tef-20201231

As filed with the Securities and Exchange Commission on February 25, 2021

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

____________________________________

Washington, D.C. 20549

____________________________________

FORM 20-F

(Mark One)


o			REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934


x			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


o			SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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 Telefónica, Ronda de la Comunicación, s/n

28050 Madrid, Spain

(Address of principal executive offices)

Consuelo Barbé Capdevila, Securities Market and Corporate Governance Legal Department

Distrito Telefónica, Ronda de la Comunicación, s/n, 28050 Madrid, Spain

Tel. +34 91 482 3733, Fax. +34 91 482 3817, e-mail: [email protected]

Pablo Eguiron Vidarte, Head of Investor Relations

Distrito Telefónica, Ronda de la Comunicación, s/n, 28050 Madrid, Spain

Tel. +34 91 482 8700, Fax. +34 91 482 8600, e-mail: [email protected]

(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:

Table of Contents


Title of each class	Trading Symbols	Name of each exchange on which registered
Ordinary Shares, nominal value 1.00 euro per share*	TEF*	New York Stock Exchange*
American Depositary Shares, each representing one Ordinary Share	TEF	New York Stock Exchange
Guarantee ** by Telefónica, S.A. of the following, each of Telefónica Emisiones, S.A.U.
$750,000,000 Fixed Rate Guaranteed Senior Notes Due 2023	TEF/23	New York Stock Exchange
$1,500,000,000 Fixed Rate Senior Notes Due 2027	TEF/27	New York Stock Exchange
$2,000,000,000 Fixed Rate Guaranteed Senior Notes Due 2036	TEF/36	New York Stock Exchange
$750,000,000 Fixed Rate Senior Notes Due 2038	TEF/38	New York Stock Exchange
$2,500,000,000 Fixed Rate Senior Notes Due 2047	TEF/47	New York Stock Exchange
$1,250,000,000 Fixed Rate Senior Notes Due 2048	TEF/48	New York Stock Exchange
$1,250,000,000 Fixed Rate Senior Notes Due 2049	TEF/49	New York Stock Exchange
Guarantee ** by Telefónica, S.A. of the following, each of Telefónica Europe B.V.
$1,250,000,000 Fixed Rate Guaranteed Senior Notes Due 2030	TEF/30	New York Stock Exchange


*			Not for trading, but only in connection with the listing of American Depositary Shares, pursuant to the requirements of the New York Stock Exchange.


**			Not for trading, but only in connection with the listing of the $750,000,000 Fixed Rate Guaranteed Senior Notes Due 2023; $1,500,000,000 Fixed Rate Senior Notes Due 2027; $2,000,000,000 Fixed Rate Guaranteed Senior Notes Due 2036; $750,000,000 Fixed Rate Senior Notes Due 2038; $2,500,000,000 Fixed Rate Senior Notes Due 2047; $1,250,000,000 Fixed Rate Senior Notes Due 2048; and $1,250,000,000 Fixed Rate Senior Notes Due 2049; each of Telefónica Emisiones, S.A.U., and the $1,250,000,000 Fixed Rate Guaranteed Senior Notes Due 2030 of Telefónica Europe, B.V. (each a wholly-owned subsidiary of Telefónica, S.A.)

____________________________________

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, 2020 was:

Ordinary Shares, nominal value 1.00 euro per share: 5,526,431,062

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 every Interactive Data File required to be submitted 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 such files).


Yes x			No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):


Large Accelerated Filer x			Accelerated Filer o			Non-accelerated Filer o			Emerging growth company o

Table of Contents

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. o

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:


o			U.S. GAAP


x			International Financial Reporting Standards as issued by the International Accounting Standards Board


o			Other

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.


o Item 17			o Item 18

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


TABLE OF CONTENTS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS			7
CERTAIN TERMS AND CONVENTIONS			9
PRESENTATION OF CERTAIN FINANCIAL INFORMATION			12
PART I			13
Item 1. Identity of Directors, Senior Management and Advisors			13
A. Directors and Senior Management			13
B. Advisers			13
C. Auditors			13
Item 2. Offer Statistics and Expected Timetable			13
Item 3. Key Information			13
A. Selected Financial Data			13
B. Capitalization and Indebtedness			15
C. Reasons for the Offer and Use of Proceeds			15
D. Risk Factors			15
Item 4. Information on the Company			27
A. History and Development of the Company			27
B. Business Overview			39
C. Organizational Structure			106
D. Property, Plant and Equipment			106
Item 4A. Unresolved Staff Comments			108
Item 5. Operating and Financial Review and Prospects			108
A. Operating Results			108
B. Liquidity and Capital Resources			121
C. Research and Development, Patents and Licenses, etc.			124

Table of Contents


D. Trend Information			126
E. Off-Balance Sheet Arrangements			128
F. Tabular Disclosure of Contractual Obligations			128
G. Non-GAAP Financial Information			128
Item 6. Directors, Senior Management and Employees			134
A. Directors and Senior Management			134
B. Compensation			144
C. Board Practices			144
D. Employees			144
E. Share Ownership			145
Item 7. Major Shareholders and Related Party Transactions			145
A. Major Shareholders			145
B. Related Party Transactions			146
C. Interests of Experts and Counsel			147
Item 8. Financial Information			147
Item 9. The Offering and Listing			156
A. Offer and Listing Details			156
B. Plan of Distribution			162
C. Markets			162
D. Selling Shareholders			162
E. Dilution			163
F. Expenses of the Issue			163
Item 10. Additional Information			163
A. Share Capital			163
B. Memorandum and Articles of Association			163
C. Material Contracts			175
D. Exchange Controls			179
E. Taxation			180

Table of Contents


F. Dividends and Paying Agents			184
G. Statements by Experts			184
H. Documents on Display			185
I. Subsidiary Information			185
Item 11. Quantitative and Qualitative Disclosures About Market Risk			185
Item 12. Description of Securities Other Than Equity Securities			186
A. American Depositary Shares			186
Part II			189
Item 13. Defaults, Dividend Arrearages and Delinquencies			189
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds			189
Item 15. Controls and Procedures			189
Item 16. [Reserved]			190
Item 16A. Audit Committee Financial Expert			190
Item 16B. Code of Ethics			190
Item 16C. Principal Accountant Fees and Services			190
Item 16D. Exemptions from the Listing Standards for Audit Committees			191
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers			191
Item 16F. Change in Registrant’s Certifying Accountant			191
Item 16G. Corporate Governance			192
Part III			195
Item 17. Financial Statements			195
Item 18. Financial Statements			195
Item 19. Exhibits			195

Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), 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,” “shall,” “target,” “expect,” “aim,” “hope,” “anticipate,” “should,” “may,” “might,” “assume,” “estimate,” “plan,” “intend,” “believe” and similar language or other formulations of a similar meaning or, in each case, the negative formulations thereof. Other forward-looking statements can be identified in the context in which the statements are made 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:

•the effect on our results of operations of competition in telecommunications markets;

•trends affecting our business, financial condition, results of operations or cash flows;

•ongoing or future acquisitions, investments or divestments;

•our capital expenditures plan;

•our estimated availability of funds;

•our ability to repay debt with estimated future cash flows;

•our shareholder remuneration policies;

•supervision and regulation of the telecommunications sectors where we have significant operations;

•our existing or future strategic partnerships or joint ventures;

•the potential for growth and competition in current and anticipated areas of our business; and

•the outcome of pending or future litigation or other legal proceedings.

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 businesses that could affect the matters referred to in such forward-looking statements include but are not limited to:

•changes in general economic, business or political conditions in the domestic or international markets in which we operate or have material investments that may affect our business, financial condition, results of operations, cash flows and/or the performance of some or all of our financial indicators, including as a result of the evolution of the COVID-19 pandemic, the uncertainties in Spain, the impact of Brexit, the worsening of the fiscal sustainability in some European countries or increasing trade tensions in certain parts of the world;

•compliance with data privacy regulations and the impact of our inability to comply with any such regulations, including liability for any loss, transfer or inappropriate modification of customer data or general public data stored on our servers or transmitted through our networks;

•exposure to currency exchange rates, interest rates or credit risk, including in relation to our investments or in some of our financial transactions;

•existing or worsening conditions in the international financial markets;

•the impact of current, pending or future legislation and regulation in countries where we operate, as well as any failure to renew or obtain the necessary licenses, authorizations and concessions to carry out our operations and the impact of limitations in spectrum capacity;

Table of Contents

•compliance with anti-corruption laws and regulations and economic sanctions programs and the impact of any breach of any such laws, regulations and programs;

•our inability to anticipate or adapt in a timely manner to changing customer demands and/or new ethical or social standards;

•changes in our competitive position, including as a result of the evolution of competition and market consolidation in the markets where we operate, as well as the impact of any failure to comply with any antitrust regulations or any regulatory actions imposed by antitrust authorities;

•our inability to anticipate and adapt to the rapid technological changes that characterize the sector in which we operate, or to select the right investments to make;

•our dependence on suppliers and their failure to provide necessary equipment and services on a timely basis or otherwise meet our performance expectations;

•the impact of unanticipated network interruptions;

•the impact of cyber-threats and cyber-security actions;

•the impact of impairment charges on our goodwill, property, plant and equipment, intangible assets, deferred taxes or other assets as a result of changes in the regulatory, business, economic or political environment or other factors;

•the impact of a decrease in our liquidity or difficulties in our ability to finance ourselves;

•the outcome of pending or future litigation or other legal proceedings, and

•our ability to complete any pending acquisition, divestment or other significant transaction as planned or with the expected outcome (including our 50:50 Joint Venture with Liberty Global in the United Kingdom, the sale of Telxius’s telecommunications towers divisions in Europe and Latin America, the sale of Telefónica Costa Rica, and our acquisition of Oi Group’s mobile assets in Brazil, each as defined and further explained herein).

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 do not undertake any obligation to update any forward-looking statements that 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.

Table of Contents

CERTAIN TERMS AND CONVENTIONS

Our ordinary shares, nominal value 1.00 euro per share, are currently listed on each of the Madrid, Barcelona, Bilbao and Valencia stock exchanges (collectively, the “Spanish Stock Exchanges”) and are quoted through the Automated Quotation System under the symbol “TEF.” They are also listed on the London and Buenos Aires stock exchanges. American Depositary Shares (“ADSs”), each representing the right to receive one ordinary share, 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.

As used herein, “Telefónica,” the “Telefónica Group,” the “Group”, the “Company” and terms such as “we,” “us” and “our” mean Telefónica, S.A. and its consolidated subsidiaries, unless the context requires otherwise.

"p.p." means percentage points.

"YoY" or "y-o-y" means year-on-year.

For a definition of “operating income before depreciation and amortization” (OIBDA), “OIBDA-CapEx”, “OIBDA-CapEx excluding spectrum acquisitions”, “net financial debt”, “net financial debt plus leases”, “net financial debt plus commitments”, “net financial debt plus leases plus commitments” and “free cash flow” see “Item 5. Operating and Financial Review and Prospects- Non-GAAP Financial Information”.

Below are definitions of certain technical terms used in this Annual Report:

"5G", is a technology succeeding the mobile technology called 4G. The aim is to make the navigation experience and Internet downloads more agile.

"Access" refers to a connection to any of the telecommunications services offered by Telefónica. A single fixed customer may contract for multiple services, and Telefónica believes that it is more useful to count the number of accesses a customer has contracted for, rather than to merely count the number of its customers. For example, a customer that has fixed line telephony service and broadband service is counted as two accesses rather than as one customer.

"ARPU" is total mobile service revenues during the relevant period divided by the average number of retail accesses (based on the beginning and the month-end number of retail accesses during such period), divided by the number of months in such period.

"Artificial Intelligence" is intelligent tasks carried out by machines.

"AWS" or Amazon Web Services refers to Amazon's service platform offering data base storage, content delivery and other functionalities that can help a business to grow. It is also more secure than a physical server.

"B2B" or business to business is the business segment.

"B2C" or business to customer is the residential segment.

"Bundle" refers to a combination of products that combine fixed services (wirelines, broadband and television) and mobile services.

"CATV" or community antenna television is a system of delivering television programming to consumers via radio frequency (RF) signals transmitted through coaxial cables, or in more recent systems, via light pulses through fiber-optic cables.

"Churn" is the percentage of disconnections over the average customer base in a given period.

"Cloud computing" is a service, whereby shared resources, software and information are provided to computers and other devices as a utility over a network (typically, the Internet).

"Cloud Phone" is an application that allows the transfer of files between two smartphones in a simple way.

"Commercial activity" includes the addition of new lines, replacement of handsets, migrations and disconnections.

Table of Contents

"Connected car" is a vehicle equipped with Internet access and generally through a local wireless network or satellite.

"Convergent" refers to the offer of a fixed service together with a mobile service.

"Data ARPU" is data revenues during the relevant period divided by the average number of retail accesses (based on the beginning and the month-end number of retail accesses during such period), divided by the number of months in such period.

"Data revenues" include revenues from mobile data services such as mobile connectivity and mobile Internet, premium messaging, downloading ringtones and logos, mobile mail and SMS/MMS.

"Data traffic" includes all traffic from Internet access, messaging (SMS, MMS) and connectivity services over Telefónica's network.

"DTH (Direct-To-Home)" is a technology used for the provision of TV services.

"Fixed telephony accesses" includes public switched telephone network (PSTN) lines (including public use telephony), integrated services digital network (ISDN) lines and circuits, "fixed wireless" and Voice over IP accesses.

"FTRs" or Fixed termination rates is an established fixed network tariff that applies when a customer makes a call to someone in a network operated by another operator.

"FTTH" or Fiber to Home is the installation and use of optical fiber from a central point directly to individual buildings such as apartment buildings and businesses to provide high-speed Internet access.

"FTTx" is a generic term for any broadband network architecture that uses optical fiber to replace all or part of the metal local loop.

"GHz" means gigahertz.

"ICT" or information communication technology is the acquisition, processing, storage and dissemination of vocal, pictorial, textual and numerical information by a microelectronics-based combination of computing and telecommunications.

"Interconnection revenues" means revenues received from other operators which use Telefónica's networks to connect to or finish their calls and SMS or to connect to their customers.

"Internet and data accesses", "Fixed broadband accesses" or "FBB accesses" include broadband accesses (including retail asymmetrical digital subscriber line (ADSL), very high bit-rate digital subscriber line (VDSL), satellite, fiber optic and circuits over 2 Mbps), narrowband accesses (Internet service through the PSTN lines) and the remaining non-broadband final customer circuits. Internet and data accesses also include "Naked ADSL", which allows customers to subscribe for a broadband connection without a monthly fixed line fee.

“IoT” or Internet of Things refers to technologies that allow both mobile and wired systems to communicate with other devices with the same capability.

"IPTV" or Internet Protocol Television refers to distribution systems for television subscription signals or video using broadband connections over the IP protocol.

"ISDN" or Integrated Services Digital Network is a format commonly used for transmitting information through a digital high speed connection.

"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.

"LTE" or Long-Term Evolution is a 4G mobile access technology.

"Market share" is the percentage ratio of the number of final accesses over the existing total market in an operating area.

"Mb" means Megabytes.

"MHz" means megahertz.

Table of Contents

"MMS" or Multimedia Messaging Service is a standard messaging system allowing mobile phones to send and receive multimedia content, including sound, video and photos.

"Mobile accesses" include accesses to the mobile network for voice and/or data services (including connectivity). Mobile accesses are categorized into contract, prepay and IoT accesses.

"Mobile broadband" includes Mobile Internet (Internet access from devices also used to make voice calls such as smartphones), and Mobile Connectivity (Internet access from devices that complement fixed broadband, such as PC Cards/dongles, which enable large amounts of data to be downloaded on the move).

"MTR" or mobile termination rate is an established mobile network tariff that applies when a customer makes a call to someone in a network operated by another operator.

"MVNO" or mobile virtual network operator is a mobile operator that provides mobile services through another mobile operator. An MVNO pays a determined tariff to such mobile network operator for using the infrastructure to facilitate coverage to its customers.

"Net adds/Net loss" is the difference between the customer base in a certain period compared to a different period.

"OTT services" or over the top services means services provided through the Internet (such as television and video streaming).

"Pay TV" includes cable TV, direct to home satellite TV (DTH) and IPTV.

"PSTN" is Public Switched Telephone Network.

"Revenues" means net sales and revenues from rendering of services.

"Service revenues" are total revenues minus mobile handset sales. Service revenues are mainly related to telecommunication services, especially voice- and data revenues (SMS and data traffic download and upload revenues) consumed by Telefónica's customers.

"SIM" means subscriber identity module, a removable intelligent card used in mobile handsets, USB modems, etc. to identify the user in the network.

"Smart Wi-Fi" is an application in which users can control their Wi-Fi network and the devices connected to it from their mobile.

"SMS" means short messaging service.

"STB (Set-top box)" is a device that converts a digital television signal to analogue for viewing on a conventional set, or that enables cable or satellite television to be viewed.

"Tbps" means terabytes per second.

"Tracker" is a special server which contains the information needed for users to connect with other users.

"UBB" or Ultra Broadband is the fiber-to-the-premise broadband which is capable of giving a minimum download speed of 100 Mbps and a minimum upload speed of 50 Mbps.

"Voice traffic" means voice minutes used by Telefónica's customers over a given period, both outbound and inbound.

"VoIP" means voice over Internet protocol.

"VPN" or Virtual Private Network extends a private network across a public network and enables users to send and receive data across shared or public network.

"Wholesale accesses" means accesses Telefónica provides to other companies, who then sell services over such accesses to their residential and corporate clients.

Table of Contents

PRESENTATION OF CERTAIN FINANCIAL INFORMATION

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 “real” or "reais" refer to Brazilian real and references to “euro”, “euros” 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, 2020 and 2019, and for the years ended December 31, 2020, 2019 and 2018 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”).

Table of Contents

PART I

Item 1. Identity of Directors, Senior Management and Advisors

A. Directors and Senior Management

Not applicable.

B. Advisers

Not applicable.

C. Auditors

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

A. Selected Financial Data

The following table presents certain selected consolidated financial data. It is to be read in conjunction with “Item 5. Operating and Financial Review and Prospects”, “Item 4. Information on the Company—Business Overview” and the Consolidated Financial Statements. The consolidated income statements and the consolidated statements of cash flows data for the years ended December 31, 2018, 2019 and 2020 and the consolidated statements of financial position data as of December 31, 2019 and 2020 set forth below are derived from, and are qualified in their entirety by reference to the Consolidated Financial Statements.

Our Consolidated Financial Statements have been prepared in accordance with IFRS as issued by the IASB.

Table of Contents

The basis of presentation is described in detail in Note 2 to our Consolidated Financial Statements.


Millions of euros	2016	2017	2018	2019	2020
Consolidated Income Statements Data
Revenues	52,036	52,008	48,693	48,422	43,076
Other income	1,763	1,489	1,622	2,842	1,587
Supplies	(15,242)	(15,022)	(14,013)	(13,635)	(13,014)
Personnel expenses	(8,098)	(6,862)	(6,332)	(8,066)	(5,280)
Other expenses	(15,341)	(15,426)	(14,399)	(14,444)	(12,871)
Depreciation and amortization	(9,649)	(9,396)	(9,049)	(10,582)	(9,359)
OPERATING INCOME	5,469	6,791	6,522	4,537	4,139
Share of (loss) income of investments accounted for by the equity method	(5)	5	4	13	2
Net finance expense	(2,706)	(2,290)	(1,232)	(1,953)	(1,740)
Net exchange differences	487	91	277	121	182
Net financial expense	(2,219)	(2,199)	(955)	(1,832)	(1,558)
PROFIT BEFORE TAX	3,245	4,597	5,571	2,718	2,583
Corporate income tax	(846)	(1,219)	(1,621)	(1,054)	(626)
PROFIT FOR THE YEAR	2,399	3,378	3,950	1,664	1,957
Attributable to equity holders of the parent	2,369	3,132	3,331	1,142	1,582
Attributable to non-controlling interests	30	246	619	522	375

Other Data
Weighted average number of shares-Basic (thousands)(1)	5,390,701	5,443,611	5,461,067	5,453,145	5,471,160
Basic and diluted earnings per share attributable to equity holders of the parent (euro)(1)	0.39	0.52	0.54	0.16	0.24
Basic and diluted earnings per ADS (euro)(1)	0.39	0.52	0.54	0.16	0.24
Weighted average number of ADS-Basic (thousands)(1)	5,390,701	5,443,611	5,461,067	5,453,145	5,471,160
Dividends per ordinary share (cash and scrip) (euro)	0.75	0.40	0.40	0.40	0.40
Dividends per ordinary share (cash and scrip) ($)(2)	0.82	0.46	0.46	0.45	0.47

Consolidated Statements of Financial Position Data
Cash and cash equivalents	3,736	5,192	5,692	6,042	5,604
Property, plant and equipment	36,393	34,225	33,295	32,228	23,769
Total assets	123,641	115,066	114,047	118,877	105,051
Non-current liabilities	59,805	59,382	57,418	63,236	58,674
Equity	28,385	26,618	26,980	25,450	18,260
Capital stock	5,038	5,192	5,192	5,192	5,526

Consolidated Statements of Cash Flows Data
Net cash provided by operating activities	13,338	13,796	13,423	15,022	13,196
Net cash used in investing activities	(8,208)	(10,245)	(8,685)	(5,641)	(7,790)
Net cash used in financing activities	(4,220)	(1,752)	(3,880)	(9,021)	(5,438)

(1)The per share and per ADS computations for all periods presented have been reported 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 and have also been adjusted for the mandatorily convertible notes issued in 2014, which matured in 2017. In accordance with IAS 33 (“Earnings per share”), the weighted average number of ordinary shares (including in the form of ADSs) outstanding for each of the periods covered has been restated to reflect the issuance of shares pursuant to Telefónica’s scrip dividend in December 2016, June 2020 and December 2020.

(2)Quantities in U.S. dollars are calculated in accordance with the conversion rate published by the Depositary (Citibank, N.A.) in connection with each dividend payment.

Table of Contents

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

The Telefónica Group is affected by a series of risk factors that affect exclusively the Group, as well as a series of external factors that are common to businesses of the same sector. The main risks and uncertainties faced by Telefónica, which could affect its business, financial condition, results of operations and/or cash flows are set out below and must be considered jointly with the information set out in the Consolidated Financial Statements.

These risks are currently considered by the Telefónica Group to be material, specific and relevant to consider in making an informed investment decision in respect of the Company. However, the Telefónica Group is subject to other risks that have not been included in this section based on the Telefónica Group's assessment of their specificity and materiality depending on the Group's assessment of their probability of occurrence and the potential magnitude of their impact.

Risks are presented in this section grouped into four categories:

- Business

- Operational

- Financial

- Legal and compliance

These categories are not presented in order of importance. However, within each category, the risk factors are presented in descending order of importance, as determined by Telefónica at the date of this document. Telefónica may change its vision about their relative importance at any time, especially if new internal or external events arise.

Risks related to the business activities.

Telefónica's competitive position in some markets could be affected by the evolution of competition and market consolidation.

The Telefónica Group operates in highly competitive markets and it is possible that the Group may not be able to market its products and services effectively or respond successfully to the different commercial actions carried out by its competitors, causing it to not meet its growth and customer retention plans, thereby jeopardizing its future revenues and profitability.

In addition, market concentration, including as a result of mergers, acquisitions, alliances and collaboration agreements with third parties (e.g., the possible integration of companies in the content/entertainment sector, such as the mergers of FOX and Disney, and AT&T and Time Warner), could affect the competitive position of Telefónica, as well as the efficiency of its operations.

The reinforcement of competitors, the entry of new competitors, or the merger of operators in certain markets, may affect Telefónica's competitive position, negatively affecting the evolution of its revenues and market share. In addition, changes in competitive dynamics in the different markets in which we operate, such as in Chile and Peru, where there are aggressive customer acquisition offers, including unlimited data and discounts on certain services, among others, can affect the competitive position and the efficiency of Telefónica's operations.

If Telefónica is not able to successfully face the challenges posed by its competitors, the Group's business, financial condition, results of operations and/or cash flows could be adversely affected.

The Telefónica Group's strategy which is focused on driving new digital businesses and providing data-based services, increases its exposure to risks and uncertainties arising from data privacy regulation.

Table of Contents

The Telefónica Group's commercial portfolio includes products and/or services which are based on the use, standardization and analysis of data, as well as the deployment of advanced networks and the promotion of new technologies related to Big Data, Cloud Computing, Cybersecurity, Artificial Intelligence and the Internet of Things ("IoT").

The large amount of information and data that is processed throughout the Group (approximately 345.4 million accesses associated with telecommunications services, digital products and services and Pay TV and 112,797 employees as of December 31, 2020), increases the challenges of complying with privacy regulations. Moreover, there is a risk that measures adopted in response to these regulations may stifle innovation. Conversely, the Group’s efforts to promote innovation may result in increased compliance risks and costs.

One of the most important pieces of regulation for the Telefónica Group’s operations in the European Union is Regulation (EU) 2016/679 of the European Parliament and Council of April 27, 2016, on the protection of natural persons with regard to the processing of personal data and on the free movement of such data ("GDPR"), which content has become a benchmark for all countries where the Telefónica Group operates. In addition, progress continues to be made on the proposal for a future European regulation concerning the respect for privacy and protection of personal data in electronic communications ("e-Privacy Regulation"), which would repeal Directive 2002/58/EC. If approved, this proposal could establish additional and more restrictive rules than those established in the GDPR, which may increase compliance risks and costs.

Moreover, on July 16, 2020, the Court of Justice of the European Union issued a judgment which annulled, without granting a grace or transition period, the European Commission’s Decision (EU) 2016/1250 of July 12, 2016 on the adequacy of the protection provided by the EU-U.S. Privacy Shield. Accordingly, such framework is not a valid mechanism to comply with EU data protection requirements when transferring personal data from the European Union to the United States. As a result of that decision, the Telefónica Group has been, among other measures, reviewing and where applicable revising, in a short period of time, international data transfers being made by the Telefónica Group companies from the European Economic Area ("EEA") to suppliers located in the United States with a view to minimizing the risk of breach of the GDPR. However, due to the complexity and uncertainties coming from the aforementioned judgement there can be no assurance that any such measures have been or will be fully effective in preventing a breach of the GDPR. In addition, there can be no assurance that the transfers which began under the framework of the EU-U.S. Privacy Shield did not result in a breach of the GDPR.

In addition, the following recent and prospective regulatory developments may be material to the Telefónica Group’s operations: (i) in the United Kingdom, its exit from the European Union means that the Group must monitor how its operations and business in the United Kingdom are affected in terms of applicable privacy regulations and, specifically, the flow of data to and from the United Kingdom. The Trade and Cooperation Agreement between the United Kingdom and the European Union reached on December 24, 2020, which has been applied provisionally pending ratification by the authorities of the European Union, contains a Final Provision according to which, from January 1, 2021 and for a period of four months, extendable by two more months, the transmission of personal data from the EEA to the United Kingdom will not be considered a transfer to a third country in accordance with the GDPR. The Final Provision will cease to be in effect if, during this period, the European Commission adopts an adequacy decision in relation to the United Kingdom. If the European Commission fails to adopt such a decision during this period, or if such adequacy decision contains terms which are more onerous than those currently in place, the Telefónica Group may face similar challenges as it is currently facing with respect to data transfers to the United States and may have to review and, where appropriate, revise the transfers of personal data to the United Kingdom; and (ii) in Latin America, Law No. 13,709 (LGPD) in Brazil imposes standards and obligations similar to those required by the GDPR, including a sanctioning regime which will be in force from August 2021, with fines for non-compliance of up to 2% of the Group's income in Brazil in the last financial year subject to a limit of 50 million Brazilian reals (approximately 8 million euros based on the exchange rate as of December 31, 2020) per infraction. In other countries of Latin America where the Group operates, such as Ecuador, Argentina and Chile, there are regulatory proposals to bring regulation more in line with the provisions set forth in the GDPR, which may increase compliance risks and costs.

Data privacy protection requires careful design of products and services, as well as robust internal procedures and rules that can be adapted to regulatory changes where necessary, all of which entails compliance risk. Failure to maintain adequate data security and to comply with any relevant legal requirements could result in the imposition of significant penalties, damage to the Group's reputation and the loss of trust of customers and users.

Telefónica's reputation depends to a large extent on the digital trust it is able to generate among its customers and other stakeholders. In this regard, in addition to any reputational consequences, it is important to note that, in

Table of Contents

the European Union, very serious breaches of the GDPR may entail the imposition of administrative fines of up to the larger of 20 million euros and 4% of the infringing company’s overall total annual revenue for the previous financial year. Furthermore, once it is approved, the e-Privacy Regulation may set forth sanctions for breaches of it similar to those provided for in the GDPR.

Any of the foregoing could have an adverse effect on the business, financial condition, results of operations and/or cash flows of the Group.

The Group requires government concessions and licenses for the provision of a large part of its services and the use of spectrum, which is a scarce and costly resource.

The telecommunications sector is subject to laws and sector-specific regulations. The fact that the Group's business is highly regulated affects its revenues, operating income before depreciation and amortization ("OIBDA") and investments.

Many of the Group’s activities (such as the provision of telephone services, Pay TV, the installation and operation of telecommunications networks, etc.) require licenses, concessions or authorizations from governmental authorities, which typically require that the Group satisfy certain obligations, including minimum specified quality levels, and service and coverage conditions. If the Telefónica Group breaches any of such obligations it may suffer consequences such as economic fines or, in a worst-case scenario, other measures that would affect the continuity of its business. Exceptionally, in certain jurisdictions, the terms of granted licenses may be modified before the expiration date of such licenses or, at the time of the renewal of a license, new enforceable obligations could be imposed or the renewal of a license could be refused.

Additionally, the Telefónica Group could be affected by the regulatory actions of antitrust authorities. These authorities could prohibit certain actions, such as new acquisitions or specific practices, create obligations or impose heavy fines. Any such measures implemented by the antitrust authorities could result in economic and/or reputational loss for the Group, in addition to a loss of market share and/or harm to the future growth of certain of its businesses. For example, on February 22, 2019, the European Commission started an investigation of Telefónica Deutschland in respect of the Group's compliance with its commitments undertaken in the merger with E-Plus in 2014. In this context, Telefónica Deutschland has adjusted the conditions of 4G wholesale services.

Any of the foregoing could have an adverse effect on the business, financial condition, results of operations and/or cash flows of the Group.

Access to new concessions/ licenses of spectrum.

The Group requires sufficient spectrum to offer its services. The Group's failure to obtain sufficient or appropriate spectrum capacity in the jurisdictions in which it operates, or its inability to assume the related costs, could have an adverse impact on its ability to maintain the quality of existing services and on its ability to launch and provide new services, which may materially adversely affect Telefónica’s business, financial condition, results of operations and/or cash flows.

The intention of the Group is to maintain current spectrum capacity and, if possible, to expand it, specifically through the participation of the Group in spectrum auctions which are expected to take place in the next few years, which will likely require cash outflows to obtain additional spectrum or to comply with the coverage requirements associated with some of the related licenses.

In Europe, two auction processes are expected in the near term: (i) in Spain, a spectrum auction of 75 MHz, in the band 700 MHZ, is expected to take place in April 2021; and (ii) in the United Kingdom, an auction for the 700 MHz and the 3.6-3.8 GHz bands is expected to take place in March 2021, although such auction could be delayed.

In Latin America, several auction processes are expected in the near term: (i) in Brazil, on February 5, 2020, ANATEL published the proposal for the 5G public auction. It is expected that the auction of 20 MHz of the 700 MHz band, 90 MHz of the 2.3 GHz band, 400 MHz of the 3.5 GHz band and 3,200 MHz of the 26 GHz band will take place in 2021; (ii) in Colombia, the "5G Plan" as well as the 2020-2024 Spectrum Public Policy and the 2020-2024 Spectrum Allocation Framework Plan were published. These policy documents announced actions to auction the remaining spectrum in the 700 MHz, 1,900 MHz and 2,500 MHz bands, without indicating a concrete time frame. Additionally, spectrum in the 3.5 GHz band is planned to be assigned in the second quarter of 2021; however, this auction could be postponed until 2022. Telefónica has requested the Ministerio de las Tecnologías de la Información y las Comunicaciones (MinTic) to delay the spectrum auction in the 3.5 GHz band, considering that the market is not yet sufficiently prepared. It has also proposed the revision of the spectrum valuation methodology downwards, in

Table of Contents

order to align costs with the spectrum value generation capacity. Finally, although it is in favor of increasing the spectrum caps, Telefónica has requested additional measures to avoid resource monopolization by the dominant operator; and (iii) in Peru, auctions were announced for the bands 1,750 - 1,780 MHz, 2,150 - 2,180 MHz and 2,300 - 2,330 MHz, which may take place during 2021. In addition, the Ministry of Transportation and Communications has started a public consultation regarding 5G and an auction model for the 3.5 GHz and 26 GHz bands.

Existing licenses: renewal processes and modification of conditions for operating services.

The revocation or failure to renew the Group’s existing licenses, authorizations or concessions, or any challenges or amendments to their terms, could materially adversely affect Telefónica’s business, financial condition, results of operations and/or cash flows.

In Germany, Telefónica's and other parties’ legal actions against Decisions III and IV adopted by the German regulator on the conditions of use of frequencies and the rules of the spectrum of the 2 GHz and 3.4-3.7 GHz bands auction, that ended on June 12, 2019, are pending. With its appeals, Telefónica is challenging in particular the imposed coverage obligations and the requirement to negotiate on network access. Other parties inter alia claim that the obligation to negotiate with other operators is not strict enough. It is yet unclear to what extent these different actions will affect the regulator’s Decisions III and IV.

With respect to Latin America:

In Brazil, the publication by ANATEL of two regulations for the development of Law 13,879/2019 regarding the migration from the concession regime to the authorization regime are pending. ANATEL is working on the methodology for calculating the migration balance and there is a risk that consensus will not be reached between the parties regarding the migration calculation. If a decision is made not to migrate, the Telefónica Servicio de Telefonía Fija Conmutada (STFC) concession will remain in force until 2025. In addition, Telefónica could lose its right to operate spectrum in the 450 MHz band, granted in certain cities, if Telefónica’s appeal against a decision adopted by the regulator in June 2019 is not successful. Furthermore, regarding the extension of the 850 MHz band authorizations, ANATEL agreed to extend the current authorizations for the use of radio frequencies in Bands A and B, proposing their approval, on a primary basis, until November 29, 2028, if the legal and regulatory requirements are met. However, Telefónica has appealed the regulator's decision related to the amount due for the extension, arguing that it should be calculated based on net present value parameters to reflect the real economic value (market value) of the bands.

In Peru, an arbitration process was started by the Group, to challenge the decision adopted by the Ministry of Transportation and Communications (“MTC”), denying the renewal of concessions for the provision of fixed-line services, valid until 2027. Nevertheless, Telefónica del Perú S.A.A. holds other concessions for the provision of fixed-line services that allow it to provide these services beyond 2027. The renewal of the 1,900 MHz band in all of Peru (except for Lima and Callao), which expired in 2018, and of other telecommunications services were requested by the Group and a decision by the MTC, is still pending. Nevertheless, these concessions are valid while the procedures are in progress.

In Colombia, the period to request the renewal of the license to use 15 MHz in the 1,900 MHz band, will expire in April 2021. Unless it is renewed, the license will expire on October 18, 2021. MinTic must establish the renewal conditions in accordance with law 1978/19, which implies market prices conditions, extends the license periods to a maximum of 20 years and allows paying up to 60% of the price of the spectrum through obligations to do or take action.

In Chile, as a result of the Supreme Court ruling on the 700 MHz tender, Telefónica Móviles Chile returned 50 MHz in the 3.5 GHz band to the State in two regions in the south of the country and auctioned 10 MHz of the 1,900 MHz band, the result of which was announced on December 21, 2020.

In Argentina, in connection with Decree of Necessity and Urgency 690/2020 ("DNU 690/2020"), Telefónica de Argentina, S.A. and Telefónica Móviles Argentina, S.A. (collectively, “Telefónica Argentina”) has filed a lawsuit against the Argentine State, in connection with a series of contracts for licenses to provide services and spectrum use authorizations entered into between Telefónica Argentina and the Argentine State, including the licenses resulting from the 2014 spectrum auction. Such contracts and their regulatory framework stated that the services provided by Telefónica Argentina were private and prices would be freely set by Telefónica Argentina. However, DNU 690/2020, by providing that the services will be "public services" and that prices will be regulated by the

Table of Contents

Argentine State, substantially modifies the legal status of those contracts, affecting the performance of their obligations and substantially depriving Telefónica Argentina of essential rights derived from those contracts.

During 2020, the Group's consolidated investment in spectrum acquisitions and renewals amounted to 126 million euros (1,501 million euros in 2019, 1,425 million euros of which corresponded to spectrum acquisition in Germany), representing 0.3% of the Group's consolidated revenues for 2020 (3.1% in 2019). In the event that the licenses mentioned above are renewed or new spectrum is acquired, it would involve additional investments by Telefónica.

Further information on certain key regulatory matters affecting the Telefónica Group and the concessions and licenses of the Telefónica Group can be found in the Appendix VI of the Consolidated Financial Statements: "Key regulatory issues and concessions and licenses held by the Telefónica Group".

Telefónica depends on its suppliers.

The existence of critical suppliers in the supply chain, especially in areas such as network infrastructure, information systems or handsets with a high concentration in a small number of suppliers, poses risks that may affect Telefónica's operations. This may cause legal contingencies or damages to its image in the event that a participant in the supply chain engages in practices that do not meet acceptable standards or that otherwise fail to meet Telefónica's performance expectations. This may include delays in the completion of projects or deliveries, poor-quality execution, cost deviations and inappropriate practices.

As of December 31, 2020, the Group depended on three handset suppliers (one of them located in China) and eight network infrastructure suppliers (two of them located in China), which, together, accounted for 87% and 80%, respectively, of the aggregate value of contracts awarded in 2020 to handset suppliers and network infrastructure suppliers, respectively. One of the handset suppliers represented 54% of the aggregate value of contracts awarded in 2020 to handset suppliers.

These suppliers may, among other things, extend delivery times, raise prices and limit supply due to their own stock shortfalls and business requirements or for other reasons.

If suppliers cannot supply their products to the Telefónica Group within the agreed deadlines or such products and services do not meet the Group's requirements, this could hinder the deployment and expansion plans of the network. This could in certain cases affect Telefónica's compliance with the terms and conditions of the licenses under which it operates, or otherwise adversely affect the business and operating results of the Telefónica Group. In addition, the possible adoption of new protectionist measures in certain parts of the world, including as a result of trade tensions between the United States and China, and/or the adoption of lockdown or other restrictive measures as a result of COVID-19 or any other crisis or pandemic, may have an adverse impact on certain of Telefónica's suppliers and other players in the industry. The imposition of trade restrictions and any disruptions in the supply chain could result in higher costs and lower margins or affect the ability of the Telefónica Group to offer its products and services and could adversely affect the Group's business, financial condition, results of operations and/or cash flows.

During 2020, specific monitoring has been carried out and action plans have been developed by the Group with respect to the supply chain challenges resulting from the pandemic, as well as the potential discontinuation of use of some suppliers as a result of the US-China conflict. These developments may adversely affect the Group's business, financial condition, results of operations and/or cash flows.

Telefónica operates in a sector characterized by rapid technological changes and it may not be able to anticipate or adapt to such changes or select the right investments to make.

The pace of innovation and Telefónica's ability to keep up with its competitors is a critical issue in a sector so affected by technology such as telecommunications. In this sense, significant additional investments will be needed in new high-capacity network infrastructures to enable Telefónica to offer the features that new services will demand, through the development of technologies such as 5G or fiber optic.

New products and technologies are constantly emerging that can render products and services offered by the Telefónica Group, as well as its technology, obsolete. In addition, the explosion of the digital market and the entrance of new players in the communications market, such as mobile network virtual operators ("MNVOs"), internet companies, technology companies or device manufacturers, could result in a loss of value for certain of the Group's assets, affect the generation of revenues, or otherwise cause Telefónica to have to update its business

Table of Contents

model. In this respect, revenues from traditional voice business are shrinking, while new sources of revenues are increasingly derived from connectivity and digital services. Examples of these services include video, IoT, security, Big Data and cloud services.

One of the technologies currently being developed by telecommunications operators, including Telefónica (in Spain and Latin America), is the new FTTx type networks which allow the offering of broadband accesses over fiber optics with high performance. However, the deployment of such networks, in which the copper of the access loop is totally or partially replaced by optical fiber, necessitates high levels of investment. As of December 31, 2020, in Spain, fiber coverage reached 25.2 million premises. There is a growing demand for the services that these new networks can offer to the end customer. However, the high levels of investment required by these networks result in the need to continuously consider the expected return on investment, and no assurance can be given that these investments will be profitable.

In addition, the ability of the Telefónica Group's IT systems (operational and backup) to adequately support and evolve to respond to Telefónica's operating requirements is a key factor to consider in the commercial development, customer satisfaction and business efficiency of the Telefónica Group. While automation and other digital processes may lead to significant cost savings and efficiency gains, there are also significant risks associated with such transformation processes. Any failure by the Telefónica Group to develop or implement IT systems that adequately support and respond to the Group's evolving operating requirements could have an adverse effect on the Group's business, financial condition, results of operations and/or cash flows.

All of this forces Telefónica to continuously invest in the development of new products, technology and services to continue to compete effectively with current or future competitors, and, for this reason, the Group's profit and margins could be reduced or such investment could not lead to the development or commercialization of successful new products or services. To contextualize the size of the Group's investments, total research and development expenditure in 2020 was 959 million euros (866 million euros and 947 million euros in 2019 and 2018, respectively). These expenditures represented 2.2%, 1.8% and 1.9% of the Group's consolidated revenues in 2020, 2019 and 2018, respectively. These figures have been calculated using the guidelines established in the Organization for Economic Co-operation and Development ("OECD") manual.

If Telefónica is not able to anticipate and adapt to the technological changes and trends in the sector, or to properly select the investments to be made, this could negatively affect the Group's business, financial condition, results of operations and/or cash flows.

Telefónica may not anticipate or adapt in a timely manner to changing customer demands and/or new ethical or social standards, which could adversely affect Telefónica's business and reputation.

To maintain and improve its position in the market vis-à-vis its competitors, it is vital that Telefónica: (i) anticipates and adapts to the evolving needs and demands of its customers, and (ii) avoids commercial or other actions or policies that may generate a negative perception of the Group or the products and services it offers, or that may have or be perceived to have a negative social impact. In addition to harming Telefónica's reputation, such actions could also result in fines and sanctions.

In order to respond to changing customer demands, Telefónica needs to adapt both (i) its communication networks and (ii) its offer of digital services.

The networks, which had historically focused on voice transmission, are evolving into increasingly flexible, dynamic and secure data networks, replacing, for example, old copper telecommunications networks with new technologies such as fiber optics, which facilitate the absorption of the exponential growth in the volume of data demanded by the Group's customers.

In relation to digital services, customers require an increasingly digital and personalized experience, as well as a continuous evolution of the Group's product and service offering. In this sense, new services such as "Smart Wi-Fi" or "Connected Car", which facilitate certain aspects of the Group's customers' digital lives, are being developed. Furthermore, new solutions for greater automation in commercial services and in the provision of the Group's services are being developed, through new apps and online platforms that facilitate access to services and content, such as new video platforms that offer both traditional Pay TV, video on demand or multi-device access. However, there can be no assurance that these and other efforts will be successful. For example, if streaming television services, such as Netflix or others, become the principal way television is consumed to the detriment of the Group's Pay TV service, the Group's revenues and margins could be affected.

Table of Contents

In the development of all these initiatives it is also necessary to take into account several factors: on one hand, there is a growing social and regulatory demand for companies to behave in a socially responsible manner, and, on the other hand, the Group's customers are increasingly interacting through online communication channels, such as social networks, in which they express this demand. The Company's ability to attract and retain clients depends on their perceptions regarding the Group's reputation and behavior. The risks associated with potential damage to a brand's reputation have become more relevant, especially due to the impact that the publication of news through social networks can have.

If Telefónica is not able to anticipate or adapt to the evolving needs and demands of its customers or avoid inappropriate actions, its reputation could be adversely affected, or it could otherwise have an adverse effect on the business, financial condition, results of operations and/or cash flows of the Group.

Operating Risks.

Information technology is key to the Group's business and is subject to cybersecurity risks.

The risks derived from cybersecurity are among the Group's most relevant risks due to the importance of information technology to its ability to successfully conduct operations. Despite advances in the modernization of the network and the replacement of legacy systems in need of technological renewal, the Group operates in an environment increasingly prone to cyber-threats and all of its products and services, such as mobile Internet or Pay TV services, are intrinsically dependent on information technology systems and platforms that are susceptible to cyberattacks. Successful cyberattacks that disrupt the Group's operations could prevent the effective provision of products and services to customers. Therefore, it is necessary to continue to identify and remedy any technical vulnerabilities and weaknesses in the Group's operating processes, as well as to strengthen its capabilities to detect and react to incidents. This includes the need to strengthen security controls in the supply chain (for example, by focusing on the security measures adopted by the Group's partners and other third parties), as well as to ensure the security of the services in the cloud. Throughout 2020, as a result of the circumstances brought by the COVID-19 pandemic, security measures related to remote access and teleworking of employees and collaborators have been reviewed and strengthened, but no assurance can be provided that such security measures will be effective.

Telecommunications companies worldwide face continuously increasing cybersecurity threats as businesses become increasingly digital and dependent on telecommunications, computer networks and cloud computing technologies. Cybersecurity threats may include gaining unauthorized access to the Group's systems or propagating computer viruses or malicious software to misappropriate sensitive information like customer data or disrupt the Group’s operations. In addition, traditional security threats, such as theft of laptop computers, data devices and mobile phones may also affect the Group along with the possibility that the Group's employees or other persons may have unauthorized or authorized access to the Group's systems and leak data and/or take actions that affect the Group's networks or otherwise adversely affect the Group or its ability to adequately process internal information or even result in regulatory penalties.

In particular, in the past three years, the Group has suffered several cybersecurity incidents. Attacks during this period include (i) intrusion attempts (direct or phishing), exploitation of vulnerabilities and corporate credentials being compromised for ransomware deployment (through malicious software that encrypts business data); (ii) Distributed Denial of Service (DDoS) attack, using massive volumes of Internet traffic that saturate the service; and (iii) exploitation of vulnerabilities to carry out fraud through online channels, usually through the subscription of services without paying for them.

Some of the main measures adopted by the Telefónica Group to mitigate these risk are vulnerabilities checks, access control measures, log review of critical systems, network segregation in zones and the deployment of protective systems such as firewalls, intrusion prevention systems and virus scanners among other physical and logical security measures. In the event that preventive and control measures do not prevent damage to systems or data, backup systems are designed to provide for the full or partial retrieval of information.

Although Telefónica seeks to manage these risks by adopting technical and organizational measures, such as those referred to above, as defined in its digital security strategy, it cannot guarantee that such measures are sufficient to avoid or fully mitigate such incidents. Therefore, the Telefónica Group has insurance policies in place, which could cover, subject to the policies terms, conditions, exclusions, limits and sublimits of indemnity, and applicable deductibles, certain losses arising out of these types of incidents. To date, the insurance policies in place have covered some incidents of this nature, however due to the potential severity and uncertainty about the evolution of the aforementioned events, these policies may not be sufficient to cover all possible losses arising out of an individual event.

Table of Contents

Unanticipated network interruptions can lead to quality loss or the interruption of the service.

Unforeseen service interruptions can be due to system failures, natural disasters caused by natural or meteorological events or phenomena, lack of electric supply, network failures, hardware or software failures, theft of network elements or cyber-attacks. Any of the foregoing can affect the quality of, or cause interruption to, the provision of the services of the Telefónica Group.

Such events, like the one that affected the mobile data services provided by O2 UK at the end of 2018 resulting from a software failure, could cause customer dissatisfaction, a reduction in revenues and traffic, the realization of expensive repairs, the imposition of sanctions or other measures by regulatory bodies, and damage to the image and reputation of the Telefónica Group, or could otherwise have an adverse effect on the business, financial condition, results of operations and/or cash flows of the Group.

Financial Risks.

Worsening of the economic and political environment could negatively affect Telefónica's business.

Telefónica's international presence enables the diversification of its activities across countries and regions, but it exposes Telefónica to diverse legislation, as well as to the political and economic environments of the countries in which it operates. Any adverse developments in this regard, including exchange rate or sovereign-risk fluctuations, may adversely affect Telefónica's business, financial position, cash flows and results of operations and/or the performance of some or all of the Group's financial indicators.

During 2020, Telefónica Spain accounted for 28.8% (26.5% in 2019) of the Telefónica Group's revenues (sales and services), Telefónica UK accounted for 15.6% of the Telefónica Group's revenues (14.7% in 2019), Telefónica Brazil represented 17.2% of the Telefónica Group's revenues (20.7% in 2019) and Telefónica Hispam accounted for 18.4% of the Telefónica Group's revenues (19.9% in 2019). During 2020, 4.0% of the Telefónica Group's revenues came from Argentina, 3.8% from Peru and 3.7% from Chile (4.5%, 4.3% and 4.0%, respectively, in 2019). Approximately 23.2% of the Group's revenues in 2020 came from countries that do not have investment grade credit rating (in order of importance, Brazil, Argentina, Ecuador, Costa Rica, El Salvador and Venezuela), and other countries are just one grade away from losing this status. Likewise, Venezuela and Argentina are considered to be countries with hyperinflationary economies in 2020, 2019 and 2018.

The main risks are detailed below, by geography:

In Europe, there is the risk of both a faster spread of the COVID-19 pandemic if the vaccination schedule does not improve significantly and a tightening of financing conditions for both the private and public sectors that could adversely impact disposable income. Both global factors (including any global economic deterioration) and domestic issues (such as the worsening of the fiscal sustainability in some European countries (e.g. Spain or Italy)) may affect economic conditions in the countries where we operate.

•Spain: there are three other main sources of uncertainty. One of them stems from the economic policies to be implemented from 2021 onwards, given the high level of parliamentary fragmentation and the lack of agreement on key issues. This applies especially to the European Recovery Fund management. Secondly, there is a risk of wider negative economic impact from the pandemic, resulting in a larger proportion of corporate foreclosures and/or higher unemployment levels. Finally, as one of the most open countries in the world, from a commercial point of view, being among the top ten countries in respect of capital outflows and inflows globally, any situation of protectionist backlash could have significant implications.

•United Kingdom: the formal exit of the United Kingdom from the European Union on December 31st, 2020 ("Brexit") will entail an economic adjustment regardless of the agreement reached on the new economic and commercial relationship between the two regions. The trade and bureaucracy costs of leaving the single market and the customs union (especially those related to non-tariff barriers) could weigh on the country's net trade. In addition, there are still many gaps to be closed in the area of services (particularly, financial and professional services), so variables such as investment, economic activity and employment could be among the most affected, as well as volatility in financial markets, which could limit or condition access to capital markets. These changes can be costly and disruptive to business relationships in the affected markets, including those of Telefónica with its suppliers and customers. The Group would also be adversely affected if the pound sterling were to depreciate.

•Latin America: exchange risk is particularly important. This risk is due to both external factors (global trade tensions, abrupt movements in commodity prices and concerns about growth and financial imbalances in China)

Table of Contents

and internal factors (challenges relating to controlling the COVID-19 pandemic and managing the underlying fiscal deterioration, see “Unexpected and uncertain events such as the emergence of the COVID-19 (coronavirus) pandemic significantly affect our operations”):

•Brazil: fiscal sustainability remains the main risk, which the government is currently tackling through its commitment to structural reforms including administration and tax system reforms, which not only seek to guarantee sustainability but also raise Brazil's potential growth. The fact that the country's rating is below investment grade and that its internal financing needs are high, could create a greater financial risk in the event of global financial stress and increasing external and internal financial needs, and could also negatively affect the exchange rate performance.

•Argentina: macroeconomic and exchange rate risks remain high. The challenges the economy is facing, both internally (ongoing process of public deficit reduction in a context of economic recession and high inflation) and externally (with significant refinancing needs in the medium term), make the economy vulnerable to bouts of volatility in the financial markets especially in a context of narrower room for maneuver. Further, the worsening inflation outlook as a result of the exchange rate split and the unsustainable price containment measures that have been adopted, threaten Telefónica’s profitability. In particular, the Decree of Need and Urgency (DNU) launched by the government in the third quarter of 2020, declared the Information and Communications Technology sector services as essential public services and, among other measures, suspended any price increase from July 31, 2020 to December 31, 2020. As a consequence, any potential increase in the sector’s tariff prices must have the prior approval of the Secretary of Commerce (Ministry of Finance), increasing the number of administrative and political obstacles that must be overcome to successfully operate our business and which could have an adverse impact on revenue growth and margin evolution of Telefónica’s businesses in such country.

•Chile, Colombia and Peru: are exposed not only to changes in the global economy, given their vulnerability and exposure to unexpected changes in commodity prices, but also to an abrupt hardening of global financial conditions. On the domestic side, both the existing political instability and the possibility of new episodes of social unrest could have a negative impact in the short and medium term.

Unexpected and uncertain events, such as the emergence of the COVID-19 (coronavirus) pandemic, significantly affect our operations.

The COVID-19 pandemic and future similar events may significantly affect our operations. Such events may cause delays in the supply chain, due to problems in factories or logistics services, affect employees or third parties with whom the Group works during contagion or quarantine periods, and affect global and regional economic growth. During the COVID-19 pandemic, economic growth has been adversely affected by various adverse impacts on supply (global value chains disruptions, lockdowns and immobilization of productive resources) and demand (deterioration of confidence and expectations, negative income and wealth effects) derived from a substantial deterioration in the financial markets, unprecedented drops in commodity prices, sudden slowdown in commercial activity and strong restrictions on transportation. The final impact of COVID-19 on the Group’s business is difficult to predict due to the uncertainty surrounding the duration of the pandemic and the ability of the economy of the countries where the Group operates, to recover.

According to prevailing economic estimates, we are facing a pandemic whose economic effects are expected to be the largest drop in global GDP in recent decades. Despite continuing to estimate a deep recession for 2020, global growth expectations have been revised slightly upwards (+0.9 p.p. to -3.5% International Monetary Fund), as the recovery observed in the third quarter of 2020 in countries for which information is available shows generally better than expected growth.

In Spain, the decrease in GDP reached 22.2% (in cumulative terms) during the first half of the year 2020 (second quarter -17.8%), which led to 1,359,700 people losing their jobs between March and May. However, the gradual lifting of restrictions on mobility and limitations on non-essential activities, has allowed the Spanish economy to restart its activity and GDP grew 16.4% in the third quarter of 2020, the greatest variation in real terms of its historical series. However, the new measures adopted in the last quarter of 2020 to contain the advance of the pandemic have slowed GDP growth to +0.4%, which resulted in an annual contraction of 11% in 2020. This contraction has occurred despite the magnitude of the fiscal packages announced by the national government of Spain, composed of both direct spending (3.5% of GDP ) and liquidity guarantees (14.2% of GDP), whose aim is to maintain the productive structure and which, given the volume, raises concerns about debt sustainability in the medium and long term.

Table of Contents

With regards to the risks arising from the impact of the pandemic on Latin American countries (mainly Argentina, Brazil, Chile, Colombia and Peru), the main concern is the possibility of another lost decade due to the deterioration of the region's per capita GDP and the consequent setbacks in terms of poverty and social progress. A second focus of uncertainty is related to fiscal sustainability. The significant deterioration experienced by sovereign metrics during the pandemic introduces a non-negligible probability of a credit quality cutback, with the consequent increase in the cost of external financing which may negatively affect foreign exchange performance.

Group management estimates that the negative impact of the pandemic on Group's revenues in 2020 was approximately 1,905 million euros, while the impact on OIBDA (excluding goodwill impairment) was approximately 977 million euros.

Additionally, the COVID-19 crisis has contributed to the depreciation of the main Latin American currencies against the euro. The change in the exchange rates of the main currencies of the countries in which the Group operates against the euro is shown in "Item 5. Operating and Financial Review and Prospects-Operating Results-Exchange Rate Fluctuations".

The exchange rate figures evolution has led to goodwill impairment losses. The results of the impairment tests are included in the risk "The Group has and in the future could experience impairment of goodwill, deferred tax assets or other assets".

The Group has and in the future could experience impairment of goodwill, deferred tax assets or other assets.

In accordance with current accounting standards, the Telefónica Group reviews on an annual basis, or more frequently when the circumstances require it, the need to introduce changes to the book value of its goodwill (which as of December 31, 2020, represented 16.2% of the Group’s total assets), deferred tax assets (which as of December 31, 2020, represented 6.1% of the Group’s total assets) or other assets, such as intangible assets (which represented 10.9% of the Group's total assets as of December 31, 2020), and property, plant and equipment (which represented 22.6% of the Group's total assets as of December 31, 2020). In the case of goodwill, the potential loss of value is determined by the analysis of the recoverable value of the cash-generating unit (or group of cash-generating units) to which the goodwill is allocated to at the time it is originated. By way of example, in 2020 impairment losses in the goodwill and other assets of Telefónica Argentina were recognized for a total of 894 million euros. In 2019, impairment losses in the goodwill allocated to Telefónica Argentina were recognized for a total of 206 million euros.

In addition, Telefónica may not be able to realize deferred tax assets on its statement of financial position to offset future taxable income. The recoverability of deferred tax assets depends on the Group's ability to generate taxable income over the period for which the deferred tax assets remain deductible. If Telefónica believes it is unable to utilize its deferred tax assets during the applicable period, it may be required to record an impairment against them resulting in a non-cash charge on the income statement. By way of example, in 2019, Telefónica Móviles México derecognized deferred tax assets amounting to 454 million euros. In 2020, deferred tax assets corresponding to the tax Group in Spain amounting to 101 million euros were derecognized.

Further impairments of goodwill, deferred tax or other assets may occur in the future which may materially adversely affect the Group's business, financial condition, results of operations and/or cash flows.

The Group faces risks relating to its levels of financial indebtedness, the Group's ability to finance itself, and its ability to carry out its business plan.

The operation, expansion and improvement of the Telefónica Group's networks, the development and distribution of the Telefónica Group's services and products, the implementation of Telefónica's strategic plan and the development of new technologies, the renewal of licenses and the expansion of the Telefónica Group's business in countries where it operates, may require a substantial amount of financing.

The Telefónica Group is a relevant and frequent issuer of debt in the capital markets. As of December 31, 2020, the Group's gross financial debt amounted to 50,420 million euros (52,364 million euros as of December 31, 2019), and the Group's net financial debt amounted to 35,228 million euros (37,744 million euros as of December 31, 2019). As of December 31, 2020, the average maturity of the debt was 10.79 years (10.50 years as of December 31, 2019), including undrawn committed credit facilities.

Table of Contents

A decrease in the liquidity of Telefónica, or a difficulty in refinancing maturing debt or raising new funds as debt or equity could force Telefónica to use resources allocated to investments or other commitments to pay its financial debt, which could have a negative effect on the Group's business, financial condition, results of operations and/or cash flows.

Funding could be more difficult and costly in the event of a deterioration of conditions in the international or local financial markets due, for example, to monetary policies set by central banks, including increases in interest rates and/or decreases in the supply of credit, increasing global political and commercial uncertainty and oil price instability, or if there is an eventual deterioration in the solvency or operating performance of Telefónica.

As of December 31, 2020, the Group's gross financial debt scheduled to mature in 2021 amounted to 8,123 million euros, and gross financial debt scheduled to mature in 2022 amounted to 4,243 million euros.

In accordance with its liquidity policy, Telefónica has covered its gross debt maturities for the next 12 months with cash and credit lines available as of December 31, 2020. As of December 31, 2020, the Telefónica Group had undrawn committed credit facilities arranged with banks for an amount of 13,354 million euros (12,466 million euros of which were due to expire in more than 12 months). As of December 31, 2020, 6.6% of the aggregate undrawn amount under credit lines was scheduled to expire prior to December 31, 2021.

In addition, given the interrelation between economic growth and financial stability, the materialization of any of the economic, political and exchange rate risks referred to above could adversely impact the availability and cost of Telefónica's financing and its liquidity strategy. This in turn could have a negative effect on the Group's business, financial condition, results of operations and/or cash flows.

Finally, any downgrade in the Group’s credit ratings may lead to an increase in the Group's borrowing costs and could also limit its ability to access credit markets.

The Group's financial condition and results of operations may be adversely affected if it does not effectively manage its exposure to foreign currency exchange rates or interest rates.

Interest rate risk arises primarily in connection with changes in interest rates affecting: (i) financial expenses on floating-rate debt (or short-term debt likely to be renewed); and (ii) the value of long-term liabilities at fixed interest rates.

In nominal terms, as of December 31, 2020, 75.2% of the Group's net financial debt plus commitments had its interest rate set at fixed interest rates for periods of more than one year. To illustrate the sensitivity of financial expenses to variations in short-term interest rates as of December 31, 2020: (i) a 100 basis points increase in interest rates in all currencies in which Telefónica had a financial position at that date would have led to an increase in financial expenses of 100 million euros, whereas (ii) a 100 basis points decrease in interest rates in all currencies (even if negative rates are reached), would have led to a reduction in financial expenses of 97 million euros. For the preparation of these calculations, a constant position equivalent to the position at that date is assumed, which takes into account the financial derivatives contracted by the Group.

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 and the United Kingdom); (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; and (iii) trade receivables or payables in a foreign currency to the currency of the company with which the transaction was registered. According to the Group's calculations, the impact on results, and specifically on net exchange differences, due to a 10% depreciation of Latin American currencies against the U.S. dollar and a 10% depreciation of the rest of the currencies to which the Group is most exposed (mainly the pound sterling) against the euro would result in exchange gains of 55 million euros for the year ended December 31, 2020. These calculations have been made assuming a constant currency position with an impact on profit or loss for the year ended December 31, 2020, taking into account derivative instruments in place.

During 2020, Telefónica Brazil represented 23.6% (28.2% in 2019), Telefónica United Kingdom represented 15.3% (14.0% in 2019), Telefónica Hispam represented 7.3% (13.4% in 2019) of the OIBDA of the Telefónica Group.

In 2020, the evolution of exchange rates negatively impacted the Group's results, decreasing the year-on-year growth of the Group's consolidated revenues and OIBDA by an estimated 6.5 percentage points and 8.0 percentage points, respectively, mainly due to the depreciation of the Brazilian real (3.1 percentage points and 2.2 percentage

Table of Contents

points, respectively, in 2019). Furthermore, translation differences in 2020 had a negative impact on the Group's equity of 5,801 million euros (negative impact of 95 million euros in 2019).

The Telefónica Group uses a variety of strategies to manage this risk including, among others, the use of financial derivatives, which are also exposed to risk, including counterparty risk. The Group's risk management strategies may be ineffective, which could adversely affect the Group's business, financial condition, results of operations and/or cash flows. If the Group does not effectively manage its exposure to foreign currency exchange rates or interest rates, it may adversely affect its business, financial condition, results of operations and/or cash flows.

Legal and Compliance Risks.

Telefónica and Telefónica Group companies are party to lawsuits, antitrust, tax claims and other legal proceedings.

Telefónica and Telefónica Group companies operate in highly regulated sectors and are and may in the future be party to lawsuits, tax claims, antitrust and other legal proceedings in the ordinary course of their businesses, the outcome of which is unpredictable.

The Telefónica Group is subject to regular reviews, tests and audits by tax authorities regarding taxes in the jurisdictions in which it operates and is a party and may be a party to certain judicial tax proceedings. In particular, the Telefónica Group is currently party to certain litigation in Peru concerning certain previous years' income taxes, in respect of which a contentious-administrative appeal is currently pending, and to certain tax and regulatory proceedings in Brazil, primarily relating to the ICMS (a Brazilian tax on telecommunication services) and the corporate tax.

With respect to the latter, as of December 31, 2020, Telefónica Brazil maintained provisions for tax contingencies amounting to 282 million euros, and provisions for regulatory contingencies amounting to 189 million euros. Although the Group considers its tax estimates to be reasonable, if a tax authority disagrees, the Group could face additional tax liability, including interest and penalties. There can be no guarantee that the payment of such additional amounts will not have a significant adverse effect on the Group's business, results of operations, financial condition and/or cash flows.

An adverse outcome or settlement in these or other proceedings, present or future, could result in significant costs and may have a material adverse effect on the Group's business, financial condition, results of operations and/or cash flows.

The Telefónica Group is exposed to risks in relation to compliance with anti-corruption laws and regulations and economic sanctions programs.

The Telefónica Group is required to comply with the anti-corruption laws and regulations of the jurisdictions where it conducts operations around the world, including in certain circumstances with laws and regulations having extraterritorial effect such as the US Foreign Corrupt Practices Act of 1977 and the United Kingdom Bribery Act of 2010. The anti-corruption laws generally prohibit, among other conduct, providing anything of value to government officials for the purposes of obtaining or retaining business or securing any improper business advantage or failing to keep accurate books and records and properly account for transactions.

In this sense, due to the nature of its activities, the Telefónica Group is increasingly exposed to this risk, which increases the likelihood of occurrence. In particular, it is worth noting the continuous interaction with officials and public administrations in several areas, including the institutional and regulatory fronts (as the Telefónica Group carries out a regulated activity in different jurisdictions), the operational front (in the deployment of its network, the Telefónica Group is subject to obtaining multiple activity permits) and the commercial front (the Telefónica Group provides services directly and indirectly to public administrations). Moreover, Telefónica is a multinational group subject to the authority of different regulators and compliance with various regulations, which may be domestic or extraterritorial in scope, civil or criminal, and which may lead to overlapping authority in certain cases. Therefore, it is very difficult to quantify the possible impact of any breach, bearing in mind that such quantification must consider not only the economic amount of sanctions, but also the potential negative impact on the business, reputation and/or brand, or the ability to contract with public administrations.

Additionally, the Telefónica Group's operations may be subject to, or otherwise affected by, economic sanctions programs and other forms of trade restrictions ("sanctions") including those administered by the United Nations, the

Table of Contents

European Union and the United States, including the US Treasury Department's Office of Foreign Assets Control. The sanctions regulations restrict the Group's business dealings with certain sanctioned countries, individuals and entities. In this context, the provision of services by a multinational telecommunications group, such as the Telefónica Group, directly and indirectly, and in multiple countries, requires the application of a high degree of diligence to prevent the contravention of sanctions (which take various forms, including economic sanctions programs applicable to countries, lists of entities and persons sanctioned or export sanctions). Given the nature of its activity, the Telefónica Group's exposure to these sanctions is particularly noteworthy.

Although the Group has internal policies and procedures designed to ensure compliance with the above mentioned applicable anti-corruption laws and sanctions regulations, there can be no assurance that such policies and procedures will be sufficient or that the Group's employees, directors, officers, partners, agents and service providers will not take actions in violation of the Group's policies and procedures (or, otherwise in violation of the relevant anti-corruption laws and sanctions regulations) for which the Group, its subsidiaries or they may be ultimately held responsible. In this regard, the Group is currently cooperating with governmental authorities (and, where appropriate, conducting the relevant internal investigations) regarding requests for information potentially related, directly or indirectly to possible violations of applicable anti-corruption laws. Telefónica believes that, considering the size of the Group, any potential penalty as a result of matters relating to those specific information requests would not materially affect the Group's financial condition.

Notwithstanding the above, violations of anti-corruption laws and sanctions regulations could lead not only to financial penalties, but also to exclusion from government contracts, licenses and authorizations revocation, and could have a material adverse effect on the Group's reputation, or otherwise adversely affect the Group's business, financial condition, results of operations and/or cash flows.

Item 4. Information on the Company

A. History and Development of the Company

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;

•are focused on providing telecommunications services; and

•operate principally in Europe and Latin America.

The following significant events occurred in 2020:

•On February 3, 2020, Telefónica Emisiones, S.A.U. issued notes under its €40,000,000,000 Euro Medium Term Note Programme for the issuance of debt instruments (the "EMTN") in the Euro market, guaranteed by Telefónica, S.A., amounting to 1,000 million euros. These notes are due on February 3, 2030, with an annual coupon of 0.664% and were issued at par (100%).

•In February 2020, Telefónica Europe, B.V. announced several transactions relating to its hybrid capital:

◦a new issue amounting to 500 million euros, guaranteed by Telefónica, S.A. The net proceeds of the new issue were allocated towards eligible green investments, promoting mainly energy efficiency in the network transformation from copper to fiber optic in Spain and also self-generation of renewable energy. The settlement took place on February 5, 2020;

◦a tender offer in respect of two hybrid instruments, one denominated in pounds sterling and one in euros, with first call dates in November 2020 and September 2021, respectively. Telefónica Europe, B.V. accepted the purchase in cash of any and all of the tendered securities in an aggregate principal amount of 128 million pounds sterling and 232 million euros, respectively. The tender offer settled on February 6, 2020;

◦following the settlement of the abovementioned tender offer and the subsequent cancellation of the repurchased securities, Telefónica Europe, B.V. announced on February 11, 2020 the exercise of the early

Table of Contents

redemption option with respect to both series of hybrid instruments, according to their respective terms and conditions, for the remaining outstanding securities (112 million euros equivalent). Such outstanding instruments were redeemed on February 6, 2020 pursuant to the exercise of the early redemption option; and

◦on February 13, 2020, Telefónica Europe, B.V. exercised its early redemption option with respect to certain outstanding securities issued in March 2014 (244 million euros).

•On February 20, 2020, Telefónica filed with the United States Securities and Exchange Commission its annual report on Form 20-F for the year ended December 31, 2019.

•On February 28, 2020, after obtaining the relevant regulatory approvals, Telefónica de Contenidos, S.A.U. acquired 50% of the shares in Prosegur Alarmas España, S.L. ("Prosegur") for an amount of 266 million euros, which is subject to certain adjustments related to debt, working capital and existing customers. This amount was paid with 49,545,262 shares of Telefónica. With the purpose of setting protective mechanisms which are common in this type of transactions, Prosegur has committed to comply with, among others, certain restrictions over the transferability of such shares of Telefónica.

•On April 17, 2020, the Board of Directors of Telefónica, S.A. unanimously adopted the following resolution, in relation to the composition of its Nominating, Compensation and Corporate Governance Committee: to appoint the Independent Director Mr. Peter Löscher as Member of the Nominating, Compensation and Corporate Governance Committee, in replacement of Ms. Sabina Fluxà Thienemann, who presented her resignation to such position.

•On April 29, 2020, in relation to the agreement reached on February 20, 2019 with Millicom International Cellular, S.A. ("Millicom") for the sale of the entire share capital of Telefónica de Costa Rica TC, S.A., Telefónica notified Millicom of its intention to commence legal proceedings before the Courts of the State of New York (USA), in defense of its rights to claim compliance with what was agreed in the abovementioned agreement. This claim concerns Millicom's refusal to close the transaction, and consequential breach of contract, following a formal request to do so, subsequent to obtaining regulatory approval and the satisfaction of all conditions precedent. In such legal action, Telefónica initially intended to seek compliance with the provisions of the aforementioned agreement and compensation for all damages that this unjustified breach could cause to Telefónica. The agreed price for the sale of Telefónica de Costa Rica TC, S.A. amounted to 570 million U.S. dollars (subject to adjustments), approximately 503 million euros at the exchange rate as of the date of the agreement. On August 3, 2020, Telefónica submitted an amendment to its claim, removing the requirement to comply with the provisions of the aforementioned agreement and requesting only compensation for all damages that the unjustified breach of said agreement could cause Telefónica.

•On May 7, 2020, Telefónica reached an agreement with Liberty Global plc to launch a 50:50 joint venture ("Joint Venture") through the combination of their respective operating businesses in the United Kingdom (O2 Holdings Ltd. and Virgin Media UK, respectively) to create an integrated communications provider in the United Kingdom with over 46 million video, broadband and mobile subscribers and estimated revenues of approximately 11 billion pounds sterling. The combined entity will be a stronger fixed and mobile player in the UK market and will benefit from the scale and complementary expertise of each partner, who will provide a suite of services to the Joint Venture after closing. The transaction is expected to deliver significant value to Telefónica, which expects to receive 5.7 billion pounds sterling of proceeds in total after an equalization payment of 2.5 billion pounds sterling. The Joint Venture will target leverage of between four and five times OIBDA. This move is fully aligned with Telefónica's new strategy to focus on and improve its market position in its core markets. The parties have agreed to restrict the transfer of interests in the Joint Venture to a third party until the fifth anniversary of closing, when any such transfer will be subject to a right of first offer in favor of the other shareholder. The transaction is subject to regulatory approvals and other closing conditions. For additional information on this agreement, see "Item 10. Additional Information-Material Contracts-Creation of 50:50 Joint Venture with Liberty Global for the combination of both groups' businesses in the United Kingdom".

•On May 13, 2020, Telefónica Emisiones, S.A.U. issued notes in an aggregate principal amount of 2,000 million euros guaranteed by Telefónica, S.A. under its EMTN program. This issuance is divided into two tranches. The first one for a principal amount of 1,250 million euros and due on August 21, 2027, pays an annual coupon of 1.201% and was issued at 100.005%. The second one, for a principal amount of 750 million euros, due May 21, 2032, pays an annual coupon of 1.807% and was issued at par. The net proceeds of the notes are to be allocated towards projects aiming to improve energy efficiency in the network transformation from copper to fiber optic in

Table of Contents

Spain. Furthermore, a tender offer in respect of the following notes was completed: EUR 1,000,000,000 3.961% Instruments due March 2021 (the "March 2021 Instruments"), EUR 1,000,000,000 1.477% Instruments due September 2021 (the "September 2021 Instruments"), EUR 1,400,000,000 0.750% Instruments due April 2022 (the "April 2022 Instruments"), and EUR 1,250,000,000 2.242% Instruments due May 2022 (the "May 2022 Instruments"). Telefónica Emisiones S.A.U. accepted the purchase in cash of notes in an aggregate principal amount of 894,000,000 euros of which (i) an amount of 127,800,000 euros related to the March 2021 Instruments, (ii) an amount of 241,300,000 euros related to the September 2021 Instruments, (iii) an amount of 290,000,000 euros related to the April 2022 Instruments and (iv) an amount of 234,900,000 euros related to the May 2022 Instruments. The tender offer settled on May 22, 2020.

•On June 8, 2020, Telefónica's subsidiary in Germany, Telefónica Germany GmbH & Co. OHG ("Telefónica Deutschland") signed an agreement with Telxius Telecom, S.A. ("Telxius") to sell approximately 10,100 sites to Telxius for 1.5 billion euros, an implied enterprise value multiple of approximately 23 times EBITDA. The agreement includes a commitment to build 2,400 additional sites over the next four years. Financing of the transaction was structured as follows: (i) 90% of the acquisition through a combination of a capital increase to be subscribed by its shareholders in proportion to their ownership in Telxius and internally generated resources; and (ii) the remaining 10% through incremental debt. The transaction was structured in two phases with Telxius acquiring approximately 60% of the portfolio initially (after obtaining the relevant regulatory approvals) and the remaining 40% to be acquired by August of 2021. On September 1, 2020, after obtaining the relevant regulatory approvals, the first phase of the transaction closed and Telxius acquired all the shares of the Group's subsidiary Telefónica Germany Mobilfunk Standortgesellschaft mbH, which owned approximately 6,000 sites (included in the first phase). The total purchase price for the sites included in the first phase was 896 million euros, payable in two installments: 85% of the purchase price was paid in the second half of 2020 and the remaining will be paid in the third quarter of 2025. In 2020, Telxius also completed various acquisitions of towers in Brazil and Peru. As explained in greater detail herein, on January 13, 2021, Telxius signed two agreements with American Tower International Inc., a subsidiary of American Tower Corporation, for the sale of its telecommunications towers divisions in Europe (Spain and Germany) and in Latin America (Brazil, Peru, Chile and Argentina), for a total consideration of 7.7 billion euros. The agreements include the transfer to American Tower International, Inc. of the towers that Telxius agreed to acquire from Telefónica Deutschland under the agreement signed on June 8, 2020 (including the towers acquired in the first phase on September 1, 2020 and the towers that will be acquired in the second phase by August 2021).

•On June 12, 2020, the Annual General Shareholders' Meeting of Telefónica was held at second call with the attendance, present or represented, of shareholders holding shares representing 54.54% of the share capital of Telefónica. All of the resolutions submitted were approved at the meeting.

Furthermore, Telefónica announced that on the same date, the Board of Directors agreed to the implementation of the first capital increase with charge to reserves related to shareholder compensation by means of a scrip dividend approved by the Annual General Shareholders' Meeting, under section V.1 of its agenda. On July 3, 2020, Telefónica announced that the shareholders of 36.99% of the free-of-charge allotment rights accepted the purchase commitment assumed by Telefónica, S.A. The gross amount paid by Telefónica, S.A. for these rights amounted to 370,712,083.42 euros. Telefónica waived the rights thus acquired, which were amortized. On the other hand, the shareholders of 63.01% of the free-of-charge allotment rights opted to receive new shares of Telefónica, S.A. Therefore, the final number of ordinary shares with a nominal value of 1 euro issued increased by 136,305,986, corresponding to 2.63% of the total share capital, resulting in a share capital increase of 136,305,986 euros. As a result, the amount of the share capital of Telefónica, S.A. after the capital increase was set at 5,328,437,672 euros, divided into 5,328,437,672 shares.

•On July 2, 2020 Telefónica Audiovisual Digital, S.L.U. ("Telefónica Audiovisual") (Telefónica's wholly-owned subsidiary) signed an agreement for the exclusive media rights in Spain for the UEFA Champions League and the UEFA Europa League, as well as the UEFA Europa Conference League (a new competition to be separated from the UEFA Europa League) and the UEFA Youth League, for the next cycle comprising seasons 2021/22, 2022/23 and 2023/2024. The agreement guarantees Telefónica Audiovisual all media rights with respect to the main European football competitions for all of its customers, both residential and horecas (hotels, restaurants, cafes, etc.). The direct acquisition from UEFA of this "premium" content will also allow Telefónica Audiovisual to continue designing and selling its own produced channels and content with European football that could be, likewise, accessible to other operators in the market interested in this content. The total award price for all competitions amounted to 975 million euros, i.e. 325 million euros for each of the seasons 2021/22, 2022/23 and 2023/2024, which is less than the license fees paid for the current cycle and without any year-to-year increase.

Table of Contents

•On July 18, 2020, Telefônica Brasil S.A. ("Telefónica Brasil"), Telefónica's subsidiary in Brazil, presented a binding offer for the acquisition of Oi Group's mobile business, jointly with TIM S.A. and Claro S.A.

On July 27, 2020, Telefónica Brasil presented an extended and revised binding offer (the "Revised Offer") for the acquisition of Oi Group's mobile business, jointly with TIM S.A. and Claro S.A. (jointly, the "Bidders"), in the amount of 16,500 million Brazilian reais (approximately 2,706 million euros at the prevailing exchange rate as of the date of the Revised Offer). Such joint proposal, additionally, considered the possibility of signing long-term contracts for the use of Oi Group's infrastructure.

On August 8, 2020, Oi Group granted the Bidders, by the execution of an exclusivity agreement (the "Agreement"), exclusivity to negotiate the documents and annexes related to the Revised Offer. On September 8, 2020, following certain adjustments to the Revised Offer which did not affect the price (i.e. 16,500 million Brazilian reais, including 756 million Brazilian reais related to the transitional services to be provided for up to 12 months by Oi Group to the Bidders), the Bidders were qualified by Oi Group to participate in the competitive process of disposal of its isolated mobile assets business unit (Unidade Produtiva Isolada de Ativos Móveis) as "stalking horse". The agreement includes the commitment to enter into long-term agreements for the provision of certain transmission capacity services.

On December 14, 2020, Telefónica announced that the offer submitted by the Bidders was declared the winner of the competitive process for purchase of Oi Group's mobile assets in a judicial auction. The Judicial Recovery Court approved the Bidders' offer as the winner of the bid, after a favorable opinion from the Public Prosecution of the State of Rio de Janeiro and the Judicial Administrator. The total offered amount was 16,500 million Brazilian reais (approximately 2,684 million euros at the prevailing exchange rate as of December 14, 2020, including 756 million Brazilian reais attributable to the transitional services to be rendered for up to 12 months by Oi Group to the Bidders). Telefónica Brasil shall disburse an amount corresponding to 33% of the total offered amount, equivalent to approximately 5,500 million Brazilian reais (approximately 894 million euros at the prevailing exchange rate as of December 14, 2020). Subject to the terms, conditions and payment schedule set out in the share purchase agreement, the price shall be paid upon closing of the transaction. Subject to the continuity of the current market conditions and the necessary internal approvals, and taking into account Telefónica Brasil's financial position, Telefónica Brasil intends to use its own resources to finance the transaction. Telefónica Brasil is entitled to a selection of assets composed of: (i) clients: approximately 10.5 million (corresponding to approximately 29% of Oi Group's mobile total client base); (ii) spectrum: 43 MHz as a national weighted average rate based on population (approximately 46% of Oi Group's mobile radiofrequencies); and (iii) infrastructure: agreements for the use of 2.7 thousand mobile access sites (corresponding to approximately 19% of Oi Group's mobile sites). The closing of the acquisition by the Bidders is subject to various conditions, including any required regulatory authorizations. The transaction is expected to close in 2021.

•On July 30, 2020, Telefónica reached an agreement with Liberty Latin America Ltd. for the sale of the entire share capital of Telefónica de Costa Rica TC, S.A. (hereinafter, "Telefónica Costa Rica" or "Telefónica de Costa Rica"). The enterprise value of Telefónica Costa Rica was 500 million U.S. dollars (approximately 425 million euros at the exchange rate on July 30, 2020), an implicit multiple of approximately 7.4 times the 2019 OIBDA of that company. The capital gain before taxes is estimated to amount to approximately 210 million euros and the net debt of the Telefónica Group will be reduced by approximately 425 million euros. The closing of this transaction is subject to certain closing conditions, including relevant regulatory approvals.

•On September 3, 2020, Telefónica reached an agreement with América Móvil, S.A.B. de C.V. to terminate the latter's agreement to purchase 99.3% of Telefónica Móviles El Salvador, S.A. de C.V. The decision was reached after careful consideration by both parties of the conditions to obtaining regulatory approval established by the Superintendencia de Competencia in their ruling on the proposed transaction.

•On October 29, 2020, with respect to the second tranche of the scrip dividend (0.20 euros per share) which was approved at the Annual General Shareholders' Meeting of Telefónica, S.A. held on June 12, 2020, the Board of Directors agreed for the Executive Commission to take the appropriate corporate resolutions to carry out the fully-paid capital increase related to the referred scrip dividend payment.

On December 14, 2020, the Executive Commission agreed the implementation of the capital increase with charge to reserves related to the second tranche of the scrip dividend.

On December 30, 2020, Telefónica announced that on December 28, 2020 the related free-of-charge allotment rights trading period had ended. The shareholders of 33.12% of the free-of-charge allotment rights opted to rely on the purchase commitment assumed by Telefónica, S.A. The gross amount paid by Telefónica, S.A. for these rights

Table of Contents

amounted to 342,323,986.80 euros. Telefónica S.A. waived the rights thus acquired, which were amortized. On the other hand, the shareholders of 66.88% of the free-of-charge allotment rights opted to receive new shares of Telefónica, S.A. Therefore, the final number of ordinary shares issued, with a nominal value of 1 euro each, increased by 197,993,390, corresponding to 3.72% of the share capital, and there was an increase in share capital of 197,993,390 euros. As a result, the amount of the share capital of Telefónica, S.A. after this capital increase is 5,526,431,062 euros, divided into 5,526,431,062 shares.

In addition, on October 29, 2020, the Board of Directors agreed to submit for the approval of the General Shareholders Meeting of Telefónica, S.A. (the date of which will be announced at the appropriate time) the adoption of the appropriate corporate resolutions to execute a capital reduction by means of a redemption of treasury shares representing 1.5% of the share capital.

•On October 29, 2020, Telefónica reached an agreement with Allianz to create a "joint venture" to deploy fiber in Germany through an open wholesale company. For additional information, see "Item 10. Additional Information—Material Contracts—Investment Agreement with Allianz and Telefónica Germany."

•On November 20, 2020, Standard & Poor's (S&P) published its decision to lower the long-term credit rating of Telefónica, S.A. from BBB to BBB-. At the same time, S&P lowered the short-term ratings to A3 from A2. The outlook on the ratings was changed from negative to stable.

•On November 25, 2020, the Board of Directors of Telefónica, S.A., unanimously agreed to appoint the Independent Director Mr. Juan Ignacio Cirac Sasturain, as Member of the Sustainability and Quality Committee.

Table of Contents

Business areas

On November 27, 2019, the Board of Directors of Telefónica approved an action plan to be implemented around five strategic decisions: (i) focus investment and growth in the most important markets of the Company: Spain, Brazil, the UK and Germany; (ii) the creation of Telefónica Tech; (iii) the creation of Telefónica Infra; (iv) an operational spin-off of Hispanoamérica in a single unit; and (v) the redefinition of the Company’s corporate center. The structure of Telefónica's Executive Committee was modified to reflect these changes.

Such changes resulted in a change to the financial information presented to Telefónica's management and a change to the reporting segments. In 2020 the Telefónica Group reported financial information, both internally and externally, according to the following segments: Telefónica Spain, Telefónica United Kingdom, Telefónica Germany, Telefónica Brazil, Telefónica Hispam (formed by the Group's operators in Colombia, Mexico, Venezuela, Ecuador Argentina, Chile, Peru and Uruguay) and Telxius Group.

Furthermore, Telefónica Global Technology, S.A.U., which was previously reported in "Other companies", is now reported in the Telefónica Spain segment.

Due to the implementation of the changes referred to above, the comparative results of the segments of the Group for the years ended December 31, 2019 and 2018, and the comparative segment information of assets and liabilities as of December 31, 2019 were restated. These changes in the segments did not have an impact on the consolidated results of the Group.

The segments referred to above include the information related to the fixed, wireless, cable, data, Internet and television businesses and other digital services provided in each country. Inter-segment transactions are carried out on an arm's length basis.

The "Eliminations" of the Group at OIBDA level in 2020 and 2019 mainly reflect the leases of the Telxius Group to other Group companies, due to the asymmetry in accounting between lessor and lessee under IFRS 16. This impact is mostly offset at the operating income level.

Information relating to other Group companies not specifically included in the segments referred to above is reported under "Other companies" (see Appendix I to the Consolidated Financial Statements), which includes Telefónica, S.A. and other holding companies, our Central American operations, as well as companies whose main purpose is to provide cross-sectional services to the Group companies, and other operations not included in the segments.

The Group centrally manages borrowing activities, mainly through Telefónica, S.A. and other companies included in Other companies (see Note 19, Appendix III and Appendix V to the Consolidated Financial Statements), so most of the Group's financial assets and liabilities are reported under Other companies. In addition, Telefónica, S.A. is the head of the Telefónica tax group in Spain (see Note 25 to the Consolidated Financial Statements). Therefore, a significant part of the deferred tax assets and liabilities is included under Other companies. For these reasons, the results of the segments are disclosed up to operating income.

Revenues and expenses arising from intra-group invoicing for the use of the trademark and management services were eliminated from the operating results of each Group segment. The results of the holding companies also exclude dividends from the Group companies and impairments of investments in the Group companies. These adjustments have no impact on the Group’s consolidated results. In addition, segment reporting considers the impact of the purchase price allocation to the assets acquired and the liabilities assumed by the companies included in each segment. The assets and liabilities presented in each segment are those managed by the heads of each segment, regardless of their legal structure.

The impairment losses on goodwill and other non-current assets of Telefónica Argentina, recorded in 2019 and 2020 (see Notes 6, 7 and 8 to the Consolidated Financial Statements), are included in the Telefónica Hispam segment.

In 2019, the Telefónica Group completed the sale of its operating companies in Guatemala, Nicaragua and Panama. At December 31, 2019 Telefónica Costa Rica and Telefónica Móviles El Salvador were classified as held for sale (see Note 30 to the Consolidated Financial Statements). The assets, liabilities and results of the Group companies in Central America and the gains obtained in these transactions, have been reported under "Other companies" (see Note 2 to the Consolidated Financial Statements).

Table of Contents

On May 7, 2020 Telefónica reached an agreement with Liberty Global plc to combine their respective businesses in the United Kingdom and form a joint venture 50% owned by each of such companies (see Note 2 to the Consolidated Financial Statements). This transaction is fully aligned with Telefonica’s strategy to focus on and improve its market position in its core markets. It will enable Telefónica to reinforce its presence and continuity in this market through the creation of an integrated communications provider in the United Kingdom that will offer their customers a convergent value proposition. Accordingly, Telefónica United Kingdom remains as a reportable segment. From the date of the agreement, the consolidated assets and liabilities subject to the transaction have been reclassified under ‘‘Non-current assets and disposal groups held for sale’’ and ‘‘Liabilities associated with non-current assets and disposal groups held for sale’’, respectively, in the consolidated statement of financial position at December 31, 2020 (see Note 30 to the Consolidated Financial Statements). Additionally, these non-current assets ceased to be amortized and depreciated for accounting purposes once they were reclassified as assets held for sale.

On June 8, 2020 Telefónica’s subsidiary in Germany, Telefónica Germany GmbH & Co. OHG signed an agreement with Telxius to sell approximately 10,100 sites to Telxius for 1,500 million euros, in two phases: approximately 60% of the portfolio initially and the remaining 40% to be acquired by August of 2021. On September 1, 2020 Telxius acquired all the shares of the subsidiary Telefónica Germany Mobilfunk Standortgesellschaft mbH which owned approximately 6,000 sites. The results of Telefónica Germany do not include the gain in this transaction.

On January 13, 2021, Telxius signed an agreement with American Tower Corporation for the sale of its telecommunications towers divisions in Europe (Spain and Germany) and in Latin America (Brazil, Peru, Chile and Argentina), for 7.7 billion euros (see Note 2 to the Consolidated Financial Statements). The consolidated assets and liabilities subject to the transaction have been reclassified under ‘‘Non-current assets and disposal groups held for sale’’ and ‘‘Liabilities associated with non-current assets and disposal groups held for sale’’ (see Note 30 to the Consolidated Financial Statements), respectively, in the consolidated statement of financial position at December 31, 2020.

Table of Contents

The following chart shows the organizational structure of the principal subsidiaries of the Telefónica Group at December 31, 2020, including their jurisdictions of incorporation and our ownership interest. For further detail, see Exhibit 8.1 to this Annual Report.

Table of Contents

Telefónica, S.A., the parent company of the Telefónica Group, 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 Telefónica, Ronda de la Comunicación, s/n, 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

Our principal capital expenditures during the three years ended December 31, 2020, consisted of additions to property, plant and equipment and additions to intangible assets, including spectrum. In 2020, 2019 and 2018, we made capital expenditures of 5,861 million euros, 8,784 million euros and 8,119 million euros, respectively.

Year ended December 31, 2020

Capital expenditures in 2020 decreased by 33.3% compared to 2019. Capital expenditures in 2020 included the cost of spectrum mainly in the United Kingdom and Brazil, amounting to 126 million euros.

The year-on-year decline was mainly attributable to fewer spectrum acquisitions in 2020 and lower capital expenditures in light of the COVID-19 pandemic, with our investment in 2020 being focused on the availability of resources and revenues. In particular, we remained focused on accelerating seamless connectivity (deployment of LTE and fiber networks, increased network capacity and virtualization) while seeking to improve quality and customer experience. The year-on-year decline was partially offset by the launch of the 5G network in Spain and Germany.

Investment by Telefónica Spain amounted to 1,408 million euros and was primarily focused on fast fiber optic and IPTV rollout, exceeding an estimated 25 million premises passed by year-end 2020, as well as investments in the launch of the 5G network reaching 75% population coverage (based on the calculation criteria used by competitors, pursuant to which all inhabitants of the cities that have some 5G coverage are considered) at the end of the year. Investment by Telefónica United Kingdom in 2020 amounted to 913 million euros and was mainly focused on 5G deployment and the improvement of the 4G navigation experience, achieving 99% population coverage by year-end 2020. Investment by Telefónica Germany in 2020 amounted to 1,094 million euros and was primarily focused on the launch of the 5G network across 15 cities and the ongoing extension of 4G coverage, achieving a population coverage of 99.6% by year-end 2020. Investment by Telefónica Brazil in 2020 amounted to 1,372 million euros and was mainly dedicated to extending the coverage and capacity of 4G mobile networks, the improvement of network quality, the extension of the FTTH network in the fixed business, as well as network simplification and the digitalization of processes and systems. Investment by Telefónica Hispam in 2020 amounted to 833 million euros and was mainly focused on improving the coverage and capacity of 4G networks and ultra-broadband fixed capabilities, as well as processes and systems simplification and digitalization in the region. Investment by Telxius Group in 2020 amounted to 348 million euros and was mainly focused on the construction of the Pacific cable.

Year ended December 31, 2019

Capital expenditures in 2019 increased by 8.2% compared to 2018. Capital expenditures in 2019 included the cost of spectrum mainly in Germany, and to a lesser extent, Uruguay, Mexico and El Salvador, amounting to 1,501 million euros.

Investment by Telefónica Spain amounted to 1,667 million euros and was primarily focused on fast fiber optic and IPTV rollout, exceeding an estimated 23 million premises passed by year-end 2019, as well as investments in the LTE network, reaching 97% population coverage (based on the calculation criteria used by competitors,

Table of Contents

pursuant to which all inhabitants of the cities that have some LTE coverage are considered). Investment by Telefónica United Kingdom in 2019 amounted to 914 million euros and was mainly focused on enhancing the LTE navigation experience, achieving 99% population coverage by year-end 2019, and pursuing the improvement of network capacity and quality. Investment by Telefónica Germany in 2019 amounted to 2,469 million euros, 1,425 million euros of which corresponded to spectrum acquisition. The company remains dedicated to extending LTE coverage, achieving a population coverage of 92% by year-end 2019. Investment by Telefónica Brazil in 2019 amounted to 2,005 million euros and was mainly dedicated to extending the coverage and capacity of the LTE mobile networks, the improvement of network quality, the extension of the fiber network in the fixed business, as well as network simplification and the digitalization of processes and systems. Investment by Telefónica Hispam in 2019 amounted to 1,485 million euros and was mainly focused on improving the coverage and capacity of LTE networks, the deployment of ultra-broadband fixed capabilities (fiber / HFC) in Colombia, as well as the simplification and digitalization of processes and systems in the region. Investment by Telxius Group in 2019 amounted to 284 million euros and was mainly focused on the acquisition of towers and land and real estate rights.

Year ended December 31, 2018

Capital expenditures in 2018 decreased by 6.6% compared to 2017. Capital expenditures in 2018 included the cost of spectrum mainly in United Kingdom, Mexico, Spain and Argentina, amounting to 868 million euros.

Investment by Telefónica Spain amounted to 1,741 million euros and was primarily focused on rapid fiber optic rollout, exceeding 21 million premises passed by year-end 2018, investments in LTE network, with a 96% population coverage, and transport network transformation. Investment by Telefónica United Kingdom in 2018 amounted to 1,464 million euros and was mainly focused on enhancing the LTE navigation experience, achieving 99% population coverage by year-end 2018, and also pursuing the improvement of network capacity and quality of customer experience. Investment by Telefónica Germany in 2018 amounted to 966 million euros and was focused on the extension of LTE coverage, achieving a population coverage of 88% by year-end 2018. Investment by Telefónica Brazil in 2018 amounted to 1,910 million euros and was mainly dedicated to expand the coverage and capacity of LTE mobile networks, the deployment and connection of the fiber network in the fixed business as well as network integration and the simplification of processes and systems. Investment by Telefónica Hispam in 2018 amounted to 1,681 million euros and was mainly focused on improving the coverage and capacity of LTE networks and ultra-broadband fixed capabilities (fiber / HFC) in Colombia and processes and systems simplification and digitalization in the region. Investment by Telxius Group in 2018 amounted to 181 million euros and was mainly focused on the completion of the MAREA and BRUSA submarine cables and the deployment of new towers.

Financial Investments and Divestitures

Our principal financial investment in 2020 was the acquisition of 50% of the shares in Prosegur Alarmas España, S.L. ("Prosegur") by Telefónica de Contenidos, S.A.U. on February 28, 2020 paid with 49,545,262 shares of Telefónica, with a valuation amounting to 266 million euros at the date of the transaction. There were no significant financial divestitures in 2020.

Additionally, the Group has entered into the following transactions which have not yet closed: (i) on May 7, 2020 Telefónica reached an agreement with Liberty Global plc to launch a 50:50 joint venture ("JV") through the combination of their respective operating businesses in the United Kingdom (O2 Holdings Ltd. and Virgin Media UK, respectively) to create an integrated communications provider in the United Kingdom. For additional information, see “Item 10. Additional Information—Material Contracts—Creation of 50:50 JV with Liberty Global for the combination of both groups’ businesses in the United Kingdom”; (ii) on July 30, 2020, Telefónica reached an agreement with Liberty Latin America Ltd. for the sale of the entire share capital of Telefónica de Costa Rica TC, S.A. ("Telefónica Costa Rica"). The enterprise value of Telefónica Costa Rica was 500 million U.S. dollars (approximately 425 million euros at the exchange rate of that date); and (iii) on January 13, 2021, Telxius, signed an agreement with American Tower Corporation for the sale of its telecommunications towers divisions in Europe (Spain and Germany) and in Latin America (Brazil, Peru, Chile and Argentina), for 7.7 billion euros.

There were no significant financial investments in 2019. Our principal financial divestitures in 2019 were: (i) the sale of Antares on February 14, 2019 to Grupo Catalana Occidente for a total amount of 161 million euros; (ii) the sale of Telefónica Móviles Guatemala on January 24, 2019 to América Móvil, S.A.B. of C.V. for an approximate total amount of 293 million euros; (iii) the sale of Telefonía Celular de Nicaragua, S.A. on May 16, 2019 to Millicom International Cellular, S.A. for a total amount of 437 million U.S. dollars (approximately 390 million euros at the exchange rate on May 16, 2019); (iv) the sale of Telefónica Móviles Panamá on August 29, 2019 to Cable Onda, S.A., a subsidiary of Millicom International Cellular, S.A. for a total amount of 594 million U.S. dollars (approximately

Table of Contents

536 million euros at the exchange rate on August 29, 2019); and (v) the sale of data center businesses to a company controlled by Asterion (currently, Naviax, S.A.) for an aggregate total amount of 515 million euros.

There were no significant financial investments in 2018. Our principal financial divestiture in 2018 was the transfer to a subsidiary of the Pontegadea Group of 16.65% of the share capital of Pontel (which owns 60% of Telxius), equivalent to a 9.99% economic interest in the share capital of Telxius, for an amount of 378.8 million euros.

Active portfolio management is part of Telefónica’s strategy and therefore it may undertake transactions involving its or its subsidiaries' shares, including transactions similar to those undertaken in the 2018-2020 period or otherwise, at any time.

Public Takeover Offers

Not applicable.

Recent Developments

The principal events that have occurred since December 31, 2020, are set forth below:

•On January 13, 2021, Telefónica's subsidiary, Telxius, signed two agreements with American Tower International, Inc. (the “Purchaser”), a subsidiary of American Tower Corporation ("ATC"), for the sale of its telecommunications towers divisions in Europe (Spain and Germany) and in Latin America (Brazil, Peru, Chile and Argentina), for a total cash consideration of 7.7 billion euros (including the Purchaser’s assumption of the future committed acquisitions), subject to certain closing adjustments. The agreements establish the sale of approximately 30,722 telecommunication tower sites through two separate and independent transactions. Among other aspects, the agreements include the Purchaser’s commitment to maintain employment post-closing of the transactions. Additionally, the Telefónica Group operators will maintain the current tower lease agreements signed with the companies being sold so that these companies will continue to provide their services on similar terms to the operators as those currently provided. Renewal conditions do not include any new "all or nothing" clauses. See "Item 10. Additional Information—Material Contracts—Agreements for the sale by Telxius of its telecommunications tower divisions in Europe and Latin America”.

•On January 27, 2021, Telefónica informed that Board of Directors unanimously agreed following a favorable report from the Nominating, Compensation and Corporate Governance Committee, to appoint the Independent Director Mr. Peter Löscher, as Member of the Executive Commission of the Board of Directors.

•On January 29, 2021, a Purchase and Sale Agreement was entered into among by Telefónica Brasil S.A., Tim S.A. and Claro S.A. (jointly the “Purchasers”) and Oi Móvel S.A (the “Seller”) of the mobile assets of the Oi Group, in respect of which they were declared winners at the judicial auction held on December 14, 2020. The effectiveness of this acquisition by the Purchasers is subject to certain conditions usually applicable to transactions of this nature, all of which are part of the purchase and sale agreement, including obtaining the required regulatory authorizations. In addition, this acquisition shall take place in accordance with the segregation plan of such assets. See "Item 10. Additional Information-Material Contracts- Purchase Agreement for Acquisition of UPI Mobile Assets of Oi Group.

•In February 2021, Telefónica Europe, B.V. announced the following transactions related to its hybrid capital:

a.a new issue amounting to 1,000 million euros, guaranteed by Telefónica, S.A. The net proceeds thereof will be subject to specific eligibility criteria to be applied to new or existing projects, as detailed in Telefónica's Sustainable Development Goals Framework (the "SDG Framework"). The SDG Framework is in accordance with the Green Bond Principles 2018, Social Bond Principles 2018 and Sustainability Bond Guidelines 2018, each published by the International Capital Market Association. The settlement took place on February 12, 2021; and

Table of Contents

b.a tender offer for hybrid instruments in euros, with first call date in March 2022. Telefónica Europe, B.V. offered to purchase for cash any and all of the tendered securities in an aggregate principal amount of 758 million euros. The tender offer settled on February 15, 2021.

•On February 22, 2021, Telefónica Chile, S.A. entered into a stock purchase agreement with KKR Alameda Aggregator L.P. (a vehicle controlled by funds managed or advised by KKR affiliated entities) for the sale of 60% of the shares of InfraCo, SpA ("InfraCo").

As part of the transaction, Telefónica Chile will sell approximately two million homes passed with fiber to InfraCo. Additionally, Telefónica Chile and InfraCo will enter into certain agreements for the provision of various services, including an agreement to provide wholesale connectivity services to Telefónica Chile on InfraCo’s fiber network.

The transaction values InfraCo at 1.0 billion U.S. dollars (approximately 0.8 billion euros at the exchange rate as of the date of the agreement).

The transaction is subject to obtaining the corresponding authorizations from the antitrust authorities.

•On February 24, 2021, Telefónica informed that the Board of Directors unanimously appointed the Independent Director Ms. Claudia Sender Ramírez as Member of the Strategy and Innovation Committee, in replacement of the Independent Director Mr. Peter Löscher, who presented his resignation to such position.

Public Information

The SEC maintains an Internet site (www.sec.gov) that contains reports and other information regarding issuers that file electronically with the SEC, including Telefónica. See "Item 10. Additional Information—Documents on Display". Additional information on the Group is also available on our website at www.telefonica.com. The information contained on such websites does not form part of this Annual Report on Form 20-F.

Table of Contents

B. Business Overview

Telefónica is a telecommunications service provider with its footprint in some markets in Europe and Latin America. Our objective is to create, protect and promote fixed and mobile connections for our customers helping them to take control over their digital lifestyle. Therefore, we primarily offer our customers the connectivity they need to interact and live in the markets where we operate through simple products and services while protecting their data and managing it in a responsible way. We rely on modern technology to create a better and more inclusive society. We aim at offering our customers the possibility to reach the digital world regardless of their location, economic status, level of digital knowledge and capacities.

On November 27, 2019, the Board of Directors of Telefónica approved an action plan that will be implemented around five strategic decisions: (i) focus investment and growth in the most important markets of the Company: Spain, Brazil, the UK and Germany; (ii) the creation of Telefónica Tech; (iii) the creation of Telefónica Infra; (iv) an operational spin-off of Hispanoamérica in a single unit; and (v) redefinition of the Company’s corporate center. Such changes resulted in a change to the financial information presented to Telefónica's management and a change to the reporting segments.

In 2020, the Telefónica Group reported financial information, both internally and externally, according to the following segments: Telefónica Spain, Telefónica United Kingdom, Telefónica Germany, Telefónica Brazil, Telefónica Hispam (formed by the Group's operators in Colombia, Mexico, Venezuela, Ecuador, Argentina, Chile, Peru and Uruguay) and Telxius Group.

Information relating to other Group companies not specifically included in the segments referred to above is reported under "Other companies" (see Appendix I to the Consolidated Financial Statements), which includes Telefónica, S.A. and other holding companies, our Central America operations (which were previously included in Hispam Norte), as well as companies whose main purpose is to provide cross-sectional services to the Group companies, and other operations not included in the segments.

The Telefónica Group’s strategy aims to:

Enhance value through:

•Making our world more human, by connecting lives in a sustainable way.

•Offering good connectivity, for which our infrastructure management and our continuous investment in network and platforms are key.

•Good connectivity is the enabler for all digital services. Telefónica provides a wide range of services over connectivity through a fixed and mobile bundled offer which includes video and digital services. We offer our customers additional data in order to amplify services through unique, simple and clear offers.

•Focusing on customers’ needs, making their life and digital experience easier through customized offers,

With the following enablers:

•End-to-end digitalization: seeking the reduction of our legacy investments to increase virtualization, the reduction of physical servers, data centers and applications, the digitalization of IT systems and processes and the digitalization of front and back office. The continuous effort towards this objective has resulted in a key lever in the COVID-19 crisis. Digitalization efforts undertaken in the past have allowed Telefónica to provide a rapid response to companies as they adapted to and sought to enhance their competitiveness in the new landscape.

•Big Data and innovation to add value to our customers and return the control over data to our customers.

•Continued focus on the simplification of processes. This includes keeping a tight control over investments, supporting operating cash flow through cost savings and adapting to the new COVID-19 environment.

•Digital trust: as we manage ever more personal information about our customers, their trust in us is key. Telefónica seeks a relationship of trust with its customers, and therefore we invest in network security.

Table of Contents

Telefónica is developing tools to protect information in end user devices and communications, fixed and mobile, networks, as well as to protect customers' digital identity. This strategy is key in the new COVID-19 environment.

•Fiber and 4G deployment enables Telefónica to continue gaining prominence among customers through better experience and a lower churn. These networks help Telefónica to continue to maintain high quality services for home offices and a higher consumption of entertainment services.

•On September 1, 2020, Telefónica launched its 5G network in Spain, positioning the company to build the connectivity of the future and to drive the digitalization of companies, SMEs, Public Administrations as well as individuals. Following this deployment, as of December 31, 2020, 80% of the Spanish population was covered. In October 2020, Telefónica launched 5G in the five major cities in Germany, reaching 15 cities by December 31, 2020.

Table of Contents

2020 highlights

The COVID-19 pandemic significantly affected the Group throughout the year 2020, as lockdowns imposed across the Group’s markets put unprecedented pressure on both its B2C and B2B segments.

In 2020, the estimated negative impact of the COVID-19 pandemic on the Group's revenue performance amounted to 1,905 million euros, mainly related to a decrease in service revenues (-1,450 million euros) and handset sales (-456 million euros). With regards to service revenues, there were lower roaming revenues and commercial activity in the B2C segment, along with project delays and lower SME revenues which affected the performance of the B2B segment.

To mitigate the negative impacts of the pandemic on Telefónica's operations, management took proactive steps to reduce costs. The estimated negative impact of the COVID-19 pandemic on the Group's OIBDA amounted to 977 million euros in 2020, as a consequence of the decrease in revenues, partially offset by certain savings mainly in direct and commercial costs (while there was an increase in bad debt costs). In addition, there was a decrease in CapEx, which was carefully planned in light of the challenges brought by the COVID-19 pandemic.

Our estimates of the impact of the COVID-19 pandemic on the Group's results were calculated on the basis of the difference between actual results and the results that we estimate would have been obtained if trends prevailing prior to the pandemic had not been interrupted. These estimates are made in respect of those items that were considered to be most affected by the COVID-19 pandemic, namely, revenues (in particular, service revenues, roaming revenues and handset sales) and expenses (in particular, direct and commercial costs, supplies (including handset costs) and bad debt costs), as a result mainly of the interruption of the commercial channel, international travelling restrictions, the temporary closing of some businesses and SMEs in some regions and, more generally, depressed economic conditions.

To support communities in which the Group operates, Telefónica implemented measures aimed at:

•Protecting the health and safety of its employees and customers.

•Providing critical infrastructure and technology services to governments and health authorities.

•Donating goods and services to hospitals and vulnerable customers.

•Making the Group's high-tech buildings available for public use (O2 Arena in London and O2 Tower in Munich).

•Providing customers with free mobile data and additional entertainment services at no extra cost.

•Accelerating payments to suppliers with liquidity problems and offering flexible payments terms to our customers.

•Maintaining the 2020 dividend for shareholders, while enhancing financial flexibility through a voluntary scrip dividend.

More importantly, Telefónica's state-of-the-art networks have enabled the Group to facilitate record growth in traffic driven by remote work and increased consumption of entertainment services while maintaining high levels of customer experience and service quality.

Digitalization has proved to be a key lever for Telefónica in this crisis, as processes were accelerating, needs were crystallizing, and the Group helped communities and companies to adapt and to enhance their competitiveness in the new environment. Digitalization has emerged as one of the drivers of economic recovery.

In 2020, Telefónica continued capturing and retaining high-value customers focusing on customer experiences and the strength of its infrastructure.

Telefónica's total accesses totaled 345.4 million as of December 31, 2020, with an improvement in the customer mix. Customer commitment improved, resulting in a lower churn, and total accesses increased by 0.3% year-on-year, mainly due to the increase in postpay mobile accesses in Telefónica Brazil and Telefónica Germany. Year-on-year access growth was affected by the COVID-19 pandemic.

The table below shows the evolution of accesses over the past two years as of December 31 of such years:

Table of Contents


ACCESSES
Thousands of accesses	2019	2020	% Reported YoY
Fixed telephony accesses (1)	31,285.4	28,243.0	(9.7	%)
Broadband (2)	20,837.1	20,077.2	(3.6	%)
UBB	14,280.9	15,212.8	6.5	%
FTTH	8,223.5	9,964.2	21.2	%
Mobile accesses (3)	261,532.9	266,287.1	1.8	%
Prepay	131,787.1	131,542.0	(0.2	%)
Contract	105,970.7	108,587.5	2.5	%
IoT	23,775.0	26,157.7	10.0	%
Pay TV	8,437.1	8,059.5	(4.5	%)
Retail Accesses	322,422.2	322,978.5	0.2	%
Wholesale Accesses	21,912.7	22,455.0	2.5	%
Fixed wholesale accesses	3,822.8	3,722.8	(2.6	%)
Mobile wholesale accesses	18,089.9	18,732.1	3.6	%
Total Accesses	344,334.9	345,433.5	0.3	%

Notes:

- The table includes accesses for Telefónica Costa Rica (2.2 million and 2.5 million total accesses as of December 31, 2019 and 2020, respectively). The sale of Telefónica Costa Rica is pending as of the date of this Annual Report.

(1) Includes fixed wireless and VoIP accesses.

(2) 2020 "Broadband" accesses are reported as an independent category which includes UBB and FTTH accesses due to the increased focus on these key products. Narrowband and data accesses (which were previously included in “Internet and data accesses”) are directly included in "Retail Accesses" and are not separately shown. 2019 figures included in this section have been revised accordingly for comparative purposes. However, the 2019 figures included in the section titled “2019 Highlights” do not reflect these updates.

(3) 2020 "Mobile accesses" show "IoT" accesses as an independent category within "Mobile accesses" due to its increasing weight. "IoT" accesses include both postpay and prepay IoT accesses and, therefore, are not comparable to the "M2M" accesses reported in prior years, which only included postpay accesses (given the limited relevance of prepay accesses in prior years). 2019 figures included in this section have been revised accordingly for comparative purposes. However, the 2019 figures included in the section titled “2019 Highlights” do not reflect these updates. Accordingly, the number of "Prepay", "Contract" and "IoT/M2M" accesses as of December 31, 2019 reported in this section may differ from that reported under “2019 Highlights”.

The table below shows the evolution of accesses by segment:


	YoY variation	% Over Total Accesses
Accesses 2020		2019	2020
Telefónica Spain	(1.3%)	12.2%	12.0%
Telefónica United Kingdom	4.8%	10.1%	10.6%
Telefónica Germany	1.1%	14.0%	14.1%
Telefónica Brazil	1.5%	27.2%	27.5%
Telefónica Hispam	(2.0%)	32.1%	31.4%

Other companies (1)	1.1%	4.3%	4.4%

Note:

(1) Includes Central American operations.

Mobile accesses totaled 266.3 million as of December 31, 2020, increasing by 1.8% compared to 2019, mainly as a result of the increase in postpay mobile accesses, up by 2.5% year-on-year and whose weight over total mobile accesses (excluding IoT accesses) increased to 45.2% (+0.6 p.p. year-on-year). By region, the increase was mainly due to the growth of prepay and postpay mobile accesses in Telefónica Brazil and the increase in postpay accesses in Telefónica Germany, which offset the overall decrease in prepay mobile accesses mainly in Telefónica Germany and Telefónica Hispam, due to the market dynamics and the ongoing prepay to contract migration trend. Year-on-year evolution was impacted by the COVID-19 pandemic.

Fixed broadband accesses stood at 20.1 million at December 31, 2020, down 3.6% year-on-year, as a result of the reduction of legacy accesses, partially offset by the growth in UBB accesses, which stood at 15.2 million at December 31, 2020, growing by 6.5% compared to December 31, 2019. FTTH reached 10.0 million accesses at

Table of Contents

December 31, 2020, increasing by 21.2% year-on-year, representing 49.6% of fixed broadband accesses (+10.2 p.p. y-o-y) and 65.5% of UBB accesses (+7.9 p.p. y-o-y).

Pay TV accesses totaled 8.1 million as of December 31, 2020, down 4.5% year-on-year mainly due to the fall in lower value customers in Spain and legacy erosion (DTH) in Peru.

The tables below show the evolution of Telefónica's estimated access market share for mobile and fixed broadband for the past two years.


Competitive Position Evolution
	Mobile Market Share (1)
Telefónica	2019	2020
Spain	29.7%	29.3%
United Kingdom	26.4%	25.3%
Germany	36.6%	35.9%
Brazil	32.9%	33.6%
Argentina	29.5%	29.2%
Chile	26.4%	26.6%
Peru	31.4%	31.2%
Colombia	24.0%	25.0%
Venezuela	48.5%	55.7%
Mexico	21.6%	21.0%
Ecuador	28.1%	29.9%
Uruguay	36.6%	37.0%

(1) Internal estimates in both years.


	FBB Market Share (1)
Telefónica	2019	2020
Spain	38.4%	36.6%
Brazil	21.6%	17.8%
Argentina	19.2%	16.5%
Chile	28.8%	27.8%
Peru	70.0%	66.2%
Colombia	16.5%	15.4%

(1) Internal estimates in both years.

Table of Contents

2020/2019 Consolidated results

In this section, we discuss changes in the Group’s consolidated income statements for the years ended December 31, 2020 and 2019. Changes in the Group’s consolidated income statements for the years ended December 31, 2019 and 2018 are discussed in a separate section further below.


	Year ended December 31,								Variation
Consolidated Results	2019				2020				2020 vs 2019
Millions of euros	Total		% of revenues		Total		% of revenues		Total	%
Revenues	48,422		100.0	%	43,076		100.0	%	(5,346)	(11.0	%)
Other income	2,842		5.9	%	1,587		3.7	%	(1,255)	(44.1	%)
Supplies	(13,635)		(28.2	%)	(13,014)		(30.2	%)	621	(4.6	%)
Personnel expenses	(8,066)		(16.7	%)	(5,280)		(12.3	%)	2,786	(34.5	%)
Other expenses	(14,444)		(29.8	%)	(12,871)		(29.9	%)	1,573	(10.9	%)
OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION (OIBDA)	15,119		31.2	%	13,498		31.3	%	(1,621)	(10.7	%)
OIBDA Margin	31.2	%			31.3	%				0.1 p.p.
Depreciation and amortization	(10,582)		(21.9	%)	(9,359)		(21.7	%)	1,223	(11.6	%)
OPERATING INCOME (OI)	4,537		9.4	%	4,139		9.6	%	(398)	(8.8	%)
Operating Margin	9.4	%			9.6	%				0.2 p.p.
Share of income of investments accounted for by the equity method	13		0.0	%	2		0.0	%	(11)	(81.1	%)
Net financial expense	(1,832)		(3.8	%)	(1,558)		(3.6	%)	274	(14.9	%)
PROFIT BEFORE TAX	2,718		5.6	%	2,583		6.0	%	(135)	(5.0	%)
Corporate income tax	(1,054)		(2.2	%)	(626)		(1.5	%)	428	(40.6	%)
PROFIT FOR THE YEAR	1,664		3.4	%	1,957		4.5	%	293	17.6	%
Attributable to equity holders of the parent	1,142		2.4	%	1,582		3.7	%	440	38.5	%
Attributable to non-controlling interests	522		1.1	%	375		0.9	%	(147)	(28.1	%)

Adjustments made to calculate organic variations

Year-on-year percentage changes referred to in this document as “organic” or presented in “organic terms” intend to present year-on-year variations on a comparable basis, by considering a constant perimeter of consolidation and constant average foreign exchange rates and by making certain other adjustments which are described herein. “Organic" variations should not be viewed in isolation or as an alternative to reported variations.

For purposes of this report, 2020/2019 “organic” variation is defined as the reported variation as adjusted to exclude the impacts detailed below:

•Foreign exchange effects: we have excluded the impact of changes in exchange rates (except for countries with hyperinflationary economies (Argentina and Venezuela)) by assuming constant average foreign exchange rates year-on-year (using average foreign exchange rates of 2019 for both years).

Foreign exchange rates had a negative impact on our reported 2020 results, mainly due to the depreciation of the Brazilian real against the euro.

Foreign exchange effects decreased revenue growth by 6.5 percentage points, OIBDA growth by 8.0 percentage points and operating income growth by 7.8 percentage points in 2020.

•Changes in the consolidation perimeter: we have excluded the impact of changes in our consolidation perimeter in 2020 and 2019. The main changes were the sale (and, therefore, the exclusion from our consolidation perimeter) of Antares, Telefónica Móviles Guatemala, Telefonía Celular de Nicaragua and Telefónica Móviles Panamá in 2019. To exclude the impact of these sales in the calculation of organic variations, the 2019 comparative figures exclude the results of such companies. Additionally, we have

Table of Contents

excluded for both periods the results of Telefónica Costa Rica and Telefónica El Salvador, which were classified as held for sale at the end of 2019.

•Gains or losses on the sale of companies: the gains obtained or losses incurred from the sale of companies have been excluded to calculate organic variations.

In 2020, we mainly excluded a gain of 29 million euros related to the initial registration at fair value of the stake of Telefónica in the joint venture with the Allianz Group for the deployment of fiber in Germany.

In 2019, we mainly excluded the gains obtained from the sale of Antares (98 million euros), Telefónica Móviles Guatemala, Telefonía Celular de Nicaragua and Telefónica Móviles Panamá (for a total amount of 365 million euros) and data center businesses (213 million euros).

•Restructuring costs: we have excluded the impact in 2020 and 2019 of restructuring costs, mainly those related to the Individual Suspension Plan adopted under the II Collective Agreement of Related Companies in Telefónica Spain in 2019.

The distribution by segment of the restructuring costs, in terms of their impact on OIBDA and operating income, is as follows:


Millions of euros	2019	2020
Telefónica Spain	1,733	(2)
Telefónica United Kingdom	31	—
Telefónica Germany	22	37
Telefónica Brazil	—	—
Telefónica Hispam	235	17
Telxius Group	0	—
Other companies	149	34
Total restructuring costs	2,170	86

•Reported variation of companies in hyperinflationary countries: in the organic variation, the y-o-y reported variation of the companies in countries with hyperinflationary economies (Argentina and Venezuela) is excluded. In reported terms, these companies' revenues, OIBDA, operating income and OIBDA-CapEx for 2020 decreased by 432 million euros, 229 million euros, 185 million euros and 91 million euros, respectively, compared to 2019.

•Impairment of goodwill and other assets: the impairment of the goodwill and certain assets of Telefónica Argentina has been excluded in 2020, amounting to 894 million euros, which consists of a 519 million euros goodwill impairment loss and impairment losses over non-current assets amounting to 375 million euros. In 2019, the goodwill impairment loss in Argentina (206 million euros) has been excluded.

•Spectrum acquisition: the organic variation of CapEx excludes the impact of spectrum acquisitions in 2020 and 2019, amounting to 126 million euros and 1,483 million euros (excluding spectrum acquisition in El Salvador in 2019 amounting to 18 million euros), respectively.

•Other adjustments: organic variations exclude the following:

In 2020: (i) the impact of the accelerated amortization resulting from the transformation of the operating model of Telefónica México (following the AT&T agreement in 2019), amounting to 320 million euros in 2020 in depreciation and amortization and operating income; (ii) the impact of the assets classified as held for sale ceasing to be amortized in Telefónica United Kingdom (771 million euros on depreciation and amortization and operating income); and (iii) other adjustments amounting to 34 million euros in OIBDA, mainly due to the provisions recorded in Telefónica Spain to optimize the distribution network (29 million euros in OIBDA), and the gains on the spectrum sale in Telefónica Germany (5 million euros in OIBDA).

In 2019: (i) the negative impact in OIBDA and operating income resulting from the transformation of the operating model of Telefónica México (following the AT&T agreement in 2019), amounting to 239 million euros and 275 million euros, respectively; (ii) the impact of the irrevocable sale of the future credit rights that

Table of Contents

might arise from the favorable resolution of a number of claims and lawsuits of various kinds to which Telefónica Spain was a party at the date of the sale agreement, amounting to 103 million euros in OIBDA; and (iii) the impact of the provisions recorded in Telefónica Spain to optimize the distribution network (23 million euros in OIBDA).

The table below shows 2020/2019 variations in reported and organic terms (the latter, calculated in accordance with the adjustments referred to above) of certain line items of the consolidated income statement and capital expenditures ("CapEx") and OIBDA-CapEx:


	YoY variation
TELEFÓNICA 2020	% Reported YoY		% Organic YoY
Revenues	(11.0	%)	(3.3	%)
Other income	(44.1	%)	(14.4	%)
Supplies	(4.6	%)	0.5	%
Personnel expenses	(34.5	%)	(3.8	%)
Other expenses	(10.9	%)	(5.5	%)
OIBDA	(10.7	%)	(5.7	%)
Depreciation and amortization	(11.6	%)	0.6	%
Operating income (OI)	(8.8	%)	(16.4	%)
CapEx	(33.3	%)	(12.0	%)
OIBDA-CapEx	20.5	%	(0.9	%)

The table below shows the contribution to reported growth of each item considered to calculate the organic variations, as explained above. For each line item, the contribution to reported growth, expressed in percentage points, is the result of dividing the amount of each impact (on a net basis when the impact affects both years) by the consolidated reported figure for the previous year.


	Contribution to reported growth (percentage points)
TELEFÓNICA 2020	Exchange rate effect	Perimeter change	Capital gains/losses on sale of companies	Restructuring costs	Reported variation in hyperinflationary countries	Impairment of goodwill and other assets	Spectrum acquisition	Other adjustments
Revenues	(6.5)	(0.4)	—	—	(0.9)	—	—	—
Other income	(4.3)	(0.1)	(22.7)	—	(0.2)	—	—	(6.9)
Supplies	(4.6)	(0.3)	—	—	(0.2)	—	—	—
Personnel expenses	(4.1)	(0.1)	—	(25.9)	(1.1)	—	—	(0.5)
Other expenses	(7.6)	(0.3)	(0.1)	0.0	(0.6)	4.8	—	(1.9)
OIBDA	(8.0)	(0.7)	(4.2)	13.8	(1.5)	(4.5)	—	0.8
Depreciation and amortization	(8.1)	0.6	—	—	(0.4)	—	—	(4.3)
Operating income	(7.8)	(3.8)	(14.0)	45.9	(4.2)	(15.2)	—	12.8
CapEx	(6.1)	(0.4)	—	—	(1.6)	—	(15.3)	—
OIBDA-CapEx	(10.6)	(1.1)	(10.0)	32.8	(1.4)	(10.9)	21.1	2.0

Results discussion

Revenues in 2020 totaled 43,076 million euros, decreasing in reported terms by 11.0% y-o-y, negatively impacted by the foreign exchange rates (-6.5 p.p.) (due mainly to the depreciation against the euro of the Brazilian real), the impact of the reported variation of companies in hyperinflationary countries (-0.9 p.p.) and changes in the consolidation perimeter (-0.4 p.p.). In organic terms, revenues fell 3.3%, mainly as a result of the effects of the COVID-19 pandemic, which is estimated to have decreased revenues by approximately 1,905 million euros in 2020, due to lower handset sales and service revenues (mainly due to reduced commercial activity), a strong decrease in roaming revenues (given the significant decrease in international travel), increased promotion offers (consisting of discounts and promotions), lower prepay top ups and bolt-ons due to the shift from mobile data usage to Wi-Fi networks and lower revenues in the B2B segment in connection with both communication services and IT.

Table of Contents

The structure of revenues reflects Telefónica's geographic diversification. The contribution of the following segments to the Telefónica Group's revenues increased in 2020 as compared to 2019: Telefónica Spain, which contributed 28.8% of the Group's revenues (+2.3 p.p. versus 2019), Telefónica Germany with 17.5% (+2.2 p.p. versus 2019), Telefónica United Kingdom with 15.6% (+0.9 p.p. versus 2019) and Telxius Group with 1.9% (+0.2 p.p. versus 2019). The contribution of the following segments decreased in 2020 as compared to 2019: Telefónica Brazil, which contributed 17.2% of the Group's revenues (-3.5 p.p. compared to 2019) and Telefónica Hispam with 18.4% (-1.5 p.p. versus 2019). The contribution of these two segments was adversely affected principally by the foreign exchange evolution.

Other income mainly included own work capitalized in our fixed assets and gains on the sale of assets. In 2020, other income totaled 1,587 million euros compared to 2,842 million euros in 2019 (-44.1% y-o-y in reported terms), mainly as a result of the decrease in gains on the sale of companies in 2020 (-22.7 p.p.) and other gains. In particular, in 2019, other income registered gains from the sale of certain companies, mainly Antares (98 million euros), Telefonía Celular de Nicaragua, Telefónica Móviles Guatemala and Telefónica Móviles Panamá (for a total amount of 365 million euros), the sale of data center businesses (213 million euros) and the irrevocable sale of credit rights that might arise from the favorable resolution of certain claims and lawsuits of various kinds to which Telefónica Spain was a party at the date of the sale agreement. In organic terms, other income decreased by 14.4% mainly due to the decrease in gains on the sale of telephone towers, amounting to 43 million euros in 2020 and 176 million euros in 2019.

The total amount of supplies, personnel expenses and other expenses (principally external services and taxes) was 31,165 million euros in 2020, down 13.8% year-on-year in reported terms. This decrease was mainly attributable to the decrease in restructuring costs (-5.8 p.p.), mainly those related to the II Collective Agreement of Related Companies in Spain (Individual Suspension Plan) which were significant in 2019, and the impact of changes in foreign exchange rates (-5.7 p.p.). In organic terms, the total amount of supplies, personnel expenses and other expenses decreased by 2.7%. The year-on-year variation was significantly affected by the COVID-19 pandemic. The evolution of these expenses is explained in greater detail below:

•Supplies amounted to 13,014 million euros in 2020, down 4.6% year-on-year in reported terms mainly as a result of the impact of foreign exchange rates (-4.6 p.p.) and changes in the scope of consolidation (-0.3 p.p.). In organic terms, supplies increased by 0.5% year-on-year, mainly due to higher TV content costs and higher costs related to IT sales in Telefónica Spain, partially offset by the effects of the COVID-19 pandemic, which led to lower handset costs, due to the lower commercial activity, and lower roaming costs.

•Personnel expenses amounted to 5,280 million euros in 2020, down 34.5% year-on-year in reported terms mainly as a result of the decrease in restructuring costs (-25.9 p.p.), mainly those related to the II Collective Agreement of Related Companies in Spain (Individual Suspension Plan) which were significant in 2019, and the impact of changes in foreign exchange rates (-4.1 p.p.). In organic terms, personnel expenses decreased by 3.8% year-on-year due to the lower average number of employees in 2020 and cost-cutting measures adopted in most segments.

The average headcount was 113,182 employees in 2020, down 4.1% compared to 2019.

•Other expenses amounted to 12,871 million euros in 2020, down 10.9% year-on-year in reported terms. This decrease was mainly attributable to the impact of foreign exchange rates (-7.6 p.p.) and the provision registered in 2019 related to the transformation of the operating model of Telefónica México (-2.0 p.p.), partially offset by the higher impairment of goodwill and other assets in Telefónica Argentina (+4.8 p.p.). In organic terms, other expenses decreased by 5.5% year-on-year due mainly to the effects of the COVID-19 pandemic, which led to a decrease in network and IT costs, offset in part by the higher bad debt costs principally in Telefónica Hispam and Telefónica Brazil, which were also driven by the COVID-19 pandemic.

As a result of the foregoing, OIBDA totaled 13,498 million euros in 2020, a decrease of 10.7% year-on-year in reported terms. In organic terms, OIBDA decreased by 5.7% year-on-year.

Depreciation and amortization amounted to 9,359 million euros in 2020, decreasing 11.6% year-on-year in reported terms, mainly due to the impact of foreign exchange rates (-8.1 p.p.) and the lower depreciation and amortization in Telefónica United Kingdom following the classification of the companies included within the scope of the agreement with Liberty Global plc as a disposal group held for sale, partially offset by the accelerated

Table of Contents

amortization of Telefónica México as a consequence of the transformation of the operating model. In organic terms, depreciation and amortization remained stable (+0.6%).

Operating income (OI) in 2020, totaled 4,139 million euros, decreasing 8.8% compared to 2019, impacted by the higher impairment of goodwill and other assets in Telefónica Argentina (-15.2 p.p.), the decrease in other income compared to 2019 (when other income was positively affected by capital gains derived from the sale of companies (-14.0 p.p.)), the impact of foreign exchange rates (-7.8 p.p.), the impact of the reported variation of companies in hyperinflationary countries (-4.2 p.p.), changes in the consolidation perimeter (-3.8 p.p.) and the impact of accelerated amortization resulting from the transformation of the operating model of Telefónica México, following the AT&T agreement in 2019 (-1.9 p.p.), offset by the lower restructuring costs (+45.9 p.p.) and the lower depreciation and amortization expenses in Telefónica United Kingdom (+17.2 p.p.). In organic terms, operating income decreased by 16.4% year-on-year, mainly as a result of the effects of the COVID-19 pandemic, which is estimated to have reduced operating income by approximately 977 million euros due to a decrease in service revenues in all regions and higher bad debt, which were only partially offset by the decrease in operational costs (mainly direct and commercial costs as a result of the lower commercial activity).

The share of income (loss) of investments accounted for by the equity method for 2020 was a gain of 2 million euros (compared to a gain of 13 million euros in 2019).

Net financial expense amounted to 1,558 million euros in 2020, 274 million euros lower than the previous year, mainly as a result of the reduction of the debt in European currencies, as well as its cost.

Corporate income tax amounted to 626 million euros in 2020, down 40.6% year-on-year, mainly due to the reversal of deferred tax assets in Telefónica México in 2019, which adversely affected the corporate income tax for such year.

As a result, profit for the year attributable to equity holders of the parent for 2020 was 1,582 million euros (1,142 million euros in 2019).

Profit attributable to non-controlling interests was 375 million euros in 2020, 147 million euros lower than in 2019, mainly due to the lower profit attributable to non-controlling interests at Telefónica Brazil and Telefónica Centroámerica Inversiones (which, in 2019, was positively affected by the gains derived from the sale of Telefonía Celular de Nicaragua and Telefónica Móviles Panamá), partially offset by higher profit attributable to non-controlling interests at Telxius Group.

CapEx stood at 5,861 million euros in 2020, decreasing 33.3% y-o-y in reported terms.

OIBDA-CapEx stood at 7,637 million euros in 2020, growing 20.5% as compared to 2019 in reported terms.

Table of Contents

2020/2019 Segment results

TELEFÓNICA SPAIN

The table below shows the evolution of accesses in Telefónica Spain over the past two years as of December 31 of such years:


ACCESSES
Thousands of accesses	2019	2020	%Reported YoY
Fixed telephony accesses (1)	9,024.1	8,731.0	(3.2	%)
Broadband (2)	6,023.4	5,961.9	(1.0	%)
FTTH	4,325.0	4,614.1	6.7	%
Mobile accesses (3)	18,916.9	18,977.8	0.3	%
Prepay	1,137.2	888.1	(21.9	%)
Contract	15,158.8	15,383.7	1.5	%
IoT	2,620.8	2,706.0	3.2	%
Pay TV	4,073.8	3,934.5	(3.4	%)
Retail Accesses	38,049.5	37,615.1	(1.1	%)
Wholesale Accesses	3,788.2	3,689.5	(2.6	%)
Total Accesses	41,837.7	41,304.6	(1.3	%)

(1) Includes "fixed wireless" and Voice over IP accesses.

Telefónica Spain’s 2020 results were significantly impacted by the imposition of strict measures to prevent the spread of COVID-19, especially during the second quarter 2020. Restrictions were first imposed before the start of the second quarter, significantly affecting commercial activity (approximately 90% of Telefónica-branded stores were closed in March and April 2020; approximately 50% were closed in May of 2020), interrupting all sports competitions (importantly, football, which restarted in mid-June of 2020) and suspending portability (i.e., the switching of service providers by clients; especially in the fixed service until the end of May of 2020). The population was locked down for most of the second quarter of 2020. Telefónica responded to these challenges by leveraging the strength of the largest FTTH network in Europe to provide reliable service throughout the COVID-19 pandemic crisis and taking unprecedented steps to support society and show solidarity with its communities and customers.

During 2020, the commercial activity continued to rely on the differentiated services offered by the company, with a multi brand strategy (Movistar, O2) to serve different market segments. In addition, during the first half of 2020, Telefónica introduced changes to its portfolio to strengthen its relationship with clients and reach new market segments. Some of these changes are described below.

Movistar Prosegur Alarmas, the joint venture of Prosegur and Telefónica, launched its first commercial offer for the alarm market in Spain. Unlike similar products in the market, customers do not have to pay any initial fee and there is no minimum commitment term. The service includes the installation of an alarm which is connected to an alarm reception center, a video surveillance system and a connection to the Movistar Prosegur Alarmas mobile app. In addition, it is the only product to offer Acudas, an immediate intervention service which sends a private security guard to the customer's house in the event of a security incident.

Table of Contents

In addition, Disney+ content was added to the “Fusión offer”, following the signing on March 8, 2020 of an agreement between The Walt Disney Company Iberia and Telefónica, pursuant to which Movistar became the strategic distributor of Disney+ in Spain. With this agreement with the world's leading entertainment company, Movistar added Disney+ titles to its rich catalog of original content, which is accessible through the streaming service that gives access to more than 1,000 movies, series and programs from Disney, Pixar, Marvel, Star Wars, National Geographic and much more. Disney+ has been included in the “Fusión packages” featuring fiction content such as “Fusión Selección Plus Ficción”, “Fusión Total” and “Fusión Total Plus”, and in general in all those “Fusion products” that incorporate the Ficción package. In addition, Movistar+ has launched a new "Cine" (Movies) package which, among other products, will include Disney+.

Moreover, unlimited data was provided to more than three million customers (as part of the most complete Fusion packages) at no additional cost, in response to the increased demand for data consumption, which has reached record levels as a consequence of the COVID-19 pandemic. Clients of Fusión Selección La Liga or Champions, Fusión + Ocio, Fusión + Futbol and Fusión Pro have also been able to enjoy unlimited data, calls and SMSs for 5 euros extra per month. Unlimited data plans are also available for customers who only want a plan for their mobile devices.

In October 2020, Movistar Health was launched. This is an online telemedicine service aimed at, among other services, allowing users to connect to a primary care doctor anywhere, anytime, 24 hours a day, 7 days a week. Movistar Health also offers plans for companies, adapted to their needs according to their size and requirements.

We also launched the 5G network.

Telefónica Spain had 41.3 million accesses as of December 31, 2020 (-1.3% as compared to December 31, 2019), as a result of the commercial slowdown driven mainly by the COVID-19 pandemic.

The convergent offer (residential and SMEs) had a customer base of 4.8 million customers as of December 31, 2020, a decrease of 0.3% y-o-y.

Retail fixed accesses totaled 8.7 million and decreased 3.2% as compared to December 31, 2019, with a net loss of 293 thousand accesses in 2020.

Retail broadband accesses totaled 6.0 million (-1.0% y-o-y), with a net loss of 61 thousand accesses during 2020.

Retail fiber (FTTH) accesses reached 4.6 million customers (+6.7% as compared to December 31, 2019), representing 77.4% of total retail broadband customers (+5.6 p.p. y-o-y) with net adds of 289 thousand accesses in 2020. At December 31, 2020, fiber deployment reached 25.2 million premises, 2.1 million more than at December 31, 2019, and it continues to be the largest in Europe.

Total retail mobile accesses stood at 19.0 million as of December 31, 2020, an increase of 0.3% as compared to December 31, 2019 as a result of the increase in mobile contract accesses that more than offset the decrease in prepay accesses (-21.9% y-o-y), reflecting the success of the convergent strategy and the good performance of the migration from prepay to postpay. The contract access base accelerated its growth during 2020, growing by 1.5% year-on-year.

Pay TV accesses reached 3.9 million at December 31, 2020, decreasing 3.4% year-on-year.

Wholesale accesses stood at 3.7 million at December 31, 2020, down 2.6% year-on-year due to the decrease in non-fiber wholesale accesses. Wholesale fiber accesses (70% of total wholesale accesses at December 31, 2020 compared with 57% at December 31, 2019) were up 20.6% year-on-year.

Table of Contents

The table below shows Telefónica Spain’s results over the past two years:


Millions of euros
TELEFÓNICA SPAIN (1)	2019	2020	% Reported YoY		% Organic YoY (2)
Revenues	12,850	12,401	(3.5	%)	(3.5	%)
Mobile handset revenues	373	264	(29.2	%)	(29.2	%)
Revenues ex-mobile handset sales	12,477	12,137	(2.7	%)	(2.7	%)
Retail	10,313	9,906	(3.9	%)	(3.9	%)
Wholesale and Other	2,164	2,231	3.1	%	3.1	%
Other income	640	540	(15.7	%)	5.9	%
Supplies	(4,056)	(4,210)	3.8	%	3.8	%
Personnel expenses	(3,660)	(1,748)	(52.2	%)	(9.1	%)
Other expenses	(2,055)	(1,937)	(5.8	%)	(6.2	%)
OIBDA	3,719	5,046	35.7	%	(5.1	%)
Depreciation and amortization	(2,013)	(2,184)	8.5	%	8.5	%
Operating income (OI)	1,706	2,862	67.7	%	(13.3	%)
CapEx	1,667	1,408	(15.5	%)	(15.2	%)
OIBDA-CapEx	2,052	3,638	77.3	%	(0.5	%)

Notes:

- In 2020, the breakdown of revenues for Telefónica Spain has been simplified to facilitate understanding of our business. Retail revenues primarily includes the prior B2C and B2B segments.

(1) From January 1, 2020 Telefónica Spain consolidates Telefónica Global Technology, S.A.U., which was previously part of "Other companies". 2019 figures have been revised accordingly for comparative purposes.

(2) See adjustments made to calculate organic variations below.

Adjustments made to calculate organic variations

As explained above, year-on-year percentage changes referred to in this document as “organic” or presented in “organic terms” intend to present year-on-year variations on a comparable basis.

With respect to Telefónica Spain, we have made the following adjustments in order to calculate 2020/2019 variations in organic terms:

•Optimization of the distribution network: organic variations exclude the impact of the provisions recorded in Telefónica Spain totaling 29 million euros in 2020 in connection with the restructuring of the distribution channels (23 million euros in 2019).

•Restructuring costs: we have excluded the impact (i) in 2020, 2 million euros due to the reversal of a provision recorded in 2019 in connection with restructuring costs; and (ii) in 2019 restructuring costs totaling 1,733 million euros that were mainly related to the Individual Suspension Plan.

•Irrevocable sale of future credit rights: organic variations exclude the positive impact in 2019 of the irrevocable sale of the future credit rights that might arise from the favorable resolution of certain claims and lawsuits of various kinds to which Telefónica Spain was a party at the date of the sale agreement amounting to 103 million euros.

•Gains or losses on the sale of companies: organic variations exclude the 27 million euros gains from the sale of data center businesses in 2019.

•Spectrum acquisition: we have excluded the impact of spectrum acquisitions from CapEx, which totaled 7 million euros in 2019. During 2020, no spectrum acquisitions were made.

Table of Contents

The table below shows 2020/2019 variations in reported and organic terms (the latter, calculated in accordance with the adjustments referred to above) of certain line items of the income statement and other measures, and the contribution of each item for which we have adjusted to our reported growth:


	YoY variation				Contribution to reported growth (percentage points)
TELEFÓNICA SPAIN 2020	% Reported YoY		% Organic YoY		Optimization Distribution Network	Restructuring costs	Sale of credit rights	Capital gains/losses on sale of companies	Spectrum acquisition
Revenues	(3.5	%)	(3.5	%)	—	—	—	—	—
Other income	(15.7	%)	5.9	%	—	—	(16.1)	(4.3)	—
Supplies	3.8	%	3.8	%	—	—	—	—	—
Personnel expenses	(52.2	%)	(9.1	%)	—	(47.4)	—	—	—
Other expenses	(5.8	%)	(6.2	%)	0.3	—	—	—	—
OIBDA	35.7	%	(5.1	%)	(0.2)	46.7	(2.8)	(0.7)	—
Depreciation and amortization	8.5	%	8.5	%	—	—	—	—	—
Operating income (OI)	67.7	%	(13.3	%)	(0.4)	n.m	(6.0)	(1.6)	—
CapEx	(15.5	%)	(15.2	%)	—	—	—	—	(0.4)
OIBDA-CapEx	77.3	%	(0.5	%)	(0.3)	84.6	(5.0)	(1.3)	0.3

n.m.: not meaningful

Results discussion

Revenues in Telefónica Spain in 2020 amounted to 12,401 million euros, down 3.5% y-o-y in reported terms, mainly as a result of the effects of the COVID-19 pandemic, which we estimate affected revenues by approximately 480 million euros in 2020, as a consequence of lower handset sales, commercial efforts made to mitigate the impact of COVID-19 on businesses and homes (consisting of discounts and promotions), as well as lower revenues mainly from roaming and advertising.

•Retail revenues totaled 9,906 million euros in 2020, decreasing by 3.9% year-on-year in reported terms. We attribute this decrease mainly to the impact of the COVID-19 pandemic on households and companies.

•Wholesale and other revenues totaled 2,231 million euros in 2020, increasing by 3.1% year-on-year in reported terms, driven mainly by the increase in TV and MVOs (Mobile Virtual Operators) wholesale revenues, which more than offset the significant decrease in roaming revenues as a consequence of the restrictions on international travel imposed in connection with the COVID-19 pandemic.

OIBDA reached 5,046 million euros in 2020, a year-on-year increase of 35.7% in reported terms. In organic terms, OIBDA decreased by 5.1% year-on-year, highly affected by the decrease in revenues due to the pandemic.

Depreciation and amortization amounted to 2,184 million euros in 2020, increasing by 8.5% year-on-year in both reported and organic terms, mainly as a result of a reassessment and adjustment in the useful lives of the copper service network assets.

Operating income amounted to 2,862 million euros in 2020, a year-on-year increase of 67.7% in reported terms. The year-on-year increase was mainly driven by the decrease in restructuring costs as compared to 2019 (+101.7 p.p.), partially offset by the decrease in other income, which in 2019 was positively affected by the irrevocable sale of credit rights referred to above (-6.0 p.p.), the gains from the sale of the data center businesses (-1.6 p.p.), and expenses incurred to optimize the distribution network (-0.4 p.p.). In organic terms, operating income showed a decrease of 13.3% year-on-year, mainly as a result of the effects of the COVID-19 pandemic, which we estimate impacted operating income by approximately 209 million euros, as a result of the decrease in service revenues of 360 million euros, partially offset by savings in certain supplies and other operating expenses.

Table of Contents

TELEFÓNICA UNITED KINGDOM

On May 7, 2020, Telefónica reached an agreement with Liberty Global plc to combine their respective operating businesses in the United Kingdom into a 50:50 joint venture, resulting in an integrated telecommunication operator with over 46 million video, broadband and mobile subscribers and an estimated aggregate revenues of approximately 11 billion pounds sterling. The transaction is subject to regulatory approvals and other closing conditions. For additional information, see "Item 10. Additional Information-Material Contracts-Creation of 50:50 JV with Liberty Global for the combination of both groups' businesses in the United Kingdom".

In accordance with IFRS 5, the companies included within the scope of the transaction have been recognized as a disposal group held for sale. Therefore:

•The consolidated assets and liabilities subject to the transaction have been reclassified under ‘‘Non-current assets and disposal groups held for sale’’ and ‘‘Liabilities associated with non-current assets and disposal groups held for sale’’, respectively, in the consolidated statement of financial position at December 31, 2020.

•The related non-current assets ceased to be amortized and depreciated for accounting purposes once they were reclassified as assets held for sale.

The table below shows the evolution of accesses in Telefónica United Kingdom over the past two years as of December 31 of such years:


ACCESSES
Thousands of accesses	2019	2020	%Reported YoY
Fixed telephony accesses (1)	313.3	320.4	2.3	%
Broadband (2)	28.9	29.2	1.2	%
Mobile accesses (3)	25,803.3	26,980.7	4.6	%
Prepay	8,436.1	8,117.4	(3.8	%)
Contract	12,248.5	12,372.7	1.0	%
IoT	5,118.7	6,490.6	26.8	%
Retail Accesses	26,145.5	27,330.3	4.5	%
Wholesale Accesses	8,714.7	9,210.9	5.7	%
Total Accesses	34,860.2	36,541.2	4.8	%

(1) Includes "fixed wireless" and Voice over IP accesses.

During 2020, throughout the COVID-19 health crisis which led to a lockdown of the UK population since the end of March 2020 and despite a competitive environment, Telefónica United Kingdom remained as the favorite telecommunications operator in United Kingdom (Source: CCS Insight), a position underpinned by the strength of the O2 brand, customer loyalty, successful commercial propositions, network reliability and good customer service. Such value propositions have allowed the company to achieve continuous customer growth in most market segments in a competitive market.

Total accesses grew by 4.8% year-on-year, standing at 36.5 million at December 31, 2020.

Mobile net additions in 2020 reached 1.1 million accesses, mainly driven by the increase in IoT accesses, which grew by 26.8% mainly boosted by the program “Smart Metering” (SMIP). Contract mobile accesses grew by 1.0%

Table of Contents

y-o-y to 12.4 million at December 31, 2020 despite the closure of stores for several months in 2020 due to the COVID-19 pandemic.

Prepay accesses decreased by 3.8% y-o-y to 8.1 million customers at December 31, 2020, mainly as a result of the continued migration from prepay to contract mobile accesses and the impact of the COVID-19 pandemic.

The table below shows the evolution of Telefónica United Kingdom's results over the past two years:


Millions of euros
TELEFÓNICA UNITED KINGDOM	2019	2020	% Reported YoY		% Organic YoY (1)

Revenues	7,109	6,708	(5.6	%)	(4.4	%)
Mobile Business (2)	6,891	6,476	(6.0	%)	(4.8	%)
Handset revenues	1,795	1,816	1.1	%	2.5	%
Fixed Business	218	232	6.5	%	7.9	%
Other income	186	178	(4.4	%)	(3.2	%)
Supplies	(2,521)	(2,456)	(2.6	%)	(1.3	%)
Personnel expenses	(503)	(459)	(8.6	%)	(1.7	%)
Other expenses	(2,157)	(1,907)	(11.7	%)	(10.5	%)
OIBDA	2,114	2,064	(2.4	%)	(2.4	%)
Depreciation and amortization	(1,204)	(389)	(67.7	%)	(2.3	%)
Operating income (OI)	910	1,675	84.0	%	(2.5	%)
CapEx	914	913	(0.1	%)	(9.2	%)
OIBDA-CapEx	1,200	1,151	(4.1	%)	2.7	%

Notes:

- Mobile revenues have been split to highlight handset revenues, which is a more specific and volatile component, while keeping the rest of mobile business revenues together in an overall figure that includes retail mobile revenues, wholesale mobile revenues, value added services, etc.

(1) See adjustments made to calculate organic variations below.

(2) From 2020 "Mobile Business" revenues in Telefónica United Kingdom include certain mobile digital services revenues that were previously included in “Revenues” without being separately shown. 2019 revenues have been revised accordingly for comparative purposes.

Adjustments made to calculate organic variations

As explained above, year-on-year percentage changes referred to in this document as “organic” or presented in “organic terms” intend to present year-on-year variations on a comparable basis.

With respect to Telefónica United Kingdom, we have made the following adjustments in order to calculate 2020/2019 variations in organic terms:

•Foreign exchange rate effect: we have excluded the impact of changes in exchange rates by assuming constant average foreign exchange rates year-on-year. In particular, we have used the average foreign exchange rate of 2019 for both years.

•Depreciation and amortization: we have excluded the positive impact of ceasing the amortization of the non-current assets that fall within the scope of the agreement with Liberty Global plc, which were classified as held for sale starting on May 1, 2020, amounting to 771 million euros.

•Restructuring costs: we have excluded the impact of restructuring costs, amounting to 31 million euros in 2019.

•Spectrum acquisitions: we have excluded the impact of spectrum acquisitions on CapEx in 2020, amounting to 95 million euros.

Table of Contents

The table below shows 2020/2019 variations in reported and organic terms (the latter, calculated in accordance with the adjustments referred to above) of certain line items of the income statement and other measures, and the contribution of each item for which we have adjusted to our reported growth:


	YoY variation				Contribution to reported growth (percentage points)
TELEFÓNICA UNITED KINGDOM 2020	% Reported YoY		% Organic YoY		Exchange rate effect	Impact on depreciation of assets held for sale	Restructuring costs	Spectrum acquisition

Revenues	(5.6	%)	(4.4	%)	(1.3)	—	—	—
Other income	(4.4	%)	(3.2	%)	(1.3)	—	—	—
Supplies	(2.6	%)	(1.3	%)	(1.3)	—	—	—
Personnel expenses	(8.6	%)	(1.7	%)	(1.2)	—	(5.7)	—
Other expenses	(11.7	%)	(10.5	%)	(1.2)	—	—	—
OIBDA	(2.4	%)	(2.4	%)	(1.3)	—	1.4	—
Depreciation and amortization	(67.7	%)	(2.3	%)	(0.4)	(64.9)	—	—
Operating income (OI)	84.0	%	(2.5	%)	(2.5)	85.8	3.2	—
CapEx	(0.1	%)	(9.2	%)	(1.3)	—	—	10.4
OIBDA-CapEx	(4.1	%)	2.7	%	(1.3)	—	2.4	(7.9)

Results discussion

Total revenues in 2020 decreased by 5.6% year-on-year in reported terms to 6,708 million euros, affected in part by the depreciation of the pound sterling (-1.3 p.p.). Excluding this impact, mobile revenues decreased by 4.4%, mainly as a result of the effects of the COVID-19 pandemic which are estimated to have reduced revenues by approximately 328 million euros in 2020 related to the lower handset sales, lower roaming revenues and a reduction in the roll out of IoT programs.

•Mobile business revenues reached 6,476 million euros in 2020, decreasing by 6.0% in reported terms, affected in part by the depreciation of the pound sterling (-1.3 p.p.). Excluding this impact, mobile business revenues decreased 4.8% affected by the impact of COVID-19, which is estimated to have amounted to approximately 320 million euros and are mainly due to the shift from mobile data usage to Wi-Fi networks, lower handset sales, lower roaming revenues and a reduction in the roll out of IoT programs.

Mobile ARPU fell by 13.2% year-on-year in reported terms and 12.0% in organic terms, significantly impacted by the COVID-19 pandemic, growth of IoT accesses (with lower ARPU) and customer migration to the direct channel as a consequence of the change in the distribution model after the end of the contract with Dixons Carphone in March 2020 which resulted in changes in the mobile revenues allocation.


TELEFÓNICA UNITED KINGDOM	2019 (1)	2020	% Reported YoY		%Organic YoY
ARPU (EUR)	14.8	12.8	(13.2	%)	(12.0	%)
Prepay	7.4	7.5	0.3	%	1.6	%
Contract (2)	24.9	22.1	(11.0	%)	(9.8	%)
Data ARPU (EUR)	8.6	9.7	12.8	%	14.3	%

(1) In December 2019, 665 thousand mobile contract accesses were reclassified as wholesale accesses. This affected ARPU calculations, as they relate to average retail accesses only (which are calculated on a monthly basis). In order to make ARPU calculations for 2020 and 2019 comparable, the calculation of the 2019 monthly average number of accesses was revised in accordance with such reclassification (so as to exclude such 665 thousand accesses for the whole year). As a result, 2019 ARPU amounts included in this section differ from those reported under “2019 Highlights”.

(2) Excludes IoT.

OIBDA totaled 2,064 million euros in 2020, decreasing by 2.4% in reported terms, down 2.4% in organic terms, affected by the pandemic.

Table of Contents

Depreciation and amortization totaled 389 million euros in 2020, decreasing by 67.7% year-on-year in reported terms, mainly as a result of the reclassification of assets that fall within the scope of the agreement with Liberty Global plc as held for sale starting on May 1, 2020 (with such assets ceasing to accrue depreciation and amortization expenses since then). Excluding the impact of such reclassification (-64.9 p.p.) and the effect of the depreciation of the pound sterling (-0.4 p.p.), depreciation and amortization decreased by 2.3% year-on-year in organic terms mainly due to a lower depreciation and amortization in intangibles.

Operating income totaled 1,675 million euros in 2020, up by 84.0% in reported terms, mainly impacted by the decrease in depreciation and amortization as a result of the reclassification referred to above (+85.8 p.p.) and, to a lesser extent, the decrease in restructuring costs (+3.2 p.p.), offset in part by the depreciation of the pound sterling (-2.5 p.p.). In organic terms, operating income decreased by 2.5% year-on-year and was significantly impacted by the COVID-19 pandemic, which we estimate reduced operating income by approximately 155 million euros, mainly due to the lower service revenues (with COVID-19 having an estimated impact of approximately 256 million euros), offset in part by the decrease in certain direct costs as a result of the COVID-19 pandemic.

TELEFÓNICA GERMANY

The table below shows the evolution of accesses in Telefónica Germany over the past two years as of December 31 of such years:


ACCESSES
Thousands of accesses	2019	2020	%Reported YoY
Fixed telephony accesses (1)	2,129.5	2,180.2	2.4	%
Broadband (2)	2,206.6	2,261.1	2.5	%
UBB	1,652.0	1,797.8	8.8	%
Mobile accesses (3)	43,826.8	44,274.8	1.0	%
Prepay	20,096.2	19,283.3	(4.0	%)
Contract	22,538.8	23,581.3	4.6	%
IoT (4)	1,191.8	1,410.1	18.3	%
Retail Accesses	48,258.0	48,804.7	1.1	%
Total Accesses	48,258.0	48,804.7	1.1	%

(1) Includes "fixed wireless" and Voice over IP accesses.

(4) Impacted by the disconnection of 67 thousand inactive IoT accesses in the second quarter of 2019.

In 2020, Telefónica Germany had a good performance despite the COVID-19 pandemic, with trading dynamics recovering to close to pre-pandemic levels by the end of 2020 and churn reaching historical low levels. This performance was supported by network quality improvements. In a dynamic competitive environment, the O2 Free portfolio continued to show positive momentum and visible ARPU-accretive effects, while COVID-19-related travel restrictions impacted roaming revenues.

Telefónica Germany’s key milestones in 2020 were as follows:

•The company announced the spin-off and sale of approximately 10.1 thousand mobile sites to Telxius for a total purchase price of 1.5 billion euros, gaining further financial flexibility.

•The company's 5G network became operational in 15 cities, targeting more than 30% and approximately 50% population coverage by the end of 2021 and 2022, respectively, and close to full coverage by the end of 2025.

Table of Contents

•Telefónica Germany's network was awarded for the first time a ‘very good’ rating in the most relevant network test of "Connect magazine" and also was ranked #1 in the Connect magazine’s shop test.

The total access base grew 1.1% year-on-year and stood at 48.8 million at December 31, 2020, mainly driven by a 1.0% increase in the mobile accesses base, which reached 44.3 million.

The contract mobile customer base grew 4.6% year-on-year and reached 23.6 million accesses, increasing the share over the total mobile accesses base to 53.3%. Net adds reached 1.0 million accesses mainly driven by the good performance of the O2 Free tariff portfolio, which features popular tariffs, continued data usage and churn improvement. O2 contract churn registered historical lows.

The prepay mobile customer base decreased 4.0% year-on-year to 19.3 million accesses, reflecting the ongoing prepay to contract migration trends in the market. The prepay segment posted a net loss of 0.8 million customers in 2020.

The broadband accesses reached 2.3 million accesses (up 2.5% y-o-y) and increased by 55 thousand accesses in 2020, as a result of the continued robust demand for VDSL, with net adds of 146 thousand accesses in 2020 (+30.8% y-o-y).

The table below shows the evolution of Telefónica Germany’s results over the past two years:


Millions of euros
TELEFÓNICA GERMANY	2019	2020	% Reported YoY		% Organic YoY (1)

Revenues	7,399	7,532	1.8	%	1.8	%
Mobile Business	6,647	6,730	1.2	%	1.2	%
Handset revenues	1,346	1,423	5.7	%	5.7	%
Fixed Business	741	785	6.0	%	6.0	%
Other income	183	136	(25.8	%)	(27.8	%)
Supplies	(2,372)	(2,435)	2.6	%	2.6	%
Personnel expenses	(592)	(611)	3.2	%	(0.6	%)
Other expenses	(2,292)	(2,313)	1.0	%	0.9	%
OIBDA	2,326	2,309	(0.8	%)	0.1	%
Depreciation and amortization	(2,463)	(2,394)	(2.8	%)	(2.8	%)
Operating loss	(137)	(85)	(38.0	%)	(63.5	%)
CapEx	2,469	1,094	(55.7	%)	4.8	%
OIBDA-CapEx	(143)	1,215	c.s.		(3.6	%)

Notes:

c.s.: change of sign.

(1) See adjustments made to calculate organic variations below.

Adjustments made to calculate organic variations

As explained above, year-on-year percentage changes referred to in this document as “organic” or presented in “organic terms” intend to present year-on-year variations on a comparable basis.

With respect to Telefónica Germany, we have made the following adjustments in order to calculate 2020/2019 variations in organic terms:

•Restructuring costs: we have excluded the impact of restructuring costs associated with simplification processes implemented in Germany. Restructuring costs totaled 37 million euros and 22 million euros in 2020 and 2019, respectively.

Table of Contents

•Spectrum sales: the organic variations exclude the gains on spectrum sales in 2020 (5 million euros in OIBDA).

•Spectrum acquisition: the organic variations exclude the impact of spectrum acquisitions on CapEx, which in 2019 amounted to 1,425 million euros. During 2020 no spectrum acquisitions were made.

The table below shows 2020/2019 variations in reported and organic terms (the latter, calculated in accordance with the adjustments referred to above) of certain line items of the income statement and other measures and the contribution of each item for which we have adjusted to our reported growth:


	YoY variation				Contribution to reported growth (percentage points)
TELEFÓNICA GERMANY 2020	%Reported YoY		%Organic YoY		Restructuring costs	Spectrum sale	Spectrum acquisition
Revenues	1.8	%	1.8	%	—	—	—
Other income	(25.8	%)	(27.8	%)	—	2.0	—
Supplies	2.6	%	2.6	%	—	—	—
Personnel expenses	3.2	%	(0.6	%)	3.8	—	—
Other expenses	1.0	%	0.9	%	(0.3)	0.4	—
OIBDA	(0.8	%)	0.1	%	(0.7)	(0.2)	—
Depreciation and amortization	(2.8	%)	(2.8	%)	—	—	—
Operating loss	(38.0	%)	(63.5	%)	11.3	3.9	—
CapEx	(55.7	%)	4.8	%	—	—	(57.7)
OIBDA-CapEx	c.s.		(3.6	%)	10.8	3.8	n.m.

c.s.: change of sign

n.m.: not meaningful.

Results discussion

Total revenues were 7,532 million euros in 2020, with a year-on-year increase of 1.8%, driven by the increase in revenues in both the mobile business and the fixed business, despite the impact of the COVID-19 pandemic, which is estimated to have reduced revenues by approximately 72 million euros in 2020 mainly as a result of lower roaming revenues due to the ongoing travel restrictions.

•Mobile business revenues totaled 6,730 million euros, increasing 1.2% y-o-y in reported terms. This was the result of increased handset sales and higher mobile service revenues, despite the continuing impact of COVID-19, which affected roaming revenues due to the ongoing travel restrictions.

•Handset revenues amounted to 1,423 million euros, increasing 5.7% y-o-y in reported terms due to the continued strong demand for high value handsets and the recent launch of the iPhone 12 5G.

•Fixed revenues were 785 million euros, increasing by 6.0% year-on-year in reported terms, on the back of a larger customer base driven by strong VDSL demand.

Mobile ARPU was 9.9 euros (-1.2% y-o-y), while contract ARPU stood at 13.6 euros (-4.4% y-o-y), mainly as a result of the decrease in roaming revenues and lower commercial activity and demand for prepay packages due to higher Wi-Fi usage at home. Data ARPU was 5.9 euros (+0.2% y-o-y).


TELEFÓNICA GERMANY	2019	2020	% Reported YoY
ARPU (EUR)	10.0	9.9	(1.2	%)
Prepay	6.0	6.1	1.6	%
Contract (1)	14.3	13.6	(4.4	%)
Data ARPU (EUR)	5.9	5.9	0.2	%

Table of Contents

(1) Excludes IoT.

OIBDA totaled 2,309 million euros in 2020, down 0.8% y-o-y in reported terms. In organic terms, OIBDA increased by 0.1% year-on-year.

Depreciation and amortization amounted to 2,394 million euros in 2020, decreasing 2.8% year-on-year mainly due to certain property, plant and equipment reaching the end of their useful lives.

Operating loss totaled 85 million euros in 2020 as compared to 137 million euros in 2019. In organic terms, operating loss improved year-on-year mainly due to the lower depreciation and amortization expense, the improved revenue mix, and the continued implementation of cost efficiency measures, offset in part by the impact of the COVID-19 pandemic, which is estimated to have contributed approximately 58 million euros to the operating loss in 2020.

TELEFÓNICA BRAZIL

The table below shows the evolution of accesses in Telefónica Brazil over the past two years as of December 31 of such years:


ACCESSES
Thousands of accesses	2019	2020	%Reported YoY
Fixed telephony accesses (1)	10,817.0	8,994.8	(16.8	%)
Broadband (2)	6,938.9	6,315.0	(9.0	%)
UBB	5,022.8	5,084.2	1.2	%
FTTH	2,477.4	3,377.7	36.3	%
Mobile accesses (3)	74,573.1	78,523.7	5.3	%
Prepay	31,408.0	33,662.5	7.2	%
Contract	33,075.3	34,418.2	4.1	%
IoT	10,089.8	10,443.0	3.5	%
Pay TV	1,319.7	1,247.7	(5.5	%)
IPTV	714.5	890.8	24.7	%
Retail Accesses	93,718.9	95,145.0	1.5	%
Total Accesses	93,732.3	95,157.9	1.5	%

(1) Includes "fixed wireless" and Voice over IP accesses.

In 2020, Telefónica Brazil maintained its leadership in the higher mobile value segments, leading the contract segment as of December 31, 2020 (source: ANATEL), which has allowed Telefónica Brazil to support its mobile service revenues (in local currency) and mitigate the impact of the COVID-19 pandemic. In the fixed business, Telefónica Brazil continued to focus on the implementation of strategic technologies, such as fiber, which permitted it to capture high-value clients in the Internet Protocol Television (IPTV), and partially offset the continued decrease in the traditional fixed business.

Telefónica Brazil reached 95.2 million accesses as of December 31, 2020, 1.5% higher than as of December 2019, due to the sustained growth in the mobile business, both postpay and prepay, UBB and IPTV, which more than offset the decline in the fixed voice business (due to the continued migration from fixed to mobile, driven by unlimited voice offers in the market), the contraction of the lower-value fixed broadband customer base and the loss of DTH customers as a result of the discontinuation of legacy technologies.

Table of Contents

In the mobile business, Telefónica Brazil maintained its leadership in terms of total accesses, with a market share of 33.6% as of December 31, 2020 (source: ANATEL), growing both in terms of contract customers (+4.1% year-on-year) and prepay accesses (+7.2% year-on-year). Telefónica Brazil continued to strategically focus on high-value customers, reaching a market share of 37.7% in the contract segment as of December 31, 2020 (source: ANATEL). Contract commercial offers focused on data plans, with improved quotas and roaming terms (Vivo Travel World). The Vivo Selfie plan was also launched, with a 25GB data allowance plus 25GB for use in our customers’ favorite app (Spotify, Rappi, Netflix or Premiere). High-value customers’ offer is focused on family plans, which remained unchanged. In the prepay segment, Telefónica Brazil offers unlimited off-net minutes, unlimited WhatsApp use, and extra data allowances (VIVO pre-turbo). All of this has been supported by the interaction with customers through our virtual assistant AURA in the Meu VIVO application, transforming customer attention channels to improve user experience.

In the fixed business, Telefónica Brazil maintained its strategic focus on fiber deployment, reaching 24.5 million premises passed with FTTx as of December 31, 2020 and 5.1 million connected homes, which increased 1.2% y-o-y, compensating in part for the decrease in fiber to the curb (FTTC) with the growth of fiber. Telefónica Brazil is implementing alternative deployment models to accelerate fiber expansion with lower CapEx requirements and a shorter "time to market" period. Following the agreement with American Tower Corporation in Minas Gerais and the development of a "franchise" model in smaller cities, Telefónica Brazil reached an agreement with Phoenix Fiber (Group Phoenix Towers) in the states of Minas Gerais, Espírito Santo and Goiás for the joint development of the FTTH network. Telefónica Brazil reached 3.4 million premises connected with fiber by the end of 2020, growing by 36.3% year-on-year. However, this growth did not offset the decrease in other broadband accesses, such as ADSL, which placed retail broadband accesses at 6.3 million as of December 31, 2020, decreasing by 9.0% year-on-year. Traditional accesses decreased 16.8% year-on-year due to the aforementioned fixed-mobile substitution.

Pay TV customers as of December 31 of 2020 reached 1.2 million, decreasing 5.5% year-on-year due to a more selective commercial activity directed to high-value customers. The decrease in DTH, as a consequence of the strategic decision to discontinue its use, was partially offset by the 24.7% growth in IPTV accesses. IPTV represented 71.4% of the total Pay TV accesses.

The table below shows the evolution of Telefónica Brazil’s results over the past two years:


Millions of euros
TELEFÓNICA BRAZIL	2019	2020	% Reported YoY		% Organic YoY (1)

Revenues	10,035	7,422	(26.0	%)	(2.6	%)
Mobile Business	6,498	4,891	(24.7	%)	(0.9	%)
Handset revenues	613	426	(30.6	%)	(8.5	%)
Fixed Business	3,537	2,531	(28.4	%)	(5.7	%)
Other income	427	325	(23.8	%)	3.9	%
Supplies	(1,686)	(1,252)	(25.7	%)	(2.2	%)
Personnel expenses	(1,028)	(792)	(22.9	%)	1.5	%
Other expenses	(3,486)	(2,515)	(27.9	%)	(5.0	%)
OIBDA	4,262	3,188	(25.2	%)	(1.1	%)
Depreciation and amortization	(2,516)	(1,965)	(21.9	%)	2.9	%
Operating income (OI)	1,746	1,223	(30.0	%)	(6.9	%)
CapEx	2,005	1,372	(31.6	%)	(11.9	%)
OIBDA-CapEx	2,257	1,816	(19.6	%)	8.5	%

Notes:

(1) See adjustments made to calculate organic variations below.

Adjustments made to calculate organic variations

As explained above, year-on-year percentage changes referred to in this document as “organic” or presented in “organic terms” intend to present year-on-year variations on a comparable basis.

Table of Contents

With respect to Telefónica Brazil, we have made the following adjustments in order to calculate 2020/2019 variations in organic terms:

•Gains or losses on the sale of companies: the gain from the sale of data center businesses, which totaled 15 million euros in 2019, has been excluded to calculate organic variations.

•Spectrum acquisition: we have excluded the impact of spectrum acquisitions on CapEx, amounting to 32 million euros in 2020. During 2019, no spectrum acquisitions were made.

The table below shows 2020/2019 variations in reported and organic terms (the latter, calculated in accordance with the adjustments referred to above) of certain line items of the income statement and other measures, and the contribution of each item for which we have adjusted to our reported growth:


	YoY variation				Contribution to reported growth (percentage points)
TELEFÓNICA BRAZIL 2020	% Reported YoY		% Organic YoY		Exchange rate effect	Capital gains/losses on sale of companies	Spectrum acquisition
Revenues	(26.0	%)	(2.6	%)	(23.5)	—	—
Other income	(23.8	%)	3.9	%	(24.2)	(3.4)	—
Supplies	(25.7	%)	(2.2	%)	(23.6)	—	—
Personnel expenses	(22.9	%)	1.5	%	(24.5)	—	—
Other expenses	(27.9	%)	(5.0	%)	(22.9)	—	—
OIBDA	(25.2	%)	(1.1	%)	(23.7)	(0.3)	—
Depreciation and amortization	(21.9	%)	2.9	%	(24.8)	—	—
Operating income (OI)	(30.0	%)	(6.9	%)	(22.2)	(0.8)	—
CapEx	(31.6	%)	(11.9	%)	(21.7)	—	2.1
OIBDA-CapEx	(19.6	%)	8.5	%	(25.5)	(0.6)	(1.9)

Results discussion

In 2020, revenues amounted to 7,422 million euros and decreased 26.0% in reported terms, mainly affected by the depreciation of the Brazilian real (-23.5 p.p.). In organic terms, revenues decreased 2.6%, mainly as a result of the effects of the COVID-19 pandemic, which we estimate affected revenues by approximately 302 million euros in 2020, mainly due to lower handset sales and service revenues.

•Mobile business revenues amounted to 4,891 million euros in 2020, a 24.7% decrease in reported terms, mainly due to the depreciation of the Brazilian real (-23.9 p.p.). Excluding this impact, mobile business revenues decreased 0.9%. The mobile business was significantly affected by the decline in handset sales (-30.6% y-o-y in reported terms (-8.5% y-o-y in local currency)), mainly due to the closure of stores and the lockdown of population as a result of the COVID-19 pandemic. Limitations on mobility also led to a shift from mobile data usage to Wi-Fi networks. In organic terms, service revenues remained stable due to the fast recovery of the prepay segment, the higher weight of contract customers and the higher use of data and connectivity services.

•Fixed business revenues amounted to 2,531 million euros, decreasing 28.4% in reported terms, mainly due to the impact of the depreciation of the Brazilian real (-22.7 p.p.). Excluding this effect, fixed business revenues decreased by 5.7% mainly as a result of the decrease in voice revenues, as a result of lower traffic due to the fixed-mobile substitution, as well as the lower commercial emphasis on legacy technologies (ADSL and DTH). The decrease was offset in part by the increase in broadband (+3.0% year-on-year in local currency), supported by the growth of fiber revenues, driven by the growth of ARPU and a higher penetration.

Mobile ARPU decreased year-on-year by 26.5% in reported terms, mainly due to the depreciation of the Brazilian real. In local currency, mobile ARPU decreased by 3.2% year-on-year, as a consequence of the erosion of contract

Table of Contents

ARPU, offset in part by the increase in prepay ARPU in local currency terms due to the leveraging of data surpluses.


TELEFÓNICA BRAZIL	2019	2020	% Reported YoY		%Local Currency YoY
ARPU (EUR)	6.4	4.7	(26.5	%)	(3.2	%)
Prepay	2.9	2.2	(22.2	%)	2.5	%
Contract (1)	11.6	8.4	(27.4	%)	(4.3	%)
Data ARPU (EUR)	5.1	4.1	(20.1	%)	(2.8	%)

(1) Excludes IoT.

OIBDA stood at 3,188 million euros in 2020, decreasing 25.2% in reported terms. In organic terms, the year-on-year variation was -1.1%.

Depreciation and amortization amounted to 1,965 million euros in 2020, down by 21.9% year-on-year in reported terms, impacted by the depreciation of the Brazilian real (-24.8 p.p.). In organic terms, depreciation and amortization grew 2.9% year-on-year due to higher investments in fixed assets as well as the increase in rights of use in the year.

Operating income stood at 1,223 million euros in 2020, decreasing by 30.0% in reported terms. This variation was mainly due to the depreciation of the Brazilian real (-22.2 p.p.). In organic terms, operating income fell by 6.9%, mainly as a result of the effects of the COVID-19 pandemic, which we estimate affected operating income by approximately 137 million euros as a consequence of the lower handset sales and service revenues and the higher bad debt, partially offset by savings in operating expenses, mainly certain supplies.

TELEFÓNICA HISPAM

The table below shows the evolution of accesses in Telefónica Hispam over the past two years as of December 31 of such years:


ACCESSES
Thousands of accesses	2019	2020	% Reported YoY
Fixed telephony accesses (1)	8,804.2	7,835.0	(11.0	%)
Broadband (2)	5,564.7	5,447.3	(2.1	%)
UBB	3,249.6	3,695.0	13.7	%
FTTH	2,829.6	3,417.6	20.8	%
Mobile accesses (3)	93,137.8	92,204.5	(1.0	%)
Prepay	67,286.2	66,206.7	(1.6	%)
Contract	22,243.7	22,000.2	(1.1	%)
IoT	3,607.9	3,997.6	10.8	%
Pay TV	3,015.2	2,856.8	(5.3	%)
IPTV	335.6	577.7	72.1	%
Retail Accesses	110,670.3	108,488.6	(2.0	%)
Total Accesses	110,691.5	108,509.1	(2.0	%)

Notes:

(1) Includes "fixed wireless" and Voice over IP accesses.

Table of Contents

been revised accordingly for comparative purposes. However, the 2019 figures included in the section titled “2019 Highlights” do not reflect these updates. Accordingly, the number of "Prepay", "Contract" and "IoT/M2M" accesses as of December 31, 2019 reported in this section may differ from that reported under “2019 Highlights”.

Telefónica Hispam's total accesses amounted to 108.5 million as of December 31, 2020 (-2.0% year-on-year), as a result of the decrease in both mobile and fixed accesses.

Mobile accesses amounted to 92.2 million as of December 31, 2020 decreasing by 1.0% y-o-y mainly affected by the lower prepay customer base.

•Contract accesses decreased by 1.1% year-on-year due to the decrease in accesses in Peru (-8.2%), Argentina (-5.5%) and Ecuador (-4.8%), partially offset by the strong increase in Chile (+11.4%) and Colombia (+7.8%). This evolution was partially affected by the COVID-19 pandemic, which took its toll on commercial activity.

•Prepay accesses decreased by 1.6% year-on-year, with a net loss of 1.1 million accesses at December 31, 2020, decreasing in Peru (-660 thousand accesses), Chile (-476 thousand accesses), Mexico (-226 thousand accesses) and Venezuela (-151 thousand accesses), offset in part by the increases in Ecuador (+346 thousand accesses) and Argentina (+153 thousand accesses). This evolution was mainly the result of the line disconnection of accesses with no top-up activity and the migration of prepay accesses to postpay accesses in the Chilean market.

Fixed accesses stood at 7.8 million as of December 31, 2020 (-11.0% year-on-year) with a net loss of 969 thousand accesses due to the continued erosion of the traditional fixed business.

Fixed broadband accesses amounted to 5.5 million as of December 31, 2020 (-2.1% year-on-year). The penetration of FBB accesses over fixed accesses stood at 69.5% (+6.3 p.p. y-o-y), as a result of the focus on Ultra Broadband (UBB) deployment in the region reaching 3.7 million connected accesses (+13.7% y-o-y) and 12.0 million premises. The penetration of UBB accesses over fixed broadband accesses stood at 67.8% (+9.4 p.p. y-o-y).

Pay TV accesses stood at 2.9 million as of December 31, 2020, decreasing by 5.3% as a result of the net loss of 158 thousand customers, negatively impacted by the lower Direct-To-Home (DTH) technology accesses due to the change in focus (-326 thousand accesses) and lower cable access base (-74 thousand accesses at December 31, 2020), partially offset by the increase in IPTV (+242 thousand accesses), in which the Company is placing strategic focus.

The table below shows the evolution of Telefónica Hispam results over the past two years:

Table of Contents


Millions of euros
TELEFÓNICA HISPAM	2019	2020	% Reported YoY		% Organic YoY (1)

Revenues	9,650	7,922	(17.9	%)	(6.2	%)
Mobile Business	6,210	5,070	(18.4	%)	(6.4	%)
Handset revenues	1,415	1,111	(21.5	%)	(12.0	%)
Fixed Business	3,435	2,836	(17.4	%)	(6.2	%)
Other income	645	253	(60.8	%)	(43.1	%)
Supplies	(2,832)	(2,466)	(12.9	%)	(3.2	%)
Personnel expenses	(1,458)	(999)	(31.5	%)	(3.4	%)
Other expenses	(3,972)	(3,720)	(6.3	%)	(9.6	%)
OIBDA	2,033	990	(51.3	%)	(13.2	%)
Depreciation and amortization	(2,268)	(2,274)	0.3	%	(2.4	%)
Operating loss	(235)	(1,284)	n.m.		(68.7	%)
CapEx	1,485	833	(43.9	%)	(26.7	%)
OIBDA-CapEx	548	157	(71.3	%)	2.4	%

Notes:

(1) See adjustments made to calculate organic variations below.

n.m.: not meaningful

Adjustments made to calculate organic variations

As explained above, year-on-year percentage changes referred to in this document as “organic” or presented in “organic terms” intend to present year-on-year variations on a comparable basis.

With respect to Telefónica Hispam, we have made the following adjustments in order to calculate 2020/2019 variations in organic terms:

•Foreign exchange rate effects: we have excluded the impact of changes in exchange rates (except for countries with hyperinflationary economies (Argentina and Venezuela)) by assuming constant average foreign exchange rates year-on-year (using average foreign exchange rates of 2019 for both years).

•Reported variation of companies in hyperinflationary countries: the reported variation of Telefónica Venezolana and Telefónica Argentina is excluded (432 million euros in revenues and 229 million euros in OIBDA).

•Gains or losses on the sale of companies: in 2020, the gain from the sale of companies amounting to 2 million euros has been excluded from calculations of organic variations. In 2019, the gain from the sale of data center businesses amounting to 42 million euros has been excluded.

•Restructuring costs: we have excluded the impact of restructuring costs in 2020 and 2019 on OIBDA and operating income, amounting to 17 million euros and 235 million euros, respectively.

•Spectrum acquisition: the impact of spectrum acquisition on CapEx has been excluded, amounting to 51 million euros in 2019.

•Transformation of operating model of Telefónica Mexico: organic variations exclude the impact of the transformation of the operating model of Telefónica México (which means that the wireless access infrastructure will be turned off, and corresponding licensed spectrum will be released), following the AT&T agreement in 2019, which led to the accelerated depreciation of the related assets and had a negative impact on depreciation and operating income, amounting to 320 million euros in 2020. In 2019, OIBDA and operating income were adversely impacted by 239 million euros and 275 million euros.

Table of Contents

goodwill impairment loss and impairment losses over non-current assets amounting to 375 million euros. In 2019, the goodwill impairment loss in Argentina (206 million euros) has been excluded.

The table below shows 2020/2019 variations in reported and organic terms (the latter, calculated in accordance with the adjustments referred to above) of certain line items of the income statement and other measures, and the contribution of each item for which we have adjusted to our reported growth:


	YoY variation				Contribution to reported growth (percentage points)
TELEFÓNICA HISPAM 2020	% Reported YoY		% Organic YoY		Exchange rate effect	Reported var. in hyperinflationary countries	Capital gains/losses on sale of companies	Restructuring costs	Spectrum acquisition	Transformation T.Mexico	Impairment of goodwill and other assets
Revenues	(17.9	%)	(6.2	%)	(7.3)	(4.4)	—	—	—	—	—
Other income	(60.8	%)	(43.1	%)	(4.0)	(1.9)	(6.2)	—	—	(14.8)	—
Supplies	(12.9	%)	(3.2	%)	(8.5)	(1.3)	—	—	—	—	—
Personnel expenses	(31.5	%)	(3.4	%)	(4.8)	(6.1)	—	(14.9)	—	(3.0)	—
Other expenses	(6.3	%)	(9.6	%)	(5.9)	(2.1)	—	—	—	(7.3)	17.3
OIBDA	(51.3	%)	(13.2	%)	(9.2)	(11.3)	(2.0)	10.7	—	11.7	(33.8)
Depreciation and amortization	0.3	%	(2.4	%)	(9.9)	(1.8)	—	—	—	14.3	—
Operating loss	n.m.		(68.7	%)	(16.1)	80.3	17.0	(92.3)	—	36.7	n.m.
CapEx	(43.9	%)	(26.7	%)	(5.3)	(9.7)	—	—	(3.0)	—	—
OIBDA-CapEx	(71.3	%)	2.4	%	(19.9)	(15.5)	(7.3)	39.6	8.3	43.6	n.m.

n.m.: not meaningful.

Results discussion

Revenues amounted to 7,922 million euros in 2020, decreasing 17.9% year-on-year in reported terms. This decrease was driven in part by the foreign exchange effects (-7.3 p.p.) and the reported variation of companies in hyperinflationary countries (-4.4 p.p.). In organic terms, revenues decreased by 6.2% year-on-year, principally impacted by the negative effects of the COVID-19 pandemic, which we estimate decreased revenues by approximately 670 million euros mainly due to lower handset revenues, a decrease in voice fixed revenues, broadband and TV revenues and mobile service revenues, mainly related to the prepay segment, and lower handset sales, which were influenced by the decline in the commercial activity due to the pandemic. There was also a decrease in the customer base.

Mobile business revenues amounted to 5,070 million euros in 2020, decreasing 18.4% year-on-year in reported terms. This decrease was affected by foreign exchange effects (-7.5 p.p.) and the reported variation of companies in hyperinflationary countries (-4.4 p.p.). In organic terms, mobile business revenues decreased by 6.4% year-on-year mainly due to lower prepay revenues and handset sales, resulting from the decline of the commercial activity. The performance by country was as follows:

•In Chile, mobile revenues amounted to 926 million euros in 2020, decreasing 15.6% year-on-year in reported terms, affected by the foreign exchange effects, which reduced growth by 12.5 percentage points. Excluding this impact, mobile revenues decreased by 3.0% year-on-year due to the impact of the COVID-19 pandemic and the significantly increased competition in the market, partially offset by higher handset sales.

•In Peru, mobile revenues amounted to 764 million euros in 2020, decreasing 24.1% year-on-year in reported terms, impacted by the foreign exchange effects, which reduced growth by 6.9 percentage points. Excluding this impact, mobile revenues decreased by 17.2% year-on-year, mainly affected by the COVID-19 pandemic, which led to a decrease in handset sales, due to the significant reduction in commercial activity, and in service revenues, which were adversely affected by the discount policies adopted during 2020 and lower commercial activity.

•In Colombia, mobile revenues amounted to 764 million euros in 2020, decreasing 12.7% year-on-year in reported terms, mainly impacted by the foreign exchange effects, which reduced growth by 12.5 percentage points. Excluding this impact, mobile revenues decreased by 0.2% year-on-year, mainly driven by the decrease in handset sales, lower prepay revenues and B2B (Business-to-Business) postpay revenues, offset in part by higher B2C (Business-to-Customer) postpay revenues due to a larger customer base and higher interconnection mobile revenues.

Table of Contents

•In Mexico, mobile revenues amounted to 1,033 million euros in 2020, decreasing 16.9% year-on-year in reported terms, mainly as a result of the depreciation of the Mexican peso (-10.8 p.p.). Excluding this impact, mobile revenues decreased by 6.1% year-on-year, due to the decrease in prepay mobile revenues as a result of the impact of the COVID-19 pandemic, which resulted in lower commercial activity and lower revenues in the wholesale business, and certain changes in our finance policies, which led to lower handset sales.

Fixed business revenues amounted to 2,836 million euros in 2020, decreasing 17.4% year-on-year in reported terms. This decrease was mainly driven by the foreign exchange effects, which decreased growth by 6.8 percentage points, and by the impact of the reported variation of companies in hyperinflationary countries (mainly Argentina), which reduced growth by 4.4 percentage points. Excluding these impacts, these revenues decreased by 6.2% year-on-year mainly due to the decline in voice, broadband and TV revenues, due to a smaller customer base, despite the improvement in commercial plans and higher broadband speed.

OIBDA reached 990 million euros in 2020, decreasing 51.3% year-on-year in reported terms (-13.2% in organic terms).

Depreciation and amortization reached 2,274 million euros in 2020, up 0.3% year-on-year in reported terms (-2.4% in organic terms), due to the reduction in the useful lives of certain assets of Telefónica México as a result of the transformation of the operating model (310 million euros), partially offset by the exchange rates.

Operating loss was 1,284 million euros in 2020 compared to an operating loss of 235 million euros in 2019. This result was negatively affected mainly by the impairment of goodwill in Argentina, the reported variation of companies in hyperinflationary countries, the accelerated depreciation and amortization in Telefónica México (as a result of the transformation of its operational model), and foreign exchange effects, partially offset by the decrease in restructuring costs in the region. In organic terms, operating income decreased by 68.7% year-on-year, mainly driven by the decrease in revenues as a result of the impact of the COVID-19 pandemic (estimated to be approximately 429 million euros).

Below is additional information by country:

•In Chile, operating income reached 141 million euros in 2020, decreasing 42.4% year-on-year in reported terms, affected by the foreign exchange effects, which reduced growth by 8.5 percentage points. The performance was mainly affected by the lower fixed and mobile revenues mainly as a result of the impact of the COVID-19 pandemic, while depreciation and amortization remained relatively unchanged.

•In Peru, operating loss reached 84 million euros in 2020 (operating loss of 71 million euros in 2019), mainly as a result of the COVID-19 pandemic, which led to lower service revenues and an increase in bad debt.

•In Colombia, operating income reached 113 million euros in 2020, decreasing 33.9% year-on-year in reported terms, affected by the foreign exchange effects, which reduced growth by 9.5 percentage points. This performance was mainly driven by the lower handset revenues and the lower tower sales gains (as compared to 2019), which was partially offset by the lower depreciation and amortization.

•In Mexico, operating loss reached 606 million euros in 2020 (operating loss of 613 million euros in 2019), mainly impacted by the depreciation of the Mexican peso, offset by the higher depreciation and amortization in the period.

TELXIUS GROUP

On January 13, 2021, Telxius Group signed an agreement with American Tower Corporation for the sale of its telecommunications towers divisions in Europe (Spain and Germany) and in Latin America (Brazil, Peru, Chile and Argentina) for 7.7 billion euros, payable in cash.

The agreement provides for the sale of approximately 30.7 thousand telecommunications tower sites and comprises two separate and independent transactions (on one hand, the European business and, on the other hand, the Latin American business), setting the respective closings once the corresponding regulatory authorizations have been obtained. The transaction is subject to regulatory approvals and other closing conditions. In accordance with IFRS 5, the companies included within the scope of the transaction have been recognized as a disposal group held for

Table of Contents

sale as of December 31, 2020. Non-current assets ceased to accrue depreciation and amortization expenses since December 31, 2020.

In the Tower business, Telxius Group acquired 1,909 towers in Brazil in February 2020, doubling the size of Telxius Group in the country, and establishing a solid platform to capture the expected growth of the Brazilian market.

Additionally, Telxius Group announced in June 2020 the acquisition of nearly 10,100 sites from Telefónica Deutschland for 1,500 million euros, along with the commitment to build 2,400 additional build-to-suit (BTS) sites in Germany, the largest market for telecommunications in Europe. The transaction was structured in two phases, with the first tranche of approximately 6,000 sites executed in the third quarter of 2020, and the second tranche, for the remaining sites, expected to close in August 2021. These towers are included within the scope of the agreement with American Tower Corporation referred to above. See "Item 10. Additional Information - Material Contracts - Agreements for the sale by Telxius of its telecommunications tower divisions in Europe and Latin America" for additional information.

In addition, Telxius Group has carried out other inorganic transactions, expanding its land management optimization program, strengthening its DAS (Distributed Antenna System) activities, amplifying cellular signals in open or closed high density environments, and reinforcing and diversifying its business in the different geographies where it operates.

Excluding inorganic transactions, during 2020 the portfolio of towers grew by 457 additional sites (net of decommissions) reaching 26,765 towers as of December 31, 2020 (+45.9% year-on-year) and the number of tenants (excluding anchor tenants) grew by 466 additional tenants, achieving a “tenancy ratio” of 1.37x excluding acquisitions and 1.28x including acquisitions.

The following table shows certain key performance indicators of Telxius Group as of December 31, 2019 and 2020:


TELXIUS GROUP
Units	2019	2020	%Reported YoY
Towers	18,348	26,765	45.9	%
Tenants	24,911	34,318	37.8	%
Non anchor tenants	6,563	7,553	15.1	%
Tenancy ratio	1.37x	1.28x	(0.08x)

Notes:

- Non anchor tenants refers to tenants other than anchor tenants.

In the Cable business, average traffic levels of approximately 14 Tbps were reached during 2020 (+36.5% compared to the average of 2019), partially as a result of the higher traffic demand resulting from the COVID-19 pandemic, which had a positive effect on revenues. In addition, the good commercial momentum continued in 2020, especially in respect of MAREA, a 6,600 km submarine cable with 200Tbps capacity connecting Spain (Sopelana) and the United States (Virginia Beach), and the renewal of contracts with relevant carriers, mainly in Latin America. In particular, during the third and fourth quarter of 2020, contract renewals were signed with various clients, increasing their aggregate estimated net full contract value by approximately 620 million U.S. dollars, despite causing a temporary negative effect on revenues and OIBDA (as a result of the decrease in annual fees set forth in the agreements).

Finally, during 2020, Telxius Group joined the supply contract with Subcom to build the South Pacific Subsea Cable System, as an additional purchaser together with América Móvil, to build a new cable system in the Pacific from Guatemala to Chile, with additional landing points in Ecuador, Peru and Chile, with a view to renewing and upgrading Telxius Group’s cable infrastructure and achieving significant savings.

The table below shows the evolution of Telxius Group results of 2020 as compared to 2019:

Table of Contents


Millions of euros
TELXIUS GROUP	2019	2020	% Reported YoY		% Organic YoY (1)

Revenues	842	826	(1.9	%)	1.0	%
Other income	11	9	(13.3	%)	(14.5	%)
Supplies	(171)	(141)	(18.0	%)	(16.6	%)
Personnel expenses	(48)	(49)	1.3	%	5.5	%
Other expenses	(130)	(125)	(2.2	%)	(0.4	%)
OIBDA	504	520	3.1	%	6.6	%
Depreciation and amortization	(249)	(269)	7.8	%	12.4	%
Operating income (OI)	255	251	(1.6	%)	1.0	%
CapEx	284	348	22.5	%	37.4	%
OIBDA-CapEx	220	172	(22.0	%)	(32.9	%)

(1) See adjustments made to calculate organic variations below.

Adjustments made to calculate organic variations

As explained above, year-on-year percentage changes referred to in this document as “organic” or presented in “organic terms” intend to present year-on-year variations on a comparable basis.

With respect to Telxius Group, we have made the following adjustments in order to calculate 2020/2019 variations in organic terms:

•Exchange rate effects: we have excluded the impact of changes in exchange rates by assuming constant average foreign exchange rates year-on-year. In particular, we have used the average foreign exchange rates of 2019 for both years.

•Reported variation of companies in hyperinflationary countries: the reported variation of companies in countries with hyperinflationary economies (in the case of this segment, Argentina) is excluded.

•Restructuring costs: we have excluded the restructuring costs in 2019 (470 thousand euros).

The table below shows 2020/2019 variations in reported and organic terms (the latter, calculated in accordance with the adjustments referred to above) of certain line items of the income statement and other measures, and the contribution of each item for which we have adjusted to our reported growth:


	YoY variation				Contribution to reported growth (percentage points)
TELXIUS GROUP 2020	% Reported YoY		% Organic YoY		Exchange rate effect	Reported var. in hyperinflationary countries	Restructuring costs
Revenues	(1.9	%)	1.0	%	(2.9)	(0.1)	—
Other income	(13.3	%)	(14.5	%)	(2.0)	5.4	—
Supplies	(18.0	%)	(16.6	%)	(1.2)	(0.2)	—
Personnel expenses	1.3	%	5.5	%	(3.1)	(0.0)	—
Other expenses	(2.2	%)	(0.4	%)	(1.6)	(0.2)	—
OIBDA	3.1	%	6.6	%	(3.7)	0.0	0.1
Depreciation and amortization	7.8	%	12.4	%	(4.4)	(0.2)	—
Operating income (OI)	(1.6	%)	1.0	%	(3.1)	0.3	0.2
CapEx	22.5	%	37.4	%	(15.1)	0.2	—
OIBDA-CapEx	(22.0	%)	(32.9	%)	11.0	(0.2)	0.2

Results discussion

The results of 2020 were favorably affected by the impact of the acquisition of towers in 2019, in the first quarter of 2020 (Brazil) and in the third quarter of 2020 (Germany), and were adversely impacted by the aforementioned

Table of Contents

renewal of contracts with relevant carriers in the cable business in the second half of 2020, mainly in Latin America. The year-on-year comparison was also affected by the exceptional sale of capacity recorded in the first half of 2019.

Revenues totaled 826 million euros in 2020 and decreased 1.9% in reported terms impacted by exchange rates (-2.9 p.p.). In organic terms, revenues increased 1.0% y-o-y as a result of the increase in revenues in the Tower business (410 million euros; +21.1%), mainly as a result of the increase in the number of towers, partially offset by the decrease in revenues in the Cable business (411 million euros; -13.6%) due to the decrease in annual fees following the contract renewals referred to above and the exceptional sale of capacity registered in the first half of 2019, which adversely affected the year-on-year comparison.

OIBDA totaled 520 million euros in 2020, growing 3.1% in reported terms (+6.6% in organic terms).

Depreciation and amortization amounted to 269 million euros in 2020, increasing 7.8% year-on-year in reported terms, impacted by the construction and acquisition of towers (mainly in Germany, Brazil and Peru), and offset in part by exchange rates. In organic terms, depreciation and amortization grew 12.4% year-on-year.

Operating income reached 251 million euros in 2020, decreasing 1.6% in reported terms impacted by exchange rates (-3.1 p.p.), partially offset by the reported variation of companies in hyperinflationary countries (+0.3 p.p.). In organic terms, year-on-year variation was +1.0% due to tower business revenues growth and cable business costs control.

CapEx totaled 348 million euros in 2020, increasing by 22.5% in reported terms, despite the impact of exchange rates (-15.1 p.p.). In organic terms, the year-on-year evolution was +37.4% and was mainly related to the acquisition of towers, real estate rights and DAS and the construction of the Pacific cable.

Table of Contents

2019 Highlights

In 2020, the Telefónica Group started reporting financial information, both internally and externally, according to the following segments: Telefónica Spain, Telefónica United Kingdom, Telefónica Germany, Telefónica Brazil, Telefónica Hispam (formed by the Group's operators in Colombia, Mexico, Venezuela, Ecuador, Argentina, Chile, Peru and Uruguay) and Telxius Group. The 2019 and 2018 figures have been revised accordingly.

In 2019, Telefónica had positive revenue year-on-year growth in Telefónica Spain. In Brazil, Telefónica had the highest mobile market share since 2006, while Telefónica United Kingdom continued growing in revenues and Telefónica Germany had a strong commercial momentum with net adds. The efficiency is translated into profitability, with Telefónica Spain and Telefónica Brazil showing attractive operating income margins and continuing achieving savings from digitalization. Telefónica continued decreasing its debt, with an improved capital structure and an improved CapEx/Revenues ratio. As a result, Group revenues and operating income grew organically, in line with our expectations.

Reported y-o-y variations of line items included in the Consolidated Financial Statements reflect the adoption of IFRS 16 since January 1, 2019 (2018 results were reported according to IAS 17). The implementation of IFRS 16 negatively affected reported results as follows: -123 million euros in operating income; -1,632 million euros in depreciation and amortization, -214 million euros in net financial expense and -241 million euros in profit attributable to equity holders of the parent. The impact of IFRS 16 has been excluded when calculating organic variations. See “-2019/2018 Consolidated results-Adjustments made to calculate organic variations”.

Telefónica's total accesses amounted to 344.3 million as of December 31, 2019. Total accesses decreased 3.4% year-on-year mainly as a result of the sale of Telefónica Móviles Panamá on August 29, 2019, Telefonía Celular de Nicaragua on May 16, 2019 and Telefónica Móviles Guatemala on January 24, 2019. Excluding the impact of these sales, accesses decreased 1.1% mainly due to the negative evolution of prepay mobile accesses in Telefónica Hispam. During 2019, higher-value services continued increasing their relative weight, which resulted in LTE customers totaling 138 million customers (+19.9% y-o-y), with net additions of 16.6 million and a penetration rate of 58.1% (+11.2 p.p. y-o-y).

The table below shows the evolution of accesses over the past two years as of December 31 of such years:


ACCESSES
Thousands of accesses	2018	2019	% Reported YoY		%Org. YoY (1)
Fixed telephony accesses (2)	35,273.6	31,285.4	(11.3	%)	(10.6	%)
Internet and data accesses (3)	22,087.5	21,166.9	(4.2	%)	(4.1	%)
Broadband (4)	21,645.2	20,837.1	(3.7	%)	(3.7	%)
FTTx/Cable	13,213.1	14,280.9	8.1	%	8.1	%
Mobile accesses	270,814.9	261,532.9	(3.4	%)	(0.4	%)
Prepay	147,062.0	131,791.8	(10.4	%)	(5.6	%)
Contract (5)	123,752.9	129,741.1	4.8	%	5.4	%
M2M	19,483.0	23,770.4	22.0	%	22.4	%
Pay TV	8,875.4	8,437.1	(4.9	%)	(4.8	%)
Retail Accesses	337,051.5	322,422.2	(4.3	%)	(1.9	%)
Wholesale Accesses	19,520.0	21,912.7	12.3	%	12.3	%
Fixed wholesale accesses	3,951.5	3,822.8	(3.3	%)	(3.3	%)
Mobile wholesale accesses	15,568.5	18,089.9	16.2	%	16.2	%
Total Accesses	356,571.5	344,334.9	(3.4	%)	(1.1	%)

Notes:

- Telefónica Móviles Guatemala accesses (2.8 million total accesses as of December 31, 2018) were excluded from January 1, 2019. Telefonía Celular de Nicaragua accesses (4.0 million total accesses as of December 31, 2018) were excluded from May 1, 2019. Telefónica Móviles Panamá accesses (1.6 million total accesses as of December 31, 2018) were excluded from September 1, 2019. The table includes accesses for Telefónica Costa Rica (2.2 million and 2.2 million total accesses as of December 31, 2018 and 2019, respectively). The sale of Telefónica Costa Rica is pending as of the date of this Annual Report.

(1) Refers to the exclusion of the impact of the sales of Telefónica Móviles Panamá, Telefonía Celular de Nicaragua and Telefónica Móviles Guatemala in 2019. In order to exclude the impact of such sales in the calculation of organic variations, the 2018 comparative figures exclude accesses of these entities.

Table of Contents

(2) Includes "fixed wireless" and Voice over IP accesses. Since March 2018, the calculation of fixed telephony accesses in Spain has been revised to reflect lines included in certain products which were not fully accounted for before. 2018 figures included in this section have been revised accordingly for comparative purposes (resulting in +332.2 thousand accesses as of December 31, 2018).

(3) Also referred to as fixed broadband accesses.

(4) Includes DSL, satellite, optic fiber, cable modem and broadband circuits.

(5) In December 2019, 665 thousand mobile contract accesses in the United Kingdom were reclassified as wholesale accesses.

The table below shows 2019/2018 variations in accesses in reported and organic terms, as well as contribution to reported growth by each of Telefónica Móviles Panamá (which was sold on August 29, 2019), Telefonía Celular de Nicaragua (which was sold on May 16, 2019) and Telefónica Móviles Guatemala (which was sold on January 24, 2019).


YoY variation and contribution to reported growth (percentage points)
	%Reported YoY		%Org. YoY		T. Guatemala	T. Nicaragua	T. Panamá
Fixed telephony accesses	(11.3	%)	(10.6	%)	(0.6)	(0.2)	(0.1)
Internet and data accesses	(4.2	%)	(4.1	%)	—	—	—
Broadband	(3.7	%)	(3.7	%)	—	—	—
FTTx/Cable	8.1	%	8.1	%	—	—	—
Mobile accesses	(3.4	%)	(0.4	%)	(0.9)	(1.5)	(0.6)
Prepay	(10.4	%)	(5.6	%)	(1.6)	(2.5)	(1.0)
Contract	4.8	%	5.4	%	(0.1)	(0.3)	(0.1)
M2M	22.0	%	22.4	%	—	(0.1)	(0.2)
Pay TV	(4.9	%)	(4.8	%)	(0.1)	(0.1)	—
Retail Accesses	(4.3	%)	(1.9	%)	(0.8)	(1.2)	(0.5)
Wholesale Accesses	12.3	%	12.3	%	—	—	—
Fixed wholesale accesses	(3.3	%)	(3.3	%)	—	—	—
Mobile wholesale accesses	16.2	%	16.2	%	—	—	—
Total Accesses	(3.4	%)	(1.1	%)	(0.8)	(1.1)	(0.5)

The table below shows the year-on-year evolution of accesses by segment:


	YoY variation	% Over Total Accesses
Accesses 2019		2018	2019
Telefónica Spain	(0.1%)	11.7%	12.2%
Telefónica United Kingdom	5.7%	9.2%	10.1%
Telefónica Germany	2.5%	13.2%	14.0%
Telefónica Brazil	(1.6%)	26.7%	27.2%
Telefónica Hispam	(6.0%)	33.0%	32.1%

Other companies (1)	(30.6%)	6.0%	4.3%

Note:

(1) Includes Central American operations.

Mobile accesses totaled 261.5 million at December 31, 2019, decreasing by 3.4% compared to December 31, 2018. Excluding the effect of the sale of Telefónica Móviles Panamá, Telefonía Celular de Nicaragua and Telefónica Móviles Guatemala, mobile accesses decreased by 0.4%. This was mainly the result of the decrease in prepay mobile accesses due to a highly competitive market, where the Group chose not to follow competitors in offering unlimited voice and data offers, to avoid damage to the quality of its network. While prepay mobile accesses decreased in all segments, decreases were particularly significant in Telefónica Hispam. This decrease was offset in part by growth in the postpay or contract segment, which increased by 4.8% year-on-year (+5.4% excluding the effect of the sale of Telefónica Móviles Panamá, Telefonía Celular de Nicaragua and Telefónica Móviles Guatemala) and which relative weight over total mobile accesses continued to increase up to 49.6% (+3.9 p.p. year-on-year).

Table of Contents

Smartphone accesses continued growing (up 2.9% year-on-year), totaling 172.6 million accesses at December 31, 2019 and reaching a penetration rate over total accesses of 73.3% (+5.8 p.p. year-on-year), reflecting the Company’s strategic focus on the growth of its data services.

Fixed broadband accesses stood at 20.8 million at December 31, 2019, down 3.7% year-on-year. Fiber accesses stood at 14.3 million at December 31, 2019, growing 8.1% year-on-year.

Pay TV accesses totaled 8.4 million as of December 31, 2019, down 4.9% year-on-year.

The tables below show the evolution of our estimated access market share for mobile and fixed broadband for the

past two years.


Competitive Position Evolution
	Mobile Market Share (1)
Telefónica	2018	2019
Spain	29.7%	29.7%
United Kingdom	26.3%	26.4%
Germany	36.7%	36.6%
Brazil	31.9%	32.9%
Argentina	31.4%	29.5%
Chile	29.7%	26.4%
Peru	34.6%	31.4%
Colombia	24.6%	24.0%
Venezuela	40.9%	48.5%
Mexico	21.6%	21.6%
Central America	26.7%	26.8%
Ecuador	29.8%	28.1%
Uruguay	35.9%	36.6%

(1) Internal estimates in both years.


	FBB Market Share (1)
Telefónica	2018	2019
Spain	40.4%	38.4%
Brazil	24.4%	21.6%
Argentina	22.0%	19.2%
Chile	32.9%	28.8%
Peru	71.6%	70.0%
Colombia	18.2%	16.5%

(1) Internal estimates in both years.

Table of Contents

2019/2018 Consolidated results

In this section, we discuss changes in the Group’s consolidated income statements for the years ended December

31, 2019 and 2018.


	Year ended December 31,								Variation
Consolidated Results	2018				2019				2019 vs 2018
Millions of euros	Total		% of revenues		Total		% of revenues		Total	%
Revenues	48,693		100.0	%	48,422		100.0	%	(271)	(0.6	%)
Other income	1,622		3.3	%	2,842		5.9	%	1,220	75.2	%
Supplies	(14,013)		(28.8	%)	(13,635)		(28.2	%)	378	(2.7	%)
Personnel expenses	(6,332)		(13.0	%)	(8,066)		(16.7	%)	(1,734)	27.4	%
Other expenses	(14,399)		(29.6	%)	(14,444)		(29.8	%)	(45)	0.3	%
OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION (OIBDA)	15,571		32.0	%	15,119		31.2	%	(452)	(2.9	%)
OIBDA Margin	32.0	%			31.2	%				(0.8 p.p.)
Depreciation and amortization	(9,049)		(18.6	%)	(10,582)		(21.9	%)	(1,533)	16.9	%
OPERATING INCOME (OI)	6,522		13.4	%	4,537		9.4	%	(1,985)	(30.4	%)
Operating Margin	13.4	%			9.4	%				(4.0 p.p.)
Share of income of investments accounted for by the equity method	4		0.0	%	13		0.0	%	9	n.m.
Net financial expense	(955)		(2.0	%)	(1,832)		(3.8	%)	(877)	91.8	%
PROFIT BEFORE TAX	5,571		11.4	%	2,718		5.6	%	(2,853)	(51.2	%)
Corporate income tax	(1,621)		(3.3	%)	(1,054)		(2.2	%)	567	(35.0	%)
PROFIT FOR THE YEAR	3,950		8.1	%	1,664		3.4	%	(2,286)	(57.9	%)
Attributable to equity holders of the parent	3,331		6.8	%	1,142		2.4	%	(2,189)	(65.7	%)
Attributable to non-controlling interests	619		1.3	%	522		1.1	%	(97)	(15.7)	%

n.m.: not meaningful.

Adjustments made to calculate organic variations

Year-on-year percentage changes referred to in this document as “organic” or presented in “organic terms” intend

to present year-on-year variations on a comparable basis, by considering a constant perimeter of consolidation and constant average foreign exchange rates and by making certain other adjustments which are described herein. “Organic" variations should not be viewed in isolation or as an alternative to reported variations.

For purposes of this report, 2019/2018 “organic” variation is defined as the reported variation as adjusted to exclude the impacts detailed below:

•Foreign exchange effects and hyperinflation adjustments in Argentina: we have excluded the impact of changes in exchange rates by assuming constant average foreign exchange rates year-on-year (using average foreign exchange rates of 2018 for both years), except for Venezuela (in respect of which 2018 and 2019 results were converted at the closing synthetic exchange rate for each period).

Foreign exchange rates had a negative impact on our reported 2019 results, mainly due to the depreciation of various Latin American currencies (in particular the Argentine peso and the Brazilian real) against the euro.

The impact of hyperinflation adjustments in Argentina has been excluded by reversing such adjustments in both years.

Foreign exchange effects and hyperinflation in Argentina decreased revenue growth by 3.1 percentage points, OIBDA growth by 2.2 percentage points and operating income growth by 3.7 percentage points in 2019.

•Changes in the consolidation perimeter: we have excluded the impact of changes in our consolidation perimeter in 2019 and 2018. The main changes in our consolidation perimeter in such years were related to

Table of Contents

the sales (and, therefore, the exclusion from our consolidation perimeter) of Antares, Telefónica Móviles Guatemala, Telefonía Celular de Nicaragua and Telefónica Móviles Panamá at different times in 2019. No significant changes took place in the scope of consolidation of the Group in 2018.

To exclude the impact of the mentioned perimeter changes in the calculation of organic variations, the 2018 comparative figures exclude mainly the results of Antares, Telefónica Móviles Guatemala, Telefonía Celular de Nicaragua and Telefónica Móviles Panamá from the month of its sale and also the impact of the adjustment related to the amortization of the data center businesses sold in 2019.

•IFRS 16 "Leases" ("IFRS 16") impact: on January 1, 2019 IFRS 16 became effective. The IFRS 16 has had a material impact on the consolidated results of the Group. To ensure comparability with the 2018 results, organic variations exclude the impact of IFRS 16 in 2019. The adoption of IFRS 16 had no impact on revenue growth, while it had an impact of 1,509 million euros on OIBDA, increasing OIBDA growth by 9.7 percentage points. The impact on operating income was negative, amounting to 123 million euros.

•Restructuring costs: we have excluded the impact in 2019 and 2018 of restructuring costs, mainly those related to the Individual Suspension Plan adopted under the II Collective Agreement of Related Companies in Telefónica Spain.

The distribution by segment of the restructuring costs, in terms of their impact on OIBDA and OI, is as follows:


Millions of euros	2018	2019
Telefónica Spain	297	1,733
Telefónica United Kingdom	—	31
Telefónica Germany	84	22
Telefónica Brazil	46	—
Telefónica Hispam	66	235
Telxius Group	—	0
Other companies	(32)	149
Total restructuring costs	461	2,170

•Spectrum acquisition: the organic variation of CapEx excludes the impact of spectrum acquisitions in 2019 and 2018.

In 2019, these acquisitions totaled 1,501 million euros, with 1,425 million euros corresponding to Telefónica Germany, 51 million euros corresponding to Telefónica Hispam, and 7 million euros corresponding to Telefónica Spain.

In 2018, these acquisitions totaled 868 million euros, with 588 million euros corresponding to Telefónica United Kingdom, 158 million euros corresponding to Telefónica Hispam, 122 million euros corresponding to Telefónica Spain, and 2 million euros corresponding to Telefónica Brazil.

•Gains or losses on the sale of companies: the gains obtained or losses incurred from the sale of companies have been excluded to calculate organic variations.

In 2018, we excluded the gains from the sale of Telefónica Digital Ltd. (21 million euros) and the loss from the sale of Centro de Asistencia Telefónica, S.A. (3 million euros).

•Impairment of goodwill: the impairment losses on goodwill are excluded from calculations of organic variations.

In 2019, the impairment of the goodwill allocated to Telefónica Argentina, amounting to 206 million euros, has been excluded.

Table of Contents

In 2018, the impairment of the goodwill allocated to Telefónica Móviles México, amounting to 350 million euros, has been excluded.

•Judicial decision related to the exclusion of ICMS from the tax basis of PIS/COFINS: organic variations exclude the positive impact of the judicial decisions of the Brazilian Supreme Court recognizing the right to deduct the state tax on goods and services (ICMS) from the calculation of the basis of the Social Integration Program-PIS (Programa de Integração Social) and the Financing of Social Security-COFINS (Contribuição para Financiamento da Seguridade Social). The positive impact in 2018 (789 million euros in the OIBDA and OI of Telefónica Brazil) has been excluded from the calculation of organic variations.

•Transformation of the operating model of Telefónica México: the organic variations exclude the impact of the transformation of the operating model of Telefónica México (which means that the wireless access infrastructure will be turned off and related licensed spectrum will be released), following the AT&T agreement in 2019, which had a negative impact on OIBDA and operating income amounting to 239 and 275 million euros, respectively. For additional information on how the transformation of the operating model of Telefónica México affected the Group’s results in 2019, see "Item 5. Operating and Financial Review and Prospects-Operating Results-Significant Factors Affecting the Comparability of Our Results of Operations in the Periods under Review-Wholesale Agreement with AT&T Mexico” and for additional information on the Wholesale Agreement, see “Item 10. Additional Information-Material Contracts-Wholesale Access Services Agreement with AT&T Mexico”.

•Other adjustments: organic variations exclude the following: (i) the amount received in 2019 in connection with the irrevocable sale of the future credit rights that might arise from the favorable resolution of certain claims and lawsuits of various kinds to which Telefónica Spain was a party at the date of the sale agreement (103 million euros); (ii) the impact of the classification of certain assets as held for sale in 2019 on the depreciation and amortization expense for such year (76 million euros in operating income); (iii) the reported variation of Telefónica Venezolana in 2019 as a result of the translation to euros of its financial statements, following the publication by the Central Bank of Venezuela (BCV) of the inflation rates for the period from January 2016 to December 2019 (57 million euros in revenues, 7 million euros in OIBDA and 65 million euros in operating income); (iv) the impact of the provision recorded in Telefónica Spain in 2019 to optimize the distribution network (23 million euros); and (v) the impact of the provision relating to certain labor and tax contingencies recorded in Telefónica Brazil in 2018 (215 million euros).

The table below shows 2019/2018 variations in reported and organic terms (the latter, calculated in accordance with the adjustments referred to above) of certain line items of the consolidated income statement and CapEx and OIBDA-CapEx:


	YoY variation
TELEFÓNICA 2019	% Reported YoY		% Organic YoY
Revenues	(0.6	%)	3.2	%
Other income	75.2	%	37.3	%
Supplies	(2.7	%)	6.2	%
Personnel expenses	27.4	%	5.0	%
Other expenses	0.3	%	4.8	%
OIBDA	(2.9	%)	1.9	%
Depreciation and amortization	16.9	%	2.0	%
Operating income	(30.4	%)	1.7	%
CapEx	8.2	%	4.0	%
OIBDA-CapEx	(15.0	%)	0.1	%

Table of Contents


	Contribution to reported growth (percentage points)
TELEFÓNICA 2019	Exchange rate effect and hyperinflation	Perimeter change	IFRS 16 impact	Gains/losses on sale of companies	Restructuring costs	Judicial decision PIS/COFINS	Impairment of goodwill	Spectrum acquisition	T. Mexico transformation	Other adjustments
Revenues	(3.1)	(0.8)	—	—	—	—	—	—	—	0.1
Other income	(1.4)	(0.7)	(11.7)	40.4	—	—	—	—	5.6	6.4
Supplies	(2.1)	(0.7)	(6.1)	—	—	—	—	—	—	0.1
Personnel expenses	(6.2)	(1.1)	(0.1)	—	29.4	—	—	—	0.7	(0.0)
Other expenses	(3.5)	(0.4)	(5.8)	0.1	(0.1)	5.5	(1.0)	—	1.9	(1.0)
OIBDA	(2.2)	(0.9)	9.7	4.2	(11.8)	(5.1)	0.9	—	(1.5)	1.9
Depreciation and amortization	(1.1)	(0.7)	18.0	—	—	—	—	—	0.2	(1.4)
Operating income	(3.7)	(1.2)	(1.9)	9.9	(28.3)	(12.1)	2.2	—	(3.8)	6.6
CapEx	(2.7)	(0.7)	(0.0)	—	—	—	—	7.9	—	0.2
OIBDA-CapEx	(1.7)	(1.2)	20.3	8.7	(24.7)	(10.6)	1.9	(8.6)	(3.0)	3.8

Results discussion

Revenues totaled 48,422 million euros in 2019, decreasing by 0.6% y-o-y in reported terms, negatively impacted by foreign exchange rates and hyperinflation (-3.1 p.p.) and changes in the consolidation perimeter (-0.8 p.p.). In organic terms, revenues increased by 3.2% as a result of higher service revenues (+2.0%) and, to a lesser extent, higher handset sales (+13.4%).

The structure of revenues reflects Telefónica's geographic diversification. The contribution of the following segments to the Telefónica Group's revenues increased in 2019 as compared to 2018: Telefónica Spain, which contributed 26.5% (+0.3 p.p. versus 2018), Telefónica Germany with 15.3% (+0.2 p.p. versus 2018), Telefónica United Kingdom with 14.7% (+0.7 p.p. versus 2018), and Telxius Group, which contributed 1.7% (+0.1 p.p. versus 2018). The contribution of the following segments to the Telefónica Group’s revenues decreased as compared to 2018: Telefónica Brazil, which contributed 20.7% (-0.1 p.p. versus 2018) and Telefónica Hispam, which contributed 19.9% (-0.5 p.p. versus 2018).

•Mobile business revenues totaled 30,692 million euros in 2019 (of which 25,090 million euros corresponded to mobile service revenues and 5,602 million euros corresponded to handset revenues), down 0.3% year-on-year in reported terms. This decrease was mainly due to the impact of changes in foreign exchange rates and hyperinflation in Argentina (-2.8 p.p.). Excluding these impacts, mobile business revenues grew by 3.6% due to higher revenues in Telefónica Hispam, Telefónica Brazil, Telefónica United Kingdom and Telefónica Germany, despite the impact of certain regulatory tariff reductions in some segments.

•Mobile service revenues totaled 25,090 million euros in 2019, down 2.3% year-on-year in reported terms due to the impact of changes in foreign exchange rates and hyperinflation in Argentina (-2.8 p.p.). Excluding these impacts, mobile service revenues grew by 1.7% mainly as a result of higher data consumption.

•Fixed revenues totaled 16,568 million euros in 2019, down 1.0% year-on-year in reported terms mainly due to the impact of changes in foreign exchange rates and hyperinflation in Argentina (-3.5 p.p.). Excluding these impacts, fixed revenues increased by 2.4%, as a result of the higher fixed revenues in Telefónica Hispam, which more than offset the decrease in fixed revenues in Telefónica Brazil.

Other income: mainly includes own work capitalized in our fixed assets and profit from the sales of assets. In 2019, other income totaled 2,842 million euros compared to 1,622 million euros in 2018. In 2019, other income registered gains from the sales of companies, mainly Antares, Telefonía Celular de Nicaragua, Telefónica Móviles Guatemala, Telefónica Móviles Panamá, the sale of data center businesses and the irrevocable sale of credit rights that might arise from the favorable resolution of certain claims and lawsuits of various kinds to which Telefónica Spain was a

Table of Contents

party at the date of the sale agreement. In organic terms, other income increased by 37.3% mainly due to the sale of certain assets such as central offices and towers.

The total amount of supplies, personnel expenses and other expenses (principally external services and taxes), was 36,145 million euros in 2019, up 4.0% year-on-year in reported terms. This variation is mainly attributable to the restructuring costs, mainly those related to the II Collective Agreement of Related Companies in Spain (Individual Suspension Plan) (+5.3 p.p.) and the judicial decision related to the exclusion of ICMS from the tax basis of PIS/COFINS which had a positive impact in 2018 (+2.3 p.p.), partially offset by IFRS 16 impact (-4.9 p.p.) and the impact of foreign exchange rates and hyperinflation in Argentina (-3.4 p.p.). In organic terms, the total amount of supplies, personnel expenses and other expenses increased by 5.4%. These costs are explained in greater detail below:

•Supplies amounted to 13,635 million euros in 2019, down 2.7% year-on-year in reported terms mainly as a result of the adoption of IFRS 16 (-6.1 p.p.) and the impact of foreign exchange rates and hyperinflation (-2.1 p.p.). In organic terms, supplies increased by 6.2% year-on-year, mainly due to higher handset costs due to the significant number of handset sales, higher TV content costs and higher costs related to IT sales in Telefónica Spain.

•Personnel expenses amounted to 8,066 million euros in 2019, up 27.4% year-on-year in reported terms mainly as a result of the restructuring expenses related to the II Collective Agreement of Related Companies in Spain (Individual Suspension Plan) (+29.4 p.p.). In organic terms, personnel expenses increased by 5.0% year-on-year mainly as a result of salary updates in Argentina (driven by the inflation) and higher expenses in Telefónica Brazil, related to the insourcing of IT/systems activities.

The average headcount was 117,347 employees in 2019, down 3.7% as compared to 2018.

•Other expenses amounted to 14,444 million euros in 2019, up 0.3% year-on-year in reported terms. The reported variation was attributable in part to the judicial decision related to the exclusion of ICMS from the tax basis of PIS/COFINS in 2018, which had a positive impact in such year but not in 2019 (+5.5 p.p.), partially offset by the adoption of IFRS 16 (-5.8 p.p.) and foreign exchange rates and hyperinflation in Argentina (-3.5 p.p.). In organic terms, other expenses increased by 4.8% year-on-year due mainly to higher network and IT development costs as well as higher customer management costs.

In 2019, OIBDA totaled 15,119 million euros, decreasing by 2.9% year-on-year in reported terms. In organic terms, OIBDA grew by 1.9%.

Depreciation and amortization amounted to 10,582 million euros in 2019, up 16.9% year-on-year in reported terms, mainly due to the adoption of IFRS 16 (+18.0 p.p.) and higher amortization expenses in Telefónica Brazil, offset in part by the impact of foreign exchange rates and hyperinflation in Argentina (-1.1 p.p.). In organic terms, depreciation and amortization grew by 2.0%.

Operating income (OI) in 2019 totaled 4,537 million euros, down 30.4% in reported terms due mainly to the significant restructuring costs, totaling 2,170 million euros (-28.3 p.p.), the negative impact of foreign exchange rates and hyperinflation (-3.7 p.p.), the transformation of Telefónica México's business model following its agreement with AT&T Mexico (-3.8 p.p.) and the adoption of IFRS 16. In organic terms, operating income increased by 1.7% year-on-year due to higher revenues and, to a lesser extent, savings from the digitalization and simplification processes undertaken by the Group, among other cost control actions.

Operating margin stood at 9.4% in 2019, down 4.0 p.p. compared to 2018 in reported terms.

The share of income of investments accounted for by the equity method for 2019 was a gain of 13 million euros (compared to a gain of 4 million euros in 2018).

Net financial expense amounted to 1,832 million euros in 2019, 877 million euros lower than the previous year, mainly due to the extraordinary effect of interest associated with favorable rulings in court in Brazil in 2018 and the impact of adopting IFRS 16.

Corporate income tax amounted to 1,054 million euros in 2019 down 567 million euros year-on-year, mainly due to lower profit before taxes in 2019. The corporate income tax has been impacted by the reversal of deferred tax assets in Mexico, partially offset by restructuring provisions effects.

Table of Contents

As a result, profit for the year attributable to equity holders of the parent for 2019 was 1,142 million euros (3,331 million euros in 2018).

Profit attributable to non-controlling interests was 522 million euros, 97 million euros lower than in 2018, mainly due to lower profit attributable to non-controlling interests at Telefónica Brazil, partially offset by the higher profit attributable to non-controlling interests at Telefónica Centroamerica Inversiones related mainly to the gains on the sale of Telefonía Celular de Nicaragua and Telefónica Móviles Panamá.

2019/2018 Segment results

TELEFÓNICA SPAIN

The table below shows the evolution of accesses in Telefónica Spain over the past two years as of December 31 of

such years:


ACCESSES
Thousands of accesses	2018	2019	%Reported YoY
Fixed telephony accesses (1)	9,361.3	9,024.1	(3.6	%)
Internet and data accesses (2)	6,129.6	6,034.8	(1.5	%)
Broadband	6,113.5	6,023.4	(1.5	%)
FTTH	3,940.6	4,325.0	9.8	%
Mobile accesses	18,384.4	18,916.9	2.9	%
Prepay	1,440.1	1,137.2	(21.0	%)
Contract	16,944.3	17,779.6	4.9	%
M2M	2,333.2	2,620.8	12.3	%
Pay TV	4,091.3	4,073.8	(0.4	%)
Retail Accesses	37,966.5	38,049.5	0.2	%
Wholesale Accesses	3,912.9	3,788.2	(3.2	%)
Total Accesses	41,879.4	41,837.7	(0.1	%)

(1) Includes "fixed wireless" and Voice over IP accesses. Since March 2018, the calculation of fixed telephony accesses in Spain has been revised to reflect lines included in certain products, which were not fully accounted for before. 2018 figures included in this section have been revised accordingly for comparative purposes (resulting in +332.2 accesses as of December 31, 2018).

(2) Also referred to as fixed broadband accesses.

During 2019, the commercial activity continued to rely on the differentiated products of the company, with a multi brand strategy (Movistar, O2, Tuenti) to serve different segments of customers. Through the convergent offer “Movistar Fusión +” and under the "Más por Más” strategy, the company continued to evolve the abovementioned offer and adapt it to the incremental customer demand, increasing data in all mobile lines included in high value Fusión packages, as well as offering a Multiplus service that allows the user to watch all of our proprietary content of the Movistar+ portfolio on an additional TV at home (as of December 31, 2019, this service had a price of 8 euros per month).

In addition, during 2019, Telefónica launched innovations in its portfolio to develop the relationship with its clients and reach new segments. In line with this initiative, from June 2019, Movistar Priority service was started and offered a series of advantages and benefits, such as personalized and prioritized attention services provided by specialized agents, as well as a differential experience at the shop, including the help of a technology expert to clarify any doubt related to any device connected to our network, as well as exclusive experiences (such as access to exclusive football, basketball, cycling, winter sports, opera, music, expositions or eSports experiences, among others) and discounts and news related to Movistar equipment.

In addition, in June 2019, Internet Second Residence was launched. This is a new Fixed Broadband Offer intended to cover the access to Internet in second residences of Fusion clients. In this way, clients who have contracted the Fusion Total Plus package will be able to access Internet in their second residences for only 15 euros per month. The price is 20 euros per month for Fusion Total clients and 30 euros per month for the rest of the Fusion clients.

Table of Contents

Furthermore, in June 2019, Movistar+ Lite was launched. This was a new OTT offer for non-Movistar clients with a price of 8 euros per month, which provided access to original content of Movistar+ offered in channels #0 and #Vamos, to the most relevant sport events offered in these channels, to Movistar Series and Movistar Seriesmanía and to a catalogue of 300 series and documentaries, 270 films and 60 programs under demand, including proprietary and third parties’ content.

Lastly, the offer diversified with the introduction of new financial services through Movistar Money. We started offering Movistar clients these services in April 2019, offering family consumption loans of up to 4,000 euros. In May 2019, Movistar Car was launched. This service connects vehicles to the Wi-Fi network. This service is aimed at making cars safer and more intelligent and it is available to all users of mobile telephony, including non-Movistar clients.

Telefónica Spain had 41.8 million accesses as of December 31, 2019 (compared to 41.9 million on December 31, 2018), with decreases in fixed accesses (-3.6% year-on-year) and in mobile prepay accesses (-21.0% year-on-year). However, Telefónica Spain's positive evolution of high value accesses continued with an increase in mobile postpay accesses (+4.9% year-on-year) and fiber accesses (+9.8% year-on-year).

The consumer convergent offer had a customer base of 4.7 million, with 5.1 million additional mobile lines associated with those customers as of December 31, 2019, increasing by 1.0% and 9.7% y-o-y respectively and contributing 88.7% of the retail fixed broadband customer base (+1.1 p.p. y-o-y) and 84.1% of the retail mobile contract customer base (+0.2 p.p. y-o-y). Penetration of the high value services of the convergent offer continued to increase, with 48.4% of the customer base already using 600 Mb ultra-fast broadband (+8.9 p.p. y-o-y) and 81.6% of the customer base using Pay TV as of December 31, 2019 (+1.2 p.p. y-o-y). In addition, the number of mobile lines per convergent client (main mobile line plus additional lines that might be included in the offer) increased by 5.4% as of December 31, 2019, equivalent to 2.1 mobile lines on average as of December 31, 2019 compared to 2.0 lines as of December 31, 2018 per convergent client.

Fixed accesses decreased 3.6% y-o-y as compared to 2018, with a net loss of 337 thousand accesses in 2019.

Retail broadband accesses totaled 6.0 million (-1.5% y-o-y), with a net loss of 90 thousand accesses during 2019.

Retail fiber accesses amounted to 4.3 million customers (+9.8% as compared to December 31, 2018), representing 71.8% of total retail broadband customers (+7.3 p.p. y-o-y) with net adds of 384 thousand accesses in 2019. Ultra speed fiber accesses, with 600 Mb (which typically feature higher ARPU) amounted to 2.8 million accesses (64.8% of total fiber accesses). At December 31, 2019, fiber deployment reached 23.1 million premises, 1.8 million more than at December 31, 2018, and it continued to be the largest in Europe. In addition, wholesale fiber accesses reached an estimated 2.2 million customers as of December 31, 2019 (+41.6% y-o-y) and represented 56.9% of the wholesale accesses (+18.0 p.p. y-o y).

Total mobile accesses stood at 18.9 million as of December 31, 2019, up by 2.9% as compared to December 31, 2018, as a result of the increase in mobile contract accesses that more than offset the decrease in prepay accesses (-21.0% y-o-y), reflecting the success of the convergent strategy and the positive evolution of the prepay to contract migration. The contract access base accelerated its growth during 2019, growing by 4.9% year-on-year. Smartphone penetration as of December 31, 2019 stood at 81.5% of the mobile voice base (+1.1 p.p. y-o-y) and significantly boosted data traffic growth (46.0% year-on-year) due to the higher number of customers with superior data packages.

LTE network rollout continued to progress, and coverage reached approximately 98.0% of the population at December 31, 2019, up 0.3 p.p. as compared to December 31, 2018. As a result, the LTE customer base reached 9.4 million customers as of December 31, 2019, up 6.3% as compared to December 31, 2018, with a penetration of 57.7% (+2.6 p.p. y-o-y).

Pay TV accesses amounted to 4.1 million at December 31, 2019, down 0.4% year-on-year.

Wholesale accesses stood at 3.8 million at December 31, 2019, down 3.2% year-on-year due to the decrease in wholesale copper accesses, offset in part by the increase in fiber accesses, that significantly helped to enhance the value of our wholesale access base.

Table of Contents

The table below shows Telefónica Spain’s results over the past two years:


Millions of euros
TELEFÓNICA SPAIN (1)	2018	2019	%Reported YoY		%Organic YoY (2)
Revenues	12,788	12,850	0.5	%	0.5	%
Consumer	6,689	6,658	(0.5	%)	(0.5	%)
Convergent	4,795	4,963	3.5	%	3.5	%
Non-Convergent	1,894	1,695	(10.5	%)	(10.5	%)
Corporate	3,462	3,509	1.4	%	1.3	%
Communications	2,602	2,508	(3.6	%)	(3.7	%)
IT	860	1,002	16.5	%	16.5	%
Others	2,251	2,310	2.6	%	2.7	%
Other income	392	640	63.1	%	37.7	%
Supplies	(3,710)	(4,056)	9.3	%	9.3	%
Personnel expenses	(2,257)	(3,660)	62.1	%	(0.9	%)
Other expenses	(2,417)	(2,055)	(15.0	%)	(4.9	%)
OIBDA	4,795	3,719	(22.4	%)	0.1	%
Depreciation and amortization	(1,678)	(2,013)	19.9	%	3.7	%
Operating income (OI)	3,117	1,706	(45.3	%)	(1.7	%)
CapEx	1,741	1,667	(4.2	%)	2.6	%
OIBDA-CapEx	3,054	2,052	(32.8	%)	(1.1	%)

(1) From January 1, 2020 Telefónica Spain consolidates Telefónica Global Technology, S.A.U., which was previously part of "Other companies”. 2019 and 2018 figures have been revised accordingly for comparative purposes.

(2) See adjustments made to calculate organic variations below.

Adjustments made to calculate organic variations

As explained above, year-on-year percentage changes referred to in this document as “organic” or presented in “organic terms” intend to present year-on-year variations on a comparable basis.

With respect to Telefónica Spain, we have made the following adjustments in order to calculate 2019/2018 variations in organic terms:

•IFRS 16 impact: organic variations exclude the impact of the adoption of IFRS 16 in 2019. The adoption of IFRS 16 had a positive impact of 248 million euros on OIBDA and a negative impact of 28 million euros on operating income.

•Changes in the consolidation perimeter: we have excluded in 2018 the results of Centro de Asistencia Telefónica, S.A. (which was sold in December 2018) and the impact of the adjustment related to the amortization of the data centers.

•Optimization of the distribution network: organic variations exclude the impact of the provisions recorded in Telefónica Spain totaling 23 million euros in 2019 in connection with the restructuring of the distribution channels.

•Restructuring costs: the impact of certain restructuring costs mainly related to the Individual Suspension Plan amounting to 1,733 million euros and 297 million euros in 2019 and 2018, respectively, has been excluded.

•Gains or losses on the sale of companies: organic variations exclude the 27 million euros gains from the sale of data center businesses in 2019 and the loss of 3 million euros incurred in the sale of Centro de Asistencia Telefónica, S.A. in 2018.

•Spectrum acquisition: we have excluded the impact of spectrum acquisitions on CapEx, which totaled 7 million euros in 2019 and 122 million euros in 2018.

Table of Contents

The table below shows 2019/2018 variations in reported and organic terms (the latter, calculated in accordance with the adjustments referred to above) of certain line items of the income statement and other measures, and the contribution of each item for which we have adjusted to our reported growth:


	YoY variation				Contribution to reported growth (percentage points)
TELEFÓNICA SPAIN 2019	%Reported YoY		%Organic YoY		IFRS 16 impact	Perimeter changes	Spain distribution network	Restructuring costs	Gains/losses on sale of companies	Spectrum acquisition	Sale of future credit rights
Revenues	0.5	%	0.5	%	—	(0.0)	—	—	—	—	—
Other income	63.1	%	37.7	%	(7.8)	0.0	—	—	7.0	—	26.3
Supplies	9.3	%	9.3	%	0.0	—	—	—	—	—	—
Personnel expenses	62.1	%	(0.9	%)	—	(0.6)	—	63.6	—	—	—
Other expenses	(15.0	%)	(4.9	%)	(11.5)	0.7	0.9	—	(0.1)	—	—
OIBDA	(22.4	%)	0.1	%	5.2	(0.1)	(0.5)	(29.9)	0.6	—	2.1
Depreciation and amortization	19.9	%	3.7	%	16.4	(0.2)	—	—	—	—	—
Operating income (OI)	(45.3	%)	(1.7	%)	(0.9)	0.0	(0.7)	(46.0)	1.0	—	3.3
CapEx	(4.2	%)	2.6	%	(0.0)	(0.0)	—	—	—	(6.6)	—
OIBDA-CapEx	(32.8	%)	(1.1	%)	8.1	(0.1)	(0.7)	(47.0)	1.0	3.8	3.4

Results discussion

Revenues in Telefónica Spain in 2019 were 12,850 million euros, up 0.5% y-o-y in reported terms.

•Consumer revenues amounted to 6,658 million euros in 2019, down by 0.5% y-o-y in reported terms, mainly as a result of the 10.5% y-o-y decrease in the revenues relating to “non-convergent” products (1,695 million euros in 2019), which more than offset the 3.5% y-o-y growth in reported terms relating to "convergent" products (4,963 million euros in 2019), driven by ARPU growth and growth in the customer base.

•Corporate revenues amounted to 3,509 million euros in 2019, up by 1.4% year-on-year in reported terms, due to the good evolution of IT revenues, which grew 16.5% y-o-y in reported terms and more than offset the decrease in communications revenues (-3.6% year-on-year in reported terms).

•Other revenues, which include wholesale, subsidiaries and other revenues, amounted to 2,310 million euros in 2019, up by 2.6% y-o-y in reported terms, driven by the increase in wholesale TV revenues.

OIBDA amounted to 3,719 million euros in 2019, down 22.4% year-on-year in reported terms. In organic terms, OIBDA grew 0.1% y-o-y.

Depreciation and amortization amounted to 2,013 million euros in 2019, up 19.9% year-on-year in reported terms, mainly due to the adoption of IFRS 16. In organic terms, depreciation and amortization increased 3.7% year-on-year explained by higher investment in 2019.

Operating income (OI) amounted to 1,706 million euros in 2019, down 45.3% year-on-year in reported terms, principally due to the 1,732 million euros provision recorded in connection with the Group's payment commitments under the Individual Suspension Plan (-46.0 p.p.), the provision recorded in connection with the restructuring of the distribution channels (-0.7 p.p.), and the impact of the adoption of IFRS 16 (-0.9 p.p.), which was partially offset by

Table of Contents

the irrevocable assignment of any credits rights that might arise from the favorable resolution of certain claims and lawsuits of various kinds to which Telefónica Spain was a party at the date of the sale agreement (+3.3 p.p.) and the gains arisen from the sale of data center businesses (+1.0 p.p.). In organic terms, operating income decreased by 1.7% y-o-y, mainly due to the increase in supplies (+9.3% year-on year in both organic and reported terms), which was mainly attributable to the higher content costs and IT equipment purchases, partially offset by lower personnel expenses (-0.9% y-o-y in organic terms), driven by the savings generated by the termination of employees who adhered to the ‘Individual Suspension Plan’, and the decrease of other expenses (-4.9% y-o-y in organic terms), principally due to lower commercial costs.

TELEFÓNICA UNITED KINGDOM

The table below shows the evolution of accesses in Telefónica United Kingdom over the past two years as of December 31 of such years:


ACCESSES
Thousands of accesses	2018	2019 (1)	% Reported YoY
Fixed telephony accesses (2)	306.9	313.3	2.1	%
Internet and data accesses (3)	28.1	28.9	2.5	%
Broadband	28.1	28.9	2.5	%
Mobile accesses	25,044.1	25,803.3	3.0	%
Prepay	8,742.6	8,436.1	(3.5	%)
Contract	16,301.4	17,367.2	6.5	%
M2M	3,578.0	5,118.7	43.1	%
Retail Accesses	25,379.1	26,145.5	3.0	%
Wholesale Accesses	7,599.2	8,714.7	14.7	%
Mobile wholesale accesses	7,599.2	8,714.7	14.7	%
Total Accesses	32,978.3	34,860.2	5.7	%

(1) In December 2019, 665 thousand mobile contract accesses in the United Kingdom were reclassified as wholesale accesses.

(2) Includes "fixed wireless" and Voice over IP accesses.

(3) Also referred to as fixed broadband accesses.

During 2019, despite the competitive environment, Telefónica United Kingdom remained as the favorite telecommunications operator in United Kingdom, a position underpinned by the strength of the O2 brand, custom loyalty (the operator with the lowest churn of the market) and successful commercial propositions, such as the “Custom Plans” and its updates, which provides customers with flexibility and choice by allowing them to customize their plans by choosing the contract terms (up to 36 months), the amount of payment upfront and the data plan. Telefónica United Kingdom successfully introduced its first offer for customers seeking unlimited mobile data while providing upselling opportunities. Such propositions have allowed the company to achieve continuous customer growth in a competitive market.

Total accesses grew by 5.7% year-on-year, standing at 34.9 million by the end of December 2019.

Mobile net additions in 2019 amounted to 759 thousand accesses, driven by contract mobile accesses, which grew by 6.5% y-o-y to 17.4 million and increased their proportion over the total mobile accesses to 67.3%.

Prepay accesses decreased by 3.5% y-o-y to 8.4 million customers due to disconnections of inactive customer accesses and market dynamics, including prepay to postpay migration. Smartphone penetration over the total mobile base reached 87.5%, up 8.6 percentage points year-on-year. The base of LTE customers reached 15.4 million with 14.1% y-o-y growth and 74.5% penetration over the mobile base.

Table of Contents

The table below shows the evolution of Telefónica United Kingdom's results over the past two years:


Millions of euros
TELEFÓNICA UNITED KINGDOM	2018	2019	%Reported YoY		%Organic YoY (1)
Revenues	6,790	7,109	4.7	%	3.8	%
Mobile business (2)	6,576	6,891	4.8	%	3.9	%
Mobile service revenues	4,837	4,805	(0.7	%)	(1.5	%)
Other income	158	186	18.0	%	17.0	%
Supplies	(2,359)	(2,521)	6.9	%	8.6	%
Personnel expenses	(445)	(503)	12.9	%	5.5	%
Other expenses	(2,279)	(2,157)	(5.3	%)	0.6	%
OIBDA	1,865	2,114	13.4	%	2.3	%
Depreciation and amortization	(943)	(1,204)	27.7	%	5.1	%
Operating income (OI)	922	910	(1.3	%)	(0.4	%)
CapEx	1,464	914	(37.6	%)	3.4	%
OIBDA-CapEx	400	1,200	n.m.		1.4	%

n.m.: not meaningful

(1) See adjustments made to calculate organic variations below.

(2) From 2020 "Mobile Business" revenues in Telefónica United Kingdom include certain mobile digital services revenues that were previously included in “Revenues” without being separately shown. 2019 and 2018 revenues have been revised accordingly for comparative purposes.

Adjustments made to calculate organic variations

As explained above, year-on-year percentage changes referred to in this document as “organic” or presented in “organic terms” intend to present year-on-year variations on a comparable basis.

With respect to Telefónica United Kingdom, we have made the following adjustments in order to calculate 2019/2018 variations in organic terms:

•IFRS 16 impact: organic variations exclude the impact of the adoption of IFRS 16 in 2019. The adoption of IFRS 16 had a positive impact of 219 million euros and 15 million euros on OIBDA and operating income, respectively.

•Restructuring costs: we have excluded the impact in 2019 of restructuring costs, amounting to 31 million euros.

•Spectrum acquisition: we have excluded the impact of spectrum acquisitions on CapEx in 2018, which totaled 588 million euros.

The table below shows 2019/2018 variations in reported and organic terms (the latter, calculated in accordance with the adjustments referred to above) of certain line items of the income statement and other measures, and the contribution of each item for which we have adjusted to our reported growth:

Table of Contents


	YoY variation				Contribution to reported growth (percentage points)
TELEFÓNICA UNITED KINGDOM 2019	% Reported YoY		% Organic YoY		Exchange rate effect	IFRS 16 impact	Restructuring costs	Spectrum acquisition

Revenues	4.7	%	3.8	%	0.9	—	—	—
Other income	18.0	%	17.0	%	1.0	—	—	—
Supplies	6.9	%	8.6	%	0.9	(2.6)	—	—
Personnel expenses	12.9	%	5.5	%	1.0	—	6.4	—
Other expenses	(5.3	%)	0.6	%	0.9	(6.9)	0.1	—
OIBDA	13.4	%	2.3	%	0.9	11.8	(1.6)	—
Depreciation and amortization	27.7	%	5.1	%	0.9	21.7	—	—
Operating income (OI)	(1.3	%)	(0.4	%)	0.8	1.6	(3.3)	—
CapEx	(37.6	%)	3.4	%	0.5	—	—	(40.2)
OIBDA-CapEx	n.m.		1.4	%	2.1	54.8	(7.6)	n.m.

n.m.: not meaningful

Results discussion

In 2019, total revenues increased by 4.7% year-on-year in reported terms to 7,109 million euros. Excluding the impact of the appreciation of the pound sterling (+0.9 p.p.), the year-on-year growth was 3.8% and was driven mainly by higher handset revenues (due to higher value smartphone sales) and M2M program revenues.

•Mobile service revenues amounted to 4,805 million euros in 2019 and fell 0.7%, despite the appreciation of the pound sterling (+0.9 p.p.). Excluding the impact of the appreciation of the pound sterling, mobile service revenues decreased by 1.5% driven by lower out of bundle revenues.

Mobile ARPU fell by 4.2% year-on-year in reported terms despite the appreciation of the pound sterling. In organic terms, ARPU decreased by 5.0% as a result of lower out of bundle revenues.


TELEFÓNICA UNITED KINGDOM	2018		2019 (1)		%Reported YoY		%Organic YoY
ARPU (EUR)	15.1		14.4		(4.2	%)	(5.0	%)
Prepay	7.1		7.4		4.4	%	3.5	%
Contract (2)	24.6		23.7		(3.6	%)	(4.4	%)
Data ARPU (EUR)	9.2		9.0		(2.7	%)	(3.5	%)
% non-SMS over data revenues	66.6	%	68.5	%	1.9 p.p.		2.0p.p.

(1) In December 2019, 665 thousand mobile contract accesses were reclassified as wholesale accesses. This marginally affected ARPU calculations, as they relate to average retail accesses only (which are calculated on a monthly basis) and, therefore, marginally affected the comparability of 2019 and 2018 ARPU calculations.

(2) Excludes M2M.

OIBDA totaled 2,114 million euros in 2019, up by 13.4% in reported terms. In organic terms, OIBDA increased by 2.3% year-on-year.

Depreciation and amortization totaled 1,204 million euros, up by 27.7% in reported terms mainly due to the adoption of IFRS 16 (+21.7 p.p.) and the appreciation of the pound sterling (+0.9 p.p.). In organic terms, depreciation and amortization grew by 5.1%.

Operating income (OI) totaled 910 million euros, down 1.3% in reported terms, mainly due to the impact of restructuring expenses (-3.3 p.p.), partially offset by the appreciation of the pound sterling (+0.8 p.p.) and the adoption of IFRS 16 (+1.6 p.p.). In organic terms, operating income decreased by 0.4% year-on-year driven mainly by the higher depreciation and amortization expense, partly offset by the decrease in commercial costs.

Table of Contents

TELEFÓNICA GERMANY

The table below shows the evolution of accesses in Telefónica Germany over the past two years as of December 31 of such years:


ACCESSES
Thousands of accesses	2018	2019	% Reported YoY
Fixed telephony accesses (1)	1,996.0	2,129.5	6.7	%
Internet and data accesses (2)	2,274.7	2,301.7	1.2	%
Broadband	2,079.8	2,206.6	6.1	%
VDSL	1,441.3	1,652.0	14.6	%
Mobile accesses	42,818.8	43,826.8	2.4	%
Prepay	20,542.9	20,096.2	(2.2	%)
Contract	22,275.9	23,730.6	6.5	%
M2M	1,187.9	1,191.8	0.3	%
Retail Accesses	47,089.5	48,258.0	2.5	%

Total Accesses	47,089.5	48,258.0	2.5	%

(1) Includes "fixed wireless" and Voice over IP accesses.

(2) Also referred to as fixed broadband accesses.

In 2019, Telefónica Germany launched further value-added initiatives to enhance its strategy to increase ARPU and decrease the churn rate. This includes O2 TV (from May 2, 2019), O2 Cloud (from April 8, 2019) and O2 VDSL, a new offer at higher speed (from March 7, 2019). The O2 Free portfolio continued to drive usage and ARPU growth, leveraging the improved network quality of the company. Telefónica Germany also announced a significant enhancement of its infrastructure portfolio with the addition of cable and fiber wholesale access through a long-term agreement with Vodafone and Tele Columbus. During 2019, Telefónica Germany invested in LTE roll-out to fulfill its coverage obligations by the end of 2020.

The total access base grew 2.5% year-on-year and stood at 48.3 million at the end of 2019, mainly driven by a 2.4% increase in the mobile base, which amounted to 43.8 million.

The contract mobile access base grew 6.5% year-on-year and amounted to 23.7 million accesses, increasing the share over the total mobile base to 54.1%. Net adds amounted to 1.5 million accesses due to sustained traction from O2 Free customers and solid contribution of partners (second brands). Smartphone penetration amounted to 69.7% of the total mobile access base, up 3.7 percentage points year-on-year driven by the continued growth of LTE customers (+33.5% y-o-y, reaching 24.6 million accesses at the end of 2019). LTE penetration amounted to 57.7% of the total mobile access base as of December 31, 2019.

The prepay mobile access base decreased 2.2% year-on-year to 20.1 million due to lower demand, as a result of the continued impact of certain regulatory changes introduced in 2017 (mainly the need for a legitimation check in connection with SIM cards), although the churn trend improved in the last months of 2019. The prepay base posted a net loss of 0.4 million accesses in 2019.

The retail broadband access base increased by 127 thousand accesses in 2019, reaching 2.2 million accesses, mainly as a result of the strong demand for VDSL, with net adds of 211 thousand accesses in 2019 (with VDSL accesses increasing by 14.6% y-o-y).

The table below shows the evolution of Telefónica Germany’s results over the past two years:

Table of Contents


Millions of euros
TELEFÓNICA GERMANY	2018	2019	%Reported YoY		%Organic YoY (1)
Revenues	7,320	7,399	1.1	%	1.1	%
Mobile Business	6,539	6,647	1.6	%	1.6	%
Mobile service revenues	5,267	5,301	0.6	%	0.6	%
Fixed Business	767	741	(3.4	%)	(3.4	%)
Other income	177	183	3.6	%	3.6	%
Supplies	(2,459)	(2,372)	(3.5	%)	(1.8	%)
Personnel expenses	(610)	(592)	(2.9	%)	0.0	%
Other expenses	(2,594)	(2,292)	(11.6	%)	5.9	%
OIBDA	1,834	2,326	26.8	%	(1.1	%)
Depreciation and amortization	(2,071)	(2,463)	18.9	%	(4.8	%)
Operating income (OI)	(237)	(137)	(42.4	%)	(52.1	%)
CapEx	966	2,469	n.m.		8.1	%
OIBDA-CapEx	868	(143)	c.s.		(10.3	%)

c.s.: change of sign

n.m.: not meaningful.

(1) See adjustments made to calculate organic variations below.

Adjustments made to calculate organic variations

As explained above, year-on-year percentage changes referred to in this document as “organic” or presented in “organic terms” intend to present year-on-year variations on a comparable basis.

With respect to Telefónica Germany, we have made the following adjustments in order to calculate 2019/2018 variations in organic terms:

•Restructuring costs: we have excluded the impact of restructuring costs associated with simplification processes implemented in Germany. Restructuring costs totaled 22 million euros and 84 million euros in 2019 and 2018, respectively.

•Spectrum acquisition: organic variations exclude the impact of spectrum acquisitions on CapEx, which in 2019 amounted to 1,425 million euros. During 2018, no spectrum acquisitions were made.

•IFRS 16 impact: organic variations exclude the impact of the adoption of IFRS 16 in 2019. The adoption of IFRS 16 had a positive impact of 478 million euros on OIBDA and a negative impact of 13 million euros on operating income.

The table below shows 2019/2018 variations in reported and organic terms (the latter, calculated in accordance with the adjustments referred to above) of certain line items of the income statement and other measures and the contribution of each item for which we have adjusted to our reported growth:

Table of Contents


	YoY variation				Contribution to reported growth (percentage points)
TELEFÓNICA GERMANY 2019	%Reported YoY		%Organic YoY		Restructuring costs	Spectrum acquisition	IFRS 16 impact
Revenues	1.1	%	1.1	%	—	—	—
Other income	3.6	%	3.6	%	—	—	—
Supplies	(3.5	%)	(1.8	%)	—	—	(1.7)
Personnel expenses	(2.9	%)	0.0	%	(2.2)	—	(0.7)
Other expenses	(11.6	%)	5.9	%	(0.8)	—	(16.6)
OIBDA	26.8	%	(1.1	%)	1.9	—	26.1
Depreciation and amortization	18.9	%	(4.8	%)	—	—	23.7
Operating income (OI)	(42.4	%)	(52.1	%)	(14.4)	—	5.6
CapEx	n.m.		8.1	%	—	n.m.	—
OIBDA-CapEx	c.s.		(10.3	%)	3.9	c.s.	55.1

n.m.: not meaningful c.s.: change of sign

Results discussion

Total revenues were 7,399 million euros in 2019, with a year-on-year increase of 1.1%, due mainly to the strong consumer demand for handsets and the good performance of the O2 Free portfolio.

•Mobile service revenues totaled 5,301 million euros, growing 0.6% y-o-y, supported by the good traction of the retail and partners (second brands and associates) businesses, and a higher ARPU in the O2 Free portfolio. Data revenues increased by 4.3% and accounted for 57.5% of mobile service revenues in 2019, increasing 2.0 p.p. year-on-year.

•Fixed revenues totaled 741 million euros, down 3.4% year-on-year as a result of the continued trend of fixed business contraction and the planned dismantling of legacy infrastructure.

Mobile ARPU was 10.0 euros in 2019 (-0.2% y-o-y), while contract ARPU stood at 14.3 euros (-4.0% y-o-y), as a result of the higher share of second brands in the customer base. Data ARPU was 5.9 euros (+3.5% y-o-y).


TELEFÓNICA GERMANY	2018		2019		% Reported YoY
ARPU (EUR)	10.0		10.0		(0.2	%)
Prepay	5.8		6.0		3.2	%
Contract (1)	14.9		14.3		(4.0	%)
Data ARPU (EUR)	5.7		5.9		3.5	%
% non-SMS over data revenues	84.9	%	90.3	%	5.4 p.p.

(1) Excludes M2M.

OIBDA totaled 2,326 million euros in 2019, up 26.8% y-o-y in reported terms. In organic terms, OIBDA decreased by 1.1% year-on-year.

Depreciation and amortization amounted to 2,463 million euros in 2019, increasing 18.9% year-on-year in reported terms, impacted by the adoption of IFRS 16 (+23.7 p.p.). In organic terms, the depreciation and amortization expense decreased by 4.8% year-on-year.

Operating loss totaled 137 million euros in 2019 (operating loss amounted to 237 million euros in 2018), as a consequence of higher revenues and lower costs due to the adoption of IFRS 16. In organic terms, operating loss improved year-on-year mainly due to the lower depreciation and amortization expense, despite lower contribution from synergies, higher upfront investments in the company's digital transformation program and continued market investment into the positioning of the O2 brand in comparison to 2018.

Table of Contents

TELEFÓNICA BRAZIL

The table below shows the evolution of accesses in Telefónica Brazil over the past two years as of December 31 of such years:


ACCESSES
Thousands of accesses	2018	2019	%Reported YoY
Fixed telephony accesses (1)	13,004.6	10,817.0	(16.8	%)
Internet and data accesses (2)	7,564.7	7,009.2	(7.3	%)
Broadband	7,485.2	6,938.9	(7.3	%)
FTTx/Cable	4,991.1	5,022.8	0.6	%
Mobile accesses	73,151.3	74,573.1	1.9	%
Prepay	32,754.4	31,408.0	(4.1	%)
Contract	40,396.9	43,165.1	6.9	%
M2M	8,203.3	10,089.8	23.0	%
Pay TV	1,566.6	1,319.7	(15.8	%)
Retail Accesses	95,287.2	93,718.9	(1.6	%)
Wholesale Accesses	14.8	13.4	(9.9	%)
Total Accesses	95,302.0	93,732.3	(1.6	%)

(1) Includes "fixed wireless" and Voice over IP accesses.

(2) Also referred to as fixed broadband accesses.

In 2019, Telefónica Brazil maintained its leadership in the higher value mobile segments (with a higher contract market share, source: ANATEL), which permitted the operator to capture consistent revenue growth in that segment. In the fixed business, there was continued focus on the growth of strategic technologies such as fiber, which allowed the operator to capture high-value customers in the IPTV business. This allowed Telefónica Brazil to offset in part the downturn in the traditional fixed business.

Telefónica Brazil had 93.7 million accesses as of December 31, 2019, down 1.6% as compared to December 31, 2018. This decrease was a result mainly of the fall in the prepay customer base (affected by the slow macroeconomic recovery and migration to postpay) and fixed voice accesses (as a result of the migration to mobile, which was accelerated by the existence of unlimited voice offers), and the decrease in low value fixed broadband customers due to the discontinuation of Direct-to-Home (DTH) technology.

However, the high-value customer base improved, based on a higher customer base in postpay, Ultra Broadband and IPTV.

In the mobile business, the strategy remained focused on gaining and keeping high value customers, reaching a market share of 39.4% in the contract segment as of December 31, 2019 (Source: ANATEL). Telefónica Brazil maintained its market leadership in terms of total accesses with a market share of 32.9% as of December 31, 2019 (Source: ANATEL). Contract customers' growth (+6.9% y-o-y) more than offset the decrease in prepay customers (-4.1% y-o-y). Commercial offers focused on increasing data allowances with more data plans and value-added services, instead of voice and international roaming plans, as a result of price increases, following a more for more strategy.

The high value customer offer is focused on family plans complemented with OTT services (such as Netflix and VIVO music). In addition to the above, Telefónica Brazil has improved its interactions with customers through its virtual assistant AURA, which is available through the Meu VIVO application.

In the fixed business, the company maintained its strategic focus on fiber deployment, reaching 21.1 million premises passed with FTTx at December 31, 2019. The company is implementing alternative deployment models to accelerate fiber expansion which are less CapEx-intensive and has reduced the “time to market” period by entering into an agreement with American Tower which shares with Telefónica Brazil its network infrastructure. As part of these measures, Telefónica Brazil launched a franchise model under the Terra brand. Telefónica Brazil reached 2.5 million FTTH connected homes by the end of 2019, up 30.8% year-on-year. Broadband service accesses, including

Table of Contents

ADSL, decreased to 6.9 million as of December 31, 2019, down 7.3% year-on-year. Fixed traditional accesses decreased by 16.8% year-on-year due to the fixed-mobile migration referred to above.

Pay TV customers stood at 1.3 million as of December 31, 2019, decreasing 15.8% year-on-year due to a more selective commercial activity which targeted high value customers, whose activity resulted in the growth of IPTV accesses by 23.4% (representing 54.1% of total Pay TV accesses).

The table below shows the evolution of Telefónica Brazil’s results over the past two years:


Millions of euros
TELEFÓNICA BRAZIL	2018	2019	%Reported YoY		%Organic YoY (1)
Revenues	10,126	10,035	(0.9	%)	1.9	%
Mobile Business	6,372	6,498	2.0	%	4.8	%
Mobile service revenues	5,924	5,886	(0.6	%)	2.1	%
Fixed Business	3,754	3,537	(5.8	%)	(3.2	%)
Other income	312	427	37.0	%	36.0	%
Supplies	(2,039)	(1,686)	(17.3	%)	4.4	%
Personnel expenses	(1,080)	(1,028)	(4.9	%)	3.1	%
Other expenses	(3,008)	(3,486)	15.9	%	1.1	%
OIBDA	4,311	4,262	(1.1	%)	3.7	%
Depreciation and amortization	(1,990)	(2,516)	26.4	%	8.0	%
Operating income (OI)	2,321	1,746	(24.8	%)	(1.0	%)
CapEx	1,910	2,005	4.9	%	7.9	%
OIBDA-CapEx	2,401	2,257	(6.0	%)	(0.6	%)

(1) See adjustments made to calculate organic variations below.

Adjustments made to calculate organic variations

As explained above, year-on-year percentage changes referred to in this document as “organic” or presented in “organic terms” intend to present year-on-year variations on a comparable basis.

With respect to Telefónica Brazil, we have made the following adjustments in order to calculate 2019/2018 variations in organic terms:

•IFRS 16 impact: organic variations exclude the impact of the adoption of IFRS 16 in 2019. The adoption of IFRS 16 had a positive impact of 431 million euros and 4 million euros on OIBDA and on operating income, respectively.

•Restructuring costs: we have excluded the impact of restructuring costs associated with the simplification processes implemented in Telefónica Brazil. In 2018, these restructuring costs totaled 46 million euros. There were no such restructuring costs during 2019.

•Contingencies: the impact of the provisions relating to certain contingencies recorded in 2018 has been excluded in Telefónica Brazil (215 million euros).

•Judicial decision related to the exclusion of ICMS from the tax basis of PIS/COFINS: organic variations exclude the positive impact in 2018 of the judicial decision of the Brazilian Supreme Court that the ICMS (an indirect tax) should not be included on the tax basis of the PIS/COFINS tax (which contributed 789 million euros on the OIBDA and on operating income).

•Gains or losses on the sale of companies: the gain from the sale of data center businesses, which totaled 15 million euros in 2019, has been excluded to calculate organic variations.

Table of Contents

•Spectrum acquisition: we have excluded the impact of spectrum acquisitions (2 million euros in 2018) on CapEx. During 2019, no spectrum acquisitions were made.

•Changes in the consolidation perimeter: we have excluded in 2018 the impact of the adjustment related to the amortization of the data centers, which were sold in 2019.

The table below shows 2019/2018 variations in reported and organic terms (the latter, calculated in accordance with the adjustments referred to above) of certain line items of the income statement and other measures, and the contribution of each item for which we have adjusted to our reported growth:


	YoY variation				Contribution to reported growth (percentage points)
TELEFÓNICA BRAZIL 2019	%Reported YoY		%Organic YoY		Exchange rate effect	IFRS 16 impact	Restruc-turing costs	Contingen-cies	Gains/losses on sale of companies	Spectrum acquisition	Perimeter change	Judicial decision PIS/COFINS
Revenues	(0.9	%)	1.9	%	(2.7)	—	—	—	—	—	—	—
Other income	37.0	%	36.0	%	(3.8)	—	—	—	4.8	—	—	—
Supplies	(17.3	%)	4.4	%	(2.8)	(18.9)	—	—	—	—	—	—
Personnel expenses	(4.9	%)	3.1	%	(2.6)	—	(4.3)	(0.9)	—	—	—	—
Other expenses	15.9	%	1.1	%	(3.3)	(1.5)	—	(6.9)	—	—	0.0	26.2
OIBDA	(1.1	%)	3.7	%	(2.5)	10.0	1.1	5.0	0.3	—	(0.0)	(18.3)
Depreciation and amortization	26.4	%	8.0	%	(2.9)	21.4	—	—	—	—	(0.1)	—
Operating income (OI)	(24.8	%)	(1.0	%)	(2.1)	0.2	2.0	9.3	0.6	—	—	(34.0)
CapEx	4.9	%	7.9	%	(2.9)	—	—	—	—	(0.1)	—	—
OIBDA-CapEx	(6.0	%)	(0.6	%)	(2.1)	18.0