tef-20211231

As filed with the Securities and Exchange Commission on February 25, 2022

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, 2021


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]

Adrián Zunzunegui Ruano, 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)

____________________________________

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Securities registered or to be registered pursuant to Section 12(b) of the Act:


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.
$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 $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, 2021 was:

Ordinary Shares, nominal value 1.00 euro per share: 5,779,048,020

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

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

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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			28
A. History and Development of the Company			28
B. Business Overview			41
C. Organizational Structure			104
D. Property, Plant and Equipment			104
Item 4A. Unresolved Staff Comments			106
Item 5. Operating and Financial Review and Prospects			106
A. Operating Results			106
B. Liquidity and Capital Resources			118
C. Research and Development, Patents and Licenses, etc.			122

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D. Trend Information			124
E. Critical Accounting Estimates			126
F. Non-GAAP Financial Information			126
Item 6. Directors, Senior Management and Employees			131
A. Directors and Senior Management			132
B. Compensation			142
C. Board Practices			142
D. Employees			142
E. Share Ownership			142
Item 7. Major Shareholders and Related Party Transactions			143
A. Major Shareholders			143
B. Related Party Transactions			144
C. Interests of Experts and Counsel			145
Item 8. Financial Information			145
Item 9. The Offering and Listing			155
A. Offer and Listing Details			155
B. Plan of Distribution			161
C. Markets			161
D. Selling Shareholders			161
E. Dilution			161
F. Expenses of the Issue			161
Item 10. Additional Information			161
A. Share Capital			161
B. Memorandum and Articles of Association			161
C. Material Contracts			174
D. Exchange Controls			180
E. Taxation			181

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F. Dividends and Paying Agents			184
G. Statements by Experts			185
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
Item 16 H . M ine Safety Disclosure			194
Item 16 I . D isclosu re Regarding Foreign Juri sdictions that Prevent Inspections			194
Part III			195
Item 17. Financial Statements			195
Item 18. Financial Statements			195
Item 19. Exhibits			195

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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, economic and political uncertainties in Spain, the impact of Brexit, the worsening of the fiscal sustainability in some European countries or increasing trade or geopolitical 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;

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•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 (including our acquisition of Oi Group’s mobile assets in Brazil, as defined and further explained herein) or to achieve the expected outcome from any completed acquisition, divestment or other significant transaction (including our 50:50 joint venture with Liberty Global in the United Kingdom -JV VMED O2 UK-, as 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.

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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.”. 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.

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"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.

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"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.

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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, 2021 and 2020, and for the years ended December 31, 2021, 2020 and 2019 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”).

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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, 2019, 2020 and 2021 and the consolidated statements of financial position data as of December 31, 2020 and 2021 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.

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


Millions of euros	2017	2018	2019	2020	2021
Consolidated Income Statements Data
Revenues	52,008	48,693	48,422	43,076	39,277
Other income	1,489	1,622	2,842	1,587	12,673
Supplies	(15,022)	(14,013)	(13,635)	(13,014)	(12,258)
Personnel expenses	(6,862)	(6,332)	(8,066)	(5,280)	(6,733)
Other expenses	(15,426)	(14,399)	(14,444)	(12,871)	(10,976)
Depreciation and amortization	(9,396)	(9,049)	(10,582)	(9,359)	(8,397)
OPERATING INCOME	6,791	6,522	4,537	4,139	13,586
Share of (loss) income of investments accounted for by the equity method	5	4	13	2	(127)
Net finance expense	(2,290)	(1,232)	(1,953)	(1,740)	(1,414)
Net exchange differences	91	277	121	182	50
Net financial expense	(2,199)	(955)	(1,832)	(1,558)	(1,364)
PROFIT BEFORE TAX	4,597	5,571	2,718	2,583	12,095
Corporate income tax	(1,219)	(1,621)	(1,054)	(626)	(1,378)
PROFIT FOR THE YEAR	3,378	3,950	1,664	1,957	10,717
Attributable to equity holders of the parent	3,132	3,331	1,142	1,582	8,137
Attributable to non-controlling interests	246	619	522	375	2,580

Other Data
Weighted average number of shares-Basic (thousands)(1)	5,783,907	5,802,455	5,794,037	5,813,179	5,726,631
Basic earnings per share attributable to equity holders of the parent (euro)(1)	0.49	0.50	0.15	0.23	1.38
Diluted earnings per share attributable to equity holders of the parent (euro)(1)	0.49	0.50	0.15	0.23	1.37
Basic earnings per ADS (euro)(1)	0.49	0.50	0.15	0.23	1.38
Diluted earnings per ADS (euro)(1)	0.49	0.50	0.15	0.23	1.37
Weighted average number of ADS-Basic (thousands)(1)	5,783,907	5,802,455	5,794,037	5,813,179	5,726,631
Dividends per ordinary share (cash and scrip) (€)	0.40	0.40	0.40	0.40	0.35
Dividends per ordinary share (cash and scrip) ($)(2)	0.46	0.46	0.45	0.47	0.41

Consolidated Statements of Financial Position Data
Cash and cash equivalents	5,192	5,692	6,042	5,604	8,580
Property, plant and equipment	34,225	33,295	32,228	23,769	22,725
Total assets	115,066	114,047	118,877	105,051	109,213
Non-current liabilities	59,382	57,418	63,236	58,674	55,034
Equity	26,618	26,980	25,450	18,260	28,684
Capital stock	5,192	5,192	5,192	5,526	5,779

Consolidated Statements of Cash Flows Data
Net cash provided by operating activities	13,796	13,423	15,022	13,196	10,268
Net cash from (used in) investing activities	(10,245)	(8,685)	(5,641)	(7,790)	5,896
Net cash used in financing activities	(1,752)	(3,880)	(9,021)	(5,438)	(12,990)

(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. 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

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restated to reflect the issuance of shares pursuant to Telefónica’s scrip dividend in June 2020, December 2020, June 2021 and December 2021.

(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.

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 and in this report.

These risks are currently considered by the Telefónica Group to be material, specific and relevant 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 based 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, and 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.

The reinforcement of competitors, the entry of new competitors (new players or OTTs), or the merger of operators in certain markets, may affect Telefónica's competitive position, negatively affecting the evolution of its revenues and market share or increasing its costs. In addition, changes in competitive dynamics in the different markets in which the Telefónica Group operates, such as in Chile, Colombia, Peru and Argentina 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 these challenges, the Group's business, financial condition, results of operations and/or cash flows could be adversely affected.

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.

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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 satisfies certain obligations, including minimum specified quality levels, and service and coverage conditions. If the Telefónica Group breaches any 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.

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 Spain, the Ministry of Economic Affairs and Digital Transformation launched a public consultation on the 26 GHz band in December 2021. This consultation raises the possibility of assigning part of the spectrum to companies, industries and organizations operating in a specific sector, that deploy private networks to support their connectivity needs (verticals). This could mean more competition in the private corporate network segment and a possible increase in spectrum prices during the auction. The auction is expected to take place during 2022.

In Latin America, several auction processes are expected in the near term: (i) 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, with regards to spectrum in the 3.5 GHz band, the Ministerio de las Tecnologías de la Información y las Comunicaciones ("MinTic") postponed the auction without indicating a specific date to start the process. Telefónica has requested MinTic to delay any spectrum auction until the review of the existing spectrum valuation methodology, in order to align costs with the spectrum value generation capacity is completed, and specific measures to avoid resource monopolization by the dominant operator are put in place; and (ii) in Peru, Telefónica del Perú S.A.A. was pre-selected for the auction on the 1,750 - 1,780 MHz, 2,150 - 2,180 MHz and 2,300 - 2,330 MHz bands. The auction has been postponed to the end of February and further delays are foreseeable. With regards to 5G and the spectrum auction for the 3.5 GHz and 26 GHz band, the new government has not yet adopted any decision.

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.

With respect to Latin America:

In Brazil, the Agencia Nacional de Telecomunicações ("ANATEL") approved, on February 8, 2021, Resolution 741/2021 which sets the Regulation for the adaptation of Fixed Commuted Telephony Service ("STFC") Concessions. ANATEL is still working on the methodology for calculating the migration balance and there is a risk

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that consensus between the parties on the migration calculation may not be reached. In any case, if a decision is made by Telefónica not to migrate from the concession regime to the authorization regime, the STFC concession held by Telefónica will remain in force until December 31, 2025. Resolution 744/2021 of April 8, 2021 establishes that, at the end of the life of the concession contracts, the transfer of the right of use of shared-use assets will be guaranteed under fair and reasonable economic conditions, in the event that the Granting Authority or the company that succeeds the provider wishes to make use of these assets to maintain the continuity of the provision of STFC under the public regime. In addition, Telefónica could lose its right to operate spectrum in the 450 MHz band, granted in certain states, 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, if the legal and regulatory requirements are met, 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. However, specific conditions for renewal, including those related to the economic valuation criteria and obligations, were challenged by the affected service providers (including Telefónica). After ANATEL dismissed the appeals filed by the providers, a decision on the issue is still pending and requires a positioning from the Federal Court of Accounts.

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, in April 2021, the renewal of the license to use 15 MHz in the 1,900 MHz band was requested (the current license expired on October 18, 2021). On October 15, 2021, MinTic issued a resolution setting the conditions for the renewal of such license. The company has appealed such decision before the MinTic in order to reduce the amount proposed by the authority and, to this date, a resolution is pending.

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") filed a lawsuit against the Argentine State, alleging that price regulations set by DNU 690/2020 constitute a breach of 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 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. The lawsuit filed by Telefónica Argentina was rejected in September 2021 and the company appealed this decision. On December 17, 2021, the first instance ruling was revoked and the application of articles 1, 2, 3, 5 and 6 of DNU 690/2020 and resolutions 1666/2020, 204/2021 and 1467/2020 (relating to the control of tariffs and the universal basic service) was suspended during six months or until the final decision is adopted. During this period, Telefónica will not be subject to the provisions contained in the DNU 690/2020 in relation to price and public service regulations.

During 2021, the Group's consolidated investment in spectrum acquisitions and renewals amounted to 1,704 million euros, mainly due to the acquisition of spectrum in Brazil, the United Kingdom (before the establishment of JV VMED O2 UK), Spain and Chile (compared to 126 million euros in 2020). 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 2021 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

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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, 2021, 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 83% and 80%, respectively, of the aggregate value of contracts awarded in 2021 to handset suppliers and network infrastructure suppliers, respectively. One of the handset suppliers represented 46% of the aggregate value of contracts awarded in 2021 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 the COVID-19 pandemic or any other crisis or pandemic, may have an adverse impact on certain of Telefónica's suppliers and other players in the industry. The semiconductor industry in particular is facing various challenges, as a result mainly of supply problems at a global level, which in turn is affecting multiple sectors (including technology) through delivery delays and price increases, which could affect the Telefónica Group or others who are relevant to its business, including its customers, suppliers and partners. During 2020 and 2021 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 COVID-19 pandemic, as well as the potential discontinuation of use of some suppliers as a result of the U.S.-China conflict.

The imposition of trade restrictions and any disruptions in the supply chain, such as those related to international transport, 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.

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 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, Internet of Things (IoT), cybersecurity, 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, requires high levels of investment. As of December 31, 2021, in Spain, fiber coverage reached 26.9 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

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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.

The changes outlined above force 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 may be reduced or such investment could not lead to the successful development or commercialization of new products or services. To contextualize the size of the Group's investments, total research and development expenditure in 2021 was 835 million euros (959 million euros in 2020). These expenditures represented 2.1% and 2.2% of the Group's consolidated revenues in 2021 and 2020, 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.

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.

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 IoT.

The large amount of information and data that is processed throughout the Group (with approximately 369.1 million accesses associated with telecommunications services, digital products and services and Pay TV and an average number of 107,776 employees in 2021), 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 increase 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 2016, on the protection of natural persons with regard to the processing of personal data and on the free movement of such data ("GDPR"), whose 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, given that the Telefónica Group operates its business on a global scale, it frequently carries out international transfers of personal data of its customers, users, suppliers, employees and other data subjects to countries outside the European Economic Area (“EEA”) that have not been declared to have an adequate level of data protection by the European Commission, either directly or through third parties. In this context, it is particularly relevant to have all the necessary legal controls in place to ensure that such international data transfers are carried out in accordance with the GDPR. However, there can be no assurance that the data transfers which took place under the framework of the EU-U.S. Privacy Shield did not result in a breach of the GDPR.

One of the relevant contractual measures to ensure the lawfulness of international data transfers to any country outside the EEA not found by the European Commission to have an adequate level of data protection, is the signing, between the data importer and the data exporter, of the new standard contractual clauses ("SCC") approved by the European Commission according to Implementing Decision (EU) 2021/914 of June 4, 2021. These new SCC, which entered into force on June 27, 2021, repeal the old SCC and include a novel modular set of clauses for their application according to the data processing role of both the exporter and the importer. Furthermore, the entry into force of the new SCC obliges companies that are going to use them to legitimize their transfers to assess and adopt additional measures deemed appropriate for the due protection of the data transferred to the third country. This is because SCC, in general, are not sufficient for this purpose, as the public authorities of the third country, in accordance with their local regulations, may have the power to access or request access to the data transferred. The additional measures to be adopted are mainly technical such as data encryption, and derive in particular from the impact analysis of each transfer and the country of destination, all

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following the guidelines issued by the European Data Protection Board in its Recommendations 01/2020. Furthermore, the adoption of the new SCC by the European Commission as the main legal tool to legitimize transfers, obliges companies to replace the old SCC, as the old SCC will cease to be legally valid at the end of 2022 in accordance with the aforementioned Implementing Decision. The entry into force of the new SCC and their novel module structure and dispositive parts to be negotiated between data exporters and importers, the possible uncertainty about their scope of application and implementation, the mandatory assessment and analysis of each international transfer and changeable local regulations of the country of destination and also the obligation to renew all agreements that include the old SCC, pose a challenge for the Group and, with it, a potential risk of non-compliance in the performance of international data transfers in accordance with 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 on January 1, 2021 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 European Commission declared the United Kingdom as a country with an adequate level of data protection according to the Adequacy Decision of June 28, 2021. Accordingly, entities that transfer data between both territories will not be required to adopt additional tools or measures to legitimize international transfers. The Adequacy Decision establishes an initial period of validity of four years, which may only be extended if the United Kingdom demonstrates that it continues to ensure an adequate level of data protection. In this regard, it is worth mentioning that, since European Union regulations no longer apply in the United Kingdom, in September 2021, the United Kingdom began the appropriate public consultations to analyze the modification of its local privacy and data protection regulations with a view to updating them in the face of new technological challenges and business opportunities in the use of data. The result of this amendment could impact the Telefónica Group's business in the United Kingdom and the aforementioned international data transfers to and from the United Kingdom, either because additional regulatory restrictions or impositions are imposed that reduce the capacity for innovation and the development of new services and products, or because the European Union authorities consider that the United Kingdom is no longer a country with an adequate level of data protection, in which case the Telefónica Group may face similar challenges and risks as it is currently facing with respect to data transfers to the United States or other territories not declared as having an adequate level of protection; and (ii) in Latin America, Law No. 13,709 in Brazil imposes standards and obligations similar to those required by the GDPR, including a sanctioning regime which is 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 reais (approximately 8 million euros based on the exchange rate as of December 31, 2021) per infraction, which may increase compliance risks and costs.

Furthermore, in the case of Ecuador, the Organic Law on Data Protection has entered into force, although the effectiveness of the sanctioning regime is postponed for a two-year adaptation period and, in other countries of Latin America where the Group operates, such as 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 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.

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

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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.

In the development of all these initiatives it is also necessary to take into account several factors: first, there is a growing social and regulatory demand for companies to behave in a socially responsible manner, and, in addition, the Group's customers are increasingly interacting through online communication channels, such as social networks, in which they express this demand. Telefónica'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.

Operational 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 could prevent the effective provision by the Group 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. As a result of the circumstances brought by the COVID-19 pandemic, security measures related to remote access and teleworking of employees and collaborators were reviewed and strengthened, but no assurance can be provided that such security measures will be entirely 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 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.

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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) attacks, 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. While none of these incidents had material consequences, this may change in the future.

Some of the main measures adopted by the Telefónica Group to mitigate these risks are early vulnerabilities detection, access control measures, proactive 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 all 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 these risks.

Natural disasters, climate change and other factors beyond the Group's control may result in unanticipated network or service interruptions or quality loss.

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.

Changes in temperature and precipitation patterns associated with climate change may increase the energy consumption of telecommunications networks or cause service disruption due to extreme temperature waves, floods or extreme weather events. In addition, these changes may cause increases in the price of electricity due to, for example, reduction in hydraulic generation as a result of recurrent droughts. Further, as a result of global commitments to tackle climate change, new carbon dioxide taxes may be imposed and could affect, directly or indirectly, the Company, and may have a negative impact on the Group's operations results. The Company analyzes these risks in accordance with the recommendations of the TCFD (Task force on Climate-related financial disclosures).

Network or service interruptions or quality loss 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, and the growing geopolitical tensions, 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.

As of December 31, 2021 and 2020, the contribution of each segment to Telefónica Group's total assets was as follows: Telefónica Spain 22.9% (22.9% in 2020), VMED O2 UK 11.1% (the former Telefónica United Kingdom 12.6% in 2020), Telefónica Germany 18.3% (19.3% in 2020), Telefónica Brazil 19.7% (19.1% in 2020) and Telefónica Hispam 14.3% (14.3% in 2020). Additionally, net assets (calculated as total assets minus total liabilities) of Telefónica Hispam represented 4.6% of the total net assets of Telefonica Group as of December 31, 2021 (11.0% in 2020) (see Note 4 to the Consolidated Financial Statements). Part of these assets are located in countries that do

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not have an investment grade credit rating (in order of importance, Brazil, Argentina, Ecuador, Costa Rica, El Salvador and Venezuela). Likewise, Venezuela and Argentina are considered countries with hyperinflationary economies in 2021 and 2020.

The main risks are detailed by geography below:

In Europe, there are several risks of both an economic and health nature. Among the latter, and although the region has set an example in the advancement of vaccination, there is the possibility, as is currently the case, of a new outbreak of the COVID-19 pandemic due to the emergence of new variants of COVID-19 that are more contagious or resistant to the developed vaccines. Among the economic risks, there is the negative impact of this new health emergency situation, but also the consequences of an excessive tightening of financing conditions, both for the private and public sectors, with a negative impact on disposable income that could even lead to episodes of financial stress. The catalyst for this scenario could be either global factors stemming from the impact of the recent rise in inflation and the consequences of the normalization of U.S. monetary policy, or domestic factors such as a worsening of fiscal sustainability in a European country, which would affect the economic conditions of the countries in which Telefónica operates.

•Spain: there are several local sources of risks. One of them stems from the uncertainty regarding the execution of the Next Generation European funds (NGEU) and the necessary reforms (labor and pensions among the most important) in order to continue accessing them, given the high level of parliamentary fragmentation and the lack of agreement on key issues. Secondly, there is a risk that the effects of the COVID-19 pandemic could have a more persistent negative economic impact than expected in the event that, for example, supply chains disruptions and high commodity prices prolong the inflationary episode with a deeper impact on household incomes. Third, 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. Lastly, the high public debt levels accumulated are an additional risk in the event of financial stress.

•Germany: In the short term, the main risk factor is related to the COVID-19 pandemic and its effects. The persistence of bottlenecks in the supply of raw materials and intermediate goods in the manufacturing sector could continue to limit the expansion of economic activity. Another risk factor is the uncertainty arising from the new government in the short term, not only in terms of policies but also in terms of its ability to execute on its ambitious climate goals. As for the medium to long term, there is a risk that a potential escalation of geopolitical tensions could significantly reduce international trade, with a consequent impact on the country's potential growth, which is highly dependent on exports. In addition, long-term challenges remain, such as the aging of the population, in a context where the drivers of growth are showing a worrying stagnation.

•United Kingdom: in the short term, rising prices due to continued supply disruptions, together with a labor market showing signs of tightening, could lead to a faster and closer monetary tightening than expected, which would negatively affect growth. As for the medium-term, the formal exit of the United Kingdom from the European Union on December 31, 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), and others pending renegotiation, so variables such as investment, economic activity, employment and migratory flows 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. The catalyst for a depreciation, in addition to a more pressing impact from Brexit, could be doubts about the sustainability of government debt, at historically high levels following the COVID-19 impact.

In Latin America, the exchange risk is particularly notable. This risk is due to both external factors (global trade tensions, abrupt movements in commodity prices, concerns about growth, tightening US monetary policy and financial imbalances in China) 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 new variants of COVID-19 (coronavirus), significantly affect the Telefónica Group's operations"):

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•Brazil: fiscal sustainability remains the main risk, especially after the government modified the spending cap to finance the new welfare program Auxílio Brasil, which implies a loss of credibility in fiscal prudence. Progress on structural reforms, including administration and tax system reforms, seems less likely now, which would result in lower medium- and long-term growth. In this context, a more depreciated exchange rate adds even more pressure to already high inflation and monetary policy normalization, which could negatively affect disposable income. The fact that the country's rating is below investment grade and that its internal financing needs are high, poses an added financial risk in a hypothetical scenario of global financial stress, especially in view of the recent increase in financial needs, could also have a negative impact on the evolution of the exchange rate. On the political front, the presidential elections (October 2022), which are expected to be polarized, could imply greater volatility in asset prices, including episodes of exchange rate depreciation. Finally, Brazil also faces the risk of energy rationing due to the exceptional shortage of rainfall (which has been recently alleviated in part), which has already led to a significant increase in energy prices.

•Argentina: Despite a favorable external context for the country, macroeconomic and exchange rate risks remain high. The challenges facing the economy, both internal (the ongoing process of reducing the public deficit in a context of high inflation) and external (with significant financial maturities to be refinanced in the short and medium term), increase vulnerability to episodes of financial market volatility in a scenario with limited levers for action. In addition, the worsening inflation outlook because of the exchange rate split and unsustainable price containment measures threaten Telefónica's profitability. On the political front, after the defeat of the ruling party in the mid-term elections, there is a growing need to reach consensus with other political parties in order to legislate. Otherwise, the ruling party will have no margin left but to govern the last two years of its term of office by means of Necessity and Urgency Decrees.

•Chile, Colombia and Peru: are exposed not only to changes in the global economy, given their vulnerability and exposure to changes in commodity prices, but also to tightening of global financial conditions. On the domestic side, existing political instability and the possibility of further social unrest and the resurgence of populism could have a negative impact in both the short and medium term. The deteriorating fiscal situation resulting from COVID-19 could have negative effects on future economic performance and social stability to the extent that fiscal consolidation drives tax reforms or adjustments in the trajectory of social spending. The acceleration of inflation threatens to be more persistent than expected, which is generating a strong reaction from central banks that could eventually lead to an excessive deterioration in local financing conditions. In political terms, there is a risk that with the arrival of the new government in Chile, which is also advancing in its particular constitutional process, there will be changes in the regulatory and normative framework that could affect the medium term.

Unexpected and uncertain events, such as the emergence of new variants of COVID-19 (coronavirus), significantly affect the Telefónica's Group operations.

Although the worst of the COVID-19 pandemic may have passed, the possibility of new outbreaks of the pandemic due to new, more contagious, virulent, and vaccine-resistant variants of COVID-19 remains. This could affect our operations as follows, among others: first, there is a possibility of further adverse supply shocks, primarily on the production side, in the form of further disruptions in supply chains, bottlenecks in the production of certain goods and/or restrictions on the transportation of goods, which could reduce aggregate supply, exerting upward pressure on price formation, or make certain products unavailable to us. Secondly, as occurred in the first months of the pandemic, it is likely that, in the face of an abrupt supply shock, households will tend to increase their savings as a precautionary measure, which could lead to falls in demand for the Company's products and services. In addition, there may be adverse income and wealth effects resulting from an eventual contraction in the level of employment and/or deterioration of the financial markets, which may lead to sharp drops in the valuation of certain assets. Finally, the appearance of new variants may lead to additional credit quality downgrades in the countries in which the Group operates, which could result in an increase in the cost of external financing and the depreciation of certain currencies (especially in emerging economies), which would adversely affect the Group’s results.

The final impact of COVID-19 on the Group's business is difficult to predict due to the high uncertainty surrounding its duration, transmission, virulence and resilience, as well as the ability of authorities to manage its impact and, more generally, societal response to both COVID-19 and government measures.

The COVID-19 pandemic contributed to the depreciation of the main Latin American currencies against the euro. The adverse exchange rates evolution adversely affected the average exchange rates used to translate the income statements of our Latin American subsidiaries from local currency to euro in 2020 in comparison with 2019,

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and to a lesser extent 2021 compared with 2020. 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 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, 2021, represented 15.1% of the Group’s total assets), deferred tax assets (which as of December 31, 2021, represented 5.1% of the Group’s total assets) or other assets, such as intangible assets (which represented 10.7% of the Group's total assets as of December 31, 2021), and property, plant and equipment (which represented 20.8% of the Group's total assets as of December 31, 2021). 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 at the time it is originated. By way of example, in 2021 impairment losses in the goodwill of Telefónica Perú were recognized for a total of 393 million euros. In 2020 impairment losses in the goodwill and other assets of Telefónica Argentina were recognized for a total of 894 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 2021 deferred tax assets corresponding to the tax Group in Spain amounting to 294 million euros were derecognized. 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, 2021, the Group's gross financial debt amounted to 42,295 million euros (50,420 million euros as of December 31, 2020), and the Group's net financial debt amounted to 26,032 million euros (35,228 million euros as of December 31, 2020). As of December 31, 2021, the average maturity of the debt was 13.63 years (10.79 years as of December 31, 2020), including undrawn committed credit facilities.

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, 2021, the Group's gross financial debt scheduled to mature in 2022 amounted to 7,005 million euros, and gross financial debt scheduled to mature in 2023 amounted to 2,235 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, 2021. As of December 31, 2021, the Telefónica Group had undrawn committed credit facilities arranged with banks for an amount of 12,182 million euros (11,791 million euros of which were due to expire in more than 12 months). Liquidity could be affected if market conditions make it difficult

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to renew undrawn credit lines. As of December 31, 2021, 3.2% of the aggregate undrawn amount under credit lines was scheduled to expire prior to December 31, 2022.

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, 2021, 88% 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, 2021: (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 33 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 33 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, against the euro would result in exchange gains of 17 million euros for the year ended December 31, 2021. These calculations have been made assuming a constant currency position with an impact on profit or loss for the year ended December 31, 2021, taking into account derivative instruments in place.

In 2021, 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 2.3 percentage points and 2.7 percentage points, respectively, mainly due to the depreciation of the Brazilian real (6.5 percentage points and 8.0 percentage points, respectively, in 2020). Furthermore, translation differences in 2021 had a positive impact on the Group's equity of 4,088 million euros (negative impact of 5,801 million euros in 2020).

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,

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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. For additional information on these and other proceedings, see "Item 8. Financial Information-Consolidated Financial Statements-Proceedings".

With respect to the latter, as of December 31, 2021, Telefónica Brazil maintained provisions for tax contingencies amounting to 340 million euros and provisions for regulatory contingencies amounting to 314 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 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.

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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 2021:

•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 7.9 billion euros (including the Purchaser’s assumption of certain committed acquisitions), subject to certain closing adjustments. On June 1 and 3, 2021, respectively, the closing of the sale of the European and Latin America divisions took place. In addition, on August 2, 2021, the sale to ATC of 4,080 sites that Telxius undertook to acquire from Telefónica Germany GmbH & Co. OHG, under the second phase of the agreement reached between both parties on June 8, 2020, was completed, for a total purchase price of 632 million euros. For additional information on the agreement with ATC, see "Item 10. Additional Information-Material Contracts-Agreements for the sale by Telxius of its telecommunications towers divisions in Europe and Latin America".

•On January 27, 2021, Telefónica informed that its Board of Directors had 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”) regarding 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 completion of this acquisition by the Purchasers is subject to certain conditions precedent, including obtaining the required regulatory authorizations. In addition, this acquisition shall take place in accordance with the segregation plan for such assets. See "Item 10. Additional Information-Material Contracts- Purchase Agreement for Acquisition of UPI Mobile Assets of Oi Group" for additional information.

•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 are 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

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. As part of the transaction, Telefónica Chile sold approximately two million homes

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passed with fiber to InfraCo, SpA. Additionally, Telefónica Chile and InfraCo, SpA entered into certain agreements for the provision of various services, including an agreement to provide wholesale connectivity services to Telefónica Chile on InfraCo, SpA’s fiber network. The transaction values InfraCo, SpA at 1.0 billion U.S. dollars (approximately 0.8 billion euros at the exchange rate as of the date of the agreement). On July 1, 2021, the transaction was completed.

•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.

•On February 25, 2021, Telefónica filed with the United States Securities and Exchange Commission its annual report on Form 20-F for the year ended December 31, 2020.

•On March 2, 2021, Telefónica Brasil, S.A. ("Vivo") and Telefónica Infra, S.L., the infrastructure unit of Telefónica Group ("T. Infra"), reached an agreement with Caisse de dépôt et placement du Québec ("CDPQ") for the construction, deployment and commercialization of a FTTH network in Brazil, in medium-sized cities outside the State of São Paulo, through a joint venture called FiBrasil Infraestrutura e Fibra Ótica S.A. ("FiBrasil"). Once the relevant authorizations were obtained, the transaction closed on July 2, 2021. The Telefónica Group and CDPQ each own a 50% stake in FiBrasil, under a co-control governance model. Telefónica Group's stake is distributed equally between Vivo and T. Infra.

The economic terms of the transaction include a total investment by CDPQ amounting to 1.8 billion Brazilian reais (approximately 267 million euros at the exchange rate at the date of the agreement), including payments to Vivo and FiBrasil for 50% of FiBrasil's equity, as well as certain payments made by T. Infra in equivalent economic terms for 25% of FiBrasil. CDPQ's equity contributions, together with external financing to be obtained by FiBrasil, are intended to provide the funds necessary to undertake FiBrasil's business plan and achieve its deployment targets. Vivo is FiBrasil's first wholesale customer, with a 10-year contract. However, as a wholesale neutral operator, FiBrasil will provide access to its network to other telecommunications companies.

•On April 23, 2021, the Annual General Shareholders' Meeting of Telefónica was held at second call with the attendance, present or represented, of shareholders holding shares representing 56.89% of the share capital of Telefónica. All the resolutions submitted were approved at the meeting.

•Further to the Annual General Shareholders' Meeting of Telefónica, the Board of Directors of Telefónica, following a favorable report from the Nominating, Compensation and Corporate Governance Committee, unanimously adopted the following resolutions regarding the reelection of Directors approved in the abovementioned Meeting: (i) to reelect Mr. José María Álvarez-Pallete López as Executive Chairman of the Board of Directors and of its Executive Commission; and (ii) that the remaining Directors reelected by the Annual General Shareholders' Meeting that were members of any of the Committees of the Board of Directors, i.e. Mr. Ignacio Moreno Martínez and Ms. Carmen García de Andrés, continued to be members of the same.

•Furthermore, Telefónica announced on that day that its Board of Directors resolved to carry out the implementation of the share capital reduction through the cancellation of treasury shares approved by the Annual General Shareholders' Meeting. The share capital of Telefónica, S.A. was reduced in the amount of 82,896,466 euros, through the cancellation of 82,896,466 own shares of Telefónica hold as treasury stock, with a nominal value of one euro each. The reduction was carried out with a charge to unrestricted reserves, through the provision of a reserve for cancelled share capital in an amount equal to the nominal value of the cancelled shares (i.e. for an amount of 82,896,466 euros).

•On May 26, 2021, the Executive Commission of Telefónica's Board of Directors agreed the implementation of the first capital increase with charge to reserves related to the shareholder compensation by means of a scrip dividend ("Telefónica's Flexible Dividend"), approved by the Annual General Shareholders' Meeting, at its meeting held on April 23, 2021. Further on June 17, 2021 Telefónica announced that on June 15, 2021 the free-of charge allotment rights trading period for Telefónica's Flexible Dividend had ended. The shareholders of 28.53% of the free-of-charge allotment rights accepted the purchase commitment assumed by Telefónica. The gross amount paid by Telefónica for these rights amounted to 308 million euros. Telefónica waived the rights thus acquired, that were amortized. On the other hand, the shareholders of 71.47% of the free-of-charge allotment rights opted to received new shares of Telefónica. Therefore, the final number of ordinary shares with a nominal value of 1 euro issued in the capital increase was 194,518,911, corresponding to 3.57% of the share capital, being the amount of the capital

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increase 194,518,911 euros. As a result, the amount of the share capital of Telefónica, S.A. after the capital increase was set at 5,638,053,507 euros, divided into 5,638,053,507 shares.

•On June 1, 2021, Telefónica announced that, after obtaining the relevant regulatory approvals, consummation of the necessary recapitalization and satisfaction of other closing conditions, the closing of the transaction contemplated in the agreement between Telefónica and Liberty Global plc to combine into a 50:50 joint venture their operating businesses in the UK, was carried out that day, resulting in the combination of both businesses into JV VMED O2 UK.

The establishment of JV VMED O2 UK resulted in proceeds of 5.4 billion pounds sterling (equivalent to 6.2 billion euros at the transaction day), of which 2.6 billion pounds sterling corresponds to Liberty Global's cash payment to Telefónica to equalize ownership in JV VMED O2 UK and 2.8 billion pounds sterling corresponds to gross proceeds from recapitalization. For additional information on this transaction, see "Item 10. Additional Information-Material Contracts-50:50 joint venture with Liberty Global for the combination of both groups' businesses in the United Kingdom".

•On July 2, 2021 Telefónica Emisiones, S.A.U., issued a notice of redemption with respect to its 750 million 4.570% U.S. dollars notes due in 2023, guaranteed by Telefónica. The notes were redeemed on August 2, 2021.

•In June and July 2021, Telefónica Emisiones, S.A.U. announced a repurchase offer on the following outstanding securities (together the "EMTN Instruments"): (i) 1,400 million euros of its 0.75% instruments due April 20221; (ii) 1,250 million euros of its 2.242% instruments due May 2022; (iii) 1,500 million euros of its 3.987% instruments due January 2023; (iv) 1,250 million euros of its 1.528% instruments due January 2025; (v) 1,000 million euros of its 1.495% instruments due September 2025 and/or (vi) 1,350 million euros of its 1.460% instruments due April 2026. In addition, Telefónica Europe, B.V. announced a repurchase offer for its 1,000,000,000 euros Undated 5.5 Year Non-Call Deeply Subordinated Guaranteed Fixed Rate Reset Securities (the "Hybrid Instruments"). Both issuers accepted to purchase all securities tendered, for an aggregate nominal amount of 838.6 million euros, in the case of EMTN Instruments, and 114.9 million euros, in the case of Hybrid Instruments. The offers were settled on July 12, 2021. On July 30, 2021, Telefónica Europe, B.V. announced the early redemption of the remaining Hybrid Instruments (127.5 million euros), according to their terms and conditions. The outstanding instruments were redeemed on September 1, 2021.

•On July 16, 2021, Colombia Telecomunicaciones S.A. ESP BIC ("Telefónica Colombia") entered into a sale and purchase agreement regarding certain fiber assets owned by Telefónica Colombia with Onnet Fibra Colombia S.A.S, a Colombian company controlled by Kohlberg Kravis Roberts - KKR. The transaction closed on January 11, 2022. Telefónica Colombia received, as consideration, 187 million U.S. dollars (approximately 165 million euros at the exchange rate as of such date) and 40% of the shares of Alamo HoldCo S.L., a Spanish company controlled by KKR, which is the sole shareholder of Onnet Fibra Colombia S.A.S. Likewise, as part of the transaction, certain agreements were signed for the provision of wholesale connectivity services by Onnet Fibra Colombia S.A.S. to Telefónica Colombia, the development of activities of deployment of fiber network, and other associated services.

•On July 21, 2021, Telefónica Móviles España, S.A.U. ("Telefónica España") obtained a block of 2x10 MHz in the paired band of 700 MHz, in the auction held by the Ministry of Economic Affairs and Digital Transformation. The investment commitment by Telefónica España for these new frequencies is 310 million euros.

•On July 29, 2021, Telefónica announced that its subsidiary Telefónica Cybersecurity & Cloud Tech, S.L. ("Telefónica Tech") reached an agreement with Cancom Group for the acquisition of 100% of the shares of the British company Cancom Ltd. The amount of the transaction (enterprise value) is 340 million pounds sterling (approximately 398 million euros). Cancom Ltd provides end-to-end advanced cloud and security services in the UK and Ireland complementing the business carried out by Telefónica Tech in the region.

•On August 9, 2021, Telefónica announced that, after the satisfaction of the closing conditions and obtaining the relevant regulatory approvals, it had transferred the entire share capital of Telefónica de Costa Rica TC, S.A. to Liberty Latin America Ltd. for an amount of 538 million U.S. dollars (approximately 457 million euros at the exchange rate of the day of the transaction).

•On September 29, 2021, the Board of Directors of Telefónica unanimously adopted the following resolutions: (i) to take note of the voluntary resignation presented, for professional reasons, by Ms. Sabina Fluxà Thienemann to the position of Director of Telefónica, appreciating the services rendered to Telefónica during her tenure; (ii) in order to fill the abovementioned vacancy and, upon proposal of the Nominating, Compensation and Corporate Governance Committee, to appoint, by co-optation, Ms. María Rotondo Urcola, as Independent Director

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of Telefónica, S.A; and (iii) to appoint the Independent Director Ms. María Rotondo Urcola as Member of the Sustainability and Quality Committee.

•On October 15, 2021, Telefónica announced that its subsidiary, Telefónica Centroamérica Inversiones, S.L. (60% of which is held, directly and indirectly, by Telefónica and 40% by Corporación Multi Inversiones) had reached an agreement with General International Telecom Limited for the sale of the entire share capital of Telefónica Móviles El Salvador, S.A. ("Telefónica El Salvador") of which it is the owner (99.3%). On the buyer's side, the transaction was structured by affiliates of the Atlántida Group, entities that financially supported the acquisition. The closing of this transaction was subject to certain closing conditions, including the relevant regulatory approvals. On January 13, 2022, after obtaining the appropriate authorizations, Telefónica Centroamérica Inversiones, S.L. transferred 99.3% of Telefónica El Salvador to General International Telecom El Salvador, S.A. de C.V. for an amount of 139 million U.S. dollars (approximately 121 million euros at the exchange rate at such date).

•On November 3, 2021, the Board of Directors of Telefónica resolved to submit for approval of the Board of Directors or of its Executive Commission the appropriate corporate resolutions to carry out the second capital increase with a charge to reserves related to the scrip dividend payment approved by the Annual General Shareholders’ Meeting held on April 23, 2021, under item VI.2 of its Agenda. This scrip was the first tranche of the shareholder remuneration policy for 2021 and consisted of a payment of up to 0.15 euro per share.

•In addition, on November 3, 2021, the Board agreed to submit for the approval of the General Shareholders Meeting of Telefónica (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 approximately 1.65% of the share capital (1.65% includes the 0.7% announced in the presentation of the 2021 January-June results).

•On November 5, 2021, Telefónica announced that its subsidiary Telefónica Brasil, S.A. had been granted the following blocks in the band spectrum auction called by ANATEL: (i) 3,500MHz: 100MHz were obtained for an offered value of 500.3 million Brazilian reais (approximately 77 million euros); (ii) 2,300MHz: 50MHz in the Southeast region and 40MHz in the North, Sao Paulo and Midwest regions, respectively, were obtained for an aggregate offered value of 466.4 million Brazilian reais (approximately 72 million euros); and (iii) 26GHz: 600MHz were obtained for an offered value of 158.5 million Brazilian reais (approximately 24 million euros). With this acquisition, Telefónica Brasil, S.A. has the necessary spectrum to provide 5G services in the medium and long term and to meet the growing demand for connectivity. The final amount to be paid and obligations associated with the usage of frequencies will observe the rules established in the Notice published by ANATEL.

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

◦a new issue amounting to 750 million euros, guaranteed by Telefónica. An amount equal to the net proceeds of the issue of the securities will be subject to specific eligibility criteria to be applied to finance new or refinance existing projects, as detailed in Telefónica's SDG Framework; and

◦a tender offer for the following hybrid instruments: (i) the outstanding 1,000 million euros Undated 5.5 Year Non-Call Deeply Subordinated Guaranteed Fixed Rate Reset Securities (the "March 2023 Notes"), (ii) the outstanding 1,250 million euros Undated 5.7 Year Non-Call Deeply Subordinated Guaranteed Fixed Rate Reset Securities (the "September 2023 Notes" and together with the March 2023 Notes, the "Priority 1 Notes"), and/or (iii) the outstanding 1,000 million euros Undated 10 Year Non-Call Deeply Subordinated Guaranteed Fixed Rate Reset Securities (the "Priority 2 Notes") irrevocably guaranteed by Telefónica. Based on the maximum acceptance amount set for the tender offer, Telefónica Europe, B.V. accepted 750 million euros in principal amount of validly tendered Priority 1 Notes (with a pro-ration factor applying) and none of the Priority 2 Notes. The tender offer settled on November 25, 2021.

•On November 24, 2021, 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 17, 2021, Telefónica announced that on December 15, 2021 the related free-of-charge allotment rights trading period had ended. The shareholders of 34.98% 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 amounted to 292 million euros. Telefónica S.A. waived the rights thus acquired, which were amortized. On the other hand, the shareholders of 65.02% 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 140,994,513, corresponding to 2.50% of the share capital, and there was an increase in share capital of 140,994,513 euros. As a result, the

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amount of the share capital of Telefónica, S.A. after this capital increase is 5,779,048,020 euros, divided into 5,779,048,020 shares.

•On December 13, 2021, Telefónica Audiovisual Digital, S.A.U. was provisionally awarded the exclusive broadcasting rights of five matches per matchday of the Campeonato Nacional de Liga de Primera División (“LaLiga”), for pay television in the residential market in Spain. Telefónica will have the first pick in 18 matchdays of each season and second pick in 17 matchdays, including "El Clásico" of the second round (Option D bis, Lot D.1 bis).

Likewise, Telefónica Audiovisual Digital, S.A.U. has been awarded the exclusive broadcasting rights of three matchdays, which contain 10 matches each matchday, including matches of Real Madrid C.F., F.C. Barcelona and Club Atlético de Madrid against the six first classified of the previous season; and Valencia C.F., Athletic Club de Bilbao or Real Betis Balompié, if they were not among the aforementioned first classified (Option D bis, Lot D.3 bis).

The award includes the cycle 2022/2023 to 2026/2027 although the 2025/2026 and 2026/2027 seasons are subject to the Spanish National Markets and Competition Commission ("CNMC") lifting or modifying the resolution that limits the maximum duration of the contracts entered into by Telefónica Audiovisual Digital, S.A.U. for the acquisition of sports rights (Expte.VC/0612/14).

The award has been made at a price of 520 million euros for each of the seasons.

The award was subject to the execution of an agreement between Telefónica and LaLiga with the remaining terms and requirements established in the LaLiga tender, which was entered into on January 19, 2022.

•On December 15, 2021, The Board of Directors of Telefónica and its Committees, following a favorable report from the Nominating, Compensation and Corporate Governance Committee, unanimously adopted the following resolutions in relation to its Board of Directors and its Committees:

1º.- Changes relating to the Board of Directors:

◦To take note and accept the respective voluntary resignations presented to their positions as Proprietary Directors of Telefónica, S.A. by Mr. Ignacio Moreno Martínez and Mr. Jordi Gual Solé, in order to allow the Company to continue evolving in the implementation of best practices and recommendations in Corporate Governance with regard to the number of members and composition of its Board of Directors. The Board of Directors appreciated the services rendered to the Telefónica Group during their respective tenures.

◦Consequently, Mr. Ignacio Moreno Martínez and Mr. Jordi Gual Solé ceased to be members of the Committees of the Board of Directors of which they were part. In particular, Mr. Moreno was Chairman of the Regulation and Institutional Affairs Committee, and Member of the Audit and Control Committee, and of the Sustainability and Quality Committee. On the other hand, Mr. Gual was Member of the Regulation and Institutional Affairs Committee, and of the Strategy and Innovation Committee.

◦It was resolved to propose, at the appropriate time, the appointment of both as Members of the Advisory Board of Telefónica España and as Members of the Board of Directors of Telefônica Brasil, S.A.

2º.- Changes relating to the Board of Directors’ Committees:

◦To appoint the Independent Director, Ms. María Luisa García Blanco, as Member of the Sustainability and Quality Committee.

◦To appoint the Independent Director, Ms. María Luisa García Blanco, as Chairwoman of the Sustainability and Quality Committee, in replacement of the Other External Director, Mr. Francisco Javier de Paz Mancho, who continues as Member of such Committee.

◦To appoint the Independent Directors, Mr. Juan Ignacio Cirac Sasturain and Ms. Carmen García de Andrés, as Members of the Regulation and Institutional Affairs Committee.

◦To appoint the Other External Director, Mr. Francisco Javier de Paz Mancho, as Chairman of the Regulation and Institutional Affairs Committee.

◦To appoint the Independent Director, Ms. María Rotondo Urcola, as Member of the Audit and Control Committee.

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•On December 28, 2021, Telefónica España signed a Social Pact for Employment supported by the largest trade unions. Said Pact includes the Company’s differential commitments and is based on the following six lines of work: (1) equality and diversity; (2) new ways of working, flexibility and productivity; (3) incorporation and retention of talent; (4) reskilling and professional development; (5) functional and geographical mobility; and (6) a plan for the voluntary individual suspension of the employment relationship.

Telefónica España seeks to promote equality and capitalize on diversity within an inclusive environment, whilst achieving gender, generational and different capabilities goals. The new ways of working, which consolidate hybrid models from a culture of trust, flexibility, contribution and productivity, will further accelerate the transformation to a company that is more digital and prepared for the future.

This Pact also contemplates an “Individual Suspension Plan” (the "Plan") of employment, fully voluntary. Employees turning 55 years or older in 2022 and with a seniority of more than 15 years may join the Plan. This being the target audience, maximum percentages of adhesion differ according to the areas and have been set according to the functional surplus based on business levers.

The cost of the Plan depends on the degree of acceptance, although it was initially estimated that about 2,700 employees would volunteer, placing its value at around 1,500 million euros (before taxes). Average annual savings from direct expenses are estimated to exceed 230 million euros from year 2023. In any case, the impact on cash generation is expected to be positive from 2022, as the capture of savings since the departure of employees is expected to take place during the first quarter of 2022.

For information on certain significant events occurred in 2022, see “—Recent Developments”.

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Business areas

In 2021, the Telefónica Group has changed its reporting segments as follows:

•on June 1, 2021, upon the establishment of JV VMED O2 UK (whose results are accounted for under the equity method), the former Telefónica United Kingdom segment was replaced by the new VMED O2 UK segment (see Notes 2 and 10 to the Consolidated Financial Statements). Since it is not practicable to restate the historical segment financial information to reflect this change, in this Annual Report, the relevant segment discussions consist of (i) for purposes of the 2021, 2020 and 2019 period-on-period discussions, an analysis of the results of our former Telefónica United Kingdom segment (which, for purposes of 2021, consists of the results obtained in the first five months of the year, until the establishment of JV VMED O2 UK and the elimination of this segment), and (ii) a standalone discussion of the results in 2021 of the new VMED O2 UK segment based on 100% of the results of JV VMED O2 UK since its establishment on June 1, 2021 until December 31, 2021, rather than based on our equity accounting of JV VMED O2 UK in our Consolidated Financial Statements. Gains registered on the establishment of JV VMED O2 UK, amounting to 4,460 million euros (see note 2 and 26 to the Consolidated Financial Statements), are recorded in "Other companies". Information included in this Annual Report on the accesses of the Group and the new VMED O2 UK segment as of December 31, 2021 includes 100% of the accesses of JV VMED O2 UK; and

•the Telxius Group ceased to be a reporting segment as a result of the sale of the telecommunications towers divisions in Europe and Latin America to American Tower Corporation (see Note 2 to the Consolidated Financial Statements). The Telxius Group’s results are currently included in "Other companies". As a consequence, the comparative results of "Other companies" and "Eliminations" for 2020 and 2019 and the corresponding comparative segmentation of assets and liabilities as of December 31, 2020 were restated. These changes have had no impact on the consolidated results of the Group. The result obtained for the sale of the telecommunications towers divisions of Telxius Group (including the additional sites acquired from Telefónica Germany GmbH & Co. OHG), amounting to 6,099 million euros (see Notes 2 and 22 to the Consolidated Financial Statements), is recorded in "Other companies".

As a result of these changes in 2021 the Telefónica Group has reported financial information, both internally and externally, according to the following segments: (i) Telefónica Spain, (ii) from January 1 to June 1, 2021 Telefónica United Kingdom and from June 1, 2021 onward VMED O2 UK (based on 100% of the results of JV VMED O2 UK, whose results are accounted for under the equity method for purposes of the Group’s results), (iii) Telefónica Germany, (iv) Telefónica Brazil and (v) Telefónica Hispam (formed by the Group's operators in Colombia, Mexico, Venezuela, Ecuador, Argentina, Chile, Peru and Uruguay).

The impairment losses on goodwill of Telefónica del Perú in 2021 and 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 de 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).

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 related region. Inter-segment transactions are carried out on an arm's length basis.

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).

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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 through 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.

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The following chart shows the organizational structure of the principal subsidiaries of the Telefónica Group at December 31, 2021, including their jurisdictions of incorporation and our ownership interest. For further detail, see Exhibit 8.1 to this Annual Report.

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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 for the years ended December 31, 2021, 2020 and 2019, consisted of additions to property, plant and equipment and additions to intangible assets, including spectrum. In 2021, 2020 and 2019, we had capital expenditures of 7,267 million euros, 5,861 million euros and 8,784 million euros, respectively.

Year ended December 31, 2021

Capital expenditures in 2021 increased by 24.0% compared to 2020. Capital expenditures in 2021 included the cost of spectrum mainly in Brazil, United Kingdom, Spain and Chile, amounting to 1,704 million euros.

Investment by Telefónica Spain amounted to 1,815 million euros and was primarily focused on continuing the fast deployment of the fiber optic, exceeding 26 million premises passed by year-end 2021, as well the development of the 5G network reaching 81% population coverage at the end of the year. Investment by our former Telefónica United Kingdom during the first five month of 2021 (before the establishment of JV VMED O2 UK) amounted to 933 million euros and was mainly focused on 5G deployment, reaching 200 cities, and improving the fixed network. Investment by Telefónica Germany in 2021 amounted to 1,284 million euros and was primarily focused on the accelerated 3G network switch off and the continued improvement of the 4G/5G networks (5G network is active in more than 200 cities, achieving a coverage of 30% by year-end 2021). Investment by Telefónica Brazil in 2021 amounted to 2,069 million euros and was mainly dedicated to extending the coverage and capacity of 4G mobile networks, with a population coverage of 93%, and the improvement of network quality and deployment of the FTTH network in the fixed business, exceeding 19.5 million premises passed. Investment by Telefónica Hispam in 2021 amounted to 978 million euros and was mainly focused on improving the coverage and capacity of 4G networks, the launch of 5G in Chile and ultra-broadband fixed capabilities. In addition, the simplification and digitization of processes continued to be one of the main investment focuses outside of the resources allocated to the network.

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 our former Telefónica United Kingdom segment in 2020 amounted to 913 million euros

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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.

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, pursuant to which all inhabitants of the cities that have some LTE coverage are considered). Investment by our former Telefónica United Kingdom segment 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.

Financial Investments and Divestitures

Our principal financial investments in 2021 were: (i) the closing of the transaction among Telefónica and Liberty Global and the establishment of JV VMED O2 UK 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 Telefónica holding a 50% stake in JV VMED O2 UK; (ii) the acquisition of 100% of the shares in Cancom Ltd by Telefónica Tech on July 29, 2021 for 340 million pounds sterling (approximately 398 million euros at the date of the transaction); (iii) the closing on July 21, 2021 of part of the investment agreement in Nabiax by which Telefónica Infra received a 13.94% equity stake in Nabiax in exchange for two data centers in Spain. The fulfillment of the conditions related to the contribution of two additional data centers in Chile is expected to occur during the first half of 2022. By the time that contribution is executed, T. Infra's stake in Nabiax will increase to 20%; and (iii) the closing on July 2, 2021 of the investment agreement with Caisse de dépôt et placement du Quebec ("CDPQ") in FiBrasil, each of which held 50% under a co-control governance model.

Our principal financial divestitures in 2021 were: (i) the sale of Telxius telecommunications towers divisions in Europe (Spain and Germany) and in Latin America (Brazil, Peru, Chile and Argentina), as well as 4,080 sites that Telxius undertook to acquire from Telefónica Germany GmbH & Co. OHG, under the second phase of the agreement reached between both parties on June 8, 2020, to American Tower Corporation for 7,865 million euros; (ii) the sale of Telefónica de Costa Rica TC, S.A. to Liberty Latin America Ltd for 538 million U.S. dollars (approximately 457 million euros at the date of the agreement); and (iii) the sale on July 1, 2021 of 60% of the shares of InfraCo, SpA to KKR Alameda Aggregator L.P. by Telefónica Chile, S.A. The transaction values InfraCo, SpA at 1.0 billion U.S. dollars (approximately 0.8 billion euros at the exchange rate as of the date of the agreement).

In addition to the above, in January 2022 after the satisfaction of the relevant closing conditions and once the relevant regulatory approvals were obtained, Telefónica Centroamérica Inversiones, S.L. (60% of which is held directly or indirectly by Telefónica and 40% by Corporación Multi Inversiones) transferred its stake (99.3%) in Telefónica Móviles El Salvador, S.A. to General International Telecom El Salvador, S.A. de C.V. for an amount of 139 million U.S. dollars (approximately 121 million euros at the exchange rate at such date).

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Our principal financial investment in 2020 was the acquisition of 50% of the shares in Prosegur Alarmas España, S.L. 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.

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 536 million euros at the exchange rate on August 29, 2019); and (v) the sale of data center businesses to a company controlled by Nabiax for an aggregate total amount of 515 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 2019-2021 period or otherwise, at any time.

Public Takeover Offers

Not applicable.

Recent Developments

The principal events that have occurred since December 31, 2021, are set forth below:

•On January 11, 2022, once the corresponding authorizations from the regulatory authorities were obtained and after the fulfillment of certain agreed conditions, the transaction between Colombia Telecomunicaciones S.A. ESP BIC (Telefónica Colombia) and a Colombian company controlled by Kohlberg Kravis Roberts - KKR (Onnet Fibra Colombia S.A.S) for the sale and purchase of certain fiber assets owned by Telefónica Colombia and for the provision of wholesale connectivity services by Onnet Fibra Colombia S.A.S to Telefónica Colombia, the development of activities of deployment of fiber network, and other associated services, was completed.

Telefónica Colombia received, as consideration, 187 million U.S. dollars (approximately 165 million euros at the exchange rate at such date) and 40% of the shares of a Spanish company controlled by KKR, Alamo HoldCo S.L., the sole shareholder of Onnet Fibra Colombia S.A.S.

•On January 13, 2022, Telefónica executed an amendment to the syndicated facility agreement signed on March 15, 2018, with several domestic and international financial entities for a maximum aggregate amount of 5,500 million euros, linked to sustainability objectives: greenhouse gas emissions reduction and increase of women in executive positions.

This facility agreement is composed of a 5-year single tranche revolving credit facility in an aggregate amount of up to 5,500 million euros with two annual extension options, at the request of Telefónica, for a maximum maturity of 7 years.

•On January 13, 2022, after the satisfaction of the closing conditions and once the relevant regulatory approvals were obtained, Telefónica Centroamérica Inversiones, S.L (60% of which is held, directly and indirectly, by Telefónica and 40% by Corporación Multi Inversiones) transferred its stake (99.3%) in Telefónica Móviles El Salvador to General International Telecom El Salvador, S.A. de C.V. for an amount of 139 million U.S. dollars (approximately 121 million euros at the exchange rate at such date).

•On January 26, 2022, Colombia Telecomunicaciones, S.A. ESP made an early repayment of its bilateral loan for 132 million U.S. dollars signed on March 24, 2020, and originally scheduled to mature in 2023.

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•On February 1, 2022, Telefónica’s subsidiary, Pontel Participaciones, S.L. (“Pontel”), a company which is held 83.35% by Telefónica and 16.65% by Pontegadea Inversiones, S.L. (“Pontegadea”), reached an agreement with Taurus Bidco S.à r.l. (“Taurus”, a company managed by KKR) for the purchase of 40% of the share capital of Telxius Telecom, S.A. (“Telxius”), held by Taurus, for an estimated amount of 215.7 million euros, being the referred price subject to, among others, adjustments derived from the sale of the towers business to American Tower.

As a result of the transaction, Pontel, which currently holds the remaining 60% of the share capital of Telxius, will become the sole shareholder of this company. Pontegadea will increase its holding in Pontel to 30% and Telefónica will hold a 70% stake.

Thus, in terms of indirect holding in Telxius, Pontegadea will increase its holding from 9.99% to 30% and Telefónica from 50.01% to 70%.

The closing of the transaction is subject to the obtaining of the relevant regulatory and competition authorizations.

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.

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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.

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. 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.

•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. 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.

•Fiber, 4G and 5G 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.

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2021 highlights

Positive momentum in y-o-y operating income, reaching 13,586 million euros, impacted by extraordinary factors, mainly capital gains from the establishment of JV VMED O2 UK and the sale of the towers divisions of Telxius Group. Revenues in 2021 totaled 39,277 million euros, decreasing in reported terms by 8.8% year on year, mainly as a result of the changes in the consolidation perimeter, in particular, the establishment of JV VMED O2 UK (and the related deconsolidation of our UK business), the sale of the towers divisions of Telxius Group and the sale of Telefónica de Costa Rica and, to a lesser extent, the evolution of foreign exchange rates and, in particular, the depreciation against the euro of the Brazilian real.

We further enhanced our competitive position across core markets by driving market consolidation in the UK and Brazil, acquiring additional spectrum in the UK, Spain and Brazil, and delivering incremental improvement in network quality in Germany.

Our approach to capital allocation remained unchanged, with priority firmly on developing new generation networks based on fiber and 5G, as reflected in the speed of our fiber rollout in Spain and Brazil, and the Gigabit upgrade of cable to fiber in the UK (through JV VMED O2 UK).

These investments, coupled with our growing Digital Home consumer ecosystem portfolio, served to further enhance our customer experience, driving a positive y-o-y trend in total accesses supported by growth in high value UBB, fiber and contract mobile accesses.

We made substantial progress in streamlining and digitalizing our operating model, and further reduced our exposure to Latin America by completing the sale of Telefónica de Costa Rica.

In parallel, we reinforced our commitment to sustainability as an integral part of our day-to-day business. We continued to drive connectivity and connect the unconnected, bringing economic and social benefits as well as playing a positive role in the decarbonization of other sectors through digitalization.

During 2021 Telefónica Tech has proactively reinforced its capabilities through acquisitions, including Cancom UK&I, Altostratus, and Geprom, while T. Infra has allowed the creation of growth opportunities, together with a pipeline of potential value-accretive infra deals, including the partial sale of some of these vehicles. See “Item 5. Operating and Financial Review and Prospects―Trend Information”.

Telefónica’s total accesses including 100% of the accesses of JV VMED O2 UK (in respect of which Telefónica has a 50% stake) totaled 369.1 million as of December 31, 2021, increasing by 6.9% year-on-year, mainly due to the inclusion of Virgin Media’s accesses in JV VMED O2 UK, which contributed 4.8 p.p. to year-on-year growth, offset in part by the exclusion of Telefónica de Costa Rica (which sale was completed on August 9, 2021), which reduced the growth by 0.7 p.p. In organic terms (calculated as set forth further below), there was a 2.6% increase, mainly due to better performance in postpaid accesses in Telefónica Brazil, Telefónica Hispam and Telefónica Germany, due to the lessening of restrictive measures related to the pandemic compared to the previous year.

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


ACCESSES
Thousands of accesses	2020	2021	% Reported YoY		% Organic YoY
Fixed telephony accesses (1)	28,243.0	29,966.9	6.1	%	(8.3	%)
Broadband	20,077.2	25,833.3	28.7	%	1.3	%
UBB	15,212.8	22,281.8	46.5	%	8.0	%
FTTH	9,964.2	12,243.8	22.9	%	22.9	%
Mobile accesses	266,287.1	277,793.3	4.3	%	4.0	%
Prepay	131,542.0	129,675.7	(1.4	%)	(0.2	%)
Contract	108,587.5	117,432.1	8.1	%	5.6	%
IoT	26,157.7	30,685.4	17.3	%	17.6	%
Pay TV	8,059.5	11,111.7	37.9	%	(3.8	%)
Retail Accesses	322,978.5	344,945.5	6.8	%	2.3	%
Wholesale Accesses	22,455.0	24,173.3	7.7	%	7.7	%
Fixed wholesale accesses	3,722.8	3,694.5	(0.8	%)	(0.8	%)
FTTH wholesale accesses	2,606.8	2,988.0	14.6	%	14.6	%
Mobile wholesale accesses	18,732.1	20,478.8	9.3	%	9.3	%
Total Accesses	345,433.5	369,118.9	6.9	%	2.6	%

Notes:

- The table includes, with respect to 2020, accesses of Telefónica de Costa Rica (2.5 million total accesses) and, with respect to 2020 and 2021, accesses of Telefónica El Salvador (1.9 million and 1.8 million total accesses as of December 31, 2020 and 2021, respectively). The sale of Telefónica de Costa Rica was completed on August 9, 2021. The sale of Telefónica El Salvador was completed on January 13, 2022.

(1) Includes fixed wireless and VoIP accesses.

The table below shows the contribution to reported growth of each item considered to calculate the organic variations. To exclude the impact of the closing of the transaction with Liberty Global and the establishment of JV VMED O2 UK in the calculation of organic variations, the 2020 comparative figures include the accesses of Virgin Media. To exclude the impact of the sale of Telefónica de Costa Rica in the calculation of organic variations, the 2020 comparative figures exclude the accesses of Telefónica de Costa Rica. For each line item, the contribution to reported growth, expressed in p.p., is the result of dividing the amount of each impact by the consolidated reported figure for the previous year.


Contribution to the reported growth (percentage points)
Thousands of accesses	% Reported YoY		% Organic YoY		VMED O2 UK	Costa Rica
Fixed telephony accesses (1)	6.1	%	(8.3	%)	15.8	(0.2)
Broadband	28.7	%	1.3	%	27.0	—
UBB	46.5	%	8.0	%	35.6	—
FTTH	22.9	%	22.9	%	—	—
Mobile accesses	4.3	%	4.0	%	1.3	(0.9)
Prepay	(1.4	%)	(0.2	%)	0.1	(1.4)
Contract	8.1	%	5.6	%	3.0	(0.6)
IoT	17.3	%	17.6	%	—	(0.2)
Pay TV	37.9	%	(3.8	%)	43.4	(0.1)
Retail Accesses	6.8	%	2.3	%	5.2	(0.8)
Wholesale Accesses	7.7	%	7.7	%	—	—
Fixed wholesale accesses	(0.8	%)	(0.8	%)	—	—
FTTH wholesale accesses	14.6	%	14.6	%	—	—
Mobile wholesale accesses	9.3	%	9.3	%	—	—
Total Accesses	6.9	%	2.6	%	4.8	(0.7)

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The table below shows the evolution of accesses by segment:


	YoY variation	% Over Total Accesses
Accesses 2021		2020	2021
Telefónica Spain	(2.8%)	12.0%	10.9%
Telefónica United Kingdom / VMED O2 UK (1)	5.1%	10.6%	15.2%
Telefónica Germany	2.9%	14.1%	13.6%
Telefónica Brazil	3.9%	27.5%	26.8%
Telefónica Hispam	1.8%	31.4%	29.9%

Other companies	(10.6%)	4.4%	3.7%

Note:

(1) Our former Telefónica United Kingdom segment was replaced by our new VMED O2 UK segment on June 1, 2021. For additional information

on this change and how segment information is presented in this Annual Report, see “―History and Development of the Company―Business

areas”.

Mobile accesses totaled 277.8 million as of December 31, 2021, up 4.3% compared to 2020 mainly due to the inclusion of Virgin Media’s accesses which contributed 1.3 p.p. to year-on-year growth, offset in part by the exclusion of Telefónica de Costa Rica, which reduced the growth by 0.9 p.p. In organic terms, mobile accesses increased 4.0% due to an increase in postpaid (8.1% in reported terms and 5.6% in organic terms), offset in part by the decrease in prepay (1.4% in reported terms and 0.2% in organic terms). Postpaid accesses represented 47.5% of the mobile accesses excluding IoT (+2.3 p.p. in reported terms and +1.4 p.p. in organic terms y-o-y).

Fixed broadband accesses stood at 25.8 million at December 31, 2021, up 28.7% year-on-year mainly due to the inclusion of Virgin Media’s accesses, which contributed 27.0 p.p. to year-on-year growth. In organic terms, fixed broadband accesses increased 1.3% y-o-y. Retail fiber (FTTH) accesses stood at 12.2 million at December 31, 2021, growing by 22.9% compared to December 31, 2020 in both reported and organic terms.

Pay TV accesses totaled 11.1 million as of December 31, 2021, up 37.9% year-on-year mainly due to the inclusion of Virgin Media’s accesses which contributed 43.4 p.p. to year-on-year growth, offset in part by the exclusion of Telefónica de Costa Rica which reduced the growth by 0.1 p.p. In organic terms, Pay TV accesses decreased by 3.8% due to the evolution in Spain and Brazil.

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	2020	2021
Spain	29.3%	27.6%
United Kingdom (2)	25.3%	30.1%
Germany	35.9%	34.9%
Brazil	33.6%	33.1%
Argentina	29.2%	29.2%
Chile	26.6%	25.8%
Peru	31.2%	30.4%
Colombia	25.0%	26.0%
Venezuela	55.7%	54.7%
Mexico	21.0%	19.5%
Ecuador	29.9%	31.5%
Uruguay	37.0%	29.1%

(1) Internal estimates in both years.

(2) In 2021, it refers to JV VMED O2 UK market share as of September 2021.

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	FBB Market Share (1)
Telefónica	2020	2021
Spain	36.6%	35.3%
Brazil	17.8%	15.3%
Argentina	16.5%	11.7%
Chile	27.8%	29.8%
Peru	66.2%	61.0%
Colombia	15.4%	13.8%

(1) Internal estimates in both years.

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2021/2020 Consolidated results

In this section, we discuss changes in the Group’s consolidated income statements for the years ended December 31, 2021 and 2020. Changes in the Group’s consolidated income statements for the years ended December 31, 2020 and 2019 are discussed in a separate section further below.


	Year ended December 31,								Variation
Consolidated Results	2020				2021				2021 vs 2020
Millions of euros	Total		% of revenues		Total		% of revenues		Total	%
Revenues	43,076		100.0	%	39,277		100.0	%	(3,799)	(8.8	%)
Other income	1,587		3.7	%	12,673		32.3	%	11,086	698.3	%
Supplies	(13,014)		(30.2	%)	(12,258)		(31.2	%)	756	(5.8	%)
Personnel expenses	(5,280)		(12.3	%)	(6,733)		(17.1	%)	(1,453)	27.5	%
Other expenses	(12,871)		(29.9	%)	(10,976)		(27.9	%)	1,895	(14.7	%)
OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION (OIBDA)	13,498		31.3	%	21,983		56.0	%	8,485	62.9	%
OIBDA Margin	31.3	%			56.0	%				24.6 p.p.
Depreciation and amortization	(9,359)		(21.7	%)	(8,397)		(21.4	%)	962	(10.3	%)
Amortization of intangible assets, depreciation of property, plant and equipment	(7,756)		(18.0	%)	(6,748)		(17.2	%)	1,008	(13.0)	%
Amortization of rights of use	(1,603)		(3.7	%)	(1,649)		(4.2	%)	(46)	2.9	%
OPERATING INCOME (OI)	4,139		9.6	%	13,586		34.6	%	9,447	228.2	%
Operating Margin	9.6	%			34.6	%				26.1 p.p.
Share of income of investments accounted for by the equity method	2		0.0	%	(127)		(0.3	%)	c.s.	c.s.
Net financial expense	(1,558)		(3.6	%)	(1,364)		(3.5	%)	194	(12.5	%)
PROFIT BEFORE TAX	2,583		6.0	%	12,095		30.8	%	9,512	368.2	%
Corporate income tax	(626)		(1.5	%)	(1,378)		(3.5	%)	(752)	120.0	%
PROFIT FOR THE YEAR	1,957		4.5	%	10,717		27.3	%	8,760	447.6	%
Attributable to equity holders of the parent	1,582		3.7	%	8,137		20.7	%	6,555	414.4	%
Attributable to non-controlling interests	375		0.9	%	2,580		6.6	%	2,205	587.4	%

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, 2021/2020 “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 2020 for both years).

Foreign exchange rates had a negative impact on our reported 2021 results, mainly due to the depreciation of the Brazilian real against the euro.

Foreign exchange effects decreased revenue growth by 2.3 percentage points, OIBDA growth by 2.7 percentage points and operating income growth by 3.0 percentage points in 2021.

•Changes in the consolidation perimeter: we have excluded the impact of changes in our consolidation perimeter in 2021 and 2020. The main changes were the constitution of JV VMED O2 UK (and, therefore, the exclusion from our consolidation perimeter of the entities that comprised our former Telefónica United

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Kingdom segment from that date), the sale of the towers divisions of Telxius Group, the sale of Telefónica de Costa Rica and the sale of 60% of InfraCo, SpA in 2021. To exclude the impact of these transactions in the calculation of organic variations, the 2020 comparative figures exclude the results of the companies that are no longer part of the consolidated perimeter from the date of the relevant transaction to the end of the year. Additionally, we have excluded the depreciation and amortization of these entities from January 1, 2020 until such month in 2020.

No adjustments for changes in the consolidation perimeter were made with respect to the results of JV VMED O2 UK and other joint ventures established in 2021, as their results are accounted for under the equity method and organic variations are only calculated through operating income.

•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 2021, we mainly excluded the gains resulting from the establishment of JV VMED O2 UK (4,460 million euros), the sale of the European and Latin American towers divisions of the Telxius Group (6,099 million euros), the establishment of FiBrasil (26 million euros), the sale of 60% of the shares in InfraCo, SpA (274 million euros) and the sale of Telefónica de Costa Rica (136 million euros).

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.

•Restructuring costs: we have excluded the impact in 2021 and 2020 of restructuring costs, mainly those related to the Individual Suspension Plan adopted under the Social Pact for Employment in Telefónica Spain in 2021.

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


Millions of euros	2020	2021
Telefónica Spain	(2)	1,382
Telefónica United Kingdom	—	—
Telefónica Germany	37	22
Telefónica Brazil	—	—
Telefónica Hispam	17	174
Other companies	34	85
Total restructuring costs	86	1,663

•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, in 2021 the revenues of these companies increased by 327 million euros and their OIBDA, operating income and OIBDA-CapEx decreased by 112 million euros, 107 million euros, 134 million euros, respectively, compared to 2020.

•Impairment of goodwill and other assets: in 2021 the impairment of goodwill amounting to 416 million euros, mainly in Telefónica Peru, has been excluded. In 2020, the impairment of the goodwill and certain assets of Telefónica Argentina has been excluded, 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.

•Judicial decision PIS/COFINS: we excluded 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 Integraçao Social) and the Financing of Social Security - COFINS (Contribuçao para Financiamiento de Seguridade Social) amounting to 243 million euros in OIBDA in 2021.

•Spectrum acquisition: the organic variation of capital expenditures ("CapEx") excludes the impact of spectrum acquisitions in 2021 and 2020.

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In 2021, spectrum acquisitions amounted to 1,704 million euros of which 706 million euros corresponded to Telefónica Brazil, 515 million euros to our former Telefónica United Kingdom segment (which acquisitions took place before JV VMED O2 UK was established), 352 million euros to Telefónica Spain and 131 million euros to Telefónica Chile.

In 2020, spectrum acquisitions amounted to 126 million euros of which 94 million euros corresponded to Telefónica United Kingdom and 32 million euros to Telefónica Brazil.

•Other adjustments: organic variations exclude the following:

In 2021: (i) the provision for contingencies in Telefónica Brazil amounting to 154 million euros with a negative impact in OIBDA; (ii) the impact of the transformation of the operating model of Telefónica México (following the AT&T agreement entered into in 2019) on depreciation and amortization amounting to 88 million euros; (iii) the provisions recorded in Telefónica Spain to optimize the distribution network (44 million euros in OIBDA); and (iv) the impact of not amortizing assets held for sale in Telefónica El Salvador (14 million euros in amortization and operating income).

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; and (ii) 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) and the impact of not amortizing assets held for sale in Telefónica El Salvador (32 million euros in amortization and operating income).

The table below shows 2021/2020 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 2021	% Reported YoY		% Organic YoY
Revenues	(8.8	%)	2.0	%
Other income	698.3	%	18.8	%
Supplies	(5.8	%)	6.8	%
Personnel expenses	27.5	%	3.3	%
Other expenses	(14.7	%)	(0.7	%)
OIBDA	62.9	%	1.4	%
Depreciation and amortization	(10.3	%)	(0.5	%)
Operating income (OI)	228.2	%	5.6	%
CapEx	24.0	%	10.3	%
OIBDA-CapEx	92.7	%	(4.4	%)

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 the impact of each such item (on a net basis when the impact affects

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both years) by the consolidated reported figure for the previous year.


	Contribution to reported growth (percentage points)
TELEFÓNICA 2021	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	Judicial decision PIS/COFINS	Spectrum acquisition	Other adjustments
Revenues	(2.3)	(9.1)	—	—	0.8	—	—	—	0.0
Other income	(2.7)	(8.3)	692.2	—	0.0	—	—	—	—
Supplies	(1.7)	(11.0)	—	—	0.8	—	—	—	—
Personnel expenses	(2.2)	(5.2)	—	30.2	1.7	—	—	—	—
Other expenses	(2.7)	(7.9)	(0.0)	(0.1)	0.9	(3.7)	(2.1)	—	1.4
OIBDA	(2.7)	(9.5)	81.2	(11.7)	0.1	3.5	2.0	—	(1.3)
Depreciation and amortization	(2.6)	(4.1)	—	—	(0.0)	—	—	—	(3.0)
Operating income	(3.0)	(21.6)	264.9	(38.2)	0.3	11.5	6.4	—	2.5
CapEx	(4.0)	(11.2)	—	—	0.4	—	—	29.7	0.1
OIBDA-CapEx	(1.8)	(8.1)	143.6	(20.7)	(0.2)	6.3	3.5	(22.8)	(2.4)

Analysis of results

For information on factors affecting the comparability of our results for 2021 and 2020, 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”.

Revenues (net sales and provided services) in 2021 totaled 39,277 million euros, decreasing in reported terms by 8.8% year on year, mainly as a result of the changes in the consolidation perimeter (-9.1 p.p.), in particular, the constitution of JV VMED O2 UK (and, therefore, the exclusion from our consolidation perimeter of the entities that comprised our former Telefónica United Kingdom segment from that date), the sale of the towers divisions of Telxius Group and the sale of Telefónica de Costa Rica; and to a lesser extent, the evolution of foreign exchange rates (-2.3 p.p.) and, in particular, the depreciation against the euro of the Brazilian real. In organic terms, revenues grew by 2.0%, mainly as a result of increased handset sales in all business areas and the growth in service revenues.

Other income mainly included gains on the sale of assets and, to a lesser extent, own work capitalized in our fixed assets. In 2021, other income totaled 12,673 million euros compared to 1,587 million euros in 2020. This increase was mainly attributable to the gains resulting from the sale of the European and Latin American towers divisions of Telxius Group (6,099 million euros), the establishment of JV VMED O2 UK (4,460 million euros), the sale of 60% of the shares in InfraCo, SpA (274 million euros), the sale of Telefónica de Costa Rica to Liberty Global (136 million euros) and the establishment of FiBrasil in Brazil (26 million euros). In organic terms, other income increased 18.8% y-o-y.

The total amount of supplies, personnel expenses and other expenses was 29,967 million euros in 2021, down 3.8% year-on-year in reported terms. This decrease was mainly attributable to the impact of changes in the scope of consolidation (-8.8 p.p.), changes in foreign exchange rates (-2.2 p.p.) and the impairment of goodwill and other assets in Telefónica Argentina in 2020, which exceeded the amount of the impairment in Telefónica Peru in 2021 (-1.6 p.p.), partially offset by the higher restructuring costs (+5.1 p.p.). In organic terms, the total amount of supplies, personnel expenses and other expenses increased by 3.2%. The year-on-year variation in organic terms was significantly affected by higher supply and personnel costs. The evolution of these expenses is explained in greater detail below:

•Supplies amounted to 12,258 million euros in 2021, down 5.8% year-on-year in reported terms, as a result mainly of changes in the scope of consolidation (-11.0 p.p.) and, to a lesser extent, the impact of changes in foreign exchange rates (-1.7 p.p.). In organic terms, supplies increased by 6.8% year-on-year, mainly due to higher TV content costs and higher costs related to IT sales in Telefónica Spain.

•Personnel expenses amounted to 6,733 million euros in 2021, up 27.5% year-on-year in reported terms mainly as a result of the higher restructuring costs (+30.2 p.p.), mainly related to the Individual Suspension

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Plan in Spain, partially offset by the impact of changes in the scope of consolidation (-5.2 p.p.) and changes in foreign exchange rates (-2.2 p.p.). In organic terms, personnel expenses increased by 3.3% year-on-year, as a result of the increasing normalization of business activity, following the cost saving measures implemented in 2020 in response to the COVID-19 pandemic in practically all geographies.

The average headcount was 107,776 employees in 2021, down 4.8% compared to 2020, mainly as a result of the deconsolidation of the entities that comprised our former Telefónica United Kingdom segment in June 2021.

•Other expenses (principally external services and, to a significantly lesser extent, taxes other than income tax) amounted to 10,976 million euros in 2021, down 14.7% year-on-year in reported terms. This decrease was mainly attributable to the impact of changes in the scope of consolidation (-7.9 p.p.), the impairment of goodwill and other assets in Telefónica Argentina in 2020, which exceeded the amount of the impairment in Telefónica Peru in 2021 (-3.7 p.p.), the impact of foreign exchange rates (-2.7 p.p.) and 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 Financiamiento da Seguridade Social) (-2.1 p.p.). In organic terms, other expenses decreased by 0.7% year-on-year due mainly to the saving measures carried out by the Group.

As a result of the foregoing, OIBDA totaled 21,983 million euros in 2021, compared with 13,498 million euros in 2020, significantly impacted by the gains from the transactions recorded in "Other income". In organic terms, OIBDA increased by 1.4% year-on-year.

Depreciation and amortization amounted to 8,397 million euros in 2021, decreasing by 10.3% compared to 2020 in reported terms mainly as a result of changes in the consolidation perimeter (-4.1 p.p.), mainly due to the recognition of the entities that comprised our former Telefónica United Kingdom segment as a disposal group held for sale in May 2020, the impact of foreign exchange rates (-2.6 p.p.) and the impact of the accelerated amortization related to the transformation of the operating model of Telefónica México, which affected 2020 to a greater extent (-2.5 p.p.). In organic terms, depreciation and amortization decreased by 0.5%.

Operating income (OI) in 2021 totaled 13,586 million euros, compared with 4,139 million euros in of 2020, significantly impacted by the gains recorded in “Other income” (+264.9 p.p.). To a much lesser extent, the year-on-year increase was explained by the impairment of goodwill and other assets in Telefónica Argentina in 2020, which exceeded the amount of the impairment in Telefónica Peru in 2021 (+11.5 p.p.), 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 Financiamiento da Seguridade Social) (+6.4 p.p.) and the impact of the accelerated amortization related to the transformation of the operating model of Telefónica México, following the AT&T agreement in 2020 (+5.6 p.p.). The year-on-year increase was partially offset by the higher restructuring costs, which were mainly related to the Individual Suspension Plan in Spain in 2021, which totaled 1,382 million euros (-38.2 p.p.), changes in the consolidation perimeter (-21.6 p.p.), the provision for contingencies in Telefónica Brazil (-4.1 p.p.) and the foreign exchange rate effects (-3.0 p.p.). In organic terms, operating income increased by 5.6%, mainly as a result of increased handset sales in all business areas and the growth in service revenues.

The share of income (loss) of investments accounted for by the equity method for 2021 was a loss of 127 million euros, compared to income of 2 million euros in 2020, mainly due to the results of JV VMED O2 UK (which was established on June 1, 2021).

Net financial expense amounted to 1,364 million euros in 2021, decreasing by 194 million euros compared to 2020 due to the reduction of debt in European currencies (despite the increase in interest rates in Brazil and higher level of debt denominated in Brazilian reals) as well as other non-recurrent positive effects.

Corporate income tax amounted to 1,378 million euros in 2021, increasing from 2020 (626 million euros) due mainly to the accounting effect of the tax assessments resulting from the tax inspection in Spain (see “Item 8. Financial Information - Consolidated Financial Statements - Tax Proceedings - Inspections in the tax group in Spain”) , a decrease in deferred tax assets in Spain due to the restatement of their recoverability, provision in Peru due to unfavorable ruling by the Supreme Court (see “Item 8. Financial Information - Consolidated Financial

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Statements - Tax Proceedings - Telefónica del Perú”) and adjustments for tax rates changes. The increase was partially offset by the provision recorded in Spain in connection with the Individual Suspension Plan and non-taxable interests in Brazil. A substantial portion of the capital gains obtained in 2021 were exempt from corporate tax.

As a result, profit for the year attributable to equity holders of the parent for 2021 was 8,137 million euros (1,582 million euros in 2020).

Profit attributable to non-controlling interests was 2,580 million euros in 2021(375 million euros in 2020) mainly as a result of profit attributable to non-controlling interests in Telxius, which completed the sale of the towers divisions in Europe and Latin America in 2021.

CapEx were 7,267 million euros in 2021, increasing 24.0% year on year in reported terms as a result of the spectrum purchase mainly in Telefónica Brazil (706 million euros), our former Telefónica United Kingdom segment (515 million euros in the first five months of 2021), Telefónica Spain (352 million euros) and Telefónica Chile (131 million euros). CapEx in 2020 was limited due to the COVID-19 pandemic.

OIBDA-CapEx was 14,716 million euros in 2021, compared to 7,637 million euros in 2020, increasing by 92.7% y-o-y in reported terms and decreasing by 4.4% in organic terms.

2021/2020 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	2020	2021	%Reported YoY
Fixed telephony accesses (1)	8,731.0	8,376.3	(4.1	%)
Broadband	5,961.9	5,874.9	(1.5	%)
FTTH	4,614.1	4,847.6	5.1	%
Mobile accesses	18,977.8	18,484.6	(2.6	%)
Prepay	888.1	752.5	(15.3	%)
Contract	15,383.7	15,210.7	(1.1	%)
IoT	2,706.0	2,521.5	(6.8	%)
Pay TV	3,934.5	3,716.4	(5.5	%)
Retail Accesses	37,615.1	36,460.9	(3.1	%)
Wholesale Accesses	3,689.5	3,674.3	(0.4	%)
FTTH Wholesale Accesses	2,599.8	2,982.0	14.7	%
Total Accesses	41,304.6	40,135.2	(2.8	%)

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

During 2021, a new Fusion portfolio that includes several devices (including 5G smartphones of different brands, Smart TVs, Tablets and laptops, among others) was launched, allowing customers to choose the device that best suits their needs depending on the Fusion package contracted.

With this new Fusion portfolio, and the increase in the connection speed of its customers to up to 1Gbps, Telefónica Spain has taken a new step to respond to customer demands.

The investment in the 5G mobile network made it possible to achieve 81% of population coverage as of December 31, 2021, and has allowed customers to access, regardless of their location, all fiction and sports contents. Throughout 2022, Telefonica will continue to expand and strengthen coverage to reach more population, which

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expansion is expected to be boosted by the recent award to Telefónica of one block of 2x10 MHz in the 700MHz auction.

Additionally, in 2021, Telefónica has continued to improve its offer proposals to strengthen its relationship with customers and reach new segments, some of which are described below:

•Movistar Prosegur Alarmas: the joint venture of Prosegur and Telefónica, offers, since September 2020, intelligent recognition and system automation services. These new functionalities are based on the incorporation of artificial intelligence in the home environment and are configured according to the specific needs of each user. As of December 31, 2021 the number of clients exceeded 350 thousand.

•Movistar Health: an online telemedicine service, reached nearly 60 thousand customers at December 31, 2021, following its launching in October 2020.

•Home Insurance: launch of home insurance with Telefónica Seguros, SANTALUCÍA and BBVA Allianz. The new insurance has several modalities in terms of the scope of coverage, and includes coverage of incidents such as water damage, fire, theft, legal protection, or handyman, among others. This new product can be contracted by anyone, whether they are Telefónica Spain customers or not.

•Gaming: Telefónica Spain and Microsoft have signed a strategic partnership whereby Telefónica Spain will offer Xbox Game Pass Ultimate (a gaming subscription service from Xbox) to its Movistar Fusión and Contrato Solo Móvil customers, for 12.99 € per month and 20 GB of extra mobile data on a Telefónica Spain mobile line of their choice.

•Movistar Música: a music streaming service with more than 50 million songs in its catalogue, without ads and including exclusive content of the artists. The service was first piloted in Latin America and comes with several subscription options. The streaming service is available both as a mobile and tablet app and also available on the Movistar Home device.

•Movistar Money: the consumer loan service for Telefónica Spain customers, already used by more than 3 million customers, updated its conditions, by incorporating new features, such as the possibility of requesting up to 5,000 euros (1,000 euros more) and the incorporation of payment protection insurance in the event of an unforeseen event.

Telefónica Spain had 40.1 million accesses as of December 31, 2021, a decline of 2.8% as compared to December 31, 2020, partly driven by a commercial policy focused on generating value and promoting higher market rationalization by reducing promotional activity, which had an impact on commercial activity.

The convergent offer (residential and SMEs) had a customer base of 4.6 million customers as of December 31, 2021, a decrease of 3.6% y-o-y.

Retail fixed accesses totaled 8.4 million and decreased 4.1% as compared to December 31, 2020, with a net loss of 355 thousand accesses in 2021.

Retail broadband accesses totaled 5.9 million (-1.5% y-o-y), with a net loss of 87 thousand accesses during 2021.

Retail fiber (FTTH) accesses reached 4.8 million customers (+5.1% as compared to December 31, 2020), representing 82.5% of total retail broadband customers (+5.1 p.p. y-o-y) with net adds of 234 thousand accesses in 2021. At December 31, 2021, fiber deployment reached 26.9 million premises, 1.7 million more than at December 31, 2020.

Total retail mobile accesses stood at 18.5 million as of December 31, 2021, a decrease of 2.6% as compared to December 31, 2020 as a result of a decrease in both mobile contract accesses (-1.1% y-o-y) and prepay accesses (-15.3% y-o-y).

Pay TV accesses reached 3.7 million at December 31, 2021, decreasing 5.5% year-on-year.

Wholesale accesses stood at 3.7 million at December 31, 2021, down 0.4% year-on-year, although wholesale fiber (FTTH) accesses (81.2% of total wholesale accesses at December 31, 2021 compared with 70.5% at December 31, 2020) were up 14.7% year-on-year.

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


Millions of euros
TELEFÓNICA SPAIN	2020	2021	% Reported YoY		% Organic YoY (1)
Revenues	12,401	12,417	0.1	%	0.1	%
Mobile handset revenues	264	400	51.3	%	51.3	%
Revenues ex-mobile handset sales	12,137	12,017	(1.0	%)	(1.0	%)
Retail	9,906	9,699	(2.1	%)	(2.1	%)
Wholesale and Other	2,231	2,318	3.9	%	3.9	%
Other income	540	664	23.1	%	23.1	%
Supplies	(4,210)	(4,636)	10.1	%	10.1	%
Personnel expenses	(1,748)	(3,201)	83.1	%	3.9	%
Other expenses	(1,937)	(1,867)	(3.6	%)	(4.4	%)
OIBDA	5,046	3,377	(33.1	%)	(5.3	%)
Depreciation and amortization	(2,184)	(2,153)	(1.4	%)	(1.4	%)
Amortization of intangible assets, depreciation of property, plant and equipment	(1,892)	(1,807)	(4.5	%)	(4.5	%)
Amortization of rights of use	(292)	(346)	18.6	%	18.6	%
Operating income (OI)	2,862	1,224	(57.2	%)	(8.3	%)
CapEx	1,408	1,815	28.9	%	3.9	%
OIBDA-CapEx	3,638	1,562	(57.1	%)	(8.9	%)

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.

With respect to Telefónica Spain, we have made the following adjustments in order to calculate 2021/2020 variations in organic terms:

•Optimization of the distribution network: organic variations exclude the impact of the provisions recorded in Telefónica Spain totaling 44 million euros in 2021 in connection with the restructuring of the distribution channels (29 million euros in 2020).

•Restructuring costs: we have excluded the impact of (i) in 2021, restructuring costs totaling 1,382 million euros that were mainly related to the Individual Suspension Plan; and (ii) in 2020 2 million euros due to the reversal of a provision recorded in 2019 in connection with restructuring costs.

•Spectrum acquisition: we have excluded the impact of spectrum acquisitions from CapEx, which totaled 352 million euros in 2021. During 2020, no spectrum acquisitions were made.

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The table below shows 2021/2020 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 2021	% Reported YoY		% Organic YoY		Optimization Distribution Network	Restructuring costs	Spectrum acquisition
Revenues	0.1	%	0.1	%	—	—	—
Other income	23.1	%	23.1	%	—	—	—
Supplies	10.1	%	10.1	%	—	—	—
Personnel expenses	83.1	%	3.9	%	—	79.2	—
Other expenses	(3.6	%)	(4.4	%)	0.7	—	—
OIBDA	(33.1	%)	(5.3	%)	(0.3)	(27.4)	—
Depreciation and amortization	(1.4	%)	(1.4	%)	—	—	—
Operating income (OI)	(57.2	%)	(8.3	%)	(0.5)	(48.4)	—
CapEx	28.9	%	3.9	%	—	—	25.0
OIBDA-CapEx	(57.1	%)	(8.9	%)	(0.4)	(38.0)	(9.7)

Analysis of results

Revenues in 2021 amounted to 12,417 million euros, growing 0.1% y-o-y in reported terms. This stable trend was supported by handset revenues due to the launching of the new Fusion portfolio, as the new portfolio includes several devices as part of the packages (including 5G smartphones of different brands, Smart TVs, tablets and laptops, among others). The evolution of revenues excluding mobile handset sales is described below:

•Retail revenues totaled 9,699 million euros in 2021, decreasing by 2.1% year-on-year in reported terms, due in part to the customer base decline and convergent customer value mix erosion (mainly due to the worsening of economic conditions as a result of the COVID-19 pandemic), partially offset by higher IT revenues due to the higher demand for digitalization projects in the B2B segment.

•Wholesale and other revenues totaled 2,318 million euros in 2021, increasing by 3.9% year-on-year in reported terms, due, among others, to a recovery in roaming-in revenues.

OIBDA reached 3,377 million euros in 2021, a year-on-year decrease of 33.1% in reported terms and 5.3% year-on-year in organic terms.

Depreciation and amortization amounted to 2,153 million euros in 2021, decreasing by 1.4% year-on-year in both reported and organic terms, mainly as a result of an acceleration of the decommissioning of central offices and the change in the depreciation period of radio-links.

Operating income amounted to 1,224 million euros in 2021, a year-on-year decrease of 57.2% in reported terms. The year-on-year decrease was mainly driven by the restructuring costs provision (-48.4 p.p.) in 2021. In organic terms, operating income showed a decrease of 8.3% year-on-year, mainly as a result of the lower service revenues and the impact of the higher energy costs for most of the year.

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TELEFÓNICA UNITED KINGDOM

Our former Telefónica United Kingdom segment was replaced by our new VMED O2 UK segment on June 1, 2021, upon the establishment of JV VMED O2 UK, the joint venture between Telefónica and Liberty Global. Since it is not practicable to restate the Group’s historical segment financial information to reflect this change, the 2021-2020 period-on-period discussions included below focus on the results of our former Telefónica United Kingdom segment (which, for purposes of 2021, consists of the results obtained in the first five months of the year, until the establishment of JV VMED O2 UK and the elimination of this segment). For additional information, see “―History and Development of the Company―Business areas”, "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”, and "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".

This section does not discuss the evolution of Telefónica United Kingdom’s accesses in 2020 and 2021. Accesses of JV VMED O2 UK as of December 31, 2021 are shown in the next section: “VMED O2 UK".

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


Millions of euros
TELEFÓNICA UNITED KINGDOM	2020	2021 (1)	% Reported YoY		% Organic YoY (2)

Revenues	6,708	2,628	(60.8	%)	(7.0	%)
Mobile Business	6,476	2,532	(60.9	%)	(7.2	%)
Handset revenues	1,816	642	(64.7	%)	(9.8	%)
Fixed Business	232	96	(58.9	%)	(1.2	%)
Other income	178	73	(59.1	%)	(1.9	%)
Supplies	(2,456)	(910)	(62.9	%)	(9.3	%)
Personnel expenses	(459)	(205)	(55.4	%)	4.9	%
Other expenses	(1,907)	(667)	(65.0	%)	(23.2	%)
OIBDA	2,064	919	(55.5	%)	10.0	%
Depreciation and amortization	(389)	—	(99.9	%)	(1.1	%)
Amortization of intangible assets, depreciation of property, plant and equipment	(322)	—	(99.9	%)	(1.5	%)
Amortization of rights of use	(67)	—	(100.0	%)	1.2	%
Operating income (OI)	1,675	919	(45.1	%)	26.2	%
CapEx	913	933	2.2	%	24.1	%
OIBDA-CapEx	1,151	(14)	c.s.		c.s.

Notes:

(1) As stated above, this includes the results of our former Telefónica United Kingdom segment until its elimination on June 1, 2021 (i.e., this

shows the results obtained by this segment in the first five months of the year). This significantly affects the comparability of 2021 and 2020

results for this segment.

(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 United Kingdom, we have made the following adjustments in order to calculate 2021/2020 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 from January to May 2020 for both years.

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•Changes in the scope of consolidation: we have excluded the impact of the deconsolidation of the entities that comprised our former Telefónica United Kingdom segment since June 1, 2021. To make amounts comparable, in 2020 we have excluded the results of the entities that comprised our former Telefónica United Kingdom segment for the period from June 1 to December 31, 2020.

•Spectrum acquisitions: we have excluded the impact of spectrum acquisitions on CapEx in the first five months of 2021, amounting to 515 million euros. In 2020, there were no spectrum acquisitions.

The table below shows 2021/2020 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 2021	% Reported YoY		% Organic YoY		Exchange rate effect	Perimeter changes	Spectrum acquisition

Revenues	(60.8	%)	(7.0	%)	(0.0)	(57.8)	—
Other income	(59.1	%)	(1.9	%)	(0.0)	(58.2)	—
Supplies	(62.9	%)	(9.3	%)	(0.0)	(59.1)	—
Personnel expenses	(55.4	%)	4.9	%	—	(57.4)	—
Other expenses	(65.0	%)	(23.2	%)	(0.0)	(54.5)	—
OIBDA	(55.5	%)	10.0	%	0.0	(59.5)	—
Depreciation and amortization	(99.9	%)	(1.1	%)	—	(98.5)	—
Operating income (OI)	(45.1	%)	26.2	%	(0.1)	(50.4)	—
CapEx	2.2	%	24.1	%	(0.1)	(63.1)	56.5
OIBDA-CapEx	(100.0	%)	0.5	%	0.0	(56.6)	(44.8)

Analysis of results

Total revenues in 2021 amounted to 2,628 million euros, decreasing by 60.8% year-on-year in reported terms due to the change in the scope of consolidation (-57.8 p.p.) Excluding this impact, total revenues decreased by 7.0% driven by the new lockdown in the United Kingdom (from January to April 2021) and the change in the distribution model as a consequence of the end of the contract with Dixons Carphone in March 31, 2020, which resulted in changes in the mobile revenues allocation.

•Mobile business revenues reached 2,532 million euros in 2021, decreasing by 60.9% in reported terms due to the change in the scope of consolidation (-57.8 p.p.). Excluding this impact, mobile business revenues decreased by 7.2% as a result of the lower handset sales due the new lockdown in the United Kingdom, which resulted in the closing of commercial shops in the first half of 2021, lower roaming revenues due to the travel-related restrictions implemented in connection with the COVID-19 pandemic and the change in the distribution model as a consequence of the end of the contract with Dixons Carphone in March 31, 2020.

OIBDA totaled 919 million euros in 2021, decreasing by 55.5% in reported terms. In organic terms, OIBDA increased +10.0% year-on-year.

Operating income amounted to 919 million euros in 2021, decreasing 45.1% in reported terms, due to the impact of the change in the scope of consolidation (-50.4 p.p.) and, to a much lesser extent, the exchange rate effect (-0.1 p.p.). Excluding these impacts, the operating income year-on-year increased 26.2% thanks to a strict control of costs, as well as the positive impact of the change in the distribution model on expenses, which resulted in a decrease in the commissions paid by Telefónica United Kingdom.

VMED O2 UK

After receiving the final approval from the Competition & Markets Authority (CMA), the joint venture between Liberty Global and Telefónica was established on June 1, 2021, and our former Telefónica United Kingdom segment was replaced by our new VMED O2 UK segment. In addition, Telefónica ceased to fully consolidate the results of the

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entities that comprised our former Telefónica United Kingdom segment in its consolidated financial statements and started to account for the JV VMED O2 UK results under the equity method. Therefore, since June 1, 2021, for purposes of the Group’s consolidated results, the results of JV VMED O2 UK are reflected under a single heading of the consolidated income statement, “Share of income of investments accounted for by the equity method”. However, the VMED O2 UK segment information included below is presented under management criteria, and shows 100% of the VMED O2 UK results. The VMED O2 UK segment information included below refers to the period from June 1 to December 31, 2021. For additional information, see “―History and Development of the Company―Business areas”, "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”, and "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".

In its first seven months of activity, JV VMED O2 UK maintained its commercial focus, resulting in a solid operating performance.

In October, JV VMED O2 UK launched its first consumer and SoHo (Small office/Home office) converged product called “Volt”, for new and existing customers, taking advantage of its joint capabilities by combining the power of Virgin Media’s gigabit broadband with O2’s mobile network for the first time.

JV VMED O2 UK continues to invest in the future and remains committed to its mission to upgrade United Kingdom connectivity: it reached 15.6 million premises in its gigabit roll-out and remains on-track for completion of the gigabit upgrade to give it the largest and fastest broadband network in the UK and continued the velocity gigabit upgrade.

Project Lightning (a fixed network expansion project launched in 2015) covered 336 thousand premises in 2021, taking the cumulative build to 2.7 million. Additionally, JV VMED O2 UK continued network expansion and 5G coverage, which is live in 300 towns and cities, and confirmed its coverage target of 50% of the UK population in 2023.

In line with its commitment to realizing the benefits of digitization, JV VMED O2 UK also launched new AI technology to improve customer experiences in stores, created the first ever National Databank in the UK, providing free mobile data to tackle data poverty, and launched the free online Net Zero Hub to help small businesses reach net zero emissions.

The table below shows, as of December 31, 2021, the accesses of JV VMED O2 UK and, as of December 31, 2020, the aggregated accesses of our former Telefónica United Kingdom segment and Virgin Media:


ACCESSES
Thousands of accesses	2020	2021	% Reported YoY

Broadband	5,449.5	5,626.7	3.3	%
UBB	5,420.3	5,596.8	3.3	%

Mobile accesses	30,336.6	32,276.8	6.4	%
Prepay	8,251.8	8,119.1	(1.6	%)
Contract	15,594.2	15,938.1	2.2	%
IoT	6,490.6	8,219.7	26.6	%


Retail Accesses	44,067.7	46,021.1	4.4	%
Wholesale Accesses	9,210.9	9,966.6	8.2	%
Total Accesses	53,278.6	55,987.8	5.1	%

The total accesses base grew 5.1% year-on-year and stood at 56.0 million at December 31, 2021, mainly driven by a 6.4% increase in the mobile accesses base, which reached 32.3 million.

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The contract mobile customer base grew 2.2% year-on-year and reached 15.9 million accesses adding 344 thousand new accesses to the base as a result of the increasing normalization of commercial activity as COVID-19 restrictions progressively eased.

The prepay mobile customer base decreased 1.6% year-on-year and reached 8.1 million accesses losing 133 thousand accesses in 2021.

IoT mobile customer base grew 26.6% year-on-year and reached 8.2 million accesses as the Smart Metering Programme (one of the largest IoT projects in the world) roll out regained pace.

Fixed broadband base grew 3.3% year-on-year and reached 5.6 million accesses adding 177 thousand new accesses to the base in 2021 reflecting continued demand for faster broadband speeds.

The table below shows VMED O2 UK’s results from June 1 to December 31, 2021:


June 1 to December 31, 2021
Million euros			VMED O2 UK
Revenues			7,223
Other operating income			290
Operating expenses			(5,063)
OIBDA			2,450
Amortizations			(2,395)
Operating income			55
Financial income			27
Financial expenses			(504)
Exchanges differences			122
Result before taxation			(300)
Taxes			65
Result for the period			(235)
50% attributable to Telefónica Group			(117)
Share-based compensation			14
Share of (loss) income of investments accounted for by the equity method			(103)

Analysis of results

Total revenues amounted to 7,223 million euros for the period from June 1 to December 31, 2021, reflecting the combination of the fixed and mobile products and services brought together for United Kingdom customers by Telefónica United Kingdom and Virgin Media.

OIBDA totaled 2,450 million euros for the period from June 1 to December 31, 2021 and was adversely impacted by the restructuring and other integration costs.

Depreciation and amortization totaled 2,395 million euros for the period from June 1 to December 31, 2021.

Operating income totaled 55 million euros for the period from June 1 to December 31, 2021.

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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	2020	2021	%Reported YoY
Fixed telephony accesses (1)	2,180.2	2,179.6	0.0	%
Broadband	2,261.1	2,262.3	0.1	%
UBB	1,797.8	1,856.8	3.3	%
Mobile accesses	44,274.8	45,693.6	3.2	%
Prepay	19,283.3	18,973.0	(1.6	%)
Contract	23,581.3	25,107.8	6.5	%
IoT	1,410.1	1,612.8	14.4	%
Retail Accesses	48,804.7	50,219.3	2.9	%
Total Accesses	48,804.7	50,219.3	2.9	%

Notes:

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

In 2021, Telefónica Germany benefited from strong commercial traction on the back of ongoing core business momentum and high customer demand for the O2 Free portfolio. This commercial momentum was leveraged on network parity as evidenced by the reconfirmation of Telefonica Germany’s ‘very good’ rating in the most relevant network test of "Connect magazine" and historic low levels of churn. As a result, Telefonica Germany delivered good financial momentum throughout 2021, posting the highest levels of revenues and OIBDA in the company’s history.

Telefónica Germany’s key milestones in 2021 were as follows:

•In May 2021, the company and 1&1 agreed upon the long-term stipulations of their future cooperation in a National Roaming Agreement (NRA). As part of this, certain ongoing price reviews initiated by 1&1 will no longer be pursued, and Telefónica Germany has secured valuable long-term revenue streams.

•The 5G network reached 30% of the German population with all available 5G frequencies at the end of 2021.

•At the same time, the company completed its 3G switch-off in 2021 and improved the energy efficiency ratio of its O2 network by 78% compared to 2015 based on its energy consumption per data volume (GWh/PB).

The total access base grew 2.9% year-on-year and stood at 50.2 million at December 31, 2021, mainly driven by a 3.2% increase in the mobile accesses base, which reached 45.7 million.

The contract mobile customer base grew 6.5% year-on-year and reached 25.1 million accesses, increasing the share over the total mobile accesses base to 54.9%. Net adds reached 1.5 million accesses, driven by the sustained customer demand for the O2 Free portfolio and a solid contribution from partner brands. Churn remained at a historic low.

The prepay mobile customer base decreased 1.6% year-on-year to 19.0 million accesses. Reflecting the unchanged market trend of prepaid to postpaid migration, the prepay segment posted a net loss of 310 thousand customers in 2021.

The broadband accesses reached 2.3 million accesses (up 0.1% y-o-y), with a net add of 1.2 thousand accesses in 2021, in a market focused on high-speed fixed connectivity.

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


Millions of euros
TELEFÓNICA GERMANY	2020	2021	% Reported YoY		% Organic YoY (1)

Revenues	7,532	7,765	3.1	%	3.1	%
Mobile Business	6,730	6,942	3.2	%	3.2	%
Handset revenues	1,423	1,450	1.9	%	1.9	%
Fixed Business	785	814	3.6	%	3.6	%
Other income	136	140	3.0	%	5.8	%
Supplies	(2,435)	(2,403)	(1.3	%)	(1.3	%)
Personnel expenses	(611)	(585)	(4.2	%)	(1.0	%)
Other expenses	(2,313)	(2,493)	7.8	%	8.0	%
OIBDA	2,309	2,424	5.0	%	4.0	%
Depreciation and amortization	(2,394)	(2,394)	0.0	%	0.0	%
Amortization of intangible assets, depreciation of property, plant and equipment	(1,862)	(1,809)	(2.8	%)	(2.8	%)
Amortization of rights of use	(532)	(585)	10.1	%	10.1	%
Operating income (loss)	(85)	30	c.s.		c.s.
CapEx	1,094	1,284	17.3	%	17.3	%
OIBDA-CapEx	1,215	1,140	(6.1)		(7.5	%)

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.

With respect to Telefónica Germany, we have made the following adjustments in order to calculate 2021/2020 variations in organic terms:

•Restructuring costs: we have excluded the impact of restructuring costs associated with simplification processes implemented in Telefónica Germany. Restructuring costs totaled 22 million euros and 37 million euros in 2021 and 2020, respectively.

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

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The table below shows 2021/2020 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 2021	%Reported YoY		%Organic YoY		Restructuring costs	Spectrum sale
Revenues	3.1	%	3.1	%	—	—
Other income	3.0	%	5.8	%	—	(2.6)
Supplies	(1.3	%)	(1.3	%)	—	—
Personnel expenses	(4.2	%)	(1.0	%)	(3.3)	—
Other expenses	7.8	%	8.0	%	0.2	(0.4)
OIBDA	5.0	%	4.0	%	0.7	0.2
Depreciation and amortization	0.0	%	0.0	%	—	—
Operating income ( loss)	(135.8	%)	(135.8	%)	(18.0)	(6.4)
CapEx	17.3	%	17.3	%	—	—
OIBDA-CapEx	(6.1)		(7.5	%)	1.3	0.4

Analysis of results

Total revenues were 7,765 million euros in 2021, with a year-on-year increase of 3.1%, driven by the increase in revenues in both the mobile business and the fixed business.

•Mobile business revenues totaled 6,942 million euros, increasing 3.2% y-o-y in reported terms. This positive trend reflects strong trading momentum and the success of the O2 brand.

•Handset revenues amounted to 1,450 million euros, increasing 1.9% y-o-y in reported terms due to the continued strong demand for high value handsets.

•Fixed business revenues were 814 million euros, increasing by 3.6% y-o-y in reported terms due to the particularly strong customer base growth and higher share of VDSL customers.

Mobile ARPU was 10.0 euros (1.1% y-o-y) due to the 4.0% y-o-y increase in prepay ARPU, while contract ARPU decreased by 1.3% y-o-y. Data ARPU was 6.1 euros (+3.6% y-o-y), fueled by the successful O2 Free portfolio.


TELEFÓNICA GERMANY	2020	2021	% Reported YoY
ARPU (EUR)	9.9	10.0	1.1	%
Prepay	6.1	6.3	4.0	%
Contract (1)	13.6	13.5	(1.3	%)
Data ARPU (EUR)	5.9	6.1	3.6	%

(1) Excludes IoT.

OIBDA totaled 2,424 million euros in 2021, growing by 5.0% y-o-y in reported terms. In organic terms, OIBDA increased by 4.0% year-on-year.

Depreciation and amortization amounted to 2,394 million euros in 2021, staying flat (0.0%) year-on-year as the positive effect from the end of the useful life of the UMTS (Universal Mobile Telephone System) licenses in 2020 was offset by the completion in 2021 of the 3G switch-off, further network modernization and higher rights of use asset amortization.

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Operating income totaled 30 million euros in 2021, compared to an operating loss of 85 million euros in 2020. In organic terms, the year-on-year comparison was positively impacted by the improvement in revenues and the continued measures in cost management and generation of efficiencies.

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	2020	2021	%Reported YoY
Fixed telephony accesses (1)	8,994.8	7,506.5	(16.5	%)
Broadband	6,315.0	6,262.0	(0.8	%)
UBB	5,084.2	5,535.3	8.9	%
FTTH	3,377.7	4,608.7	36.4	%
Mobile accesses	78,523.7	83,912.3	6.9	%
Prepay	33,662.5	34,287.3	1.9	%
Contract	34,418.2	37,166.7	8.0	%
IoT	10,443.0	12,458.3	19.3	%
Pay TV	1,247.7	1,114.8	(10.6	%)
IPTV	890.8	916.8	2.9	%
Retail Accesses	95,145.0	98,853.2	3.9	%
Total Accesses	95,157.9	98,854.2	3.9	%

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

In 2021, Telefónica Brazil maintained its leadership in the higher mobile value segments (37.0% market share as of December 31, 2021, source: ANATEL), which has allowed the operator to grow mobile service revenues (in local currency) and mitigate the impact of the COVID-19 pandemic restrictions. In the fixed business, Telefónica Brazil continued to focus on the implementation of strategic technologies, such as fiber, which allows capturing valuable customers, also providing access to IPTV (Internet Protocol TV) which encourages the demand for convergent offers, partially compensating the fall in the fixed traditional business since September.

Telefónica Brazil reached 98.9 million accesses as of December 2021, 3.9% higher than December, 2020 due to the sustained growth in the mobile business, both postpaid and prepaid, FTTH and, to a lesser extent IPTV, which offset the decline in the fixed voice business due to the continuous migration from fixed to mobile, encouraged 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 company’s strategic decision to discontinue legacy technologies.

In the mobile business, Telefónica Brazil maintained its leadership in terms of total accesses, with an access market share of 33.1% as of December 31, 2021 (source: ANATEL) growing both in terms of contract customers (+8.0% year-on-year) and prepaid customers (+1.9% year-on-year). Telefónica Brazil's strategy continues to be focused on strengthening the high-value customer base, reaching a 37.0% contract market share as of December 31, 2021 (source: ANATEL). Contract commercial offers are focused on Vivo SELFIE and have data plans, with extra data allowances subject to subscription to digital invoicing and a 10 GB portability bonus for one year. In addition, customers may access the OTT services of their choice (for example, Disney+, Netflix, Spotify, Globopal, Amazon Prime and Premiere, among others). The Vivo Travel roaming service for voice and data is maintained in a selection of countries of America and Europe, and the rest of the world, depending on the plan. For higher-value customers, Family plans have a greater number of available apps and include one to four free extra members depending on the contracted plan. Additionally, they have Vivo Easy, with flexible plans ranging from 1GB to 100GB and allowing customers to tailor their plans according to their needs. WhatsApp and unlimited calls and SMS are

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included. In the prepaid segment, Telefónica Brazil offers VIVO PreTurbo, which includes WhatsApp and unlimited minutes and allows customers to share data with friends. All of this is supported by the interaction with our customers through the AURA virtual assistant in the Meu VIVO application, transforming the service channels to improve the user experience.

Fixed telephony accesses decreased 16.5% year-on-year due to fixed-mobile substitution.

In the broadband business, Telefónica Brazil maintained its strategic focus on the deployment of fiber, reaching 27.5 million real estate units passed with FTTx access as of December 31, 2021, of which 19.6 million correspond to FTTH. Additionally, it continued to develop alternative deployment models to accelerate the expansion of fiber with lower CapEx and a reduced time to market. Telefónica Brazil exceeded 5.5 million connected homes with FTTx, of which 4.6 million homes connected with FTTH as of December 31, 2021, increasing 8.9% and 36.4% year-on-year respectively. This growth offset in part the drop in other broadband accesses, such as ADSL, placing retail broadband accesses at 6.3 million as of December 31, 2021, decreasing by 0.8% year-on-year.

Pay TV customers stood at 1.1 million as of December 31, 2021, decreasing 10.6% year-on-year due to a more selective commercial activity based on value acquisition and the strategic decision to discontinue the DTH service, whose customer base decreased 44.5% year-on-year. This base contraction was partially offset by the 2.9% growth in IPTV accesses. IPTV clients represented 82.2% of the total Pay TV accesses as of December 31, 2021.

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


Millions of euros
TELEFÓNICA BRAZIL	2020	2021	% Reported YoY		% Organic YoY (1)

Revenues	7,422	6,910	(6.9	%)	2.1	%
Mobile Business	4,891	4,610	(5.7	%)	3.4	%
Handset revenues	426	415	(2.5	%)	6.9	%
Fixed Business	2,531	2,300	(9.1	%)	(0.3	%)
Other income	325	474	45.5	%	29.2	%
Supplies	(1,252)	(1,216)	(2.9	%)	6.5	%
Personnel expenses	(792)	(799)	0.9	%	10.6	%
Other expenses	(2,515)	(2,231)	(11.3	%)	1.1	%
OIBDA	3,188	3,138	(1.6	%)	1.8	%
Depreciation and amortization	(1,965)	(1,918)	(2.4	%)	7.0	%
Amortization of intangible assets, depreciation of property, plant and equipment	(1,581)	(1,488)	(5.9	%)	3.2	%
Amortization of rights of use	(384)	(430)	11.9	%	22.7	%
Operating income	1,223	1,220	(0.2	%)	(6.6	%)
CapEx	1,372	2,069	50.8	%	11.5	%
OIBDA-CapEx	1,816	1,069	(41.1	%)	(5.3	%)

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.

With respect to Telefónica Brazil, we have made the following adjustments in order to calculate 2021/2020 variations in organic terms:

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•Judicial decision PIS/COFINS: we have excluded 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 Integraçao Social) and the Financing of Social Security- COFINS (Contribução para Financiamiento da Seguridades Social) amounting to 243 million euros with an impact on OIBDA.

•Contingencies: we excluded the impact of the provision of certain contingencies in Telefónica Brazil amounting to 154 million euros with a negative impact on OIBDA.

•Spectrum acquisition: we have excluded the impact of spectrum acquisitions on CapEx, amounting to 706 million euros in 2021 (32 million euros in 2020).

•Gains or losses on the sale of companies: the gain resulting from the establishment of FiBrasil of 90 million euros was excluded to calculate organic variations.

The table below shows 2021/2020 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 2021	% Reported YoY		% Organic YoY		Exchange rate effect	Judicial decision PIS/COFINS	Contingencies	Spectrum acquisition	Capital gains/losses on sale of companies
Revenues	(6.9	%)	2.1	%	(9.0)	—	—	—	—
Other income	45.5	%	29.2	%	(11.4)	—	—	—	27.7
Supplies	(2.9	%)	6.5	%	(9.4)	—	—	—	—
Personnel expenses	0.9	%	10.6	%	(9.7)	—	—	—	—
Other expenses	(11.3	%)	1.1	%	(8.6)	(10.6)	6.7	—	—
OIBDA	(1.6	%)	1.8	%	(9.2)	8.4	(5.3)	—	2.8
Depreciation and amortization	(2.4	%)	7.0	%	(9.4)	—	—	—	—
Operating income (OI)	(0.2	%)	(6.6	%)	(8.9)	21.8	(13.8)	—	7.4
CapEx	50.8	%	11.5	%	(14.6)	—	—	54.1	—
OIBDA-CapEx	(41.1	%)	(5.3	%)	(5.2)	14.7	(9.3)	(40.9)	5.0

Analysis of results

In 2021, revenues totaled 6,910 million euros, down 6.9% in reported terms, mainly due to the depreciation of the Brazilian real (impacting the evolution by -9.0 p.p.). In organic terms, the year-on-year growth was 2.1%, mainly due to service revenues driven by the mobile business and by businesses associated with new technologies (FTTH, IPTV and Digital Services) and the sale of handsets, which offset the erosion of revenues associated with voice and traditional accesses.

•Mobile business revenues totaled 4,610 million euros in 2021, down 5.7% in reported terms due mainly to the depreciation of the Brazilian real (impacting the evolution by -9.1 p.p.). Excluding this impact, revenues from the mobile business increased by 3.4%. Service revenues grew 3.0% driven by growth in the customer base, and the greater weight of contract customers in the mix, whose consumption is oriented to the use of data and other services over connectivity. Handsets sales grew by 6.9% in organic terms, despite the temporary closing of stores due to the COVID-19 pandemic, an effect that was offset by higher sales in digital channels.

•Fixed business revenues totaled 2,300 million euros in 2021, decreasing by 9.1% in reported terms due mainly to the impact of the depreciation of the Brazilian real (impacting the evolution by -8.8 p.p.). Excluding this effect, fixed telephony revenues decreased by 0.3% mainly as a result of the decrease of the voice traffic due to the mobile to fixed substitution. This decrease was partially offset by the increase in broadband revenues (+7.2% year-on-year in local currency), supported by the growth in fiber revenues, driven by the growth in the customer base.

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Mobile ARPU decreased by 12.3% year-on-year in reported terms due mainly to the depreciation of the Brazilian real. In local currency, mobile ARPU decreased by 3.9% as a result of the fact that postpaid customer base growth was mainly in entry level rates; and due to the reduction in government aids that affected top ups.


TELEFÓNICA BRAZIL	2020	2021	% Reported YoY		%Local Currency YoY
ARPU (EUR)	4.7	4.2	(12.3	%)	(3.9	%)
Prepay	2.2	2.0	(12.2	%)	(3.7	%)
Contract (1)	8.4	7.4	(12.3	%)	(3.8	%)
Data ARPU (EUR)	3.7	3.1	(15.5	%)	(6.6	%)

(1) Excludes IoT.

OIBDA was 3,138 million euros in 2021, decreasing 1.6% in reported terms. In organic terms, OIBDA increased by 1.8% year-on-year.

Depreciation and amortization amounted to 1,918 million euros in 2021, decreasing 2.4% in reported terms affected by the depreciation of the Brazilian real (-9.4 p.p.). In organic terms, there was a +7.0% y-o-y increase due to higher investments.

Operating income amounted to 1,220 million euros in 2021, decreasing 0.2% in reported terms affected by the provision for contingencies (-13.8 p.p.) and the depreciation of the Brazilian real (-8.9 p.p.), partially offset by 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 Financiamiento da Seguridade Social) (+21.8 p.p.) and the gain from the establishment of FiBrasil (+7.4 p.p.). In organic terms, operating income year-on-year decreased 6.6% due to the higher depreciation and amortization expense.

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	2020	2021	% Reported YoY
Fixed telephony accesses (1)	7,835.0	7,034.1	(10.2	%)
Broadband	5,447.3	5,756.9	5.7	%
UBB	3,695.0	4,432.2	20.0	%
FTTH	3,417.6	4,259.0	24.6	%
Mobile accesses	92,204.5	94,612.6	2.6	%
Prepay	66,206.7	66,075.3	(0.2	%)
Contract	22,000.2	23,799.6	8.2	%
IoT	3,997.6	4,737.6	18.5	%
Pay TV	2,856.8	2,905.3	1.7	%
IPTV	577.7	913.2	58.1	%
Retail Accesses	108,488.6	110,395.5	1.8	%
Total Accesses	108,509.1	110,414.7	1.8	%

Notes:

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

Telefónica Hispam's total accesses amounted to 110.4 million as of December 31, 2021 (+1.8% year-on-year), as a result of the increase in mobile and FFTH accesses.

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Mobile accesses amounted to 94.6 million, increasing by 2.6% y-o-y mainly due to the higher post-pay customer base.

•Contract accesses increased by 8.2% year-on-year due to the increase in accesses in Chile (+15.0%), Colombia (14.2%) and Peru (+13.7%), partially offset by the decrease in Venezuela (-8.9%). This strong evolution was mainly driven by the commercial activity recovery and the attractive commercial offers.

•Prepay accesses decreased by 0.2% year-on-year, with a net loss of 131 thousand accesses at December 31, 2021. The year-on-year accesses evolution was greatly impacted by the loss of accesses in Mexico (-2.2 million accesses) as a result of the disconnection of accesses with no top-up activity and the 2G technology shutdown in Mexico, with no impact on revenues. In addition, accesses in Chile decreased by -355 thousand. The year-on-year decrease was partially offset by the increase in accesses in Colombia (+1.9 million accesses), Peru (+597 thousand accesses), Argentina (+533 thousand accesses) and Ecuador (+535 thousand accesses).

Fixed accesses stood at 7.0 million as of December 31, 2021 (-10.2% year-on-year) with a net loss of 801 thousand accesses due to the continued erosion of the traditional fixed business; however, accesses mix improved (higher weight of high value accesses, mainly broadband).

Fixed broadband accesses amounted to 5.8 million as of December 31, 2021 (+5.7% year-on-year). The penetration of FBB accesses over fixed accesses stood at 81.8% (+12.3 p.p. y-o-y), as a result of the focus on Ultra Broadband (UBB) deployment in the region reaching 4.4 million connected accesses (+20% y-o-y) and 14.5 million premises. The penetration of UBB accesses over fixed broadband accesses stood at 77.0% (+9.2 p.p. y-o-y).

Pay TV accesses stood at 2.9 million as of December 31, 2021, with an increase of +1.7% y-o-y as a result of the net adds of 48 thousand customers, mainly as a result of the increase in IPTV accesses (+336 thousand accesses), in which the Company is placing strategic focus, offset in part by the lower Direct-To-Home (DTH) technology accesses (-266 thousand accesses) due to the change in commercial strategy, and the lower cable access base (-21 thousand accesses).

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


Millions of euros
TELEFÓNICA HISPAM	2020	2021	% Reported YoY		% Organic YoY (1)

Revenues	7,922	8,362	5.5	%	5.1	%
Mobile Business	5,070	5,444	7.4	%	5.4	%
Handset revenues	1,111	1,398	25.8	%	18.8	%
Fixed Business	2,836	2,907	2.5	%	5.1	%
Other income	253	582	130.3	%	(28.3	%)
Supplies	(2,466)	(2,856)	15.8	%	15.0	%
Personnel expenses	(999)	(1,174)	17.6	%	(4.5	%)
Other expenses	(3,720)	(3,196)	(14.1	%)	(1.9	%)
OIBDA	990	1,718	73.5	%	3.4	%
Depreciation and amortization	(2,274)	(1,873)	(17.6	%)	(5.4	%)
Amortization of intangible assets, depreciation of property, plant and equipment	(1,826)	(1,451)	(20.5	%)	(9.0	%)
Amortization of rights of use	(448)	(422)	(5.9	%)	11.7	%
Operating loss	(1,284)	(155)	(87.9	%)	(223.7	%)
CapEx	833	978	17.4	%	5.2	%
OIBDA-CapEx	157	740	370.7	%	2.0	%

Notes:

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

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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 2021/2020 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 2020 for both years).

•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, in 2021 the revenues of these companies increased by 327 million euros and their OIBDA and operating income decreased by 112 million euros and 107 million euros, respectively, compared to 2020.

•Restructuring costs: we have excluded the impact of restructuring costs in 2021 and 2020 on OIBDA and operating income, amounting to 174 million euros and 17 million euros, respectively.

•Spectrum acquisition: in 2021, the impact of spectrum acquisition on CapEx has been excluded, amounting to 131 million euros in Chile. During 2020 no spectrum acquisitions were made.

•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 had a negative impact on depreciation and operating income, amounting to 88 million euros in 2021 (320 million euros in 2020).

•Impairment of goodwill and other assets: in 2021 the impairment of the goodwill of Telefónica Perú has been excluded, amounting to 393 million euros. In 2020, the impairment of the goodwill and certain assets of Telefónica Argentina has been excluded 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).

•Changes in the consolidation perimeter: we have excluded from our consolidation perimeter the results of InfraCo, SpA from July 1 to December 31, 2020.

•Gains or losses on the sale of companies: in 2021, the gain on the sale of 60% of the shares in InfraCo, SpA in Chile amounting to 409 million euros has been excluded from calculations of organic variations.

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The table below shows 2021/2020 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 2021	% Reported YoY		% Organic YoY		Exchange rate effect	Reported var. in hyperinflationary countries	Restructuring costs	Spectrum acquisition	Transformation T.Mexico	Impairment of goodwill	Perimeter change	Fiber Chile	Capital gains/losses on sale of companies
Revenues	5.5	%	5.1	%	(3.9)	4.2	—	—	—	—	0.1	—	—
Other income	130.3	%	(28.3	%)	(2.6)	(0.0)	—	—	—	—	—	—	160.9
Supplies	15.8	%	15.0	%	(4.0)	4.7	—	—	—	—	—	—	—
Personnel expenses	17.6	%	(4.5	%)	(3.3)	9.2	16.2	—	—	—	—	—	—
Other expenses	(14.1	%)	(1.9	%)	(3.2)	3.1	—	—	—	(13.5)	0.8	—	—
OIBDA	73.5	%	3.4	%	(6.8)	0.5	(16.4)	—	—	50.6	(2.0)	—	41.1
Depreciation and amortization	(17.6	%)	(5.4	%)	(2.7)	(0.1)	—	—	(10.2)	—		—	—
Operating income (loss)	(87.9	%)	(223.7	%)	0.4	(0.5)	12.6	—	(18.1)	(39.0)	1.5	—	(31.7)
CapEx	17.4	%	5.2	%	(3.6)	2.6	—	15.6	—	—	(2.8)	0.5	—
OIBDA-CapEx	370.7	%	2.0	%	(23.3)	(10.7)	(103.3)	(82.9)	—	318.6	2.5	(2.8)	258.8

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Analysis of results

Revenues amounted to 8,362 million euros in 2021, increasing 5.5% year-on-year in reported terms. This increase was attributable in part to the reported variation of companies in hyperinflationary countries (+4.2 p.p.), offset in part by the foreign exchange effects (-3.9 p.p.). In organic terms, revenues increased by 5.1% year-on-year, mainly driven by revenues growth through handset sales, B2C (Business to Customer) and B2B (Business to Business) service revenues evolution, and broadband, new services and TV fixed revenues improvement.

Mobile business revenues amounted to 5,444 million euros in 2021, increasing 7.4% year-on-year in reported terms. This increase was due in part to the reported variation of companies in hyperinflationary countries (5.2 p.p.), offset in part by the foreign exchange effects (-3.2 p.p.). In organic terms, mobile business revenues increased by 5.4% year-on-year, mainly driven by revenues growth through handset sales as a result of commercial activity recovery and higher postpaid and prepaid revenues in B2C (Business to Customer). The performance by country was as follows:

•In Chile, mobile revenues amounted to 1,002 million in 2021, increasing 8.1% year-on-year in reported terms. Excluding the impact of foreign exchange effects, which reduced growth by 0.6 percentage points, mobile revenues increased by 7.5% year-on-year, mainly due to the higher handset revenues and mobile service and mobile broadband revenues growth recovery.

•In Peru, mobile revenues amounted to 761 million euros in 2021, decreasing 0.4% year-on-year in reported terms, affected by the foreign exchange effects, which reduced growth by 15.2 percentage points. Excluding this impact, mobile revenues increased by 14.8% year-on-year, mainly driven by revenues recovery through handset sales, as a result of the higher commercial activity, and higher service revenues leveraged on a higher average revenue per client and favorable disconnections evolution.

•In Colombia, mobile revenues amounted to 797 million euros in 2021, increasing 4.3% year-on-year in reported terms. Excluding the impact of the foreign exchange effects, which reduced growth by 5.7 percentage points, mobile revenues increased by 9.9% driven by the higher handset revenues, postpaid B2C (Business to Customer) revenues due to higher commercial activity and favorable churn evolution, higher prepaid B2C (Business to Customer) revenues and interconnection mobile revenues.

•In Mexico, mobile revenues amounted to 1,010 million euros in 2021, decreasing 2.2% year-on-year in reported terms despite the foreign exchange effects, which contributed +1.5 p.p. to the y-o-y evolution. Excluding this impact, mobile revenues decreased by 3.8% year-on-year, due to the lower interconnection tariffs, which adversely affected the wholesale business, the decrease in international traffic, and lower prepaid and B2B (Business to Business) commercial activity, partially offset by the positive postpaid revenues evolution.

Fixed business revenues amounted to 2,907 million euros in 2021, increasing 2.5% year-on-year in reported terms. This increase was due in part to the reported variation of companies in hyperinflationary countries (specifically, Argentina), which increased growth by 2.3 percentage points, offset in part by the foreign exchange effects, which decreased growth by 4.9 percentage points. Excluding these impacts, these revenues increased by 5.1%, driven by higher broadband and new services as well as TV revenues in Colombia, Chile and Peru, which offset the decline in accesses and voice revenues.

OIBDA reached 1,718 million euros in 2021, increasing 73.5% year-on-year in reported terms (+3.4% in organic terms).

Depreciation and amortization amounted to 1,873 million euros in 2021, decreasing 17.6% year-over-year in reported terms (-5.4% in organic terms). The decrease was mainly attributable to the lesser impact in 2021 than in 2020 of the accelerated amortization and depreciation resulting from the transformation of the operational model in the operator (-10.2 p.p.) and, to a lesser extent, the foreign exchange effects (-2.7 p.p.).

Operating loss was 155 million euros in 2021 (compared to a loss of 1,284 million euros in 2020). The decrease in the operating loss was the result, in part, of the impairment losses recorded in Telefónica Argentina in 2020 (which exceeded the amount of the impairment in Telefónica Peru in 2021), the capital gain on the sale of 60% of the shares in InfraCo, SpA in 2021, and the lesser impact of the accelerated amortization in Telefónica México in 2021 (compared to 2020) resulting from the transformation of the operational model in the operator, partially offset by the

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higher restructuring costs in the region in 2021. In organic terms, the year-on-year change was positively affected by increases in revenues and OIBDA and the lower depreciation and amortization expense.

Below is additional information by country:

•In Chile, operating income was 583 million euros in 2021 (141 million euros in 2020), and was positively impacted by the capital gains on the sale of 60% of the shares in InfraCo, SpA, higher fixed and mobile revenues, expenses efficiencies and the lower depreciation and amortization expense.

•In Peru, operating loss was 56 million euros in 2021 (operating loss of 84 million euros in 2020). The y-o-y reduction in the operating loss was attributable in part to the lower depreciation and amortization expense, offset in part by the increase in other expenses, mainly restructuring expenses.

•In Colombia, operating income reached 99 million euros in 2021 (113 million euros in 2020), as a result mainly of the foreign exchange effects (which reduced growth by 4.7 percentage points), higher operating expenses and higher depreciation and amortization expenses, offset in part by the increase in B2B revenues, mobile handsets mark-up subsidies and non-commercial cost efficiencies.

•In Mexico, operating loss was 339 million euros in 2021 (operating loss of 606 million euros in 2020). The y-o-y reduction in the operating loss was positively impacted by the y-o-y decrease in the depreciation and amortization expense resulting from the accelerated amortization and depreciation related to the transformation of the operational model in the operator.

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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 COVID-19 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 COVID-19 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 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 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 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.

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The table below shows the evolution of accesses over the years ended December 31, 2019 and 2020:


ACCESSES
Thousands of accesses	2019	2020	% Reported YoY
Fixed telephony accesses (1)	31,285.4	28,243.0	(9.7	%)
Broadband	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	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 de Costa Rica (2.2 million and 2.5 million total accesses as of December 31, 2019 and 2020, respectively) and Telefónica El Salvador (2.1 million and 1.9 million total accesses as of December 31, 2019 and 2020, respectively). The sale of Telefónica de Costa Rica was completed on August 9, 2021. The sale of Telefónica El Salvador was completed on January 13, 2022.

(1) Includes fixed wireless and VoIP accesses.

The table below shows the year-on-year 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 (1)	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 (2)	1.1%	4.3%	4.4%

Note:

(1) Our former Telefónica United Kingdom segment was replaced by our new VMED O2 UK segment on June 1, 2021. For additional information

on this change and how segment information is presented in this Annual Report, see “―History and Development of the Company―Business

areas”.

(2) 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 post-pay 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 post-pay 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.

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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 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%
Central America	26.8%	24.2%
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.

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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.


	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)	(44.4	%)
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

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

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excluded for both periods the results of Telefónica de 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 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 OI, 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 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

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(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 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	(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

Analysis of results

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.

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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 (with respect to the latter, principally external services and, to a significantly lesser extent, taxes other than income tax) 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

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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 amounted to 5,861 million euros in 2020, decreasing 33.3% y-o-y in reported terms compared to 2019.

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

2020/2019 Segment results

TELEFÓNICA SPAIN

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The table below shows the evolution of accesses in Telefónica Spain over the years ended December 31, 2019 and 2020:


ACCESSES
Thousands of accesses	2019	2020	%Reported YoY
Fixed telephony accesses (1)	9,024.1	8,731.0	(3.2	%)
Broadband	6,023.4	5,961.9	(1.0	%)
FTTH	4,325.0	4,614.1	6.7	%
Mobile accesses	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.

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+ was 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+ launched a new "Cine" (Movies) package which, among other products, includes 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 + Fútbol and Fusión Pro were also able to enjoy unlimited data, calls and SMSs for 5 euros extra per month. Unlimited data plans were also designed for customers who only want a plan for their mobile devices.

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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 continued 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 post-pay. 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.

The table below shows Telefónica Spain’s results in 2019 and 2020:


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:

(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.

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(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.

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

Analysis of results

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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 COVID-19 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.

TELEFÓNICA UNITED KINGDOM

Our former Telefónica United Kingdom segment was replaced by our new VMED O2 UK segment on June 1, 2021, upon the establishment of the joint venture between Telefónica and Liberty Global. Since it is not practicable to restate the Group’s historical segment financial information to reflect this change, the 2020-2019 period-on-period discussions included below focus on our former Telefónica United Kingdom segment. For additional information, see “―History and Development of the Company―Business areas”, "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”, and "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 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 11.0 billion pounds sterling, 12.6 billion euros at such date. The transaction was consummated on June 1, 2021. For additional information, 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".

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

•The related consolidated assets and liabilities subject to the transaction were 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.

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•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 years ended December 31, 2019 and 2020:


ACCESSES
Thousands of accesses	2019	2020	% Reported YoY
Fixed telephony accesses (1)	313.3	320.4	2.3	%
Broadband	28.9	29.2	1.2	%
Mobile accesses	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 pandemic 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 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% 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.

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The table below shows Telefónica United Kingdom's results in 2019 and 2020:


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:

•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.

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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)

Analysis of results

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 were 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).

(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 COVID-19 pandemic.

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

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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 estimated reduced operating income by approximately 155 million euros, mainly due to the lower service revenues (with the COVID-19 pandemic 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 years ended December 31, 2019 and 2020:


ACCESSES
Thousands of accesses	2019	2020	% Reported YoY
Fixed telephony accesses (1)	2,129.5	2,180.2	2.4	%
Broadband	2,206.6	2,261.1	2.5	%
UBB	1,652.0	1,797.8	8.8	%
Mobile accesses	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 (2)	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.

(2) 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.

•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 number #1 in the Connect magazine’s shop test.

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

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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 years ended December 31, 2020 and 2019:


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 income (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.

•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.

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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 income (loss) (OI)	(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.

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

Analysis of results

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 was 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 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 amounted to 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	%

(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.

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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 was 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 years ended December 31, 2019 and 2020:


ACCESSES
Thousands of accesses	2019	2020	%Reported YoY
Fixed telephony accesses (1)	10,817.0	8,994.8	(16.8	%)
Broadband	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	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 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 post-pay 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.

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

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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 2019 and 2020:


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.

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.

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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)

Analysis of results

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 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.

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OIBDA amounted to 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 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 amounted to 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 years ended December 31, 2019 and 2020:


ACCESSES
Thousands of accesses	2019	2020	%Reported YoY
Fixed telephony accesses (1)	8,804.2	7,835.0	(11.0	%)
Broadband	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	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.

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 post-pay accesses in the Chilean market.

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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 Telefónica Hispam's results in 2019 and 2020:


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 income (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:

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

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•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 was 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.

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 income (loss) (OI)	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

Analysis of results

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 estimated 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 COVID-19 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:

Table of Contents

▪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) post-pay revenues, offset in part by higher B2C (Business-to-Customer) post-pay revenues due to a larger customer base and higher interconnection mobile revenues.

▪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% yea