation
|
Impairment
losses
|
Net
PP&E
|
|
|
Land
and buildings
|
11,752
|
(4,703)
|
(18)
|
7,031
|
|
Plant
and machinery
|
75,414
|
(56,077)
|
(87)
|
19,250
|
|
Furniture,
tools and other items
|
5,
286
|
(3,737)
|
(3)
|
1,546
|
|
Total
PP&E in service
|
92,452
|
(64,517)
|
(108)
|
27,827
|
|
PP&E
in progress
|
2,486
|
-
|
(1)
|
2,485
|
|
Advance
payments on PP&E
|
6
|
-
|
-
|
6
|
|
Installation
materials
|
317
|
(57)
|
(33)
|
227
|
|
Net
PP&E
|
95,261
|
(64,574)
|
(142)
|
30,545
|
Among the
main investments in 2009 and 2008 were additions by Telefónica de España of
1,276 million euros (1,042 million euros in the fixed line and 234 million euros
in the wireline business) and 1,681 million euros, respectively. In the fixed
line business, investments mainly went to broadband, Imagenio and data service
for large corporate customers, and to maintenance of the traditional business.
Investment in the wireless business mainly went to the deployment of
3G.
Telefónica
Latin America’s investments in 2009 and 2008 amounted to 3,187 million and 3,393
million euros, respectively. Investment in 2009 centered on driving wireline
technologies, namely the transformation in growth businesses (broadband and
pay-TV), and in the wireless business on extending coverage and capacity for the
rollout of GSM networks.
Investment
by Telefónica Europe in 2009 and 2008 amounted to 1,356 million and 1,634
million euros, respectively. Investment here in 2009 focused primarily on all
the operators’ 3G networks to continue expanding coverage, with further amounts
earmarked for investment in the ADSL business in the UK, Germany and the Czech
Republic.
“Inclusion
of companies” in 2008 reflects the 182 million euros impact of the consolidation
of Telemig.
“Translation
differences” reflects the impact of exchange rate movements on opening balances
as well as the impact of the recognition of Venezuela as a hyperinflationary
economy (see Note 2). The effect of exchange rates on movements in the year is
included in the column corresponding to such movement.
Telefónica
Group companies have purchased insurance policies to reasonably cover the
possible risks to which their property, plant and equipment used in operations
are subject, with suitable limits and coverage.
Property,
plant and equipment deriving from finance leases amounted to 691 million euros
at December 31, 2009 (733 million euros at December 31, 2008) (see Note
22).
The net
amounts of “Property, plant and equipment” temporarily out of service at
December 31, 2009 and 2008 were not significant.
|
(9)
|
ASSOCIATES AND JOINT
VENTURES
|
Associates
The
breakdown of amounts recognized in the consolidated statement of financial
position and income statement related to associates is as follows:
|
Description
|
Millions of
euros
|
|
|
12/31/09
|
12/31/08
|
|
|
Investments
in associates
|
4,936
|
2,777
|
|
Long-term
loans to associates
|
3
|
49
|
|
Short-term
loans to associates
|
15
|
77
|
|
Receivables
from associates for current operations (Note 11)
|
189
|
120
|
|
Loans
granted by associates (Note 14)
|
149
|
109
|
|
Payables
to associates for current operations (Note 14)
|
113
|
73
|
|
Revenue
from operations with associates
|
204
|
212
|
|
Work
performed by associates and other operating expenses
|
484
|
533
|
In
addition, the Telefónica Group, through its stake in Telco S.p.A., has an
indirect equity interest in Telecom Italia S.p.A. equivalent to 7.21% of its
voting shares. Key information on the balances and transactions between the
Telefónica Group and Telecom Italia S.p.A. and group companies is as
follows:
|
Description
|
Millions of
euros
|
|
|
12/31/09
|
12/31/08
|
|
|
Receivables
from current operations (Note 11)
|
73
|
65
|
|
Payables
from current operations (Note 14)
|
25
|
54
|
|
Operating
revenue
|
379
|
406
|
|
Operating
expenses
|
420
|
504
|
Balances
and transactions with Portugal Telecom, SGPS, S.A. through Brasilcel, N.V. group
companies are shown at 50%.
The
breakdown of the main associates and key financial highlights for the last
12-month periods available at the time of preparation of these consolidated
financial statements are as follows:
|
December 31,
2009
|
Millions of
euros
|
||||||
|
COMPANY
|
% Holding
|
Total
Assets
|
Total
liabilities
|
Operating
income
|
Profit/(loss) for the
year
|
Carrying
amount
|
Fair
value
|
|
Telco
S.p.A. (Italy) (*)
|
46.18%
|
7,111
|
3,703
|
-
|
(39)
|
2,026
|
2,026
|
|
Portugal
Telecom, SGPS, S.A. (Portugal)
|
9.86%
|
14,948
|
12,965
|
6,674
|
516
|
458
|
764
|
|
China
Unicom (Hong Kong) Limited
|
8.37%
|
37,397
|
16,203
|
21,490
|
3,687
|
2,301
|
2,301
|
|
Hispasat,
S.A. (Spain)
|
13.23%
|
841
|
383
|
151
|
71
|
56
|
N/A
|
|
Other
|
95
|
||||||
|
TOTAL
|
4,936
|
||||||
|
December 31,
2008
|
Millions of
euros
|
||||||
|
COMPANY
|
% Holding
|
Total
Assets
|
Total
liabilities
|
Operating
income
|
Profit/(loss) for the
year
|
Carrying
amount
|
Fair
value
|
|
Telco
S.p.A. (Italy) (*)
|
42.30%
|
7,241
|
3,688
|
-
|
(1,556)
|
2,082
|
2,082
|
|
Portugal
Telecom, SGPS, S.A. (Portugal)
|
9.86%
|
13,713
|
12,513
|
6,734
|
582
|
456
|
544
|
|
Medi
Telecom, S.A. (Morocco)
|
32.18%
|
1,217
|
951
|
464
|
30
|
95
|
N/A
|
|
Hispasat,
S.A. (Spain)
|
13.23%
|
716
|
335
|
138
|
47
|
50
|
N/A
|
|
Other
|
94
|
||||||
|
TOTAL
|
2,777
|
||||||
(*)
Through this company, Telefónica effectively has an indirect stake in Telecom
Italia S.p.A.’s voting shares at December 31, 2009 and 2008 of approximately
10.49%, representing 7.21% of the dividend rights.
The
detail of the movement in investments in associates in 2009 and 2008 was the
following:
|
Investments in
associates
|
Millions of
euros
|
|
Balance at
12/31/07
|
3,188
|
|
Acquisitions
|
4
|
|
Disposals
|
(55)
|
|
Inclusion
of companies
|
1
|
|
Translation
differences
|
(45)
|
|
Income
(loss)
|
(161)
|
|
Dividends
|
(65)
|
|
Transfers
and other
|
(90)
|
|
Balance at
12/31/08
|
2,777
|
|
Acquisitions
|
772
|
|
Disposals
|
(114)
|
|
Translation
differences
|
103
|
|
Income
(loss)
|
47
|
|
Dividends
|
(58)
|
|
Transfers
and other
|
1,409
|
|
Balance at
12/31/09
|
4,936
|
Changes
at December 31, 2009 and 2008 reflect the amounts from transactions detailed in
the changes to the consolidation scope (see Appendix I and Note 2). The figure
for 2009 reflects the inclusion in the consolidation scope of the equity
investment in China Unicom Limited for 2,301 million euros. Of this amount,
1,467 million euros were transferred from “Non-current financial assets – Equity
investments” (see Note 13) following the acquisition of an additional 2.68% of
this company.
Disposals
in 2009 include the sale by Telefónica Móviles España, S.A.U., a wholly owned
subsidiary of Telefónica, S.A., of its 32.18% stake in Moroccan operator Medi
Telecom, S.A., along with outstanding loans to shareholders, for a total amount
of 400 million euros. The net gain from this transaction before tax amounts to
220 million euros (see Note 19).
Disposals
in 2008 included the disposal of a 0.476% stake in Portugal Telecom, SGPS, S.A.
The Telefónica Group’s effective shareholding in this company at December 31,
2008 was 9.857%.
Results
for 2008 include the impact of the write-down of Telco S.p.A.’s investment in
Telecom Italia S.p.A. To estimate the impact, the Telefónica Group took the
estimated synergies to be obtained by improving certain processes in its
European operations through the alliances reached with Telecom Italia S.p.A. The
amount shown in “Share of profit (loss) of associates” in the
income
statement for 2008 reflects a 209 million euros loss in this respect (146
million euros after the related tax effect) at Telefónica, S.A..
Joint ventures
On
December 27, 2002, Telefónica Móviles, S.A. and PT Movéis Servicios de
Telecomunicaçoes, S.G.P.S., S.A. (PT Movéis) set up a 50/50 joint venture,
Brasilcel, N.V., via the contribution of 100% of the groups’ direct and indirect
shares in Brazilian cellular operators. This company is integrated in the
consolidated financial statements of the Telefónica Group using proportionate
consolidation.
The
contributions of Brasilcel, N.V. to the Telefónica Group’s 2009, 2008 and 2007
consolidated statements of financial position and income statements are as
follows:
|
Millions of
euros
|
|||
|
2009
|
2008
|
2007
|
|
|
Current
assets
|
1,170
|
1,234
|
1,193
|
|
Non-current
assets
|
5,617
|
4,616
|
4,358
|
|
Current
liabilities
|
1,170
|
1,351
|
1,328
|
|
Non-current
liabilities
|
1,505
|
1,212
|
644
|
|
Operating
revenue
|
2,743
|
2,662
|
2,152
|
|
Operating
expenses
|
2,046
|
2,063
|
1,778
|
|
(10)
|
RELATED
PARTIES
|
Significant
shareholders
The main
transactions between Telefónica Group companies and significant shareholders of
Telefónica, S.A. are described below. All of these transactions were carried out
at market prices.
Banco
Bilbao Vizcaya Argentaria, S.A. (BBVA) and subsidiaries comprising the
consolidated group:
|
|
·
|
Financing
transactions arranged under market conditions, with approximately 531
million euros drawn down at December 31, 2009 (436 million euros at
December 31, 2008).
|
|
|
·
|
Time
deposits amounting to 878 million euros at December 31, 2009 (355 million
euros at December 31, 2008).
|
|
|
·
|
Derivative
transactions contracted under market conditions, for a total nominal
amount of approximately 7,824 million euros at December 31, 2009 (6,930
million euros at December 31,
2008).
|
|
|
·
|
Guarantees
granted by BBVA for approximately 237 million euros at December 31, 2009
(13 million euros at December 31,
2008).
|
|
|
·
|
Dividends
and other benefits paid to BBVA in 2009 for 287 million euros (279 million
euros in 2008).
|
|
|
·
|
Services,
mainly telecommunications and telemarketing, rendered by Telefónica Group
companies to the BBVA Group, under market
conditions.
|
Caja de
Ahorros y Pensiones de Barcelona (“la Caixa”), and subsidiaries comprising the
consolidated group:
|
|
·
|
Financing
transactions arranged under market conditions, with approximately 643
million euros drawn down at December 31, 2009 (682 million euros at
December 31, 2008).
|
|
|
·
|
Time
deposits amounting to 1,293 million euros at December 31, 2009 (368
million euros at December 31,
2008).
|
|
|
·
|
Derivative
transactions arranged under market conditions, for a total nominal amount
of approximately 800 million euros in 2009, with no amounts in
2008.
|
|
|
·
|
Dividends
and other benefits paid to la Caixa in 2009 for 260 million euros (237
million euros in 2008).
|
|
|
·
|
Guarantees
granted for 17 million euros at December 31, 2009 (1 million euros in
2008).
|
|
|
·
|
Telecommunications
services rendered by Telefónica Group companies to la Caixa group
companies under market conditions.
|
Associates and joint
ventures
The most
significant balances and transactions with associates and joint ventures and
their contributions to the consolidated statement of financial position and
income statement are detailed in Note 9.
Directors and senior
executives
During
the financial year to which these accompanying annual financial statements
refer, the directors and senior executives did not perform any transactions with
Telefónica or any Telefónica Group company other than those in the Group’s
normal trading activity and business.
Compensation
and other benefits paid to members of the Board of Directors and senior
executives, as well as the detail of the equity interests held in companies
engaging in an activity that is identical, similar or complementary to that of
the Company and the performance of similar activities by the directors for their
own account or for third parties, are detailed in Note 21 of these consolidated
financial statements.
|
(11)
|
TRADE AND OTHER
RECEIVABLES
|
The
breakdown of this consolidated statement of financial position heading at
December 31, 2009 and 2008 is as follows:
|
Balance at
|
Balance
at
|
|
|
Millions of
euros
|
12/31/09
|
12/31/08
|
|
Trade
receivables
|
10,877
|
10,116
|
|
Receivables
from associates (Note 9)
|
262
|
120
|
|
Other
receivables
|
1,103
|
585
|
|
Allowance
for uncollectibles
|
(2,589)
|
(2,196)
|
|
Short-term
prepayments
|
969
|
690
|
|
Total
|
10,622
|
9,315
|
Public-sector
trade receivables in the countries in which the Group operates at December 31,
2009 and 2008 amounted to 666 million and 539 million euros,
respectively.
The
breakdown of trade receivables at December 31, 2009 and 2008 is as
follows:
|
Millions of
euros
|
12/31/09
|
12/31/08
|
|
Trade
receivables billed
|
7,544
|
7,153
|
|
Trade
receivables unbilled
|
3,333
|
2,963
|
|
Total
|
10,877
|
10,116
|
The
movement in impairment losses in 2009 and 2008 is as follows:
|
Millions of
euros
|
|
|
Impairment losses at December 31,
2007
|
2,070
|
|
Allowances
|
1,232
|
|
Retirements/amount
applied
|
(926)
|
|
Inclusion
of companies
|
6
|
|
Translation
differences
|
(186)
|
|
Impairment losses at December 31,
2008
|
2,196
|
|
Allowances
|
1,209
|
|
Retirements/amount
applied
|
(970)
|
|
Translation
differences
|
154
|
|
Impairment losses at December 31,
2009
|
2,589
|
The
balance of trade receivables billed net of impairment losses at December 31,
2009 amounted to 4,955 million euros (4,957 million euros at December 31, 2008),
of which 2,981 million euros were not yet due (2,642 million euros at December
31, 2008).
Of the
amounts due, only net amounts of 204 and 216 million euros are over 360 days at
December 31, 2009 and 2008, respectively. They are mainly with the public
sector.
|
(12)
|
EQUITY
|
a) Share capital and share
premium
At
December 31, 2009, Telefónica, S.A.’s share capital amounted to 4,563,996,485
euros and consisted of 4,563,996,485 fully paid ordinary shares of a single
series, par value of 1 euro, all recorded by the book-entry system and traded on
the Spanish electronic trading system (“Continuous Market”), where they form
part of the Ibex 35 Index, on the four Spanish Stock Exchanges (Madrid,
Barcelona, Valencia and Bilbao) and listed on the New York, London, Tokyo,
Buenos Aires, Sao Paulo and Lima Stock Exchanges.
With
respect to authorizations given regarding share capital, on June 21, 2006,
authorization was given at the Annual Shareholders’ Meeting of Telefónica, S.A.
for the Board of Directors, at its discretion and in accordance with the
Company’s needs, to increase the Company’s capital, at one or several times,
within a maximum period of five years from that date, under the terms of Article
153.1 b) of the Spanish Corporation Law (authorized capital) up to a maximum
increase of 2,460 million euros, equivalent to half of the Company’s share
capital at that date, by issuing and placing new ordinary shares, be they
ordinary or of any other type permitted by the Law, with a fixed or variable
premium, with or without pre-emptive subscription rights and, in all cases, in
exchange for cash, and expressly considering the possibility that the new shares
may not be fully subscribed in accordance with the terms of Article 161.1 of the
Spanish Corporation Law. The Board of Directors was also empowered to exclude,
partially or fully, pre-emptive subscription rights under the terms of Article
159.2 of the Spanish Corporation Law and related provisions.
In
addition, at the May 10, 2007 Shareholders’ Meeting, authorization was given for
the Board of Directors to issue fixed-income securities and preferred shares at
one or several times within a maximum period of five years from that date. These
securities may be in the form of
debentures,
bonds, promissory notes or any other kind of fixed-income security, plain or, in
the case of debentures and bonds, convertible into shares of the Company and/or
exchangeable for shares of any of the group companies. They may also be
preferred shares. The total maximum amount of the securities issued agreed under
this authorization is 25,000 million euros or the equivalent in another
currency. As at December 31, 2009, the Board of Directors had exercised these
powers, approving three programs to issue corporate promissory notes for 2008,
2009 and 2010.
In
addition, on June 23, 2009, shareholders voted to authorize the acquisition by
the Board of Directors of treasury shares, for a consideration, up to the limits
and pursuant to the terms and conditions established at the Shareholders’
Meeting, within a maximum period of 18 months from that date. However, it
specified that in no circumstances could the par value of the shares acquired,
added to that of the treasury shares already held by Telefónica, S.A. and by any
of its controlled subsidiaries, exceed the maximum legal percentage at any time
(currently 10% of Telefónica, S.A.’s share capital).
Finally,
on December 28, 2009, the deed of capital reduction formalizing the
implementation by the Company’s Board of Directors of the resolution adopted by
the Shareholders’ Meeting on June 23, 2009, was executed. Capital was reduced
through the cancellation of treasury shares previously acquired by the Company
as authorized by the Shareholders’ Meeting. As a result, 141,000,000 Telefónica,
S.A. treasury shares were cancelled and the Company’s share capital was reduced
by a nominal amount of 141,000,000 euros. Article 5 of the Corporate Bylaws
relating to the amount of share capital was amended accordingly to show
4,563,996,485 euros. At the same time, a reserve was recorded for the cancelled
shares for 141 million euros. The balance of this reserve at December 31, 2009
was 498 million euros. The cancelled shares were delisted on December 30,
2009.
Proposed appropriation of
profit attributable to equity holders of the parent
Telefónica,
S.A. obtained 6,252 million euros of profit in 2009.
At its
meeting of April 29, 2009, Telefónica, S.A.’s Board of Directors resolved to pay
an interim dividend against 2009 profit of a fixed gross 0.5 euros for each of
the Company's outstanding shares carrying dividend rights. This dividend was
paid in full on May 12, 2009, and the total amount paid was 2,277 million
euros.
Accordingly,
the Company’s Board of Directors will submit the following proposed
appropriation of 2009 profit for approval at the Shareholders’
Meeting:
|
Millions of
euros
|
|
|
Total
distributable profit
|
6,252
|
|
Interim
dividend (paid in May 2009)
|
2,277
|
|
Goodwill
reserve
|
2
|
|
Voluntary
reserves
|
3,973
|
|
Total
|
6,252
|
b) Dividends
Dividends
paid in 2009
At its
meeting held on June 23, 2009, the Company’s Board of Directors resolved to pay
a dividend charged to unrestricted reserves for a fixed gross amount of 0.5
euros per outstanding
share
carrying dividend rights. This dividend was paid in full on November 11, 2009,
and the total amount paid was 2,280 million euros.
In
addition, as indicated above, in May 2009 an interim dividend against 2009
profit of a gross 0.50 euros per share was paid, entailing a total payment of
2,277 million euros.
In
accordance with Article 216 of the Spanish Corporations Law, the following table
shows the provisional statement issued substantiating the existence of
sufficient liquidity at the time the resolution to distribute this dividend was
adopted.
|
Liquidity statement at April 29,
2009
|
Millions of
euros
|
|
Income
from January 1 through March 31, 2009
|
3,024
|
|
Mandatory
appropriation to reserves
|
-
|
|
Distributable
income
|
3,024
|
|
Proposed
interim dividend (maximum amount)
|
2,352
|
|
Cash position at April 29,
2009
|
|
|
Funds
available for distribution
|
|
|
Cash
and cash equivalents
|
2,218
|
|
Unused
credit facilities
|
4,667
|
|
Proposed
interim dividend (maximum amount)
|
(2,352)
|
|
Difference
|
4,533
|
The
Company manages its liquidity risks (see Note 16) in order to have cash
available for the following year.
Dividends
paid in 2008
At its
meeting held on April 22, 2008, the Company’s Board of Directors agreed to pay
an additional dividend charged against 2007 profit of a gross 0.40 euros per
share. A total of 1,869 million euros was paid in May 2008.
In
addition, in November 2008 an interim dividend against 2008 profit of a gross
0.50 euros per share was paid, entailing a total payment of 2,296 million
euros.
Dividends
paid in 2007
At its
meeting held on May 10, 2007, the Company’s Board of Directors resolved to pay
an additional dividend charged against 2006 profit of a gross 0.30 euros per
share. A total of 1,425 million euros was paid in May.
In
addition, in November an interim dividend against 2007 profit of a gross 0.35
euros per share was paid, entailing a total payment of 1,652 million
euros.
|
c)
|
Reserves
|
|
|
Legal
reserve
|
According
to the revised text of Spanish Corporation Law, companies must transfer 10% of
profit for the year to a legal reserve until this reserve reaches at least 20%
of share capital. The legal reserve can be used to increase capital by the
amount exceeding 10% of the increased share capital amount. Except for this
purpose, until the legal reserve exceeds the limit of 20%
of share
capital, it can only be used to offset losses, if there are no other reserves
available. At December 31, 2009, the Company had duly set aside this
reserve.
|
|
Revaluation
reserves
|
The
balance of “Revaluation reserves” arose as a result of the revaluation made
pursuant to Royal Decree-Law 7/1996 dated June 7.
The
revaluation reserve may be used, free of tax, to offset any losses incurred in
the future and to increase capital. From January 1, 2007, it may be allocated to
unrestricted reserves, provided that the capital gain has been
realized.
The
capital gain will be deemed to have been realized in respect of the portion on
which the depreciation has been recorded for accounting purposes or when the
revalued assets have been transferred or derecognized. In this respect, an
amount of 15 million euros in 2009 (8 million euros in 2008 and 1,178 million
euros in 2007) corresponding to revaluation reserves subsequently considered
unrestricted has been reclassified to “Retained earnings.”
Retained
earnings
|
|
These
reserves include undistributed profits of companies comprising the
consolidated Group less interim dividends paid against profit for the
year, actuarial gains and losses, and the impact of the asset ceiling on
defined-benefit plans.
|
|
d)
|
Translation
differences
|
The
translation differences relate mainly to the effect of exchange rate
fluctuations on the net assets of the companies located abroad after the
elimination of intra-group balances and transactions (see Note 3.b). They also
include exchange rate differences resulting from specific-purpose
foreign-currency financing transactions relating to investments in investees and
which hedge the exchange rate risk on these investments and the impact of the
restatement of financial statements of companies in hyperinflationary
economies.
Group
companies took an exemption that allows all translation differences generated up
to the IFRS transition date to be reset to zero, with the impact on prior years
recognized as retained earnings.
The
breakdown of the accumulated contribution of translation differences at December
31 is as follows:
|
Millions of
euros
|
2009
|
2008
|
2007
|
|
Telefónica
Latin America
|
1,052
|
(834)
|
669
|
|
Telefónica
Europe
|
(2,524)
|
(2,793)
|
(619)
|
|
Other
adjustments and intra-group eliminations
|
99
|
16
|
47
|
|
Total Telefónica
Group
|
(1,373)
|
(3,611)
|
97
|
|
e)
|
Treasury
shares
|
At
December 31, 2009, 2008 and 2007, Telefónica Group companies held the following
shares in the Telefónica, S.A. parent company:
|
No. of shares
|
Euros per
share
|
Market Value
Millions of
euros
|
%
|
||
|
Acquisition
price
|
Trading
price
|
||||
|
Treasury
shares at 12/31/09
|
6,329,530
|
16.81
|
19.52
|
124
|
0.13868%
|
|
Treasury
shares at 12/31/08
|
125,561,011
|
16.68
|
15.85
|
1,990
|
2.66867%
|
|
Treasury
shares at 12/31/07
|
64,471,368
|
16.67
|
22.22
|
1,433
|
1.35061%
|
Telefónica
S.A. owns the only treasury shares in the Group. No other Group company owns any
Telefónica treasury shares.
In 2009,
2008 and 2007 the following transactions involving treasury shares were carried
out:
|
No. of
shares
|
|
|
Treasury shares at
12/31/06
|
75,632,559
|
|
Acquisitions
|
149,099,044
|
|
Disposals
|
(12,621,573)
|
|
Lycos
and Endemol employee share option plans
|
(4,750)
|
|
Exchange
of Telefónica, S.A. shares for Telefónica Móviles, S.A.
shares
|
(147,633,912)
|
|
Treasury shares at
12/31/07
|
64,471,368
|
|
Acquisitions
|
129,658,402
|
|
Disposals
|
(68,759)
|
|
Share
cancellation
|
(68,500,000)
|
|
Treasury shares at
12/31/08
|
125,561,011
|
|
Acquisitions
|
65,809,222
|
|
Exchange
of Telefónica, S.A. shares for China Unicom shares
|
(40,730,735)
|
|
Employee
share option plan
|
(3,309,968)
|
|
Share
cancellation
|
(141,000,000)
|
|
Treasury shares at
12/31/09
|
6,329,530
|
The
amount paid to acquire treasury shares in 2009 was 1,005 million euros (2,225
million and 2,324 million euros in 2008 and 2007, respectively).
At
December 31, 2009, the Group held call options on 150 million treasury shares,
and at December 31, 2008, put options on 6 million treasury shares.
|
f)
|
Non-controlling
interests
|
“Non-controlling
interests” represents the share of non-controlling interests in the equity and
income or loss for the year of fully consolidated Group companies. The movements
in this heading of the 2009, 2008 and 2007 consolidated statement of financial
position are as follows:
|
Millions of
euros
|
Balance at
12/31/08
|
Capital contributions and
inclusion of companies
|
Profit (loss) for the
year
|
Change in translation
differences
|
Acquisitions of non-controlling
interests and exclusion of
companies
|
Dividends
paid
|
Other
movements
|
Balance at
12/31/09
|
|
Telefónica
O2 Czech Republic, a.s.
|
1,095
|
-
|
114
|
21
|
-
|
(186)
|
-
|
1,044
|
|
Telefónica
Chile, S.A.
|
23
|
1
|
1
|
6
|
(8)
|
(1)
|
-
|
22
|
|
Telesp
Participaçoes, S.A.
|
385
|
-
|
101
|
118
|
-
|
(64)
|
2
|
542
|
|
Brasilcel
(Holdings)
|
774
|
-
|
46
|
214
|
(108)
|
(41)
|
-
|
885
|
|
Fonditel
Entidad Gestora de Fondos
de
Pensiones, S.A.
|
20
|
-
|
3
|
-
|
-
|
-
|
-
|
23
|
|
Iberbanda,
S.A.
|
9
|
-
|
(3)
|
-
|
-
|
-
|
-
|
6
|
|
Colombia
Telecomunicaciones,
S.A.,
ESP
|
-
|
-
|
(104)
|
-
|
-
|
-
|
104
|
-
|
|
Other
|
25
|
-
|
3
|
(2)
|
(7)
|
(3)
|
2
|
18
|
|
Total
|
2,331
|
1
|
161
|
357
|
(123)
|
(295)
|
108
|
2,540
|
|
Millions of
euros
|
Balance at
12/31/07
|
Capital contributions and
inclusion of companies
|
Profit (loss) for the
year
|
Change in translation
differences
|
Acquisitions of non-controlling
interests and exclusion of
companies
|
Dividends
paid
|
Other
movements
|
Balance at
12/31/08
|
|
Telefónica
O2 Czech Republic, a.s.
|
1,192
|
-
|
112
|
(12)
|
-
|
(197)
|
-
|
1,095
|
|
Telefónica
Chile, S.A.
|
473
|
-
|
25
|
(72)
|
(397)
|
(7)
|
1
|
23
|
|
Telesp
Participaçoes, S.A.
|
464
|
-
|
127
|
(93)
|
-
|
(113)
|
-
|
385
|
|
Brasilcel
(Holdings)
|
545
|
348
|
61
|
(163)
|
-
|
(12)
|
(5)
|
774
|
|
Fonditel
Entidad Gestora de Fondos
de
Pensiones, S.A.
|
19
|
-
|
4
|
-
|
-
|
(2)
|
(1)
|
20
|
|
Iberbanda,
S.A.
|
11
|
8
|
(10)
|
-
|
-
|
-
|
-
|
9
|
|
Colombia
Telecomunicaciones,
S.A.,
ESP
|
-
|
-
|
(89)
|
-
|
-
|
-
|
89
|
-
|
|
Other
|
26
|
-
|
4
|
(3)
|
(1)
|
(2)
|
1
|
25
|
|
Total
|
2,730
|
356
|
234
|
(343)
|
(398)
|
(333)
|
85
|
2,331
|
|
Millions of
euros
|
Balance at
12/31/06
|
Profit (loss) for the
year
|
Change in translation
differences
|
Acquisitions of non-controlling
interests and exclusion of
companies
|
Dividends
paid
|
Other
movements
|
Balance at
12/31/07
|
|
Telefónica
O2 Czech Republic, a.s.
|
1,239
|
92
|
14
|
-
|
(153)
|
-
|
1,192
|
|
Telefónica
Chile, S.A.
|
515
|
25
|
(28)
|
(31)
|
(8)
|
-
|
473
|
|
Telesp
Participaçoes, S.A.
|
445
|
119
|
35
|
-
|
(135)
|
-
|
464
|
|
Endemol,
N.V.
|
54
|
11
|
-
|
(45)
|
(20)
|
-
|
-
|
|
Brasilcel
(Holdings)
|
493
|
19
|
35
|
-
|
(2)
|
-
|
545
|
|
Fonditel
Entidad Gestora de Fondos
de
Pensiones, S.A.
|
17
|
4
|
-
|
-
|
(2)
|
-
|
19
|
|
Iberbanda,
S.A.
|
21
|
(12)
|
-
|
-
|
-
|
2
|
11
|
|
Colombia
Telecomunicaciones,
S.A.,
ESP
|
-
|
(50)
|
-
|
-
|
-
|
50
|
-
|
|
Other
|
39
|
5
|
(4)
|
(19)
|
(4)
|
9
|
26
|
|
Total
|
2,823
|
213
|
52
|
(95)
|
(324)
|
61
|
2,730
|
2009
The
reorganization of Brasilcel Group companies in 2009 following the acquisition of
the Telemig Group in 2008, decreased the balance of “Non-controlling interests”
by 108 million euros.
Also
noteworthy was the impact of the dividends paid during the year by Telefónica O2
Czech Republic, a.s. and Telesp Participaçoes, S.A.
2008
The main
variation in 2008 relates to the acquisition of Telefónica Chile, S.A.’s
non-controlling interests (see Note 2), which decreased the balance of
“Non-controlling interests” by 397 million euros, and to the acquisition of the
Telemig Group companies, which increased the balance by 335 million
euros.
Also
worth highlighting was the movement caused by the dividends paid by Telefónica
O2 Czech Republic, a.s. operators, of 197 million euros, and by Telesp
Participaçoes, S.A., of 113 million euros.
2007
Movements in non-controlling interests
in 2007 included the dividends paid by Telefónica O2 Czech Republic, a.s. and
Telesp Participaçoes, S.A., as well as the profit (loss) for the year
attributable to non-controlling interests.
|
(13)
|
FINANCIAL ASSETS AND
LIABILITIES
|
1.
Financial assets
The
breakdown of financial assets of the Telefónica Group at December 31, 2009 and
2008 is as follows:
|
December 31,
2009
|
||||||||||
|
Fair value through profit or
loss
|
Measurement
hierarchy
|
|||||||||
|
Millions of
euros
|
Held for
trading
|
Fair value
option
|
Available-for-sale
|
Hedges
|
Level 1 (Quoted
prices)
|
Level 2 (Other directly observable
market inputs)
|
Level 3 (Inputs not based on
observable market data)
|
Amortized
cost
|
Total carrying
amount
|
Total fair
value
|
|
Non-current
financial assets
|
930
|
233
|
1,248
|
1,572
|
1,508
|
2,475
|
-
|
2,005
|
5,988
|
5,988
|
|
Equity
investments
|
-
|
-
|
654
|
-
|
570
|
84
|
-
|
-
|
654
|
654
|
|
Long-term
credits
|
91
|
233
|
594
|
-
|
918
|
-
|
-
|
1,022
|
1,940
|
1,940
|
|
Deposits
and guarantees given
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,496
|
1,496
|
983
|
|
Derivative
instruments
|
839
|
-
|
-
|
1,572
|
20
|
2,391
|
-
|
-
|
2,411
|
2,411
|
|
Impairment
losses
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(513)
|
(513)
|
-
|
|
Current
financial assets
|
859
|
134
|
237
|
59
|
769
|
520
|
-
|
9,730
|
11,019
|
11,019
|
|
Financial
investments
|
859
|
134
|
237
|
59
|
769
|
520
|
-
|
617
|
1,906
|
1,906
|
|
Cash
and cash equivalents
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
9,113
|
9,113
|
9,113
|
|
Total financial
assets
|
1,789
|
367
|
1,485
|
1,631
|
2,277
|
2,995
|
-
|
11,735
|
17,007
|
17,007
|
|
December 31,
2008
|
||||||||||
|
Fair value through profit or
loss
|
Measurement
hierarchy
|
|||||||||
|
Millions of
euros
|
Held for
trading
|
Fair value
option
|
Available-for-sale
|
Hedges
|
Level 1 (Quoted
prices)
|
Level 2 (Other directly observable market
inputs)
|
Level 3 (Inputs not based on observable
market data)
|
Amortized
cost
|
Total carrying
amount
|
Total fair
value
|
|
Non-current
financial assets
|
1,182
|
92
|
2,327
|
2,404
|
2,334
|
3,671
|
-
|
1,371
|
7,376
|
7,642
|
|
Equity
investments
|
-
|
-
|
1,584
|
-
|
1,503
|
81
|
-
|
-
|
1,584
|
1,585
|
|
Long-term
credits
|
-
|
88
|
743
|
-
|
831
|
-
|
-
|
863
|
1,694
|
1,562
|
|
Deposits
and guarantees given
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
905
|
905
|
905
|
|
Derivative
instruments
|
1,
182
|
4
|
-
|
2,404
|
-
|
3,590
|
-
|
-
|
3,590
|
3,590
|
|
Impairment
losses
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(397)
|
(397)
|
-
|
|
Current
financial assets
|
700
|
273
|
181
|
388
|
275
|
1,267
|
-
|
4,951
|
6,493
|
6,605
|
|
Financial
investments
|
700
|
273
|
181
|
388
|
275
|
1,267
|
-
|
674
|
2,216
|
2,328
|
|
Cash
and cash equivalents
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
4,277
|
4,277
|
4,277
|
|
Total financial
assets
|
1,882
|
365
|
2,508
|
2,792
|
2,609
|
4,938
|
-
|
6,322
|
13,869
|
14,247
|
The
calculation of the fair values of the Telefónica Group’s debt instruments
required an estimate, for each currency and subsidiary, of a credit spread curve
using the prices of the Group’s bonds and credit derivatives.
Derivatives
are measured using the valuation techniques and models normally used in the
market, based on money-market curves and volatility prices available in the
market.
a)
Non-current financial assets
The
movement in items composing “Non-current financial assets” and the related
impairment losses at December 31, 2009 and 2008 are as follows:
|
Millions of
euros
|
|||||||
|
Investments
|
Long-term
credits
|
Derivative financial
assets
|
Deposits and
guarantees
|
Long-term
prepayments
|
Impairment
losses
|
Total
|
|
|
Balance at
12/31/07
|
2,235
|
1,572
|
1,483
|
813
|
97
|
(381)
|
5,819
|
|
Acquisitions
|
1,124
|
793
|
1,049
|
201
|
42
|
(40)
|
3,169
|
|
Disposals
|
(664)
|
(433)
|
-
|
(66)
|
(18)
|
22
|
(1,159)
|
|
Inclusion
of companies
|
-
|
9
|
-
|
63
|
-
|
(1)
|
71
|
|
Translation
differences
|
(8)
|
(114)
|
131
|
(107)
|
(4)
|
2
|
(100)
|
|
Fair
value adjustments
|
(1,095)
|
(34)
|
1,172
|
-
|
(7)
|
1
|
37
|
|
Transfers
|
(8)
|
(191)
|
(245)
|
1
|
(18)
|
-
|
(461)
|
|
Balance at
12/31/08
|
1,584
|
1,602
|
3,590
|
905
|
92
|
(397)
|
7,376
|
|
Acquisitions
|
3
|
921
|
-
|
842
|
35
|
(114)
|
1,687
|
|
Disposals
|
(33)
|
(503)
|
(1,118)
|
(364)
|
(26)
|
-
|
(2,044)
|
|
Inclusion
of companies
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Translation
differences
|
9
|
90
|
(38)
|
146
|
6
|
(2)
|
211
|
|
Fair
value adjustments
|
565
|
(53)
|
(5)
|
-
|
-
|
-
|
507
|
|
Transfers
|
(1,474)
|
(221)
|
(18)
|
(33)
|
(3)
|
-
|
(1,749)
|
|
Balance at
12/31/09
|
654
|
1,836
|
2,411
|
1,496
|
104
|
(513)
|
5,988
|
“Investments”
includes the market value of investments in companies where Telefónica does not
exercise significant control and for which there is no specific disposal plan
for the short term (see Note 3.i).
Among
these is the Telefónica Group’s shareholding in
Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) since 2000 of 468 million euros
(314 million euros at December 31, 2008), representing 0.98% of its share
capital.
In 2009,
the Telefónica Group’s stake in China Unicom was transferred to “Investments in
associates” following the share exchange described in Note 2. The amount
transferred was 1,467 million euros.
In January 2008, Telefónica, S.A., through its Telefónica Internacional,
S.A.U. subsidiary, signed an agreement to acquire an additional stake of
approximately 2.22% in Chinese telecommunications company China Netcom Group
Corporation (Hong
Kong) Limited (CNC). On
September 22, it carried out this purchase for approximately 313 million
euros.
In addition, in September 2008,
Telefónica Internacional, S.A.U. reached another agreement to acquire an
additional stake of approximately 5.74% of CNC’s share
capital.
This acquisition was structured in two
tranches: the first, carried out in September 2008, entailed shares representing
2.71% of CNC for approximately 374 million euros, and the second, carried out
after the merger between CNC and China Unicom (Hong Kong) Limited (“CU"),
entailed shares of the new company representing up to 3.03% of CNC’s share
capital.
On October 14, 2008 the merger between
these companies was carried out. The exchange ratio applied in calculating the
number of shares corresponding to the new company arising from the merger
between CNC and CU was 1.508 shares of the new company for each year of the
former company.
Once the merger was completed, the
second tranche was carried out, requiring an investment by the Telefónica Group
of approximately 413 million euros.
After
these acquisitions and the merger, the Telefónica Group’s stake in CU at
December 31, 2008 stood at approximately 5.38%, recognized at December 31, 2008
at approximately 1,102 million euros.
In
addition, in 2008, Telefónica tendered all the shares it owned in Sogecable,
S.A. in the takeover bid launched for this company by the Prisa Group. The
amount received from the sale was 648 million euros. This investment was
included in the statement of financial position at December 31, 2007 in “Equity
investments” under “Non-current financial assets,” for 634 million euros. The
gain obtained on the sale was 143 million euros, recognized under “Other income”
in the accompanying consolidated income statement (see Note 19).
Given the
poor situation of financial markets, at year-end the Group assessed the
securities in its portfolio of listed available-for-sale assets individually for
impairment. The analysis did not uncover the need to recognize any impairment
losses.
“Long-term
credits” includes mainly the investment of the net level premium reserves of the
Group’s insurance companies, primarily in fixed-income securities, amounting to
1,023 million and 792 million euros at December 31, 2009 and 2008, respectively.
It also includes the long-term loans to associates described in Note
9.
“Derivative
financial assets” includes the fair value of economic hedges of assets or
liabilities in the consolidated statement of financial position whose maturity
is 12 months or greater, as part of the Group’s financial risk-hedging strategy
(see Note 16).
“Deposits
and guarantees” consists mainly of balances to cover guarantees and stood at
1,496 million euros at December 31, 2009 (905 million euros at December 31,
2008). These deposits will decrease as the respective obligations they guarantee
are reduced.
b)
Current financial assets
This
heading in the accompanying consolidated statement of financial position at
December 31, 2009 and 2008 includes mainly the following items:
|
-
|
“Current
financial assets” recognized at fair value to cover commitments undertaken
by the Group’s insurance companies, amounting to 140 million euros at
December 31, 2009 (276 million euros at December 31, 2008). The maturity
schedule for these financial assets is established on the basis of payment
projections for the commitments.
|
|
-
|
Derivative
financial assets with a short-term maturity or not used to hedge
non-current items in the consolidated statement of financial position,
which amounted to 537 million euros (1,086 million euros in 2008). The
variation in the balance between the two years was due to exchange- and
interest-rate fluctuations (see Note
16).
|
|
-
|
Short-term
deposits and guarantees amounting to 470 million euros at December 31,
2009 (125 million euros at December 31,
2008).
|
|
-
|
Current
investments of cash surpluses which, given their characteristics, have not
been classified as “Cash and cash
equivalents.”
|
Current
financial assets that are highly liquid and are expected to be sold within three
months or less are recorded under “Cash and cash equivalents” on the
accompanying consolidated statement of financial position.
2.
Financial liabilities
The
composition of this heading at December 31, 2009 and 2008 is as
follows:
|
Millions of
euros
|
Balance at
12/31/09
|
Balance at
12/31/08
|
|
Issues
|
35,843
|
30,079
|
|
Interest-bearing
debt
|
20,948
|
22,926
|
|
Other
financial liabilities
|
-
|
183
|
|
Total
|
56,791
|
53,188
|
|
Total
non-current
|
47,607
|
45,088
|
|
Total
current
|
9,184
|
8,100
|
The
maturity profile of financial liabilities at December 31, 2009 is as
follows:
| (Millions of euros) |
Maturity
|
||||||
|
2010
|
2011
|
2012
|
2013
|
2014
|
Subsequent
years
|
Total
|
|
|
Debentures
and bonds
|
5,090
|
3,275
|
1,749
|
4,174
|
4,763
|
13,911
|
32,962
|
|
Promissory
notes & commercial paper
|
812
|
-
|
-
|
-
|
-
|
-
|
812
|
|
Other
marketable debt securities
|
61
|
54
|
-
|
-
|
-
|
1,954
|
2,069
|
|
Loans
and other payables
|
1,789
|
6,132
|
3,695
|
1,433
|
513
|
4,396
|
17,958
|
|
Derivative
financial liabilities
|
1,432
|
255
|
106
|
65
|
63
|
1,069
|
2,990
|
|
TOTAL
|
9,184
|
9,716
|
5,550
|
5,672
|
5,339
|
21,330
|
56,791
|
|
·
|
The
estimate of future interest that would accrue on the Group’s financial
liabilities at December 31, 2009 is as follows: 2,382 million euros in
2010, 2,074 million euros in 2011, 1,818 million euros in 2012, 1,620
million euros in 2013, 1,355 million euros in 2014 and 8,190 million euros
in years after 2014. For variable rate financing, the Group mainly
estimates future interest using the forward curve of the various
currencies at December 31, 2009.
|
|
·
|
The
amounts shown in this table take into account the fair value of
derivatives classified as financial liabilities (i.e., those with a
negative market value) and exclude the fair value of derivatives
classified as current financial assets (i.e., those with a positive market
value, of 537 million euros).
|
The
composition of the Group’s financial liabilities at December 31, 2009 and 2008
is as follows:
|
Millions of
euros
|
December 31,
2009
|
||||||||
|
Fair value through profit or
loss
|
Hedges
|
Measurement
hierarchy
|
Liabilities at amortized
cost
|
Total carrying
amount
|
Total fair
value
|
||||
|
Held for
trading
|
Fair value
option
|
Level 1 (Quoted
prices)
|
Level 2 (Other directly observable
market inputs)
|
Level 3 (Inputs not based on
observable market data)
|
|||||
|
Issues
|
-
|
-
|
-
|
-
|
-
|
-
|
35,843
|
35,843
|
37,890
|
|
Interest-bearing
debt
|
705
|
-
|
2,285
|
147
|
2,843
|
-
|
17,958
|
20,948
|
20,840
|
|
Total financial
liabilities
|
705
|
-
|
2,285
|
147
|
2,843
|
-
|
53,801
|
56,791
|
58,730
|
|
Millions of
euros
|
December 31,
2008
|
||||||||
|
Fair value through profit or
loss
|
Hedges
|
Measurement
hierarchy
|
Liabilities at amortized
cost
|
Total carrying
amount
|
Total fair
value
|
||||
|
Held for
trading
|
Fair value
option
|
Level 1 (Quoted
prices)
|
Level 2 (Other directly observable market
inputs)
|
Level 3 (Inputs not based on observable
market data)
|
|||||
|
Issues
|
-
|
-
|
-
|
-
|
-
|
-
|
30,079
|
30,079
|
28,203
|
|
Interest-bearing
debt
|
1,013
|
3
|
1,980
|
-
|
2,996
|
-
|
19,930
|
22,926
|
22,253
|
|
Other
financial liabilities
|
-
|
-
|
-
|
-
|
-
|
-
|
183
|
183
|
183
|
|
Total financial
liabilities
|
1,013
|
3
|
1,980
|
-
|
2,996
|
-
|
50,192
|
53,188
|
50,639
|
Some of
the financing arranged by various Telefónica group companies is subject to
compliance with certain financial covenants. All the covenants were being
complied with at the date of these consolidated financial
statements.
a)
Issues
The
movement in issues of debentures, bonds and other marketable debt securities in
2009 and 2008 is as follows:
|
Millions of
euros
|
Domestic currency
issues
|
Foreign currency
issues
|
Short-term promissory notes and
commercial paper
|
Other long-term marketable debt
securities
|
Total
|
|
Balance at
12/31/07
|
11,716
|
14,058
|
2,202
|
2,081
|
30,057
|
|
New
issues
|
1,247
|
70
|
14
|
15
|
1,346
|
|
Redemptions,
conversions and exchanges
|
(737)
|
(448)
|
(643)
|
(22)
|
(1,850)
|
|
Changes
in consolidation scope
|
-
|
4
|
-
|
-
|
4
|
|
Revaluation
and other movements
|
1,405
|
(885)
|
22
|
(20)
|
522
|
|
Balance at
12/31/08
|
13,631
|
12,799
|
1,595
|
2,054
|
30,079
|
|
New
issues
|
5,750
|
2,855
|
105
|
-
|
8,710
|
|
Redemptions,
conversions and exchanges
|
(1,152)
|
(802)
|
(909)
|
-
|
(2,863)
|
|
Changes
in consolidation scope
|
-
|
-
|
-
|
-
|
-
|
|
Revaluation
and other movements
|
(654)
|
535
|
82
|
(46)
|
(83)
|
|
Balance at
12/31/09
|
17,575
|
15,387
|
873
|
2,008
|
35,843
|
Debentures,
bonds and other marketable debt securities
Telefónica,
S.A. has a full and unconditional guarantee on issues made by Telefónica
Emisiones, S.A.U. and Telefónica Europe, B.V., both of which are wholly owned
subsidiaries of Telefónica, S.A.
Appendix
II presents the characteristics of all outstanding debentures and bond issues at
year-end 2009 and 2008, as well as the significant issues made in each
year.
Promissory
notes & commercial paper
At
December 31, 2009 and 2008, Telefónica, S.A. had a promissory note program for
issuance of up to 2,000 million euros. The outstanding balances at December 31,
2009 and 2008 were 254 million euros and 741 million euros, respectively,
carrying average interest rates of 1.318% and 4.49%, respectively.
At
December 31, 2009, Telefónica Europe, B.V. had a commercial paper program
secured by Telefónica, S.A. for issuance of up to 2,000 million euros. The
outstanding balances on this program at December 31, 2009 and 2008 were 551
million euros and 840 million euros, respectively, carrying average interest
rates of 1.17% and 3.70%, respectively.
Other
marketable debt securities
This
heading consists mainly of preferred shares issued by Telefónica Finance USA,
LLC, with a redemption value of 2,000 million euros. These shares were issued in
2002 and have the following features:
|
·
|
Interest
rate up to December 30, 2012 of 3-month Euribor, and maximum and minimum
effective annual rates of 7% and 4.25%, respectively, and from then
3-month Euribor plus a 4% spread.
|
|
·
|
Interest
is paid every three calendar months provided the Telefónica Group
generates consolidated net income.
|
b)
Interest-bearing debt
The
detail of “Interest-bearing debt” is as follows:
|
Millions of
euros
|
Balance at
12/31/09
|
Balance at
12/31/08
|
||||
|
Current
|
Non-current
|
Total
|
Current
|
Non-current
|
Total
|
|
|
Loans
and other payables
|
1,789
|
16,169
|
17,958
|
3,752
|
16,178
|
19,930
|
|
Derivative
financial liabilities (Note 16)
|
1,432
|
1,558
|
2,990
|
747
|
2,249
|
2,996
|
|
Total
|
3,221
|
17,727
|
20,948
|
4,499
|
18,427
|
22,926
|
The
average interest rate on outstanding loans and other payables at December 31,
2009 was 3.58% (4.28% in 2008). This percentage does not include the impact of
hedges arranged by the Group.
The main
financing transactions included under “Interest-bearing debt” outstanding at
December 31, 2009 and 2008 and their nominal amounts are provided in Appendix
IV.
Interest-bearing
debt arranged in 2009 and 2008 mainly includes the following:
|
|
·
|
On
February 13, 2009, Telefónica, S.A. executed, with a group of
participating banks in the 6,000 million euro syndicated line of credit
dated June 28, 2005 maturing on June 28, 2011, an extension of 4,000
million euros of the 6,000 million euros available at such date, for an
additional period of one year for 2,000 million euros and two years for
the remaining 2,000 million euros.
|
|
|
·
|
On
December 28, 2009, Colombia de Telecomunicaciones, S.A., ESP. signed a
loan for 310,000 million Colombian pesos (equivalent to 105 million euros
at December 31, 2009) maturing on December 28,
2014.
|
|
|
·
|
On
January 15, 2008, Telefónica Móviles Colombia, S.A. drew down the entire
amount of financing arranged on December 10, 2007, which was structured in
two tranches. Tranche A, for 125 million US dollars, entailed bilateral
financing with the Inter-American Development Bank (IDB) maturing in 7
years. Tranche B entailed a 5-year 475 million US dollar syndicated credit
facility with a group of banks, in which the IDB acted as agent
bank.
|
|
|
·
|
On
January 30, 2008, Telefónica Finanzas, S.A.U. (Telfisa) drew down the 450
million euros of facilities arranged with the European Investment Bank
(EIB) related to the “Telefónica Mobile Telephony II” project, of which
375 million euros mature in seven years and the remaining 75 million euros
in eight years.
|
|
|
·
|
On
May 1, 2008, Vivo, S.A. drew down an additional 750 million Brazilian
reais of the financing arranged with the Brazilian Development Bank
(BNDES) on August 9, 2007
|
|
and
maturing on August 15, 2014. In 2009, an additional 89 million Brazilian
reais were drawn down.
|
|
|
·
|
On
June 9, 2008, Compañía de Telecomunicaciones de Chile, S.A. (CTC) extended
the maturity of a 150 million US dollar syndicated loan to May 13,
2013.
|
|
|
·
|
On
October 28, 2008, Telesp drew down an additional 886 million Brazilian
reais of the financing arranged with the BNDES on October 23, 2007 and
maturing on May 15, 2015. In 2009, an additional 273 million Brazilian
reais were drawn down.
|
The main
repayments or maturities of bank interest-bearing debt in 2009 and 2008 are as
follows:
|
|
·
|
On
July 6, 2009, the syndicated loan facility arranged by Telefónica, S.A.
with a group of banks on July 6, 2004, for 3,000 million euros, matured as
scheduled.
|
|
|
·
|
Telefónica
Finanzas, S.A.U. (Telfisa) made the payments corresponding to 2009 on
certain finance deals arranged with the EIB for an amount equal to
approximately 77 million euros (502 million euros in 2008), of which 26
million euros relate to financing matured (440 million euros in
2008).
|
At
December 31, 2009, the Telefónica Group had total unused credit facilities from
various sources amounting to over 7,200 million euros (over 7,400 million euros
at December 31, 2008).
Loans
by currency
The
breakdown of loans by at December 31, 2009 and 2008, along with the equivalent
value of foreign-currency loans in euros, are as follows:
|
Outstanding balance (in
millions)
|
||||
|
Currency
|
Euros
|
|||
|
Currency
|
12/31/09
|
12/31/08
|
12/31/09
|
12/31/08
|
|
Euros
|
10,835
|
11,592
|
10,835
|
11,592
|
|
US
dollars
|
2,498
|
3,267
|
1,734
|
2,444
|
|
Brazilian
reais
|
3,114
|
3,228
|
1,242
|
992
|
|
Argentine
pesos
|
603
|
51
|
110
|
11
|
|
Colombian
pesos
|
7,675,200
|
7,
819,166
|
2,610
|
2,502
|
|
Yen
|
17,258
|
58,832
|
130
|
467
|
|
Chilean
peso
|
151,943
|
176,163
|
208
|
199
|
|
New
soles
|
1,120
|
1,096
|
269
|
251
|
|
Pounds
sterling
|
708
|
1,383
|
798
|
1,452
|
|
Czech
crown
|
301
|
389
|
11
|
14
|
|
Other
currencies
|
11
|
6
|
||
|
Total Group
|
N/A
|
N/A
|
17,958
|
19,930
|
|
(14)
|
TRADE AND OTHER
PAYABLES
|
The
composition of “Trade and other payables” is as follows:
|
Millions of
euros
|
12/31/09
|
12/31/08
|
||
|
Non-current
|
Current
|
Non-current
|
Current
|
|
|
Trade
payables
|
-
|
6,963
|
-
|
7,845
|
|
Advances
received on orders
|
-
|
115
|
-
|
94
|
|
Other
payables
|
752
|
5,130
|
582
|
4,316
|
|
Deferred
income
|
497
|
1,528
|
535
|
1,214
|
|
Payable
to associates (Note 9)
|
-
|
287
|
-
|
182
|
|
Total
|
1,249
|
14,023
|
1,117
|
13,651
|
“Deferred
income” principally includes the amount of connection fees not yet recognized in
the income statement, customer loyalty programs, and advance payments received
on prepay contracts. These will be recognized as revenue over the estimated
customer relationship period (see Note 3.o) or as the purchases related to the
revenue are incurred.
The
detail of “Other payables” under “Current liabilities” at December 31, 2009 and
2008 is as follows:
|
Millions of
euros
|
Balance at
12/31/09
|
Balance at
12/31/08
|
|
Dividends
payable by Group companies
|
157
|
157
|
|
Payables
to suppliers of property, plant and equipment, current
|
3,598
|
2,915
|
|
Accrued
employee benefits
|
695
|
595
|
|
Other
non-financial non-trade payables
|
680
|
649
|
|
Total
|
5,130
|
4,316
|
|
(15)
|
PROVISIONS
|
The
amounts of provisions in 2009 and 2008 are as follows:
|
Millions of
euros
|
12/31/09
|
12/31/08
|
||||
|
Current
|
Non-current
|
Total
|
Current
|
Non-current
|
Total
|
|
|
Employee
benefits:
|
667
|
3,594
|
4,261
|
791
|
4,002
|
4,793
|
|
-
Post-employment plan
|
652
|
2,418
|
3,070
|
781
|
2,993
|
3,774
|
|
-
Post-employment defined benefit plans
|
-
|
911
|
911
|
-
|
741
|
741
|
|
-
Other benefits
|
15
|
265
|
280
|
10
|
268
|
278
|
|
Other
provisions
|
296
|
1,399
|
1,695
|
315
|
1,419
|
1,734
|
|
Total
|
963
|
4,993
|
5,956
|
1,106
|
5,421
|
6,527
|
Employee
benefits
|
a)
|
Post-employment
plans
|
In the
last few years, Telefónica has carried out early retirement plans in order to
adapt its cost structure to the prevailing environment in the markets where it
operates, making certain strategic decisions relating to its size and
organization.
In this
respect, on July 29, 2003, the Ministry of Labor and Social Affairs approved a
labor force reduction plan for Telefónica de España through various voluntary,
universal and non-discriminatory programs, which was announced on July 30, 2003.
The plan concluded on December 31, 2007, with 13,870 employees taking part for a
total cost of 3,916 million euros.
Provisions
recorded for this plan at December 31, 2009 and 2008 amounted to 2,295 and 2,689
million euros, respectively.
Furthermore,
at December 31, 2009, the Group had recorded provisions totaling 775 million
euros (1,085 million euros at December 31, 2008) for other planned adjustments
to the workforce and plans prior to 2003.
The
companies bound by these commitments calculated provisions required at 2009 and
2008 year-end using actuarial assumptions pursuant to current legislation,
including the PERM/F-2000 C mortality tables and a variable interest rate based
on market yield curves.
The Group
made efforts in 2007 to adapt headcount in line with the integration of its
businesses, for which it recorded provisions of 838 million euros, mainly in
Latin America (306 million euros), Spain (325 million euros) and Europe (158
million euros) (see Note 19).
The
movement in provisions for post-employment plans in 2009 and 2008 is as
follows:
|
Millions of
euros
|
Total
|
|
Provisions for post-employment
plans at 12/31/07
|
4,584
|
|
Additions
|
321
|
|
Retirements/amount
applied
|
(1,121)
|
|
Transfers
|
1
|
|
Translation
differences and accretion
|
(11)
|
|
Provisions for post-employment
plans at 12/31/08
|
3,774
|
|
Additions
|
109
|
|
Retirements/amount
applied
|
(1,021)
|
|
Transfers
|
59
|
|
Translation
differences and accretion
|
149
|
|
Provisions for post-employment
plans at 12/31/09
|
3,070
|
|
b)
|
Post-employment
defined benefit plans
|
The Group
has a number of defined-benefit plans in the countries where it operates. The
following tables present the main data of these plans:
|
12/31/09
|
Spain
|
Europe
|
Latin
America
|
||||
|
Millions of
euros
|
ITP
|
Survival
|
UK
|
Germany
|
Brazil
|
Other
|
Total
|
|
Obligation
|
451
|
191
|
922
|
37
|
159
|
11
|
1,771
|
|
Assets
|
-
|
-
|
(744)
|
(58)
|
(116)
|
-
|
(918)
|
|
Net
provision before asset ceiling
|
451
|
191
|
178
|
(21)
|
43
|
11
|
853
|
|
Asset
ceiling
|
-
|
-
|
-
|
15
|
12
|
-
|
27
|
|
Net
provision
|
451
|
191
|
178
|
-
|
80
|
11
|
911
|
|
Net
assets
|
-
|
-
|
-
|
6
|
25
|
-
|
31
|
|
12/31/08
|
Spain
|
Europe
|
Latin
America
|
||||
|
Millions of
euros
|
ITP
|
Survival
|
UK
|
Germany
|
Brazil
|
Other
|
Total
|
|
Obligation
|
485
|
188
|
587
|
33
|
104
|
12
|
1,409
|
|
Assets
|
-
|
-
|
(579)
|
(51)
|
(78)
|
-
|
(708)
|
|
Net
provision before asset ceiling
|
485
|
188
|
8
|
(18)
|
26
|
12
|
701
|
|
Asset
ceiling
|
-
|
-
|
-
|
13
|
19
|
-
|
32
|
|
Net
provision
|
485
|
188
|
10
|
-
|
46
|
12
|
741
|
|
Net
assets
|
-
|
-
|
2
|
5
|
1
|
-
|
8
|
The
movement in the present value of obligations in 2009 and 2008 is as
follows:
|
Spain
|
Europe
|
Latin
America
|
|||||
|
Millions of
euros
|
ITP
|
Survival
|
UK
|
Germany
|
Brazil
|
Other
|
Total
|
|
Present value of obligation at
12/31/07
|
483
|
152
|
947
|
37
|
99
|
40
|
1,758
|
|
Translation
differences
|
-
|
-
|
(199)
|
-
|
(38)
|
(30)
|
(267)
|
|
Current
service cost
|
-
|
7
|
39
|
3
|
1
|
1
|
51
|
|
Interest
cost
|
22
|
7
|
50
|
2
|
9
|
-
|
90
|
|
Actuarial
losses and gains
|
35
|
26
|
(235)
|
(8)
|
40
|
1
|
(141)
|
|
Benefits
paid
|
(55)
|
(4)
|
(21)
|
-
|
(7)
|
-
|
(87)
|
|
Plan
curtailments:
|
-
|
-
|
6
|
(1)
|
-
|
-
|
5
|
|
Present value of obligation at
12/31/08
|
485
|
188
|
587
|
33
|
104
|
12
|
1,409
|
|
Translation
differences
|
-
|
-
|
42
|
-
|
38
|
(4)
|
76
|
|
Current
service cost
|
-
|
7
|
22
|
2
|
1
|
2
|
34
|
|
Interest
cost
|
16
|
7
|
42
|
2
|
12
|
1
|
80
|
|
Actuarial
losses and gains
|
3
|
(4)
|
241
|
-
|
11
|
-
|
251
|
|
Benefits
paid
|
(53)
|
(7)
|
(18)
|
-
|
(7)
|
-
|
(85)
|
|
Plan
curtailments:
|
-
|
-
|
6
|
-
|
-
|
-
|
6
|
|
Present value of obligation at
12/31/09
|
451
|
191
|
922
|
37
|
159
|
11
|
1,771
|
Movements
in the fair value of plan assets in 2009 and 2008 are as follows:
|
Europe
|
Latin America
|
||||
|
Millions of
euros
|
UK
|
Germany
|
Brazil
|
Other
|
Total
|
|
Fair value of plan assets at
12/31/07
|
970
|
44
|
89
|
65
|
1,168
|
|
Translation
differences
|
(189)
|
-
|
(24)
|
(63)
|
(276)
|
|
Expected
return on plan assets
|
67
|
2
|
9
|
-
|
78
|
|
Actuarial
losses and gains
|
(327)
|
(1)
|
5
|
-
|
(323)
|
|
Company
contributions
|
81
|
6
|
2
|
1
|
90
|
|
Employee
contributions
|
1
|
-
|
-
|
-
|
1
|
|
Benefits
paid
|
(24)
|
-
|
(3)
|
(3)
|
(30)
|
|
Fair value of plan assets at
12/31/08
|
579
|
51
|
78
|
-
|
708
|
|
Translation
differences
|
42
|
-
|
29
|
(3)
|
68
|
|
Expected
return on plan assets
|
43
|
2
|
7
|
3
|
55
|
|
Actuarial
losses and gains
|
59
|
(2)
|
5
|
-
|
62
|
|
Company
contributions
|
36
|
7
|
2
|
-
|
45
|
|
Employee
contributions
|
1
|
-
|
-
|
-
|
1
|
|
Benefits
paid
|
(16)
|
-
|
(5)
|
-
|
(21)
|
|
Fair value of plan assets at
12/31/09
|
744
|
58
|
116
|
-
|
918
|
The
amounts of actuarial gains and losses of these plans recognized directly in
equity in accordance with the asset ceilings of these plans in 2009, 2008 and
2007, before the related tax effect, are as follows:
|
Millions of
euros
|
2009
|
2008
|
2007
|
|
Spain
|
1
|
(61)
|
25
|
|
Europe
|
(184)
|
(85)
|
36
|
|
Latin
America
|
(6)
|
(36)
|
(7)
|
|
Total
|
(189)
|
(182)
|
54
|
The
Group’s principal defined-benefit plans are:
a) Plans in Spain:
|
a.
|
ITP:
Telefónica Spain reached an agreement with its employees whereby it
recognized supplementary pension payments for employees who had retired as
of June 30, 1992, equal to the difference between the pension payable by
the social security system and that which would be paid to them by ITP
(Institución Telefónica de Previsión). Once the aforementioned
supplementary pension payments had been quantified, they became fixed,
lifelong and non-updateable and sixty percent (60%) of the payments are
transferable to the surviving spouse, recognized as such as of June 30,
1992, and to underage children.
|
The
amount for this provision totaled 451 million euros at December 31, 2009 (485
million euros at December 31, 2008).
|
b.
|
Survival:
Survivors of serving employees who did not join the defined pension plan
are still entitled to receive survivorship benefits at the age of
65.
|
The
amount for this provision totaled 191 million euros at December 31, 2009 (188
million euros at December 31, 2008).
These
plans do not have associated assets which qualify as “plan assets” under IAS
19.
The main
actuarial assumptions used in valuing these plans are as follows:
|
Survival
|
ITP
|
|||
|
12/31/09
|
12/31/08
|
12/31/09
|
12/31/08
|
|
|
Discount
rate
|
0.382%-3.903%
|
2.596%-3.900%
|
0.382%-3.903%
|
2.596%-3.900%
|
|
Expected
rate of salary increase
|
2.50%
|
2.50%
|
-
|
-
|
|
Mortality
tables
|
PERM/F-2000C
Combined
with OM77
|
PERM/F-2000C
Combined
with OM77
|
92%
PERM 2000C/100% PERF 2000 C
|
PERM/F
2000 C
|
b)
Plans in the rest of Europe:
The
various O2 Group companies consolidated within the Telefónica Group have
defined-benefit post-employment plans, covered by qualifying
assets.
The
number of beneficiaries of these plans at December 31, 2009 and 2008 is as
follows:
|
Employees
|
2009
|
2008
|
|
UK
|
4,613
|
4,636
|
|
Germany
|
5,594
|
4,964
|
|
Other
|
401
|
393
|
|
Total
|
10,608
|
9,993
|
The main
actuarial assumptions used in valuing these plans are as follows:
|
12/31/09
|
12/31/08
|
|||
|
UK
|
Germany
|
UK
|
Germany
|
|
|
Nominal
rate of salary increase
|
4.6%
|
3.80%
|
4.0%
|
3.25%
-3.80%
|
|
Nominal
rate of pension payment increase
|
3.6%
|
1.0%-4.0%
|
2.8%-3.0%
|
2.0%-4.0%
|
|
Discount
rate
|
5.8%
|
6.1%
|
6.6%
|
6.2%
|
|
Expected
inflation
|
3.6%
|
1.0%-4.0%
|
3.0%
|
2%
|
|
Expected
return on plan assets
|
||||
|
-
Shares
|
8.0%
|
N/A
|
7.4%
|
N/A
|
|
- UK
government bonds
|
4.4%
|
N/A
|
3.6%
|
N/A
|
|
-
Other bonds
|
5.3%
|
N/A
|
6.6%
|
N/A
|
|
-
Rest of assets
|
4.4%
-8.8%
|
4.25%-4.30%
|
3.6%
-7.6%
|
4.25%-4.30%
|
|
Mortality
tables
|
Pa00mcfl0.5
|
Prf.
Klaus Heubeck
(RT
2005 G)
|
Pa00mcfl0.5
|
Heubeck
RT 2005 G
|
c) Plans
in Latin America:
Subsidiary
Telecomunicações de São Paulo, S.A. and its subsidiaries, and group companies of
Brasilcel, N.V. had various pension plan, medical insurance and life insurance
obligations with employees.
The main
actuarial assumptions used in valuing these plans are as follows:
|
12/31/09
|
12/31/08
|
|
|
Discount
rate
|
9.8%
|
10.14%
|
|
Nominal
rate of salary increase
|
6.14%
- 6.79%
|
6.44%
- 7.10%
|
|
Expected
inflation
|
4.6%
|
4.90%
|
|
Cost
of health insurance
|
7.74%
|
8.04%
|
|
Expected
return on plan assets
|
9.83%
- 14.94%
|
10.88%
- 11.15%
|
|
Mortality
tables
|
AT
83
|
AT
83
|
The
valuations used to determine the value of obligations and plan assets, where
appropriate, were performed as of December 31, 2009 by external and internal
actuaries. The projected unit credit method was used in all cases.
c) Other
benefits
This
heading mainly includes the amount recorded by Telefónica Spain related to the
amount accrued of long-service bonuses to be awarded to employees after 25
years’ service.
Other
provisions
The
movement in “Other provisions” in 2009 and 2008 is as follows:
|
Millions of
euros
|
|
|
Other provisions at December 31,
2007
|
1,866
|
|
Additions
|
448
|
|
Retirements/amount
applied
|
(518)
|
|
Transfers
|
(5)
|
|
Inclusion
of companies
|
64
|
|
Translation
differences
|
(121)
|
|
Other provisions at December 31,
2008
|
1,734
|
|
Additions
|
381
|
|
Retirements/amount
applied
|
(571)
|
|
Transfers
|
(29)
|
|
Translation
differences
|
180
|
|
Other provisions at December 31,
2009
|
1,695
|
“Other
provisions” includes the amount recorded in 2007 in relation to the 171 million
euro fine imposed on Telefónica de España, S.A.U. by the EC anti-trust
authorities.
Also
included are the provisions for dismantling of assets recognized by Group
companies in the amount of 270 million euros (200 million euros in
2008).
Finally,
“Other Provisions” in 2009 and 2008 also includes the provisions recorded (or
used) by the Group companies to cover the risks inherent in the realization of
certain assets, the contingencies arising from their respective business
activities and the risks arising from commitments and litigation acquired in
other transactions, recognized as indicated in Note 3.l.
Given the
nature of the risks covered by these provisions, it is not possible to determine
a reliable schedule of potential payments, if any.
|
(16)
|
DERIVATIVE FINANCIAL INSTRUMENTS
AND RISK MANAGEMENT
POLICIES
|
Telefónica
is exposed to various financial market risks as a result of: (i) its ordinary
business activity, (ii) debt incurred to finance its business, (iii) its
investments in companies, and (iv) other financial instruments related to the
above commitments.
The main
market risks affecting Telefónica are as follows:
|
|
1.
|
Exchange
rate risk
|
Exchange
rate risk arises primarily from (i) Telefónica’s international presence, through
its investments and businesses in countries that use currencies other than the
euro (primarily in Latin America, but also in the United Kingdom and the Czech
Republic), and (ii) debt denominated in currencies other than that of the
country where the business is conducted or the home country of the company
incurring such debt.
|
|
2.
|
Interest
rate risk
|
Interest
rate risk arises primarily from changes in interest rates affecting (i)
financial expenses on floating rate debt (or short-term debt likely to be
renewed), due to changes in interest rates and (ii) the value of long-term
liabilities at fixed interest rates.
|
|
3.
|
Share
price risk
|
Share
price risk arises primarily from changes in the value of our equity investments
that may be bought, sold or otherwise involved in transactions, from changes in
the value of derivatives associated with such investments, from changes in the
value of our treasury shares and from equity derivatives.
Telefónica
is also exposed to liquidity risk if a mismatch arises between its financing
needs (including operating and financial expense, investment, debt redemptions
and dividend commitments) and its sources of finance (including revenues,
divestments, credit lines from financial institutions and capital market
transactions). The cost of finance could also be affected by movements in the
credit spreads (over benchmark rates) demanded by lenders.
Finally,
Telefónica is exposed to “country risk” (which overlaps with market and
liquidity risks). This refers to the possible decline in the value of assets,
cash flows generated or cash flows returned to the parent company as a result of
political, economic or social instability in the countries where Telefónica
operates, especially in Latin America.
Telefónica
actively manages these risks through the use of derivatives (primarily on
exchange rates, interest rates and share prices) and by incurring debt in local
currencies, where appropriate, with a view to stabilizing cash flows, the income
statement and partially, albeit to a lesser extent, investments. In this way,
Telefónica attempts to protect its solvency, facilitate financial planning and
take advantage of investment opportunities.
Telefónica
manages its exchange rate risk and interest rate risk in terms of net debt and
net financial debt as calculated by them. Telefónica believes that these
parameters are more appropriate to understanding its debt position. Net debt and
net financial debt take into account the impact of our cash balance and cash
equivalents including derivatives positions with a positive value linked to
liabilities. Neither net debt nor net financial debt as calculated by Telefónica
should be considered an alternative to gross financial debt (the sum of current
and non-current interest-bearing debt) as a measure of our liquidity. For a more
detailed description on reconciliation of net debt and net financial debt to
gross financial debt (see Note 2).
Exchange rate risk
The
fundamental objective of our exchange rate risk management policy is that, in
event of depreciation in foreign currencies relative to the euro, any potential
losses in the value of the cash flows generated by our businesses in such
currencies, caused by depreciation in exchange rates of a foreign currency
relative to the euro, are offset (to some extent) by savings from the reduction
in the euro value of our debt denominated in such currencies. The degree of
exchange rate hedging we employ varies depending on the type of
investment.
At
December 31, 2009, net debt in Latin American currencies was equivalent to
approximately 5,622 million euros. However, the composition of this net debt in
the various Latin American currencies is not proportional to the cash flows
generated at any given moment. The future effectiveness of the strategy
described above as a hedge of exchange rate risks therefore depends on which
currencies depreciate relative to euro.
Telefónica
aims to protect itself against declines in Latin American currencies relative to
the euro affecting our asset values through the use of dollar-denominated debt,
incurred either in Spain (where such debt is associated with an investment as
long as it is considered to be an effective hedge) or in the country itself,
where the market for local currency financing or hedges may be inadequate or
non-existent. At December 31, 2009, Telefónica net debt denominated in dollars
was equivalent to 1,744 million euros, of which 981 million euros was related to
assets in Latin America and the remaining 763 million euros was related to its
investment in China Unicom.
At
December 31, 2009, pound sterling-denominated net debt was approximately 2.3
times the value of our 2009 operating income excluding the impact of the
depreciation and amortization cost from the Telefónica Europe business unit
in the United Kingdom. Telefónica’s aim is to maintain this same proportion of
pound sterling-denominated net debt to operating income excluding the impact of
the depreciation and amortization cost as the Telefónica net debt to
operating income excluding the impact of the depreciation and amortization
cost ratio, on a consolidated basis, in order to help them to reduce its
sensitivity to changes in the pound sterling to euro exchange rate. Pound
sterling-denominated net debt at December 31, 2009, was equivalent to 3,799
million euros, less than the 3,855 million euros at December 31,
2008.
To
protect our investment in the Czech Republic, Telefónica has net debt
denominated in Czech crowns, which at December 31, 2009 was equivalent to 2,513
million euros, almost 59% of the original cost of the investment and less than
2.3 times the operating income excluding the impact of the depreciation and
amortization cost of Telefónica Europe’s business in the Czech Republic,
down from approximately 3,034 million euros at December 31, 2008.
We also
manage exchange rate risk by seeking to minimize the negative impact of any
remaining exchange rate exposure on the income statement, regardless of whether
we have open positions. Such open position exposure can arise for any of three
reasons: (i) a thin market for local derivatives or difficulty in sourcing local
currency finance which makes it impossible to arrange a low-cost hedge (as in
Argentina and Venezuela), (ii) financing through intra-group loans, where the
accounting treatment of exchange rate risk is different from that for financing
through capital contributions, and (iii) as the result of a deliberate policy
decision, to avoid the high cost of hedges that are not warranted by
expectations or high risk of depreciation.
In 2009,
exchange rate management resulted in negative exchange rate differences totaling
209 million euros, compared to 24 million euros in positive differences in
2008.
To
illustrate the sensitivity of exchange gains or losses to variability in
exchange rates, assuming the exchange rate position affecting the income
statement at the end of 2009 were constant during 2010 and Latin American
currencies depreciated against the dollar and the rest of the currencies against
the euro by 10%, Telefónica estimates that exchange gains or losses
recorded
for 2010 would be 46 million euros less. Nonetheless, Telefónica manages its
exposure on a dynamic basis to mitigate their impact.
Interest rate risk
Telefónica
financial expenses are exposed to changes in interest rates. In 2009, the rates
applied to the largest amount of our short-term debt were mainly based on the
Euribor, the Czech crown Pribor, the Brazilian SELIC, the dollar Libor and the
Colombian UVR. In nominal terms, at December 31, 2009, 52.6% of Telefónica’s net
debt (or 50% of long-term net debt) was at rates fixed for more than one year,
compared to 43.8% of net debt (46.3% of long-term net debt) in 2008. Of the
remaining 47.4% (net debt at floating or fixed rates maturing in less than one
year), the interest rate on 24 percentage points was set for a period of more
than one year (10.7% of long-term net debt), compared to 28 percentage points on
debt at floating or fixed rates maturing in less than one year (17% of long-term
debt) at December 31, 2008. This decrease in 2009 from 2008 is due to the
cancellation and maturity (without renewal) of an amount equivalent to 2,234
million euros of caps and floors euros, US dollars and pounds sterling in
anticipation of a fall in interest rates.
In
addition, early retirement liabilities were discounted to present value over the
year, using the curve on the swap rate markets. The decrease in interest rates
has increased the market value of these liabilities. However, this increase was
nearly completely offset by the increase in the value of the hedges on these
positions.
Net
financial expenses rose 18.2% to 3,307 million euros in 2009 from 2,797 million
euros de 2008, mainly due to the impact of Venezuela. Stripping out
exchange-rate effects, net financial expense for 2009 totaled 2,767 million
euros, a 1.9% decrease from the 2,821 million euros recorded in
2008.
To
illustrate the sensitivity of net financial expense to variability in short-term
interest rates, assuming a 100 basis point increase in interest rates in all
currencies in which there are financial positions and no change in the currency
make-up and balance of the position at year end, we estimate that net financial
expense at December 31, 2009 would have been 124 million euros
higher.
Share price risk
Telefónica
is exposed to changes in the value of our equity investments that may be bought,
sold or otherwise involved in transactions, from changes in the value of
derivatives associated with such investments, from treasury shares and from
equity derivatives.
As part
of the shareholder remuneration policy, in 2008, Telefónica announced plans to
buy back up to 150 million of our shares. This buyback plan was finished on
March 31, 2009.
According
to the Telefónica, S.A. share option plan, Performance Share Plan (PSP)
-(see Note 20)- the shares delivered under such plan may be either the parent
company treasury shares, acquired by them or any of its Group companies; or
newly-issued shares. The possibility of delivering shares to employees in the
future, in accordance with relative total shareholders’ return, implies a risk
since there could be an obligation to hand over a maximum number of shares at
the end of each cycle, whose acquisition (in the event of acquisition in the
market) in the future could imply a higher cash outflow than required on the
start date of each cycle if the share price is above the corresponding price on
the phase start date. In the event that new shares are issued for delivery to
the beneficiaries of the plan, there would be a dilutive effect for our ordinary
shareholder as a result of the higher number of shares delivered under such plan
outstanding.
To reduce
the risk to us associated with variations in share price under this plan,
Telefónica has acquired derivatives that replicate the risk profile of some of
the shares derivable under the plan as explained in Note 20.
In
addition, part of the 6,329,530 treasury shares of the parent company held at
December 31, 2009 may be used to cover shares deliverable under the PSP. The net
asset value of the treasury shares could increase or decrease depending on
variations in Telefónica, S.A.’s share price.
Additionally,
at the Ordinary General Shareholders’ Meeting of 2009, an incentive plan for
Group employees to purchase Telefónica shares was approved. The cost of this
plan will not exceed 60 million euros. The plan is expected to be implemented
during the first half of 2010. Telefónica will assess if will have to take any
action in order to reduce any risk related to the future delivery of
shares.
Liquidity risk
Telefónica
seeks to match the schedule for its debt maturity payments to its capacity to
generate cash flows to meet these maturities, while allowing for some
flexibility. In practice, this has been translated into two key
principles:
|
|
1.
|
The
average maturity of our net financial debt is intended to stay above 6
years, or be restored above that threshold in a reasonable period of time
if it eventually falls below it. This principle is considered as a
guideline when managing debt and access to credit markets, but not a rigid
requirement. When calculating the average maturity for the net financial
debt and part of the undrawn credit lines can be considered as offsetting
the shorter debt maturities, and extension options on some financing
facilities may be considered as exercised, for calculation
purposes.
|
|
|
2.
|
Telefónica
must be able to pay all commitments over the next 12 months without
accessing new borrowing or accessing the capital markets (although
including firm credit lines arranged with banks), assuming budget
projections are met.
|
As of
December 31, 2009, the average maturity of 43,551 million euros of net financial
debt was 6.55 years. Telefónica would need to generate approximately 6,649
million euros per year to repay the debt in this period if we used all our cash
for this purpose.
At
December 31, 2009, gross financial debt scheduled maturities in 2010 amounted to
approximately 8,647 million euros (including the net position of derivative
financial instruments), which is lower than the amount of funds available,
calculated as the sum of: (i) current financial assets and cash at December 31,
2009 (10,482 million euros excluding derivative financial instruments), (ii)
annual cash generation projected for 2010; and (iii) undrawn credit facilities
arranged with banks whose original maturity is over one year (an aggregate of
more than 4,480 million euros at December 31, 2009). This gives us flexibility
with regard to accessing capital or credit markets in the next 12 months. For a
further description of our liquidity and capital resources, see Note 13.2
Financial Liabilities and Appendix III.
Country risk
Telefónica
managed or mitigated country risk by pursuing two lines of action (in addition
to its normal business practices):
|
|
1.
|
Partly
matching assets to liabilities (those not guaranteed by the parent
company) in its Latin American companies such that any potential asset
impairment would be accompanied by a reduction in liabilities;
and,
|
|
|
2.
|
Repatriating
funds generated in Latin America that are not required for the pursuit of
new, profitable business development opportunities in the
region.
|
Regarding
the first point, at December 31, 2009, its Latin American companies had net
financial debt not guaranteed by the parent company of 4,044 million euros,
which represents 9.29% of our consolidated net financial debt.
Regarding
the repatriation of funds to Spain, it has received 1,790 million euros from our
Latin America companies in 2009, of which 766 million euros was from dividends
and 1,024 million
euros
from intra-group loans (payments of interest and repayments of principal) and
capital reductions. These amounts were equally offset by additional amounts
invested in its Latin American companies, mainly in Peru (27 million euros), in
Argentina (2 million euros) and in Colombia (1 million euros). As a result of
the foregoing, net funds repatriated to Spain from our Latin America companies
amounted to the equivalent of 1,760 million euros as of December 31,
2009.
In this
regard, it is worth noting that since February 2003, Venezuela has had an
exchange control mechanism in place, managed as indicated above by the Currency
Administration Commission (CADIVI). The body has issued a number of regulations
(“providencias”)
governing the modalities of currency sales in Venezuela at official exchange
rates. Foreign companies which are duly registered as foreign investors are
entitled to request approval to acquire currencies at the official exchange rate
by the CADIVI, in line with regulation number 029, article 2, section c)
"Remittance of earnings, profits, income, interest and dividends from
international investment." Telcel, its subsidiary in Venezuela, obtained the
aforementioned requested approval on Venezuelan Bolivar fuerte 295 million in
2006, Venezuelan Bolivar fuerte 473 million in 2007 and Venezuelan Bolivar
fuerte 785 million in 2008. At December 31, 2009, payment of a dividend in the
amount of Venezuelan Bolivar fuerte 1,152 million is pending
approval.
Credit risk
Telefónica
is exposed to credit risk through its trading in derivatives with counterparties
of high creditworthiness and senior debt ratings of at least “A”. In Spain,
where it holds most of Telefónica’s derivatives portfolio, it has netting
agreements with financial institutions, with debtor or creditor positions offset
in case of bankruptcy, limiting the risk to the net position. For other
subsidiaries, particularly those in Latin America, given the stable sovereign
rating provides a ceiling and is below “A,” trades are with local financial
entities whose rating by local standards is considered to be of high
creditworthiness.
Meanwhile,
with credit risk arising from cash and cash equivalents, Telefónica places its
cash surpluses in high quality and highly liquid money-market assets. These
placements are regulated by a general framework, revised annually based on the
conditions of the market and countries where Telefónica operates. The general
framework sets: (i) the maximum amounts to be invested by counterparty based on
its rating (long-term debt rating); (ii) the maximum tenor of the investment;
and (iii) the instruments in which the surpluses may be invested. For the parent
company, which places the bulk of Telefónica surpluses, the maximum placement in
2009 was 180 days and the creditworthiness of the counterparties used, measured
by their debt ratings, remained above A- and/or A3 by Standard & Poor’s and
Moody’s, respectively.
These
placements are regulated by a general framework, authorization procedures and
homogeneous management practices within Telefónica, based on particular
conditions and best international practices observed in the telecom sector, and
incorporating this commercial credit risk management approach to Telefónica’s
decision policy both from a strategic and operating (in the ordinary course of
business) perspective.
Telefónica
also considers managing commercial credit risk as crucial to meeting its
business and customer base growth targets in a manner that is consistent with
Telefónica’s risk-management policy.
Therefore,
Telefónica’s commercial credit risk-management approach is based on continuous
monitoring of the risk assumed and the resources necessary to manage its various
units, in order to optimize the risk-reward relationship in its operations and
the assessment, particularly, those clients that could cause a material impact
on Telefónica’s financial condition.
Telefónica’s
maximum exposure to credit risk is initially represented by the carrying amounts
of the assets (see Notes 11 and 13) and the guarantees given by
Telefónica.
Capital management
Telefónica’s
corporate finance department, which is in charge of Telefónica’s capital
management, takes into consideration several factors when determining
Telefónica’s capital structure, with the aim of ensuring sustainability of the
business and maximizing the value to shareholders.
Telefónica
monitors its cost of capital with a goal of optimizing its capital structure. In
order to do this, Telefónica monitors the financial markets and updates to
standard industry approaches for calculating weighted average cost of capital,
or WACC “weighted average cost of capital”. Telefónica also uses a gearing ratio
that enables it to obtain and maintain the desired credit rating over the medium
term, and with which Telefónica can match its potential cash flow generation and
the alternative uses of this cash flow at all times.
These
general principles are refined by other considerations and the application of
specific variables, such as country risk in the broadest sense, tax efficiency
and volatility in cash flow generation, when determining our financial
structure.
Derivatives policy
At
December 31, 2009, the nominal value of outstanding derivatives with external
counterparties amounted to 131,614 million equivalent, a 7.3% decrease from
December 31, 2008 (141,984 million euros equivalent). This figure is inflated by
the use in some cases of several levels of derivatives applied to the nominal
value of a single underlying liability. For example, a foreign currency loan can
be hedged into floating rate, and then each interest rate period can be fixed
using a fixed rate hedge, or FRA (forward rate agreement). Even using such
techniques to reduce the position, it is still necessary to take extreme care in
the use of derivatives to avoid potential problems arising through error or a
failure to understand the real position and its associated risks.
Telefónica’s
derivatives policy emphasizes the following points:
|
|
1)
|
Derivatives
based on a clearly identified
underlying.
|
Acceptable
underlyings include profits, revenues and cash flows in either a company’s
functional currency or another currency. These flows can be contractual (debt
and interest payments, settlement of foreign currency payables, etc.),
reasonably certain or foreseeable (investment program, future debt issues,
commercial paper programs, etc.). The acceptability of an underlying asset in
the above cases does not depend on whether it complies with accounting rules
requirements for hedge accounting, as is required in the case of certain
intra-group transactions, for instance. Parent company investments in
subsidiaries with functional currencies other than the euro also qualify as
acceptable underlying assets.
Economic
hedges, which are hedges with a designated underlying asset and which in certain
circumstances offset fluctuations in the underlying asset value, do not always
meet the requirements and effectiveness tests laid down by accounting standards
for treatment as hedges. The decision to maintain positions that cease to
qualify as effective or fail to meet other requirements will depend on the
marginal impact on the income statement and how far this might compromise the
goal of a stable income statement. In any event, the variations are recognized
in the income statement.
|
|
2)
|
Matching
of the underlying to one side of the
derivative.
|
This
matching basically applies to foreign currency debt and derivatives hedging
foreign currency payments by Telefónica’s subsidiaries. The aim is to eliminate
the risk arising from changes in foreign currency interest rates. Nonetheless,
even when the aim is to achieve perfect hedging for all cash flows, the lack of
liquidity in certain markets, especially in Latin American currencies, has meant
that historically there have been mismatches between the terms of the hedges and
those of the debts they are meant to
hedge.
Telefónica intends to reduce these mismatches, provided that doing so does not
involve disproportionate costs. In this regard, if adjustment does prove too
costly, the financial timing of the underlying asset in foreign currency will be
modified in order to minimize interest rate risk in foreign
currency.
In
certain cases, the timing of the underlying as defined for derivative purposes
may not be exactly the same as the timing of the contractual
underlying.
|
|
3)
|
Matching
the company contracting the derivative and the company that owns the
underlying.
|
Generally,
the aim is to ensure that the hedging derivative and the hedged asset or
liability belong to the same company. Sometimes, however, the holding companies
(Telefónica, S.A. and Telefónica Internacional, S.A.) have arranged hedges on
behalf of a subsidiary that owns the underlying asset. The main reasons for
separating the hedge and the underlying asset were possible differences in the
legal validity of local and international hedges (as a result of unforeseen
legal changes) and the different credit ratings of the counterparties (whether
Telefónica group companies or the banks).
|
|
4)
|
Ability
to measure the derivative’s fair value using the valuation systems
available to us.
|
|
|
Telefónica
uses a number of tools to measure and manage risks in derivatives and
debt. The main ones are Kondor+, licensed by Reuters, which is widely used
by financial institutions, and MBRM specialist financial calculator
libraries.
|
|
|
5)
|
Sale
of options only when there is an underlying
exposure.
|
Telefónica
considers the sale of options when: i) there is an underlying exposure (on the
consolidated statement of financial position or associated with a highly
probable cash outflow) that would offset the potential loss for the year if the
counterparty exercised the option, or ii) the option is part of a structure in
which another derivative offsets any loss. The sale of options is also permitted
in option structures where, at the moment they are taken out, the net premium is
either positive or zero.
For
instance, it would be possible to sell short-term options on interest rate swaps
that entitle the counterparty to receive a certain fixed interest rate, below
the level prevailing at the time the option was sold. This would mean that if
rates fell and the counterparty exercised its option, we would swap part of our
debt from floating rate to a lower fixed rate, having received a
premium.
|
|
6)
|
Hedge
accounting.
|
The main
risks that may qualify for hedge accounting are as follows:
|
|
·
|
Variations
in market interest rates (either money-market rates, credit spreads or
both) that affect the value of the underlying asset or the measurement of
the cash flows;
|
|
|
·
|
Variations
in exchange rates that change the value of the underlying asset in the
company’s functional currency and affect the measurement of the cash flow
in the functional currency;
|
|
|
·
|
Variations
in the volatility of any financial variable, asset or liability that
affect either the valuation or the measurement of cash flows on debt or
investments with embedded options, whether or not these options are
separable; and
|
|
|
·
|
Variations
in the valuation of any financial asset, particularly shares of companies
included in the portfolio of “Available-for-sale financial
assets”.
|
Regarding
the underlying:
|
|
·
|
Hedges
can cover all or part of the value of the
underlying;
|
|
|
·
|
The
risk to be hedged can be for the whole period of the transaction or for
only part of the period; and
|
|
|
·
|
The
underlying may be a highly probable future transaction, or a contractual
underlying (loan, foreign currency payment, investment, financial asset,
etc.) or a combination of both that defines an underlying with a longer
term.
|
This may
on occasion mean that the hedging instruments have longer terms than the related
contractual underlying. This happens when we enter into long-term swaps, caps or
collars to protect ourselves against interest rate rises that may raise the
financial expense of our promissory notes, commercial paper and some floating
rate loans which mature earlier than their hedges. These floating rate financing
programs are highly likely to be renewed and Telefónica commits to this by
defining the underlying asset in a more general way as a floating rate financing
program whose term coincides with the maturity of the hedge.
Hedges
can be of three types:
|
·
|
Fair
value hedges.
|
|
|
·
|
Cash
flow hedges. Such hedges can be set at any value of the risk to be hedged
(interest rates, exchange rates, etc.) or for a defined range (interest
rates between 2% and 4%, above 4%, etc.). In this last case, the hedging
instrument used is options and only the intrinsic value of the option is
recognized as an effective hedge. Changes in the time value of
options are recognized in the income statement. To prevent excessive
swings in the income statement from changes in time value, the hedging
ratio (amount of options for hedging relative to the amount of options not
treated as hedges) is assigned dynamically, as permitted by the
standard.
|
|
|
·
|
Hedges
of net investment in consolidated foreign subsidiaries. Generally such
hedges are arranged by the parent company and the other Telefónica’s
holding companies. Wherever possible, these hedges are implemented through
real debt in foreign currency. Often, however, this is not always possible
as many Latin American currencies are non-convertible, making it
impossible for non-resident companies to issue local currency debt. It may also be that the
debt market in the currency concerned is too thin to accommodate the
required hedge (for example, the Czech crown and pounds sterling), or that
an acquisition is made in cash with no need for market finance. In these circumstances
derivatives, either forwards or cross-currency swaps are used to hedge the
net investment.
|
Hedges
can comprise a combination of different derivatives.
Management
of accounting hedges is not static, and the hedging relationship may change
before maturity. Hedging relationships may change to allow appropriate
management that serves our stated principles of stabilizing cash flows,
stabilizing net financial income/expense and protecting our share capital. The
designation of hedges may therefore be cancelled, before maturity, because of a
change in the underlying, a change in perceived risk on the underlying or a
change in market view.
Derivatives included in these hedges may be reassigned to new hedges where they
meet the effectiveness test and the new hedge is well documented. To gauge the efficiency of
transactions defined as accounting hedges, we analyze the extent to which the
changes in the fair value or in the cash flows attributable to the hedged item
would offset the changes in fair value or cash flows attributable to the hedged
risk using a linear regression model.
The main
guiding principles for risk management are laid down by Telefónica’s Finance
Department and implemented by company chief financial officer (who is
responsible for balancing the interests of each company and those of Telefónica
as a whole). The Corporate
Finance Department may allow exceptions to this policy where these can be
justified, normally when the market is too thin for the volume of transactions
required or on clearly limited and small risks. New companies joining us as a
result of mergers or acquisitions may also need time to adapt.
The
breakdown of the financial results recognized in 2009, 2008 and 2007 is as
follows:
|
(Millions of
euros)
|
2009
|
2008
|
2007
|
|
Interest
income
|
528
|
589
|
524
|
|
Dividends
received
|
45
|
67
|
72
|
|
Other
financial income
|
151
|
217
|
107
|
|
Interest
expenses
|
(3,036)
|
(3,333)
|
(3,175)
|
|
Ineffective
portion of cash flow hedges
|
(17)
|
(71)
|
(43)
|
|
Accretion
of provisions and other liabilities
|
(254)
|
(453)
|
(200)
|
|
Changes
in fair value of financial assets at fair value through profit or
loss
|
124
|
341
|
25
|
|
Changes
in fair value of financial liabilities at fair value through profit or
loss
|
(132)
|
(115)
|
(4)
|
|
Transfer
from equity to profit and loss from cash flow hedges
|
77
|
(50)
|
(17)
|
|
Transfer
from equity to profit and loss from available-for-sale
assets
|
4
|
(2)
|
(107)
|
|
(Gain)/loss
on fair value hedges
|
(427)
|
912
|
75
|
|
Loss/(gain)
on adjustment to items hedged by fair value hedges
|
439
|
(883)
|
(102)
|
|
Other
expenses
|
(269)
|
(40)
|
(6)
|
|
Net finance costs excluding
foreign exchange differences
|
(2,767)
|
(2,821)
|
(2,851)
|
The
breakdown of Telefónica’s derivatives at December 31, 2009, their fair value at
year-end and the expected maturity schedule is as set forth in the table
below:
|
Millions of
euros
|
Fair value: at 12/31/09
(**)
|
Maturity (notional amount)
(*)
|
||||
|
Derivatives
|
2010
|
2011
|
2012
|
Subsequent
years
|
Total
|
|
|
Interest rate
hedges
|
(282)
|
3,044
|
(103)
|
163
|
(2,520)
|
584
|
|
Cash
flow hedges
|
147
|
1,769
|
1,143
|
659
|
3,024
|
6,595
|
|
Fair
value hedges
|
(429)
|
1,275
|
(1,246)
|
(496)
|
(5,544)
|
(6,011)
|
|
Exchange rate
hedges
|
1,055
|
1,792
|
788
|
112
|
4,900
|
7,592
|
|
Cash
flow hedges
|
1,055
|
1,797
|
788
|
112
|
4,900
|
7,597
|
|
Fair
value hedges
|
-
|
(5)
|
-
|
-
|
-
|
(5)
|
|
Interest and exchange rate
hedges
|
157
|
14
|
(419)
|
(314)
|
(281)
|
(1,000)
|
|
Cash
flow hedges
|
152
|
51
|
(426)
|
(171)
|
(360)
|
(906)
|
|
Fair
value hedges
|
5
|
(37)
|
7
|
(143)
|
79
|
(94)
|
|
Hedge of net investment in foreign
operations
|
(276)
|
(2,555)
|
(958)
|
(113)
|
(868)
|
(4,494)
|
|
Derivatives not designated as
hedges
|
(612)
|
6,110
|
341
|
388
|
(744)
|
6,095
|
|
Interest
rate
|
(299)
|
5,532
|
413
|
483
|
(1,770)
|
4,658
|
|
Exchange
rate
|
(270)
|
738
|
(9)
|
(28)
|
1,026
|
1,727
|
|
Interest
and exchange rate
|
(43)
|
(160)
|
(63)
|
(67)
|
-
|
(290)
|
The
Company also has debt assigned to the investment of 944 million dollars, 2,643
million pound sterling and 302 million Czech crowns (data in equivalent
euros).
The
breakdown of Telefónica’s derivatives at December 31, 2008, their fair value at
year-end and the expected maturity schedule is as set forth in the table
below:
|
Millions of
euros
|
Fair value: at 12/31/08
(**)
|
Maturity (notional amount)
(*)
|
||||
|
Derivatives
|
2009
|
2010
|
2011
|
Subsequent
years
|
Total
|
|
|
Interest rate
hedges
|
(612)
|
2,031
|
1,747
|
520
|
72
|
4,370
|
|
Cash
flow hedges
|
183
|
2,028
|
493
|
1,749
|
3,505
|
7,775
|
|
Fair
value hedges
|
(795)
|
3
|
1,254
|
(1,229)
|
(3,433)
|
(3,405)
|
|
Exchange rate
hedges
|
519
|
985
|
2,382
|
793
|
3,717
|
7,877
|
|
Cash
flow hedges
|
519
|
985
|
2,382
|
793
|
3,717
|
7,877
|
|
Fair
value hedges
|
0
|
0
|
0
|
0
|
0
|
0
|
|
Interest and exchange rate
hedges
|
(173)
|
12
|
458
|
18
|
399
|
887
|
|
Cash
flow hedges
|
(71)
|
18
|
232
|
4
|
288
|
542
|
|
Fair
value hedges
|
(102)
|
(6)
|
226
|
14
|
111
|
345
|
|
Hedge of net investment in foreign
operations
|
(546)
|
(2, 830)
|
(517)
|
(1,125)
|
(751)
|
(5,223)
|
|
Derivatives not designated as
hedges
|
(868)
|
7,328
|
(627)
|
(578)
|
(164)
|
5,959
|
|
Interest
rate
|
(271)
|
8,587
|
(303)
|
(609)
|
(1,100)
|
6,575
|
|
Exchange
rate
|
(395)
|
(839)
|
(137)
|
96
|
1,026
|
146
|
|
Interest
and exchange rate
|
(202)
|
(420)
|
(187)
|
(65)
|
(90)
|
(762)
|
(*) For
interest rate hedges, the positive amount is in terms of fixed
“payment.”
For
exchange rate hedges, a positive amount means payment in functional vs. foreign
currency.
(**)
Positive amounts indicate payables.
A list of
derivative products entered into at December 31, 2009 and 2008 is provided in
Appendix III.
|
17)
|
INCOME TAX
MATTERS
|
Consolidated tax
group
Pursuant
to a Ministerial Order dated December 27, 1989, since 1990 Telefónica, S.A. has
filed consolidated tax returns for certain Group companies. The consolidated tax
group comprised 40 companies in 2009 (39 in 2008).
Modification of tax
rates
In 2009
and 2008, the impact of changes in the tax rates applicable to the income
statements of the main Telefónica Group companies was not material.
Deferred tax
The
movements in deferred taxes in 2009 and 2008 are as follows:
|
Millions of
euros
|
||
|
Deferred tax
assets
|
Deferred tax
liabilities
|
|
|
Balance at December 31,
2008
|
6,980
|
3,576
|
|
Increases
|
771
|
188
|
|
Decreases
|
(811)
|
(955)
|
|
Transfers
|
(864)
|
(51)
|
|
Net
international movements
|
(106)
|
324
|
|
Company
movements and others
|
1
|
-
|
|
Balance at December 31,
2009
|
5,971
|
3,082
|
|
Millions of
euros
|
||
|
Deferred tax
assets
|
Deferred tax
liabilities
|
|
|
Balance at December 31,
2007
|
7,829
|
3,926
|
|
Increases
|
1,308
|
571
|
|
Decreases
|
(1,979)
|
(526)
|
|
Transfers
|
(39)
|
(43)
|
|
Net
international movements
|
(159)
|
(352)
|
|
Company
movements and others
|
20
|
-
|
|
Balance at December 31,
2008
|
6,980
|
3,576
|
Tax credits for loss
carryforwards
The tax
loss carryforwards in Spain at December 31, 2009 at the main Group companies
amounted to 3,968 million euros (3,643 million euros for companies belonging to
the tax group).
The
statement of financial position at December 31, 2009 includes a 500 million euro
deferred tax asset corresponding to 1,666 million euros of tax loss
carryforwards in Spain.
The 2002
tax return included a negative adjustment for 2,137 million euros from
Telefónica Móviles, S.A. (now Telefónica, S.A.) arising through the transfer of
certain holdings of Group companies acquired in previous years, which was
questioned by the Spanish tax authorities. The challenging of this adjustment in
the tax audit has not affected the consolidated financial statements as in
accordance with past rulings by the tax authorities, which differed from the
interpretation put forward by the Company, the Company decided then not to
capitalize it.
In
relation to the sale by Terra Networks, S.A. (now Telefónica, S.A.) of its stake
in Lycos Inc. in 2004, the Company has begun procedures to recognize a higher
tax loss of up to 7,418 million euros because of measuring as acquisition value
for tax purposes, the market value of Lycos Inc. shares received, rather than
their carrying amount, in conformity with Article 159 of the Spanish Corporation
Law. No effect on the consolidated financial statements has been considered
until the Company receives a definitive ruling on this procedure.
The O2 Germany group has tax credits and
deductible temporary differences incurred in prior years amounting to 8,517
million euros, of which 426 million euros have been recognized as deferred tax
assets in line with the prospects of generating future taxable earnings. These
losses were generated by O2 Germany and the rest of the Germany subsidiaries of the Telefónica Group
prior to the acquisition of the O2 Group. These tax credits do not
expire.
Unused
tax credits recognized in the consolidated statement of financial position at
the Latin American subsidiaries at December 31, 2009 amounted to 461 million
euros.
Deductions
In the
consolidated statement of financial position at December 31, 2009, the Group had
recognized 252 million euros of unused tax credits, mainly export activity tax
credits.
Temporary
differences
Temporary
differences are generated as a result of the difference between tax bases of the
assets and liabilities and their respective carrying amounts. Deductible
temporary differences, tax deductions and credits and tax loss carryforwards
give rise to deferred tax assets on the consolidated statement of financial
position, whereas taxable temporary differences in tax bases give rise to
deferred tax liabilities. The sources of deferred tax assets and liabilities
from temporary differences recognized at December 31, 2009 and 2008 are as
follows:
|
Millions of
euros
|
||||
|
|
2009
|
2008
|
||
|
Deferred
tax
|
Deferred
tax
|
Deferred
tax
|
Deferred
tax
|
|
|
assets
|
liabilities
|
assets
|
liabilities
|
|
|
Property,
plant and equipment
|
922
|
395
|
809
|
387
|
|
Intangible
assets
|
225
|
2,084
|
239
|
2,085
|
|
Personnel
commitments
|
1,088
|
3
|
1,325
|
1
|
|
Provisions
|
769
|
30
|
598
|
11
|
|
Investments
in subsidiaries, associates and joint ventures
|
626
|
147
|
1,083
|
256
|
|
Other
|
702
|
423
|
620
|
836
|
|
Total
|
4,332
|
3,082
|
4,674
|
3,576
|
Tax payables and
receivables
Current
tax payables and receivables at December 31, 2009 and 2008 are as
follows:
|
Millions
of euros
|
||
|
Balance
at
|
Balance
at
|
|
|
12/31/09
|
12/31/08
|
|
|
Taxes
payable:
|
||
|
Tax
withholdings
|
118
|
91
|
|
Indirect
taxes
|
897
|
704
|
|
Social
security
|
178
|
187
|
|
Current
income taxes payable
|
872
|
873
|
|
Other
|
701
|
420
|
|
Total
|
2,766
|
2,275
|
|
Millions
of euros
|
||
|
Balance
at
|
Balance
at
|
|
|
12/31/09
|
12/31/08
|
|
|
Tax
receivables:
|
||
|
Indirect
tax
|
662
|
452
|
|
Current
income taxes receivable
|
377
|
365
|
|
Other
|
207
|
153
|
|
Total
|
1,246
|
970
|
Reconciliation of book profit before
taxes to taxable income
The
reconciliation between accounting profit and the income tax expense for 2009,
2008 and 2007 is as follows:
|
Millions of
euros
|
|||
|
2009
|
2008
|
2007
|
|
|
Accounting profit before
tax
|
10,387
|
10,915
|
10,684
|
|
Tax
expense at prevailing statutory rate
|
3,116
|
3,275
|
3,472
|
|
Effect
of statutory rate in other countries
|
(20)
|
(99)
|
458
|
|
Variation
in tax expense from new taxes
|
(15)
|
12
|
(22)
|
|
Permanent
differences
|
(402)
|
243
|
(1,893)
|
|
Changes
in deferred tax charge due to changes in tax rate
|
-
|
-
|
(36)
|
|
Capitalization
of tax deduction and tax relief
|
(143)
|
(175)
|
(200)
|
|
Use
of loss carryforwards
|
(5)
|
(106)
|
(203)
|
|
Decrease
in tax expense arising from temporary differences
|
(82)
|
(2)
|
(8)
|
|
Consolidation
adjustments
|
1
|
(59)
|
(3)
|
|
Income tax
expense
|
2,450
|
3,089
|
1,565
|
|
Breakdown
of current/deferred tax expense
|
|||
|
Current
tax expense
|
3,848
|
3,371
|
2,152
|
|
Deferred
tax benefit
|
(1,398)
|
(282)
|
(587)
|
|
Total income tax
expense
|
2,450
|
3,089
|
1,565
|
Permanent
differences arise mainly from events that produce taxable income not recognized
in the consolidated income statement.
As
described in Note 2.b), in December 2009, the European Commission released its
decision regarding the investigation involving the Kingdom of Spain on the
potential consideration of the deduction for tax amortization of the financial
goodwill arising on certain foreign shareholding acquisitions as government aid
under the provisions of article 12.5 of the revised Spanish Income Tax Law
(“TRLIS”), deeming the deduction to be state aid. This decision does not affect
investments made before December 21, 2007 (see Note 2). As a result of this
decision, income tax in the Telefónica Group’s consolidated income statement for
the year ended December 31, 2009 is 591 million euros lower due to the reversal
of this liability, included in “Permanent differences” for 2009 in the preceding
table.
In 2007,
the Company recognized a tax credit arising from the recognition of a higher tax
loss carryforward amounting to 2,812 million euros generated on the disposal of
the stake in Endemol Investment Holding, B.V. as a difference between the tax
and carrying amount of the Endemol shares at the time of disposal. The positive
impact recognized in “Income tax expense” in the consolidated income statement
for the year amounted to 914 million euros, presented in the preceding table
under “Permanent differences” for 2007. Also included under “Permanent
differences” for 2007 are the accounting gain on this disposal, of 1,368 million
euros, and the accounting gain on the disposal of Airwave for 1,296 million
euros.
On
September 25, 2002, tax inspections commenced at several companies included in
tax group 24/90, of which Telefónica is the parent company. The taxes inspected
were corporate income tax (for the years from 1998 to 2000) and VAT, tax
withholdings and payments relating to personal income tax, tax on investment
income, property tax and nonresident income tax (1998 to 2001).
The tax
assessments related to this review, which included settlement agreements and
imposed fines on Telefónica, were signed by the company in disagreement in
October 2004 and July 2005. The total amount of these assessments was 140 euros.
The final outcome of these assessments is not expected give rise to material
additional liabilities on the Telefónica Group consolidated financial
statements.
In April
2007, Telefónica, S.A. filed an administrative appeal before the National Court
of Justice. The company also requested that the execution of the settlements and
penalties appealed be suspended by providing the appropriate
guarantees.
Telefónica
presented in writing its conclusions on September 1, 2008.
On
February 22, 2010, Telefónica received the notification of the ruling by the
National courts dated February 4, 2010, in which it partially accepted the
Company’s allegations.
Telefónica
is assessing the impacts, both positive and negative, of this ruling, and as it
may appeal for an overturn in the Supreme Court, it does not expect this to give
rise additional material liabilities.
A new tax
inspection commenced in June 2006 and concluded in July 2008. The taxes subject
to review were corporate income tax for the years 2001 to 2004, VAT, tax
withholdings and payments on account in respect of personal income tax, tax on
investment income, property tax and non-resident income tax for the years 2002
to 2004.
In
addition to the above, the Company has proposed additional adjustments to the
tax amounts considered by Telefónica Móviles, S.A.U. in 2002 (of 2,137 million
euros), of approximately 346 million euros. As a result, the inspection resolved
the controversy with a new settlement of said tax, which was not accepted by
Telefónica for the same reasons put forward before the Central Administrative
Economic Court, which on September 10, 2009 ruled against the interests of the
Company.
Telefónica
filed an administrative appeal before the National Court of Justice against this
resolution of September 10, 2009.
The
assessment of this case has not uncovered the need to recognize additional
liabilities in the Telefónica Group’s consolidated financial
statements.
No
material liabilities arose as a result of the inspection of the other items and
financial years reviewed, and the Company has not and will not file any
appeal.
Meanwhile, after the related
inspections, four tax assessments were raised by the State Treasury of Sao Paulo
against Telecomunicações de São Paulo, S.A. -Telesp (“Telesp”) in relation to the
Merchandise Circulation Tax (ICMS) -similar to the VAT levied on
telecommunications services- for different periods between 2001 and 2007. The
aggregate amount of the assessments is approximately 413 million
euros.
After deciding on the actions to take
against the Sao Paolo tax authorities, the Company lost one
of the suits in administrative proceedings and is awaiting a decision in first
instance in the court proceedings, while the other three in the second instance
of administrative proceedings.
The company believes the arguments
presented could reasonably lead to favorable rulings by the pertinent
judicial bodies.
The years open for review by the tax
inspection authorities for the main applicable taxes vary from one consolidated
company to another, based on each country’s tax legislation, taking into account
their respective statute-of-limitations periods. In Spain, as a result of the tax audit completed
in 2008, the main companies of the tax group are open to inspection for all
years from 2005.
In the other countries in which the
Telefónica Group has a significant presence, the years open for inspection by
the relevant authorities are generally as follows:
|
|
·
|
The last five years in
Argentina, Brazil, Mexico, Colombia, Venezuela and the Netherlands.
|
|
|
·
|
The last four years in
Ecuador, Nicaragua and Peru.
|
|
|
·
|
The last three years in
Chile, El Salvador, the US and Panama.
|
|
|
·
|
The last two years in Uruguay.
|
|
|
·
|
In Europe, O2 Group has the last
three years open to inspection in the UK, the last five in Germany and the last two in the
Czech Republic.
|
The tax audit of the open years is not
expected to give rise to additional material liabilities for the
Group.
|
(18)
|
DISCONTINUED
OPERATIONS
|
None of
the Group’s principal operations were discontinued in 2009, 2008 or
2007.
|
(19)
|
REVENUE AND
EXPENSES
|
Revenue from
operations:
The
breakdown of “Revenue from operations” is as follows:
|
Millions of
euros
|
2009
|
2008
|
2007
|
|
Rendering
of services
|
52,498
|
53,751
|
52,436
|
|
Net
sales
|
4,233
|
4,195
|
4,005
|
|
Total
|
56, 731
|
57,946
|
56,441
|
Other income
The
breakdown of “Other income” is as follows:
|
Millions of
euros
|
|||
|
2009
|
2008
|
2007
|
|
|
Ancillary
income
|
584
|
702
|
601
|
|
Own
work capitalized
|
720
|
736
|
708
|
|
Government
grants
|
54
|
59
|
57
|
|
Gain
on disposal of assets
|
287
|
368
|
2,898
|
|
Total
|
1,645
|
1,865
|
4,264
|
“Gain on
disposal of assets” in 2009 includes the gain of 220 million euros obtained on
the sale of Medi Telecom, S.A. In 2008, this heading mainly included the gain of
143 million euros on the sale of the stake in Sogecable, S.A. (see Note 13) and
in 2007, mainly the gains of the holdings in Airwave O2, Ltd. and Endemol
Investment Holding, B.V. for 1,296 million and 1,368 million euros,
respectively.
Also
included are gains on the disposal of properties in line with the Telefónica
Group’s real estate efficiency plan via the selective sale of properties in
Spain and the Czech Republic, which amounted to 47, 104 and 161 million euros in
2009, 2008 and 2007, respectively.
Other expenses
The
breakdown of “Other expenses” in 2009, 2008 and 2007 is as follows:
|
Millions of
euros
|
2009
|
2008
|
2007
|
|
Leases
|
1,068
|
914
|
938
|
|
Advertising
|
1,123
|
1,626
|
2,198
|
|
Other
external services
|
7,729
|
7,539
|
6,854
|
|
Taxes
|
1,203
|
1,147
|
974
|
|
Other
operating expenses
|
203
|
250
|
303
|
|
Changes
in trade provisions
|
874
|
748
|
666
|
|
Losses
on disposal of non-current assets
|
81
|
88
|
148
|
|
Total
|
12,281
|
12,312
|
12,081
|
Estimated schedule
The
estimated payment schedule for the next few years on operating leases and
acquisition commitments is as follows:
|
12/31/09
|
Total
|
Less than 1
year
|
1 to 3
years
|
3 to 5
years
|
Over 5
years
|
|
Operating
leases
|
6,547
|
1,023
|
1,700
|
1,327
|
2,497
|
|
Purchase
and contract commitments
|
3,151
|
1,305
|
769
|
395
|
682
|
The main
finance lease transactions are described in Note 22.
Headcount and employee
benefits
a) Number
of employees
The table
below presents the breakdown of the Telefónica Group’s average number of
employees in 2009, 2008 and 2007, together with total headcount at December 31
each year. The employees shown for each subgroup include the Telefónica Group
companies with similar activities in accordance with segment
reporting.
|
2009
|
2008
|
2007
|
||||
|
Average
|
Year-end
|
Average
|
Year-end
|
Average
|
Year-end
|
|
|
Telefónica
Spain
|
35,318
|
35,338
|
35,708
|
35,562
|
37,688
|
35,792
|
|
Telefónica
Latin America
|
50,709
|
51,606
|
49,990
|
49,849
|
48,844
|
49,946
|
|
Telefónica
Europe
|
28,249
|
27,023
|
28,828
|
28,888
|
29,249
|
29,305
|
|
Subsidiaries
and other companies
|
140,875
|
143,459
|
137,249
|
142,736
|
128,271
|
133,444
|
|
Total
|
255,151
|
257,426
|
251,775
|
257,035
|
244,052
|
248,487
|
The
number of employees shown in the table above corresponds to the consolidated
companies. It is worth highlighting the large number of employees at the various
companies of the Atento Group performing contact center activities, whose
average and year-end headcount for 2009 were 129,885 and 132,256,
respectively.
Of the
final headcount at December 31, 2009, approximately 51.8% are women (50.8% at
December 31, 2008).
b)
Employee benefits
The
Telefónica Group has arranged a defined-contribution pension plan for its
employees in Spain. Under this plan, the company makes contributions of 4.51% of
the regular base salary (6.87% for employees of Telefónica de España, S.A.U.
whose hiring date was prior to June 30, 1992). This is in addition to a 2.21%
compulsory contribution by each participant. This plan is entirely externalized
in outside funds.
At
December 31, 2009, a total of 52,912 Group employees were covered by the pension
plans managed by the subsidiary Fonditel Entidad Gestora de Fondos de Pensiones,
S.A. (54,819 and 57,675 at December 31, 2008 and 2007, respectively). The
contributions made by the various companies in 2009 amounted to 97 million euros
(98 and 95 million euros in 2008 and 2007, respectively).
Furthermore,
in 2006, the Group approved a Pension Plan for Senior Executives, wholly funded
by the company, which complements the previous plan. This plan envisages annual
defined contributions equivalent to specific percentages of the executives’
fixed remuneration, in accordance with their professional category, and
extraordinary contributions in accordance with the circumstances of each
executive, payable in line with the conditions of said Plan. No provision was
made for this plan as it has been fully externalized.
Depreciation and
amortization
The
breakdown of “Depreciation and amortization” on the consolidated income
statement is as follows:
|
Millions of
euros
|
2009
|
2008
|
2007
|
|
Depreciation
of property, plant and equipment
|
6,095
|
6,303
|
6,497
|
|
Amortization
of intangible assets
|
2,861
|
2,743
|
2,939
|
|
Total
|
8,956
|
9,046
|
9,436
|
Earnings per share
Basic
earnings per share amounts are calculated by dividing net profit for the year
attributable to ordinary equity holders of the parent by the weighted average
number of ordinary shares outstanding during the year.
Diluted
earnings per share amounts are calculated by dividing net profit for the year
attributable to ordinary equity holders of the parent (adjusted for any dilutive
effects inherent in converting potential ordinary shares issued) by the weighted
average number of ordinary shares outstanding during the year plus the weighted
average number of ordinary shares that would be issued on the conversion of all
the dilutive potential ordinary shares into ordinary shares.
Both
basic and diluted earnings per share attributable to equity holders of the
parent are calculated based on the following data:
|
Millions of
euros
|
|||
|
2009
|
2008
|
2007
|
|
|
Profit
attributable to ordinary equity holders of the parent from continuing
operations
|
7,776
|
7,592
|
8,906
|
|
Profit
attributable to ordinary equity holders of the parent from discontinued
operations
|
-
|
-
|
-
|
|
Total
profit attributable to equity holders of the parent for basic
earnings
|
7,776
|
7,592
|
8,906
|
|
Adjustment
for dilutive effects of the conversion of potential ordinary
shares
|
-
|
-
|
-
|
|
Total
profit attributable to equity holders of the parent for diluted
earnings
|
7,776
|
7,592
|
8,906
|
|
No. of
shares
|
Thousands
|
||
|
2009
|
2008
|
2007
|
|
|
Weighted
average number of ordinary shares (excluding treasury shares) for basic
earnings per share
|
4,552,656
|
4,645,852
|
4,758,707
|
|
Telefónica,
S.A. “Performance Share Plan” share option plan
|
7,908
|
5,182
|
1,808
|
|
Weighted
average number of ordinary shares (excluding treasury shares) outstanding
for diluted earnings per share
|
4,560,564
|
4,651,034
|
4,760,515
|
The
denominators used in the calculation of both basic and diluted earnings per
share have been adjusted to reflect any transactions that changed the number of
shares outstanding without a corresponding change in equity as if they had taken
place at the start of the first period under consideration.
There
have been no transactions involving existing or potential ordinary shares
between the end of the year and the date of preparation of the consolidated
financial statements.
Basic and
diluted earnings per share attributable to equity holders of the parent broken
down by continuing and discontinued operations are as follows:
|
Figures in
euros
|
Continuing
operations
|
Discontinued
operations
|
Total
|
||||||
|
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
|
|
Basic
earnings per share
|
1.71
|
1.63
|
1.87
|
-
|
-
|
-
|
1.71
|
1.63
|
1.87
|
|
Diluted
earnings per share
|
1.71
|
1.63
|
1.87
|
-
|
-
|
-
|
1.71
|
1.63
|
1.87
|
|
(20)
|
SHARE-BASED PAYMENT
PLANS
|
At
year-end 2009, 2008 and 2007, the Telefónica Group had the following
shared-based payment plans linked to the share price of Telefónica, S.A. The
main plans in force at the end of 2009 are as follows:
|
a)
|
Telefónica, S.A. share plan:
“Performance Share Plan”
|
At the
General Shareholders’ Meeting of Telefónica, S.A. on June 21, 2006, its
shareholders approved the introduction of a long-term incentive plan for
managers and senior executives of Telefónica, S.A. and other Telefónica Group
companies. Under this plan, selected participants who met the qualifying
requirements were given a certain number of Telefónica, S.A. shares as a form of
variable compensation.
The plan
was initially intended to last seven years. It is divided into five phases, each
three years long, beginning on July 1 (the “Start Date”) and ending on June 30
three years later (the “End Date”). At the start of each phase the number of
shares to be awarded to Plan beneficiaries is determined based on their success
in meeting targets set. The shares are delivered, assuming targets are met, at
the End Date of each phase. Each phase is independent from the others. The first
started on July 1, 2006 (with shares delivered on July 1, 2009) and the fifth
phase begins on July 1, 2010 (with any shares to be delivered from July 1,
2013).
Award of
the shares is subject to a number of conditions:
|
-
|
The
beneficiary must continue to work for the company throughout the three
years of the phase, subject to certain special conditions related to
departures.
|
|
-
|
The
actual number of shares awarded at the end of each phase will depend on
success in meeting targets and the maximum number of shares assigned to
each executive. Success is measured by comparing the Total Shareholder
Return (“TSR”), which includes both share price and dividends offered by
Telefónica shares, with the TSRs offered by a basket of listed telecoms
companies that comprise the comparison group. Each employee who is a
member of the plan is assigned at the start of each phase a maximum number
of shares. The actual number of shares awarded at the end of the phase is
calculated by multiplying this maximum number by a percentage reflecting
their success at the date in question. This will be 100% if the TSR of
Telefónica is equal to or better than that of the third quartile of the
Comparison Group and 30% if Telefónica's TSR is in line with the average.
The percentage rises linearly for all points between these two benchmarks.
If the TSR is below average no shares are
awarded.
|
June 30,
2009 marked the end of the first phase of this plan, which entailed the
following maximum number of shares allocated:
|
No. of
shares
|
Unit value
|
End date
|
|
|
1st
phase July 1, 2006
|
6,530,615
|
6.43
|
June
30, 2009
|
With the
maturity of the plan, in July 2009 a total of 3,309,968 shares (corresponding to
a total of 4,533,393 gross shares less a withholding of 1,224,610 shares prior
to delivery) were delivered to Telefónica Group directors included in the first
phase. The shares delivered were deduced from the Company’s treasury shares in
2009.
All the
shares included in the first phase of the plan were hedged with a derivative
instrument acquired in 2006. The cost of this instrument was 46 million euros,
which in unit terms is 6.43 euros per share. At June 30, 2009, the bank with
which the financial instrument was entered into delivered to Telefónica, S.A.
the own shares contracted. These were accounted for as treasury
shares.
The
maximum number of the shares issuable in each of the three outstanding phases at
December 31, 2009 is as follows:
|
Phase
|
No. of
shares
|
Unit value
|
End date
|
|
2nd
phase July 1, 2007
|
5,556,234
|
7.70
|
June
30, 2010
|
|
3rd
phase July 1, 2008
|
5,286,980
|
8.39
|
June
30, 2011
|
|
4th
phase July 1, 2009
|
6,356,597
|
8.41
|
June
30, 2012
|
This plan
is equity-settled via the delivery of shares to the participants. Accordingly, a
balancing entry for the 43, 38 and 23 million euros of employee benefits
expenses recorded in 2009, 2008 and 2007 was made in equity.
For the
sole purpose of ensuring the shares necessary at the end of the phase begun in
2008 (the third phase of the plan), Telefónica, S.A. purchased an instrument
from a financial institution that will deliver to Telefónica, at the end of the
phase, a total of 2,500,000 shares, part of the shares necessary to settle the
phase. This instrument is indexed to the success of the plan; i.e. the
instrument has the features as the plan. The cost of the financial instrument
was 25 million euros, equivalent to 9.96 euros per option (see Note
16).
For the
fourth phase of the Plan, Telefónica, S.A. has acquired an instrument from a
financial institution with the same features of the plan, whereby at the end of
the phase, Telefónica will obtain part of the shares necessary to settle the
phase (4,000,000 shares). The cost of the financial instrument was 34 million
euros, equivalent to 8.41 euros per option (see Note 16).
|
b)
|
Telefónica, S.A. share option
plan targeted at Telefónica Europe employees: “Performance Cash Plan”
“Performance Share Plan”
|
In
addition to the Performance Share Plan, another plan called the Performance Cash
Plan, operating under the same conditions as the Performance Share Plan is
targeted at employees of the Europe segment. This plan entails delivery to this
segment’s executives of a specific number of theoretical options in Telefónica,
S.A. which, in the event, would be cash-settled at the end of each phase via a
payment equivalent to the market value of the shares on settlement date up to a
maximum of three times the notional value of the shares at the delivery
date.
The value
of the theoretical options is established as the average share price in the 30
days immediately prior to the start of each phase, except for the first phase,
where the average share price during the 30 days immediately prior to May 11,
2006 (12.83 euros) was taken as the reference.
The
estimated duration of this plan is also 7 years, with 5 phases, each of 3 years,
commencing on July 1 of each year, starting in 2006.
Like the
Telefónica, S.A. Performance Share Plan, the performance rate for setting
payments is measured based on the TSR on Telefónica shares with respect to the
comparison group’s TSRs, in line with the following criteria:
|
·
|
Below
average
|
0%
|
||
|
·
|
Average
|
30%
|
||
|
·
|
Equal
to or higher than the third quartile
|
100%
|
The
number of options assigned at December 31, 2009 was 412,869.
The fair
value at December 31, 2009 of the options delivered in each phase in force at
that time was 19.55 euros per option.
This
value is calculated by taking the Telefónica share price and including the
estimated TSR and is updated at each year end.
|
(21)
|
OTHER
INFORMATION
|
|
a)
|
Litigation and arbitration
|
Telefónica
and its group companies are party to several lawsuits or proceedings that are
currently in progress in the law courts and administrative and arbitration
bodies of the various countries in which the Telefónica Group is
present.
Considering
the reports of the Company’s legal advisors regarding these proceedings, it is
reasonable to assume that this litigation or cases will not materially affect
the financial position or solvency of Telefónica Group, regardless of the
outcome.
Among
unresolved cases or those underway in 2009 (see Note 17 for details of
tax-related cases), we would highlight the following:
|
1.
|
Contentious
proceedings in connection with the merger between Terra Networks,
S.A. and
Telefónica
|
On
September 26, 2006, Telefónica was notified of the claim filed by former
shareholders of Terra Networks, S.A. (Campoaguas, S.L., Panabeni, S.L. and
others) alleging breach of contract in respect of the terms and conditions set
forth in the Prospectus of the Initial Public Offering of shares of Terra
Networks, S.A. dated October 29, 1999. This claim was rejected via ruling issued
on September 21, 2009, and the appellants charged for the court costs. This
ruling was appealed on December 4, 2009.
|
2.
|
Claim
before the Center for Settlement of Investment Disputes (ICSID) against
the Argentine Government
|
As a
result of the enactment by the Argentine Government of Public Emergency and
Exchange Rules Reform Law 25561, of January 6, 2002, Telefónica considered that
the terms and conditions of the Share Transfer Agreement approved by Decree
2332/90 and the Pricing Agreement ratified by Decree 2585/91, both of which were
executed by the Company with the Argentine government, had been affected
appreciably, since the Law rendered ineffective any dollar or other foreign
currency adjustment clauses, or indexation clauses based on price indexes of
other countries, or any other indexation mechanism in contracts with the public
authorities. The law also required that prices and rates derived from such
clauses be denominated in pesos at an exchange rate of one Argentine peso to one
US dollar.
Accordingly,
since negotiations with the Argentine Government were unsuccessful, on May 14,
2003, Telefónica filed a request for arbitration with the International Center
for Settlement of Investment Disputes (ICSID) pursuant to the Agreement for the
Promotion and Reciprocal Protection of Investments between the Argentine
Republic and the Kingdom of Spain. On December 6, 2004, Telefónica filed the
“Memorial” or claim with the ICSID, as well as the initial testimonies
supporting the claim.
On
February 15, 2006, Telefónica Argentina signed a memorandum of understanding
with the Argentine government as a prerequisite to reaching an agreement to
renegotiate the transfer contract pursuant to the provisions of Article 9 of Law
25561. Among other issues, the memorandum of understanding envisaged the
suspension for a certain period of all claims, appeals and demands planned or
underway, based on events or measures taken as a result of emergency situation
established by Law No. 25561 with regard to the Transfer Agreement and the
license granted to Telefónica Argentina.
On August
21, 2009, after successive extensions of the period of suspension included in
the memorandum of understanding, Telefónica and the Argentine Government agreed
to consider this arbitration proceeding concluded. As a result, both parties
requested the ICSID Court to file the proceeding, which the court agreed to on
September 24, 2009.
|
3.
|
Appeal
for judicial review of the Spanish
Competition Court (TDC)
ruling of April 1,
2004.
|
On April 1, 2004, the TDC ruled that
Telefónica de España had engaged in unfair trade practices prohibited under
Article 6 of Antitrust Law 16/1989, dated July 17, and Article 82 of the EC
Treaty, consisting in the abuse of a dominant market position, by conditioning
the provision of certain services to the non-existence of predialing
arrangements with rival operators and running disloyal advertising campaigns. It
imposed a fine of 57 million euros.
Telefónica
de España filed an appeal for judicial review of this decision. On January 31,
2007, the National Appellate Court ruled in favor of the appeal, thereby
overturning the TDC’s ruling. The State attorney filed an appeal to overturn the
Supreme Court ruling on January 15, 2008, which Telefónica contested in July of
2008. This Court has set April 6, 2010 as the judgment date.
|
4.
|
Cancellation
of the UMTS license granted to Quam GMBH in Germany.
|
In
December 2004, the German Telecommunications Market Regulator revoked the UMTS
license granted in 2000 to Quam GmbH, in which Telefónica has a stake. After
obtaining a suspension of the revocation order, on January 16, 2006, Quam GmbH
filed a suit against the order with the German courts. This claim sought two
objectives: 1) to overturn the revocation order issued by the German
Telecommunications Market Regulator, and 2) if this failed, to be reimbursed for
the total or partial payment of the original amount paid for the license; i.e.
8.4 million euros.
This
claim was rejected by the Cologne Administrative Court. Quam GmbH appealed the
decision before the Supreme Administrative Court of North Rhine-Westphalia,
which also rejected its appeal.
Finally,
Quam GmbH filed a new claim in third instance before the Federal Supreme court
for Administrative Cases, which was not admitted for processing. Quam GmbH
appealed this decision on August 14, 2009, and is currently awaiting another
decision by this court.
|
5.
|
Appeal
against the European Commission ruling of July 4, 2007 against
Telefónica de
España’s
broadband pricing
policy.
|
On July
9, 2007, Telefónica was notified of the decision issued by the European
Commission imposing a fine of approximately 152 million euros for breach of
Article 82 of EC Treaty rules by charging unfair prices between whole and retail
broadband access services. The ruling charged Telefónica with applying a margin
squeeze between the prices it charged competitors to provide regional and
national wholesale broadband services and its retail broadband prices using ADSL
technology between September 2001 and December 2006.
On
September 10, 2007, Telefónica and Telefónica de España filed an appeal to
overturn the decision before the Court of First Instance of the European
Communities. The Kingdom of Spain, as an interested party, also lodged an appeal
to overturn the decision. Meanwhile, France Telecom and the Spanish Association
of Bank Users (AUSBANC) filed requests to intervene, to which Telefónica has
submitted its comments.
|
6.
|
Claim
against the decision by Agencia Nacional de
Telecomunicações (ANATEL)
regarding the inclusion of interconnection and network usage revenues in
the Fundo de
Universalização de
Serviços de
Telecomunicações (FUST).
|
Brasilcel,
N.V. (VIVO) Group operators, together with other Brazilian wireless operators,
appealed ANATEL’s decision of December 16, 2005, to include interconnection and
network usage revenues and expenses in the calculation of the amounts payable
into the Fund for Universal Access to Telecommunications Services (Fundo de Universalização de Serviços
de Telecomunicações or FUST for its initials in Portuguese) –a fund to
pay for the obligations to provide universal service- with retroactive
application from 2000. On March 13, 2006, the Brasilia Federal Regional Court
granted the injunction requested by the appellants, preventing ANATEL’s decision
from being applied. On March 6, 2007, a ruling in favor of the wireless
operators was issued, stating that it was not appropriate to include the
revenues received from other operators in the taxable income for the FUST’s
calculation and rejecting the retroactive application of ANATEL’s decision.
ANATEL filed an appeal to overturn this decision with Brasilia Regional Federal
Court no. 1. This appeal is pending resolution.
At the
same time, Telesp and Telefónica Empresas, S.A., together with other wireline
operators through ABRAFIX (Associação Brasileira de
Concessionárias de Serviço Telefonico Fixo Comutado) appealed ANATEL’s
decision of December 16, 2005, also obtaining injunctions. On June 21, 2007,
Federal Regional Court no. 1 ruled that it was not appropriate to include the
interconnection and network usage revenues and expense in the FUST’s taxable
income and rejected the retroactive application of ANATEL’s decision. ANATEL
filed an appeal to overturn this ruling on April 29, 2008 before Brasilia
Federal Regional Court no. 1.
|
7.
|
Proceeding
before the Prague District Court against the ruling of the Czech
Telecommunications Office dated December 22,
2003.
|
On December 22, 2003, the Czech
Telecommunications Office issued a ruling that required Cesky Telecom, a.s. (now
Telefónica O2 Czech Republic, a.s.) to pay T-Mobile Czech Republic, a.s.
(T-mobile) an amount of approximately 898 million Czech crowns (approximately
26.4 million euros) in interconnection fees (call termination) for the period
from January to November 2001.
Although the administrative procedure
filed by Telefónica O2 Czech Republic, a.s. (Telefónica O2 Czech Republic)
against this resolution had yet to be resolved, in 2007 T-Mobile asked Prague
District Court no. 3 to execute the ruling, entailing an amount of approximately
1,859 million Czech crowns (approximately 57.3 million euros) of principal and
interest. The Court accepted the petition and on May 23, 2007 issued a ruling to
initiate the execution against any asset of Telefónica O2 Czech Republic, whose
inadmissibility it had requested.
Telefónica O2 Czech Republic paid
approximately 2,023 million Czech crowns (approximately 82 million euros) to
prevent a potential order of execution and to remove the preventive embargo on
its assets. Nonetheless, the procedure continued in the courts. In April 2009,
an agreement was reached between T-Mobile and Telefónica O2 Czech Republic that
ended the procedure, whereby T-Mobile returned approximately 1,053 million Czech crowns (approximately 40 million
euros) to Telefónica O2 Czech Republic.
|
8.
|
Public
civil procedure by the Sao
Paulo government
against Telesp for alleged reiterated malfunctioning in the services
provided by Telesp compensation for damages to the customers
affected.
|
This
proceeding was filed by the Public Ministry of the State of Sao Paulo for
alleged reiterated malfunctioning in the services provided by Telesp, seeking
compensation for damages to the customers affected. A general claim is filed by
the Public Ministry of the State of Sao Paulo, for 1,000 million Brazilian
reais, calculated on the company’s revenue base over the last five years. A
potential charge of responsibility for compensation by Telesp would be carried
out through the settlement and executing of the ruling at the request of
individual consumers. It is impossible to quantify the amount of this lawsuit at
present.
This
proceeding was suspended via resolution dated November 5, 2009, for a period of
90 days, to assess the proposed agreement being negotiated between the parties.
As no agreement was reached, the suspension was lifted and the procedure remains
in the courts.
Commitments
Agreements
with Portugal Telecom
(Brazil).
In
accordance with the agreements signed between the Telefónica Group and the
Portugal Telecom Group governing their 50/50 joint venture, Brasilcel, N.V.,
which groups together their cellular businesses in Brazil, the Portugal Telecom
Group is entitled to sell to Telefónica, S.A., which is obliged to buy, its
holding in Brasilcel, N.V. should there be a change in control at Telefónica or
at any of its subsidiaries that hold a direct or indirect ownership interest in
Brasilcel, N.V.
Similarly,
Telefónica is entitled to sell to the Portugal Telecom Group, which is obliged
to buy, its holding in Brasilcel, N.V. if there is a change of control at
Portugal Telecom, SGPS, S.A., at PT Móveis, SGPS, S.A or at any of their
subsidiaries that hold a direct or indirect ownership interest in Brasilcel,
N.V.
The price
in both cases will be determined on the basis of an independent appraisal (under
the terms provided for in the definitive agreements) performed by investment
banks, selected using the procedure established in these agreements. The related
payment could be made, at the choice of the group exercising the put option, in
cash or in shares of the wireless telephony operators contributed by the related
party, making up the difference, if any, in cash.
Telefónica
Internacional, S.A.U. as strategic partner of Colombia Telecomunicaciones,
S.A. ESP.
Pursuant
to the terms of the Framework Investment Agreement signed on April 18, 2006
between Telefónica Internacional, S.A.U., the Colombian Government and Colombia
Telecomunicaciones, S.A. ESP, shareholders of Colombia Telecomunicaciones, S.A.
ESP may offer, from April 28, 2006, at any time and in a single package, all the
shares they hold in Colombia Telecomunicaciones, S.A. ESP to Telefónica
Internacional, S.A.U., who shall be obliged to acquire them, directly and via
one of its subsidiaries. The sale/purchase price of each share will be
determined based on the valuation of each share offered in sale by an
independent investment bank designated by agreement between the two
parties.
Guarantees
provided for Ipse 2000 (Italy).
At
December 31, 2009, the Telefónica Group had provided guarantees for the Italian
company Ipse 2000 S.p.A. (holder of a UMTS license in Italy and in which the
Company has a stake through Solivella B.V.) to ensure the amounts payable to the
Italian government in connection with the grant of the license. The only payment
pending at December 31, 2009, was the last of the 10 monthly payments
scheduled.
In this
respect, Telefónica (together with the other strategic partners of Ipse 2000,
S.p.A) arranged a counterguarantee (cash collateral) for a bank which, in turn,
issued a bank guarantee for the Italian authorities as security for the deferred
payment of the UMTS license.
At
December 31, 2009, the amount corresponding to the Telefónica Group in this cash
collateral was 97.5 million euros.
Commitments
relating to the acquisition in Germany of
HanseNet Telekommunikation GmbH
by Telefónica Deutschland GmbH
On
December 3, 2009, Telefónica’s subsidiary in Germany, Telefónica Deutschland
GmbH (“Telefónica Deutschland”), signed an agreement to acquire all of the
shares of German company HanseNet Telekommunikation GmbH (“HanseNet”). The
purchase price agreed by the parties was based on the firm value of 900 million
euros, subject to a series of adjustments upon completion of the
transaction.
The
purchase and sale was subject to compliance with a series of conditions,
including approval of the transaction by the pertinent competition authorities,
which was obtained on January 29, 2010. The transaction was completed in
February 2010; hence the outstanding payment commitment was fulfilled (see Note
24).
Agreements
with PRISA-SOGECABLE
On
November 25, 2009, Telefónica signed an agreement with Promotora de
Informaciones, S.A. (“Prisa”) and Sogecable, S.A.U. (“Sogecable”) for the
acquisition of a 21% stake in DTS Distribuidora de Televisión Digital, S.A.
(“DTS”), the company that will include the pay-TV services of PRISA Group
(Digital+), for a firm value of 2,350 million euros.
Additionally,
on the same date Telefónica signed a shareholder agreement with Prisa and
Sogecable for DTS (“Shareholder agreement”), which will come into effect
following completion of the transaction and will establish, among other things,
that in the event of a change in control at Telefónica, Sogecable will have the
right to acquire from Telefónica, which will be obliged to sell,
its
stake in DTS. Similarly, in the event of a change of control at Prisa,
Telefónica will have the right to buy from Sogecable, which will be obliged to
sell, its stake
in DTS. In these events, the acquisition would be carried out at the real value
of the shares based on an independent valuation by investment banks in
accordance with the procedure stipulated in the agreement (see Note
24).
The
contingencies arising from the litigation and commitments described above were
evaluated (see Note 3.1) when the consolidated financial statements for the year
ended December 31, 2009 were prepared, and the provisions recorded in respect of
the commitments taken as a whole are not material.
|
b)
|
Environmental
matters
|
Through
its investees and in line with its environmental policy, the Telefónica Group
has undertaken various environmental-management initiatives and projects. In
2009 and 2008 these initiatives and projects resulted in expenditure and
investment for insignificant amounts, which were recognized in the consolidated
income statement and consolidated statement of financial position,
respectively.
The Group
has launched various projects with a view to reducing the environmental impact
of its existing installations, with project costs being added to the cost of the
installation to which the project relates.
In addition, in line with its commitment
to the environment, the Group announced the creation of a Climate Change Office
to provide a framework for strategic and RD&I projects in the quest for
energy efficient solutions. This initiative entails the launch and
implementation of solutions in each area that contributes to optimizing the
company's processes (operations, suppliers, employees, customers and
society).
|
•
|
In the area of operations, the
main objective is to develop and implement projects that will allow for
more efficient networks and systems by reducing and optimizing energy
consumption.
|
|
•
|
In the area of suppliers, active
efforts are underway to include energy efficiency criteria in the
purchasing process for all product lines in the Telefónica value
chain.
|
|
•
|
In the area of employees, the aim
is to foster among the Company’s employees a culture of respect and
awareness regarding the environment and energy
saving.
|
|
•
|
In the area of customers, work is
being carried out to better leverage ICTs (information and communication
technologies) and increase energy efficiency with the objective of
reducing carbon emissions.
|
|
•
|
And finally, in the area of
society, the objective is to promote change in citizens’ behavior through
Telefónica's actions.
|
The Group
has also rolled out internal control mechanisms sufficient to pre-empt any
environmental liabilities that may arise in future, which are assessed at
regular intervals either by Telefónica staff or renowned third-party
institutions. No significant risks have been identified in these
assessments.
|
c)
|
Auditors’
fees
|
Fees for
2009 and 2008 of the various member firms of the Ernst & Young international
organization, to which Ernst & Young, S.L. (the auditors of the Telefónica
Group) belongs amounted to 24.07 and 24.45 million euros,
respectively.
The
detail of these amounts is as follows:
|
Millions of
euros
|
||
|
2009
|
2008
|
|
|
Audit
services (1)
|
22.62
|
22.79
|
|
Audit-related
services (2)
|
1.40
|
1.65
|
|
Tax
services (3)
|
0.01
|
0.00
|
|
All
other services (4)
|
0.04
|
0.01
|
|
TOTAL
|
24.07
|
24.45
|
|
(1)
|
Audit services:
services included under this heading are mainly the audit of the annual
and interim financial statements, work to comply with the requirements of
the Sarbanes-Oxley Act (Section 404) and the review of the 20-F report to
be filed with the US Securities and Exchange Commission
(SEC).
|
|
(2)
|
Audit-related
services: This heading mainly includes services related to the
review of the information required by regulatory authorities, agreed
financial reporting procedures not requested by legal or regulatory bodies
and the review of corporate responsibility
reports.
|
|
(3)
|
Tax services:
the services included under this heading relate to the review of tax
obligations.
|
|
(4)
|
All other
services: the services included under this heading relate to
training.
|
Ernst
& Young’s fees include amounts in respect of fully and proportionately
consolidated Telefónica Group companies. A total of 1.17 and 1.39 million euros,
respectively, corresponding to 50% of the fees by proportionally consolidated
companies, were included in 2009 and 2008, respectively.
Fees for
2009 and 2008 of other auditors amounted to 21.60 million euros and 15.95
million euros, respectively, as follows:
|
Millions of
euros
|
|||
|
2009
|
2008
|
||
|
Audit
services
|
0.86
|
0.
71
|
|
|
Audit-related
services
|
2.17
|
1.05
|
|
|
Tax
services
|
3.95
|
4.
35
|
|
|
All
other services
|
14.62
|
9.84
|
|
|
TOTAL
|
21.60
|
15.95
|
|
Other
auditors’ fees include amounts in respect of fully and proportionately
consolidated Telefónica Group companies. In 2009 and 2008, a total of 0.24 and
0.34 million euros, respectively, corresponding to 50% of the fees by
proportionately consolidated companies, were included.
|
d)
|
Trade and other
guarantees
|
The
Company is required to issue trade guarantees and deposits for concession and
spectrum tender bids and in the ordinary course of its business. No significant
additional liabilities in the accompanying consolidated financial statements are
expected to arise from guarantees and deposits issued.
|
e)
|
Directors’ and Senior executives’ compensation and other
benefits
|
The
compensation of Telefónica, S.A.’s Directors is governed by Article 28 of the
Bylaws, which states that the compensation amount that the Company may pay to
all of its Directors as remuneration and attendance fees shall be fixed by the
shareholders at the General Shareholders’ Meeting, which amount shall remain
unchanged until and unless the shareholders decide to modify it. The Board of
Directors shall determine the exact amount to be paid within such limit and the
distribution thereof among the Directors. In this respect, on April 11, 2003,
shareholders set the maximum gross annual amount to be paid to the Board of
Directors at 6 million euros. This includes a fixed payment and fees for
attending meetings of the Board of Director’s advisory or control committees. In
addition, the compensation provided for in the preceding paragraphs, deriving
from membership on the Board of Directors, shall be compatible with other
professional or employment compensation accruing to the Directors by reason of
any executive or advisory duties that they perform for the Company, other than
the supervision and collective decision-making duties inherent in their capacity
as Directors.
Therefore,
the compensation paid to Telefónica directors in their capacity as members of
the Board of Directors, the Executive Commission and/or the advisory and
control committees consists of a fixed amount payable monthly plus fees for
attending the meetings of the Board’s advisory or control committees. In this
respect, it was also agreed that executive Board members, other than the
Chairman, would not receive the fixed amounts established for their
directorships, but only receive the corresponding amounts for discharging their
executive duties as stipulated in their respective contracts.
The
following table presents the fixed amounts established for membership to the
Telefónica Board of Directors, Standing Committee and the advisory or control
committees.
|
(Euros)
Position
|
Board of
Directors
|
Standing
Committee
|
Advisory or Control
Committees
|
|
Chairman
|
300,000
|
100,000
|
28,000
|
|
Vice
Chairman
|
250,000
|
100,000
|
-
|
|
Board
member:
Executive
Proprietary
Independent
Other
external
|
-
150,000
150,000
150,000
|
-
100,000
100,000
100,000
|
-
14,000
14,000
14,000
|
In
addition, the amounts paid for attendance at each of the Advisory or Control
Committee meetings is 1,250 euros.
Total
compensation paid to Telefónica Directors for discharging their duties in 2009
amounted to 4,081,333 euros in fixed compensation and 252,500 euros in fees
for attending the Board Advisory or Control Committee meetings. It should also
be noted that the compensation paid to Company directors sitting on the Boards
of other Telefónica Group companies amounted to 1,791,104 euros. In addition,
the Company directors who are members of the regional advisory committees,
including the Telefónica Corporate University Advisory Council, received a total
of 553,750 euros in 2009.
The
following table presents the breakdown by item of the compensation and benefits
paid to Telefónica Directors for discharging their duties in 2009:
|
(Euros)
Board Members |
Board of
Directors
|
Standing
Committee
|
Other Board
Committees
|
TOTAL
|
|
|
Fixed
payment
|
Attendance
fees
|
||||
|
Chairman
|
|||||
|
Mr.
César Alierta Izuel
|
300,000
|
100,000
|
-
|
-
|
400,000
|
|
Vice
chairmen
|
|||||
|
Mr. Isidro Fainé Casas
|
250,000
|
100,000
|
-
|
-
|
350,000
|
|
Mr.
Vitalino Manuel Nafría Aznar
|
250,000
|
-
|
56,000
|
22,500
|
328,500
|
|
Members
|
|||||
|
Mr.
Julio Linares López
|
-
|
-
|
-
|
-
|
-
|
|
Mr.
José María Abril Pérez
|
150,000
|
100,000
|
14,000
|
1,250
|
265,250
|
|
Mr.
José Fernando de Almansa Moreno-Barreda
|
150,000
|
-
|
56,000
|
21,250
|
227,250
|
|
Mr.
José María Álvarez-Pallete López
|
-
|
-
|
-
|
-
|
-
|
|
Mr.
David Arculus
|
150,000
|
-
|
28,000
|
11,250
|
189,250
|
|
Ms.
Eva Castillo Sanz
|
150,000
|
-
|
14,000
|
10,000
|
174,000
|
|
Mr.
Carlos Colomer Casellas
|
150,000
|
100,000
|
56,000
|
16,250
|
322,250
|
|
Mr.
Peter Erskine
|
150,000
|
100,000
|
56,000
|
25,000
|
331,000
|
|
Mr.
Alfonso Ferrari Herrero
|
150,000
|
100,000
|
84,000
|
38,750
|
372,750
|
|
Mr.
Luiz Fernando Furlán
|
150,000
|
-
|
14,000
|
3,750
|
167,750
|
|
Mr.
Gonzalo Hinojosa Fernández de Angulo
|
150,000
|
100,000
|
98,000
|
42,500
|
390,500
|
|
Mr.
Pablo Isla Álvarez de Tejera
|
150,000
|
-
|
84,000
|
16,250
|
250,250
|
|
Mr.
Antonio Massanell Lavilla
|
150,000
|
-
|
65,333
|
28,750
|
244,083
|
|
Mr.
Francisco Javier de Paz Mancho
|
150,000
|
100,000
|
56,000
|
15,000
|
321,000
|
|
TOTAL
|
2,600,000
|
800,000
|
681,333
|
252,500
|
4,333,833
|
In
addition, the breakdown of the total paid to executive directors Mr.César
Alierta Izuel, Mr.Julio Linares López and Mr. José María Álvarez-Pallete
López for discharging their executive duties by item is as follows:
|
ITEM
|
2009
(euros)
|
|
Salaries
|
5,947,604
|
|
Variable
compensation
|
8,058,179
|
|
Compensation
in kind (1)
|
100,051
|
|
Contributions
to pension plans
|
25,
444
|
|
(1)
“Compensation in kind” includes life and other insurance premiums (general
medical and dental insurance).
|
|
In
addition, with respect to the Pension Plan for Senior Executives (see Note 19),
the total amount of contributions made by the Telefónica Group in 2009 in
respect of executive Directors was 1,925,387 euros.
In
relation to the “Performance Share Plan” approved at the General Shareholders’
Meeting of June 21, 2006 (see Note 20), the maximum number of shares
corresponding to the second, third and fourth phases of the Plan will be given
(on July 1, 2010, July 1, 2011 and July 1, 2012) to each of Telefónica, S.A.’s
executive Directors if all the terms established for such delivery are met, is
as follows: For Mr. César Alierta Izuel, 116,239, 148,818 and 173,716 shares,
respectively; for Mr. Julio Linares López, 57,437, 101,466 and 130,287 shares,
respectively, for Mr. José María Álvarez-Pallete López, 53,204, 67,644 and
78,962 shares, respectively. Similarly, with respect to the
execution of the first phase of the Plan in July 2009, since the Total
Shareholder Return (“TSR”) of Telefónica was higher in this phase than the TSRs
of companies representing 75% of the market cap of the comparison group, the
beneficiaries received, in accordance with the general terms and conditions of
the Plan, all the shares assigned to them as follows: to Mr. César Alierta
Izuel, 129,183 shares; to Mr. Julio Linares López, 65,472 shares; and to Mr.
José María Álvarez-Pallete López, 62,354 shares.
It should
be noted that the external Directors do not receive and did not receive in 2009
any compensation in the form of pensions or life insurance, nor do they
participate in the share-based payment plans linked to Telefónica’s share
price.
In
addition, the Company does not grant and did not grant in 2009 any advances,
loans or credits to the directors, or to its top executives, thus complying with
the requirements of the Sarbanes-Oxley Act passed in the U.S., which is
applicable to Telefónica, S.A. as a listed company in that market.
Meanwhile,
the six senior executives of the Company, excluding those that are directors,
received a total for all items in 2009 of 10,533,852 euros. In addition, the
contributions by the Telefónica Group in 2009 with respect to the Pension Plan
described in Note 19 for these directors amounted to 922,728 euros.
Furthermore, the maximum number of
shares corresponding to the second, third and fourth phases of the “Performance
Share Plan” assigned to the Company’ senior executives for each of the periods
is 130,911 shares for the second phase, 306,115 shares for the third phase and
394,779 shares for the fourth phase. Similarly, as explained above, these
senior
executives received a total
of 284,248 shares in the first phase of the Plan.
|
f)
|
Equity interests in companies
engaging in an activity that is identical, similar or complementary to
that of the Company and the performance of similar activities by the
directors on their own behalf or on behalf of this
parties:
|
Pursuant to Article 127 ter. 4 of the
Spanish Corporation Law, introduced by Law 26/2003 of July 17, which amends
Securities Market Law 24/1988 of July 28, and the revised Spanish Corporation
Law, in order to reinforce the transparency of listed corporations, details are
given below of the companies engaging in an activity that is identical, similar
or complementary to the corporate purpose of Telefónica, S.A., including
Telefónica Group companies, in which the members of the Board of Directors own
equity interests, and of the functions, if any, that they discharge in them, on
their own behalf or on behalf of others:
|
Name
|
Activity
|
Company
|
Position or
functions
|
Stake
%1
|
|
Mr.
César Alierta Izuel
|
Telecommunications
|
Telecom
Italia S.p.A.
|
Director
|
--
|
|
Telecommunications
|
China
Unicom (Hong Kong) Limited
|
Director
|
--
|
|
|
Mr.
Isidro Fainé Casas
|
Telecommunications
|
Abertis
Infraestructuras, S.A.
|
Vice
Chairman
|
<
0.01%
|
|
Mr.
Julio Linares López
|
Telecommunications
|
Telefónica
de España, S.A.U.
|
Director
|
--
|
|
Telecommunications
|
Telefónica
Móviles España, S.A.U.
|
Director
|
--
|
|
|
Telecommunications
|
Telefónica
Europe, Plc.
|
Director
|
--
|
|
|
Telecommunications
|
Telecom
Italia S.p.A.
|
Director
|
--
|
|
|
Mr.
José Fernando de Almansa Moreno-Barreda
|
Telecommunications
|
Telefónica
Internacional, S.A.U.
|
Director
|
--
|
|
Telecommunications
|
Telefónica
del Perú, S.A.A.
|
Director
|
--
|
|
|
Telecommunications
|
Telefónica
de Argentina, S.A.
|
Director
|
--
|
|
|
Telecommunications
|
Telecomunicaçoes
de Sao Paulo, S.A.
|
Director
|
--
|
|
|
Telecommunications
|
Telefónica
Móviles México, S.A. de C.V.
|
Director
|
--
|
|
|
Mr.
José María Álvarez-Pallete López
|
Telecommunications
|
Telefónica
Internacional, S.A.U.
|
Executive
Chairman
|
--
|
|
Telecommunications
|
Telefónica
DataCorp, S.A.U.
|
Director
|
--
|
|
|
Telecommunications
|
Telefónica
de Argentina, S.A.
|
Acting
Director
|
--
|
|
|
Telecommunications
|
Telecomunicaçoes
de Sao Paulo, S.A.
|
Director/Vice
Chairman
|
--
|
|
|
Telecommunications
|
Telefónica
Chile, S.A.
|
Acting
Director
|
--
|
|
|
Telecommunications
|
Telefónica
Móviles México, S.A. de C.V.
|
Director/Vice
Chairman
|
--
|
|
|
Telecommunications
|
Colombia
Telecomunicaciones, S.A. ESP
|
Director
|
--
|
|
|
Telecommunications
|
Telefónica
del Perú, S.A.A.
|
Director
|
--
|
|
|
Telecommunications
|
Brasilcel,
N.V.
|
Chairman
of Supervisory Board
|
--
|
|
|
Telecommunications
|
Telefónica
Móviles Colombia, S.A.
|
Acting
Director
|
--
|
|
|
Telecommunications
|
Telefónica
Larga Distancia de Puerto Rico, Inc.
|
Director
|
--
|
|
|
Telecommunications
|
Telefónica
Móviles Chile, S.A.
|
Acting
Director
|
--
|
|
|
Telecommunications
|
Portugal
Telecom, SGPS., S.A.
|
Director
|
--
|
|
|
Mr.
David Arculus
|
Telecommunications
|
Telefónica
Europe, Plc.
|
Director
|
--
|
|
Telecommunications
|
British
Sky Broadcasting Group, Plc.
|
--
|
<
0.01%
|
|
|
Telecommunications
|
BT
Group, Plc.
|
--
|
<
0.01%
|
|
|
Mr.
Peter Erskine
|
Telecommunications
|
Telefónica
Europe, Plc.
|
Director
|
--
|
|
Mr.
Alfonso Ferrari Herrero
|
Telecommunications
|
Telefónica
Internacional, S.A.U.
|
Director
|
--
|
|
Telecommunications
|
Telefónica
Chile, S.A.
|
Acting
Director
|
--
|
|
|
Telecommunications
|
Telefónica
de Perú, S.A.A.
|
Director
|
--
|
|
|
Telecommunications
|
Telefónica
Móviles Chile, S.A.
|
Director
|
--
|
|
|
Mr.
Luiz Fernando Furlán
|
Telecommunications
|
Telecomunicaçoes
de Sao Paulo, S.A.
|
Director
|
--
|
|
Telecommunications
|
Telefónica
Internacional, S.A.U.
|
Director
|
--
|
|
|
Mr.
Francisco Javier de Paz Mancho
|
Telecommunications
|
Atento
Inversiones y Teleservicios, S.A.U.
|
Non-executive
Chairman
|
--
|
|
Telecommunications
|
Telefónica
Internacional, S.A.U.
|
Director
|
--
|
|
|
Telecommunications
|
Telefónica
de Argentina, S.A.
|
Director
|
--
|
|
|
Telecommunications
|
Telecomunicaçoes
de Sao Paulo, S.A.
|
Director
|
--
|
Pursuant
to Article 114.2 of the Spanish Corporation Law, also introduced by Law 26/2003
of July 17, it is stated that in the year to which these annual financial
statements refer, the directors, or persons acting on their behalf, did not
perform any transactions with Telefónica or any other company in the Telefónica
Group other than in the normal course of the Company’s business or that were not
on an arm’s length basis.
________________________
1
In cases where
the shareholding is less than 0.01% of share capital, “<0.01%” is
noted.
|
(22)
|
FINANCE
LEASES
|
The
principal finance leases at the Telefónica Group are as follows:
|
a)
|
Future
minimum lease payment commitments in relation to finance leases at O2
Group companies.
|
|
Millions of
euros
|
Present
value
|
Revaluation
|
Installments pending
payment
|
|
Within
one year
|
52
|
6
|
58
|
|
From
one to five years
|
203
|
86
|
289
|
|
Total
|
255
|
92
|
347
|
These
commitments arise from plant and equipment lease agreements. Between March 30,
1991 and April 9, 2001, finance lease agreements were signed between O2 UK and a
number of US leasing trusts. A part of the radio and switch equipment of its GSM
network is subject to the terms of said agreements. The agreements have a term
of 16 years and an early purchase option after the first 12 years.
At
December 31, 2009 and 2008, net assets under this lease amounting to 208 and 186
million euros, respectively, were recognized under property, plant and
equipment.
|
b)
|
Finance
lease agreement at Colombia Telecomunicaciones, S.A.
ESP.
|
Similarly,
via its subsidiary Colombia Telecomunicaciones, S.A. ESP, the Group has a
finance lease agreement with PARAPAT, the consortium which owns the
telecommunications assets and manages the pension funds for the entities which
were predecessors to Colombia de Telecomunicaciones, S.A., E.S.P., and which
regulate the operation of assets, goods and rights relating with the provision
of telecommunications services by the company, in exchange for financial
consideration.
This
agreement includes the transfer of these assets and rights to Colombia de
Telecomunicaciones, S.A., ESP once the last installment of the consideration has
been paid in line with the payment schedule over a period of 17 years from
2006:
|
Present
value
|
Revaluation
|
Installments pending
payment
|
|
|
2010
|
101
|
68
|
169
|
|
2011
|
97
|
86
|
183
|
|
2012
|
128
|
143
|
271
|
|
2013
|
123
|
170
|
293
|
|
2014
|
119
|
199
|
318
|
|
Subsequent
years
|
808
|
2,891
|
3,699
|
|
Total
|
1,376
|
3,557
|
4,933
|
The net
amount of property, plant and equipment recorded under the terms of this lease
was 483 million euros at December 31, 2009 (547 million euros at December 31,
2008).
|
(23)
|
CASH FLOW
ANALYSIS
|
Net cash flow from operating
activities
Net cash
flow from operating activities fell 1.33% to 16,148 million euros in 2009 from
16,366 million euros in 2008, which was 5.24% higher than the 15,551 million
euros obtained in 2007.
Telefónica
Latin America, as the Group’s driver, Telefónica Europe, which is achieving
solid results thanks to the advantages afforded by its larger size and
efficiency gains, and the businesses in Spain, which boasts efficient commercial
activity, coupled with control over costs and capex are all easing the pressure
of revenue on operating cash flow.
Meanwhile,
cash payments to suppliers and employees in 2009 decreased by 4.75% to 46,198
million euros from 48,500 million euros in 2008. This reduction is the result of
cost containment amid efforts to maximize the efficiency of the cost structure.
Employee benefits expense rose in 2009 in line with the increase the costs
related to the higher average headcount in the year. In 2009, the Telefónica
Group obtained operating cash flow (operating revenue less payments to suppliers
for expenses and employee benefits expenses) totaling 21,161 million euros,
2.92% more than the 20,560 million euros generated in 2008. Driving this
increase were the Company’s highly diversified business mix and its ability to
deliver in an ever-changing environment, not to mention its skilled management
of costs and investment. Strong commercial efforts are helping drive growth in
accesses across all operating businesses and regions, helping generate operating
cash flow. In 2008, operating cash flow totaled 20,560 million euros, 2.26% more
than the 20,105 million euros generation in 2007. This increase was largely
driven by the Group’s strong position in its main markets, the impact of the
Company’s extensive business diversification and its strategic commitment to
tapping the growth potential of its operating markets. Meanwhile, strong
commercial efforts helped drive growth in accesses across all operating
businesses and regions, thereby helping boost operating cash flow.
Customer
collections increased by 2.46% to 67,358 million euros in 2009 (from 69,060
million euros in 2008), in line with the performance of revenues from operations
in the year. Customer collections increased by 2.88% to 69,060 million euros in
2008 (from 67,129 million euros in 2007). This growth was the result of higher
revenue due to the growth in accesses, which in turn was due to the success of
the commercial campaigns to win and retain customers.
Meanwhile,
cash payments to suppliers and employees in 2008 rose 3.14% to 48,500 million
euros from 47,024 million euros in 2007. This slight increase was the result of
greater commercial efforts in the various geographic areas, mainly to garner
customer loyalty, and to higher interconnection charges, while maximizing the
efficiency of the cost structure.
Cash
flows arising from payments of interest and other finance costs in 2009 fell
25.02% to 2,170 million euros, due to the decline in interest rates during the
year and the reduction in financial debt in previous years. These figures do not
include payments on the main issues made in 2009, which will begin falling due
as of 2010. Payments for net interest and other finance costs in 2008 fell
10.15% to 2,894 million euros (from 3,221 million euros in 2007) mostly due to
the decrease in financial debt.
Taxes
paid in 2009 soared 108.21% to 2,942 million euros from 1,413 million euros in
2008 due to the 1,297 million euros payment on account made by Telefónica, S.A.
in the year. Taxes paid in 2008 were 3.02% lower than the 1,457 million euros
paid in 2007.
Net cash used in investing
activities
Net cash
used in investing activities increased by 2.19% in 2009 to 9,300 million euros
from 9,101 million euros in 2008.
Net cash
used in investing activities increased by 4,509 million euros in 2008, to 9,101
million euros from 4,592 million euros in 2007. Payments on investments in
companies (net of cash and cash equivalents acquired) in 2008 declined by
22.16%, from 2,798 million euros to 2,178 million euros. The main investments
were the acquisitions of Telemig by Brasilcel, N.V. for 347 million euros, of
shares of China Netcom and China Unicom for 688 and 424 million euros,
respectively, and of 51.8% of CTC’s non-controlling interests for 640 million
euros. The main payment on investments in 2007 was for the 42.3% stake in Telco
S.p.A. for 2,314 million euros.
Payments
on financial investments not included in cash equivalents amounted to 1,411
million euros, compared to 114 million euros in 2008. This increase was the
result of investments in deposits and other long-term financial
instruments.
Investment
in property, plant and equipment and intangible assets in 2009 totaled 7,593
million euros, 3.75% less than the 7,889 million euros of 2008. This decrease is
in line with the decline in acquisitions of property, plant and equipment during
the year.
The
amount at December 31, 2008 was 615 million euros higher than in 2007 (7,274
million euros) driven by further investment in fiber optics, 3G, TV and
ADSL.
Proceeds
from disposals of investments in companies, net of cash and cash equivalents
acquired, amounted to 686 million euros in 2008, mainly due to the 648 million
euros obtained from the sale of Sogecable. In 2007, this figure was 5,346
million euros and entailed disposals of stakes in Airwave and Endemol for 2,841
million and 2,107 million euros, respectively.
In 2009,
net short-term financial investments included in cash flows from cash surpluses
not included under cash equivalents in 2009 amounted to 548 million euros. Net
disposals of these investments in 2008 amounted to 76 million
euros.
Net cash used in financing
activities
Net cash
used in financing activities in 2009 totaled 2,281 million euros, 71% less than
the 7,765 million euros of 2008, mainly due to the 8,617 million euros of
proceeds from the issuance of debentures and bonds (1,317 million euros in
2008).
Net cash
used in financing activities in 2008 totaled 7,765 million euros, down from
9,425 million euros in 2007. The 1,660 million euro decline was due basically to
the decrease in the repayment of financing due to the decline in the debt
balance in the last few years.
|
(24)
|
EVENTS AFTER THE REPORTING
PERIOD
|
Significant
events affecting Telefónica taking place from December 31, 2009 to the date of
preparation of these consolidated financial statements include:
Financing
a) Maturity of debentures and
bonds:
On
January 25, 2010, Telefónica Emisiones, S.A.U. repaid at maturity the bonds
issued on July 25, 2006 under the bond issuance program (“EMTN”) registered with
the London Stock Exchange for an aggregate amount of 1,250 million
euros.
b) Voluntary early
redemptions:
The
following issues were redeemed voluntarily before maturity in the early months
of 2010:
|
-
|
On
January 29, 2010, Telefónica, S.A. made a voluntarily repayment ahead of
schedule of 500 million euros on the 6,000 million euro syndicated loan
arranged on June 28, 2005 and amended on February 13, 2009 to extend the
maturity of 4,000 million euros from June 28, 2011 by one year for 2,000
million euros and two years for the other 2,000 million
euros.
|
|
-
|
Similarly,
on February 11, 2010, Telefónica, S.A. made a voluntary repayment of 500
million euros on the same
loan.
|
c) Financing of
Telco
On
January 11, 2010, Telco S.p.A. (“Telco”) arranged a 1,300 million euro loan with
Intesa Sanpaolo, S.p.A., Mediobanca, S.p.A., Société Générale, S.p.A. and
Unicredito, S.p.A. maturing on May 31, 2012, part of which is secured with
Telecom Italia S.p.A. shares. The
lending banks have granted Telco shareholders a call option on the Telecom
Italia S.p.A. shares that they may be entitled to receive as a result of the
potential execution of the pledge.
In line
with the commitments assumed by Telco shareholders, on December 22, 2009, the
rest of Telco’s financing needs with respect to debt maturities were met with a
bridge loan granted by shareholders Telefónica, Intesa Sanpaolo, S.p.A. and
Mediobanca, S.p.A., for approximately 902 million euros, and a bank bridge loan
granted by Intesa Sanpaolo, S.p.A. and Mediobanca, S.p.A., for the remaining 398
million euros.
The financing from the bridge loans was
substituted with a bond subscribed by Telco’s shareholder groups, on a pro-rate
basis in accordance with their interests in the company, on February 19, 2010
for 1,300 million euros.
d) Financing of ECAs
On
February 12, 2010, Telefónica, S.A. arranged long-term financing for an amount
of 472 million US dollars at fixed rates with a guarantee of the Swedish Export
Agency (EKN) to acquire network equipment from a Swedish service provider. This
financing entailed three tranches: tranche A, for 232 million US dollars
maturing on November 30, 2018, tranche B, for 164 million US dollars maturing on
April 30, 2019, and tranche C, for 76 million US dollars maturing on November
30, 2019.
Devaluation of the Venezuelan Bolivar
fuerte
Regarding
the devaluation of the Venezuelan Bolivar fuerte on January 8, 2010 (see Note
2), the two main factors to consider with respect to the Telefónica Group’s 2010
financial statements will be:
|
·
|
The
decrease in the Telefónica Group’s net assets in Venezuela as a result of
the new exchange rate, with a balancing entry in equity of the Group. This
effect is estimated at approximately 1,810 million
euros.
|
|
·
|
The
translation of results and cash flows from Venezuela at the new devalued
closing exchange rate.
|
Finally,
on January 19, the Venezuelan Authorities announced that they would grant a
preferential rate of 2.60 Bolivar fuerte per dollar for new items, among which
payment of dividends is included, as long as the request for Authorization of
Acquisition of Foreign Exchange was filed before January 8, 2010. To that date,
the Company had in fact requested authorizations related to the distribution of
dividends of prior years (see Note 16).
Fulfillment of commitments relating to
the acquisition in Germany of HanseNet Telekommunikation GmbH by Telefónica Deutschland GmbH
On February 16, 2010, having complied
with the terms established in the agreement dated December 3, 2009 by the
parties, the Telefónica Group completed the acquisition of 100% of the shares of
HanseNet. The final amount paid out was approximately 912 million
euros.
Amendment to the agreements signed with
Prisa and Sogecable following the purchase of a stake in Digital+ by Gestevisión
Telecinco, S.A.
Following
the signing on the agreement between Prisa and Gestevisión Telecinco, S.A.
(“Telecinco”) for the sale by Prisa to Telecinco of a 22% stake in Digital+, on
January 29, 2010, Telefónica and Prisa signed a new agreement raising the
percentage stake to be acquired by Telefónica from 21% to 22%. Meanwhile,
following the agreement reached between Prisa and Telecinco, Telefónica has
undertaken to renegotiate the terms of the Shareholder Agreement to reflect the
shareholder structure of Digital+ following the acquisition of a stake in the
company by Telecinco.
The
estimated total investment to be made by Telefónica, after deduction of the net
debt, will be around 495 million euros, of which approximately 230 million euros
will be covered by the assumption by the buyer of subordinated loan between
Telefónica de Contenidos, S.A.U. (creditor) and Sogecable (debtor).
This
acquisition is subject, among other conditions, to the obtainment of the
appropriate regulatory authorizations.
Acquisition of JAJAH
In January 2010, the Telefónica Group,
through its wholly owned subsidiary Telefónica Europe plc, acquired 100% of the
shares of JAJAH, the leading communications innovator, for 145 million
euros.
|
(25)
|
ADDITIONAL NOTE FOR ENGLISH
TRANSLATION
|
These consolidated financial statements
were originally prepared in Spanish. In the event of discrepancy, the
Spanish-language version
prevails.
These financial statements are presented
on the basis of International Reporting Standards as issued by the International Accounting
Standars Board (IASB), which do not differ for the purposes
of the Telefónica Group from
IFRS as adopted by the
European Union. Consequently, certain accounting practices applied by the
Group do not conform with generally accepted
principles in other countries.
APPENDIX I:
CHANGES IN THE CONSOLIDATION SCOPE
The following changes took place in the
consolidation scope in 2009:
Telefónica Europe
The companies BT Cellnet Ltd and SPT
Telecom Finance, B.V. were disposed of. Both entities,
previously included in the consolidated financial statements of the Telefónica
Group using the full consolidation method, were removed from the consolidation
scope.
In December, German company Telefónica
Global Services, GmbH, a wholly owned subsidiary of the Telefónica Group, set up
a German company, Telefónica Global Roaming, GmbH, with initial capital of 25
thousand euros. This company was included in the consolidation scope using the full
consolidation method.
Telefónica
Latin
America
Pursuant to Chilean law, on December 1,
2008, Telefónica, S.A., through subsidiary Inversiones Telefónica Internacional
Holding, Ltda., launched a second tender offer (“second offer”) for all the
shares of Compañía Telefónica de Chile, S.A. (CTC) Telefónica did not
already hold (representing 3.25% of CTC’s capital).
Upon completion of the second offer,
Telefónica’s
indirect stake in CTC increased from 96.75% to 97.89% at the date of filing the
notice with the Spanish National Securities Commission, the CNMV, on January 9,
2009. The Telefónica Group still consolidates the Chilean company using the full
consolidation method.
Pursuant to the corporate restructuring
of the Brazilian group Vivo, on July 27, 2009 Telemig Celular, S.A. was absorbed
by Telemig Celular Participaçoes, S.A., which was subsequently absorbed by
Vivo
Participaçoes, S.A. Following this transaction, Telemig
Celular, S.A. and Telemig Celular Participaçoes, which had been fully
consolidated in the Telefónica Group, were removed from the consolidation scope.
The Telefónica Group still consolidates Vivo Participaçoes, S.A. using proportionate
consolidation.
On November 19, 2009, within the scope
of the same corporate restructuring, the companies Tagilo Participaçoes, Ltda., Sudestecel Participaçoes, Ltda., Avista Participaçoes, Ltda. and Vivo Brasil Comunicaçoes Ltda. were absorbed by Portelcom Participaçoes, S.A. All these companies, previously
consolidated using proportionate consolidations, were removed from the
Telefónica Group’s consolidation scope.
In September 2009, deeds of liquidation
of Nicaraguan companies Telefónica Móviles Nicaragua, S.A., Doric Holdings y
Compañía, Ltda. and Kalamai Holdings y Compañía, Ltda. were executed. The
companies, which had been fully consolidated in the Telefónica Group, were
removed from the consolidation scope.
On December 3, 2009, following approval by the
National Securities
Commission of the Argentine Republic, the Argentine securities regulator,
Telefónica, S.A. acquired shares representing 1.8% of
the share capital of Telefónica de Argentina, S.A. held by minority shareholders for a
price of approximately 23 million euros. Following this acquisition, the
Telefónica Group is owner of all of the shares of the Argentine company. This
company is still fully consolidated in the consolidated financial statements of
the Telefónica Group.
On October 21, 2009 Telefónica, S.A. and
China Unicom (Hong Kong) Limited (“China Unicom”) completed the mutual share
exchange agreement through which Telefónica, through Telefónica Internacional,
S.A.U., subscribed for 693,912,264 newly issued shares of China Unicom,
satisfied by the contribution in kind to China Unicom of 40,730,735 Telefónica
shares. This entailed an investment of approximately 1,000 million US dollars of
ordinary shares of China Unicom. Following this acquisition, the Telefónica
Group’s shareholding interest in China Unicom’s voting share capital increased
from 5.38% to 8.06%.
On November 5, the share buyback
agreement of one of China Unicom’s core shareholders, SK Telecom Co., Ltd.
(“SKT”), was
carried out. Following the buyback and cancellation of the shares, the
Telefónica Group’s holding in China Unicom’s share capital reached 8.37%. The
Telefónica Group accounts for this investment using the equity
method.
Other companies
In February 2009, Telefónica
International Wholesale Services II, S.L. was incorporated, with initial capital
of 3,006 euros, fully subscribed and paid by Telefónica, S.A.. This company is included in the
consolidated financial statements of the Telefónica Group using the full
consolidation method.
In 2009, Telefónica International
Wholesale Services II, S.L. incorporated the European companies TIWS Hungary,
TIWS Sweden and TIWS Latvia, subscribing and paying up 100% of their respective
share capital. All of these companies have been included in the Telefónica
Group’s consolidation scope using the full consolidation
method.
In April, Dutch company Atento, N.V. acquired 100% of the shares of
Venezuelan company Teleatención de Venezuela, C.A. for approximately 9 thousand euros.
This company has been included in the Telefónica Group’s consolidation scope
using the full consolidation method. It has been idle since its
incorporation.
In April, Chilean company Compañía de Telecomunicaciones de Chile, Marketing e
Información, S.A., a subsidiary of Atento Chile, S.A., was wound up. The
company, which was fully consolidated in the Telefónica Group’s financial
statements, was removed from the consolidation scope.
Spanish company Telefónica Remesas, S.A.
was incorporated by Telefónica Telecomunicaciones Públicas, S.A., a wholly owned
Telefónica Group subsidiary, with initial capital of 0.3 million euros, fully
subscribed and paid. This company has been included in the Telefónica Group’s
consolidation scope using the full consolidation method.
Telefónica Móviles España, S.A., a 100%
owned subsidiary of Telefónica, S.A., sold its 32.18% stake in Moroccan
company Medi
Telecom, S.A. (Méditel) and the company’s outstanding
loans, for 400 million euros to the rest of Méditel’s local partners. This
company, which in 2008 was accounted for by the Telefónica Group using the
equity method, was removed from the consolidation scope.
In September, Argentine company
Atusa, S.A. was incorporated, with initial capital
of 50 thousand Argentine pesos, which was fully subscribed. The Telefónica Group
paid for 25% of the company. This company has been included in the Telefónica
Group’s
consolidated financial statements using the full consolidation
method.
In 2009, Spanish company Atento Teleservicios España, S.A.U., a wholly owned subsidiary of
the Telefónica Group, took over and merged Amsterdam-based company Atento EMEA, B.V. This
company, which was fully consolidated in
the Telefónica Group’s consolidated financial statements, was removed from the
consolidation scope.
Following the sale of Sintonia, S.A.’s stake in Telco S.p.A. (Telco), the
Italian company with a 22.45% shareholding in telecommunications operator
Telecom Italia S.p.A., Telefónica, S.A.’s stake in Telco increased from 42.3% to
46.18%, maintaining its effective interest in Telecom Italia S.p.A. through this
company at 10.36% of the voting shares. The company is still accounted for in
the Telefónica Group consolidated financial statements using the equity
method.
In November, Telefónica Servicios Audiovisuales, S.A., a whole owned subsidiary of the
Telefónica Group, acquired 100% of Spanish company Gloway Broadcast Services,
S.L. (“Gloway”) for approximately 6 million
euros. This company has been included in the Telefónica Group's consolidated
financial statements using the full consolidation method.
The main changes in consolidation scope
in 2008 were as follows:
Telefónica Spain
In June 2008, Spanish company
Iberbanda, S.A. raised and then decreased capital to
offset losses. In the move, Telefónica de España, S.A.U. subscribed more shares than
corresponded to its shareholding, thereby raising its stake in the company from
51% to 58.94%. This company is still fully consolidated.
Telefónica Latin America
On September 17, 2008, Telefónica
launched a tender offer through its Inversiones Telefónica Internacional
Holding, Ltda. subsidiary to acquire all the outstanding shares of
Compañía Telefónica de Chile, S.A. (“CTC”) that Telefónica
did not control directly or indirectly. This amounted to 55.1% of CTC’s share
capital. This included all CTC shares listed on the Santiago de Chile and New
York Stock Exchanges (represented by American Depositary Shares). The offer was
structured as a purchase of shares in cash, initially at a price of 1,000
Chilean pesos for class A shares and 900 Chilean pesos for class B shares. On
October 11, 2008 the offer price was increased to 1,100 Chilean pesos for class
A shares and 990 Chilean pesos for class B shares.
Upon completion of the acceptance period
of the tender offer, a total of 496,341,699 shares issued by CTC were tendered,
representing 94.11% of the shares to which the offer related and a total
investment of approximately 640 million euros.
After settlement of the transaction,
Telefónica’s indirect ownership in CTC’s share capital increased from 44.9% to
96.75%. This Chilean company was still included in the Telefónica Group’s
consolidation scope using the full consolidation method.
Subsequently, pursuant to the
obligations in Chilean law, on December 1, 2008, Telefónica, through subsidiary
Inversiones Telefónica Internacional Holding, Ltda., presented a second tender
offer to acquire all the outstanding shares of CTC that it did not own, directly
or indirectly, after settlement of the first offer (representing 3.25% of CTC’s
capital), on the same economic terms as the initial bid. This offer expired on
January 9, 2009.
In August 2008, Telefónica del Perú, S.A.A. acquired 71.29% of Peruvian
company Star Global Com, S.A.C. for 8 million US dollars. The company was
included in the Telefónica Group’s consolidation scope using the full
consolidation method.
On April 3, 2008, in accordance with the terms of a sale and
purchase agreement entered into on August 2, 2007, after the pertinent
administration authorizations were obtained, Vivo Participaçoes,
S.A. (“VIVO”) completed the acquisition
of 53.90% of the voting stock (ON) and 4.27% of the preferred stock (PN) of
Telemig Celular Participaçoes, S.A., the controlling shareholder of Telemig
Celular, S.A., a mobile telephony operator in the State of Minas Gerais
(Brazil). According to the terms of the sale and purchase agreement, the total
purchase price was 1,163 million reais (approximately 429 million euros). VIVO
also acquired the right held by the seller to subscribe in the future for paid
up shares in Telemig Celular Participaçoes, S.A. for a price of approximately 70 million
Brazilian reais (26 million euros).
Moreover, on April 8, 2008, VIVO,
through its subsidiary Tele Centro Oeste IP, S.A., launched a voluntary tender
offer for shares representing up to one third of the free float represented by
the preferred stock in Telemig Celular Participaçoes, S.A. and in its subsidiary Telemig Celular,
S.A. at a price of 63.90 and 654.72 Brazilian reais, respectively. Once the
offer concluded, on May 15, 2008, having reached a level of acceptance of close
to 100%, TCO IP, S.A. acquired 31.9% and 6% of the preferred shares of Telemig
Celular Participaçoes, S.A. and Telemig Celular, S.A.,
respectively. Furthermore, in accordance with Brazilian Corporations law, TCO
IP, S.A. submitted a mandatory tender offer on July 15 for all the voting stock
in Telemig Celular Participaçoes, S.A. and Telemig Celular, S.A. at a price
per share equivalent to 80% of the purchase price of the voting stock of these
companies.
On December 19, 2008, approval was given
by shareholders of Telemig Celular Participaçoes, S.A., Telemig Celular, S.A. and Vivo Participaçoes, S.A. (Vivo) in their respective
extraordinary meetings to reorganize the Vivo Group, whereby TCO IP, S.A. was
spun off. Its assets were subsequently integrated under Telemig Celular, S.A.
and Telemig Celular Participaçoes, S.A., making Vivo a shareholder in both
Brazilian companies, with direct and indirect stakes at December 31, 2008
amounting to 90.65% and 58.9%, respectively. Both companies were included in the
Telefónica Group’s consolidation scope using proportionate
consolidation.
Multi Holding Corporation, S.A., which
was wholly owned by Telefónica, S.A., was wound up. Accordingly, the
company, which was fully consolidated in the Telefónica Group’s financial
statements, was removed from the consolidation scope.
On June
16, 2006, Telefónica de Argentina, S.A signed a contract to acquire the shares
of Telefónica Data Argentina, S.A. (787,697 shares, representing 97.89% of its
share capital) held by Telefónica Data Corp, S.A.U., a wholly owned subsidiary
of Telefónica.
After
extending the deadline for the sale, on January 28, 2008 Telefónica Data Corp,
S.A.U. assumed the obligation to acquire all the shares of Telefónica Data
Argentina, S.A. it did not already own (14,948 shares at a price of 224.30
Argentine pesos, representing 1.8578% of share capital). This acquisition was
carried out on November 17, 2008.
As a result, Telefónica DataCorp, S.A.U. became owner of 802,645 shares,
representing 100% of Telefónica Data Argentina, S.A. It subsequently transferred these
shares to Telefónica de
Argentina, S.A. in various stages, which ended on
December 11, 2008.
Other companies
In November 2008, Telefónica del Perú,
S.A.A. sold a total of 4,496,984 shares representing approximately 30% of the
share capital of Teleatento del Perú, S.A.C. to Dutch company Atento, N.V.
(1,124,246 shares), Chilean company Atento Chile (2,323,442 shares) and to
shareholders of Teleatento del Perú, S.A.C. itself (1,049,296 shares), for
approximately 103 million new soles. Following this transaction, the Telefónica
Group holds 100% of the Peruvian company’s share capital. This company was still
fully consolidated.
In October 2008, Atento Holding
Inversiones y Teleservicios, S.A. (Atento HIT) set up Dutch company
Atento EMEA, B.V., with start-up capital of approximately
21 thousand euros. This capital was provided via the spin-off of the
wholly owned subsidiary Atento HIT,
Atento, N.V. The companies it owned in Europe
and Morocco then belonged to the new company Atento
EMEA, while those located in Latin America and Italy were still controlled by Atento, N.V.
Both the newly created Atento EMEA, B.V. and the existing Atento, N.V. were
fully consolidated in the Telefónica Group. In addition, on March 4, 2008,
Atento HIT acquired 100% of the shares of Telemarketing Prague,
a.s.
In January 2008, Turmed, S.L. and the Telefónica Group, through its
wholly owned Terra Networks Asociadas, S.L. subsidiary, sold their 100% stakes
in Viajar.com Viajes, S.L.U. and Terra Business Travel,
S.A., respectively, to the Spanish company Red Universal de Marketing y Bookings
On Line, S.A. (RUMBO). The Telefónica Group consolidated this company using the
equity method until February 2008 and then proportionately from March.
Subsequently, on October 28, 2008, RUMBO, Viajar.com Viajes, S.L.U. and Terra Business Travel, S.A.
were merged, with RUMBO absorbing Viajar.com Viajes, S.L.U. and Terra Business Travel,
S.A., which were extinguished.
Terra Lycos Holding, B.V. and Telefónica U.S.A. Advisors Inc.
were liquidated.
In March 2008, Telco S.p.A., in which
Telefónica holds a stake of 42.3%, acquired 121.5 million shares at a price of
1.23 euros per share in the Italian company Telecom Italia (equivalent to 0.9%
of its share capital), bringing its total direct interest to 24.5% of the voting
rights and 16.9% of the dividend rights. The transaction implied a payment of
149.8 million euros.
As a result, the Telefónica Group
indirectly held 10.4% of Telecom Italia’s voting rights and 7.1% of its dividend
rights. Telco S.p.A. was included in the Telefónica Group’s consolidated
financial statements by the equity method.
After a capital hike by Colombian
company Telefónica Móviles Colombia, S.A., which Telefónica, S.A. fully
subscribed, Telefónica, S.A.’s stake in the company increased to 49.42%, while
the shareholding of Colombian company Olympic, Ltd., a 99.99% subsidiary of the
Telefónica Group, decreased to 50.58%. The Telefónica Group still consolidated
the Colombian operator using the full consolidation method.
In December, Portuguese company Portugal
Telecom, SGPS, S.A. (PT) bought back and cancelled
46,082,677 shares in line with its share buyback program. This raised the
Telefónica Group’s direct and indirect ownership interest to 10.48%. In
accordance with article 20 of the Portuguese stock market code, Telefónica sold
4,264,394 shares of PT, thereby lowering its stake to 10%. This company was
still included in the consolidation scope using the equity
method.
In
December 2008, Telefactoring Colombia, S.A. was incorporated, with start-up
capital amounting to 4 billion Colombian pesos, fully subscribed and paid in.
Telefónica subscribed and paid 1,620 million Colombian pesos, equivalent to a
40.5% stake. This company had yet to commence operations and was not included in
the consolidation scope at the end of 2008.
Changes to the 2007 consolidation scope
are described in the following sections.
Telefónica Europe
Telefónica
O2 Europe Plc, a wholly owned subsidiary of Telefónica, S.A., and its 100%-owned
subsidiary O2 Holdings, Ltd, sold 100% of the share capital of UK company
Airwave O2, Ltd, for 1,932 million pounds sterling (equivalent to 2,841 million
euros at the transaction date), obtaining a
gain of
1,296 million euros. This company, which had been fully consolidated in the
Telefónica Group, was removed from the consolidation scope.
On
December 20, 2007, the O2 Group transferred legal ownership to the entire
business in Germany to Telefónica, S.A. through a dividend in kind for 8,500
million euros.
Telefónica Latin America
In 2007,
Brazilian company Telecomunicaçoes de Sao Paulo, S.A. acquired 100% of Brazilian
company NavyTree Participaçoes, S.A. for 361 million euros. This company was
included in the consolidation scope using the full consolidation
method.
Other companies
In
February 2007, 100% of the shares of Endemol France were sold to Endemol, N.V.,
a company in which the Telefónica Group has a 75% stake.
In May,
2007, Telefónica, S.A. signed an agreement to sell its 99.7% stake in Dutch
company Endemol Investment Holding, B.V. to a newly created consortium owned
equally by Mediacinco Cartera, S.L., a newly created company owned by Italian
company Mediaset and its listed Spanish subsidiary Gestevisión Telecinco, Cyrte
Fond II, B.V. and G.S. Capital Partners VI Fund, L.P, for 2,629 million euros,
obtaining capital gains of 1,368 million euros. This sale was carried out on
July 3, 2007. This company, which had been fully consolidated in the Telefónica
Group, was removed from the consolidation scope.
In August
2007, the Telefónica Group disposed of its 100% holding in Spanish company
Azeler Automoción, S.A. for 0.34 million euros. This company, which had been
fully consolidated in the Telefónica Group, was removed from the consolidation
scope.
On April
28, 2007, Telefónica, S.A., together with its partners Assicurazioni Generali
S.p.A., Intesa Sanpaolo, S.p.A., Mediobanca S.p.A. and Sintonía, S.A.
(Benetton), entered into a “Co- Investment Agreement” and “Shareholders
Agreement” with a view to establishing the terms and conditions of their
acquisition of an indirect shareholding in Telecom Italia S.p.A. through an
Italian company, currently called Telco S.p.A., in which Telefónica has a 42.3%
interest. Both agreements were modified on October 25, 2007 following the
inclusion of the Assicurazioni Generali Group companies indicated and the
“Shareholders Agreement” was further amended on November 19, 2007.
On
October 25, 2007 Telco S.p.A. acquired 100% of Olimpia, S.p.A., which held
17.99% of the voting shares of Telecom Italia S.p.A. Also on that date,
Assicurazioni Generali S.p.A. (together with its group companies Alleanza
Assicurazioni S.p.A., INA Assitalia S.p.A., Volksfürsorge Deutsche
Lebenversicherung A.G. and Generali Vie S.A.) and Mediobanca S.p.A. contributed
a total share of 5.6% of Telecom Italia S.p.A.’s voting shares (4.06% and 1.54%,
respectively) to Telco S.p.A.
On
December 10, 2007, an agreement was reached to takeover and merge Olimpia S.p.A.
into Telco S.p.A., making Telco S.p.A’s entire stake in the voting shares of the
Italian operator (23.6%) direct and leaving Telefónica with an indirect holding
in the voting shares of Telecom Italia S.p.A. of 9.98% (6.88% of the dividend
rights) for 2,314 million euros.
The
“Shareholders Agreement” signed on April 28, 2007, contained a general clause
whereby both Telefónica, at the shareholders meetings of Telco S.p.A. and
Telecom Italia S.p.A, and the Telefónica directors appointed to the companies’
respective boards, would abstain from participating in and voting at the
meetings dealing with issues regarding the provision of
telecommunications
services by companies controlled by Telecom Italia S.p.A., in countries where
there are legal or regulatory restrictions on the exercise of voting rights by
Telefónica.
However,
as indicated above, on November 19, 2007 the partners expounded on and detailed
the “Shareholders Agreement”, as well as the Bylaws of Telco S.p.A., to include
the specific limitations imposed by the Brazilian telecommunications regulator,
Agência Nacional de
Telecomunicações (“ANATEL”), as initially posted on its website on
October 23, 2007 and subsequently published on November 5, 2007 as ANATEL’s
“Ato” no. 68,276 dated
October 31, 2007.
Pursuant
to clause 8.5(a) of the “Shareholders Agreement,” on November 6, 2007 Telco
S.p.A. and Telefónica entered into a Call Option Agreement giving Telefónica the
option to buy shares of Telecom Italia S.p.A. in the event Telco S.p.A adopted a
resolution to sell or pledge shares of Telecom Italia S.p.A (or rights related
to its shares, such as voting rights) by simple majority and Telefónica were the
“dissenting party,” under the terms
of the “Shareholders Agreement.”
APPENDIX II: DEBENTURES AND BONDS
The list
and main features of outstanding debentures and bonds at December 31, 2009 are
as follows (in millions of euros):
|
Telefónica and special purpose
vehicles
|
Maturity
|
|||||||||
|
Debentures and
bonds
|
Currency
|
% Interest
rate
|
Final rate
|
2010
|
2011
|
2012
|
2013
|
2014
|
Subsequent
years
|
Total
|
|
CAIXA 07/21/29 ZERO
COUPON
|
EUR
|
6.39%
|
6.390%
|
-
|
-
|
-
|
-
|
-
|
57
|
57
|
|
ABN
15Y BOND
|
EUR
|
1.0225xGBSW10Y
|
3.80%
|
-
|
-
|
-
|
-
|
-
|
50
|
50
|
|
TELEFÓNICA FEBRUARY
90C-12.60%
|
EUR
|
12.6%
|
12.600%
|
4
|
-
|
-
|
-
|
-
|
-
|
4
|
|
TELEFÓNICA FEBRUARY 90 F ZERO
COUPON
|
EUR
|
12.82%
|
12.820%
|
15
|
-
|
-
|
-
|
-
|
-
|
15
|
|
Telefónica, S.A.
|
19
|
-
|
-
|
-
|
-
|
107
|
126
|
|||
|
T. EUROPE BV SEP_00 GLOBAL C
|
USD
|
7.75%
|
7.750%
|
1,735
|
-
|
-
|
-
|
-
|
-
|
1,735
|
|
T. EUROPE BV SEP_00 GLOBAL D
|
USD
|
8.25%
|
8.250%
|
-
|
-
|
-
|
-
|
-
|
868
|
868
|
|
TEBV FEB_03 EMTN FIXED
TRANCHE A
|
EUR
|
5.125%
|
5.125%
|
-
|
-
|
-
|
1,500
|
-
|
-
|
1,500
|
|
TEBV FEB_03 EMTN FIXED
TRANCHE B
|
EUR
|
5.875%
|
5.875%
|
-
|
-
|
-
|
-
|
-
|
500
|
500
|
|
T.EUROPE BV JULY A
2007
|
JPY
|
2.11%
|
2.110%
|
-
|
-
|
113
|
-
|
-
|
-
|
113
|
|
T.EUROPE BV JULY B
2007
|
JPY
|
1 x JPYL6M +
0.40000%
|
1.060%
|
-
|
-
|
113
|
-
|
-
|
-
|
113
|
|
Telefónica Europe,
B.V.
|
1,735
|
-
|
226
|
1,500
|
-
|
1,368
|
4,829
|
|||
|
EMTN O2 EUR
(I)
|
EUR
|
4.375%
|
4.375%
|
-
|
-
|
-
|
-
|
-
|
1,750
|
1,750
|
|
EMTN O2 EURO
(II)
|
EUR
|
3.75%
|
3.750%
|
-
|
2,250
|
-
|
-
|
-
|
-
|
2,250
|
|
EMTN O2 GBP
(I)
|
GBP
|
5.375%
|
5.375%
|
-
|
-
|
-
|
-
|
-
|
844
|
844
|
|
EMTN O2 GBP
(II)
|
GBP
|
5.375%
|
5.375%
|
-
|
-
|
-
|
-
|
-
|
563
|
563
|
|
TELEF. EMISIONES JUN 06 TRANCHE
B
|
USD
|
5.984%
|
5.984%
|
-
|
694
|
-
|
-
|
-
|
-
|
694
|
|
TELEF. EMISIONES JUN 06 TRANCHE
C
|
USD
|
6.421%
|
6.421%
|
-
|
-
|
-
|
-
|
-
|
868
|
868
|
|
TELEF. EMISIONES JUN 06 TRANCHE
D
|
USD
|
7.045%
|
7.045%
|
-
|
-
|
-
|
-
|
-
|
1,388
|
1,388
|
|
TELEF. EMISIONES JULY
06
|
EUR
|
1 x EURIBOR3M +
0.35000%
|
1.083%
|
1,250
|
-
|
-
|
-
|
-
|
-
|
1,250
|
|
TELEF. EMISIONES SEPTEMBER
06
|
EUR
|
4.393%
|
4.393%
|
-
|
-
|
500
|
-
|
-
|
-
|
500
|
|
TELEF. EMISIONES DECEMBER
06
|
GBP
|
5.888%
|
5.888%
|
-
|
-
|
-
|
-
|
563
|
-
|
563
|
|
TELEF. EMISIONES JANUARY
06
A
|
EUR
|
1 x EURIBOR6M +
0.83000%
|
1.822%
|
-
|
-
|
-
|
-
|
-
|
55
|
55
|
|
TELEF. EMISIONES JANUARY 06
B
|
EUR
|
1 x EURIBOR3M +
0.70000%
|
1.422%
|
-
|
-
|
-
|
-
|
-
|
24
|
24
|
|
TELEF. EMISIONES FEBRUARY
07
|
EUR
|
4.674%
|
4.674%
|
-
|
-
|
-
|
-
|
1,500
|
-
|
1,500
|
|
TELEF. EMISIONES JUNE A 07
|
CZK
|
1 x CZKPRIB_3M +
0.16000%
|
1.710%
|
91
|
-
|
-
|
-
|
-
|
-
|
91
|
|
TELEF. EMISIONES JUNE B 07
|
CZK
|
4.351%
|
4.351%
|
-
|
-
|
113
|
-
|
-
|
-
|
113
|
|
TELEF. EMISIONES JUNE C 07
|
CZK
|
4.623%
|
4.623%
|
-
|
-
|
-
|
-
|
98
|
-
|
98
|
|
TELEF. EMISIONES JULY A
07
|
USD
|
5.855%
|
5.855%
|
-
|
-
|
-
|
521
|
-
|
-
|
521
|
|
TELEF. EMISIONES JULY B
07
|
USD
|
1 x USDL3M +
0.33000%
|
0.609%
|
-
|
-
|
-
|
590
|
-
|
-
|
590
|
|
TELEF. EMISIONES JULY C
07
|
USD
|
6.221%
|
6.221%
|
-
|
-
|
-
|
-
|
-
|
486
|
486
|
|
TELEF. EMISIONES JUNE
08
|
EUR
|
5.58%
|
5.580%
|
-
|
-
|
-
|
1,250
|
-
|
-
|
1,250
|
|
TELEF. EMISIONES FEBRUARY
09
|
EUR
|
5.431%
|
5.431%
|
-
|
-
|
-
|
-
|
2,000
|
-
|
2,000
|
|
TELEF. EMISIONES APRIL
2016
|
EUR
|
5.4960%
|
5.496%
|
-
|
-
|
-
|
-
|
-
|
1, 000
|
1,000
|
|
TELEF. EMISIONES JUNE
2015
|
EUR
|
1 x EURIBOR3M +
1.825%
|
2.544%
|
-
|
-
|
-
|
-
|
-
|
400
|
400
|
|
TELEF. EMISIONES APRIL 1,
2016
|
EUR
|
5.496%
|
5.496%
|
-
|
-
|
-
|
-
|
-
|
500
|
500
|
|
TELEF. EMISIONES JULY 6,
2015
|
USD
|
4.949%
|
4.949%
|
-
|
-
|
-
|
-
|
-
|
868
|
868
|
|
TELEF. EMISIONES JULY 15,
2019
|
USD
|
5.877%
|
5.877%
|
-
|
-
|
-
|
-
|
-
|
694
|
694
|
|
TELEF. EMISIONES NOVEMBER 11,
2019
|
EUR
|
4.693%
|
4.693%
|
-
|
-
|
-
|
-
|
-
|
1,750
|
1,750
|
|
EMTN GBP 12/09/22 650 GBP
|
GBP
|
5.289%
|
5.289%
|
-
|
-
|
-
|
-
|
-
|
732
|
732
|
|
TELEF. EMISIONES DECEMBER
09
|
EUR
|
1 x EURIBOR3M +
0.70%
|
1.409%
|
-
|
-
|
-
|
-
|
100
|
-
|
100
|
|
Telefónica Emisiones,
S.A.U.
|
1,341
|
2,944
|
613
|
2,361
|
4,261
|
11,922
|
23,442
|
|||
|
Total Telefónica, S.A. and special
purpose vehicles
|
3,095
|
2,944
|
839
|
3,861
|
4,261
|
13,397
|
28,397
|
|||
|
Foreign
operators
|
Maturity
|
||||||||
|
Debentures and
bonds
|
Currency
|
% Interest
rate
|
2010
|
2011
|
2012
|
2013
|
2014
|
Subsequent
years
|
Total
|
|
Marketable
debentures
|
USD
|
9%
|
101
|
-
|
-
|
-
|
-
|
-
|
101
|
|
Marketable
debentures
|
USD
|
8.85%
|
-
|
80
|
-
|
-
|
-
|
-
|
80
|
|
Telefónica Argentina, S.A.
|
101
|
80
|
-
|
-
|
-
|
-
|
181
|
||
|
Series
F
|
UF
|
6.00%
|
2
|
2
|
2
|
2
|
2
|
3
|
13
|
|
Series
L
|
UF
|
3.75%
|
-
|
-
|
86
|
-
|
-
|
-
|
86
|
|
Series
M
|
CLP
|
6.05%
|
-
|
-
|
-
|
-
|
28
|
-
|
28
|
|
Series
N
|
UF
|
3.50%
|
-
|
-
|
-
|
-
|
143
|
-
|
143
|
|
CTC Chile
|
2
|
2
|
88
|
2
|
173
|
3
|
270
|
||
|
Series
A
|
CLP
|
5.60%
|
-
|
-
|
-
|
-
|
44
|
-
|
44
|
|
Telefónica Móviles Chile
|
-
|
-
|
-
|
-
|
44
|
-
|
44
|
||
|
Series
A
|
USD
|
7.75%
|
3
|
2
|
-
|
-
|
-
|
-
|
5
|
|
Series
B
|
USD
|
8.00%
|
2
|
2
|
2
|
-
|
-
|
-
|
6
|
|
Series
C
|
USD
|
8.50%
|
3
|
3
|
3
|
3
|
-
|
-
|
12
|
|
Otecel, S.A.
|
8
|
7
|
5
|
3
|
-
|
-
|
23
|
||
|
Peso
bonds, Series A
|
MXN
|
91-day
CETES + 0.61%
|
425
|
-
|
-
|
-
|
-
|
-
|
425
|
|
Peso
bonds, Series B
|
MXN
|
9.250%
|
-
|
-
|
186
|
-
|
-
|
-
|
186
|
|
Telefónica Finanzas México
|
425
|
-
|
186
|
-
|
-
|
-
|
611
|
||
|
O2
sterling issue
|
GBP
|
7.625%
|
-
|
-
|
422
|
-
|
-
|
-
|
422
|
|
O2
|
-
|
-
|
422
|
-
|
-
|
-
|
422
|
||
|
T.
Peru 3rd
Program (1st
series)
|
PEN
|
VAC
+5.00%
|
12
|
-
|
-
|
-
|
-
|
-
|
12
|
|
T.
Peru 4th
Program (10th
Series A)
|
PEN
|
7.8750%
|
-
|
-
|
7
|
-
|
-
|
-
|
7
|
|
T.
Peru 4th
Program (10th
Series B)
|
PEN
|
6.4375%
|
-
|
-
|
12
|
-
|
-
|
-
|
12
|
|
T.
Peru 4th
Program (12th
Series A)
|
PEN
|
VAC
+ 3.6875%
|
-
|
-
|
-
|
-
|
-
|
15
|
15
|
|
T.
Peru 4th
Program (14th
Series A)
|
PEN
|
6.3750%
|
12
|
-
|
-
|
-
|
-
|
-
|
12
|
|
T.
Peru 4th
Program (14th
Series B)
|
PEN
|
5.9375%
|
-
|
8
|
-
|
-
|
-
|
-
|
8
|
|
T.
Peru 4th
Program (14th
Series C)
|
PEN
|
5.7500%
|
-
|
11
|
-
|
-
|
-
|
-
|
11
|
|
T.
Peru 4th
Program (16th
Series A)
|
PEN
|
6.0000%
|
-
|
-
|
24
|
-
|
-
|
-
|
24
|
|
T.
Peru 4th
Program (16th
Series B)
|
PEN
|
6.2500%
|
-
|
-
|
-
|
7
|
-
|
-
|
7
|
|
T.
Peru 4th
Program (19th
Series A)
|
PEN
|
VAC
+ 3.6250%
|
-
|
-
|
-
|
-
|
-
|
15
|
15
|
|
T.
Peru 4th
Program (19th
Series B)
|
PEN
|
VAC
+ 2.8750%
|
-
|
-
|
-
|
-
|
-
|
12
|
12
|
|
T.
Peru 4th
Program (19th
Series C)
|
PEN
|
VAC
+ 3.1875%
|
-
|
-
|
-
|
-
|
-
|
5
|
5
|
|
T.
Peru 4th
Program (36th
Series A)
|
PEN
|
VAC
+ 3.6875%
|
-
|
-
|
-
|
-
|
-
|
38
|
38
|
|
T.
Peru 4th
Program (36th
Series B)
|
PEN
|
VAC
+ 3.3750%
|
-
|
-
|
-
|
-
|
-
|
13
|
13
|
|
T.
Peru 4th
Program (37th
Series A)
|
PEN
|
VAC
+ 3.1250%
|
-
|
-
|
-
|
-
|
-
|
12
|
12
|
|
T.
Peru 4th
Program (4th
Series A)
|
PEN
|
6.6250%
|
-
|
-
|
19
|
-
|
-
|
-
|
19
|
|
T.
Peru 4th
Program (40th
Series A)
|
PEN
|
5.8750%
|
-
|
7
|
-
|
-
|
-
|
-
|
7
|
|
T.
Peru 4th
Program (40th
Series B)
|
PEN
|
4.8750%
|
-
|
4
|
-
|
-
|
-
|
-
|
4
|
|
T.
Peru 4th
Program (41st
Series A)
|
PEN
|
7.9375%
|
-
|
-
|
4
|
-
|
-
|
-
|
4
|
|
T.
Peru 4th
Program (42nd
Series A)
|
PEN
|
7.3750%
|
-
|
-
|
-
|
6
|
-
|
-
|
6
|
|
T.
Peru 4th
Program (42nd
Series B)
|
PEN
|
5.3125%
|
-
|
-
|
-
|
5
|
-
|
-
|
5
|
|
T.
Peru 4th
Program (42nd
Series C)
|
PEN
|
6.0625%
|
-
|
-
|
-
|
3
|
-
|
-
|
3
|
|
T.
Peru 4th
Program (45th
Series A)
|
USD
|
6.6875%
|
-
|
-
|
-
|
-
|
-
|
15
|
15
|
|
T.
Peru 4th
Program (7th
Series C)
|
PEN
|
5.5625%
|
4
|
-
|
-
|
-
|
-
|
-
|
4
|
|
T.
Peru 4th
Program (8th
Series A)
|
PEN
|
7.3750%
|
7
|
-
|
-
|
-
|
-
|
-
|
7
|
|
T.
Peru 4th
Program (8th
Series B)
|
PEN
|
6.2500%
|
13
|
-
|
-
|
-
|
-
|
-
|
13
|
|
T.
Peru 4th
Program (9th
Series A)
|
PEN
|
6.9375%
|
-
|
14
|
-
|
-
|
-
|
-
|
14
|
|
T.
Peru 4th
Program (9th
Series B)
|
PEN
|
6.3750%
|
-
|
21
|
-
|
-
|
-
|
-
|
21
|
|
T.
Peru 5th
Program (1st
Series A)
|
PEN
|
3.5000%
|
-
|
7
|
-
|
-
|
-
|
-
|
7
|
|
T.
Peru 5th
Program (1st
Series B)
|
PEN
|
3.5000%
|
-
|
6
|
-
|
-
|
-
|
-
|
6
|
|
T.
Peru 5th
Program (22nd
Series A)
|
PEN
|
VAC
+ 3.5000%
|
-
|
-
|
-
|
-
|
-
|
14
|
14
|
|
T.
Peru 5th
Program (3rd
Series A)
|
PEN
|
4.3750%
|
-
|
-
|
7
|
-
|
-
|
-
|
7
|
|
T.
Peru 5th
Program (5th
Series A)
|
PEN
|
6.1875%
|
-
|
-
|
-
|
5
|
-
|
-
|
5
|
|
T.
Peru Senior Notes
|
PEN
|
8.0000%
|
-
|
-
|
-
|
30
|
60
|
91
|
181
|
|
Telefónica del Perú, S.A.A.
|
48
|
78
|
73
|
56
|
60
|
230
|
545
|
||
|
T.M.
Peru 1st
Program (16th
Series A)
|
PEN
|
8.1875%
|
-
|
-
|
-
|
6
|
-
|
-
|
6
|
|
T.M.
Peru 1st
Program (18th
Series A)
|
PEN
|
6.3125%
|
-
|
-
|
-
|
-
|
10
|
-
|
10
|
|
T.M.
Peru 1st
Program (18th
Series B)
|
PEN
|
6.3750%
|
-
|
-
|
-
|
-
|
15
|
-
|
15
|
|
T.M.
Peru 1st
Program (2nd
Series A)
|
PEN
|
7.0625%
|
-
|
12
|
-
|
-
|
-
|
-
|
12
|
|
T.M.
Peru 1st
Program (2nd
Series B)
|
PEN
|
7.5625%
|
-
|
6
|
-
|
-
|
-
|
-
|
6
|
|
T.M.
Peru 1st
Program (2nd
Series C)
|
PEN
|
7.5625%
|
-
|
11
|
-
|
-
|
-
|
-
|
11
|
|
T.M.
Peru 1st
Program (3rd
Series A)
|
PEN
|
7.4375%
|
-
|
-
|
-
|
8
|
-
|
-
|
8
|
|
T.M.
Peru 1st
Program (3rd
Series B)
|
PEN
|
7.6875%
|
-
|
-
|
-
|
5
|
-
|
-
|
5
|
|
T.M.
Peru 1st
Program (8th
Series A)
|
PEN
|
6.4375%
|
11
|
-
|
-
|
-
|
-
|
-
|
11
|
|
Telefónica Móviles, S.A
(Perú)
|
11
|
29
|
-
|
19
|
25
|
-
|
84
|
||
|
Nonconvertible
bonds
|
BRL
|
1.042*
CDI
|
159
|
-
|
-
|
-
|
-
|
-
|
159
|
|
Nonconvertible
bonds
|
BRL
|
1.02
*CDI
|
-
|
40
|
-
|
-
|
-
|
-
|
40
|
|
Nonconvertible
bonds
|
BRL
|
1.1355*
CDI
|
42
|
-
|
-
|
-
|
-
|
-
|
42
|
|
Nonconvertible
bonds
|
BRL
|
1.08
*CDI
|
-
|
-
|
20
|
-
|
-
|
-
|
20
|
|
Nonconvertible
bonds
|
BRL
|
1.12
*CDI
|
-
|
-
|
-
|
128
|
-
|
-
|
128
|
|
Nonconvertible
bonds
|
BRL
|
CPI-A
+ 7%
|
-
|
-
|
-
|
-
|
14
|
-
|
14
|
|
Convertible
bonds (Telemig)
|
BRL
|
CPI-A
+ 0.5%
|
-
|
-
|
-
|
-
|
-
|
10
|
10
|
|
Vivo Participações, S.A.
|
201
|
40
|
20
|
128
|
14
|
10
|
413
|
||
|
Nonconvertible
bonds
|
BRL
|
1 *
CDI + 0.35000%
|
598
|
-
|
-
|
-
|
-
|
-
|
598
|
|
Telesp
|
598
|
-
|
-
|
-
|
-
|
-
|
598
|
||
|
Total issues other
operators
|
1,394
|
236
|
794
|
208
|
316
|
243
|
3,191
|
||
|
TOTAL OUTSTANDING DEBENTURES AND
BONDS
|
4,489
|
3,180
|
1,633
|
4,069
|
4,577
|
13,640
|
31,588
|
||
The list
and main features of outstanding debentures and bonds at December 31, 2008 are
as follows (in millions of euros):
|
Telefónica and special purpose
vehicles
|
Maturity
|
|||||||||
|
Debentures and
bonds
|
Currency
|
%
Interest rate
|
Final rate
|
2009
|
2010
|
2011
|
2012
|
2013
|
Subsequent
years
|
Total
|
|
ABN 15Y BOND
|
EUR
|
1.0225
* GBSW10Y
|
5.260%
|
-
|
-
|
-
|
-
|
-
|
50
|
50
|
|
CAIXA 07/21/29 ZERO
COUPON
|
EUR
|
6.370%
|
6.370%
|
-
|
-
|
-
|
-
|
-
|
54
|
54
|
|
TELEFÓNICA FEBRUARY 90 F ZERO
COUPON
|
EUR
|
12.579%
|
12.579%
|
-
|
14
|
-
|
-
|
-
|
-
|
14
|
|
TELEFÓNICA FEBRUARY
90C-12.60%
|
EUR
|
12.600%
|
12.600%
|
-
|
4
|
-
|
-
|
-
|
-
|
4
|
|
TELEFÓNICA JUNE
99-EURIBOR+63BP
|
EUR
|
1*EURIBOR1Y+0.63000%
|
6.038%
|
300
|
-
|
-
|
-
|
-
|
-
|
300
|
|
TELEFÓNICA MARCH
99-4.50%
|
EUR
|
4.500%
|
4.500%
|
500
|
-
|
-
|
-
|
-
|
-
|
500
|
|
Telefónica, S.A.
|
800
|
18
|
-
|
-
|
-
|
104
|
922
|
|||
|
T. EUROPE BV SEP_00 GLOBAL C
|
USD
|
7.750%
|
7.750%
|
-
|
1,796
|
-
|
-
|
-
|
-
|
1,796
|
|
T. EUROPE BV SEP_00 GLOBAL D
|
USD
|
8.250%
|
8.250%
|
-
|
-
|
-
|
-
|
-
|
898
|
898
|
|
TEBV FEB_03 EMTN FIXED
TRANCHE A
|
EUR
|
5.125%
|
5.125%
|
-
|
-
|
-
|
-
|
1,,500
|
-
|
1,500
|
|
TEBV FEB_03 EMTN FIXED
TRANCHE B
|
EUR
|
5.875%
|
5.875%
|
-
|
-
|
-
|
-
|
-
|
500
|
500
|
|
T.EUROPE BV JULY A
2007
|
JPY
|
2.110%
|
2.110%
|
-
|
-
|
-
|
119
|
-
|
-
|
119
|
|
T.EUROPE BV JULY B
2007
|
JPY
|
1 x
JPYL6M + 0.40000%
|
1.411%
|
-
|
-
|
-
|
119
|
-
|
-
|
119
|
|
Telefónica Europe,
B.V.
|
-
|
1,796
|
-
|
238
|
1,500
|
1,398
|
4,932
|
|||
|
EMTN O2 EUR
(I)
|
EUR
|
4.375%
|
4.375%
|
-
|
-
|
-
|
-
|
-
|
1,750
|
1,750
|
|
EMTN O2 EURO
(II)
|
EUR
|
3.750%
|
3.750%
|
-
|
-
|
2,250
|
-
|
-
|
-
|
2,250
|
|
EMTN O2 GBP
(I)
|
GBP
|
5.375%
|
5.375%
|
-
|
-
|
-
|
-
|
-
|
787
|
787
|
|
EMTN O2 GBP
(II)
|
GBP
|
5.375%
|
5.375%
|
-
|
-
|
-
|
-
|
-
|
525
|
525
|
|
TELEF. EMISIONES JUN 06
TRANCHE A
|
USD
|
1 *
USDL3M + 0.30000%
|
1.825%
|
719
|
-
|
-
|
-
|
-
|
-
|
719
|
|
TELEF. EMISIONES JUN 06
TRANCHE B
|
USD
|
5.984%
|
5.984%
|
-
|
-
|
719
|
-
|
-
|
-
|
719
|
|
TELEF. EMISIONES JUN 06
TRANCHE C
|
USD
|
6.421%
|
6.421%
|
-
|
-
|
-
|
-
|
-
|
898
|
898
|
|
TELEF. EMISIONES JUN 06
TRANCHE D
|
USD
|
7.045%
|
7.045%
|
-
|
-
|
-
|
-
|
-
|
1,437
|
1,437
|
|
TELEF. EMISIONES JULY
06
|
EUR
|
1 *
EURIBOR3M + 0.35000%
|
5.271%
|
-
|
1,250
|
-
|
-
|
-
|
-
|
1,250
|
|
TELEF. EMISIONES SEPTEMBER
06
|
EUR
|
4.393%
|
4.393%
|
-
|
-
|
-
|
500
|
-
|
-
|
500
|
|
TELEF. EMISIONES DECEMBER
06
|
GBP
|
5.888%
|
5.888%
|
-
|
-
|
-
|
-
|
-
|
525
|
525
|
|
TELEF. EMISIONES JANUARY
06
A
|
EUR
|
1 *
EURIBOR6M + 0.83000%
|
3.891%
|
-
|
-
|
-
|
-
|
-
|
55
|
55
|
|
TELEF. EMISIONES JANUARY 06
TRANCHE B
|
EUR
|
1 *
EURIBOR3M + 0.70000%
|
5.527%
|
-
|
-
|
-
|
-
|
-
|
24
|
24
|
|
TELEF. EMISIONES FEBRUARY
07
|
EUR
|
4.674%
|
4.674%
|
-
|
-
|
-
|
-
|
-
|
1,,500
|
1.500
|
|
TELEF. EMISIONES MARCH
07
|
EUR
|
1 *
EURIBOR3M + 0.13000%
|
3.121%
|
350
|
-
|
-
|
-
|
-
|
-
|
350
|
|
TELEF. EMISIONES JUNE A 07
|
CZK
|
1 *
CZKPRIB_3M + 0.16000%
|
4.070%
|
-
|
89
|
-
|
-
|
-
|
-
|
89
|
|
TELEF. EMISIONES JUNE B 07
|
CZK
|
4.351%
|
4.351%
|
-
|
-
|
-
|
111
|
-
|
-
|
111
|
|
TELEF. EMISIONES JUNE C 07
|
CZK
|
4.623%
|
4.623%
|
-
|
-
|
-
|
-
|
-
|
97
|
97
|
|
TELEF. EMISIONES JULY A
07
|
USD
|
5.855%
|
5.855%
|
-
|
-
|
-
|
-
|
539
|
-
|
539
|
|
TELEF. EMISIONES JULY B
07
|
USD
|
1 *
USDL3M + 0.33000%
|
3.356%
|
-
|
-
|
-
|
-
|
611
|
-
|
611
|
|
TELEF. EMISIONES JULY C
07
|
USD
|
6.221%
|
6.221%
|
-
|
-
|
-
|
-
|
-
|
503
|
503
|
|
TELEF. EMISIONES JUNE
08
|
EUR
|
5.580%
|
5.580%
|
-
|
-
|
-
|
-
|
1,250
|
-
|
1,250
|
|
Telefónica Emisiones, S.A.U.
|
1,069
|
1,339
|
2,969
|
611
|
2,400
|
8,101
|
16,489
|
|||
|
Total Telefónica, S.A. and special
purpose vehicles
|
1,869
|
3,153
|
2,969
|
849
|
3,900
|
9,603
|
22,343
|
|||
|
Foreign
operators
|
Maturity
|
||||||||
|
Debentures and
bonds
|
Currency
|
%
Interest rate
|
2009
|
2010
|
2011
|
2012
|
2013
|
Subsequent
years
|
Total
|
|
Marketable
debentures
|
USD
|
9.125%
|
-
|
141
|
-
|
-
|
-
|
-
|
141
|
|
Marketable
debentures
|
USD
|
8.85%
|
-
|
-
|
97
|
-
|
-
|
-
|
97
|
|
Marketable
debentures
|
USD
|
8.85%
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Telefónica de Argentina,
SA
|
-
|
141
|
97
|
-
|
-
|
-
|
238
|
||
|
Series
F
|
UFC
|
6%
|
2
|
2
|
2
|
2
|
2
|
4
|
13
|
|
Series
L
|
UFC
|
3.75%
|
-
|
-
|
-
|
73
|
-
|
-
|
73
|
|
CTC Chile
|
2
|
2
|
2
|
75
|
2
|
4
|
86
|
||
|
Peso
bonds, Series A
|
MXN
|
91-day
CETES + 0.61%
|
-
|
425
|
-
|
-
|
-
|
-
|
425
|
|
Peso
bonds, Series B
|
MXN
|
9.25%
|
-
|
-
|
-
|
186
|
-
|
-
|
186
|
|
Telefónica Finanzas México
|
-
|
425
|
-
|
186
|
-
|
-
|
611
|
||
|
O2
sterling issue
|
GBP
|
7.625%
|
-
|
-
|
-
|
394
|
-
|
-
|
394
|
|
O2
|
-
|
-
|
-
|
394
|
-
|
-
|
394
|
||
|
8th
issue T. Peru bonds
|
USD
|
3.8125%
|
12
|
-
|
-
|
-
|
-
|
-
|
12
|
|
T.
Peru 1st
Program (2nd)
|
PEN
|
VAC
+ 7%
|
10
|
-
|
-
|
-
|
-
|
-
|
10
|
|
T.
Peru 3rd
Program (1st)
|
PEN
|
VAC
+ 5%
|
-
|
11
|
-
|
-
|
-
|
-
|
11
|
|
T.
Peru 4th
Program (10th
Series A)
|
PEN
|
7.875%
|
-
|
-
|
-
|
7
|
-
|
-
|
7
|
|
T.
Peru 4th
Program (10th
Series B)
|
PEN
|
6.4375%
|
-
|
-
|
-
|
12
|
-
|
-
|
12
|
|
T.
Peru 4th
Program (12th
Series A)
|
PEN
|
VAC
+ 3.6875%
|
-
|
-
|
-
|
-
|
-
|
14
|
14
|
|
T.
Peru 4th
Program (14th
Series A)
|
PEN
|
6.375%
|
-
|
11
|
-
|
-
|
-
|
-
|
11
|
|
T.
Peru 4th
Program (14th
Series B)
|
PEN
|
5.9375%
|
-
|
-
|
8
|
-
|
-
|
-
|
8
|
|
T.
Peru 4th
Program (14th
Series C)
|
PEN
|
5.75%
|
-
|
-
|
10
|
-
|
-
|
-
|
10
|
|
T.
Peru 4th
Program (16th
Series A)
|
PEN
|
6%
|
-
|
-
|
-
|
23
|
-
|
-
|
23
|
|
T.
Peru 4th
Program (16th
Series B)
|
PEN
|
6.25%
|
-
|
-
|
-
|
-
|
7
|
-
|
7
|
|
T.
Peru 4th
Program (19th
Series A)
|
PEN
|
VAC
+ 3.625%
|
-
|
-
|
-
|
-
|
-
|
14
|
14
|
|
T.
Peru 4th
Program (19th
Series B)
|
PEN
|
VAC
+ 2.875%
|
-
|
-
|
-
|
-
|
-
|
11
|
11
|
|
T.
Peru 4th
Program (19th
Series C)
|
PEN
|
VAC
+ 3.1875%
|
-
|
-
|
-
|
-
|
-
|
5
|
5
|
|
T.
Peru 4th
Program (36th
Series A)
|
PEN
|
VAC
+ 3.6875%
|
-
|
-
|
-
|
-
|
-
|
34
|
34
|
|
T.
Peru 4th
Program (36th
Series B)
|
PEN
|
VAC
+ 3.375%
|
-
|
-
|
-
|
-
|
-
|
11
|
11
|
|
T.
Peru 4th
Program (37th
Series A)
|
PEN
|
VAC
+ 3.125%
|
-
|
-
|
-
|
-
|
-
|
11
|
11
|
|
T.
Peru 4th
Program (13th
Series A)
|
PEN
|
5.2625%
|
18
|
-
|
-
|
-
|
-
|
-
|
18
|
|
T.
Peru 4th
Program (4th
Series A)
|
PEN
|
6.625%
|
-
|
-
|
-
|
18
|
-
|
-
|
18
|
|
T.
Peru 4th
Program (7th)
|
PEN
|
6.1875%
|
12
|
-
|
-
|
-
|
-
|
-
|
12
|
|
T.
Peru 4th
Program (7th
Series B)
|
PEN
|
5.875%
|
4
|
-
|
-
|
-
|
-
|
-
|
4
|
|
T.
Peru 4th
Program (7th
Series C)
|
PEN
|
5.5625%
|
-
|
4
|
-
|
-
|
-
|
-
|
4
|
|
T.
Peru 4th
Program (8th
Series A)
|
PEN
|
7.375%
|
-
|
7
|
-
|
-
|
-
|
-
|
7
|
|
T.
Peru 4th
Program (8th
Series B)
|
PEN
|
6.25%
|
-
|
12
|
-
|
-
|
-
|
-
|
12
|
|
T.
Peru 4th
Program (9th
Series A)
|
PEN
|
6.9375%
|
-
|
-
|
13
|
-
|
-
|
-
|
13
|
|
T.
Peru 4th
Program (9th
Series B)
|
PEN
|
6.375%
|
-
|
-
|
20
|
-
|
-
|
-
|
20
|
|
T.
Peru Senior Notes
|
PEN
|
8%
|
-
|
-
|
-
|
-
|
29
|
144
|
173
|
|
Telefónica de Perú,
S.A.A.
|
56
|
45
|
51
|
60
|
36
|
244
|
492
|
||
|
T.M.
Peru 1st
Program (1st
Series A)
|
PEN
|
6.25%
|
11
|
-
|
-
|
-
|
-
|
-
|
11
|
|
T.M.
Peru 1st
Program (2nd
Series A)
|
PEN
|
7.0625%
|
-
|
-
|
11
|
-
|
-
|
-
|
11
|
|
T.M.
Peru 1st
Program (2nd
Series B)
|
PEN
|
7.5625%
|
-
|
-
|
6
|
-
|
-
|
-
|
6
|
|
T.M.
Peru 1st
Program (2nd
Series C)
|
PEN
|
7.5625%
|
-
|
-
|
10
|
-
|
-
|
-
|
10
|
|
T.M.
Peru 1st
Program (3rd
Series A)
|
PEN
|
7.4375%
|
-
|
-
|
-
|
-
|
8
|
-
|
8
|
|
T.M.
Peru 1st
Program (3rd
Series B)
|
PEN
|
7.6875%
|
-
|
-
|
-
|
-
|
5
|
-
|
5
|
|
T.M.
Peru 1st
Program (8th
Series A)
|
PEN
|
6.4375%
|
-
|
11
|
-
|
-
|
-
|
-
|
11
|
|
Telefónica Móviles, S.A. (Peru)
|
11
|
11
|
27
|
-
|
13
|
-
|
62
|
||
|
Nonconvertible
bonds
|
BRL
|
104.2%
CDI
|
-
|
-
|
-
|
-
|
123
|
123
|
|
|
Nonconvertible
bonds
|
BRL
|
103%
CDI
|
-
|
-
|
-
|
-
|
31
|
31
|
|
|
Convertible
bonds (Telemig) I
|
BRL
|
CPI-A
+ 0.5%
|
-
|
-
|
-
|
-
|
-
|
1
|
1
|
|
Convertible
bonds (Telemig) II
|
BRL
|
CPI-A
+ 0.5%
|
-
|
-
|
-
|
-
|
-
|
3
|
3
|
|
Convertible
bonds (Telemig) III
|
BRL
|
CPI-A
+ 0.5%
|
-
|
-
|
-
|
-
|
-
|
5
|
5
|
|
Vivo Participações, S.A.
|
-
|
-
|
-
|
-
|
-
|
163
|
163
|
||
|
Nonconvertible
bonds
|
BRL
|
1 x
CDI + 0.35000%
|
-
|
461
|
-
|
-
|
-
|
-
|
461
|
|
Telesp
|
-
|
461
|
-
|
-
|
-
|
-
|
461
|
||
|
Total issues other
operators
|
69
|
1,085
|
177
|
715
|
50
|
410
|
2,505
|
||
|
TOTAL OUTSTANDING DEBENTURES AND
BONDS
|
1,938
|
4,239
|
3,146
|
1,563
|
3,950
|
10,013
|
24,849
|
||
The main
debentures and bonds issued by the Group in 2009 are as follows:
|
Item
|
Date
|
Nominal
value
|
Currency of
issuance
|
Maturity
|
Interest
rate
|
|
|
(millions)
|
(millions of
euros)
|
|||||
|
EMTN
bonds
|
02-03-09
|
2,000
|
2,000
|
EUR
|
02-03-14
|
5.431%
|
|
04-01-09
|
1,000
|
1,000
|
EUR
|
04-01-16
|
5.496%
|
|
|
06-03-09
|
500
|
500
|
EUR
|
04-01-16
|
5.496%
|
|
|
06-02-09
|
400
|
400
|
EUR
|
06-02-15
|
3-month
Euribor + 1.825%
|
|
|
11-10-09
|
1,750
|
1,750
|
EUR
|
11-11-19
|
4.693%
|
|
|
12-10-09
|
650
|
732
|
GBP
|
12-09-22
|
5.289%
|
|
|
12-23-09
|
100
|
100
|
EUR
|
12-23-14
|
3-month
Euribor + 0.70%
|
|
|
SEC
bond
|
07-06-09
|
1,000
|
694
|
USD
|
07-15-19
|
5.877%
|
|
07-06-09
|
1,250
|
868
|
USD
|
01-15-15
|
4.949%
|
|
|
Telefónica Emisiones,
S.A.U.
|
||||||
|
Debentures
|
01-16-09
|
105
|
42
|
BRL
|
01-11-10
|
113.55%
CDI
|
|
10-15-09
|
49
|
20
|
BRL
|
10-15-19
|
108%
CDI (until 10/15/12 (1))
|
|
|
10-15-09
|
320
|
128
|
BRL
|
10-15-19
|
112%
CDI (until 10/15/13 (1))
|
|
|
10-15-09
|
36
|
14
|
BRL
|
10-15-19
|
HCPI
+ 7% (until 10/15/14 (1))
|
|
|
Vivo Participações, S.A.
|
||||||
|
Bonds
|
04-15-09
|
5
|
143
|
UFC
|
04-01-14
|
3.50%
|
|
04-22-09
|
20,500
|
28
|
CLP
|
04-01-14
|
6.05%
|
|
|
08-05-09
|
32,000
|
44
|
CLP
|
07-15-14
|
5.60%
|
|
|
CTC Chile
|
||||||
|
Bonds
|
02-12-09
|
16.675
|
4
|
PEN
|
02-12-12
|
7.9375%
|
|
03-27-09
|
25
|
6
|
PEN
|
03-27-13
|
7.3750%
|
|
|
06-08-09
|
14.30
|
3
|
PEN
|
06-08-13
|
6.0625%
|
|
|
06-08-09
|
15.70
|
4
|
PEN
|
06-08-11
|
4.8750%
|
|
|
05-19-09
|
30
|
7
|
PEN
|
05-19-11
|
5.8750%
|
|
|
05-19-09
|
20.50
|
5
|
PEN
|
05-19-16
|
5.3125%
|
|
|
04-22-09
|
22
|
15
|
USD
|
04-22-13
|
6.6875%
|
|
|
06-16-09
|
21
|
5
|
PEN
|
06-17-13
|
6.1875%
|
|
|
10-20-09
|
25
|
6
|
PEN
|
10-20-11
|
3.5%
|
|
|
10-20-09
|
30
|
7
|
PEN
|
10-20-12
|
4.375%
|
|
|
10-07-09
|
60
|
14
|
PEN
|
10-07-21
|
VAC
+ 3.5%
|
|
|
09-14-09
|
30
|
7
|
PEN
|
09-14-11
|
3.5%
|
|
|
Telefónica de Perú,
S.A.A
|
||||||
|
Bonds
|
01-23-09
|
23
|
6
|
PEN
|
01-23-13
|
8.1875%
|
|
09-22-09
|
40
|
10
|
PEN
|
09-23-14
|
6.3125%
|
|
|
10-05-09
|
62
|
15
|
PEN
|
10-06-14
|
6.375%
|
|
|
Telefónica Móviles, S.A.
(Perú)
|
||||||
|
Securities
|
04-01-09
/
06-2-09
|
15
|
7
|
USD
|
03-2-11
|
7.75%
|
|
04-01-09
/
06-10-09
|
9
|
6
|
USD
|
03-16-12
|
8.00%
|
|
|
04-01-09
|
20
|
14
|
USD
|
03-11-13
|
8.50%
|
|
|
Otecel, S.A.
|
||||||
|
(1)
|
Date
on which certain conditions are
renegotiated
|
The main
debentures and bonds issued by the Group in 2008 are as follows:
|
Item
|
Date
|
Nominal
value
|
Currency of
issuance
|
Maturity
|
Interest
rate
|
|
|
(millions)
|
(millions of
euros)
|
|||||
|
EMTN
bonds
|
06/12/2008
|
1,250
|
1,250
|
EUR
|
06/12/2013
|
5.58%
|
|
Telefónica Emisiones,
S.A.U.
|
||||||
|
Bonds
|
03/04/2008
|
34
|
8
|
PEN
|
03/04/2011
|
5.9375%
|
|
03/18/2008
|
50
|
11
|
PEN
|
03/18/2018
|
VAC
(*) + 3.375%
|
|
|
04/02/2008
|
45
|
10
|
PEN
|
04/02/2011
|
5.75%
|
|
|
04/14/2008
|
30
|
7
|
PEN
|
04/14/2013
|
6.25%
|
|
|
04/22/2008
|
49
|
11
|
PEN
|
04/22/2028
|
VAC
(*) + 2.8750%
|
|
|
05/22/2008
|
48
|
11
|
PEN
|
05/22/2028
|
VAC
(*) + 3.1250%
|
|
|
07/21/2008
|
20
|
5
|
PEN
|
07/21/2028
|
VAC
(*) + 3.1875%
|
|
|
Telefónica de Perú,
S.A.A.
|
||||||
APPENDIX III: FINANCIAL
INSTRUMENTS
The
detail of the type of financial instruments arranged by the Group (notional
amount) by currency and interest rates at December 31, 2009 is as
follows:
|
Fair
value
|
||||||||||
|
Millions of
Euros
|
2010
|
2011
|
2012
|
2013
|
2014
|
Subsequent
years
|
Total
|
Underlying
debt
|
Associated
derivatives
|
TOTAL
|
|
EURO
|
(1,933)
|
8,517
|
3,998
|
3,917
|
3,336
|
11,493
|
29,328
|
24,400
|
5,234
|
29,634
|
|
Floating
rate
|
(6,551)
|
5,197
|
515
|
3,879
|
2,514
|
(42)
|
5,512
|
9,421
|
(3,865)
|
5,556
|
|
Spread - Ref
Euribor
|
(0.14%)
|
0.25%
|
1.49%
|
0.05%
|
0.03%
|
(11.71%)
|
(10.03%)
|
|||
|
Fixed rate
|
4,618
|
3,320
|
133
|
38
|
822
|
10,285
|
19,216
|
10,347
|
9,109
|
19,456
|
|
Interest
rate
|
4.47%
|
1.88%
|
(4.63%)
|
67.24%
|
10.33%
|
27.37%
|
106.66%
|
-
|
-
|
|
|
Rate cap
|
-
|
-
|
3,350
|
-
|
-
|
1,250
|
4,600
|
4,632
|
(10)
|
4,622
|
|
OTHER EUROPEAN
CURRENCIES
|
60
|
805
|
1,271
|
172
|
883
|
2,581
|
5,772
|
4,263
|
1, 875
|
6,138
|
|
Instruments in
CZK
|
1,855
|
123
|
224
|
-
|
320
|
(14)
|
2,508
|
321
|
2,
212
|
2,533
|
|
Floating
rate
|
283
|
-
|
111
|
-
|
-
|
-
|
394
|
91
|
304
|
395
|
|
Spread
|
0.07%
|
-
|
(0.00%)
|
-
|
-
|
-
|
0.07%
|
|||
|
Fixed rate
|
1,572
|
123
|
113
|
-
|
320
|
(14)
|
2,114
|
230
|
1,908
|
2,138
|
|
Interest
rate
|
2.03%
|
3.43%
|
4.35%
|
-
|
3.84%
|
3.84%
|
17.49%
|
-
|
-
|
|
|
Rate cap
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Instruments in
GBP
|
(1,795)
|
682
|
1,047
|
172
|
563
|
2,595
|
3,264
|
3,942
|
(337)
|
3,605
|
|
Floating
rate
|
-
|
55
|
231
|
166
|
563
|
619
|
1,634
|
320
|
1,420
|
1,740
|
|
Spread
|
-
|
(0.50%)
|
0.27%
|
0.27%
|
-
|
-
|
0.04%
|
|||
|
Fixed rate
|
(1,795)
|
627
|
422
|
6
|
-
|
1,863
|
1,123
|
3,111
|
(1,757)
|
1,354
|
|
Interest
rate
|
0.88%
|
5.12%
|
7.63%
|
6.44%
|
-
|
15.71%
|
35.78%
|
-
|
-
|
|
|
Rate cap
|
-
|
-
|
394
|
-
|
-
|
113
|
507
|
511
|
-
|
511
|
|
AMERICA
|
(1,136)
|
1,349
|
1,089
|
1,344
|
830
|
4,138
|
7,614
|
13,663
|
(6,802)
|
6,861
|
|
Instruments in
USD
|
(200)
|
87
|
45
|
629
|
56
|
1,325
|
1,942
|
11,208
|
(9,622)
|
1,586
|
|
Floating
rate
|
291
|
(152)
|
90
|
436
|
19
|
21
|
705
|
1,560
|
(1,094)
|
466
|
|
Spread
|
0.19%
|
1.98%
|
0.82%
|
0.61%
|
0.35%
|
0.70%
|
4.66%
|
|||
|
Fixed rate
|
(501)
|
229
|
(55)
|
183
|
27
|
1,285
|
1,168
|
9,580
|
(8,528)
|
1,052
|
|
Interest
rate
|
(0.60%)
|
9.48%
|
4.06%
|
3.53%
|
3.80%
|
23.38%
|
43.65%
|
-
|
-
|
|
|
Rate cap
|
10
|
10
|
10
|
10
|
10
|
19
|
69
|
68
|
-
|
68
|
|
Instruments in
UYU
|
(12)
|
2
|
-
|
-
|
-
|
-
|
(10)
|
1
|
-
|
1
|
|
Floating
rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Spread
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||
|
Fixed rate
|
(12)
|
2
|
-
|
-
|
-
|
-
|
(10)
|
1
|
-
|
1
|
|
Interest
rate
|
1.15%
|
3.75%
|
-
|
-
|
-
|
-
|
4.90%
|
-
|
-
|
|
|
Rate cap
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Instruments in
ARS
|
216
|
143
|
-
|
-
|
-
|
-
|
359
|
(120)
|
461
|
341
|
|
Floating
rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Spread
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||
|
Fixed rate
|
216
|
143
|
-
|
-
|
-
|
-
|
359
|
(120)
|
461
|
341
|
|
Interest
rate
|
12.18%
|
14.68%
|
-
|
-
|
-
|
-
|
26.86%
|
-
|
-
|
|
|
Rate cap
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Instruments in
BRL
|
(113)
|
331
|
309
|
400
|
243
|
291
|
1,461
|
972
|
448
|
1,420
|
|
Floating
rate
|
(233)
|
245
|
217
|
340
|
219
|
168
|
956
|
753
|
176
|
929
|
|
Spread
|
(4.10%)
|
3.03%
|
3.37%
|
2.16%
|
3.10%
|
1.60%
|
9.16%
|
|||
|
Fixed rate
|
120
|
86
|
92
|
60
|
24
|
123
|
505
|
219
|
272
|
491
|
|
Interest
rate
|
11.63%
|
9.59%
|
9.74%
|
5.29%
|
9.93%
|
19.16%
|
65.34%
|
-
|
-
|
|
|
Rate cap
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Instruments in
CLP
|
74
|
206
|
192
|
95
|
267
|
-
|
834
|
(34)
|
830
|
796
|
|
Floating
rate
|
209
|
110
|
73
|
21
|
28
|
-
|
441
|
105
|
353
|
458
|
|
Spread
|
0.60%
|
1.10%
|
1.63%
|
1.48%
|
-
|
-
|
4.81%
|
|||
|
Fixed rate
|
(135)
|
96
|
119
|
74
|
239
|
-
|
393
|
(139)
|
477
|
338
|
|
Interest
rate
|
0.16%
|
1.81%
|
3.86%
|
3.66%
|
5.97%
|
-
|
15.46%
|
-
|
-
|
|
|
Rate cap
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Instruments in
UFC
|
(77)
|
80
|
2
|
2
|
2
|
3
|
12
|
(296)
|
(264)
|
(560)
|
|
Floating
rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(103)
|
(103)
|
|
Spread
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||
|
Fixed rate
|
(77)
|
80
|
2
|
2
|
2
|
3
|
12
|
(296)
|
(161)
|
(457)
|
|
Interest
rate
|
1.23%
|
4.
43%
|
7.45%
|
6.00%
|
5.43%
|
12.00%
|
36.54%
|
-
|
-
|
|
|
Rate cap
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Instruments in
PEN
|
84
|
246
|
102
|
89
|
103
|
315
|
939
|
827
|
143
|
970
|
|
Floating
rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Spread
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||
|
Fixed rate
|
84
|
246
|
102
|
89
|
103
|
315
|
939
|
827
|
143
|
970
|
|
Interest
rate
|
11.43%
|
5.23%
|
6.56%
|
7.25%
|
7.61%
|
36.07%
|
74.15%
|
-
|
-
|
|
|
Rate cap
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Instruments in
COP
|
200
|
254
|
253
|
129
|
159
|
-
|
995
|
563
|
670
|
1,233
|
| Fair value | ||||||||||
|
Millions of
Euros
|
2010
|
|
|
|
|
Subsequent
years
|
|
|
|
TOTAL
|
|
Floating
rate
|
9
|
59
|
81
|
108
|
138
|
-
|
395
|
409
|
-
|
409
|
|
Spread
|
3.19%
|
2.74%
|
2.86%
|
2.96%
|
3.28%
|
-
|
15.
03%
|
|||
|
Fixed rate
|
191
|
195
|
172
|
21
|
21
|
-
|
600
|
154
|
670
|
824
|
|
Interest
rate
|
7.85%
|
8.27%
|
8.43%
|
7.09%
|
7.09%
|
-
|
38.73%
|
-
|
-
|
|
|
Rate cap
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Instruments in
UVR
|
-
|
-
|
-
|
-
|
-
|
2,175
|
2,175
|
2,175
|
-
|
2,175
|
|
Floating
rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Spread
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||
|
Fixed rate
|
-
|
-
|
-
|
-
|
-
|
2,175
|
2,175
|
2,175
|
-
|
2,175
|
|
Interest
rate
|
-
|
-
|
-
|
-
|
-
|
23.01%
|
23.01%
|
-
|
-
|
|
|
Rate cap
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Instruments in
VEB
|
(2,
264)
|
-
|
-
|
-
|
-
|
-
|
(2,264)
|
(2,263)
|
-
|
(2,263)
|
|
Floating
rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Spread
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||
|
Fixed rate
|
(2,264)
|
-
|
-
|
-
|
-
|
-
|
(2,264)
|
(2,263)
|
-
|
(2,263)
|
|
Interest
rate
|
0.98%
|
-
|
-
|
-
|
-
|
-
|
0.98%
|
-
|
-
|
|
|
Rate cap
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Instruments in
MXN
|
959
|
-
|
186
|
-
|
-
|
29
|
1,174
|
633
|
532
|
1,165
|
|
Floating
rate
|
263
|
-
|
-
|
-
|
-
|
-
|
263
|
421
|
3
|
424
|
|
Spread
|
0.61%
|
-
|
-
|
-
|
-
|
-
|
0.61%
|
|||
|
Fixed rate
|
696
|
-
|
186
|
-
|
-
|
29
|
911
|
212
|
529
|
741
|
|
Interest
rate
|
5.74%
|
-
|
9.25%
|
-
|
-
|
12.52%
|
27.51%
|
-
|
-
|
|
|
Rate cap
|
||||||||||
|
Instruments in
GTQ
|
(3)
|
-
|
-
|
-
|
-
|
-
|
(3)
|
(3)
|
-
|
(3)
|
|
Floating
rate
|
(3)
|
-
|
-
|
-
|
-
|
-
|
(3)
|
(3)
|
-
|
(3)
|
|
Spread
|
0.01%
|
-
|
-
|
-
|
-
|
-
|
0.01%
|
|||
|
Fixed rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Interest
rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Rate cap
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
ASIA
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
207
|
(250)
|
(43)
|
|
Instruments in
JPY
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
207
|
(250)
|
(43)
|
|
Floating
rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
113
|
(113)
|
-
|
|
Spread
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||
|
Fixed rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
94
|
(137)
|
(43)
|
|
Interest
rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
Rate cap
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
AFRICA
|
-
|
-
|
88
|
-
|
-
|
-
|
88
|
-
|
84
|
84
|
|
Instruments
in MAD
|
-
|
-
|
88
|
-
|
-
|
-
|
88
|
-
|
84
|
84
|
|
Floating
rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Spread
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||
|
Fixed
rate
|
-
|
-
|
88
|
-
|
-
|
-
|
88
|
-
|
84
|
84
|
|
Interest
rate
|
-
|
-
|
4.54%
|
-
|
-
|
-
|
4.54%
|
-
|
-
|
|
|
Rate
cap
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
TOTAL
|
(3,009)
|
10,671
|
6,446
|
5,433
|
5,049
|
18,212
|
42,802
|
42,533
|
141
|
42,674
|
|
Floating
rate
|
(5,732)
|
5,514
|
1,318
|
4,950
|
3,481
|
766
|
10,297
|
13,190
|
(2,919)
|
10,271
|
|
Fixed
rate
|
2,713
|
5,147
|
1,374
|
473
|
1,558
|
16,064
|
27,329
|
24,132
|
3,070
|
27,202
|
|
Rate
cap
|
10
|
10
|
3,754
|
10
|
10
|
1,382
|
5,176
|
5,211
|
(10)
|
5,201
|
|
Currency
options
|
(99)
|
|||||||||
|
Other
|
848
|
|||||||||
The table
below is an extract of the previous table that shows the sensitivity to interest
rates originated by our position on interest rate swaps categorized into
instruments entered into for trading purposes and instruments entered into for
purposes other than trading purposes at December 31, 2009:
|
INTEREST RATE
SWAPS
|
||||||||
|
Maturity
|
||||||||
|
Millions of
euros
|
2010
|
2011
|
2012
|
2013
|
2014
|
Subsequent
years
|
TOTAL
|
Fair
value
|
|
TRADING
PURPOSES
|
||||||||
|
EUR
|
(214)
|
|||||||
|
Fixed
to floating
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(389)
|
|
Receiving
leg
|
(790)
|
(1,685)
|
(420)
|
(1,250)
|
(1,065)
|
(1,736)
|
(6,946)
|
(5,823)
|
|
Average
interest rate
|
3.23%
|
3.50%
|
3.77%
|
4.69%
|
3.33%
|
3.47%
|
3.67%
|
-
|
|
Paying
leg
|
790
|
1,685
|
420
|
1,250
|
1,065
|
1,736
|
6,946
|
5,434
|
|
Average
spread
|
0.80%
|
0.01%
|
0.05%
|
0.03%
|
0.01%
|
0.00%
|
0.11%
|
|
|
Floating
to fixed
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
175
|
|
Receiving
leg
|
(8,742)
|
(935)
|
(231)
|
(710)
|
(950)
|
(2,195)
|
(13,763)
|
(11,185)
|
|
Average
spread
|
0.10%
|
-
|
-
|
-
|
-
|
-
|
0.07%
|
-
|
|
Paying
leg
|
8,742
|
935
|
231
|
710
|
950
|
2,195
|
13,284
|
11,760
|
|
Average
interest rate
|
1.31%
|
1.57%
|
2.18%
|
2.18%
|
3.52%
|
3.27%
|
1.84%
|
-
|
|
USD
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(37)
|
|
Fixed
to floating
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(28)
|
|
Receiving
leg
|
(594)
|
(63)
|
-
|
-
|
-
|
(229)
|
(886)
|
(914)
|
|
Average
interest rate
|
-
|
3.08%
|
-
|
-
|
-
|
3.74%
|
4.43%
|
-
|
|
Paying
leg
|
594
|
63
|
-
|
-
|
-
|
229
|
886
|
886
|
|
Average
spread
|
-
|
-
|
-
|
-
|
-
|
|||
|
Floating
to fixed
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(9)
|
|
Receiving
leg
|
(486)
|
(191)
|
(451)
|
(416)
|
-
|
(635)
|
(2,179)
|
(473)
|
|
Average
spread
|
0.20%
|
0.
35%
|
3.99%
|
3.61%
|
-
|
1.59%
|
-
|
|
|
Paying
leg
|
486
|
191
|
451
|
416
|
-
|
635
|
2,179
|
464
|
|
Average
interest rate
|
2.62%
|
0.50%
|
-
|
-
|
3.68%
|
1.70%
|
-
|
|
|
MXN
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Floating
to fixed
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Receiving
leg
|
(1)
|
-
|
-
|
-
|
-
|
-
|
(1)
|
(1)
|
|
Average
spread
|
(0.54%)
|
-
|
-
|
-
|
-
|
-
|
(0.54%)
|
|
|
Paying
leg
|
1
|
-
|
-
|
-
|
-
|
-
|
1
|
1
|
|
Average
interest rate
|
8.43%
|
-
|
-
|
-
|
-
|
-
|
8.43%
|
|
|
INTEREST RATE
SWAPS
|
||||||||
|
Maturity
|
||||||||
|
Millions of
euros
|
2010
|
2011
|
2012
|
2013
|
2014
|
Subsequent
years
|
TOTAL
|
Fair
value
|
|
NON
TRADING PURPOSES
|
||||||||
|
EUR
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(274)
|
|
Fixed
to floating
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(669)
|
|
Receiving
leg
|
(5,088)
|
(2,039)
|
(504)
|
(1,654)
|
(3,055)
|
(3,313)
|
(15,653)
|
(13,806)
|
|
Average
interest rate
|
3.23%
|
3.50%
|
3.
77%
|
4.69%
|
3.33%
|
3.47%
|
3.51%
|
-
|
|
Paying
leg
|
5,088
|
2,039
|
504
|
1,654
|
3,055
|
3,313
|
15,653
|
13,137
|
|
Average
spread
|
0.80%
|
0.01%
|
0.05%
|
0.03%
|
0.01%
|
0.00%
|
0.27%
|
-
|
|
Floating
to fixed
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
395
|
|
Receiving
leg
|
(5,312)
|
(3,949)
|
(500)
|
(550)
|
(730)
|
(7,503)
|
(18,544)
|
(14,842)
|
|
Average
spread
|
0.19%
|
-
|
-
|
3.48%
|
2.35%
|
-
|
0.25%
|
-
|
|
Paying
leg
|
5,312
|
3,949
|
500
|
550
|
730
|
7,503
|
18,544
|
15,237
|
|
Average
interest rate
|
2.64%
|
2.82%
|
3.74%
|
-
|
1.09%
|
3.72%
|
3.01%
|
-
|
|
CZK
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
5
|
|
Floating
to fixed
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
5
|
|
Receiving
leg
|
(430)
|
-
|
-
|
-
|
-
|
-
|
(430)
|
(430)
|
|
Average
spread
|
0.01%
|
-
|
-
|
-
|
-
|
-
|
0.01%
|
-
|
|
Paying
leg
|
430
|
-
|
-
|
-
|
-
|
-
|
430
|
435
|
|
Average
interest rate
|
3.35%
|
-
|
-
|
-
|
-
|
-
|
3.35%
|
-
|
|
USD
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(547)
|
|
Fixed
to floating
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(583)
|
|
Receiving
leg
|
-
|
(694)
|
-
|
(521)
|
-
|
(4,304)
|
(5,519)
|
(6,103)
|
|
Average
interest rate
|
3.90%
|
5.52%
|
4.84%
|
4.79%
|
-
|
|||
|
Paying
leg
|
-
|
694
|
-
|
521
|
-
|
4,304
|
5,519
|
5,520
|
|
Average
spread
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Floating
to fixed
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
36
|
|
Receiving
leg
|
(26)
|
(26)
|
(26)
|
(616)
|
(26)
|
(51)
|
(771)
|
(769)
|
|
Average
spread
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
INTEREST RATE
SWAPS
|
||||||||
|
Maturity
|
||||||||
|
Millions of
euros
|
2010
|
2011
|
2012
|
2013
|
2014
|
|
TOTAL
|
Fair
value
|
|
Paying
leg
|
26
|
26
|
26
|
616
|
26
|
51
|
771
|
805
|
|
Average
interest rate
|
4.34%
|
4.34%
|
4.34%
|
3.35%
|
4.34%
|
4.34%
|
3.55%
|
-
|
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
BRL
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Floating
to floating
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Receiving
leg
|
(598)
|
-
|
-
|
-
|
-
|
-
|
(598)
|
(483)
|
|
Average
spread
|
0.35%
|
-
|
-
|
-
|
-
|
-
|
0.35%
|
-
|
|
Paying
leg
|
598
|
-
|
-
|
-
|
-
|
-
|
598
|
483
|
|
Average
spread
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
MXN
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
3
|
|
Floating
to fixed
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
3
|
|
Receiving
leg
|
(159)
|
-
|
-
|
-
|
-
|
-
|
(159)
|
(166)
|
|
Average
spread
|
0.61%
|
-
|
-
|
-
|
-
|
-
|
0.61%
|
-
|
|
Paying
leg
|
159
|
-
|
-
|
-
|
-
|
-
|
159
|
169
|
|
Average
interest rate
|
8.16%
|
-
|
-
|
-
|
-
|
-
|
8.16%
|
-
|
|
GBP
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
22
|
|
Fixed
to floating
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
216
|
|
Receiving
leg
|
-
|
-
|
-
|
-
|
(563)
|
(732)
|
(1,295)
|
(1341)
|
|
Average
interest rate
|
-
|
-
|
-
|
-
|
5.25%
|
3.92%
|
4.50%
|
-
|
|
Paying
leg
|
-
|
-
|
-
|
-
|
563
|
732
|
1,295
|
1,557
|
|
Average
spread
|
-
|
1.64%
|
0.92%
|
-
|
||||
|
Floating
to fixed
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(194)
|
|
Receiving
leg
|
-
|
(609)
|
-
|
-
|
-
|
(455)
|
(1,064)
|
(1,065)
|
|
Average
spread
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Paying
leg
|
-
|
609
|
-
|
-
|
-
|
455
|
1,064
|
871
|
|
Average
interest rate
|
-
|
5.12%
|
-
|
-
|
-
|
4.96%
|
5.05%
|
-
|
|
JPY
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(4)
|
|
Fixed
to floating
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(4)
|
|
Receiving
leg
|
-
|
-
|
(113)
|
-
|
-
|
-
|
(113)
|
(117)
|
|
Average
interest rate
|
-
|
-
|
1.68%
|
-
|
-
|
-
|
1.68%
|
-
|
|
Paying
leg
|
-
|
-
|
113
|
-
|
-
|
-
|
113
|
113
|
|
Average
spread
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
CLP
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Fixed
to floating
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1
|
|
Receiving
leg
|
-
|
-
|
-
|
(21)
|
(28)
|
-
|
(49)
|
(48)
|
|
Average
interest rate
|
-
|
-
|
-
|
4.12%
|
4.51%
|
4.34%
|
-
|
|
|
Paying
leg
|
-
|
-
|
-
|
21
|
28
|
-
|
49
|
49
|
|
Average
spread
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Floating
to fixed
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1)
|
|
Receiving
leg
|
(82)
|
(96)
|
(51)
|
(95)
|
-
|
-
|
(324)
|
(147)
|
|
Average
spread
|
1.55%
|
-
|
-
|
-
|
-
|
-
|
0.39%
|
-
|
|
Paying
leg
|
82
|
96
|
51
|
95
|
-
|
-
|
324
|
146
|
|
Average
interest rate
|
-
|
1.82%
|
3.74%
|
3.76%
|
-
|
-
|
2.23%
|
-
|
Foreign
exchange and interest rate options, by maturity, at December 31, 2009 are as
follows:
|
CURRENCY
OPTIONS
|
|||||
|
MATURITIES
|
|||||
|
Figures in
euros
|
2010
|
2011
|
2012
|
2013
|
Subsequent
years
|
|
Put USD / Call
EUR
|
|||||
|
Notional
amount of options bought
|
-
|
201,305,012
|
-
|
70,803,832
|
1,664,931,279
|
|
Strike
|
-
|
1.59%
|
-
|
1.50%
|
1.75%
|
|
Notional
amount of options sold
|
-
|
195,129,693
|
-
|
-
|
831,255,453
|
|
Strike
|
-
|
1.49%
|
-
|
-
|
1.20%
|
|
INTEREST RATE
OPTIONS
|
|||||||
|
MATURITIES
|
|||||||
|
Figures in
euros
|
2010
|
2011
|
2012
|
2013
|
Subsequent
years
|
||
|
Collars
|
|||||||
|
Notional
bought
|
-
|
-
|
1,119,299,628
|
-
|
2,161,986,806
|
||
|
Strike
Cap
|
-
|
-
|
4.746%
|
-
|
4.77%
|
||
|
Strike
Floor
|
-
|
-
|
3.409%
|
-
|
3.48%
|
||
|
Caps
|
|||||||
|
Notional
bought
|
-
|
-
|
3,412,999,662
|
-
|
|||
|
Strike
|
-
|
-
|
4.205%
|
-
|
|||
|
Notional
sold
|
-
|
-
|
6,032,299,291
|
-
|
2,161,986,806
|
||
|
Strike
|
-
|
-
|
5.399%
|
-
|
5.003%
|
||
|
Floors
|
|||||||
|
Notional
bought
|
-
|
-
|
2,619,299,628
|
-
|
2,094,499,493
|
||
|
Strike
|
-
|
-
|
2.844%
|
-
|
0.802%
|
||
|
Notional
sold
|
363,
096,573
|
-
|
700,000,000
|
-
|
-
|
||
|
Strike
|
4.
382%
|
-
|
2.
147%
|
-
|
-
|
||
Cash flows receivable or payable on
derivative financial instruments settled via the swap of nominals, by currency
of collection/payment, along with contractual maturities are as
follows:
|
Millions of
euros
|
2010
|
2011
|
2012
|
2013
|
2014
|
Subsequent
years
|
Total
|
|
|
Currency
swaps
|
|
|||||||
|
Receive
|
ARS
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Pay
|
ARS
|
(130)
|
(52)
|
-
|
-
|
-
|
-
|
(182)
|
|
Receive
|
BRL
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Pay
|
BRL
|
(51)
|
(64)
|
(65)
|
(4)
|
(38)
|
(88)
|
(310)
|
|
Receive
|
CLP
|
96
|
175
|
82
|
95
|
-
|
-
|
448
|
|
Pay
|
CLP
|
(191)
|
(349)
|
(232)
|
(189)
|
(195)
|
-
|
(1,156)
|
|
Receive
|
COP
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Pay
|
COP
|
(86)
|
(172)
|
(172)
|
(21)
|
(21)
|
-
|
(472)
|
|
Receive
|
CZK
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Pay
|
CZK
|
(622)
|
(111)
|
(111)
|
-
|
(222)
|
-
|
(1,066)
|
|
Receive
|
EUR
|
1,714
|
958
|
323
|
-
|
280
|
588
|
3,863
|
|
Pay
|
EUR
|
(3,619)
|
(785)
|
(356)
|
(1,118)
|
-
|
(7,872)
|
(13,750)
|
|
Receive
|
GBP
|
873
|
-
|
-
|
-
|
-
|
-
|
873
|
|
Pay
|
GBP
|
(873)
|
(609)
|
-
|
-
|
-
|
(455)
|
(1,937)
|
|
Receive
|
JPY
|
8
|
9
|
451
|
-
|
-
|
113
|
581
|
|
Pay
|
JPY
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Receive
|
MAD
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Pay
|
MAD
|
-
|
-
|
(88)
|
-
|
-
|
-
|
(88)
|
|
Receive
|
MXN
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Pay
|
MXN
|
(2)
|
-
|
-
|
-
|
-
|
-
|
(2)
|
|
Receive
|
PEN
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Pay
|
PEN
|
(7)
|
(15)
|
(16)
|
(16)
|
(13)
|
(60)
|
(127)
|
|
Receive
|
UFC
|
204
|
34
|
172
|
-
|
143
|
-
|
553
|
|
Pay
|
UFC
|
(102)
|
(111)
|
(86)
|
-
|
-
|
-
|
(299)
|
|
Receive
|
USD
|
1,959
|
1,297
|
160
|
1,286
|
67
|
7,283
|
12,052
|
|
Pay
|
USD
|
(7)
|
(156)
|
-
|
(104)
|
-
|
-
|
(267)
|
|
TOTAL
|
(836)
|
49
|
62
|
(71)
|
1
|
(491)
|
(1,286)
|
|
|
|
|
|
|
|
|
|||
|
Forwards
|
|
|
|
|
|
|
||
|
Receive
|
ARS
|
42
|
-
|
-
|
-
|
-
|
-
|
42
|
|
Pay
|
ARS
|
(340)
|
-
|
-
|
-
|
-
|
-
|
(340)
|
|
Receive
|
BRL
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Pay
|
BRL
|
(159)
|
-
|
-
|
-
|
-
|
-
|
(159)
|
|
Receive
|
CLP
|
142
|
-
|
-
|
-
|
-
|
-
|
142
|
|
Pay
|
CLP
|
(244)
|
(1)
|
-
|
-
|
-
|
-
|
(245)
|
|
Receive
|
COP
|
22
|
-
|
-
|
-
|
-
|
-
|
22
|
|
Pay
|
COP
|
(191)
|
-
|
-
|
-
|
-
|
-
|
(191)
|
|
Receive
|
CZK
|
-
|
-
|
-
|
-
|
-
|
14
|
14
|
|
Pay
|
CZK
|
(1,145)
|
-
|
-
|
-
|
-
|
-
|
(1,145)
|
|
Receive
|
EUR
|
3,262
|
-
|
-
|
-
|
-
|
-
|
3,262
|
|
Pay
|
EUR
|
(2,985)
|
(3)
|
(23)
|
(19)
|
-
|
(14)
|
(3,044)
|
|
Receive
|
GBP
|
2,488
|
-
|
-
|
-
|
-
|
-
|
2,488
|
|
Pay
|
GBP
|
(544)
|
-
|
-
|
-
|
-
|
-
|
(544)
|
|
Receive
|
MXN
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Pay
|
MXN
|
(530)
|
-
|
-
|
-
|
-
|
-
|
(530)
|
|
Receive
|
PEN
|
25
|
-
|
-
|
-
|
-
|
-
|
25
|
|
Pay
|
PEN
|
(27)
|
-
|
-
|
-
|
-
|
-
|
(27)
|
|
Receive
|
UFC
|
140
|
-
|
-
|
-
|
-
|
-
|
140
|
|
Pay
|
UFC
|
(142)
|
-
|
-
|
-
|
-
|
-
|
(142)
|
|
Receive
|
USD
|
2,112
|
4
|
24
|
20
|
-
|
-
|
2,160
|
|
Pay
|
USD
|
(1,897)
|
-
|
-
|
-
|
-
|
-
|
(1,897)
|
|
TOTAL
|
29
|
-
|
1
|
1
|
-
|
-
|
31
|
|
The
breakdown of financial instruments arranged by us (notional amount) by currency
and interest rates at December 31, 2008, is as follows:
|
FAIR
VALUE
|
|||||||||||
|
Millions of
Euros
|
2009
|
2010
|
2011
|
2012
|
2013
|
Subsequent
years
|
Total
|
Underlying
debt
|
Associated
derivatives
|
TOTAL
|
|
|
EURO
|
619
|
3,198
|
8,482
|
3,223
|
4,066
|
7,893
|
27,481
|
24,421
|
2,626
|
27,047
|
|
|
Floating
rate
|
(9,170)
|
(1,210)
|
6,475
|
(158)
|
4,112
|
799
|
848
|
7,639
|
(7,574)
|
65
|
|
|
Spread
- Ref Euribor
|
-0.05%
|
-0.35%
|
0.18%
|
0.46%
|
0.04%
|
0.25%
|
0.62%
|
||||
|
Fixed
rate
|
9,439
|
4,408
|
1,607
|
31
|
(46)
|
5,844
|
21,283
|
11,349
|
10,244
|
21,593
|
|
|
Interest
rate
|
4.40%
|
4.76%
|
2.66%
|
-22.88%
|
-51.84%
|
4.20%
|
4.37%
|
||||
|
Rate
cap
|
350
|
-
|
400
|
3,350
|
-
|
1,250
|
5,350
|
5,433
|
(44)
|
5,389
|
|
|
OTHER EUROPEAN
CURRENCIES
|
846
|
700
|
779
|
1,770
|
160
|
2,359
|
6,614
|
3,557
|
2,964
|
6,521
|
|
|
Instruments
in CZK
|
2,025
|
700
|
123
|
111
|
-
|
97
|
3,056
|
303
|
2,753
|
3,056
|
|
|
Floating
rate
|
-
|
278
|
-
|
-
|
-
|
-
|
278
|
88
|
191
|
279
|
|
|
Spread
|
-
|
0.07%
|
-
|
-
|
-
|
-
|
0.07%
|
||||
|
Fixed
rate
|
2,025
|
422
|
123
|
111
|
-
|
97
|
2,778
|
215
|
2,562
|
2,777
|
|
|
Interest
rate
|
4.04%
|
3.35%
|
3.41%
|
4.35%
|
-
|
4.62%
|
3.94%
|
||||
|
Rate
cap
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||
|
Instruments
in GBP
|
(1,179)
|
-
|
656
|
1,659
|
160
|
2,262
|
3,558
|
3,254
|
211
|
3,465
|
|
|
Floating
rate
|
-
|
-
|
63
|
740
|
155
|
(525)
|
433
|
59
|
569
|
628
|
|
|
Spread
|
-
|
-
|
4.60%
|
0.27%
|
0.27%
|
-
|
0.34%
|
||||
|
Fixed
rate
|
(1,179)
|
-
|
593
|
394
|
5
|
1,737
|
1,550
|
1,916
|
(472)
|
1,444
|
|
|
Interest
rate
|
3.16%
|
-
|
5.12%
|
7.63%
|
6.44%
|
5.27%
|
7.42%
|
||||
|
Rate
cap
|
-
|
-
|
-
|
525
|
-
|
1,050
|
1,575
|
1,279
|
114
|
1,393
|
|
|
AMERICA
|
(60)
|
1,844
|
889
|
747
|
1,146
|
3,764
|
8,330
|
12,334
|
(6,555)
|
5,779
|
|
|
Instruments
in USD
|
473
|
205
|
245
|
188
|
782
|
921
|
2,814
|
9,855
|
(9,502)
|
353
|
|
|
Floating
rate
|
(529)
|
206
|
151
|
173
|
142
|
96
|
239
|
2,492
|
(2,374)
|
118
|
|
|
Spread
|
0.85%
|
0.41%
|
-1.34%
|
0.96%
|
1.89%
|
-
|
-0.98%
|
||||
|
Fixed
rate
|
669
|
(11)
|
84
|
5
|
630
|
795
|
2,172
|
6,957
|
(7,143)
|
(186)
|
|
|
Interest
rate
|
4.09%
|
-48.90%
|
26.66%
|
-7.92%
|
3.20%
|
13.20%
|
8.28%
|
||||
|
Rate
cap
|
333
|
10
|
10
|
10
|
10
|
30
|
403
|
406
|
15
|
421
|
|
|
Instruments
in UYU
|
(2)
|
2
|
2
|
-
|
-
|
-
|
2
|
1
|
-
|
1
|
|
|
Floating
rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
Spread
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||
|
Fixed
rate
|
(2)
|
2
|
2
|
-
|
-
|
-
|
2
|
1
|
-
|
1
|
|
|
Interest
rate
|
-3.19%
|
3.75%
|
3.75%
|
-
|
-
|
-
|
13.67%
|
||||
|
Rate
cap
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||
|
Instruments
in ARS
|
110
|
141
|
59
|
-
|
-
|
-
|
310
|
(85)
|
321
|
236
|
|
|
Floating
rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
Spread
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||
|
Fixed
rate
|
110
|
141
|
59
|
-
|
-
|
-
|
310
|
(85)
|
321
|
236
|
|
|
Interest
rate
|
-54.69%
|
6.63%
|
11.49%
|
-
|
-
|
-
|
-14.12%
|
||||
|
Rate
cap
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||
|
Instruments
in BRL
|
(209)
|
726
|
161
|
154
|
154
|
311
|
1,297
|
607
|
661
|
1,268
|
|
|
Floating
rate
|
(348)
|
667
|
136
|
130
|
130
|
272
|
987
|
548
|
469
|
1,017
|
|
FAIR
VALUE
|
|||||||||||
|
Millions of
Euros
|
2009
|
2010
|
2011
|
2012
|
2013
|
Subsequent
years
|
Total
|
Underlying
debt
|
Associated
derivatives
|
TOTAL
|
|
Spread
|
0.74%
|
0.49%
|
3.64%
|
3.74%
|
3.75%
|
-
|
2.20%
|
||||
|
Fixed
rate
|
139
|
59
|
25
|
24
|
24
|
39
|
310
|
59
|
192
|
251
|
|
|
Interest
rate
|
21.00%
|
4.23%
|
10.03%
|
10.03%
|
10.03%
|
9.96%
|
13.83%
|
||||
|
Rate
cap
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||
|
Instruments
in CLP
|
349
|
105
|
170
|
102
|
78
|
-
|
804
|
(15)
|
820
|
805
|
|
|
Floating
rate
|
212
|
105
|
151
|
102
|
78
|
-
|
648
|
113
|
475
|
588
|
|
|
Spread
|
-0.20%
|
0.09%
|
0.06%
|
0.13%
|
-
|
-
|
-0.01%
|
||||
|
Fixed
rate
|
137
|
-
|
19
|
-
|
-
|
-
|
156
|
(128)
|
345
|
217
|
|
|
Interest
rate
|
8.59%
|
-
|
4.70%
|
-
|
-
|
-
|
8.11%
|
||||
|
Rate
cap
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||
|
Instruments
in UFC
|
2
|
2
|
68
|
2
|
2
|
4
|
80
|
173
|
(95)
|
78
|
|
|
Floating
rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
86
|
(86)
|
-
|
|
|
Spread
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||
|
Fixed
rate
|
2
|
2
|
68
|
2
|
2
|
4
|
80
|
87
|
(9)
|
78
|
|
|
Interest
rate
|
6.53%
|
6.56%
|
4.43%
|
7.45%
|
6.00%
|
6.00%
|
4.74%
|
||||
|
Rate
cap
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||
|
Instruments
in PEN
|
161
|
181
|
102
|
82
|
61
|
339
|
926
|
807
|
155
|
962
|
|
|
Floating
rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
Spread
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||
|
Fixed
rate
|
161
|
181
|
102
|
82
|
61
|
339
|
926
|
807
|
155
|
962
|
|
|
Interest
rate
|
5.63%
|
7.13%
|
6.67%
|
6.70%
|
7.45%
|
6.23%
|
6.47%
|
||||
|
Rate
cap
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||
|
Instruments
in COP
|
579
|
56
|
82
|
33
|
69
|
183
|
1,002
|
391
|
587
|
978
|
|
|
Floating
rate
|
8
|
43
|
36
|
33
|
30
|
-
|
150
|
148
|
-
|
148
|
|
|
Spread
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||
|
Fixed
rate
|
571
|
13
|
46
|
-
|
39
|
183
|
852
|
243
|
587
|
830
|
|
|
Interest
rate
|
12.66%
|
15.82%
|
14.10%
|
-
|
13.44%
|
-
|
10.10%
|
||||
|
Rate
cap
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||
|
Instruments
in UVR
|
-
|
-
|
-
|
-
|
-
|
2,006
|
2,006
|
2,006
|
-
|
2,006
|
|
|
Floating
rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
Spread
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||
|
Fixed
rate
|
-
|
-
|
-
|
-
|
-
|
2,006
|
2,006
|
2,006
|
-
|
2,006
|
|
|
Interest
rate
|
-
|
-
|
-
|
-
|
-
|
7.67%
|
7.67%
|
||||
|
Rate
cap
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||
|
Instruments
in VEB
|
(1,998)
|
-
|
-
|
-
|
-
|
-
|
(1,
998)
|
(1,999)
|
-
|
(1,999)
|
|
|
Floating
rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
Spread
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||
|
Fixed
rate
|
(1,998)
|
-
|
-
|
-
|
-
|
-
|
(1,998)
|
(1,999)
|
-
|
(1,999)
|
|
|
Interest
rate
|
10.34%
|
-
|
-
|
-
|
-
|
-
|
10.34%
|
||||
|
Rate
cap
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||
|
Instruments
in MXN
|
479
|
426
|
-
|
186
|
-
|
-
|
1,091
|
597
|
498
|
1,095
|
|
|
Floating
rate
|
47
|
266
|
-
|
-
|
-
|
-
|
313
|
412
|
63
|
475
|
|
|
Spread
|
3.30%
|
0.61%
|
-
|
-
|
-
|
-
|
1.01%
|
||||
|
Fixed
rate
|
432
|
160
|
-
|
186
|
-
|
-
|
778
|
185
|
435
|
620
|
|
|
Interest
rate
|
12.85%
|
8.17%
|
-
|
9.25%
|
-
|
-
|
11.02%
|
|
FAIR
VALUE
|
|||||||||||
|
Millions of
Euros
|
2009
|
2010
|
2011
|
2012
|
2013
|
Subsequent
years
|
Total
|
Underlying
debt
|
Associated
derivatives
|
TOTAL
|
|
Rate
cap
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||
|
Instruments
in GTQ
|
(4)
|
-
|
-
|
-
|
-
|
-
|
(4)
|
(4)
|
-
|
(4)
|
|
|
Floating
rate
|
(4)
|
-
|
-
|
-
|
-
|
-
|
(4)
|
(4)
|
-
|
(4)
|
|
|
Spread
|
0.01%
|
-
|
-
|
-
|
-
|
-
|
0.01%
|
||||
|
Fixed
rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
Interest
rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||
|
Rate
cap
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||
|
ASIA
|
575
|
(597)
|
(22)
|
||||||||
|
Instruments
in JPY
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
575
|
(597)
|
(22)
|
|
|
Floating
rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
152
|
(158)
|
(6)
|
|
|
Spread
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||
|
Fixed
rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
423
|
(439)
|
(16)
|
|
|
Interest
rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||
|
Rate
cap
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||
|
AFRICA
|
-
|
-
|
-
|
88
|
-
|
-
|
88
|
-
|
84
|
84
|
|
|
Instruments
in MAD
|
-
|
-
|
-
|
88
|
-
|
-
|
88
|
-
|
84
|
84
|
|
|
Floating
rate
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
Spread
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||
|
Fixed
rate
|
-
|
-
|
-
|
88
|
-
|
-
|
88
|
-
|
84
|
84
|
|
|
Interest
rate
|
-
|
-
|
-
|
4.54%
|
-
|
-
|
8.57%
|
||||
|
Rate
cap
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||
|
TOTAL
|
1,405
|
5,742
|
10,150
|
5,828
|
5,372
|
14,016
|
42,513
|
-
|
40,887
|
(1,478)
|
39,409
|
|
Floating
rate
|
(9,784)
|
355
|
7,012
|
1,020
|
4,647
|
642
|
3,892
|
-
|
11,733
|
(8,425)
|
3,308
|
|
Fixed rate
|
10,506
|
5,377
|
2,728
|
923
|
715
|
11,044
|
31,293
|
-
|
22,036
|
6,862
|
28,898
|
|
Rate cap
|
683
|
10
|
410
|
3,885
|
10
|
2,330
|
7,328
|
-
|
7,118
|
85
|
7,203
|
|
Currency
options
|
(202)
|
(202)
|
|||||||||
|
Other
|
-
|
-
|
-
|
-
|
-
|
-
|
422
|
-
|
-
|
-
|
|
CURRENCY
OPTIONS
|
||||||
|
Figures in
euros
|
MATURITIES
|
|||||
|
2009
|
2010
|
2011
|
2012
|
2013
|
2013+
|
|
|
Call USD/Put
BRL
|
||||||
|
Notional
amount of options bought
|
287,418,265
|
-
|
-
|
-
|
-
|
-
|
|
Strike
|
2.36
|
-
|
-
|
-
|
-
|
-
|
|
Notional
amount of options sold
|
290,062,464
|
-
|
-
|
-
|
-
|
-
|
|
Strike
|
2.36
|
-
|
-
|
-
|
-
|
-
|
|
Put USD / Call
BRL
|
||||||
|
Notional
amount of options bought
|
114,284,734
|
-
|
-
|
-
|
-
|
-
|
|
Strike
|
1.86
|
-
|
-
|
-
|
-
|
-
|
|
Notional
amount of options sold
|
143,709,133
|
-
|
-
|
-
|
-
|
-
|
|
Strike
|
1.86
|
-
|
-
|
-
|
-
|
-
|
|
Call USD / Put
ARS
|
||||||
|
Notional
amount of options bought
|
15,825,484
|
-
|
-
|
-
|
-
|
-
|
|
Strike
|
3.38
|
-
|
-
|
-
|
-
|
-
|
|
Call USD / Put
EUR
|
||||||
|
Notional
amount of options bought
|
291,010,994
|
-
|
208,378,242
|
-
|
148,020,407
|
1,723,431,774
|
|
Strike
|
1.59
|
-
|
1.59
|
-
|
1.49
|
1.40
|
|
Notional
amount of options sold
|
268,984,547
|
-
|
195,129,693
|
-
|
-
|
831,255,453
|
|
Strike
|
1.51
|
-
|
1.49
|
-
|
-
|
1.20
|
|
INTEREST RATE
OPTIONS
|
|||||
|
MATURITIES
|
|||||
|
Figures in
euros
|
2009
|
2010
|
2011
|
2012
|
2013+
|
|
Collars
|
|||||
|
Notional
bought
|
781,127,398
|
-
|
400,000,000
|
200,000,000
|
2,689,686,974
|
|
Strike
Cap
|
3.897%
|
-
|
4.000%
|
3.80%
|
4.53%
|
|
Strike
Floor
|
2.733%
|
-
|
3.300%
|
2.80%
|
3.13%
|
|
Caps
|
|||||
|
Notional
bought
|
-
|
-
|
-
|
6,784,908,136
|
-
|
|
Strike
|
-
|
-
|
-
|
4.28%
|
-
|
|
Notional
sold
|
700,000,000
|
-
|
400,000,000
|
6,784,908,136
|
2,689,686,974
|
|
Strike
|
4.75%
|
-
|
4.55%
|
5.156%
|
5.24%
|
|
Floors
|
|||||
|
Notional
bought
|
1,481,127,398
|
-
|
400,000,000
|
567,454,068
|
2,599,868,766
|
|
Strike
|
0.71%
|
-
|
1.00%
|
1.15%
|
1.72%
|
|
Notional
sold
|
1,050,000,000
|
367,974,663
|
-
|
1,067,454,068
|
-
|
|
Strike
|
2.73%
|
4.39%
|
-
|
2.75%
|
-
|
APPENDIX
IV: INTEREST-BEARING DEBT
The main
financing transactions included under this heading outstanding at December 31,
2009 and 2008 and their nominal amounts are as follows:
|
Name
|
Amount of
contract
|
Outstanding nominal balance
(million euros)
|
Arrangement
date
|
Maturity
date
|
||
|
Summary
|
(millions)
|
12/31/09
|
12/31/08
|
|||
|
Telefónica
Europe, B.V. syndicated loan O2 acquisition
|
5,250
|
GBP
|
3,091
|
4,203
|
12/07/06
|
12/14/13
|
|
Telefónica
Europe, B.V. loan
|
15,000
|
JPY
|
113
|
119
|
08/23/07
|
07/27/37
|
|
Telefónica,
S.A. syndicated loan Cesky acquisition
|
6,000
|
EUR
|
6,000
|
6,000
|
06/28/05
|
06/28/13
|
|
Telefónica,
S.A. syndicated loan with savings banks
|
700
|
EUR
|
700
|
700
|
04/21/06
|
04/21/17
|
|
TELFISA
EIB financing
|
257
|
USD
|
179
|
211
|
09/15/04
|
09/15/16
|
|
TELFISA
EIB financing
|
109
|
EUR
|
109
|
125
|
11/15/04
|
09/15/16
|
|
TELFISA
EIB financing
|
300
|
EUR
|
300
|
300
|
12/12/06
|
12/12/11
|
|
TELFISA
EIB financing
|
100
|
EUR
|
100
|
100
|
01/31/07
|
01/31/15
|
|
TELFISA
EIB financing
|
375
|
EUR
|
375
|
375
|
01/30/08
|
01/30/15
|
|
Vivo
loans
|
765
|
BRL
|
287
|
211
|
07/13/07
|
08/15/14
|
|
Telesp
loans
|
2,034
|
BRL
|
792
|
525
|
10/23/07
|
05/15/15
|
|
CTC
loans
|
4
|
UFC
|
103
|
86
|
04/14/05
|
04/14/10
|
|
CTC
syndicated loans
|
150
|
USD
|
104
|
108
|
10/28/05
|
06/21/11
|
|
CTC
syndicated loans
|
150
|
USD
|
104
|
108
|
06/09/08
|
05/13/13
|
|
Telefónica
Móviles Chile syndicated loans
|
180
|
USD
|
125
|
129
|
01/05/06
|
01/05/11
|
|
Telefónica
Móviles Chile syndicated loans
|
100,000
|
CLP
|
105
|
113
|
11/15/06
|
11/15/12
|
|
Colombia
Telecomunicaciones loans
|
310,000
|
COP
|
105
|
99
|
12/28/09
|
12/28/14
|
|
Telefónica
Móviles Colombia loans
|
600
|
USD
|
417
|
431
|
12/20/07
|
11/15/12
|
|
Other
|
4,849
|
5,987
|
||||
|
TOTAL
|
17,958
|
19,930
|
||||
APPENDIX V:
MAIN COMPANIES COMPRISING THE TELEFÓNICA GROUP
The table below lists the main companies
comprising the Telefónica Group at December 31, 2009 and the main investments
consolidated using the equity method.
Included for each company are the
company name, corporate purpose, country, functional currency, share capital (in
million of functional currency units), the Telefónica Group's effective
shareholding and the company or companies through which the Group holds a
stake.
|
Name and corporate
purpose
|
Country
|
Currency
|
Share
capital
|
% Telefónica
Group
|
Holding
company
|
|
Parent
company:
|
|||||
|
Telefónica,
S.A.
|
Spain
|
EUR
|
4,564
|
||
|
Telefónica Spain
|
|||||
|
Telefónica
de España, S.A.U.
Telecommunications
service provider
|
Spain
|
EUR
|
1,024
|
100%
|
Telefónica,
S.A. (100%)
|
|
Telefónica
Móviles España, S.A.U.
Wireless
communications services provider
|
Spain
|
EUR
|
423
|
100%
|
Telefónica,
S.A. (100%)
|
|
Telefónica
Serv. de Informática y Com. de España, S.A.U.
Telecommunications
systems, networks and infrastructure engineering
|
Spain
|
EUR
|
6
|
100%
|
Telefónica
de España, S.A.U. (100%)
|
|
Telefónica
Soluciones Sectoriales, S.A.U.
Consulting
services for ICT companies
|
Spain
|
EUR
|
14
|
100%
|
Telefónica
de España, S.A.U. (100%)
|
|
Interdomain,
S.A.U.
Internet
resources operator
|
Spain
|
EUR
|
-
|
100%
|
Telefónica
Soluciones Sectoriales, S.A. (100%)
|
|
Teleinformática
y Comunicaciones, S.A.U. (TELYCO)
Promotion,
marketing and distribution of telephone and telematic equipment and
services
|
Spain
|
EUR
|
8
|
100%
|
Telefónica
de España, S.A.U. (100%)
|
|
Telyco
Marruecos, S.A.
Promotion,
marketing and distribution of telephone services
|
Morocco
|
MAD
|
6
|
54.00%
|
Teleinformática
y Comunicaciones, S.A. (TELYCO) (54.00%)
|
|
Telefónica
Telecomunicaciones Públicas, S.A.U.
Installation
of public telephones
|
Spain
|
EUR
|
1
|
100%
|
Telefónica
de España, S.A.U. (100%)
|
|
Telefónica
Remesas, S.A.
Remittance
management
|
Spain
|
EUR
|
-
|
100%
|
Telefónica
Telecomunicaciones Públicas, S.A.U. (100%)
|
|
Telefónica
Salud, S.A.
Management
and operation of telecommunications and public television
services
|
Spain
|
EUR
|
-
|
51.00%
|
Telefónica
Telecomunicaciones Públicas, S.A.U. (51.00%)
|
|
Iberbanda,
S.A.
Broadband
telecommunications operator
|
Spain
|
EUR
|
3
|
58.94%
|
Telefónica
de España, S.A.U. (58.94%)
|
|
Telefónica
Cable, S.A.U.
Cable
telecommunication services provider
|
Spain
|
EUR
|
3
|
100%
|
Telefónica
de España, S.A.U. (100%)
|
|
Telefónica Latin America
|
|||||
|
Telefónica
Internacional, S.A.
Investment
in the telecommunications industry abroad
|
Spain
|
EUR
|
2,839
|
100%
|
Telefónica,
S.A. (100%)
|
|
Telefónica
International Holding, B.V.
Holding
company
|
Netherlands
|
USD
|
548
|
100%
|
Telefónica
Internacional, S.A. (100%)
|
|
Latin
American Cellular Holdings, B.V. (NETHERLANDS)
Holding
company
|
Netherlands
|
EUR
|
281
|
100%
|
Telefónica,
S.A. (100%)
|
|
Telefónica
Datacorp, S.A.U.
Telecommunications
service provider and operator
|
Spain
|
EUR
|
700
|
100%
|
Telefónica,
S.A. (100%)
|
|
Telecomunicaçoes
de Sao Paulo, S.A. - TELESP
Wireline
telephony operator in Sao Paulo
|
Brazil
|
BRL
|
6,558
|
87.95%
|
Telefónica
Internacional, S.A. (65.30%)
Sao
Paulo Telecomunicaçoes Participaçoes, Ltda. (22.65%)
|
|
Brasilcel,
N.V. (*)
Joint
Venture and holding company for wireless communications
services
|
Netherlands
|
BRL
|
-
|
50.00%
|
Telefónica,
S.A. (50.00%)
|
|
Vivo Participaçoes, S.A. (*)
Holding
company
|
Brazil
|
BRL
|
8,780
|
33.31%
|
Brasilcel,
N.V. y subsidiarias (29.63%)
Subsidiaries
of Telefónica Group (3.68%)
|
|
Vivo, S.A. (*)
Wireless services
operator
|
Brazil
|
BRL
|
5,999
|
33.31%
|
Vivo
Participaçoes, S.A. (33.31%)
|
|
Telemig Celular, S.A. (*)
Wireless services
operator
|
Brazil
|
BRL
|
528
|
33.31%
|
Vivo
Participaçoes, S.A. (33.31%)
|
|
Compañía
Internacional de Telecomunicaciones, S.A.
Holding
company
|
Argentina
|
ARS
|
731
|
100%
|
Telefónica
Holding de Argentina, S.A. (50.00%)
Telefónica
International Holding, B.V. (37.33%)
Telefónica
Internacional, S.A. (12.67%)
|
|
Telefónica
de Argentina, S.A.
Telecommunications
service provider
|
Argentina
|
ARS
|
624
|
100%
|
Compañía
Internacional de Telecomunicaciones, S.A. (51.49%)
Telefónica
Internacional, S.A. (16.20%)
Telefónica
Móviles Argentina, S.A. (29.56%)
Telefónica
International Holding, B.V. (0.95%)
Telefónica,
S.A. (1.80%)
|
|
Name and corporate
purpose
|
Country
|
Currency
|
Share
capital
|
% Telefónica
Group
|
Holding
company
|
|
Telefónica Móviles Argentina,
S.A.
Wireless telephone services
provider
|
Argentina
|
ARS
|
1,198
|
100%
|
Telefónica
Móviles Argentina Holding, S.A. (84.60%)
Telefónica,
S.A. (15.40%)
|
|
Telcel, C.A.
Wireless
operator
|
Venezuela
|
VEF
|
905
|
100%
|
Latin
America Cellular Holdings, B.V. (97.21%)
Telefónica,
S.A. (0.08%)
Comtel
Comunicaciones Telefónicas, S.A. (2.71%)
|
|
Telefónica
Móviles Chile, S.A.
Wireless
communications services operator
|
Chile
|
CLP
|
1,628,654
|
100%
|
TEM
Inversiones Chile Ltda. (100%)
|
|
Telefónica Chile,
S.A.
Local,
long distance and international telephony services
provider
|
Chile
|
CLP
|
578,078
|
97.89%
|
Inversiones
Telefónica Internacional Holding Ltda. (53.00%)
Telefónica
Internacional de Chile, S.A. (44.89%)
|
|
Telefónica
del Perú, S.A.A.
Local,
domestic and international long distance telephone service
provider
|
Peru
|
PEN
|
2,962
|
98.34%
|
Telefónica
Internacional, S.A. (49.90%)
Latin
America Cellular Holdings, B.V. (48.28%)
Telefónica,
S.A. (0.16%)
|
|
Telefónica Móviles Perú,
S.A.C.
Wireless communications services
provider
|
Peru
|
PEN
|
602
|
100%
|
Telefónica
del Perú, S.A.A. (100%)
|
|
Colombia
Telecomunicaciones, S.A. ESP
Communications
services operator
|
Colombia
|
COP
|
909,929
|
52.03%
|
Telefónica
Internacional, S.A. (52.03%)
|
|
Telefónica Móviles Colombia,
S.A.
Wireless
operator
|
Colombia
|
COP
|
-
|
100.00%
|
Olympic,
Ltda. (50.58%)
Telefónica,
S.A. (49.42%)
|
|
Telefónica Móviles México, S.A. de
C.V. (MEXICO)
Holding
company
|
Mexico
|
MXN
|
46,271
|
100%
|
Telefónica
Internacional, S.A. (100%)
|
|
Pegaso Comunicaciones y Sistemas,
S.A. de C.V.
Wireless telephone and
communications services
|
Mexico
|
MXN
|
27,173
|
100%
|
Telefónica Móviles México, S.A. de
C.V. (100%)
|
|
Telefónica Móviles del Uruguay,
S.A.
Wireless communications and
services operator
|
Uruguay
|
UYU
|
196
|
100%
|
Latin
America Cellular Holdings, B.V. (68.00%)
Telefónica,
S.A. (32.00%)
|
|
Telefónica
Larga Distancia de Puerto Rico, Inc.
Telecommunications
service operator
|
Puerto
Rico
|
USD
|
111
|
98.00%
|
Telefónica
Internacional, S.A. (98.00%)
|
|
Telefónica Móviles Panamá,
S.A.
Wireless telephony
services
|
Panama
|
USD
|
71
|
100%
|
Telefónica,
S.A. (56.31%)
Panamá
Cellular Holdings, B.V. (43.69%)
|
|
Telefónica Móviles El Salvador,
S.A. de C.V.
Provision of wireless and
international long distance communications services
|
El
Salvador
|
SVC
|
367,
541
|
99.08%
|
Telefónica
El Salvador Holding, S.A. de C.V. (99.08%)
|
|
Telefónica Móviles Guatemala,
S.A.
Wireless, wireline and radio
paging communications services provider
|
Guatemala
|
GTQ
|
1,420
|
99.98%
|
TCG
Holdings, S.A. (65.99%)
Telefónica,
S.A. (13.60%)
Guatemala
Cellular Holdings, B.V. (13.12%)
Panamá
Cellular Holdings, B.V. (7.27%)
|
|
Telefonía Celular de Nicaragua,
S.A.
Wireless telephony
services
|
Nicaragua
|
NIO
|
247
|
100%
|
Latin
America Cellular Holdings, B.V. (98.00%)
Telefónica
El Salvador Holding, S.A. de C.V. (2.00%)
|
|
Otecel, S.A.
Wireless communications services
provider
|
Ecuador
|
USD
|
156
|
100%
|
Ecuador
Cellular Holdings, B.V. (100%)
|
|
Telefónica
International Wholesale Services, S.L.
International
services provider
|
Spain
|
EUR
|
230
|
100%
|
Telefónica,
S.A. (92.51%)
Telefónica
Datacorp, S.A.U (7.49%)
|
|
Telefónica
International Wholesale Services America, S.A.
Provision
of high bandwidth communications services
|
Uruguay
|
UYU
|
579
|
100%
|
Telefónica,
S.A. (76.85%)
Telefónica
International Wholesale Services II, S.L. (23.15%)
|
|
Telefónica
International Wholesale Services France, S.A.S.
Provision
of high bandwidth communications services
|
France
|
EUR
|
-
|
100%
|
Telefónica
International Wholesale Services, S.L. (100%)
|
|
Telefónica
International Wholesale Services Argentina, S.A.
Provision
of high bandwidth communications services
|
Argentina
|
USD
|
78
|
100%
|
T.
International Wholesale Services America,
S.A. (99.94%)
Telefónica
International Wholesale Services, S.L. (0.06%)
|
|
Telefónica
International Wholesale Services Brasil Participaçoes, LtdParticipaçoes,
Ltd.
Provision
of high bandwidth communications services
|
Brazil
|
USD
|
62
|
100%
|
Telefónica
International Wholesale Services,
S.L. (99.99%)
Telefónica
International, S.A. (0.01%)
|
|
Telefónica
International Wholesale Services Perú, S.A.C.
Provision
of high bandwidth communications services
|
Peru
|
USD
|
20
|
100%
|
T.
International Wholesale Services America,
S.A. (100%)
Telefónica
Servicios Integrados, S.A.C.
|
|
Telefónica
International Wholesale Services USA, Inc.
Provision
of high bandwidth communications services
|
United
States
|
USD
|
36
|
100%
|
T.
International Wholesale Services America,
S.A. (100%)
|
|
Telefónica
International Wholesale Services Puerto Rico, Inc.
Provision
of high bandwidth communications services
|
Puerto
Rico
|
USD
|
24
|
100%
|
T.
International Wholesale Services America,
S.A. (100%)
|
|
Telefónica
International Wholesale Services Ecuador, S.A
Provision
of high bandwidth communications services
|
Ecuador
|
USD
|
6
|
100%
|
T.
International Wholesale Services America,
S.A. (99.99%)
Telefónica
International Wholesale Services Perú, S.A.C. (0.01%)
|
|
Terra
Networks Brasil, S.A.
ISP
and portal
|
Brazil
|
BRL
|
1,046
|
100%
|
Sao
Paulo Telecomunicaçoes Participaçoes, Ltda. (100%)
|
|
Terra
Networks Mexico, S.A. de C.V.
ISP,
portal and real-time financial information services
|
Mexico
|
MXN
|
45
|
99.99%
|
Terra
Networks Mexico Holding, S.A. de C.V.
(99.99%)
|
|
Name and corporate
purpose
|
Country
|
Currency
|
Share
capital
|
% Telefónica
Group
|
Holding
company
|
|
Terra
Networks Perú, S.A.
ISP
and portal
|
Peru
|
PEN
|
10
|
99.99%
|
Telefónica
Internacional, S.A. (99.99%)
|
|
Terra
Networks Argentina, S.A.
ISP
and portal
|
Argentina
|
ARS
|
18
|
100%
|
Telefónica
Internacional, S.A. (99.92%)
TelefónicaTelefónica
International Holding, B.V. (0.08%)
|
|
Terra
Networks Guatemala, S.A.
ISP
and portal
|
Guatemala
|
GTQ
|
154
|
99.99%
|
Telefónica
Internacional, S.A. (99.99%)
|
|
TelefónicaTelefónica China,
B.V.
Holding
company
|
Netherlands
|
EUR
|
-
|
100%
|
Telefónica
Internacional, S.A. (100%)
|
|
Telefónica
Europe
|
|||||
|
Telefónica
Europe plc
Holding
company
|
UK
|
GBP
|
13,061
|
100%
|
Telefónica,
S.A. (100%)
|
|
MmO2
plc
Holding
company
|
UK
|
GBP
|
20
|
99.99%
|
Telefónica
Europe plc (99.99%)
|
|
O2
Holdings Ltd.
Holding
company
|
UK
|
EUR
|
12
|
100%
|
MmO2
plc (100%)
|
|
Telefónica
O2 UK Ltd.
Wireless
communications services operator
|
UK
|
GBP
|
10
|
100%
|
O2
Networks Ltd. (80.00%)
O2
Cedar Ltd. (20.00%)
|
|
The
Link Stores Ltd.
Telecommunications
equipment retailer
|
UK
|
GBP
|
-
|
100%
|
Telefónica
O2 UK Ltd. (100%)
|
|
Be
Un Limited (Be)
Internet
services provider
|
UK
|
GBP
|
10
|
100%
|
Telefónica
O2 UK Ltd. (100%)
|
|
Tesco
Mobile Ltd. (*)
Wireless
telephony services
|
UK
|
GBP
|
-
|
50.00%
|
O2
Ash Ltd. (50.00%)
|
|
O2
(Europe) Ltd.
Holding
company
|
UK
|
GBP
|
1,239
|
100%
|
Telefónica,
S.A. (100%)
|
|
Telefónica
O2 Germany GmbH & Co. OHG
Wireless
communications services operator
|
Germany
|
EUR
|
51
|
100%
|
Telefónica
O2 Germany Verwaltungs GmBh (99.99%)
Telefónica
O2 Germany Management GmBh (0.01%)
|
|
Tchibo
Mobilfunk GmbH & Co. KG (*)
Telecommunications
equipment retailer
|
Germany
|
EUR
|
16
|
50.00%
|
Telefónica
O2 Germany GmbH & Co. OHG (50.00%)
|
|
TelefónicaTelefónica
O2 Ireland Ltd.
Wireless
communications services operator
|
Ireland
|
EUR
|
98
|
100%
|
Kilmaine,
Ltd. (1%)
O2
Netherland Holdings B.V. (99%)
|
|
Manx
Telecom Ltd.
Telecommunications
service provider
|
Isle
of Man
|
GBP
|
12
|
100%
|
O2
(Netherlands) Holdings BV (100%)
|
|
Telefónica
O2 Czech Republic, a.s.
Telecommunications
service provider
|
Czech
Republic
|
CZK
|
32,209
|
69.41%
|
Telefónica,
S.A. (69.41%)
|
|
Telefónica
O2 Slovakia, s.r.o.
Wireless
telephony, internet and data transmission services
|
Slovak
Republic
|
EUR
|
192
|
69.41%
|
Telefónica
O2 Czech Republic, a.s. (100%)
|
|
Other
companies
|
|||||
|
Telefónica
de Contenidos, S.A.U.
Organization
and operation of multimedia service-related businesses
|
Spain
|
EUR
|
1,865
|
100%
|
Telefónica,
S.A. (100%)
|
|
Atlántida
Comunicaciones, S.A.
Media
|
Argentina
|
ARS
|
22
|
100%
|
Telefónica
Media Argentina S.A. (93.02%)
Telefónica
Holding de Argentina, S.A. (6.98%)
|
|
Televisión
Federal S.A.- TELEFE
Provision
and operation TV and radio broadcasting services
|
Argentina
|
ARS
|
148
|
100%
|
Atlántida
Comunicaciones S.A. (79.02%)
Enfisur
S.A. (20.98%)
|
|
Telefónica
Servicios Audiovisuales, S.A.U.
Provision
of all type of audiovisual telecommunications services
|
Spain
|
EUR
|
6
|
100%
|
Telefónica
de Contenidos, S.A.U. (100%)
|
|
Gloway
Broadcast Services, S.L.
DSNG-based
transmission and operation services
|
Spain
|
EUR
|
-
|
100%
|
Telefónica
Servicios Audiovisuales, S.A.U. (100%)
|
|
Telefónica
Servicios de Música, S.A.U.
Provision
of telemarketing services
|
Spain
|
EUR
|
1
|
100%
|
Telefónica
de Contenidos, S.A.U. (100%)
|
|
Atento
Inversiones y Teleservicios, S.A.U.
Telecommunications
service provider
|
Spain
|
EUR
|
24
|
100%
|
Telefónica,
S.A. (100%)
|
|
Atento
N.V.
Telecommunications
service provider
|
Netherlands
|
EUR
|
-
|
100%
|
Atento
Inversiones y Teleservicios, S.A. (100%)
|
|
Atento Teleservicios España,
S.A.U.
Provision
of all type of telemarketing services
|
Spain
|
EUR
|
1
|
100%
|
Atento
N.V. (100%)
|
|
Atento
Brasil, S.A.
Telecommunications
services provider
|
Brazil
|
BRL
|
152
|
100%
|
Atento
N.V. (100%)
|
|
Atento
Argentina, S.A.
Telecommunications
services provider
|
Argentina
|
ARS
|
3
|
100%
|
Atento
Holding Chile, S.A. (97.99%)
Atento
N.V. (2.01%)
|
|
Teleatento
del Perú, S.A.C.
Telecommunications
services provider
|
Peru
|
PEN
|
14
|
100%
|
Atento
N.V. (83.33%)
Atento
Holding Chile, S.A. (16.67%)
|
|
Atento
Chile, S.A.
Telecommunications
services provider
|
Chile
|
CLP
|
11,128
|
99.06%
|
Atento
Holding Chile, S.A. (71.16%)
Compañía
de Telecomunicaciones de Chile, S.A (26.52%)
Telefónica
Empresas Chile, S.A. (0.93%)
Telefónica
Larga Distancia, S.A. (0.45%)
|
|
Atento
Centroamérica, S.A.
Provision
of call-center services
|
Guatemala
|
GTQ
|
55
|
100%
|
Atento
N.V. (99.99%)
Atento
El Salvador, S.A. de C.V. (0.01%)
|
|
Terra
Networks Asociadas, S.L.
Holding
company
|
Spain
|
EUR
|
7
|
100%
|
Telefónica,
S.A. (100%)
|
|
Red
Universal de Marketing y Bookings Online, S.A. (RUMBO) (*)
Online
travel agency
|
Spain
|
EUR
|
1
|
50.00%
|
Terra
Networks Asociadas, S.L.
(50.00%)
|
|
Name and corporate
purpose
|
Country
|
Currency
|
Share
capital
|
% Telefónica
Group
|
Holding
company
|
|
Telefónica
Learning Services, S.L.
Vertical
e-learning portal
|
Spain
|
EUR
|
1
|
100%
|
Terra
Networks Asociadas, S.L. (100%)
|
|
Telefónica
Ingeniería de Seguridad, S.A.U.
Security
services and systems
|
Spain
|
EUR
|
1
|
100%
|
Telefónica,
S.A. (100%)
|
|
Telefónica
Engenharia de Segurança
Security
services and systems
|
Brazil
|
BRL
|
21
|
99.99%
|
Telefónica
Ingeniería de Seguridad, S.A. (99.99%)
|
|
Telefónica
Capital, S.A.U.
Finance
company
|
Spain
|
EUR
|
7
|
100%
|
Telefónica,
S.A. (100%)
|
|
Lotca
Servicios Integrales, S.L.
Aircraft
ownership and operation
|
Spain
|
EUR
|
17
|
100%
|
Telefónica,
S.A. (100%)
|
|
Fonditel
Pensiones, Entidad Gestora de Fondos de Pensiones, S.A.
Administration
of pension funds
|
Spain
|
EUR
|
16
|
70.00%
|
Telefónica
Capital, S.A. (70.00%)
|
|
Fonditel
Gestión, Soc. Gestora de Instituciones de Inversión Colectiva,
S.A.
Administration
and representation of collective investment schemes
|
Spain
|
EUR
|
2
|
100%
|
Telefónica
Capital, S.A. (100%)
|
|
Telefónica
Investigación y Desarrollo, S.A.U.
Telecommunications
research activities and projects
|
Spain
|
EUR
|
6
|
100%
|
Telefónica,
S.A. (100%)
|
|
Telefónica
Investigación y Desarrollo de Mexico, S.A. de C.V.
Telecommunications
research activities and projects
|
Mexico
|
MXN
|
-
|
100%
|
Telefónica
Investigación y Desarrollo, S.A. (100%)
|
|
Telefônica
Pesquisa e Desenvolvimento do Brasil, Ltda.
Telecommunications
research activities and projects
|
Brazil
|
BRL
|
1
|
100%
|
Telefónica
Investigación y Desarrollo, S.A. (100%)
|
|
Casiopea
Reaseguradora, S.A.
Reinsurance
|
Luxemburg
|
EUR
|
4
|
100%
|
Telefónica,
S.A. (99.97%)
Telefónica
Finanzas, S.A. (TELFISA) (0.03%)
|
|
Pléyade
Peninsular, Correduría de Seguros y Reaseguros del Grupo Telefónica,
S.A.
Distribution,
promotion or preparation of insurance contracts
|
Spain
|
EUR
|
-
|
100%
|
Casiopea
Reaseguradora, S.A. (83.33%)
Telefónica,
S.A. (16.67%)
|
|
Altaïr
Assurances, S.A.
Direct
insurance transations
|
Luxemburg
|
EUR
|
6
|
100%
|
Casiopea
Reaseguradora, S.A. (95.00%)
Seguros
de Vida y Pensiones Antares, S.A. (5.00%)
|
|
Seguros
de Vida y Pensiones Antares, S.A.
Life
insurance, pensions and health insurance
|
Spain
|
EUR
|
51
|
100%
|
Telefónica,
S.A. (89.99%)
Casiopea
Reaseguradora, S.A. (10.01%)
|
|
Telefónica
Finanzas, S.A.U. (TELFISA)
Integrated
cash management, consulting and financial support for Group
companies
|
Spain
|
EUR
|
3
|
100%
|
Telefónica,
S.A. (100%)
|
|
Fisatel
Mexico, S.A. de C.V.
Integrated
cash management, consulting and financial support for Group
companies
|
Mexico
|
MXN
|
5
|
100%
|
Telefónica,
S.A. (100%)
|
|
Telfisa
Global, B.V.
Integrated
cash management, consulting and financial support for Group
companies
|
Netherlands
|
EUR
|
-
|
100%
|
Telefónica,
S.A. (100%)
|
|
Telefónica
Europe, B.V.
Fund
raising in capital markets
|
Netherlands
|
EUR
|
-
|
100%
|
Telefónica,
S.A. (100%)
|
|
Telefónica
Finance USA, L.L.C.
Financial
intermediation
|
United
States
|
EUR
|
2,000
|
0.01%
|
Telefónica
Europe, B.V. (0.01%)
|
|
Telefónica
Emisiones, S.A.U.
Financial
debt instrument issuer
|
Spain
|
EUR
|
-
|
100%
|
Telefónica,
S.A. (100%)
|
|
Spiral
Investments, B.V.
Holding
company
|
Netherlands
|
EUR
|
39
|
100%
|
Telefónica
Móviles España, S.A.U. (100%)
|
|
Solivella
Investment, B.V.
Holding
company
|
Netherlands
|
EUR
|
881
|
100%
|
Telefónica
Móviles España, S.A.U. (100%)
|
|
Aliança
Atlântica Holding B.V.
Holder
of 5,225,000 Portugal Telecom, S.A. shares
|
Netherlands
|
EUR
|
-
|
93.99%
|
Telefónica,
S.A. (50.00%)
Telecomunicaçoes
de Sao Paulo, S.A. - TELESP (43.99%)
|
|
Telefónica
Gestión de Servicios Compartidos España, S.A.
Provision
of management and administration services
|
Spain
|
EUR
|
8
|
100%
|
Telefónica,
S.A. (100%)
|
|
Telefónica
Gestión de Servicios Compartidos, S.A.C.
Provision
of management and administration services
|
Argentina
|
ARS
|
-
|
99.99%
|
T.
Gestión de Servicios Compartidos España, S.A. (95.00%)
Telefónica,
S.A. (4.99%)
|
|
Telefónica
Gestión de Servicios Compartidos, S.A.
Provision
of management and administration services
|
Chile
|
CLP
|
1,017
|
97.89%
|
Compañía
de Telecomunicaciones de Chile, S.A (97.89%)
|
|
Telefónica
Gestión de Servicios Compartidos, S.A.
Provision
of management and administration services
|
Peru
|
PEN
|
1
|
100%
|
T.
Gestión de Servicios Compartidos España, S.A. (100%)
|
|
Cobros
Serviços de Gestao, Ltda.
Provision
of management and administration services
|
Brazil
|
BRL
|
-
|
99.33%
|
T.
Gestión de Servicios Compartidos España, S.A. (99.33%)
|
|
Tempotel,
Empresa de Trabajo Temporal, S.A.
Temporary
employment agency
|
Spain
|
EUR
|
-
|
100%
|
T.
Gestión de Servicios Compartidos España, S.A. (100%)
|
|
Telefónica
Gestao de Serviços Compartilhados do BRASIL, Ltda.
Provision
of management and administration services
|
Brazil
|
BRL
|
12
|
99.99%
|
T.
Gestión de Servicios Compartidos España, S.A. (99.99%)
|
|
Telefónica
Gestión de Servicios Compartidos Mexico, S.A. de C.V.
Provision
of management and administration services
|
Mexico
|
MXN
|
50
|
100%
|
T.
Gestión de Servicios Compartidos España, S.A. (100%)
|
|
Telefónica
Servicios Integrales de Distribución, S.A.U.
Distribution
services provider
|
Spain
|
EUR
|
2
|
100%
|
T.
Gestión de Servicios Compartidos España, S.A. (100%)
|
|
Telefónica
Compras Electrónicas, S.L.
Development
and provision of information society services
|
Spain
|
EUR
|
-
|
100%
|
T.
Gestión de Servicios Compartidos España, S.A. (100%)
|
|
Companies accounted for using the
equity method
|
|||||
|
Telco
S.p.A.
Holding
company
|
Italy
|
EUR
|
3,588
|
46.18%
|
Telefónica,
S.A. (46.18%)
|
|
Name and corporate
purpose
|
Country
|
Currency
|
Share
capital
|
% Telefónica
Group
|
Holding
company
|
|
Telecom
Italia S.p.A.
Holding
company
|
Italy
|
EUR
|
10,674
|
10.
49%
|
Telco
S.p.A. (10.49%)
|
|
Portugal
Telecom, SGPS, S.A.
Holding
company
|
Portugal
|
EUR
|
27
|
9.86%
|
Telefónica,
S.A. (8.51%)
Telecomunicaçoes
de Sao Paulo, S.A. - TELESP (0.79%)
Aliança
Atlântica Holding B.V. (0.56%)
|
|
Lycos
Europe, N.V.
Internet
portal
|
Netherlands
|
EUR
|
3
|
32.10%
|
LE
Holding Corporation (32.10%)
|
|
Telefónica
Factoring Mexico, S.A. de C.V. SOFOM ENR
Factoring
services provider
|
Mexico
|
MXN
|
33
|
50%
|
Telefónica,
S.A. (40.5%)
Telefónica
Factoring España, S.A.
(9.50%)
|
|
Hispasat,
S.A.
Operation
of a satellite telecommunications system
|
Spain
|
EUR
|
122
|
13.23%
|
Telefónica
de Contenidos, S.A.U. (13.23%)
|
|
Telefónica
Factoring España, S.A.
Factoring
services provider
|
Spain
|
EUR
|
5
|
50.00%
|
Telefónica,
S.A. (50.00%)
|
|
Telefónica
Factoring Do Brasil, Ltd.
Factoring
services provider
|
Brazil
|
BRL
|
5
|
50.00%
|
Telefónica,
S.A. (40.00%)
Telefónica
Factoring España, S.A. (10.00%)
|
|
Ipse
2000 S.p.A
Installation
and operation of 3G wireless communications systems
|
Italy
|
EUR
|
13
|
39.92%
|
Solivella
Investment, B.V. (39.92%)
|
|
China
Unicom (Hong Kong) Limited
Telecommunications
service operator
|
China
|
RMB
|
2,329
|
8.37%
|
Telefónica
Internacional, S.A. (8.37%)
|
|
(*)
|
Companies
consolidated using proportionate
consolidation.
|
Through
these consolidated financial statements, O2 (Germany) GmbH & Co. OHG,
complies with the provisions of Art. 264b HGB [“Handelsgesetzbuch”: Germany code
of commerce], and is exempt in accordance with the stipulations of Art. 264b
HGB.
F-122