tef-20221231

As filed with the Securities and Exchange Commission on February 23, 2023

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, 2022


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, 2022 was:

Ordinary Shares, nominal value 1.00 euro per share: 5,775,237,554

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

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). o

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			13
PART I			14
Item 1. Identity of Directors, Senior Management and Advisors			14
A. Directors and Senior Management			14
B. Advisers			14
C. Auditors			14
Item 2. Offer Statistics and Expected Timetable			14
Item 3. Key Information			14
A. Selected Financial Data			14
B. Capitalization and Indebtedness			16
C. Reasons for the Offer and Use of Proceeds			16
D. Risk Factors			16
Item 4. Information on the Company			31
A. History and Development of the Company			31
B. Business Overview			42
C. Organizational Structure			82
D. Property, Plant and Equipment			82
Item 4A. Unresolved Staff Comments			84
Item 5. Operating and Financial Review and Prospects			84
A. Operating Results			84
B. Liquidity and Capital Resources			96
C. Research and Development, Patents and Licenses, etc.			100

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D. Trend Information			102
E. Critical Accounting Estimates			103
F. Non-GAAP Financial Information			103
Item 6. Directors, Senior Management and Employees			109
A. Directors and Senior Management			110
B. Compensation			121
C. Board Practices			121
D. Employees			121
E. Share Ownership			121
Item 7. Major Shareholders and Related Party Transactions			122
A. Major Shareholders			122
B. Related Party Transactions			123
C. Interests of Experts and Counsel			124
Item 8. Financial Information			124
Item 9. The Offering and Listing			133
A. Offer and Listing Details			133
B. Plan of Distribution			140
C. Markets			140
D. Selling Shareholders			140
E. Dilution			140
F. Expenses of the Issue			140
Item 10. Additional Information			140
A. Share Capital			140
B. Memorandum and Articles of Association			140
C. Material Contracts			152
D. Exchange Controls			159
E. Taxation			160

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F. Dividends and Paying Agents			164
G. Statements by Experts			164
H. Documents on Display			164
I. Subsidiary Information			164
Item 11. Quantitative and Qualitative Disclosures About Market Risk			164
Item 12. Description of Securities Other Than Equity Securities			165
D.American Depositary Shares			165
Part II			168
Item 13. Defaults, Dividend Arrearages and Delinquencies			168
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds			168
Item 15. Controls and Procedures			168
Item 16. [Reserved]			169
Item 16A. Audit Committee Financial Expert			169
Item 16B. Code of Ethics			169
Item 16C. Principal Accountant Fees and Services			169
Item 16D. Exemptions from the Listing Standards for Audit Committees			170
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers			170
Item 16F. Change in Registrant’s Certifying Accountant			170
Item 16G. Corporate Governance			171
Item 16H. Mine Safety Disclosure			173
Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections			173
Part III			174
Item 17. Financial Statements			174
Item 18. Financial Statements			174
Item 19. Exhibits			174

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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, as amended (the “Exchange Act”), 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 environmental, social and governance commitments and targets;

•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 increasing trade or geopolitical tensions in certain parts of the world, including as a result of the armed conflict in Ukraine, inflation, the pace of monetary stimulus withdrawal and interest-rate hikes, the worsening of the fiscal sustainability in some European countries, economic and political uncertainties in Spain, the impact of Brexit or the COVID-19 pandemic;

•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;

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•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;

•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, including as a result of sabotage;

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

•the impact of impairment charges on our goodwill, property, plant and equipment, intangible assets, investments accounted for using the equity method, 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;

•our ability to address physical, regulatory, reputational, transition and business risks associated with climate change and emerging and developing environmental, social and governance standards;

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

•our ability to complete any pending acquisition, divestment or other significant transaction as planned or 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, VMED O2 UK Limited).

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 (the “NYSE ”) 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 definitions 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 number of disconnections over the average customer base in a given period divided by the number of months in such 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 a telecommunications technology that consists of the use of fiber optic cabling and optical distribution systems for the provision of Internet services and IPTV to homes, businesses and companies.

“FTTP” or Fiber to the Premises refers to equipment used in fiber access deployments where fibers extend all

the way to the end user premises and the equipment is designed and optimized for use in residential applications.

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

"Gbps" means Gigabytes per second.

"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.

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"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.

"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 as of the end of a certain period compared to December 31 of the prior year.

"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.

"VMO2" refers to VMED O2 UK Limited, our 50:50 joint venture with Liberty Global plc in the United Kingdom, or to the Group’s VMO2 operating segment, as the context requires.

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

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"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, 2022 and 2021, and for the years ended December 31, 2022, 2021 and 2020 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, 2020, 2021 and 2022 and the consolidated statements of financial position data as of December 31, 2021 and 2022 set forth below are derived from, and are qualified in their entirety by reference to the Consolidated Financial Statements. The consolidated income statements and the consolidated statements of cash flows data for the years ended December 31, 2018 and 2019 and the consolidated statements of financial position data as of December 31, 2018, 2019 and 2020 are not included in this Annual Report, and they instead are derived from the last year Annual Report on Form 20-F filed by us.

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	2018	2019	2020	2021	2022
Consolidated Income Statements Data
Revenues	48,693	48,422	43,076	39,277	39,993
Other income	1,622	2,842	1,587	12,673	2,065
Supplies	(14,013)	(13,635)	(13,014)	(12,258)	(12,941)
Personnel expenses	(6,332)	(8,066)	(5,280)	(6,733)	(5,524)
Other expenses	(14,399)	(14,444)	(12,871)	(10,976)	(10,741)
Depreciation and amortization	(9,049)	(10,582)	(9,359)	(8,397)	(8,796)
OPERATING INCOME	6,522	4,537	4,139	13,586	4,056
Share of (loss) income of investments accounted for by the equity method	4	13	2	(127)	217
Net finance expense	(1,232)	(1,953)	(1,740)	(1,414)	(1,227)
Net exchange differences	277	121	182	50	(86)
Net financial expense	(955)	(1,832)	(1,558)	(1,364)	(1,313)
PROFIT BEFORE TAX	5,571	2,718	2,583	12,095	2,960
Corporate income tax	(1,621)	(1,054)	(626)	(1,378)	(641)
PROFIT FOR THE YEAR	3,950	1,664	1,957	10,717	2,319
Attributable to equity holders of the parent	3,331	1,142	1,582	8,137	2,011
Attributable to non-controlling interests	619	522	375	2,580	308

Other Data
Weighted average number of shares-Basic (thousands)(1)	5,941,714	5,933,094	5,952,695	5,864,070	5,740,105
Basic earnings per share attributable to equity holders of the parent (euro)(1)	0.49	0.14	0.22	1.34	0.31
Diluted earnings per share attributable to equity holders of the parent (euro)(1)	0.49	0.14	0.22	1.34	0.31
Basic earnings per ADS (euro)(1)	0.49	0.14	0.22	1.34	0.31
Diluted earnings per ADS (euro)(1)	0.49	0.14	0.22	1.34	0.31
Weighted average number of ADS-Basic (thousands)(1)	5,941,714	5,933,094	5,952,695	5,864,070	5,740,105
Dividends per ordinary share (cash and scrip) (€)	0.40	0.40	0.40	0.35	0.30
Dividends per ordinary share (cash and scrip) ($)(2)	0.46	0.45	0.47	0.41	0.31

Consolidated Statements of Financial Position Data
Cash and cash equivalents	5,692	6,042	5,604	8,580	7,245
Property, plant and equipment	33,295	32,228	23,769	22,725	23,714
Total assets	114,047	118,877	105,051	109,213	109,642
Non-current liabilities	57,418	63,236	58,674	55,034	54,834
Equity	26,980	25,450	18,260	28,684	31,708
Capital stock	5,192	5,192	5,526	5,779	5,775

Consolidated Statements of Cash Flows Data
Net cash provided by operating activities	13,423	15,022	13,196	10,268	11,763
Net cash from (used in) investing activities	(8,685)	(5,641)	(7,790)	5,896	(5,327)
Net cash used in financing activities	(3,880)	(9,021)	(5,438)	(12,990)	(7,925)

(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 dividends in June 2020, December 2020, June 2021, December 2021 and June 2022.

(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’s business 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 rest of this Annual 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 Telefónica. 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 Telefónica Group’s assessment of their probability of occurrence and the potential magnitude of their impact. The assessment of the potential impact of any risk is both quantitative and qualitative considering, among other things, potential economic, compliance, reputational and environmental, social and governance ("ESG") impacts.

The Telefónica Group, taking into account the global risks identified by the World Economic Forum, as well as the increase in legal information requirements and the expectations of stakeholders in this area, monitors risks directly related to sustainability, as well as other risks with potential impact on ESG, highlighting those most relevant in the context of Telefónica's operation, including the adaptation to ESG expectations and information requirements and climate change.

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 Annual Report. Telefónica may change its vision about their relative importance at any time, especially if new internal or external events arise.

Risks Related to Telefónica's 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 (either new players or providers of OTT Services), or the merger of operators in certain markets (for example, market consolidation in the United Kingdom following a potential merger of mobile operators Vodafone UK and Three UK), 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, Mexico 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.

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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.

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 of such obligations, it may suffer consequences such as economic fines or other measures that would affect the continuity of its business. In addition, 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 some 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, 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 National Frequency Allocation Table, raising the possibility of making available 450 MHz of the 26 GHZ spectrum band, 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.

In the UK, in May 2022, the Office of Communications ("Ofcom") launched a public consultation on opening access to the 26 GHz and 40 GHz bands for mobile use. This is the first of a series of detailed consultations on the award, with a process possible towards the end of 2024 at the earliest. The consultation outlines the proposal to offer a range of local and city-wide licenses, differentiating between low- and high-density areas.

In Latin America, several auction processes are expected in the near term: (i) in Colombia, in December 2022, the Ministry of Information Technologies and Communications (“MinTIC”) asked the industry to express their interest in participating in a possible auction for the spectrum that remains available in the 700 MHz, 1900 MHz and 2500 MHz bands as well as for 5G spectrum (3.5 GHz and 26 GHz bands). In such expression of interest, which is non-binding, Telefónica expressed its interest in obtaining spectrum in all the proposed bands except 26GHz. In its expression of interest Telefónica also highlighted the need to delay all spectrum auctions until the review on the spectrum pricing methodology currently underway is completed, and there is an alignment between spectrum cost and its value generation capacity, and until measures to avoid an excessive control of this resource by the dominant operator are defined. To date, no specific dates have been proposed for an eventual spectrum auction; (ii) in Peru, the authorities have indicated their interest in resuming the auction on the 1750 – 1780 MHz, 2150 – 2180 MHz and

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2300 – 2330 MHz bands, but no specific date or conditions have been set for it. With regards to 5G and the spectrum auction for the 3.5 GHz and 26 GHz band, the government has not yet taken a decision; and (iii) in Argentina, the government has made public its intention to auction 5G spectrum in 2023, but no specific date for the process has been published. Pursuant to Resolution 2385/2022 published on December 28, 2022, the Ente Nacional de Comunicaciones (Enacom) approved the General Rules for Intelligent and Reliable Telecommunications Services that preliminarily sets the conditions for the implementation of 5G in Argentina; iv) in Uruguay on December 28, 2022 the Executive Power signed the decree authorizing an auction process for the 3.5 GHz band to occur in the first quarter of 2023.

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

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

In Spain, and in accordance with the new Telecommunications Act (second transitory provision), Telefónica requested the Administration to extend the duration of its spectrum licenses up to a maximum of 40 years.

In Germany, in the allocation procedure for the frequencies at 800 MHz, 1800 MHz and 2.6 GHz, which will partially expire at the end of 2025, the Bundesnetzagentur has submitted a position paper for consultation as a follow-up to the consultation of orientation points which were connected with an initial survey of demand. In the position paper, it considers a spectrum scarcity to be obvious and is considering an auction as the award format. In order to reflect the importance of the 800 MHz band for mobile coverage, the Bundesnetzagentur proposes a swap in the term of the frequencies to be awarded at 800 MHz with an equal amount of 900 MHz frequencies. The frequencies at 900 MHz, 1800 MHz and 2.6 GHz would then be auctioned off. The frequencies at 800 MHz would have a term until the end of 2033. Next steps in the spectrum allocation procedure in the form of cornerstones and a formal demand survey are expected in the first half of 2023.

In the UK, mobile spectrum licenses are generally indefinite in term, subject to an annual fee after a fixed period (usually 20 years) from the initial auction. There are no fee decisions now pending until 2033, when the fixed term for VMO2’s 800 MHz licenses will expire.

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 has presented an estimated value for calculating the migration balancing from the concession to the authorization regime, which will be validated by the Federal Court of Accounts. There is a risk 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, the STFC concession held by Telefónica will remain in force until December 31, 2025. In addition, Resolution 744/2021 of April 8, 2021 (the “Continuity Regulation”) 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 relation to the process that is being carried out before the Federal Court of Accounts, the technical area of the Court proposed the revision of the Continuity Regulation's terms so that it provides for the reversion, to the concessionaires, of the assets used in the provision of STFC. This proposal is still subject to deliberation by the Plenary of the Federal Court of Accounts.

In addition, on December 8, 2022, ANATEL revoked Telefónica's 450 MHz spectrum authorization (451-458 MHz and 461-468 MHz) covering the states of Alagoas, Ceará, Minas Gerais, Paraíba, Pernambuco Piauí, Rio Grande do Norte, Sergipe and part of São Paulo. The decision was motivated by the fact that Telefónica could not provide evidence of service activation in the 450 MHz band as a result of the unavailability of a 450 MHz devices ecosystem. The revocation of the spectrum license does not impact the services currently provided by Telefónica.

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, ANATEL referred the case to the federal court of accounts of Brazil (“TCU”), and in September 2022, TCU decided that the possibility of

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successive extensions brought by Law 13.879/19 should be considered as an exception, applicable only when certain requirements are met (art. 167 of Law 13.879/19 and article 12 of decree 10.402/20). Telefónica appealed that decision, defending the successive extension of licenses as a rule and not as an exception, in accordance with Law 13.879/19. Additionally, in August 2022, when deciding on an extension request made by the provider TIM for the 850 MHz, 900 MHz and 1.8 GHz bands, ANATEL issued a decision for the possibility of extending the 900 MHz and 1.8 GHz bands only until 2032, when the Agency intends to carry out a refarming action of these bands. This decision may impact Telefónica’s extension requests for the aforementioned bands.

In Peru, an arbitration process was started by Telefónica, 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, which ended with a favorable award for Telefónica. The award recognizes that the methodology applied to assess compliance with the concession obligations in the concession renewal process was not in accordance with the provisions of the concession contract. The MTC, following this award, must issue a new regulation for renewals in a period of time yet to be determined. 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 1900 MHz band in all of Peru, except for Lima and Callao, which expired in 2018, and of other licenses to offer 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 2023, Telefonica will have to renew 30 MHz of spectrum in the AWS band. The spectrum renewal process has not been initiated.

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, in relation to 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. These 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 compliance with 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 Telefónica Argentina 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 for six months or until the final decision is adopted. On June 10, 2022, the Federal Contentious Administrative Court extended the precautionary suspension of the effects of DNU 690/2020 for an additional six months in Telefónica's favor. On December 27, 2022, the Federal Contentious Administrative Court extended the precautionary suspension of the effects of DNU 690/2020 for another six months in Telefónica's favor. During this period, Telefónica Argentina will not be subject to the provisions contained in the DNU 690/2020 in relation to price and public service regulations.

In Ecuador, Telefónica will seek to renew in 2023 the concession contract that authorizes the provision of telecommunication services and includes the spectrum licenses (25 MHz in the 850 MHz band and 60 MHz in the 1900 MHz band).

During 2022, the Group’s consolidated investment in spectrum acquisitions and renewals amounted to 173 million euros, mainly due to the acquisition of spectrum in Colombia (compared to 1,704 million euros in 2021, mainly due to the acquisition of spectrum in Brazil and the United Kingdom, and 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 Appendix VI of the Consolidated Financial Statements.

Telefónica could be affected by disruptions in the supply chain or international trade restrictions, or by the dependency on its suppliers.

The existence of critical suppliers in Telefónica's 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. In the event that a participant in the supply chain engages in practices that do not

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meet acceptable standards or does not meet Telefónica’s performance expectations (including delays in the completion of projects or deliveries, poor-quality execution, cost deviations or reduced output due to the suppliers own stock shortfalls), this may harm Telefónica's reputation, or otherwise adversely affect its business, financial condition, results of operations and/or cash flows. Further, in certain countries, Telefónica may be exposed to labor contingencies in connection with the employees of such suppliers.

As of December 31, 2022, the Group depended on three handset suppliers (none of them located in China) and seven network infrastructure suppliers (two of them located in China), which, together, accounted for 81% and 80%, respectively, of the aggregate value of contracts awarded in the year ended December 31, 2022 to handset suppliers and network infrastructure suppliers, respectively. One of the handset suppliers represented 40% of the aggregate value of contracts awarded in the year ended December 31, 2022 to handset suppliers.

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, as well as those derived from geopolitical tensions such as the current war in Ukraine, could disrupt global supply chains or 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, 2021 and 2022 a 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, the armed conflict in Ukraine as well as the potential discontinuation of use of some suppliers as a result of tensions between the United States and China.

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.

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 businesses 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 fiber, requires high levels of investment. As of December 31, 2022, in Spain, fiber coverage reached 28.0 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,

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customer satisfaction and business efficiency of the Telefónica Group. While automation and other digital processes may lead to significant cost savings and efficiency gains, there are also significant risks associated with such transformation processes. Any failure by the Telefónica Group to develop or implement IT systems that adequately support and respond to the Group's evolving operating requirements could have an adverse effect on the Group's business, financial condition, results of operations and/or cash flows.

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. Any such investment may reduce the Group’s profit and margins and may not lead to the development or commercialization of successful new products or services. To contextualize the Group’s total research and development effort, the total expenditure in 2022 was 656 million euros (835 million euros in 2021, with the year-on-year change being impacted by deconsolidation of the entities that comprised our former Telefónica United Kingdom segment in June 2021, and 959 million euros in 2020) representing 1.6% of the Group’s revenues (2.1% and 2.2% 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, involves 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 (related to approximately 383.1 million accesses associated with telecommunications services, digital products and services and Pay TV as of December 31, 2022 and an average number of employees of 102,563 in 2022), increases the challenges of complying with privacy regulations. Moreover, there is a risk that measures adopted in response to these regulations may stifle innovation. Conversely, the Group’s efforts to promote innovation may result in potential increased compliance privacy risks and, where applicable, costs.

Telefónica is subject to 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 the common standard 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, with the consequent increase in the risks and costs that this could entail for Telefónica.

Moreover, considering that the Telefónica Group operates its business on a global scale, it frequently carries out international data transfers concerning its customers, users, suppliers, employees and other data subjects to countries outside the 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 the necessary controls in place to ensure that such international data transfers are carried out in accordance with the GDPR, in an environment marked by uncertainty on this issue as to the adequate and effective measures to mitigate such risks.

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 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 for 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, according to the Court of Justice of the European Union (CJEU), are not sufficient for this purpose, as the public authorities of the third country, in accordance with their local regulations, may have the power

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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 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 for transfers, obliges companies to replace the old SCC, as the old SCC ceased to be legally valid at the end of 2022 in accordance with the aforementioned Implementing Decision. The implementation of the new SCC and their module structure and dispositive parts, which need to be negotiated between data exporters and importers, the obligation to assess and analyze each international transfer, the changing nature of the local regulations of the countries of destination, as well as 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.

With regard to the international data transfer to the United States of America, on October 7, 2022, the U.S. President signed an executive order directing the steps that the United States will take to implement the U.S. commitments to improve the European Union–U.S. Data Privacy Framework in light of the judgment of the CJEU C-311/18. In connection with this U.S. initiative, the European Commission published in December 2022 a draft adequacy decision that would facilitate the transfer of data to the United States of America, which, like its predecessors, the International Safe Harbor Privacy Principles and the EU-U.S. Privacy Shield, is based on a self-regulatory approach, whereby U.S. companies that undertake to comply with the principles set out in the Privacy Framework will be able to self-certify as "adequate undertakings". They will thus be able to import data from the EU to the U.S. if they commit to providing an adequate level of protection to the data transferred.

While this represents an improvement in the regulatory landscape for international data transfers and the risks associated with them, the approval of this new adequacy decision for the United States is subject to the non-binding review by the European Data Protection Committee and the Civil Liberties Committee of the European Parliament, as well as the mandatory and binding approval by the Member States in the Council, which is not expected to occur until mid-2023.

In addition, the United Kingdom's 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 for international transfers. The Adequacy Decision establishes an initial period of validity of four years, which may be extended only if the United Kingdom demonstrates that it continues to ensure an adequate level of data protection. In this regard, since European Union regulations no longer apply in the United Kingdom, the UK government has published a draft reform of its local privacy and data protection regulations in June 2022, which, if it finally passes through parliamentary procedures and is approved, aims to update these regulations to address new technological challenges and business opportunities in the use of data. The result and approval 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.

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 9.1 million euros based on the exchange rate as of December 31, 2022) per infraction which may increase compliance risks and costs. In addition, in 2022 the Brazilian data protection authority, Autoridade Nacional de Proteção de Dados (ANPD), became an independent agency not linked to the presidency of the Republic, thus providing it with additional autonomy to develop its control and supervision functions.

Furthermore, in Ecuador, the Organic Law on Data Protection has entered into force, aligned with the principles of the European GDPR, although the effectiveness of the sanctioning regime is postponed for a two-year adaptation period which ends in 2023. In addition, Argentina has ratified Convention 108+, which is an international treaty of the Council of Europe which is open to accession by any state outside Europe, and which regulates the protection of the rights of individuals with regard to the automated processing of their data, in a very similar way to the

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protection granted by virtue of the GDPR. Likewise, in Chile and other territories in the region where Telefónica operates, 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 or 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 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 offering 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”, “Connected Car”, “Smart Cities”, “Smart Agriculture” and “Smart Metering” 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: firstly, 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.

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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 are intrinsically dependent on information technology systems and platforms that are susceptible to cyberattacks. Successful cyberattacks could prevent the effective provision, operation and commercialization of products and services in addition to affecting their use by 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, react and recover from 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 providers and other third parties), as well as to ensure the security of the services in the cloud.

Telecommunications companies worldwide face continuously increasing cybersecurity threats as businesses become increasingly digital and dependent on telecommunications, computer networks and cloud computing technologies. As a result of the circumstances brought by the COVID pandemic, remote access and teleworking of employees and collaborators has spread and is now a common practice, increasing the use of cloud services; thus, the risks associated with their use, and forcing companies to review the security controls beyond the perimeter of the corporate network. Further, the Telefónica Group is aware of the possible cybersecurity risks arising from the conflict in Ukraine, monitoring cyberattacks that may affect our infrastructure, and maintaining contact with national and international organizations to obtain cyberintelligence information, without having so far detected a significant increase in attacks in our perimeter compared to other previous periods, though this may change in the future. 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 result in regulatory penalties.

In particular, in the past three years, the Group has suffered several cybersecurity incidents. Attacks during this period include (i) intrusion attempts (direct or phishing), exploitation of vulnerabilities and corporate credentials being compromised; (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. None of these incidents had material consequences for the Telefónica Group, but this may change in the future.

Although Telefónica seeks to manage these risks by adopting technical and organizational measures as defined in its digital security strategy, such as the use of early vulnerabilities detection, access control, log review of critical systems and network segregation, as well as the deployment of firewalls, intrusion-prevention systems, virus scanners and backup systems, it can provide no assurance 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.

Climate change, natural disasters and other factors beyond the Group's control may result in physical damage to our technical infrastructure that may cause unanticipated network or service interruptions or quality loss or otherwise affect the Group's business.

Climate change, natural disasters and other factors beyond the Group's control, such as system failures, lack of electric supply, network failures, hardware or software failures, theft of network elements or cyber-attacks can damage our infrastructure and affect the quality of, or cause interruption to, the provision of the services of the Telefónica Group.

Further, 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. 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, Telefónica, and may have a negative impact on the Group’s operations results. Telefónica analyses these risks in accordance with the recommendations of the Task Force on Climate-Related Financial Disclosures (“TCFD”).

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Network or service interruptions or quality loss or climate-related risks 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 inflationary pressures, rapid normalization of monetary policy, exchange rate or sovereign-risk fluctuations, as well as growing geopolitical tensions, may adversely affect Telefónica’s business, financial position, debt management, cash flows and results of operations and/or the performance of some or all of the Group’s financial indicators.

Russia’s invasion of Ukraine opened a period that has been characterized by extraordinary uncertainty and the simultaneous concurrence of multiple negative shocks. Inflationary pressures, arising from bottlenecks associated with the rapid recovery from the pandemic, have been exacerbated by two phenomena that are closely related to the Russian invasion; i) the largest energy crisis since 1970s (17.7% of GDP spent on energy in 2022 vs. 10.2% in 2019 in OECD countries) and ii) the highest increase in world food prices in recent history, resulting in inflation rates not seen in the last 40 years. The persistence of shocks led inflationary pressures to become more broad-based, with higher costs increasingly being passed through to the final prices of other goods and services, leading to strong response from central banks (interest rate hikes and liquidity withdrawal) and a significant loss of consumer purchasing power. Further, it is likely that the transmission of past increases in energy prices and other imported goods to final prices has not yet been completed, which will continue to put some upward pressure in the short term. These inflationary pressures have also been contributed to by the increasing wage demands that have been observed at the international level, reflecting both the strength of labor markets, especially those of the main developed economies, and the prevalence (although to a lesser extent than in the past) of wage indexation mechanisms. Moreover, there is a risk that global liquidity reduction and high interest rates could generate greater financial volatility leading to episodes of stress, such as those observed in the United Kingdom, especially if inflation turns out to be more persistent than previously expected. Also, premature monetary easing by central banks could lead to inflationary rebound that could generate a new period of stagflation as in the 1970s. Going forward, elements that could worsen the effects of the current situation include the escalation of the armed conflict and potential disruptions to energy supply and possible further increases in commodity prices, with a potential de-anchoring of inflation expectations and higher-than-expected wage demands, prolonging and amplifying the inflation-recession scenario. As a result of the above, economic growth is expected to decelerate further in the near term, with a significant risk of recession in many parts of the world.

So far, the main European countries where the Group operates have been affected through the price channel (higher commodity prices, intermediate inputs and salary costs, among others), as their trade and financial exposure is limited. However, in Europe there is concern about the energy situation for both this and next winter if climate conditions worsen in the face of a possible gas shortage. Latin America could be affected by lower external demand associated with slower global growth, deteriorating terms of trade and tighter financial conditions.

As of December 31, 2022, the contribution of each segment to Telefónica Group's total assets was as follows: Telefónica Spain 25.5% (22.9% as of December 31, 2021), VMO2 9.8 % (11.1% as of December 31, 2021), Telefónica Germany 17.5% (18.3 % as of December 31, 2021), Telefónica Brazil 22.7% (19.7% as of December 31, 2021) and Telefónica Hispam 14.5% (14.3% as of December 31, 2021). Part of the Group's assets are located in countries that do not have an investment grade credit rating (in order of importance, Brazil, Argentina, Ecuador and Venezuela). Likewise, Venezuela and Argentina are considered countries with hyperinflationary economies in 2022 and 2021.

The main risks are detailed by geography below:

In Europe, there are several risks of an economic and political nature. First, the development of the armed conflict between Russia and Ukraine constitutes the main risk factor on growth and inflation prospects. Any worsening of the supply of gas, oil or food (such as the total shutdown of flows from Russia) would have a negative impact on their prices with a consequent impact on disposable income. In the medium term, this could lead to a stronger pass-through to final consumer prices, which could result in higher-than-expected wage increases, a persistent rise in

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inflation expectations and an even tighter monetary policy. All of the above would be added to the economic risks existing prior to the conflict, such as the consequences of an increase in the cost of financing conditions, both for the private and public sectors (more accelerated than expected a few months ago) which could trigger episodes of financial stress. Finally, there is a risk of financial fragmentation in the transmission of monetary policy in the Eurozone, which means that interest rates may react differently in different countries across the Eurozone, leading to differences in the yields of bonds issued by peripheral countries (such as Spain) and those issued by central countries, which would make access to credit more difficult for the former.

•Spain: there are several local sources of risks. One of them stems from the risk that supply disruptions will have a more persistent negative economic impact than expected, and high commodity prices and/or the emergence of second round effects, prolonging the inflationary episode with a deeper impact on household income. Secondly, and although the disbursement of European funds (NGEU) appears to be gaining traction, further delays or even designing flaws could limit their final impact on GDP growth and employment. In addition, 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, the rise of protectionism and trade restrictions could have significant implications. Lastly, the impact of rising interest rates could be a source of financial stress due to high public indebtedness and lead to a possible correction in the real estate market.

•Germany: in the short term, the main sources of risk relate to the country’s energy supply (as 35% of energy came from Russia before the conflict) and the prolongation of bottlenecks in the supply of raw materials and intermediate goods in the manufacturing sector, which could continue to limit the expansion of economic activity. Among the risks associated with energy supply, there is a risk of unusually low temperatures that could lead to higher gas consumption requirements and may affect the ability to secure necessary gas supplies. On the other hand, there is concern that higher-than-expected wage growth could lead to a stronger inflationary cycle. As for the medium to long term, there is a risk that a potential escalation of geopolitical tensions could reduce international trade, with a consequent impact on the country’s potential growth, which is dependent on exports. In addition, long-term challenges remain, such as the aging of the population.

•United Kingdom: an intensification of inflationary pressures could weigh on consumption and further depress economic growth. In particular, there is a concern that wage growth could lead to a further increase in the prices of goods and services, preventing inflation rates from normalizing as quickly as anticipated. On the other hand, although the UK economy has few direct trade links with Russia and Ukraine, it is vulnerable to developments in the global energy market as it is the second European economy with the largest share of gas in the energy mix. In addition, Britain imports gas and electricity from the European continent during the coldest months, so a confluence of an abnormally cold winter and a cut-off of Russian gas to Europe could lead to energy shortages. On the political front, recent social polarization could detract political capital from the incoming executive, becoming another source of uncertainty in the short to medium term. Finally, the formal exit of the United Kingdom from the European Union on December 31, 2020 (Brexit) has created new barriers to trade in goods and services, mobility and cross-border exchanges, which will entail an economic adjustment in the medium term. Northern Ireland's post-Brexit status and the difficulties associated with the implementation of the Northern Ireland Protocol will continue to be a source of tension.

In Latin America, the exchange risk is moderate but may increase in the future. The end of electoral events and rapid central bank actions to contain inflation may, at least partially, limit the impact of external risks (global trade tensions, abrupt movements in commodity prices, concerns about global growth, tightening U.S. monetary policy and financial imbalances in China) and internal risks (managing the monetary normalization and the possible underlying fiscal deterioration).

•Brazil: fiscal sustainability remains the main domestic risk, especially considering the recent approval of extraordinary spending of ~2% of GDP by 2023. The new administration’s initial signals are towards greater economic interventionism, the repeal of the spending cap and the review of the privatization agenda. Political negotiations could be affected by social polarization. Uncertainty now centers on the unknown economic guidelines for the coming years of the new government, including the definition of a new fiscal rule, expenditure increase and the economic reform agenda. Given this context, domestic asset prices, including the exchange rate, continue to show high volatility. In addition, higher fiscal risks have also affected inflation expectations, which have increased since December 2022, remaining above the targets for the monetary policy’s relevant horizon (2023 and 2024). In this regard, there is a risk that interest rates will be above the levels expected a few months ago, which would imply a downward bias for GDP growth in 2023.

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•Argentina: macroeconomic and exchange rate risks remain high. The main domestic challenges are achieving political consensus to reduce the public deficit and rebuilding international reserves in a context of high inflation, in order to allow the country to meet the targets agreed with the International Monetary Fund. On the external front, a global slowdown resulting in lower demand for exported products and their prices would imply lower hard currency inflows, which would increase vulnerability to volatility in international financial markets. Finally, the application of unorthodox price control measures and increasing foreign exchange restrictions could affect Telefónica's profitability.

•Chile, Colombia and Peru: these countries 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. In this regard, measures that result in excessive growth in public spending that jeopardize fiscal balance could have a negative impact on sovereign credit ratings, further deteriorating local financing conditions. High inflation threatens to be more persistent than expected, which would limit central banks' ability to respond to an abrupt drop in activity levels and would also increase the risk on financial stability. In political terms, uncertainty prevails both in Chile, due to the new constituent process underway, and in Colombia, due to the impact that the tax and pension reforms promoted by the President may have on private investment. In Peru, political instability could continue despite the installation of the new government due to the lack of support both in chambers and at the grassroots level.

As discussed above, the countries where the Group operates are generally facing significant economic uncertainties and, in some cases, political uncertainties. The worsening of the economic and political environment in any of the countries where Telefónica operates may materially adversely affect the Group’s business, financial condition, results of operations and/or cash flows.

The Group has and, in the future, could experience impairment of goodwill, investments accounted for by the equity method, 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, 2022, represented 16.8% of the Group’s total assets), investments accounted for by the equity method (which represented 10.6% of the Group's total assets as of December 31, 2022), deferred tax assets (which as of December 31, 2022, represented 4.5% of the Group’s total assets), or other assets, such as intangible assets (which represented 11.0% of the Group’s total assets as of December 31, 2022), and property, plant and equipment (which represented 21.6% of the Group’s total assets as of December 31, 2022). 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, and such calculation requires significant assumptions and judgment. In 2022 impairment losses in other assets of Telefónica Argentina were recognized for a total of 77 million euros. In 2021 impairment losses in the goodwill of Telefónica del Perú were recognized for a total of 393 million euros and 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 (101 million euros in 2020).

Further impairments of goodwill, deferred tax assets 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.

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The Telefónica Group is a relevant and frequent issuer of debt in the capital markets. As of December 31, 2022, the Group’s gross financial debt amounted to 39,079 million euros (42,295 million euros as of December 31, 2021), and the Group’s net financial debt amounted to 26,687 million euros (26,086 million euros as of December 31, 2021). As of December 31, 2022, the average maturity of the debt was 13.1 years (13.6 years as of December 31, 2021), 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 to obtain 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, 2022, the Group’s gross financial debt scheduled to mature in 2023 amounted to 4,020 million euros, and gross financial debt scheduled to mature in 2024 amounted to 2,010 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, 2022. As of December 31, 2022, the Telefónica Group had undrawn committed credit facilities arranged with banks for an amount of 11,737 million euros (11,434 million euros of which were due to expire in more than 12 months). Liquidity could be affected if market conditions make it difficult to renew undrawn credit lines. As of December 31, 2022, 2.6% of the aggregate undrawn amount under credit lines was scheduled to expire prior to December 31, 2023.

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 interest rates or foreign currency exchange 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); (ii) the value of long-term liabilities at fixed interest rates; and (iii) financial expenses and principal payments of inflation-linked financial instruments, considering interest rate risk as the impact of changes in inflation rates.

In nominal terms, as of December 31, 2022, 88% of the Group’s net financial debt had its interest rate set at fixed interest rates for periods of more than one year. The effective cost of interest payments for the last 12 months was 3.86% as of December 31, 2022 compared to 3.77% as of December, 2021. To illustrate the sensitivity of financial expenses to variations in short-term interest rates as of December 31, 2022: (i) a 100 basis point 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 34 million euros, whereas (ii) a 100 basis point decrease in interest rates in all currencies (even if negative rates are reached), would have led to a reduction in financial expenses of 34 million euros. For the preparation of these calculations, a constant position equivalent to the position at that date is assumed of net financial debt.

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 11 million euros as of December 31, 2022 and a 10% appreciation of Latin American currencies against the U.S. dollar and a 10% appreciation of the rest of the

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currencies to which the Group is most exposed, would result in exchange losses of 11 million euros as of December 31, 2022. These calculations have been made assuming a constant currency position with an impact on profit or loss for 2022 taking into account derivative instruments in place.

In 2022, the evolution of exchange rates positively impacted the Group’s results, increasing the year-on-year growth of the Group’s consolidated revenues and OIBDA by an estimated 4.5 percentage points and 3.0 percentage points, respectively, mainly due to the evolution of the Brazilian real (negative impact of 2.3 percentage points and 2.7 percentage points, respectively, in 2021). Furthermore, translation differences as of December 31, 2022 had a positive impact on the Group’s equity of 1,169 million euros (4,088 million euros as of December 31, 2021).

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

Legal and Compliance Risks.

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

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

The Telefónica Group is subject to regular reviews, tests and audits by tax authorities regarding taxes in the jurisdictions in which it operates and is a party and may be a party to certain judicial tax proceedings. In particular, the Telefónica Group is currently party to certain tax and regulatory proceedings in Brazil, primarily relating to the ICMS (a Brazilian tax on telecommunication services) and the corporate tax.

Telefónica Brazil maintained provisions for tax contingencies amounting to 446 million euros and provisions for regulatory contingencies amounting to 336 million euros as of December 31, 2022. In addition, Telefónica Brazil faces possible tax contingencies for which no provisions are made (see "Item 8. Financial Information—Consolidated Financial Statement—Tax Proceedings—Telefónica Brazil"). Further, the Group makes estimates for its tax liabilities that the Group considers reasonable, but if a tax authority disagrees, the Group could face additional tax liability, including interest and penalties. There can be no guarantee that any payments related to such contingencies or in excess of our estimates will not have a significant adverse effect on the Group’s business, results of operations, financial condition and/or cash flows. In addition to the most significant litigation indicated above, further details on these matters are provided in Notes 25 and 29 to the Consolidated Financial Statements. The details of the provisions for litigation, tax sanctions and claims can be found in Note 24 of the Consolidated Financial Statements.

Telefónica Group is also party to certain litigation in Peru concerning certain previous years' income taxes in respect of which Telefónica has been notified that the judicial resolutions which resolve the contentious administrative processes are unfavorable to the Group and will require it to pay taxes related to prior years. At the end of the relevant proceedings, the Tax Administration, through an administrative act, will determine the amount of the payment obligation. The estimated impact of the aforementioned judicial resolutions is already provisioned in Telefónica's financial statements, with the total provision as of December 31, 2022 amounting to 3,849 million Peruvian soles (approximately 945 million euros at the exchange rate at such date).

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.

Increased scrutiny and changing expectations from stakeholders, evolving reporting and other legal obligations and compliance with the Company's own goals regarding ESG matters, may expose the Company to various risks.

The Telefónica Group may be unable to adapt to or comply with increasingly demanding expectations from analysts, investors, customers and other stakeholders and new regulatory reporting or other legal requirements related to

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ESG issues. Further, expectations and requirements may differ from region to region, may be based on diverging calculation or other criteria and may experience material changes as they still are at their emerging phase.

Further, the Group's disclosure of information on its ESG objectives and initiatives in its public reports and other communications (including its CO2 emission reduction targets) subjects it to the risk that it will fail to achieve these objectives and initiatives.

Although Telefónica is working to comply with new ESG reporting requirements, to achieve its objectives, and to meet the expectations of its stakeholders in these matters, if the Company is unable to meet these expectations, fails to adequately address ESG matters or fails to achieve the reported objectives (including its CO2 emission reduction targets), the Telefónica Group’s reputation, its business, financial position, results of operations and/or cash flows could be materially and adversely affected.

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 U.S. 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, the United States, including by the U.S. Treasury Department’s Office of Foreign Assets Control and the United Kingdom. The sanctions regulations restrict the Group’s business dealings with certain sanctioned countries, territories, individuals and entities and may impose certain trade restrictions, among others, export and/or import trade restrictions to certain good and services. 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, territories, lists of entities and persons sanctioned or certain trade restrictions). Given the nature of its activity, the Telefónica Group’s exposure to these sanctions is particularly noteworthy.

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

Notwithstanding the above, violations of anti-corruption laws and sanctions regulations could lead not only to financial penalties, but also to exclusion from government contracts and the revocation of licenses and

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authorizations, 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 2022:

•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 five-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 seven 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% of which is held by Corporación Multi Inversiones) transferred its 99.3% stake 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. The loan was originally scheduled to mature in 2023.

•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 Telxius's towers business to American Tower.

As a result of the transaction, Pontel, which then held the remaining 60% of the share capital of Telxius, was to become the sole shareholder of Telxius. Pontegadea was to increase its holding in Pontel to 30% and Telefónica would hold a 70% stake, meaning that Pontegadea's indirect holding in Telxius would increase from 9.99% to 30% and Telefónica's indirect holding in Telxius would increase from 50.01% to 70%. The closing of the transaction, which was subject to the obtaining of the relevant regulatory and competition authorizations, took place on January 18, 2023.

•On February 8, 2022, Telefónica Brasil S.A. redeemed 1,000 million Brazilian reais (approximately 166 million euros at the exchange rate as of such date) of its bond, issued on February 8, 2017.

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•On February 25, 2022, Telefónica filed with the United States Securities and Exchange Commission its annual report on Form 20-F for the year ended December 31, 2021.

•On March 4, 2022, the Board of Directors of Telefónica resolved to call the Annual General Shareholders' Meeting to be held in Madrid, at the offices of Telefónica, S.A. located in Distrito Telefónica, Ronda de la Comunicación s/n, Central Building Auditorium, at 11:00 a.m. on April 8, 2022 on second call, in the event that the legally required quorum would not be reached and therefore the Meeting could not be held on the first call that had been called on April 7, 2022 at the same place and time.

•On March 21, 2022, Telefónica Tech UK & Ireland, Ltd. (“T. Tech UK”) signed an agreement for the acquisition of 100% of the shares of the Scottish company Perpetual TopCo Limited, the holding company of a group of companies (“Incremental Group”) focused on the provision of advanced IT services (including business applications and data analytics) in the United Kingdom, for consideration of up to GBP 175 million (approximately 209 million euros as of such date) (including certain potential deferred payments -earn-outs-). The transaction was signed and closed simultaneously.

•On March 28, 2022, Telefónica Audiovisual Digital, S.A.U. entered into an agreement with the company DAZN for the distribution of DAZN LaLiga Package. Such package included five football matches per match weekend of the Spanish First Division Football Championship, in 35 out of 38 match weekends for exploitation on pay television for residential subscribers in Spain. See "Item 10. Additional Information—Material Contracts—Football (soccer) License Agreements with LaLiga, UEFA and RFEF, respectively" for additional information.

•On March 30, 2022, Telefónica Emisiones, S.A.U., under its Guaranteed Euro Programme for the Issuance of Debt Instruments ("EMTN Programme"), launched a private issuance of 100 million euros of notes in the Euro market, guaranteed by Telefónica, S.A. This issuance is due on July 13, 2040 with an original annual coupon of 1.864%. The settlement of the transaction took place on April 5, 2022.

•On April 8, 2022, the Annual General Shareholders' Meeting of Telefónica was held at second call. All the resolutions submitted were approved at the meeting.

Further to the Annual General Shareholders' Meeting of Telefónica, S.A., 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 at the Annual General Shareholders' Meeting: (i) to reelect Mr. José María Abril Pérez as Vice-Chairman of the Board of Directors; (ii) to reelect Mr. Ángel Vilá Boix as Chief Operating Officer of Telefónica, S.A.; (iii) to reelect Mr. José María Abril Pérez, Mr. Ángel Vilá Boix and Mr. Francisco Javier de Paz Mancho as members of the Executive Commission of the Board of Directors; and (iv) that the Directors reelected and ratified and appointed by the Annual General Shareholders' Meeting that are members of any of the remaining Committees of the Board of Directors continue to be members of those Committees.

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 the treasury shares approved by the Annual General Shareholders' Meeting. The share capital of Telefónica, S.A. was reduced in the amount of 139,275,057 euros, through the cancellation of 139,275,057 shares of Telefónica held as treasury stock, with a nominal value of one euro each. The reduction was carried out with a charge to unrestricted reserves, through the allocation 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 139,275,057 euros). The share capital of Telefónica resulting from the reduction was set at 5,639,772,963 euros corresponding to 5,639,772,963 shares with a nominal value of one euro each. On April 22, 2022, the public deed relating to the share capital reduction was registered in the Commercial Registry of Madrid.

•On April 8, 2022, Telefónica Brasil S.A. ("Telefónica Brasil") drew down 212 million U.S. dollars of its bilateral loan signed on April 4, 2022 and maturing in 2023.

•On April 13, 2022, Telefónica Emisiones, S.A.U. redeemed 874 million euros of its notes issued on April 13, 2016. These notes were guaranteed by Telefónica, S.A.

•On April 20, 2022, Telefónica informed that the closing of the transaction related to the Contract of Purchase and Sale of Shares and Other Covenants concluded on January 28, 2021 (as amended) (the "Contract"), between Telefónica Brasil, Tim S.A. and Claro, S.A. together, as the Buyers, and Oi S.A. – in Judicial Recovery (successor of Oi Móvel S.A. – In Judicial Recovery) as Seller, was carried out. In this regard, Telefónica Brasil acquired all the shares of Garliava RJ Infraestrutura e Redes de Telecomunicações S.A., to which the mobile assets of Oi Group

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assigned to Telefónica Brasil were contributed, in accordance with the Segregation and Division Plan stated in the Contract. See "Item 10. Additional Information—Material Contracts—Purchase Agreement for Acquisition of UPI Mobile Assets of Oi Group" for additional information.

•On April 27, 2022, the Executive Commission of the Board of Directors of Telefónica resolved that in a meeting expected to be held on May 25, 2022, the appropriate corporate resolutions to carry out the execution of the capital increase with a charge to reserves related to the shareholder compensation through scrip dividend payment, approved by the Annual General Shareholders' Meeting held on April 8, 2022, under item VII.1 of its Agenda, will be submitted for approval of the Board of Directors of Telefónica or of its Executive Commission.

•On May 9, 2022, Telefónica informed that its subsidiary Telefónica Cybersecurity & Cloud Tech, S.L.U. ("Telefónica Tech") had reached an agreement with certain investment funds managed by Deutsche Private Equity GmbH (and other sellers) for the acquisition of the 100% of the shares of the German company BE-terna Acceleration Holding GmbH and its subsidiaries ("BE-terna Group"). The amount of the transaction (enterprise value or EV) was up to 350 million euros, including potential variable remunerations (earn-outs). BE-terna Group is a business group mainly dedicated to providing advanced cloud solutions for the digital transformation of companies, being a Microsoft Gold Partner. With this acquisition, Telefónica Tech strengthened its position in Germany, a strategic market for the Telefónica Group, while incorporating a growth platform in new relevant markets in Europe. The closing of the transaction was subject to the authorization of the German competition authority (Bundeskartellamt). The transaction closed on June 9, 2022.

•On May 18, 2022, Telefónica, through its wholly-owned subsidiary Telefónica Emisiones, S.A.U., launched in the Euro market under its EMTN Programme an issuance of notes guaranteed by Telefónica amounting to 1,000 million euros. These notes are due on May 25, 2031, pay an annual coupon of 2.592% and were issued at par (100%), and they are listed on the regulated market of the Irish Stock Exchange plc, trading as Euronext Dublin. The net proceeds of the notes are to be allocated toward eligible investments: mainly energy efficiency coming from the network transformation from copper to fiber optic in 5G deployment, but also inclusive connectivity accelerating deployment of broadband in unconnected or underserved areas and supporting employment generation and entrepreneurships. The settlement of the transaction took place on May 25, 2022.

•On May 19, 2022, Telefónica informed that it has signed an agreement with the company Global Alconaba, S.L., for the sale of 50,147,058 shares of Promotora de Informaciones, S.A. ("Prisa"), equivalent to 7.076% of its share capital, for an amount of 0.68 euros per share, payable in cash. As a result, Telefónica's shareholding in Prisa was reduced to 13,839,900 shares, equivalent to 1.953% of Prisa's share capital at the time.

•On May 25, 2022, the Executive Commission of Telefónica's Board of Directors, agreed the implementation of the capital increase with a charge to reserves related to the shareholder compensation by means of a scrip dividend, approved by the Annual General Shareholders' Meeting on April 8, 2022. Further on June 16, 2022, Telefónica announced that on June 14, 2022 the free-of-charge allotment rights trading period for Telefónica's Flexible Dividend ended. The shareholders of 25.54% 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 213,174,854.42 euros. Telefónica waived the rights thus acquired, which were amortized. On the other hand, the shareholders of 74.46% 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 135,464,591, corresponding to 2.40% of the share capital, being the amount of the capital increase 135,464,591 euros. As a result, the amount of the share capital of Telefónica, S.A. after the capital increase was set at 5,775,237,554 euros, divided into 5,775,237,554 shares. The deed relating to the capital increase was filed with the Commercial Registry of Madrid on June 24, 2022.

•On May 27, 2022, Telefónica Emisiones, S.A.U. redeemed 938 million euros of its notes issued on May 27, 2014. These notes were guaranteed by Telefónica, S.A.

•On June 27, 2022, Telxius Telecom, S.A. drew down 100 million euros of its syndicated loan signed on December 1, 2017 and maturing in 2024.

•On July 14, 2022, Telefónica Brasil made an issuance of debentures for a total amount of 3,500 million Brazilian reais (approximately 628 million euros at the exchange rate as of such date) (1,500 million Brazilian reais maturing in 2025 and 2,000 million Brazilian reais maturing in 2027).

•On July 25, 2022, Telefónica announced that Telefónica España and Telefónica Infra, S.L.U. ("T. Infra") had reached an agreement with a consortium formed by Vauban Infrastructure Partners ("Vauban") and Crédit Agricole

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Assurances ("CAA") to incorporate a joint company, Bluevia Fibra, S.L. ("Bluevia"), for the deployment and commercialization of a fiber-to-the-home (FTTH) network mainly in rural areas in Spain. On December 20, 2022, once the corresponding regulatory authorizations were obtained and after the fulfillment of the remaining agreed conditions, the transaction was completed. Consequently, Bluevia acquired from Telefónica España 3.9 million premises already passed, with the commitment -by Bluevia- of reaching Bluevia's total footprint of 5 million premises passed by the end of 2024. The consortium formed by CAA and Vauban acquired 45% of Bluevia for a total amount of 1,021 million euros in cash, paid on closing, valuing 100% of Bluevia at 2,500 million euros. See "Item 10. Additional Information—Material Contracts—Investment agreement with Vauban and Crédit Agricole Assurances for the establishment of Bluevia Fibra" for additional information.

•On July 29, 2022, T. Infra, Liberty Global plc ("Liberty Global") and InfraVia Capital Partners ("InfraVia") reached an agreement for the establishment of nexfibre, a joint venture for the deployment of fiber-to-the-home ("FTTH") to 5 million homes in the United Kingdom not reached by VMO2's network, with potential for expansion to an additional 2 million homes. The fiber network would offer wholesale FTTH access to telecommunications service providers, with VMO2 acting as the lead customer and providing a range of technical services. Once the relevant regulatory authorizations were obtained and the other conditions were fulfilled, the closing of the transaction took place on December 15, 2022. After closing, Liberty Global and T. Infra participate by halves in a joint vehicle that holds a 50% interest in nexfibre, with InfraVia owning the remaining 50%. See "Item 10. Additional Information—Material Contracts—Agreement reached by T. Infra, Liberty Global and InfraVia for the establishment of a fiber-to-the-home (FTTH) joint venture in the United Kingdom" for additional information.

•On October 25, 2022, Telefónica informed that it had been notified of the execution Agreement of the Judgment of the National High Court (Audiencia Nacional), which had confirmed the criteria for the use of negative tax bases and deductions maintained by Telefónica in relation to the assessments Agreements derived from the 2008-2011 Corporate Income Tax Audit. The notified Agreement orders the refund to Telefónica of an amount of 790 million euros for taxes paid in those years, as well as an amount of 526 million euros as delayed interest. Said amounts were collected on October 28, 2022.

•On November 3, 2022, the Board of Directors resolved to set December 15, 2022 as the payment date for the dividend in cash, charged to unrestricted reserves approved by the Annual General Shareholders’ Meeting held on April 8, 2022, consisting of a fixed gross amount of 0.15 euros for each existing Telefónica share entitled to participate in such distribution. This is the first payment of the commitment announced by Telefónica to remunerate the shareholder with a dividend of 0.30 euros per share for 2022. The second payment of 0.15 euros per share in cash is expected to be made in June 2023. The adoption of the corresponding corporate resolutions is expected to be proposed at the next General Shareholders' Meeting.

•In November 2022, Telefónica Europe, B.V. carried out the following transactions related to its capital structure:

◦a new issue amounting to 750 million euros, guaranteed by Telefónica, S.A. 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. The settlement took place on November 23, 2022;

◦a tender offer for the following hybrid instruments: (i) any outstanding 1,000 million euros Undated 5.5 Year Non-Call Deeply Subordinated Guaranteed Fixed Rate Reset Securities (the "March 2023 Notes") and (ii) any outstanding 1,250 million euros Undated 5.7 Year Non-Call Deeply Subordinated Guaranteed Fixed Rate Reset Securities (the "September 2023 Notes"), irrevocably guaranteed by Telefónica, S.A. Telefónica Europe, B.V. accepted the purchase in cash of any and all of the tendered securities in an aggregate principal amount of 547.4 million euros of the March 2023 Notes and 73.6 million of the September 2023 Notes. The tender offer settled on November 24, 2022; and

◦following the settlement of the abovementioned tender offer and the subsequent cancellation of the repurchased securities, Telefónica Europe, B.V. announced on November 25, 2022 the exercise of the early redemption option with respect to the March 2023 Notes, according to their terms and conditions, for the remaining outstanding securities (129 million euros). Such outstanding instruments were redeemed on December 27, 2022 pursuant to the exercise of the early redemption option.

For information on certain significant events that have occurred to date in 2023, see “—Recent Developments”.

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Business areas

In 2022 the Telefónica Group is reporting financial information, both internally and externally, according to the following segments: Telefónica Spain, VMO2, Telefónica Germany, Telefónica Brazil and Telefónica Hispam (formed by the Group's operators in Colombia, Mexico, Venezuela, Ecuador, Argentina, Chile, Peru and Uruguay).

During 2021, compared to 2020, the Telefónica Group changed its reporting segments as follows:

•On June 1, 2021, upon the establishment of VMO2 (whose results are accounted for under the equity method), the former Telefónica United Kingdom segment was replaced by the new VMO2 segment (see Notes 2 and 10 to the Consolidated Financial Statements). The Group’s consolidated results for the year ended December 31, 2021 include the consolidation of Telefónica United Kingdom from January 1 to June 1, and the equity accounting of 50% of the net result of VMO2 from June 1 to December 31 (see Note 10 to the Consolidated Financial Statements). The gain registered upon the establishment of VMO2, amounting to 4,460 million euros (see Notes 2 and 23 to the Consolidated Financial Statements), is recorded under "Other companies". The VMO2 segment information included in this Annual Report is presented under management criteria, and shows 100% of VMO2’s results. In addition, information included in this Annual Report on the accesses of the Group and the VMO2 segment as of December 31, 2022 and December 31, 2021 includes 100% of the accesses of VMO2.Telefónica’s actual percentage ownership of VMO2 is 50%.

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 2022-2021 period-on-period discussions, an analysis of the results of our VMO2 segment (which, for purposes of 2022, consists of the results obtained by VMO2 from January 1 to December 31, 2022, and, for purposes of 2021, consists of the results obtained by VMO2 from June 1 (the date on which VMO2 was established) to December 31, 2021), and (ii) for purposes of the 2021-2020 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 VMO2 and the elimination of the Telefónica United Kingdom segment).

•The Telxius Group ceased to be a reporting segment in 2021 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 as well as the gain obtained for the sale of the telecommunications towers divisions, amounting to 6,099 million euros (see Notes 2 and 22 to the Consolidated Financial Statements), were recorded under "Other companies".

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, as well as companies whose main purpose is to provide cross-sectional services to Group companies, and other operations not included in the segments. The Incremental Group and BE-terna Group, acquired in March and June of 2022 (see Note 5 to the Consolidated Financial Statements), respectively, are reported within "Other companies". "Other companies" also includes the share of results of investments accounted for by the equity method corresponding to the fiber optic companies incorporated in 2021 and 2022 (see Note 10).

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

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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, 2022, 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, 2022, 2021 and 2020, consisted of additions to property, plant and equipment and additions to intangible assets, including spectrum. In 2022, 2021 and 2020, we had capital expenditures of 5,819 million euros, 7,267 million euros and 5,861 million euros , respectively.

Year ended December 31, 2022

Capital expenditures in 2022 decreased by 19.9% compared to 2021. Capital expenditures in 2022 included the cost of spectrum mainly in Colombia, Brazil, Argentina and Uruguay, amounting to 173 million euros.

Investment by Telefónica Spain amounted to 1,550 million euros and was primarily focused on continuing the deployment of the fiber optic network, exceeding 28 million premises passed by year-end 2022, as well the development of the 5G network, reaching 85% population coverage at the end of the year. Investment by Telefónica Germany in 2022 amounted to 1,209 million euros and was primarily focused on continuing the progress in 5G roll-out and network modernization. 5G population coverage stood at approximately 80% at year-end, significantly over-achieving the initial target and aiming for nationwide 5G coverage by no later than 2025. Investment by Telefónica Brazil in 2022 amounted to 1,795 million euros and was mainly dedicated to extending the coverage and capacity of 4G mobile networks, with a population coverage of 96%, and the improvement of network quality and deployment of the FTTH network in the fixed business, exceeding 23.3 million premises passed. Investment by Telefónica Hispam in 2022 amounted to 1,058 million euros and was mainly focused on the improvement of mobile networks (with coverage expansions and capacity reinforcement) as well as on the deployment of our own fixed network. The efficient administration of available resources and the optimization of CapEx are the main management levers in the region, focusing on the simplification, digitization of processes and the search for synergies through the promotion of regional initiatives.

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 network, 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 segment during the first five months of 2021 (before the establishment of VMO2) 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

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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 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 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.

Financial Investments and Divestitures

Our principal financial investments in 2022 were: (i) the acquisition of the mobile assets of the Oi Group on April 20, 2022 for consideration of 1,093 million euros; (ii) the acquisition of Incremental Group on March 21, 2022 for consideration of 104 million euros (including potential contingent payments linked to its future performance); (iii) the acquisition of BE-terna Group on June 9, 2022 for consideration of 191 million euros (including potential contingent payments linked to its future performance) and (iv) the closing on December 20, 2022 of the agreement between Telefónica de España, S.A.U. and T. Infra with a consortium formed by Vauban Infrastructure Partners and Crédit Agricole Assurances to incorporate a company, Bluevia Fibra, S.L., for the deployment and commercialization of an FTTH network mainly in rural areas in Spain, after obtaining the corresponding regulatory authorizations and the fulfillment of certain other agreed conditions. The consortium acquired 45% of the company for the amount of 1,021 million euros.

Our principal financial divestiture in 2022 was the sale on January 13, 2022 of Telefónica Móviles El Salvador to General International Telecom El Salvador, S.A. de C.V. for 139 million U.S. dollars (approximately 121 million euros at the exchange rate at such date), after the satisfaction of the relevant closing conditions and once the relevant regulatory approvals were obtained.

Our principal financial investments in 2021 were: (i) the closing of the transaction among Telefónica and Liberty Global and the establishment of VMO2 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 VMO2; (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 T. 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 occurred on May 24, 2022. Following the completion of the addition, T. Infra's stake in Nabiax increased 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 Infraestructura e Fibra Ótica S.A. ("FiBrasil"), each of which held 50% under a co-control governance model.

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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).

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.

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 2020-2022 period or otherwise, at any time.

Public Takeover Offers

Not applicable.

Recent Developments

The principal events that have occurred since December 31, 2022 are set forth below:

•On January 13, 2023, the first annual extension of the sustainability-linked syndicated loan facility for 5,500 million euros of Telefónica, S.A. was exercised. The new expiration date is January 13, 2028.

•On January 18, 2023, Telefónica informed that, once the corresponding regulatory and competition approvals were obtained, Pontel Participaciones, S.L., Telefónica’s subsidiary held 83.35% by Telefónica and 16.65% by Pontegadea Inversiones, S.L., acquired 40% of the share capital of Telxius Telecom, S.A. from Taurus Bidco S.à r.l. (a company managed by KKR). As a result of the transaction, Pontel Participaciones, S.L., which held the remaining 60% of Telxius Telecom, S.A.'s share capital, has become the sole shareholder of Telxius Telecom, S.A. Likewise, Pontegadea Inversiones, S.L. increased its holding in Pontel Participaciones, S.L. to 30% and Telefónica has now a 70% stake.

•On January 23, 2023, Telefónica Emisiones, S.A.U. redeemed 1,277 million euros of its notes issued on January 22, 2013. These notes were guaranteed by Telefónica, S.A.

•In January 2023, Telefónica Europe, B.V. carried out the following transactions related to its capital structure:

◦a new issue amounting to 1,000 million euros, guaranteed by Telefónica, S.A. 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. The settlement took place on February 2, 2023; and

◦a tender offer for the following hybrid instruments: (i) any outstanding 1,250 million euros Undated 5.7 Year Non-Call Deeply Subordinated Guaranteed Fixed Rate Reset Securities (the "September 2023 Notes") and (ii) any outstanding 1,000 million euros Undated 10 Year Non-Call Deeply Subordinated Guaranteed Fixed Rate Reset Securities (the "March 2024 Notes"), irrevocably guaranteed by Telefónica, S.A. Telefónica Europe, B.V. accepted the purchase in cash of the tendered securities for an aggregate principal amount, with respect to the September 2023 Notes, of 388 million euros, and an aggregate principal amount, with respect to the March 2024 Notes, of 612 million euros. The tender offer settled on February 3, 2023.

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".

Table of Conten t s

Additional information on the Group is also available on our website at www.telefonica.com. The information contained on such websites does not form part of this Annual Report on Form 20-F.

Table of Conten t s

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 as we continue to leverage opportunities in our markets and deliver towards our strategy focused on value creation.

•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 stored on user devices and transmitted across our fixed and mobile communications 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 contribute to make technology more accessible, to continue to maintain high quality services for home offices and a higher consumption of entertainment services.

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Results Highlights

2022 was a challenging year, during which Telefónica showed its resilience and ability to mitigate the effects of an adverse macro environment. Additionally, in 2022 foreign exchange rates positively affected Telefónica’s results, after various years of negative impacts, mitigating the impact of inflation in Europe and certain Latin American markets. Revenues grew for the first time since 2015 (+1.8% y-o-y), supported by the foreign exchange effect and a strong commercial momentum.

Telefónica strengthened its position in core markets:

•In Spain, Telefónica's revenues grew thanks to the good commercial performance and despite a complex macro environment, increasing 0.6% y-o-y.

•In Brazil, Telefónica maintained its strong operating momentum, accelerating FTTH rollout (reaching 23.3 million premises passed by December 31, 2022) and increasing its mobile contract ex IoT market share to 43.5%, following the acquisition of Oi’s mobile assets. These factors,together with the appreciation of the Brazilian real, led to significant revenue growth.

•In Germany, Telefónica continued to bolster network quality, surpassing its 5G initial rollout goals and gaining solid commercial traction, reflected in higher revenues and operating income growth.

•In the United Kingdom, VMO2 continued its operating progress driven by synergies.

We took further steps in our strategy to build a stronger Telefónica and focused our investments on next-generation networks, while maintaining a disciplined capital allocation framework.

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


ACCESSES (1)
Thousands of accesses	2020	2021	2022	% YoY 21/20		% YoY 22/21
Fixed telephony accesses (2)	28,243.0	29,966.9	27,941.9	6.1	%	(6.8	%)
Broadband	20,077.2	25,833.3	26,303.9	28.7	%	1.8	%
UBB	15,212.8	22,281.8	23,757.7	46.5	%	6.6	%
FTTH	9,964.2	12,243.8	14,273.0	22.9	%	16.6	%
Mobile accesses	266,287.1	277,793.3	292,168.1	4.3	%	5.2	%
Prepay	131,542.0	129,675.7	129,685.7	(1.4	%)	—	%
Contract	108,587.5	117,432.1	126,242.3	8.1	%	7.5	%
IoT	26,157.7	30,685.4	36,240.1	17.3	%	18.1	%
Pay TV	8,059.5	11,111.7	10,586.5	37.9	%	(4.7	%)
Retail Accesses	322,978.5	344,945.5	357,213.3	6.8	%	3.6	%
Wholesale Accesses	22,455.0	24,173.3	25,932.9	7.7	%	7.3	%
Fixed wholesale accesses	3,722.8	3,694.5	3,665.7	(0.8	%)	(0.8	%)
FTTH wholesale accesses	2,606.8	2,988.0	3,211.7	14.6	%	7.5	%
Mobile wholesale accesses	18,732.1	20,478.8	22,267.2	9.3	%	8.7	%
Total Accesses	345,433.5	369,118.9	383,146.2	6.9	%	3.8	%

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) The access information provided as of December 31, 2020 includes the accesses of our former Telefónica United Kingdom segment and does not include Virgin Media's accesses as of such date.

(2) Includes fixed wireless and VoIP accesses.

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The table below shows the evolution of accesses by segment:


	21/20 YoY variation	22/21 YoY variation	% Over Total Accesses
Accesses			2020	2021	2022
Telefónica Spain	(2.8%)	0.9%	12.0%	10.9%	10.6%
Telefónica United Kingdom / VMO2 (1)	5.1%	3.1%	10.6%	15.2%	15.1%
Telefónica Germany	2.9%	(2.6%)	14.1%	13.6%	12.8%
Telefónica Brazil	3.9%	13.7%	27.5%	26.8%	29.3%
Telefónica Hispam	1.8%	0.5%	31.4%	29.9%	29.0%

Other companies	(10.6%)	(6.6%)	4.4%	3.7%	3.3%

Note:

(1) Our former Telefónica United Kingdom segment was replaced by our new VMO2 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”. Virgin Media’s accesses were considered in calculating the "2021/2020 YoY variation" and "% Over Total Accesses" for 2021.

Accesses 2022 vs 2021

Telefónica’s total accesses were 383.1 million as of December 31, 2022, increasing 3.8% year-on-year. This increase was mainly attributable to the inclusion of Oi's mobile accesses base since April 1, 2022 within Telefónica Brazil, offset in part by the exclusion of Telefónica El Salvador's accesses since January 1, 2022 due to its sale.

Mobile accesses totaled 292.2 million as of December 31, 2022, up 5.2% compared to December 31, 2021, mainly due to the inclusion of Oi’s mobile accesses, partially offset by the sale of Telefónica El Salvador. Postpaid accesses represented 49.3% of the mobile accesses excluding IoT accesses (+1.8 p.p.).

Fixed broadband accesses stood at 26.3 million at December 31, 2022, up 1.8% year-on-year. Retail fiber (FTTH) accesses stood at 14.3 million at December 31, 2022, growing by 16.6% compared to December 31, 2021.

Pay TV accesses totaled 10.6 million as of December 31, 2022, down 4.7% year-on-year mainly due to lower accesses in Telefónica Spain.

Accesses 2021 vs 2020

Telefónica’s total accesses, which have included 100% of the accesses of VMO2 (in respect of which Telefónica has a 50% stake) since June 1, 2021, 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 VMO2, offset in part by the sale of Telefónica de Costa Rica on August 9, 2021. Postpaid accesses for Telefónica Brazil, Telefónica Hispam and Telefónica Germany performed better in 2021, compared to the prior year, due to the lessening of pandemic-related restrictive measures that took place during the year.

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, offset in part by the sale of Telefónica de Costa Rica. Mobile accesses increased 4.3% due to an increase in postpaid (+8.1%), offset in part by the decrease in prepay (-1.4%). Postpaid accesses represented 47.5% of the mobile accesses excluding IoT accesses (+2.3 p.p. 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. Retail fiber (FTTH) accesses stood at 12.2 million at December 31, 2021, growing by 22.9% compared to December 31, 2020.

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, offset in part by the sale of Telefónica de Costa Rica.

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

Table of Conten t s


Competitive Position Evolution
		Mobile Market Share (1)
Telefónica	2020	2021	2022
Spain	29.3%	27.6%	27.5%
United Kingdom (2)	25.3%	30.1%	29.6%
Germany	35.9%	34.9%	34.2%
Brazil	33.6%	33.1%	38.9%
Argentina	29.2%	29.2%	28.5%
Chile	26.6%	25.8%	25.5%
Peru	31.2%	30.4%	29.0%
Colombia	25.0%	26.0%	25.6%
Venezuela	55.7%	54.7%	53.3%
Mexico	21.0%	19.5%	18.3%
Ecuador	29.9%	31.5%	31.4%
Uruguay	37.0%	29.1%	27.8%

(1) Internal estimates in each year.

(2) In 2020, the percentage refers to Telefónica O2's market share as of December 2020. In 2021 and 2022, the percentage refers to VMO2's market share as of September 2021 and September 2022, respectively.


		FBB Market Share (1)
Telefónica	2020	2021	2022
Spain	36.6%	35.3%	34.0%
Brazil	17.8%	15.3%	14.6%
Argentina	16.5%	11.7%	11.3%
Chile	27.8%	29.8%	31.5%
Peru	66.2%	61.0%	55.1%
Colombia	15.4%	13.8%	15.1%

(1) Internal estimates in both years.

Table of Conten t s

Consolidated results

In this section, we discuss changes in the Group’s consolidated income statements for the years ended December 31, 2022, 2021 and 2020.


	Year ended December 31,						Variation			Variation
Consolidated Results	2020		2021		2022		2021 vs 2020			2022 vs 2021
Millions of euros	Total		Total		Total		Total	%		Total	%
Revenues	43,076		39,277		39,993		(3,799)	(8.8	%)	716	1.8	%
Other income	1,587		12,673		2,065		11,086	698.3	%	(10,608)	(83.7	%)
Supplies	(13,014)		(12,258)		(12,941)		756	(5.8	%)	(683)	5.6	%
Personnel expenses	(5,280)		(6,733)		(5,524)		(1,453)	27.5	%	1,209	(18.0	%)
Other expenses	(12,871)		(10,976)		(10,741)		1,895	(14.7	%)	235	(2.1	%)
OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION (OIBDA)	13,498		21,983		12,852		8,485	62.9	%	(9,131)	(41.5	%)
OIBDA Margin	31.3	%	56.0	%	32.1	%		24.6 p.p.			(23.8 p.p.)
Depreciation and amortization	(9,359)		(8,397)		(8,796)		962	(10.3	%)	(399)	4.8	%
Amortization of intangible assets, depreciation of property, plant and equipment	(7,756)		(6,748)		(6,731)		1,008	(13.0)	%	17	(0.2)	%
Amortization of rights of use	(1,603)		(1,649)		(2,065)		(46)	2.9	%	(416)	25.2	%
OPERATING INCOME (OI)	4,139		13,586		4,056		9,447	228.2	%	(9,530)	(70.1	%)
Operating Margin	9.6	%	34.6	%	10.1	%		26.1 p.p.			(24.4 p.p.)
Share of income of investments accounted for by the equity method	2		(127)		217		c.s.	c.s.		344	c.s.
Net financial expense	(1,558)		(1,364)		(1,313)		194	(12.5	%)	51	(3.7	%)
PROFIT BEFORE TAX	2,583		12,095		2,960		9,512	368.2	%	(9,135)	(75.5	%)
Corporate income tax	(626)		(1,378)		(641)		(752)	120.0	%	737	(53.5	%)
PROFIT FOR THE YEAR	1,957		10,717		2,319		8,760	447.6	%	(8,398)	(78.4	%)
Attributable to equity holders of the parent	1,582		8,137		2,011		6,555	414.4	%	(6,126)	(75.3	%)
Attributable to non-controlling interests	375		2,580		308		2,205	587.4	%	(2,272)	(88.0	%)

c.s.: change of sign

Analysis of Results 2022 vs 2021

The Group's operating results in 2022, compared to 2021, have been impacted mainly by:

–Changes in the scope of consolidation: The main changes in 2022 and 2021 are the exclusion from the perimeter of consolidation of the entities that comprised our former Telefónica United Kingdom segment (after the incorporation of VMO2 in June 2021, the results for which are accounted for under the equity method, based on the Group’s 50% stake), the towers divisions of Telxius Group (since their sale in June 2021), Telefónica de Costa Rica (since its sale in August 2021) and InfraCo, SpA in Chile (since the sale of a 60% interest therein in July 2021).

–Capital gains/losses on sale of business, which significantly decreased period-on-period. In 2022 Telefónica booked gains from the sale of fiber optic assets in Colombia (162 million euros) and in the United Kingdom (20 million euros) (see Notes 10 and 26 to the Consolidated Financial Statements). In 2021, Telefónica recorded capital gains generated by the sale of the tower divisions of the Telxius Group (6,099 million euros), the incorporation of VMO2 (4,460 million euros), the sale of 60% of the shares in InfraCo, SpA in Chile (274 million euros), the sale of Telefónica de Costa Rica (136 million euros) and the establishment of FiBrasil (26 million euros).

Table of Conten t s

–Foreign exchange effects: Foreign exchange effects had a positive impact on our 2022 results compared with 2021, mainly due to the appreciation of the Brazilian real.

–Restructuring costs: The impact in 2022 and 2021 of restructuring costs (179 million euros in 2022 and 1,663 million euros in 2021), related mainly to the Individual Suspension Plan adopted under the Social Pact for Employment in Telefónica Spain in 2021.

–Impairment of goodwill and other assets: In 2022 the impairment of assets amounted to 77 million euros, in Telefónica Argentina. In 2021 the impairment of goodwill amounted to 416 million euros, mainly with respect to Telefónica del Perú.

–Spectrum acquisition: While spectrum acquisitions do not have an impact on operating income (except on amortizations), they affect CapEx and OIBDA-CapEx, which are discussed further below. In 2022, spectrum acquisitions amounted to 173 million euros of which 125 million euros corresponded to Telefónica Colombia, 35 million euros to Telefónica Brazil, 8 million euros to Telefónica Argentina and 5 million euros to Telefónica Uruguay. In 2021, spectrum acquisitions were significantly higher, amounting 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 VMO2 was established), 352 million euros to Telefónica Spain and 131 million euros to Telefónica Chile.

Further, the Group's operating results in 2022 were impacted by the acquisition of the mobile assets of the Oi Group on April 20, 2022 for consideration of 1,093 million euros. See "Item 10. Additional Information—Material Contracts—Purchase Agreement for Acquisition of UPI Mobile Assets of Oi Group" for additional information. See also "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 in 2022 totaled 39,993 million euros, increasing 1.8% year-on-year, positively impacted by foreign exchange effects, mainly due to the appreciation of the Brazilian real against the euro (+4.5 p.p.), despite the changes in the consolidation perimeter (-7.1 p.p.) related mainly to the exclusion of the entities that comprised our former Telefónica United Kingdom segment since June 1, 2021. Revenue growth was also impacted by the positive growth in service revenues in Telefónica Brazil, Telefónica Germany and Telefónica Hispam.

Other income mainly includes gains on disposal of assets and capitalized costs on fixed assets. In 2022, other income totaled 2,065 million euros compared to 12,673 million euros recorded in 2021. In 2022, other income included the capital gains resulting from the sale of fiber optic assets in Colombia (162 million euros) and the sale of fiber optic assets in United Kingdom (20 million euros) (see Notes 10 and 26 to the Consolidated Financial Statements). In 2021, other income included the capital gains from the sale of the Telxius towers business (6,099 million euros), the establishment of VMO2 (4,460 million euros), the sale of 60% of the shares in InfraCo, SpA in Chile (274 million euros), the sale of Telefónica de Costa Rica to Liberty Global (136 million euros) and the establishment of FiBrasil (26 million euros).

The total amount of supplies, personnel expenses and other expenses (mainly external services and taxes) was 29,206 million euros in 2022, down 2.5% year-on-year compared to 2021. This decrease was mainly attributable to the impact of changes in the scope of consolidation (-6.2 p.p.), mainly the exit of Telefónica United Kingdom from the perimeter on June 1, 2021, offset in part by the impact of changes in foreign exchange rates (+3.9 p.p.). The evolution of these expenses is explained in greater detail below:

•Supplies amounted to 12,941 million euros in 2022, up 5.6% year-on-year, mainly as a result of the impact of changes in foreign exchange rates (+3.3 p.p.) and of higher handset costs in all segments due to higher commercial activity, offset in part by the deconsolidation of the entities that comprised our former Telefónica United Kingdom segment in June 2021.

•Personnel expenses amounted to 5,524 million euros in 2022, down 18.0% year-on-year compared to 2021, mainly as a result of higher restructuring costs in 2021 in Telefónica Spain and of the deconsolidation of the entities that comprised our former Telefónica United Kingdom segment in June 2021.

Table of Conten t s

The average headcount was 102,563 employees in 2022, down 4.8% compared to 2021, mainly as a result of the deconsolidation of the entities that comprised our former Telefónica United Kingdom segment in June 2021.

•Other expenses amounted to 10,741 million euros in 2022, down 2.1% year-on-year. This decrease was mainly attributable to the deconsolidation of the entities that comprised our former Telefónica United Kingdom segment in June 2021, partially offset by higher expenses in Spain and Germany.

As a result of the foregoing, OIBDA totaled 12,852 million euros in 2022, compared with 21,983 million euros in 2021. The period-on-period evolution was strongly impacted by the capital gains recorded in "Other income" from the transactions completed in 2021 (-49.2 p.p.) and changes in the scope of consolidation (-4.5 p.p.), partially offset by the lower restructuring costs in 2022 (+6.8 p.p.) and the positive exchange rate impact (+3.0 p.p.). OIBDA is a non-GAAP financial measure. For a reconciliation of OIBDA to operating income, see “Item 5. Operating and Financial Review and Prospects- Non-GAAP Financial Information”.

Depreciation and amortization amounted to 8,796 million euros in 2022 increasing by 4.8% compared to 2021 mainly as a result of the impact of foreign exchange rates (+5.3 p.p.) as well as the changes in the consolidation perimeter (+1.3 p.p.) as a consequence of the sale of the towers communications division sale in 2021, which resulted in an increase in the amortization of rights of use.

Operating income (OI) totaled 4,056 million euros in 2022 compared to 13,586 million euros recorded in 2021. The period-on-period evolution was strongly impacted by the capital gains on the sale of businesses in 2021 mentioned above (-79.6 p.p.), the changes in the scope of consolidation (-8.2 p.p.) and the increase in depreciation and amortization.

The share of income (loss) of investments accounted for by the equity method in 2022 was an income of 217 million euros, compared to a loss of 127 million euros in 2021, mainly due to the respective results of VMO2, affected by changes in the fair value of derivatives.

Net financial expense amounted to 1,313 million euros in 2022, down 51 million euros compared to 2021, mainly due to extraordinary income related to the payment by the Spanish administration to the Group of delayed interest in connection with tax litigation in Spain, which more than offset the increase in the expenses due to the increase in interest rates and a higher level of debt denominated in Brazilian reais.

Corporate income tax amounted to 641 million euros in 2022, decreasing compared to 2021 (1,378 million euros) by 737 million euros. The y-o-y change is explained mainly by the extraordinary expenses recorded in 2021 (among others, the impact of the Spanish tax inspection closing), the deconsolidation of the entities that comprised our former Telefónica United Kingdom segment since June 2021, the positive outcome of the tax inspection closing in Germany in 2022 and the corporate simplification carried out in Brazil in 2022.

As a result, profit for the year attributable to equity holders of the parent in 2022 was 2,011 million euros (8,137 million euros in 2021).

Profit attributable to non-controlling interests was 308 million euros in 2022 (compared to 2,580 million euros in 2021). The variation is mainly due to a decrease in profit attributable to non-controlling interests in Telxius, which completed the sale of its towers divisions in Europe and Latin America in 2021.

CapEx totaled 5,819 million euros in 2022, down 19.9% year-on-year, impacted by lower spectrum purchases in 2022 (-17.7 p.p.) and the change in the consolidation perimeter (-13.6 p.p.), partially offset by the exchange rates effect (+4.2 p.p.).

OIBDA-CapEx stood at 7,033 million euros in 2022, compared to 14,716 million euros in 2021 (-52.2%), strongly affected by the above mentioned capital gains from the sale of businesses in 2021 (-73.5 p.p.), partially offset by the positive effect of lower restructuring costs in 2022 (+10.1 p.p.), lower spectrum purchases (+8.8 p.p.), the recording of goodwill impairment in 2021 in a greater amount than asset impairments in 2022 (+2.1 p.p.) and foreign exchange effects (+2.4 p.p.).

Analysis of Results 2021 vs 2020

The Group's operating results in 2021, compared to 2020, have been impacted mainly by:

Table of Conten t s

–Changes in the consolidation perimeter: The main changes compared to 2020 are the exclusion from the perimeter of consolidation of the entities that comprised our former Telefónica United Kingdom segment (after the incorporation of VMO2 in June 2021, the results for which are accounted for under the equity method, based on the Group’s 50% stake), the towers divisions of Telxius Group (since their sale in June 2021), Telefónica de Costa Rica (since August 2021) and InfraCo, SpA in Chile (since the sale of a 60% interest therein in July 2021).

–Gains or losses on the sale of companies: In 2021, we recorded significant gains resulting from the establishment of VMO2 (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 recorded 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.

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

–Restructuring costs: Restructuring costs were significantly higher in 2021 (1,663 million euros) than in 2020 (86 million euros), as a result mainly of the Individual Suspension Plan adopted under the Social Pact for Employment in Telefónica Spain in 2021.

–Impairment of goodwill and other assets: In 2021 the Group recorded an impairment of goodwill amounting to 416 million euros, mainly relating to Telefónica Peru. In 2020, the Group recorded an impairment of goodwill and certain other assets of Telefónica Argentina, amounting to 894 million euros.

–Spectrum acquisition: While spectrum acquisitions do not have an impact on operating income (except on amortizations), they affect CapEx and OIBDA-CapEx, which are discussed further below. 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 VMO2 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.

See also 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 in 2021 totaled 39,277 million euros, decreasing 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 VMO2 and the related 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, offset in part by the increase in handset sales and service revenues in Telefónica Germany and Telefónica Hispam.

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 VMO2 (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).

The total amount of supplies, personnel expenses and other expenses was 29,967 million euros in 2021, down 3.8% year-on-year. This decrease was mainly attributable to the impact of changes in the scope of consolidation (-8.8 p.p.) and changes in foreign exchange rates (-2.2 p.p.), partially offset by the higher restructuring costs (+5.1 p.p.). 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, 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

Table of Conten t s

rates (-1.7 p.p.), offset in part by the 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 mainly as a result of the higher restructuring costs (+30.2 p.p.), mainly related to the Individual Suspension 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.).

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. This decrease was mainly attributable to the impact of changes in the scope of consolidation (-7.9 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) (243 million euros in 2021).

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". OIBDA increased in Telefónica Germany and Telefónica Hispam due to revenues growth.

Depreciation and amortization amounted to 8,397 million euros in 2021, decreasing by 10.3% compared to 2020 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.).

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 del Perú 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 (-38.2 p.p.), which totaled 1,382 million euros, changes in the consolidation perimeter (-21.6 p.p.), the provision for contingencies in Telefónica Brazil (-4.1 p.p.) and the foreign exchange effects (-3.0 p.p.).

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 VMO2 (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 Statements - Tax Proceedings - Telefónica del Perú”) and adjustments for tax rates changes. The increase was

Table of Conten t s

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 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.

Table of Conten t s

Segment results

For information on how segment information is presented in this Report, see “―History and Development of the Company―Business areas”.

TELEFÓNICA SPAIN

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


ACCESSES
Thousands of accesses	2020	2021	2022	% YoY 21/20		% YoY 22/21
Fixed telephony accesses (1)	8,731.0	8,376.3	8,102.3	(4.1	%)	(3.3	%)
Broadband	5,961.9	5,874.9	5,854.5	(1.5	%)	(0.3	%)
FTTH	4,614.1	4,847.6	5,042.2	5.1	%	4.0	%
Mobile accesses	18,977.8	18,484.6	19,347.3	(2.6	%)	4.7	%
Prepay	888.1	752.5	796.0	(15.3	%)	5.8	%
Contract	15,383.7	15,210.7	15,099.5	(1.1	%)	(0.7	%)
IoT (2)	2,706.0	2,521.5	3,451.8	(6.8	%)	36.9	%
Pay TV	3,934.5	3,716.4	3,526.3	(5.5	%)	(5.1	%)
Retail Accesses	37,615.1	36,460.9	36,838.9	(3.1	%)	1.0	%
Wholesale Accesses	3,689.5	3,674.3	3,653.6	(0.4	%)	(0.6	%)
FTTH Wholesale Accesses	2,599.8	2,982.0	3,206.1	14.7	%	7.5	%
Total Accesses	41,304.6	40,135.2	40,492.6	(2.8	%)	0.9	%

Notes:

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

(2)Accesses in 2022 include an upward revision of approximately 500 thousand IoT accesses recorded in March 2022.

In May 2022, we launched miMovistar, a new global portfolio for the general public through which customers will be able to choose the products and services they need in a simple, customizable and flexible way. The proposal is the natural evolution of Movistar Fusión, Movistar's benchmark product over the last ten years.

The portfolio starts with connectivity (Internet, voice and data), to which, if the customer wishes, modules can be added to include a television content offer and value-added services such as, initially, health, gaming and security, to build the most complete and adapted formula that the customer wants. The company plans to integrate in the future more services within the miMovistar ecosystem, such as Movistar Car/Moto, Movistar Money, Home Insurance, Energy, as well as additional connectivity options.

With this new move, Telefónica Spain responds to the needs derived from the transformation of the market and a consumer who demands flexibility and personalization, both in connectivity services and in content or services relevant to his life, while being able to control costs.

In addition, each of the miMovistar connectivity options also includes a device at no cost to the customer, whose catalog depends on their choice and includes, in addition to smartphones, smart TVs, tablets, laptops or smart watches.

Existing Movistar Fusión customers can choose to continue with their current tariff or switch to miMovistar and adapt it to what they choose.

Telefónica Spain's investment in the 5G mobile network made it possible to achieve 85% of population coverage as of December 31, 2022.

Additionally, in 2022, Telefónica Spain has continued to improve its offer proposals to strengthen its relationship with customers and reach new segments, highlighting:

•Solar 360, a joint venture of Repsol and Telefónica Spain formed to develop a solar self-consumption business. The new company started to operate in June 2022, offering a comprehensive self-consumption solution to private customers, communities of neighbors and companies, SMEs, and large companies, through solar panel installation.

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•Movistar Prosegur Alarmas, a joint venture of Prosegur and Telefónica Spain, reached 445 thousand customers as of December 31, 2022.

Accesses 2022 vs 2021

Telefónica Spain had 40.5 million accesses as of December 31, 2022, an increase of 0.9% as compared to December 31, 2021, due to an increase in the IoT accesses base.

The convergent offer (residential and SMEs) had a customer base of 4.5 million customers as of December 31, 2022, a decrease of 2.2% y-o-y.

Retail fixed accesses totaled 8.1 million and decreased 3.3% as compared to December 31, 2021, with a net loss of 274 thousand accesses as of December 31, 2022.

Retail broadband accesses totaled 5.9 million (-0.3% y-o-y), with a net loss of 20 thousand accesses as of December 31, 2022.

Retail fiber (FTTH) accesses reached 5.0 million customers (+4.0% as compared to December 31, 2021), representing 86.1% of total retail broadband customers (+3.6 p.p. y-o-y) with net adds of 195 thousand accesses as of December 31, 2022. At December 31, 2022, fiber deployment reached 28.0 million premises, 1.1 million more than at December 31, 2021.

Total retail mobile accesses stood at 19.3 million as of December 31, 2022, an increase of 4.7% as compared to December 31, 2021 as a result of an increase in the IoT accesses base (+36.9% y-o-y impacted by an upward revision recorded in March 2022 figures, in an amount of 500 thousand accesses) and prepay accesses (+5.8% y-o-y), with a decrease in mobile contract accesses (-0.7% y-o-y).

Pay TV accesses reached 3.5 million at December 31, 2022, decreasing 5.1% year-on-year due to a higher penetration of customers in service bundles that do not include TV.

Wholesale accesses stood at 3.7 million at December 31, 2022, down 0.6% year-on-year, and wholesale fiber (FTTH) accesses were up 7.5% year-on-year (87.8% of total wholesale accesses at December 31, 2022 compared with 81.2% at December 31, 2021).

Accesses 2021 vs 2020

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.

Table of Conten t s

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


Millions of euros
TELEFÓNICA SPAIN	2020	2021	2022	% YoY 21/20		% YoY 22/21
Revenues	12,401	12,417	12,497	0.1	%	0.6	%
Mobile handset revenues	264	400	548	51.3	%	37.4	%
Revenues ex-mobile handset sales	12,137	12,017	11,948	(1.0	%)	(0.6	%)
Retail	9,906	9,699	9,662	(2.1	%)	(0.4	%)
Wholesale and Other	2,231	2,318	2,286	3.9	%	(1.4	%)
Other income	540	664	803	23.1	%	20.9	%
Supplies	(4,210)	(4,636)	(5,008)	10.1	%	8.0	%
Personnel expenses	(1,748)	(3,201)	(1,765)	83.1	%	(44.9	%)
Other expenses	(1,937)	(1,867)	(1,939)	(3.6	%)	3.9	%
OIBDA	5,046	3,377	4,588	(33.1	%)	35.9	%
Depreciation and amortization	(2,184)	(2,153)	(2,157)	(1.4	%)	0.2	%
Amortization of intangible assets, depreciation of property, plant and equipment	(1,892)	(1,807)	(1,747)	(4.5	%)	(3.3	%)
Amortization of rights of use	(292)	(346)	(410)	18.6	%	18.3	%
Operating income (OI)	2,862	1,224	2,431	(57.2	%)	98.6	%
CapEx	1,408	1,815	1,550	28.9	%	(14.6	%)
OIBDA-CapEx	3,638	1,562	3,038	(57.1	%)	94.5	%

Analysis of results 2022 vs 2021

Revenues in 2022 amounted to 12,497 million euros, growing 0.6% y-o-y. This trend was supported by the continued growth of mobile handset revenues, due to the inclusion in the portfolio of 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 9,662 million euros in 2022, decreasing by 0.4% year-on-year, due in part to the customer base decline, partially offset by higher IT revenues due to the higher demand for digitalization projects in the B2B segment.

•Wholesale and other revenues totaled 2,286 million euros in 2022, decreasing by 1.4% year-on-year, due mainly to the decrease in fixed traffic revenues, mobile interconnection revenues due to lower mobile termination rates, and the impact of less "La Liga" content available in the wholesale offer since mid-August. These have been partially offset by the recovery in roaming-in revenues to pre-pandemic levels and the growth of revenues from MVNOs.

The total amount of supplies, personnel expenses and other expenses (mainly external services and taxes) amounted to 8,712 million euros in 2022, down 10.2% year-on-year compared to 2021. The year-on-year evolution was mainly attributable to the restructuring costs recorded in 2021 (1,382 million euros).

•Supplies amounted to 5,008 million euros in 2022, up 8.0% year-on-year compared to 2021, mainly attributable to higher handset costs in the year (from commercial campaigns offering free devices) as well as the costs related to IT revenue growth.

•Personnel expenses amounted to 1,765 million euros in 2022, down 44.9% year-on-year compared to 2021. The year-on-year evolution was mainly attributable to the restructuring costs in 2021, mainly related to the Individual Suspension Plan (1,382 million euros).

•Other expenses amounted to 1,939 million euros in 2022, up 3.9% year-on-year compared to 2021, mainly attributable to higher energy costs.

Table of Conten t s

OIBDA reached 4,588 million euros in 2022, a year-on-year increase of 35.9%.

Depreciation and amortization amounted to 2,157 million euros in 2022, increasing by 0.2% year-on-year.

Operating income amounted to 2,431 million euros in 2022, a year-on-year increase of 98.6%. Operating income was adversely affected in 2021 by restructuring costs totaling 1,382 million euros (related mainly to the Individual Suspension Plan) and the provisions recorded in Telefónica Spain totaling 44 million euros in connection with the restructuring of the distribution channels. In 2022, a restructuring provision of 57 million euros was recorded in Telefónica Spain.

Analysis of results 2021 vs 2020

Revenues in 2021 amounted to 12,417 million euros, growing 0.1% y-o-y. This trend was supported by handset revenues due to the launching of the new Fusion portfolio, as the new portfolio included 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, 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 , due, among others, to a recovery in roaming-in revenues.

The total amount of supplies, personnel expenses and other expenses (mainly external services and taxes) amounted to 9,704 million euros in 2021, up 22.9% year-on-year. This increase was mainly attributable to restructuring costs in 2021 (1,382 million euros).

•Supplies amounted to 4,636 million euros in 2021, up 10.1% year-on-year compared to 2020. This increase was mainly attributable to higher handset costs in the year as well as the costs related to IT revenue growth.

•Personnel expenses amounted to 3,201 million euros in 2021, up 83.1% year-on-year compared to 2020. This increase was mainly attributable to a restructuring cost in 2021 (1,382 million euros) related mainly to the Individual Suspension Plan adopted under the Social Pact for Employment in Telefónica Spain in 2021.

•Other expenses amounted to 1,867 million euros in 2021, down 3.6% year-on-year compared to 2020. This decrease was mainly attributable to commercial, network and systems’ efficiencies partially offset by higher energy costs.

OIBDA reached 3,377 million euros in 2021, a year-on-year decrease of 33.1%.

Depreciation and amortization amounted to 2,153 million euros in 2021, decreasing by 1.4% year-on-year, 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%. The year-on-year decrease was mainly driven by the restructuring costs provision in 2021, the lower service revenues and the impact of the higher energy costs for most of the year.

Table of Conten t s

VMO2

After receiving the final approval from the UK 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 the new VMO2 segment. Telefónica ceased to fully consolidate the results of the entities that composed our former Telefónica United Kingdom segment in its consolidated financial statements and started to account for VMO2's results under the equity method. Therefore, since June 1, 2021, for purposes of the Group’s consolidated results, the results of VMO2 are reflected under a single heading of the consolidated income statement, “Share of income of investments accounted for by the equity method”. However, the VMO2 segment information included in this section is presented under management criteria, and shows 100% of the VMO2's results; Telefónica’s actual percentage ownership of VMO2 is 50%.

Since it is not practicable to restate the historical segment financial information to reflect this change, the segment discussions included in this section consist of (i) for purposes of the 2022-2021 period-on-period discussions, an analysis of the results of our VMO2 segment (which, for purposes of 2022, consists of the results obtained by VMO2 from January 1 to December 31, 2022, and, for purposes of 2021, consists of the results obtained by VMO2 from June 1 (the date on which VMO2 was established) to December 31, 2021), and (ii) for purposes of the 2021-2020 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 VMO2 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".

More than one year after the formation of VMO2, the company continues to integrate and innovate while investing heavily to expand and upgrade its fiber and 5G networks to provide the highest quality connectivity to more regions of the country.

The FTTP speed upgrade of the existing network is accelerating after the completion of tests in the first quarter of 2022, paving the way for the planned deployment of fiber throughout the fixed network, which began in the fourth quarter of 2022 and is expected to be completed by 2028.

The “Lightning” project rollout now totals 2.9 million accesses, further reinforcing VMO2's gigabit leadership in the UK with speeds of 1.1 Gbps offered across its entire footprint of 16.1 million premises passed.

On July 29, 2022, T. Infra, Liberty Global plc ("Liberty Global") and InfraVia Capital Partners ("InfraVia") reached an agreement for the establishment of a joint venture that will deploy fiber-to-the-home (FTTH) to 5 million homes in the United Kingdom currently not reached by VMO2's network, with potential for expansion to an additional 2 million homes. The fiber network will offer wholesale FTTH access to telecommunications service providers, with VMO2 acting as the lead customer, as well as providing a range of technical services. Liberty Global and Telefónica jointly hold a 50% stake in the joint venture through a holding company, with InfraVia owning the remaining 50%.

VMO2 launched the “Better Connections Plan”, its first sustainability strategy as a joint business, in May 2022 with a commitment to reduce carbon emissions, champion the circular economy, such as recycling devices and donating smartphones and tablets, and giving back to the community. The company has an ambitious target to achieve net zero carbon emissions across its operations, products and supply chain by the end of 2040, 10 years ahead of the Paris Agreement and the UK's target of net zero emissions by 2050.

The table below shows the evolution of accesses of VMO2 (or, with respect to 2020, the aggregated accesses of our former Telefónica United Kingdom segment and Virgin Media), in each case as of December 31 of such years.

Table of Conten t s


ACCESSES (1)
Thousands of accesses	2020	2021	2022	% YoY 21/20		% YoY 22/21

Broadband	5,449.5	5,626.7	5,661.6	3.3	%	0.6	%
UBB	5,420.3	5,596.8	5,653.8	3.3	%	1.0	%

Mobile accesses	30,336.6	32,276.8	33,831.3	6.4	%	4.8	%
Prepay	8,251.8	8,119.1	7,968.3	(1.6	%)	(1.9	%)
Contract	15,594.2	15,938.1	16,087.6	2.2	%	0.9	%
IoT	6,490.6	8,219.7	9,775.5	26.6	%	18.9	%


Retail Accesses	44,067.7	46,021.1	46,926.8	4.4	%	2.0	%
Wholesale Accesses	9,210.9	9,966.6	10,818.6	8.2	%	8.5	%
Total Accesses	53,278.6	55,987.8	57,745.4	5.1	%	3.1	%

(1) The access information provided as of December 31, 2022 and December 31, 2021 includes 100% of the accesses of VMO2. Telefónica’s actual percentage ownership of VMO2 is 50%. The access information provided as of December 31, 2020 includes the accesses of our former Telefónica United Kingdom segment and Virgin Media as of such date.

Accesses 2022 vs 2021

The total accesses base grew 3.1% year-on-year and stood at 57.7 million as of December 31, 2022, mainly driven by the increase in the mobile accesses base, which grew 4.8% year-on-year and reached 33.8 million accesses.

The contract mobile customer base grew 0.9% year-on-year and reached 16.1 million accesses adding 149.5 thousand new accesses to the base in 2022. Churn remained stable at low levels.

The prepay mobile customer base decreased 1.9% year-on-year and totaled 8.0 million accesses declining 150.8 thousand accesses to the base in 2022.

IoT mobile customer base grew 18.9% year-on-year and reached 9.8 million accesses underpinned by the Smart Metering Programme roll out.

The fixed broadband base grew 0.6% year-on-year and reached 5.7 million accesses, adding 34.9 thousand new accesses in 2022. UBB accesses grew 1.0% year-on-year with a net gain of 57.0 thousand new accesses in 2022, supported by the increase in customer demand for higher speeds. The company’s average broadband speed is 301 Mbps and increased 41% year-on-year, five times higher than the national average.

Accesses 2021 vs 2020

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.

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 the evolution of the VMO2 segment's results over the past two years (which, for the purposes of 2022, consists of the results obtained by VMO2 from January 1 to December 31, 2022, and, for the purposes of 2021, consists of the results obtained by VMO2 from June 1 (the date on which VMO2 was established) to December 31, 2021):

Table of Conten t s


Millions of euros
VMO2	June 1 to December 31, 2021	January 1 to December 31, 2022
Revenues	7,223	12,155
Mobile Business	4,122	6,938
Handset revenues	1,234	1,894
Fixed Business	2,782	4,639
Other	319	578
Other income	290	551
Supplies	(2,601)	(4,019)
Personnel expenses	(786)	(1,348)
Other expenses	(1,676)	(2,938)
OIBDA	2,450	4,401
Depreciation and amortization	(2,395)	(4,170)
Operating income (OI)	55	231
Share of income (loss) of investments accounted for by the equity method	—	1
Financial income	27	24
Financial expenses	(504)	(1,020)
Realized and unrealized qains on derivate instruments, net (1)	489	2,567
Foreign currency transaction losses, net	(367)	(1,296)
Net financial expense	(355)	275
Result before taxation	(300)	507
Result for the period	(235)	492
CapEx	1,508	2,707
OIBDA-CapEx	942	1,694

Notes:

(1) VMO2 entered into various derivative instruments to manage interest rate exposure and foreign currency exposure. Generally, VMO2 does not apply hedge accounting to its derivative instruments. Accordingly, changes in the fair values of most of its derivatives are recorded in the finance results of its consolidated income statement.

Analysis of results 2022 vs 2021

Year-on-year changes are mainly explained by the fact that the VMO2 segment's results for 2022 include VMO2’s results for the full year, whereas the VMO2 segment's results for 2021 include VMO2’s results for seven months only. Further, the 2021 results were adversely affected by restructuring and integration costs incurred in connection with the incorporation of VMO2. Since both periods are not entirely comparable, the below explanations discuss the drivers of the 2022 and 2021 results separately.

In 2022, revenues amounted to 12,155 million euros supported by the price increase in fixed and mobile businesses alongside with synergies realization, offset in part by the impact of the macroeconomic downturn.

•Mobile Revenues amounted to 6,938 million euros in 2022 and included 1,894 million euros from handset sales, which were impacted by the current macroeconomic environment, mitigated in part by price increases and the recovery of roaming revenues.

•Fixed business revenues amounted to 4,639 million euros in 2022, impacted by the decline in fixed-line ARPU driven in part by the increasing cost-of-living, partially mitigated by price increases.

•Other revenues amounted to 578 million euros in 2022 driven by the roll out of SMIP (Smart metering programme) and other digital products.

The total amount of supplies, personnel expenses and other expenses (mainly external services and taxes) was 8,305 million euros in 2022, impacted by the realization of synergies and other cost efficiencies that resulted from the formation of the joint venture, which helped to offset inflationary tendencies.

Table of Conten t s

•Supplies amounted to 4,019 million euros in 2022, positively impacted by the realization of synergies, mainly due to the migration of the Virgin Mobile MVNO contract coupled with other cost efficiencies.

•Personnel expenses amounted to 1,348 million euros in 2022, positively impacted by the realization of synergies that resulted from the formation of the joint venture, through the execution of restructuring plans aiming to deliver a single operating model and a leaner company.

•Other expenses amounted to 2,938 million euros in 2022, impacted by inflationary tensions, mainly by the increase in energy prices.

OIBDA in 2022 reached 4,401 million euros.

Depreciation and amortization amounted to 4,170 million euros in 2022.

Operating income (OI) amounted to 231 million euros in 2022 underpinned by price rises in fixed and mobile businesses and cost efficiencies and synergies, mitigating the impact of inflation.

For the period from June 1 to December 31, 2021, total revenues amounted to 7,223 million euros, 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.

The table below shows the reconciliation between VMO2's results and the share of income (loss) of investments accounted for by equity method in Telefónica:


Millions of euros	June 1 to December 31, 2021	January 1 to December 31, 2022
Result for the period (100% VMO2)	(235)	492
50% attributable to Telefónica Group	(117)	246
Share-based compensation (1)	14	14
Other adjustments	—	32
Share of income (loss) of investments accounted for by the equity method	(103)	292

(1) Amount related to incentive awards held by certain employees of VMO2 associated with ordinary shares of Liberty Global and Telefónica. Share-based compensation expense is included in Operating expenses in the consolidated income statement of VMO2.

Table of Conten t s

TELEFÓNICA UNITED KINGDOM

The table below shows the evolution of Telefónica United Kingdom's results over 2020 and 2021 (which, for purposes of 2021, consists of the results obtained in the first five months of the year, until the establishment of VMO2 and the elimination of this segment):


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

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

c.s.: change of sign

Analysis of results

Total revenues in 2021 amounted to 2,628 million euros, decreasing by 60.8% year-on-year due to the deconsolidation of our UK business since June 1, 2021 (-57.8 p.p.) Excluding this impact, total revenues decreased by 7.0% driven by the 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% 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 to the 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% compared to 2020.

Operating income amounted to 919 million euros in 2021, decreasing 45.1%, due to the impact of the change in the scope of consolidation (-50.4 p.p.) and, to a much lesser extent, the foreign exchange effects (-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.

Table of Conten t s

TELEFÓNICA GERMANY

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


ACCESSES
Thousands of accesses	2020	2021	2022	% YoY 21/20		% YoY 22/21
Fixed telephony accesses (1)	2,180.2	2,179.6	2,211.6	0.0	%	1.5	%
Broadband	2,261.1	2,262.3	2,294.2	0.1	%	1.4	%
UBB	1,797.8	1,856.8	1,939.1	3.3	%	4.4	%
Mobile accesses	44,274.8	45,693.6	44,306.6	3.2	%	(3.0	%)
Prepay	19,283.3	18,973.0	16,274.8	(1.6	%)	(14.2	%)
Contract	23,581.3	25,107.8	26,336.2	6.5	%	4.9	%
IoT	1,410.1	1,612.8	1,695.7	14.4	%	5.1	%
Retail Accesses	48,804.7	50,219.3	48,891.6	2.9	%	(2.6	%)
Total Accesses	48,804.7	50,219.3	48,891.6	2.9	%	(2.6	%)

Notes:

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

In 2022, Telefónica Germany delivered strong operational and financial momentum. The company continues to expand its mobile market share in a rational yet dynamic environment on the back of core business strength building on strong O2 brand appeal including strong customer demand for the innovative "O2 Grow" tariff, network parity and ESG leadership.

Telefónica Germany’s key milestones in 2022 were as follows:

•Sustained commercial momentum, with 1.2 million new clients in contract driven by O2 Free portfolio and strong traction of the successful tariff innovation "O2 Grow".

•Telefónica Germany successfully completed its three-year "Investment for Growth’ program", making strong progress with network modernization and 5G roll-out as well as fulfilling the coverage obligations of the German regulator. Telefónica Germany's 5G population coverage stood higher than 80% at year end, significantly over-achieving its initial target. The company aims for more than 90% coverage by year-end 2023 and believes it is on track to offer nationwide 5G coverage by no later than year-end 2025.

Accesses 2022 vs 2021

The total access base decreased 2.6% year-on-year and stood at 48.9 million at December 31, 2022, mainly driven by a 3.0% decrease in the mobile accesses base, which reached 44.3 million.

The contract mobile customer base grew 4.9% year-on-year and reached 26.3 million accesses, increasing the share over the total mobile accesses base to 59.4%. Net adds reached 1.2 million accesses driven by high O2 brand appeal thanks to the O2 Free tariff portfolio’s gross add momentum in the market and the continued solid contribution of partner brands. Churn was 1.3% in 2022 (+0.1 p.p. y-o-y) leveraging network and service quality and commercial success despite being impacted by the European Electronic Communications Code (EECC) introduction, as a result of which contract customers can terminate their contracts at any time.

The prepay mobile customer base decreased 14.2% year-on-year to 16.3 million accesses. This decrease was driven mainly by a combination of a technical base adjustment in December 2022 (which was revenue neutral) following the introduction of a stricter active SIM card definition and the ongoing German market trend of prepaid to postpaid migration leading to a net loss of 2.7 million prepay customers in 2022.

Broadband accesses reached 2.3 million accesses (up 1.4% y-o-y), with a net add of 31.9 thousand accesses in 2022, reflecting the success of the "O2 myHome" tariff portfolio with high-speed cable and fiber connections as well as FMS (Fixed Mobile Substitution) driving customer demand.

Table of Conten t s

Accesses 2021 vs 2020

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.

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


Millions of euros
TELEFÓNICA GERMANY	2020	2021	2022	% YoY 21/20		% YoY 22/21

Revenues	7,532	7,765	8,224	3.1	%	5.9	%
Mobile Business	6,730	6,942	7,394	3.2	%	6.5	%
Handset revenues	1,423	1,450	1,652	1.9	%	13.9	%
Fixed Business	785	814	806	3.6	%	(1.0	%)
Other income	136	140	153	3.0	%	9.2	%
Supplies	(2,435)	(2,403)	(2,524)	(1.3	%)	5.0	%
Personnel expenses	(611)	(585)	(622)	(4.2	%)	6.2	%
Other expenses	(2,313)	(2,493)	(2,673)	7.8	%	7.2	%
OIBDA	2,309	2,424	2,558	5.0	%	5.5	%
Depreciation and amortization	(2,394)	(2,394)	(2,295)	0.0	%	(4.1	%)
Amortization of intangible assets, depreciation of property, plant and equipment	(1,862)	(1,809)	(1,659)	(2.8	%)	(8.3	%)
Amortization of rights of use	(532)	(585)	(636)	10.1	%	8.9	%
Operating income (loss)	(85)	30	263	n.m.		n.m.
CapEx	1,094	1,284	1,209	17.3	%	(5.8	%)
OIBDA-CapEx	1,215	1,140	1,349	(6.1)		18.3	%

n.m.: not meaningful

Analysis of results 2022 vs 2021

Total revenues were 8,224 million euros in 2022, a year-on-year increase of 5.9%, driven by the increase in the mobile business.

–Mobile business revenues totaled 7,394 million euros, increasing 6.5% y-o-y. This reflects the sustained mobile service revenue momentum on the back of the ongoing strong commercial traction of the O2 brand and a solid contribution from partners, more than compensating for the negative impact from the accelerated Mobile Termination Rate glide path (which has led to a decrease in termination charges).

–Handset revenues (which are included in mobile business revenues) amounted to 1,652 million euros, increasing 13.9% y-o-y due to continued good customer demand and availability of devices at Telefónica Germany's, with customers increasingly opting for longer-term handset financing.

Table of Conten t s

–Fixed business revenues were 806 million euros, decreasing 1.0% y-o-y, reflecting the lower European termination rates in the carrier business, offset in part by the steadily growing share of high value customers in the fixed retail broadband accesses.

Mobile ARPU was 10.1 euros (+1.5% y-o-y) due to the 6.2% y-o-y increase in prepay ARPU, offset in part by the 1.5% y-o-y decrease in contract ARPU reflecting the accelerated Mobile Termination Rate (MTR) glide path and higher focus on customer loyalty and retention. Data ARPU was 6.7 euros (+10.8% y-o-y), supported by the success of the O2 Free portfolio.


TELEFÓNICA GERMANY	2020	2021	2022	% YoY 21/20		% YoY 22/21
ARPU (EUR)	9.9	10.0	10.1	1.1	%	1.5	%
Prepay	6.1	6.3	6.7	4.0	%	6.2	%
Contract (1)	13.6	13.5	13.3	(1.3	%)	(1.5	%)
Data ARPU (EUR)	5.9	6.1	6.7	3.6	%	10.8	%

(1) Excludes IoT.

The total amount of supplies, personnel expenses and other expenses (mainly external services and taxes) amounted to 5,819 million euros in 2022, increasing 6.2% year-on-year.

•Supplies amounted to 2,524 million euros in 2022, increasing 5.0% year-on-year compared to 2021. This increase was mainly attributable to higher hardware cost of sales partially offset by positive effects from cuts in the MTR (Mobile Termination Rate) fees paid to other operators.

•Personnel expenses amounted to 622 million euros in 2022, increasing 6.2% year-on-year compared to 2021 mainly explained by the social security payments received from the Government in 2021 in connection with employees affected by the temporary closing of O2 shops during the enforced COVID-19 lockdown in the first half of 2021 and the salary increase in 2022, partially offset by a y-o-y lower number of full-time employees.

•Other expenses amounted to 2,673 million euros in 2022, increasing 7.2% year-on-year compared to 2021 reflecting higher energy costs, technology transformation and commercial activity costs.

OIBDA totaled 2,558 million euros in 2022, increasing by 5.5% y-o-y.

Depreciation and amortization amounted to 2,295 million euros in 2022, decreasing 4.1% year-on-year mainly as a result of the 3G switch-off at year-end 2021 in combination with the decision to shorten the useful life of assets in the context of technology optimization and modernization. This was partly offset by higher right of use asset amortization and new additions in IT-architecture added in the context of network modernization.

Operating income totaled 263 million euros in 2022, compared to 30 million euros in 2021, thanks to the higher revenues driven by Telefónica Germany's own brand momentum, and from efficiency gains and tight cost management.

Analysis of results 2021 vs 2020

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. This positive trend reflects strong trading momentum and the success of the O2 brand.

•Handset revenues (which are included in mobile business revenues) amounted to 1,450 million euros, increasing 1.9% y-o-y due to the continued strong demand for high value handsets.

Table of Conten t s

•Fixed business revenues were 814 million euros, increasing by 3.6% y-o-y 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.

The total amount of supplies, personnel expenses and other expenses (mainly external services and taxes) amounted to 5,481 million euros in 2021, increasing 2.3% year-on-year.

•Supplies amounted to 2,403 million euros in 2021, down 1.3% year-on-year compared to 2020 mainly driven by the positive effects from cuts in the MTR (Mobile Termination Rate) fees paid to other operators and lower hardware cost of sales.

•Personnel expenses amounted to 585 million euros in 2021, down 4.2% year-on-year compared to 2020 mainly due to lower restructuring costs (-3.3 p.p.), the social security payments received from the Government in connection with employees affected by the temporary closing of O2 shops during the enforced COVID-19 lockdown and a lower base of full-time employees, mainly in customer service.

•Other expenses amounted to 2,493 million euros in 2021, increasing 7.8% year-on-year compared to 2020 mainly driven by higher commercial activity costs, higher marketing spend to enhance brand perception and higher technology transformation costs, including 3G switch-off.

OIBDA totaled 2,424 million euros in 2021, growing by 5.0% y-o-y.

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, and was offset by the completion in 2021 of the 3G switch-off, further network modernization and higher rights of use asset amortization.

Operating income totaled 30 million euros in 2021, compared to an operating loss of 85 million euros in 2020, 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 of Telefónica Brazil over the past three years as of December 31 of such years:


ACCESSES
Thousands of accesses	2020	2021	2022	% YoY 21/20		% YoY 22/21
Fixed telephony accesses (1)	8,994.8	7,506.5	7,012.7	(16.5	%)	(6.6	%)
Broadband	6,315.0	6,262.0	6,419.6	(0.8	%)	2.5	%
UBB	5,084.2	5,535.3	5,967.7	8.9	%	7.8	%
FTTH	3,377.7	4,608.7	5,482.4	36.4	%	19.0	%
Mobile accesses	78,523.7	83,912.3	97,973.0	6.9	%	16.8	%
Prepay	33,662.5	34,287.3	39,305.9	1.9	%	14.6	%
Contract	34,418.2	37,166.7	43,947.2	8.0	%	18.2	%
IoT	10,443.0	12,458.3	14,719.9	19.3	%	18.2	%
Pay TV	1,247.7	1,114.8	966.3	(10.6	%)	(13.3	%)
IPTV	890.8	916.8	898.3	2.9	%	(2.0	%)
Retail Accesses	95,145.0	98,853.2	112,423.7	3.9	%	13.7	%
Total Accesses	95,157.9	98,854.2	112,424.0	3.9	%	13.7	%

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

Table of Conten t s

In 2022, Telefónica Brazil strengthened its leadership in the mobile value segment (38.9% market share as of December 31, 2022, source: ANATEL), both due to the organic growth of its customer base and the incorporation of Oi's accesses. In the fixed business, Telefónica Brazil continued to focus on the implementation of strategic technologies, such as fiber, which offset the decline in the fixed traditional business.

Accesses 2022 vs 2021

Telefónica Brazil reached 112.4 million accesses as of December 31, 2022, 13.7% higher than December 31, 2021 due to the sustained growth in the organic mobile business, in addition to the incorporation of the customer base of Oi, and the growth in FTTH, which more than 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 strengthened its leadership in terms of total accesses, with an access market share of 38.9% as of December 31, 2022 (source: ANATEL) growing both in terms of contract customers (+18.2% year-on-year, +11.5% excluding Oi) and of prepaid customers (+14.6% year-on-year, -1.2% excluding Oi). Telefónica Brazil's strategy continues to be focused on strengthening the high-value customer base, reaching a 43.5% contract ex IoT market share as of December 31, 2022 (source: ANATEL). Contract commercial offers are focused on data plans, with extra data allowances subject to subscription to digital invoice, it is complete with OTT services of their choice (for example, Disney+, Netflix, Spotify, Vivo Meditação, Vivo Pay, Babbel, GoRead, among others). The Vivo Travel roaming service for voice and data is maintained in a selection of countries of America and Europe, depending on the plan. For higher-value customers, family plans are maintained, with a greater number of available apps. Additionally, Vivo Easy Prime was launched, with flexible proposals ranging from 7GB to 20GB and allowing customers to tailor their plans according to their needs. In the prepaid segment, Telefónica Brazil offers VIVO PreTurbo, which includes WhatsApp and unlimited minutes. 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.

In the broadband business, Telefónica Brazil maintained its strategic focus on the deployment of fiber, reaching 28.6 million real estate units passed with FTTx access as of December 31, 2022, of which 23.3 million correspond to FTTH. Additionally, Telefónica Brazil continued to develop alternative deployment models to accelerate the expansion of fiber with lower CapEx and a reduced time to market. Telefónica Brazil reached 6.0 million connected homes of which 5.5 million homes connected with FTTH as of December 31, 2022, increasing 7.8% and 19.0% year-on-year, respectively. This growth offset the drop in other broadband accesses (xDSL), placing retail broadband accesses at 6.4 million as of December 31, 2022, increasing by 2.5% year-on-year.

Traditional fixed telephony accesses decreased by 6.6% year-on-year due to the aforementioned fixed-mobile substitution.

Pay TV customers fell to 1.0 million as of December 31, 2022, decreasing 13.3% year-on-year due to the strategic decision to discontinue the DTH service, whose customer base decreased 65.7% year-on-year.

Accesses 2021 vs 2020

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 continued to focus on strengthening the high-value customer base, reaching a 36.9% contract ex IoT market share as of December 31, 2021 (source: ANATEL). Contract commercial offers were focused on Vivo SELFIE and had data plans, with extra data allowances subject to subscription to digital invoicing and a 10 GB portability bonus for one year. In addition, customers had access to the OTT services of their choice (for example, Disney+, Netflix, Spotify, Globopal, Amazon

Table of Conten t s

Prime and Premiere, among others). The Vivo Travel roaming service for voice and data was 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 had a greater number of available apps and included one to four free extra members depending on the contracted plan. Additionally, they had Vivo Easy, with flexible plans ranging from 1GB to 100GB and allowing customers to tailor their plans according to their needs. In the prepaid segment, Telefónica Brazil offered VIVO PreTurbo, which included WhatsApp and unlimited minutes and allowed customers to share data with friends. All of this was 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 three years:


Millions of euros
TELEFÓNICA BRAZIL	2020	2021	2022	% YoY 21/20		% YoY 22/21

Revenues	7,422	6,910	8,870	(6.9	%)	28.4	%
Mobile Business	4,891	4,610	6,106	(5.7	%)	32.4	%
Handset revenues	426	415	573	(2.5	%)	38.2	%
Fixed Business	2,531	2,300	2,764	(9.1	%)	20.2	%
Other income	325	474	416	45.5	%	(12.3	%)
Supplies	(1,252)	(1,216)	(1,783)	(2.9	%)	46.7	%
Personnel expenses	(792)	(799)	(1,097)	0.9	%	37.3	%
Other expenses	(2,515)	(2,231)	(2,674)	(11.3	%)	19.8	%
OIBDA	3,188	3,138	3,732	(1.6	%)	18.9	%
Depreciation and amortization	(1,965)	(1,918)	(2,369)	(2.4	%)	23.6	%
Amortization of intangible assets, depreciation of property, plant and equipment	(1,581)	(1,488)	(1,807)	(5.9	%)	21.4	%
Amortization of rights of use	(384)	(430)	(562)	11.9	%	31.1	%
Operating income	1,223	1,220	1,363	(0.2	%)	11.7	%
CapEx	1,372	2,069	1,795	50.8	%	(13.2	%)
OIBDA-CapEx	1,816	1,069	1,937	(41.1	%)	81.2	%

Analysis of results 2022 vs 2021

In 2022, revenues totaled 8,870 million euros, growing by 28.4%, mainly due to the increase in service revenues driven by the appreciation of the Brazilian real, Vivo's existing customer base with respect to the rest of the segment's mobile business, the addition of the business acquired from Oi, as well as the results of businesses associated with new technologies (FTTH, IPTV and Digital Services), which offset the erosion of revenues associated with voice and traditional fixed accesses.

Table of Conten t s

•Mobile business revenues totaled 6,106 million euros in 2022, increasing by 32.4% mainly because of the appreciation of the Brazilian real, higher commercial activity and the addition of accesses from Oi.

•Fixed business revenues totaled 2,764 million euros in 2022, growing by 20.2% mainly related to the appreciation of the Brazilian real and higher FTTH and IT revenues.

Mobile ARPU increased by 12.9% year-on-year on the back of the appreciation of the Brazilian real.


TELEFÓNICA BRAZIL	2020	2021	2022	% YoY 21/20		% YoY 22/21
ARPU (EUR)	4.7	4.2	4.7	(12.3	%)	12.9	%
Prepay	2.2	2.0	2.3	(12.2	%)	17.7	%
Contract (1)	8.4	7.4	8.3	(12.3	%)	12.3	%
Data ARPU (EUR)	3.7	3.1	3.7	(15.5	%)	20.2	%

(1) Excludes IoT.

The total amount of supplies, personnel expenses and other expenses (mainly external services and taxes) amounted to 5,554 million euros in 2022, increasing 30.8% year-on-year. This increase was mainly attributable to the impact of the appreciation of the Brazilian real, higher personnel expenses, expenses resulting from the higher handset sales (including sale commissions) due to higher commercial activity, as well as the addition of the business acquired from Oi.

•Supplies amounted to 1,783 million euros in 2022, increasing 46.7% year-on-year compared to 2021. This increase was mainly attributable to higher commercial activity and the impact of the appreciation of the Brazilian real.

•Personnel expenses amounted to 1,097 million euros in 2022, increasing 37.3% year-on-year compared to 2021, affected by the appreciation of the Brazilian real, a higher-than-expected salary increase, due to inflation, and higher commercial activity in B2B.

•Other expenses amounted to 2,674 million euros in 2022, increasing 19.8% year-on-year compared to 2021, affected by the impact of the appreciation of the Brazilian real, partially offset by cost efficiencies due to digitalization.

OIBDA stood at 3,732 million euros in 2022, increasing 18.9% year-on-year.

Depreciation and amortization amounted to 2,369 million euros in 2022, increasing 23.6% principally due to the appreciation of the Brazilian real, the acquisition of new 5G licenses in 2021 and the consolidation of the Oi assets.

Operating income amounted to 1,363 million euros in 2022, increasing 11.7%. This variation is due to the impact of the appreciation of the Brazilian real, greater commercial activity and the integration of Oi's accesses.

Analysis of results 2021 vs 2020

In 2021, revenues totaled 6,910 million euros, down 6.9%, mainly due to the depreciation of the Brazilian real (impacting the evolution by -9.0 p.p.). The decrease was partially offset by the increase in 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% due mainly to the depreciation of the Brazilian real (impacting the evolution by -9.1 p.p.), offset in part by the increase in revenues from the mobile business and service revenues, driven by growth in the customer base, and the greater weight of

Table of Conten t s

contract customers in the mix, whose consumption is oriented to the use of data and other services over connectivity. Handsets sales also increased despite the temporary closing of stores due to the COVID-19 pandemic, as a result of the higher sales in digital channels.

•Fixed business revenues totaled 2,300 million euros in 2021, decreasing by 9.1% due mainly to the impact of the depreciation of the Brazilian real (impacting the evolution by -8.8 p.p.). This decrease was partially offset by the increase in broadband revenues, supported by the growth in fiber revenues, driven by the growth in the customer base.

Mobile ARPU decreased by 12.3% year-on-year due mainly to the depreciation of the Brazilian real and the fact that postpaid customer base growth was mainly in entry level rates and due to the reduction in government aid that affected top ups.

The total amount of supplies, personnel expenses and other expenses (mainly external services and taxes) amounted to 4,246 million euros in 2021, down 6.9% year-on-year. This decrease was mainly attributable to lower handset subsidies, lower sale commissions due to lower commercial activity and lower marketing costs.

•Supplies amounted to 1,216 million euros in 2021, down 2.9% year-on-year compared to 2020. This decrease was mainly attributable to foreign exchange effects (-9.4 p.p.) and tax recoveries.

•Personnel expenses amounted to 799 million euros in 2021, up 0.9% year-on-year compared to 2020. This increase was mainly attributable to inflation, partially offset by foreign exchange effects (-9.7 p.p.).

•Other expenses amounted to 2,231 million euros in 2021, down 11.3% year-on-year compared to 2020. This decrease was mainly attributable to foreign exchange effects (-8.6 p.p.), as well as lower commercial activity and advertising expenses.

OIBDA was 3,138 million euros in 2021, decreasing 1.6%.

Depreciation and amortization amounted to 1,918 million euros in 2021, decreasing 2.4% affected by the depreciation of the Brazilian real (-9.4 p.p.), offset in part by the higher investments.

Operating income amounted to 1,220 million euros in 2021, decreasing 0.2% affected by the provision for contingencies (154 million euros) 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) (243 million euros) and the gain from the establishment of FiBrasil (90 million euros).

Table of Conten t s

TELEFÓNICA HISPAM

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


ACCESSES
Thousands of accesses	2020	2021	2022	% YoY 21/20		% YoY 22/21
Fixed telephony accesses (1)	7,835.0	7,034.1	6,375.7	(10.2	%)	(9.4	%)
Broadband	5,447.3	5,756.9	6,030.6	5.7	%	4.8	%
UBB	3,695.0	4,432.2	5,155.0	20.0	%	16.3	%
FTTH	3,417.6	4,259.0	5,053.9	24.6	%	18.7	%
Mobile accesses	92,204.5	94,612.6	95,579.7	2.6	%	1.0	%
Prepay	66,206.7	66,075.3	65,340.7	(0.2	%)	(1.1	%)
Contract	22,000.2	23,799.6	24,771.9	8.2	%	4.1	%
IoT	3,997.6	4,737.6	5,467.2	18.5	%	15.4	%
Pay TV	2,856.8	2,905.3	2,899.8	1.7	%	(0.2	%)
IPTV	577.7	913.2	1,384.7	58.1	%	51.6	%
Retail Accesses	108,488.6	110,395.5	110,958.9	1.8	%	0.5	%
Total Accesses	108,509.1	110,414.7	110,970.7	1.8	%	0.5	%

Notes:

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

Accesses 2022 vs 2021

Telefónica Hispam's total accesses amounted to 111.0 million as of December 31, 2022 (+0.5% year-on-year), as a result of the increase in mobile and FTTH accesses.

Mobile accesses amounted to 95.6 million, increasing by 1.0% y-o-y mainly due to the higher postpay customer base.

•Contract accesses increased by 4.1% year-on-year due to the increase in accesses in Mexico (+14.7%), Colombia (+8.4%) and Ecuador (+6.3%), partially offset by the decrease in Venezuela (-6.3%). This evolution was mainly driven by the commercial activity recovery and the attractive commercial offers.

•Prepay accesses decreased by 1.1% year-on-year, with a net loss of 735 thousand accesses as of December 31, 2022. The year-on-year accesses evolution was greatly impacted by the loss of accesses in Mexico (-921 thousand accesses) due to a higher number of disconnected non-active customers. In addition, accesses in Argentina decreased by 696 thousand. The year-on-year decrease was partially offset by an increase in accesses in Colombia (+1.3 million accesses), and to a lesser extent Ecuador (+155 thousand accesses).

Fixed accesses stood at 6.4 million as of December 31, 2022 (-9.4% year-on-year) with a net loss of 658 thousand accesses due to the continued erosion of the traditional fixed business.

Fixed broadband accesses amounted to 6.0 million as of December 31, 2022 (+4.8% year-on-year). The penetration of FBB accesses over fixed accesses stood at 94.6% (+12.7 p.p. y-o-y), as a result of the focus on Ultra Broadband (UBB) deployment in the region reaching 5.2 million connected accesses (+16.3% y-o-y) and 18.8 million premises. The penetration of UBB accesses over fixed broadband accesses stood at 85.5% (+8.5 p.p. y-o-y).

Pay TV accesses stood at 2.9 million as of December 31, 2022, with a decrease of 0.2% y-o-y as a result of the net loss of 5.5 thousand customers, mainly as a result of the lower Direct-To-Home (DTH) technology accesses (-366 thousand accesses) due to the change in commercial strategy as well as the lower cable access base (-111.5 thousand accesses), partially offset by the increase in IPTV accesses (+471.5 thousand accesses), in which the Company is placing strategic focus.

Table of Conten t s

Accesses 2021 vs 2020

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.

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 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).

Table of Conten t s

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


Millions of euros
TELEFÓNICA HISPAM	2020	2021	2022	% YoY 21/20		% YoY 22/21

Revenues	7,922	8,362	9,141	5.5	%	9.3	%
Mobile Business	5,070	5,444	6,003	7.4	%	10.3	%
Handset revenues	1,111	1,398	1,541	25.8	%	10.2	%
Fixed Business	2,836	2,907	3,138	2.5	%	7.9	%
Other income	253	582	448	130.3	%	(23.0	%)
Supplies	(2,466)	(2,856)	(3,384)	15.8	%	18.5	%
Personnel expenses	(999)	(1,174)	(1,201)	17.6	%	2.3	%
Other expenses	(3,720)	(3,196)	(3,046)	(14.1	%)	(4.7	%)
OIBDA	990	1,718	1,958	73.5	%	14.0	%
Depreciation and amortization	(2,274)	(1,873)	(1,799)	(17.6	%)	(3.9	%)
Amortization of intangible assets, depreciation of property, plant and equipment	(1,826)	(1,451)	(1,345)	(20.5	%)	(7.3	%)
Amortization of rights of use	(448)	(422)	(454)	(5.9	%)	7.6	%
Operating income (loss)	(1,284)	(155)	159	(87.9	%)	c.s.
CapEx	833	978	1,058	17.4	%	8.1	%
OIBDA-CapEx	157	740	900	370.7	%	21.6	%

c.s.: change of sign

Analysis of results 2022 vs 2021

Revenues amounted to 9,141 million euros in 2022, increasing 9.3% year-on-year. This increase was attributable mainly to the foreign exchange effects (+4.7 p.p.) and revenue growth due to handset sales, B2C (Business to Customer) especially postpaid and B2B (Business to Business) service revenue evolution as well as higher fixed voice revenues, broadband and new services.

Mobile business revenues amounted to 6,003 million euros in 2022, increasing 10.3% year-on-year. This increase was due mainly to foreign exchange effects (+5.5 p.p.) and revenue growth through handset sales as result of commercial activity recovery and higher postpaid revenues in B2C. The performance by country was as follows:

•In Argentina, mobile revenues amounted to 1,378 million euros in 2022, increasing 2.7% year-on-year. This growth was mainly due to higher service revenues due to the increase in accesses and continued tariff upgrades.

•In Chile, mobile revenues amounted to 969 million euros in 2022, decreasing 3.3% year-on-year due to the lower handset revenues and prepaid mobile revenues, partially offset by higher postpaid revenues.

•In Peru, mobile revenues amounted to 923 million euros in 2022, increasing 21.3% year-on-year, benefitting from the foreign exchange effects which increased growth by 14.7 percentage points and by higher service revenues, as result of the higher postpaid client base, and the price increase carried out in 2022. The higher revenues were to a lesser extent also impacted by handset revenues, as a result of the higher commercial activity.

•In Colombia, mobile revenues amounted to 891 million euros in 2022, increasing 11.8% year-on-year, due to the higher handset revenues, postpaid revenues and prepaid B2C revenues due to higher commercial activity and favorable churn evolution. The higher revenues were also impacted by higher interconnection and international roaming revenues.

Table of Conten t s

•In Mexico, mobile revenues amounted to 1,172 million euros in 2022, increasing 16.1% year-on-year, due to higher service revenues as a result of the good performance of postpaid B2C and to a lesser extent due to higher handset revenues.

Fixed business revenues amounted to 3,138 million euros in 2022, increasing 7.9% year-on-year. This growth was due to foreign exchange effects (+3.2 p.p.) and higher broadband, new services, access and voice revenues in Colombia, Chile and Peru that more than offset the decrease in TV revenues in Peru.

The total amount of supplies, personnel expenses and other expenses (mainly external services and taxes) amounted to 7,631 million euros in 2022, up 5.6% year-on-year. This increase was mainly attributable to foreign exchange effects, the reported variation of companies in hyperinflationary countries and higher network costs.

•Supplies amounted to 3,384 million euros in 2022, up 18.5% year-on-year compared to 2021. This increase was mainly attributable to higher direct costs related to our network and to foreign exchange effects (+5.1 p.p.).

•Personnel expenses amounted to 1,201 million euros in 2022, up 2.3% year-on-year compared to 2021. This increase was mainly attributable to the reported variation of companies in hyperinflationary countries (+3.6 p.p.) and foreign exchange effects (+2.7 p.p.), partially offset by the year-on-year decrease in restructuring costs in the region (-6.4 p.p.) and operational efficiencies.

•Other expenses amounted to 3,046 million euros in 2022, down 4.7% year-on-year compared to 2021. This decrease was mainly attributable to higher goodwill impairment in Peru in 2021 compared to the asset impairment in Argentina in 2022 (-9.9 p.p.) and efficiency projects.

OIBDA reached 1,958 million euros in 2022, increasing 14.0% year-on-year.

Depreciation and amortization amounted to 1,799 million euros in 2022, decreasing 3.9% year-on-year. The decrease was mainly attributable to the lower depreciation and amortization base resulting from the transformation of the operational model in Telefónica Mexico (-3.5 p.p.) and, to a lesser extent, the lower depreciation and amortization base in Telefónica Chile.

Operating Income (OI) was 159 million euros in 2022 (compared to a loss of 155 million euros in 2021). This result is mainly explained by the lower depreciation and amortization base in Telefonica Mexico due to the transformation of the operational model, the recording of goodwill impairment in 2021 (relating to Telefónica del Perú) in a greater amount than the other assets impairment recorded in 2022 (relating to Telefónica Argentina), the higher restructuring costs in the region in 2021 than in 2022 and the reported variation of companies in hyperinflationary countries, partially offset by higher capital gains on sales of fiber optic assets in 2021 than in 2022.

Below is additional information by country:

•In Argentina, operating loss was 270 million euros in 2022 (operating loss of 116 million euros in 2021). The y-o-y evolution was impacted by the other assets impairment and the higher depreciation and amortization recorded in 2022, which more than offset the higher revenues.

•In Chile, operating income was 179 million euros in 2022, decreasing 69.4% year-on-year from 583 million of operating income in 2021. The year-on-year evolution was mainly due to the capital gain on sales of fiber optic assets in 2021, despite the positive impact of the capital gain on the sale of the data center in 2022, higher revenues and lower amortizations.

•In Peru, operating income was 60 million euros in 2022 (compared to an operating loss of 56 million euros in 2021). This performance is mainly due to higher revenues and expenses efficiencies, offset in part by the increase in depreciation and amortization.

•In Colombia, operating income reached 261 million euros in 2022 (compared to 99 million euros in 2021), as a result of a revenues increase, non-commercial cost efficiencies and lower depreciation and amortization.

•In Mexico, operating loss was 176 million euros in 2022 (compared to an operating loss of 339 million euros in 2021). The better performance was due in part to the lower depreciation and amortization base resulting from the transformation of the operational model in Mexico.

Table of Conten t s

Analysis of results 2021 vs 2020

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

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

•In Argentina, mobile revenues amounted to 1,342 million euros in 2021, increasing 23.4% year-on-year. This growth was mainly due to higher service revenues resulting from continued tariff upgrade in line with inflation.

•In Chile, mobile revenues amounted to 1,002 million in 2021, increasing 8.1% year-on-year, due to higher handset revenues and mobile service and mobile broadband revenues growth recovery, offset in part by the depreciation of the Chilean peso.

•In Peru, mobile revenues amounted to 761 million euros in 2021, decreasing 0.4% 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 a favorable disconnections evolution, offset to a great extent by the depreciation of the Peruvian nuevo sol.

•In Colombia, mobile revenues amounted to 797 million euros in 2021, increasing 4.3% year-on-year, driven by higher handset revenues, postpaid B2C revenues due to higher commercial activity and a favorable churn evolution, higher prepaid B2C revenues and interconnection mobile revenues, offset in part by the depreciation of the Colombian peso.

•In Mexico, mobile revenues amounted to 1,010 million euros in 2021, decreasing 2.2% 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 commercial activity, partially offset by the positive postpaid revenues evolution and the appreciation of the Mexican peso.

Fixed business revenues amounted to 2,907 million euros in 2021, increasing 2.5% year-on-year. 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, higher broadband and new services as well as TV revenues in Colombia, Chile and Peru which offset the decline in accesses and voice revenues and the adverse impact of foreign exchange effects.

The total amount of supplies, personnel expenses and other expenses (mainly external services and taxes) amounted to 7,226 million euros in 2021, up 0.6% year-on-year. This increase was mainly attributable to higher direct costs associated with our network and the reported variation of companies in hyperinflationary countries, partially offset by foreign exchange effects.

•Supplies amounted to 2,856 million euros in 2021, up 15.8% year-on-year compared to 2020. This increase was mainly attributable to higher direct costs related to our network and the reported variation of companies in hyperinflationary countries (+4.7 p.p.), partially offset by foreign exchange effects (-4.0 p.p.).

•Personnel expenses amounted to 1,174 million euros in 2021, up 17.6% year-on-year compared to 2020. This increase was mainly attributable to restructuring costs in the region (+16.2 p.p.).

•Other expenses amounted to 3,196 million euros in 2021, down 14.1% year-on-year compared to 2020. This decrease was mainly attributable to the decrease in goodwill impairment between 2020 and 2021 (-13.5 p.p.).

OIBDA reached 1,718 million euros in 2021, increasing 73.5% year-on-year.

Table of Conten t s

Depreciation and amortization amounted to 1,873 million euros in 2021, decreasing 17.6% year-on-year. 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 higher restructuring costs in the region in 2021.

Below is additional information by country:

•In Argentina, operating loss was 116 million euros in 2021 (operating income of 4 million euros in 2020). The y-o-y evolution in the operating loss was impacted by higher costs, offset in part by the decrease in depreciation and amortization.

•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.

Our services and products

New digital technologies are the main driving force of social and economic transformation today. This premise is the basis upon which we build our vision: we want to provide access to digital life, using the best technology and without leaving anyone behind.

Connectivity is our ally in reducing the digital divide and, due to our fixed and mobile network infrastructure and the services we develop around it, we can aid progress in the communities in which we operate.

To move towards this vision, at Telefónica we work on three basic fronts:

1) Providing access to technology through digital inclusion, in other words, by means of network roll-out and an accessible and affordable offer for all sectors of the population.

2) Developing innovative services that add value to our connectivity and which we develop through innovation: Big Data, the Internet of Things (IoT), eHealth, digital education and eFinances.

3) Incorporating sustainability principles across all of our product development processes.

Table of Conten t s

Mobile business

Telefónica offers a wide variety of mobile and related services and products to personal and business customers. Although they vary from country to country, Telefónica’s principal services and products are as follows:

•Mobile voice services: One of the main Telefónica’s services in all of its markets is mobile voice telephony.

•Value added services: Customers in most of the markets have access to a range of enhanced mobile calling features, including voice mail, call on hold, call waiting, call forwarding and three-way calling.

•Mobile data and Internet services: Current data services offered include Short Messaging Services, or SMS, and Multimedia Messaging Services, or MMS, which allow customers to send messages with images, photographs, sound recordings and video recordings. Customers may also receive selected information, such as news, sports scores and stock quotes. Telefónica also provides mobile broadband connectivity and Internet access. Through mobile Internet access, customers are able to send and receive e-mail, browse the Internet and access real-time available entertainment services (such as video and audio streaming), download games, purchase goods and services in m-commerce transactions and use Telefónica’s other data and software services.

•Wholesale services: Telefónica has signed network usage agreements with several MVNOs in different countries.

•Corporate services: Telefónica provides business solutions, including mobile infrastructure in offices, private networking and portals for corporate customers that provide flexible online billing.

•Roaming: Roaming agreements allow Telefónica customers to use their mobile handsets when they are outside their service territories, including on an international basis.

•Fixed wireless: Telefónica provides fixed voice telephony services through mobile networks in Brazil, Venezuela, Argentina, Peru, Mexico and Ecuador. Until January 24, 2019 and May 16, 2019, Telefónica also provided these services in Guatemala and Nicaragua, respectively. Until January 13, 2022, Telefónica also provided these services in El Salvador.

•Trunking and paging: Telefónica provides digital mobile services for closed user groups of clients and paging services in Spain and most of the regions in which it operates in Latin America.

Fixed-line telephony business

The principal services Telefónica offers in its fixed businesses in Europe and Latin America are:

•Traditional fixed telecommunication services: Telefónica’s traditional fixed telecommunication services include PSTN lines; ISDN accesses; public telephone services; local, domestic and international long-distance and fixed-to-mobile communications services; corporate communications services; supplementary value added services (including call waiting, call forwarding, voice and text messaging, advanced voicemail services and conference-call facilities); video telephony; business oriented value-added services; intelligent network services; leasing and sale of handset equipment; and telephony information services.

•Internet and broadband multimedia services: the principal Internet and broadband multimedia services include Internet provider service; portal and network services; retail and wholesale broadband access through ADSL, narrowband switched access and other technologies. Telefónica also offers high-speed Internet services through fiber to the home (FTTH) in certain markets (primarily Spain, Brazil, Chile and -through VMO2- the United Kingdom) and VDSL-based services (primarily Spain and Germany). Telefónica also offers VoIP services in some markets.

•Data and business-solutions services: the data and business-solutions services principally include leased lines; virtual private network, or VPN, services; fiber optics services; the provision of hosting and application, including web hosting, managed hosting, content delivery and application, and security services; outsourcing and consultancy services, including network management, or CGP; and desktop services and system integration and professional services.

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•Wholesale services for telecommunication operators: the wholesale services for telecommunication operators principally include domestic interconnection services; international wholesale services; leased lines for other operators; and local loop leasing under the unbundled local loop regulation framework. It also includes bit stream services, wholesale line rental accesses and leased ducts for other operators' fiber deployment and other agreements to provide wholesale access to our fixed infrastructure.

Digital services

The main digital services offered by Telefónica are:

•Video/TV services: Interactive TV services in High Definition (HD) or Ultra High Definition (UHD), using several technologies (IPTV, DTH, CATV and OTT) on various types of networks (Fiber, Satellite, Cable or Mobile Networks). These services can be provided through a variety of devices (TV with STBs, SmartTVs, PCs, Smartphones, Tablets, etc.), allowing also the Multiroom function (customers can watch different TV channels in different rooms or different devices simultaneously). The service allows the access to lineal TV content with advanced functions such as "Restart TV" (which allows a viewer to watch any content from the beginning), "Last 7 days" (recordings of content for the last seven days), "cPvR" (recordings using cloud computing) and "Down to Play" (downloading the content on the device). Customers also have access to the content on demand catalogue (Video on Demand or VoD), in "Subscription Video on Demand" (SVoD) or "Pay per View" options, as well as access to content of third parties, such as Netflix, Amazon, YouTube and HBO, among others. In addition, Telefónica offers accessible content in Spain with subtitles, audio description and sign language functionalities through the Movistar+ 5s service, which aims to contribute toward the inclusion of disabled people across the country.

•IoT (Internet of Things): Telefónica’s Global IoT portfolio includes:

◦Smart Connectivity: connectivity services for machines, mainly handled through the Kite platform.

◦Smart Services: end-to-end solutions that include "device + connectivity + application". These business-to-business solutions are mainly aimed at (i) the mobility management of vehicles, assets and/or people, (ii) the support of the retail and industrial sectors and (iii) the efficient management of energy and water consumption.

◦Consumer IoT: products focused on the B2C segment, including end-to-end services around the person (e.g., connected cars, trackers).

•Financial services and other payment services: These services provide customers with access to consumer credit and payment cards.

•Security services: Digital acceleration is a process that creates multiple opportunities but also increases challenges for the security ecosystem of the business. Therefore, in a world where cyber threats are inevitable, as managed security services providers, we focus on prevention, detection, and appropriate response to reduce attacks, protect digital services, and thus promote the cyber security resilience of our clients' business. All this is supported by a team of multidisciplinary security professionals and a portfolio that includes the following services: Network security, Managed Security, Data protection, Cloud security, IoT/OT Security, Identity and Access Management and Professional Services.

•Cloud services: Telefónica offers a wide range of Cloud solutions, mostly through Telefonica Tech, designed according to the needs of each client accelerating their journey to the cloud. The value proposition includes: (i) Secure Cloud Connectivity: services that increase the performance and security of the business connectivity (SD-WAN, SD-BRANCH, SDLAN - Cloud Wifi, SASE); (ii) Hybrid Cloud: improves IT workloads, data and, applications management (from on-premises data centres to VDC, public cloud or hybrid solutions); (iii) Future of Workplace: secure digitization of the workforce (Productivity, Unified Comms, Business Apps, Virtualization, Terminal Management); and (iv) Consultancy, Professional Services and Managed Services.

•Advertising: A portfolio of marketing channels that third-party brands can use to acquire and engage with customers. Traditional channels such as SMS/MMS messaging may be used alongside with new channels like programmatic display and sponsored connectivity. All of which leverage on the Group's

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customer data in order to send messages to the correct target as well as to generate post-campaign brand analysis.

•Big Data: Includes products and services designed to enable companies and governments to make AI-powered data-driven decisions. The Group's Big Data offer comprises of three main categories: (i) "business insights", which provides information for decision-making based on analysis from advanced analytical products developed on top of data generated in the Group's network and systems; (ii) "consulting and analytics", which includes specialist professional services focused on data strategy, data science, data architecture and data engineering; and (iii) "tools and infrastructure", which provides advanced technology for data management, storage and exploitation.

•Customer Experience: Refers to the omnichannel digital experience (including the Novum app but also other digital channels) and its development, guiding the Telefónica customer through his or her life cycle, adapting the digital experience to every moment's necessity using personalization capabilities.

•Aura: is an artificial-intelligence ("AI") ecosystem designed to improve communication between the Telefónica Group and its customers. Its aim is to address customer needs and provide them with relevant information related to the company, potentially in any area where Telefonica offers services such as answering questions about telecommunications services, offering financial service proposals, or making recommendations about television or connection offerings. To foster a relationship with customers, Aura will offer the creation of conversational bots using its own infrastructure, with a private and transparent data approach by design. Additionally, to generate useful information, Aura will provide its own AI model execution platform with the goal of enhancing the information provided to customers.

•Movistar Home ("MH"): Telefónica launched Movistar Home in Spain on October 18, 2018, a new device designed around the functionality of Aura and targeted at the Group's Movistar and Pay TV customers. Movistar Home is designed to strengthen Telefónica's position by enabling highly-converged services and experiences that differentiate the Group from its competitors. Movistar Home aims to provide the Group's customers with an enhanced TV experience on IPTV, increased landline functionality (which enables videoconferences), the Group's smart home package and games in addition to third-party services.

•Living Apps: A platform that allows Telefónica's business units and partners to create relevant home experiences for our users, beyond the consumption of TV content, adding value to core businesses (and growth to Telefónica, opening new business opportunities.

•Smart Wifi: A customer application to manage home connectivity and enhance the value proposition by offering new services like Conexion Segura, intended to protect customers against a broad range of cyber threats.

•NT: A micro-rewards program in Spain to reward customers with Tokens for their digital behavior. Tokens are awarded when customers make use of our digital channels, products and services and can be exchanged for a given catalogue of company products.

•Solar 360: In March 2022 Repsol and Telefónica Spain created a joint venture to develop the solar self-consumption business. The new company started to operate in June 2022 launching Solar360, offering a comprehensive self-consumption solution to private customers, communities of neighbors and companies, SMEs, and large companies, through solar panel installation. The offer will be customized for each type of customer according to their level and habits of consumption, seeking to maximize savings on their current electricity bill. It will include a mobile application for the control of the installation and the continuous optimization of energy expenditure, personalized financing for each type of consumer and other value-added services linked to the solar panel installation.

•Phoenix: A digital sales platform that allows customers to receive a personalized offer to renew their device and process the purchase in a simple and fully digital checkout. When customers are eligible to renew their device or expand their devices ecosystem with Telefonica, a customized offer is sent via the usual communication channels (SMS, MMS, emailing, Novum/Digital experience app). Once the customer chooses among the selected proposed portfolio a number of payment and logistics options can be chosen to complete a convenient “few-clicks” device renewal.

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Sales and Marketing

Our sales and marketing strategy is aimed toward reinforcing our market position, generating brand awareness, promoting customer growth and achieving customer satisfaction. We use a variety of marketing initiatives and programs, including those that focus on customer value, with in-depth market segmentation; programs to promote customer loyalty; pricing initiatives aimed toward stimulating usage, including segmented packages and innovative tariff options; and initiatives that are responsive to the latest market trends, including those aimed toward boosting demand for our mobile Internet and mobile broadband offerings. In connection with these and our other sales and marketing initiatives, we market our products through a broad range of channels, including television, radio, billboards, telemarketing, direct mail and Internet advertising. We also sponsor a variety of local cultural and sporting events in order to enhance our brand recognition.

Competition

The telecommunications industry is competitive, and consumers generally have a choice of mobile and fixed line operators from which to select services. We are a global telecommunications services provider and face significant competition in most of the markets in which we operate. In Europe, our largest competitor is Vodafone and in Latin America, our largest competitor is América Móvil. Newer competitors, including handset manufacturers, MVNOs, Internet companies and software providers, are also entering the market and offering integrated communications services.

We compete in our markets on the basis of the price; the quality and range of features of our services; the added value we offer with our service; additional services associated with those main services; the reliability of our network infrastructure and its technological attributes; and the desirability of our offerings, including bundled offerings of one type of service with another and, in the case of the mobile industry, in some markets offers that include subsidized handsets and handsets sold on installment plans.

To compete effectively with our competitors, we need to successfully market our products and services and to anticipate and respond to various competitive factors affecting the relevant markets, such as the introduction of new products and services, different pricing strategies and changes in consumer preferences.

Regulation

Please see Appendix VI to our Consolidated Financial Statements.

Licenses and Concessions

Please see Appendix VI to our Consolidated Financial Statements.

Seasonality

Our business is not significantly affected by seasonal trends.

Patents

Our business is not materially dependent upon the ownership of patents, commercial or financial contracts or new manufacturing processes.

Security Strategy and Framework

The digital ecosystem has facilitated the access of companies and users to a large amount of information, multiplying the ease and speed at which this information can be transmitted between different networks, companies, and countries. This volume of data implies an important advancement opportunity for society, but also a significant responsibility for companies that, like Telefónica, manage considerable amounts of personal, anonymous, or aggregate information. In addition to threats to the integrity and privacy of data, Telefónica may face network interruptions which could affect the quality of, or cause interruption to, the provision of its services. See “Item 3. Key Information—Risk Factors—Risks Related to Telefónica’s Business Activities——The Telefónica Group's strategy, which is focused on driving new digital businesses and providing data-based services, involves exposure to risks and uncertainties arising from data privacy regulation”, “—Operating Risks—Information technology is key to the Group's business and is subject to cybersecurity risks" and “—Operating Risks—Climate change, natural disasters

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and other factors beyond the Group's control may result in physical damage to our technical infrastructure that may cause unanticipated network or service interruptions or quality loss or otherwise affect the Group’s business”.

To address these risks, the Group has adopted various lines of action which are led by its Security and Intelligence area. The head of Security and Intelligence is the Global Director of Security and Intelligence who has been delegated the authority and responsibility by the Company’s Board of Directors to establish the global strategy for this area. He leads the development and monitors the implementation of the policy framework and global initiatives in the area of Security, and reports to the Board of Directors through the Audit and Control Committee and the Sustainability and Quality Committee. The director will propose those to be appointed as local Security Officers for each Telefónica Group company, who shall be submitted to the decision of the corresponding administrative or management bodies of the companies. For purposes of government and coordination, we have a Global Security Committee presided by the Global Director of Security and Intelligence, in which the heads of our business areas (including Compliance, Auditing, Legal, Technology and Operations and Human Resources) and the Security Officers of each country participate, in addition to local Security Subcommittees, that collaborate in the definition of global strategic initiatives and guidelines and implement them in each country. In addition, Telefónica has a Security Advisory Board made up of external experts in the field of security and intelligence, with the aim of contributing with best practices and improving efficiencies of capabilities and procedures and raising the quality of our strategy in these matters. Finally, we have a Digital Security Committee, in which several members of the Executive Committee of the Company participate, that establishes our risk posture in respect of the main threats we face and monitors the key strategic and operational aspects of digital security.

We have two main lines of action:

1.Operational security, business continuity and supply chain security: Some of the initiatives adopted are the following:

•Business continuity: Our business continuity groups maintain and update standardized continuity plans, using digital tools to improve disaster recovery in order to provide a global vision of the risks we face and the management thereof.

•Crisis management: Because of the COVID-19 pandemic, the crisis management protocol was strengthened. The global crisis management plan is implemented in all the Business Units of the Telefónica Group, with a common management model, a standard architecture, digitalized crisis alert processes and training for critical employees. The Business Continuity offices have continued reviewing crisis management procedures and identifying the most relevant processes, to ensure that they are robust enough to guarantee the resilience of the Company.

•Supply chain security: The integral security of products and services is necessarily supported by the strengthening of security controls in the complete cycle of the supply chain, specifically in the security of Telefónica Group suppliers. For this purpose, we have homogenized security controls in place at all different stages of the procurement process of products, equipment, and services, working in an integrated manner among the areas of security, financial control, procurement, technology and operations to ensure that suppliers and partners comply with the security controls required by Telefónica’s own regulations, any other regulatory requirements and best practices in the industry.

2.Digital security: Our initiatives in digital security are aimed at maintaining the confidentiality, integrity and availability of the services and data of the Group. We both proactively analyze vulnerabilities and manage security incidents. Some of the initiatives adopted are the following:

•Network security: The role of Telefónica as a telecommunications operator makes it essential to strengthen the security controls of fixed and mobile communications networks and infrastructures, as well as the associated service platforms (e.g. video, IoT). In this sense, the aforementioned security processes are applied in a holistic manner to manage the risks associated with attacks and the exploitation of vulnerabilities in networks and protocols within the Group, with our main technological partners and with international organizations (e.g. GSMA), to limit any potential impacts. Examples of our network security initiatives include initiatives on 5G, 4G/LTE, SS7, BGP and other critical enabling technologies.

•Cybersecurity, vulnerability management and security breaches: We are proactive with regards to cybersecurity, vulnerability management and security breaches. We have a network of Incident Response Centers (CSIRT) at a global level, that works in a coordinated way to identify and analyze the risks of

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potential cyberthreats, monitor serious vulnerabilities in our most critical technological assets, establish relationships with other national and international CSIRTs / Computer Emergency Response Teams (CERTs) from both the public and private sectors, detect potential security incidents that may affect the technological assets of the Group and respond to and manage any security incidents that may affect the Group. We have public mailboxes, both globally and locally, available to any user and designed for the reporting of any vulnerability or threat that could affect Telefónica’s technological infrastructure. We also operate a vulnerability detection (bug-bounty) program with select leading companies within the industry.

When the impact or consequences of an incident or vulnerability threaten the continuity of one or several critical processes or services or the reputation of the Group the corresponding Business Continuity Plan is activated. The Global Crisis Management System aims to ensure our preparedness to manage such incidents or vulnerabilities by facilitating the coordination, communication, and collaboration of all the areas involved to help ensure operational normality is restored in the shortest possible time and with the least possible impact.

During 2022, all identified security incidents were managed pursuant to our existing protocols for responding to incidents, and with the appropriate communication to regulatory bodies in cases where personal data was involved. None of these incidents were considered to be material by the Group.

Lessons learned from incidents constitute a fundamental part of a feedback process designed to facilitate security improvement projects, with regards to processes, capabilities, and technological platforms.

Security measures related to remote access and teleworking were strengthened during the previous years due to the situation caused by COVID-19 pandemic.

Awareness in the security area is of great relevance for the Telefónica Group. We have in place a global digital security course, phishing simulation campaigns and security awareness surveys, and specific training programs continued to be imparted to special focus groups and managers.

Finally, we maintain, both locally and globally, various insurance programs to mitigate the impact of a potential incident. Specifically, we have coverage for cybersecurity risks that cause loss of income, loss of customers, extra costs or digital asset recovery expenses, and coverage for errors and technological omissions in the case of potential claims against us for damages caused to customers and third parties. These insurance policies are subject to certain loss limits, deductions and exclusions and we can provide no assurance that all losses related to a cybersecurity incident will be covered under our policies.

Disclosure Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act

Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 added Section 13(r) to the Exchange Act. Section 13(r) requires an issuer to disclose in its annual or quarterly reports filed with the SEC whether the issuer or any of its affiliates has knowingly engaged in certain activities, transactions or dealings with the Government of Iran, relating to Iran or with designated natural persons or entities involved in terrorism or the proliferation of weapons of mass destruction during the period covered by the annual or quarterly report. Disclosure is required even when the activities were conducted outside the United States by non-U.S. entities and even when such activities were conducted in compliance with applicable law.

The following information is disclosed pursuant to Section 13(r). None of these activities involved U.S. affiliates of Telefónica.

Some of our subsidiaries have entered into roaming agreements with Iranian telecommunication companies. Pursuant to such roaming agreements our subsidiaries’ customers are able to roam in the particular Iranian network (outbound roaming) and customers of such Iranian operators are able to roam in our relevant subsidiary’s network (inbound roaming). For outbound roaming, our subsidiaries pay the relevant Iranian operator roaming fees for use of its network by our customers, and for inbound roaming the Iranian operator pays the relevant subsidiary roaming fees for use of the respective network by its customers.

Our subsidiaries and our former subsidiary Telefónica UK Ltd. were party to the following roaming agreements with Iranian telecommunication companies in 2022:

1.Telefónica Móviles España S.A. (“TME”), our Spanish directly wholly-owned subsidiary, has respective roaming agreements with (i) Mobile Telecommunication Company of Iran (“MTCI”), (ii) Taliya (“Taliya”) and

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(iii) Telecommunication Kish Co (“TKC”). During 2022 TME recorded the following revenues related to these roaming agreements: (i) 56,994 euros from MTCI, (ii) no revenues from Taliya and (iii) no revenues from TKC.

2.Telefónica Germany GmbH & Co. OHG (“TG”), our German 70.5% indirectly-owned subsidiary, has respective roaming agreements with (i) MTCI and (ii) Irancell. During 2022 TG recorded the following revenues related to these roaming agreements: (i) no revenues from MTCI and (ii) 5,685 euros from Irancell.

3.Telefónica UK Ltd (“TUK”), our former English directly wholly-owned subsidiary, has a roaming agreement with Taliya. TUK ceased to be our subsidiary upon the establishment of VMO2 on June 1, 2021, to which it was contributed. During 2022 TUK recorded no revenues from Taliya.

4.Telefónica Brasil S.A. (“Telefónica Brasil”), our Brazilian 74.2% indirectly-owned subsidiary, has a roaming agreement with Irancell. During 2022, Telefónica Brasil recorded 559,37 U.S. dollars in roaming revenues from Irancell under this agreement.

5.Pegaso PCS S.A. de C.V. (“PCS”), our Mexican directly wholly-owned subsidiary, has a roaming agreement with Irancell. During 2022 PCS recorded 185,30 euros in roaming revenues from Irancell under this agreement.

The net profit recorded by our subsidiaries and TUK pursuant to these agreements and arrangements did not exceed the related revenues recorded thereunder.

The purpose of all of these agreements is to provide our customers with coverage in areas where we do not own networks. For this purpose, we intend to continue maintaining those agreements which are still outstanding.

The Group does not currently have any forthcoming plans to enter into new roaming arrangements with Iranian telecommunication companies. However, the Group may consider entering into such arrangements in the future.

Additionally, during 2022, Telefónica Germany GmbH & Co. OHG (“TG”), our German 70.58% indirectly-owned subsidiary, had retail mobile phone and internet contracts with two customers in Germany identified in the lists administered by OFAC as sanctioned pursuant to Executive Order 13224 and Executive Order 13382. During 2022, TG recorded the following revenues related to those two agreements: 300 euros under each of them. Both agreements are in the process of being terminated before May 2023. The provision of the relevant services by TG was in compliance with applicable laws.

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C. Organizational Structure

See “—History and Development of the Company” and “—Business Overview”.

D. Property, Plant and Equipment

Our central headquarters for the Telefónica Group are located in “Distrito Telefónica,” in Madrid, Spain.

Telefónica’s operations and assets (including its towers and submarine cables) are located in many areas that are subject to natural disasters and severe weather, and which may be adversely affected in the future by climate change.

See Note 8 to the Consolidated Financial Statements for information on the year-on-year decrease in “Property, plant and equipment” from 22,725 million euros as of December 31, 2021 to 23,714 million euros as of December 31, 2022.

Fixed Networks

We own fixed networks in Spain, Latin America and Europe, having an incumbent role in Spain, Argentina (the greater Buenos Aires metropolitan area and the southern portion of the country), Brazil (São Paulo), Chile, Peru and Colombia.

Following market trends, competitive environments, evolution of technologies and new multimedia and broadband services demanded by our customers, we have upgraded our networks in recent years through the following:

•progressive introduction of broadband access technologies over copper: ADSL, ADSL2+, VDSL2, etc., increasing the bandwidth capacity provided to our broadband clients several times in the last fifteen years;

•introduction of fiber access technologies (xPON) across different deployment scenarios: fiber to the home (FTTH), fiber to the building (FTTB), fiber to the curb (FTTC), fiber to the node (FTTN), etc., increasing the customer access speed up to 1 Gbps;

•service support based on powerful Internet Protocol/ Multiprotocol Label Switching (IP/MPLS) backbones, providing full connectivity to the rest of the network layers, such as access and control, to support services for business and customer market segments (fixed and mobile);

•migration of the legacy time division multiplexing (TDM) switching networks (PSTN and ISDN) to new generation network (NGN) over all-IP packet networks;

•migration from legacy transport technologies, such as asynchronous transfer mode (ATM), frame relay (FR), low-rate leased lines, plesiochronous digital hierarchy (PDH) and synchronous digital hierarchy (SDH), to the new generation of optical transport ones, such as dense wavelength division multiplexing (DWDM), coarse wavelength division multiplexing (CWDM) and new generation-synchronous digital hierarchy (NG-SDH);

•introduction of IMS (Internet Multimedia Subsystem) to simplify the control of the network and ease the deployment of new services over the all-IP converged network;

•empowerment of the intelligence of the network to better manage its use, to avoid saturations and frauds and to identify new business opportunities;

•convergence of fixed and mobile networks, services and support systems from both technological and operational points of view; and

•deployment of new services such as Pay TV, to customers connected through broadband accesses in Spain, Chile, Argentina, Brazil, Peru and Colombia.

Mobile Networks

We operate mobile networks in Spain, the United Kingdom (through VMO2), Germany, Brazil, Argentina, Venezuela, Chile, Peru, Colombia, Mexico, Ecuador and Uruguay. Telefónica also provided these services in

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Guatemala (until January 24, 2019), Nicaragua (until May 16, 2019), Panama (until August 29, 2019), Costa Rica (until August 9, 2021) and El Salvador (until January 13, 2022). For additional information, see "-History and Development of the Company-Overview”. In addition, Telefónica entered in 2019 into an agreement with AT&T to access AT&T’s last mile wireless capacity in Mexico. Through this agreement, Telefónica gains access to capacity on AT&T’s 3G and 4G access network and any future access network technologies nationwide, while maintaining its transport network and all of its platforms in such country. The migration of the traffic to the AT&T access network was completed during 2022. For additional information on the Wholesale Agreement, see “Item 10. Additional Information—Material Contracts—Wholesale Access Services Agreement with AT&T Mexico”.

We use a number of mobile technologies in the countries in which we operate, namely: GSM, UMTS, LTE and 5G. 5G is currently solely being used in Spain, the United Kingdom, Germany, Brazil and Chile, countries where it is in a halfway phase of deployment. We continue the work of upgrading our mobile networks in line with market trends, the demand of new services from customers and the evolution of technologies. The main steps we are currently taking include:

•evolution of broadband in mobile access using the latest LTE standards (LTE-A, MIMO and carrier aggregation) to improve network capacity and user experience;

•deployment of new services such as mobile television (OTT) and distribution services for next generation music, video and games;

•deployment of 5G networks following different approaches in order to give our customers the best experience for this new access technology. Together with the main vendors and sharing experience with other operators, we are exploring the opportunities that the new 5G standards can offer by providing higher capacity at a lower relative cost by user/traffic unit; and

•convergence of fixed and mobile networks, services and support systems from both technological and operational points of view.

Satellite communications

The services provided using satellite platforms include television contribution signal to feed cable and IPTV head ends, DTH television, VSAT mainly for mobile telephony and Internet access in rural areas, emergency solutions, corporate communications and international communications.

Submarine cables

We are one of the world’s largest submarine cable infrastructure companies. Through Telxius, we continue to expand our global ecosystem of digital infrastructure based on more than 80,000 km of high-capacity fiber optic submarine cables. As of the date of this Annual Report, we hold a 70% beneficial interest in Telxius following the completion of the transaction with Taurus (described in “―History and Development of the Company―Recent Developments”). In addition, we own around 20 submarine domestic cables in Spain.

There are submarine cable connections linking Europe, The Americas and Africa which are jointly owned by us and other telecom operators. The SAm-1 cable, fully owned by Telxius, has a length of approximately 25,000 kilometers and links different countries such as the United States, Puerto Rico, Ecuador, Guatemala, Peru, Chile, Brazil, Argentina and Colombia.

Next generation submarine cable systems are already in service to help meet the capacity demand in the future. The Brusa cable links Brazil and the United States, while the Marea and Dunant cables links the United States and Europe. Additionally, the 7,300 km Mistral cable serves the entire Pacific coast of South America with the highest levels of service, reliability and security. The 2,000 km next generation Tannat system (Santos-Las Toninas) adds to the Brusa (Virginia Beach – Rio de Janeiro) and Junior (Rio de Janeiro – Santos) cables on the Atlantic coast of Latin America to deliver modern and diverse end-to-end connectivity between the United States, Brazil and Argentina.

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Item 4A. Unresolved Staff Comments

Not applicable.

Item 5. Operating and Financial Review and Prospects

A. Operating Results

Presentation of Financial Information

The information in this section should be read in conjunction with our Consolidated Financial Statements, included elsewhere in this Annual Report. Our Consolidated Financial Statements have been prepared in accordance with IFRS as issued by the IASB.

During 2021, compared to 2020, the Telefónica Group changed its reporting segments as follows:

•On June 1, 2021, upon the establishment of VMO2 (whose results are accounted for under the equity method), the former Telefónica United Kingdom segment was replaced by the new VMO2 segment (see Notes 2 and 10 to the Consolidated Financial Statements). The Group’s consolidated results for the year ended December 31, 2021 include the consolidation of Telefónica United Kingdom from January 1 to June 1, and the equity accounting of 50% of the net result of VMO2 from June 1 to December 31 (see Note 10 to the Consolidated Financial Statements). The gain registered upon the establishment of VMO2, amounting to 4,460 million euros (see Notes 2 and 23 to the Consolidated Financial Statements), is recorded under "Other companies". The VMO2 segment information included in this Annual Report is presented under management criteria, and shows 100% of VMO2’s results. In addition, information included in this Annual Report on the accesses of the Group and the VMO2 segment as of December 31, 2022 and December 31, 2021 includes 100% of the accesses of VMO2. Telefónica’s actual percentage ownership of VMO2 is 50%.

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 2022-2021 period-on-period discussions, an analysis of the results of our VMO2 segment (which, for purposes of 2022, consists of the results obtained by VMO2 from January 1 to December 31, 2022, and, for purposes of 2021, consists of the results obtained by VMO2 from June 1 (the date on which VMO2 was established) to December 31, 2021), and (ii) for purposes of the 2021-2020 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 VMO2 and the elimination of the Telefónica United Kingdom segment).

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

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Significant Factors Affecting the Comparability of Our Results of Operations in the Periods under Review

The following factors affect the comparability of our results of operations in the periods under review:

Corporate transactions

The main corporate transactions in 2022 are related to the acquisition of mobile assets of Oi Group on April 20, 2022, the acquisition of the Incremental Group on March 21, 2022, the acquisition of the BE-terna Group on June 9, 2022 (see Note 5 to the Consolidated Financial Statements) and the creation of Bluevia on December 20, 2022 (see Note 2 to the Consolidated Financial Statements).

The main corporate transactions in 2021 were related to the sale of Telxius Group’s telecommunications towers on June 1, 2021, June 3, 2021 and August 2, 2021, the closing of the transaction for the establishment of VMO2 on June 1, 2021 (see Note 2 to the Consolidated Financial Statements), the sale of Telefónica de Costa Rica on August 9, 2021 and the partial sale of InfraCo, SpA on July 1, 2021.

In particular, VMO2 was the result of the combination of Telefónica’s and Liberty Global’s operating businesses in the United Kingdom (O2 Holdings Ltd. and Virgin Media UK, respectively). Following the establishment of VMO2 on June 1, 2021, Telefónica ceased to fully consolidate the results of O2 Holdings, Ltd (and the rest of the entities that comprised its former Telefónica United Kingdom segment) in its consolidated financial statements and started to account for VMO2's results under the equity method, based on its stake in VMO2 (50%). Therefore, since June 1, 2021, the results of Telefónica’s operations in the United Kingdom are reflected under a single heading of the consolidated income statement, “Share of income of investments accounted for by the equity method”. However, the VMO2 segment information is presented under management criteria and shows 100% of VMO2’s results. For additional information on these changes and how segment information is presented in this Annual Report, see “Item 4. Information on the Company―History and Development of the Company―Business areas”.

The main corporate transactions in 2020 were related to the acquisition of 50% of the shares in Prosegur Alarmas España, S.L.by Telefónica de Contenidos, S.A.U. on February 28, 2020.

Spectrum acquisition

Spectrum acquisitions have a significant impact on our CapEx.

In 2022, these acquisitions totaled 173 million euros, mainly including 125 million euros corresponding to Colombia Telecomunicaciones and 35 million euros corresponding to Telefonica Brazil.

In 2021, these acquisitions totaled 1,704 million euros, with 706 million euros corresponding to Telefónica Brazil, 515 million euros corresponding to our former Telefónica United Kingdom segment before the establishment of VMO2 on June 1, 2021, 352 million euros corresponding to Telefónica Spain and 131 million euros corresponding to Telefónica Chile.

In 2020, these acquisitions totaled 126 million euros, with 94 million euros corresponding to Telefónica United Kingdom and 32 million euros corresponding to Telefónica Brazil.

Individual Suspension Plan

On December 28, 2021, Telefónica Spain 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 (the Individual Suspension Plan).

The present value of the estimated payment flows resulting from the Plan resulted in expenses amounting to 1,382 million euros before taxes in 2021, reflected in "Personnel expenses" (see Note 2 to the Consolidated Financial Statements).

Foreign Exchange Effects and Hyperinflation in Argentina and Venezuela

Foreign exchange rates generally had a positive impact on our 2022 results, mainly due to the appreciation of various Latin American currencies (in particular the Brazilian real) against the euro. However, foreign exchange rates had a negative impact on our reported 2021 and 2020 results, mainly due to the depreciation of various Latin

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American currencies (in particular the Brazilian real) against the euro. Our reported results have also been impacted by hyperinflation adjustments in Argentina and Venezuela.

For additional information on the impact of exchange rates, see “—Exchange Rate Fluctuations” and Note 2 to the Consolidated Financial Statements.

COVID-19

The COVID-19 crisis caused the greatest GDP fall of the last decades and adversely impacted the financial and operating performance of the Group in 2020 and, to a lesser extent, 2021. Among other effects, the COVID-19 crisis contributed to the depreciation of Latin American currencies against the euro. The exchange rates evolution, mainly of the Brazilian real, adversely affected the average exchange rates used to translate the financial statements of our Latin American subsidiaries in 2020 and, to a lesser extent, in 2021.

Revenues in 2020 were also affected by the reduction in the commercial activity, which was reflected in lower service revenues and handset sales. Telefónica experienced the most significant effects during the second quarter of 2020 as lockdowns imposed across the Group's markets put unprecedented pressure on commercial activity. The impact of the pandemic in 2020 was partially mitigated by the measures taken to reduce costs (including a 33.3% reduction in CapEx in 2020) and by lower churn rates, offset in part by measures taken in certain countries in response to the pandemic, such as the offer of minimum connectivity services at a free or reduced price.

Significant Changes in Accounting Policies

Please see Notes 2 and 3.o to our Consolidated Financial Statements.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the amounts reflected in the Consolidated Financial Statements. We base our estimates on historical experience, where applicable, and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from those estimates under different assumptions or conditions.

We consider an accounting estimate to be critical if:

•it requires us to make assumptions because information was not available at the time or it included matters that were highly uncertain at the time we were making our estimate; and

•changes in the estimate or different estimates that we could have selected may have had a material impact on our financial condition, results of operations or cash flows.

The various policies that are important to the portrayal of our financial condition, results of operations and cash flows include:

•accounting for non-current assets, including goodwill;

•deferred taxes;

•provisions;

•revenue recognition; and

•leases.

Non-current assets and goodwill

Property, plant and equipment and intangible assets, other than goodwill, are recorded at acquisition cost. If such assets are acquired in a business combination, the acquisition cost is the estimated fair value of the acquired property, plant and equipment or intangible assets. Property, plant and equipment and intangible assets with definite useful lives are depreciated or amortized on a straight-line basis over their estimated useful lives.

Intangible assets with indefinite useful lives are not amortized, but are, instead, subject to an impairment test on a yearly basis and whenever there is an indication that such assets may be impaired.

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Accounting for non-current assets, such as long-lived assets and intangibles, involves the use of estimates for determining: (a) the fair value at the acquisition date in the case of such assets acquired in a business combination, and (b) the useful lives of the assets over which they are to be depreciated or amortized. We believe that the estimates we make to determine an asset’s useful life are “critical accounting estimates” because they require our management to make estimates about technological evolution and competitive uses of assets.

Upon the sale or contribution of a controlled business to an associate or joint venture, the Group measures and recognizes any retained interest at its fair value. The fair value assigned to the retained investment is determined on the basis of the business plan of the relevant associate or joint venture, and involves significant judgments when considering significant assumptions such as regarding the long-term OIBDA margin, long-term capital expenditure ratio, discount rate and perpetuity growth rate, each of which could be significantly affected by the future trends in the economic, competitive, regulatory and technological environment.

When an impairment in the carrying amount of an asset occurs, non-scheduled write-downs are made. We perform impairment tests of identifiable intangible and other non-current assets, such as equity method investments, whenever there is reason to believe that the carrying value may exceed the recoverable amount, which is the higher of the asset’s fair value less costs to sell and its value in use. Furthermore, previously recognized impairment losses may be reversed when changes in the estimates used to determine the asset’s recoverable amount indicate that an impairment loss recognized in prior periods no longer exists or may have decreased.

The determination of whether the impairment of non-current assets is necessary involves the use of significant estimates and judgment that includes, but is not limited to, the analysis of the cause of potential impairment in value, the timing of such potential impairment and an estimate of the amount of the impairment, which requires the estimation of the future expected cash flows, discount rates and the fair value of the assets.

Specifically, management has to make certain assumptions in respect of uncertain matters, such as growth in revenues, changes in market prices, operating margins, and technology developments and obsolescence, discontinuance of services and other changes in circumstances that indicate the need to perform an impairment test. Management’s estimates about technology and its future development require significant judgment because the timing and nature of technological advances are difficult to predict.

Certain valuation techniques used for investments, such as the discounted cash flow model, require significant judgment when considering significant assumptions such as revenue growth rate, long-term EBITDA margin, long-term capital expenditure ratio, discount rate and perpetuity growth rate. For information on our impairment analysis of our equity method investment in VMO2 at the end of the year, see Note 10 to the Consolidated Financial Statements.

Goodwill arises when the cost of a business combination exceeds the acquirer’s interest in the net fair value of the identifiable assets acquired and liabilities assumed at the acquisition date. Goodwill is not amortized, but is, instead, subject to an impairment test on a yearly basis and whenever there is an indication that the goodwill may be impaired.

Non-scheduled write-downs of goodwill are made when an impairment in the carrying amount of goodwill occurs. We review, on a regular basis, the performance of our cash-generating units. We compare the carrying amount of the cash-generating unit to which the goodwill has been allocated with its recoverable amount. The determination of the recoverable amount of the cash-generating unit involves extensive use of estimates and significant management judgment is involved. Methods commonly used by us for valuations include discounted cash flow methods that require substantial judgement when considering significant assumptions about relevant performance metrics and other key variables. For more information and a sensitivity analysis of the assumptions used in our impairment tests with respect to Telefónica del Perú, Ecuador and Chile, see Note 7 to the Consolidated Financial Statements.

A significant change in the facts and circumstances that we relied upon in making our estimates may have a material impact on our operating results and financial condition. For information on the sensitivity to changes in certain significant assumptions, see Note 7 to the Consolidated Financial Statements.

Deferred income taxes

The Group assesses the recoverability of deferred tax assets based on estimates of future earnings, and of all the available options to achieve an outcome, it considers the most efficient one in tax terms within the legal framework the Group is subject to. Such recoverability ultimately depends on the Group’s ability to generate taxable

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earnings over the period for which the deferred tax assets remain deductible. This analysis is based on the estimated schedule for reversing deferred tax liabilities, as well as estimates of taxable earnings, which are sourced from internal projections that are continuously updated to reflect the latest trends.

The recognition of tax assets and liabilities depends on a series of factors, including estimates as to the timing and realization of deferred tax assets and the projected tax payment schedule. Actual Group company income tax receipts and payments could differ from the estimates made by the Group as a result of changes in tax legislation, the outcome of underway tax proceedings or unforeseen future transactions that could affect tax balances.

Provisions

Provisions are recorded when, at the end of the period, we have a present obligation as a result of past events, whose settlement requires an outflow of resources that is considered probable and can be measured reliably. This obligation may be legal or constructive, arising from, but not limited to, regulation, contracts, common practice or public commitments, which have created a valid expectation for third parties that we will assume certain responsibilities. The amount recorded is the best estimation performed by the management in respect of the expenditure that will be required to settle the obligations, considering all the information available at the closing date, including the advice of external experts, such as legal advisors or consultants.

Because of the inherent uncertainties in this estimation, actual expenditures may be different from the originally estimated amount recognized.

If we are unable to reliably measure the obligation, no provision is recorded and information is then presented in the notes to the Consolidated Financial Statements.

Significant management criteria was involved in the recording of provisions relating to tax and regulatory contingencies in Brazil. See Notes 24, 25 and 29 to the Consolidated Financial Statements.

Revenue recognition

Bundled offers

Arrangements involving the delivery of bundled products or services are assessed to determine whether it is necessary to separate the arrangement into individual component deliverables, each with its own revenue recognition criteria.

Revenue relating to the bundled contracts is allocated to the different deliverables identified, based on their relative standalone selling prices.

Given that the handsets and airtime are price-sensitive and volatile in a competitive marketplace, the determination of standalone selling prices in the mobile phone business is quite complex.

Additionally, a significant change in the facts and circumstances upon which we based our estimates on standalone selling prices may have an impact on the allocation of revenues among the different deliverables identified and, consequently, on future revenues.

Leases

Accounting for a lessee’s rights and obligations under a lease contract requires the use of estimates for determining the lease term in those contracts that include options to extend the lease or early termination options.

Determining the lease term involves making estimates over the time horizon of the Group's strategic planning process with respect to relevant factors such as expected technological progress, possible regulatory developments, market and competition trends or changes in the business model, among others. The assumptions regarding these variables involve a significant degree of judgment to the extent that the timing and nature of future changes are difficult to anticipate.

Due to the uncertainties inherent to these estimates, changes in the assumptions made in respect of uncertain matters when determining the lease term of a lease contract may have an impact on the amounts of the right of use assets and lease liabilities recognized on the basis of the estimates made by the Group.

Operating Environment

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Our results of operations are dependent, to a large extent, on the level of demand for our services in the countries in which we operate. Demand for services in those countries is affected by the performance of their respective economies, particularly household private consumption, but also gross domestic product (GDP), inflation o(CPI), current accounts, and unemployment rates.

After facing in 2020 the worst recession since World War II (-3.1% global GDP contraction), the global economy began a strong recovery process in 2021 (5.9% global GDP growth). This recovery continued in 2022 despite certain adverse events for global economic activity, such as broad-based high inflation rates and monetary tightening, the Russian invasion of Ukraine (with the associated volatility in energy markets), bottlenecks in global supply chains (partly as a result of China’s zero-COVID policy) and extreme weather events that also impacted food-related prices. Against this backdrop, most analysts forecasted a recession in Europe during the second part of 2022 and anticipated similar concerns for the U.S. economy. However, the global economy has demonstrated a high degree of resilience supported by (i) investment projects (both public and private) to recover and foster production capacity in key areas after the pandemic (ii) accommodative fiscal stances to cushion the impact of inflation on the private sector (iii) solid nominal spending against the backdrop of strong labor markets with historical lows in unemployment and (iv) high levels of savings accumulated during the pandemic lockdowns. As a result, the global economy is estimated to have grown 3.2% during 2022 according to the International Monetary Fund. By regions, the United States is estimated to have grown 1.6%, the Eurozone 3.1%, the UK 4.1%, Latin America and the Caribbean 3.5% and China only a modest 3.2%, the lowest rate in 40 years.

Spain

In 2022 the Spanish economy showed a robust degree of resilience against the headwinds it was facing. Despite the spread of the Omicron variant of the coronavirus, the Russian invasion of Ukraine (with the associated negative energy supply shock) and the normalization of monetary policy, Spain’s GDP grew 5.5% in 2022, following a 4.8% expansion in 2021 and an abrupt 10.8% decline in 2020 (compared to an annual average increase of 2.8% between 2015 and 2019). At the end of 2022, GDP was still 0.9% below pre-COVID levels. In 2022, the main contribution to GDP growth came from external demand (+2.9 p.p.) due to an apparent full recovery of the tourism sector. Internal demand contributed an additional 1.6 p.p., influenced by 5.2% investment growth, since private consumption only advanced at 1.7%, and public consumption receded 1.4%. Unemployment decreased to 12.7% at the end of the year (compared to 13.78% in 2021 and an average of 17.4% between 2015 and 2019).

Due to the energy supply shock’s impact on gas and electricity prices, supply-chain pressures, and food-related commodity increases, the 12-month inflation rate peaked during 2022 at 10.8%, although the 12-month inflation rate as of December 31, 2022, fell to 5.8% (compared to 6.5% for 2021 and an annual average of 0.9% between 2015 and 2019), due, at least in part, to fiscal measures aimed to moderate this impact. On the external front, the Spanish economy has been resilient. Despite strong growth and the decline in the balance of trade prompted by the increase in energy prices, the overall current account remained at positive levels (0.6% of GDP according to Funcas compared to 0.9% in 2021 and an annual average of 2.4% between 2015 and 2019), thanks to the external openness and competitiveness earned after the Great Financial Crisis. Fiscal balance recorded a deficit equal to 4.2% of GDP for 2022, compared to a deficit equal to 6.9% of GDP for 2021 and an annual average deficit equal to 3.6% of GDP between 2015 and 2019. However, strong nominal GDP growth contributed to a reduction of the debt-to-GDP ratio to 113.1% as of December 31, 2022, according to the Bank of Spain (compared to 118.3% as of December 31, 2021, and an average year-end ratio of 100.2% between 2015 and 2019).

United Kingdom

After the stellar 2021, when GDP growth in the UK reached 7.5% (the fastest growth among all G7 economies), UK GDP grew 4.2% in 2022, according to the British Chamber of Commerce (compared to 1.7% annual growth on average between 2015 and 2019). At the end of the third quarter of 2022, the UK’s GDP stood 2.2% above pre-pandemic level. Growth was led completely by internal demand, with private consumption advancing 4.7% and investment 5.3%. Government consumption advanced a moderate 1.9%.

The strong fiscal response that helped boost activity after pandemic lockdowns, together with global supply-chain bottlenecks and the external energy supply shock caused by Russia’s invasion of Ukraine, has impacted the British economy via inflation. The UK’s 12-month inflation rate (CPI) stood at 10.7% in November 2022 compared to 5.3% in December 2021 and 1.6% on average between 2015 and 2019. For December 2022 the Bank of England had set the main interest rate of its monetary policy operations to 3.5%, compared to 0.25% for December 2021 and 0.5% on average between 2015 and 2019. In addition, the UK is experiencing the consequences of Brexit. The UK’s current account deficit plummeted to 5.8% of GDP in 2022 according to the Office for Budget Responsibility, compared to a current account deficit of 2.6% in 2021 and an annual average deficit of 4.1% between 2015 and

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2019. The country’s fiscal deficit stood at 6.9% of GDP for 2022, lower than the 8.0% of GDP deficit for 2021 but above the annual average deficit of 2.9% between 2015 and 2019. Against this backdrop, the GBP closed the year at 0.88 against the euro, compared to 0.84 as of December 31, 2021 and an annual average of 0.84 between 2015 and 2019.

Germany

After the rebound in GDP growth in 2021 of 2.7% that followed a GDP contraction of 4.6% in 2020, the German economy is estimated to have grown 1.8% in 2022 according to the Bundesbank, compared to an annual average of 1.7% between 2015 and 2019. Consequently, the German GDP stood at the end of the third quarter of 2022, 0.3% above pre-pandemic levels. The contribution of internal demand of 3.1 p.p. was partly offset by the decrease in external demand (-1.3 p.p.). Private consumption remained robust with 4.6% growth, supported by a tight labor market and high levels of savings accumulated during the pandemic, while gross fixed capital formation almost stagnated with 0.4% growth.

The 12-month inflation rate as measured by the Harmonized Index of Consumer Prices (HICP) rose from 3.6% in December 2021 to 8.6% in December 2022, compared to an annual average of 1.3% between 2015 and 2019. A low unemployment rate, which reached 2.8% in December 2022 (compared to 3.0% in December 2021 and an annual average of 3.3% between 2015 and 2019), contributed, among other factors, to the acceleration in unit labor costs growth rate from 0.6% in 2021 to 3.6% in 2022, all according to the Bundesbank.

Given the external supply shock and the country’s historical dependency on Russian gas supplies, Germany recorded for the first time a negative trade balance during the second half of 2022, which reduced its annual current account surplus from 7.4% in 2021 to 3.4% in 2022 (compared to an annual average surplus of 8.0% of GDP between 2015 and 2019). Finally, Germany’s fiscal deficit decreased to 2.8% in 2022 according to the Bundesbank, from 3.1% in 2021 (compared to an annual average surplus of 1.4% between 2015 and 2019).

Brazil

Brazilian GDP is estimated to have increased 2.7% in 2022 according to Consensus Economic Forecasts (“CFe”), reflecting mostly the end of social-distancing measures, which benefited the services sector and led to job creation, as well as fiscal stimuli. The result will be well above the -0.5% average annual growth rate between 2015 and 2019, after 5.0% growth in 2021. Brazil's GDP now stands 4.5% above pre-pandemic levels. The 12-month inflation rate, as measured by the Extended National Consumer Price Index (IPCA), was 5.8% as of December 31, 2022, above the target rate of 3.5%, but below the 12-month inflation rate of 10.1% as of December 31, 2021. The inflation decline is mostly related to tax cuts on regulated prices (fuel, electric energy and telecommunications), as well as a gradual deceleration of inflation with respect to industrial goods and services, reflecting commodity prices moderation and the initial effects of monetary policy tightening. Given the inflation scenario, the main interest rate (known as the Special System for Settlements and Custody (SELIC) rate) was increased from 9.25% at the end of 2021 to 13.75% at the end of 2022. The current account deficit would have improved by 0.8 p.p. to 2.0% of GDP in 2022 (CFe), slightly better than the annual average deficit rate of 2.6% of GDP between 2015 and 2019. Once more, the 2022 deficit was financed by capital inflows, such as foreign direct investments, despite portfolio investments outflows. The country’s fiscal deficit is estimated to have widened by 1.2 p.p. in 2022 to 5.6% of GDP (compared to an annual average deficit rate of 7.9% of GDP between 2015 and 2019). Brazil’s five-year credit default swap reached 254 basis points at 2022 year-end, up from 205 basis points at the end of 2021 and 143 basis points at the end of 2020. The Brazilian real appreciated against the U.S. dollar in 2022 by 5.1%. The exchange rate on December 31, 2022, was 5.29 Brazilian reals per U.S. dollar, compared to 5.58 Brazilian reals per U.S. dollar on December 31, 2021. Better-than-expected economic activity, higher interest rates and a strong trade balance benefited by elevated commodity prices have contributed to the real appreciation in 2022.

Mexico

The Mexican economy lagged behind its regional peers in recovering from the COVID-19 crisis. The country’s GDP is estimated to have grown 2.4% in 2022 (CFe), slowing down from 2021 growth of 5.0%, but exceeding the annual average growth of 2.0% between 2015 and 2019. By the third quarter of 2022, Mexico’s GDP stood 0.3% above pre-pandemic levels. Domestic demand was the main engine of growth, driven by strong growth of 4.9% in private consumption. The unemployment rate averaged 3.5% in 2022 (CFe), down from an annual average of 4.1% in 2021 and slightly below the annual average of 3.7% between 2015 and 2019. The 12-month inflation rate increased to 8.4% in December 2022, up from 7.4% in December 2021 (and significantly above the annual average of 4.0% between 2015 and 2019). Global supply shocks and rising demand pressures kept inflation well above its

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policy target (3.0%). By December 2022, Banxico had raised its key interest rate 500 basis points since its December 2021 meeting, bringing the monetary policy rate to 10.5%.

Against the U.S. dollar, the Mexican peso appreciated by 4.8% to 19.47 Mexican pesos per U.S. dollar on average terms during 2022 (compared to an annual average exchange rate of 19.32 Mexican pesos per U.S. dollar between 2015 and 2019) on the back of an improving local economy, external tailwinds, and the conversations about the nearshoring of production processes to Mexico. Finally, the current account deficit is estimated to have worsened from 0.4% of GDP in 2021 to 1.1% of GDP in 2022 (compared to an annual average deficit of 1.8% of GDP between 2015 and 2019). Likewise, the fiscal deficit for 2022 reached 3.2% of GDP, rising 0.3 p.p. from the fiscal deficit for 2021 (2.9% of GDP) and higher than the annual average deficit of 2.0% of GDP between 2015 and 2019.

Venezuela

According to data published by the Central Bank of Venezuela (the “BCV”), the Venezuelan economy grew 17.7% in the first nine months of 2022. This growth was enhanced by increases in all economic activities, especially the oil sector, which expanded around 27% in terms of volume in the first nine months. However, oil activity continues to be affected by the lack of investment in refineries and the effect of EU economic sanctions on the industry, with the consequent reduction in the number of operating drills. According to the Organization of the Petroleum Exporting Countries (OPEC), Venezuela’s crude oil production reached 686 thousand barrels per day (“kbd”) in November 2022, almost 143 kbd more than in November 2021 but still below 2018 levels. On the other hand, the easing of exchange market conditions favored private sector investments in non-oil activities, resulting in a 14.5% accumulated growth in the first nine months of 2022. In parallel, the process of disorderly and partial dollarization continues amid the restrictions imposed by financial sanctions on the movement of foreign currency funds abroad.

During the first half of 2022, the government made efforts to maintain exchange rate stability and low inflation rates through market interventions and expenditure control. However, in the second half of the year, public expenditures accelerated, resulting in local currency depreciation and higher domestic inflation. Thus, despite the injection of 5 billion U.S. dollars into the foreign exchange market during the year, the local currency depreciated by 280% year-on-year. Meanwhile, the BCV reported a cumulative inflation rate of 119% from January to October 2022 (compared to 574% for the same period in 2021) and it is estimated to close the year around 180%, significantly below the annual inflation rates for 2021 (686%), 2020 (2,956%) and 2019 (9,585%).

Chile

The Chilean economy is estimated to have expanded by 2.3% in 2022 (CFe), significantly below 2021 growth of 11.7%, but slightly above the annual average of 2.0% between 2015 and 2019. By the third quarter of 2022, the GDP level was 9.8% above pre-pandemic levels. The economy proved resilient in the face of decreasing fiscal stimulus, the tightening of monetary policy and eroding wage purchasing power caused by high inflation. The unemployment rate averaged 7.9% in 2022 (CFe), well below the average rate of 9.1% in 2021 but 1 p.p. higher than annual average rate of 6.9% between 2015 and 2019. Compared to pre-pandemic levels, about 200,000 jobs remain to be recovered. Following global trends, CPI 12-month inflation rates accelerated in December 2022 to 12.8% from 7.2% in December 2021 (compared to a Central Bank of Chile target and an annual average of 3.0% between 2015 and 2019) due to persistent supply bottlenecks, rising commodity prices and high household liquidity. As a result, the Central Bank of Chile reacted by raising its monetary policy rate by 725 basis points to 11.25% as of December 2022.

The exchange rate closed 2022 at 859 Chilean pesos per U.S. dollar, which implies a depreciation of the Chilean currency of 1.1% with respect to the figure at the end of 2021 (850 Chilean pesos per U.S. dollar). However, if annual averages are compared, the local currency depreciated against the U.S. dollar by 15% (873 vs. 759) due to, among other factors, U.S. monetary policy tightening, fears of a global recession, the zero-COVID policy in China (which negatively affected copper prices) and an increase in domestic uncertainty associated with the Chilean Constituent Process (Chilean voters rejected a new draft Constitution in a September 2022 national plebiscite). For the first time since 2012, Chile’s fiscal account broadly balanced in 2022 (-0.1% of GDP), after having recorded a very high deficit in 2021 of 7.7% of GDP. The current account worsened 2.2 p.p. to 7.8% of GDP reflecting the strong dynamics of domestic demand observed for most of the year.

Argentina

In 2022, the Argentinian economy is estimated to have grown 4.6% (CFe) compared to a 10.4% growth rate in 2021 and an annual average growth rate of -0.2% between 2015 and 2019. Household consumption growth of

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8.3%, but also better terms of trade, were the main sources of growth. By the third quarter of 2022, the level of GDP was 1.8% higher than at the beginning of the pandemic. The unemployment rate averaged 7.3% in 2022 (CFe), 1.5 p.p. lower than in 2021 (8.8%) and 1.0 p.p. lower than the annual average rate between 2015 and 2019 (8.3%). The 12-month inflation rate rose to 94.8% in December 2022, a sharp increase compared to 2021 (50.9%) and the annual average between 2015 and 2019 (38.8%) on the back of global supply shocks, monetary financing of public deficits and persistent macroeconomic imbalances. As a result, the Central Bank of the Argentine Republic (BCRA) raised its key interest rate from 38% to 75% throughout the year.

The Argentine peso depreciated 72% against the U.S. dollar in 2022, reaching 177.1 pesos per dollar at year-end, as authorities accelerated the rate of crawl to deter rising demand for dollars and meet exchange rate targets agreed with the IMF. The shortage of foreign currency and capital controls led to the emergence of a multiple-exchange-rate regime, in which the exchange rate gap between the official rate and the parallel ("blue") market rate widened to 100%. The current account is estimated to show a mild deficit of around 0.3% of GDP, which contrasts with the 2021 surplus of 1.4% of GDP, although it is better than the average annual deficit of 3.2% of GDP between 2015 and 2019. Meanwhile, the overall fiscal deficit is estimated to reach 4.0% of GDP, 0.4 p.p. above that recorded in 2021 of 3.6% of GDP, but 1.0 p.p. below the average annual deficit of 5.0% of GDP between 2015 and 2019.

It should be noted that in 2022 the country signed a new agreement with the IMF to finance 44 billion U.S. dollars of its outstanding public debt. This agreement seeks a gradual reduction of both the fiscal deficit and monetary issuance and the accumulation of international reserves by the BCRA. The objective is that by 2025, Argentina will have a fiscal balance and a solid international reserves position that will allow it to pay its debt maturities. In 2022, the fulfillment of the goals of the agreement with the IMF allowed the country to reduce macroeconomic volatility.

Colombia

Colombia’s GDP is estimated to have increased by 7.2% in 2022 (CFe), following a 10.7% expansion in 2021 and an annual average growth of 2.4% between 2015 and 2019. By the third quarter of 2022, the country’s GDP stood 11.1% above pre-pandemic levels. Private consumption (8.8%), supported by labor income recovery, credit growth, high remittances and improved terms of trade, was the main driver of the recovery. Meanwhile investment continued to recover slowly. Colombia’s average annual unemployment rate is estimated to have declined from 13.8% in 2021 to 11.2% in 2022, but still far from annual average of 9.9% between 2015 and 2019.

Inflation accelerated sharply to 13.1% year-on-year in December 2022 (not peaking yet), the highest rate in more than two decades, well above the 5.6% year-on-year rate recorded in December 2021 and the Central Bank of Colombia’s target of 3.0% and the average annual rate of 4.7% between 2015 and 2019. The upward trend in 2022 was due to several factors, such as external price shocks, exchange rate depreciation, strong recovery of aggregate demand, indexation mechanisms and internal food supply shock. In response, the Central Bank of Colombia increased its key interest rate by 900bps from 3% to 12%. The Colombian peso closed the year at 4,810 Colombian pesos per U.S. dollar, a sharp depreciation of 20% due to political uncertainty, higher levels of risk premium and the global macroeconomic environment.

Colombia’s current account deficit is estimated to have reached 20.5 billion U.S. dollars in 2022 (6% of GDP), levels not seen since 2015 when oil prices fell sharply. The annual average between 2015 and 2019 was 4.6% of GDP. This deterioration is explained by the strong increase in imports and the increase in profit remittances from companies with foreign capital operating in the country. On the fiscal front, the central government’s deficit decreased to 5.5% of GDP in 2022 from 7.1% in 2021 and 7.8% in 2020, compared to an annual average of 3.2% between 2015 and 2019, mainly due to higher tax revenues in a context of high commodities prices and healthy levels of economic activity. In the political front, and under the impetus of the new president Gustavo Petro, Colombia’s congress approved a new tax reform aimed to increase revenues by 1.3% and 1.4% of GDP in 2023 and 2024, respectively.

Peru

In 2022, the economy is estimated to have grown 2.7% (CFe) following the 13% rebound in 2021 and an annual average growth rate of 3.2% between 2015 and 2019. This leaves Peru’s GDP 3.8% above its pre-pandemic levels, driven mainly by higher consumption (given the fast job recovery), pension fund withdrawals and rapid credit growth. The unemployment rate is estimated to have declined 3.6 p.p. in 2022 to 7.7% (CFe) compared to 2021, but it is still below its average annual rate of 6.7% between 2015 and 2019. Employment has recovered and is above pre-pandemic levels, but informality has increased, reaching 70% of the workforce. Inflation peaked at 8.8% year-on-year in June 2022 and has been on a downward trajectory since then (8.5%) year-on-year as of December

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2022 compared to an annual average of 2.6% between 2015 and 2019). In response, the Central Reserve Bank of Peru raised its policy key rate from 2.50% in December 2021 to 7.50% in December 2022.

The Peruvian nuevo sol appreciated 4.3% against the U.S. dollar in 2022 reaching 3.81 Peruvian nuevos soles per U.S. dollar at year-end, which contrasts with the depreciation experienced in 2021 (10%). The current account deficit is estimated to have worsened in 2022 by 1.3 p.p. to 3.6% of GDP (compared to an annual average deficit of 2.0% of GDP between 2015 and 2019). In contrast, Peru’s fiscal deficit is estimated to have improved by 0.6 p.p. to 1.9% of GDP (compared to an annual average deficit of 2.2% of GDP between 2015 and 2019), well below the limit of 3.7% foreseen by the fiscal rule, thanks to higher tax revenues in a context of high commodity prices.

In December 2022, President Pedro Castillo was impeached and arrested on charges of rebellion after announcing that he would shutter Peru’s Congress and rule by decree. Vice President Dina Boluarte replaced Castillo, and she is expected to remain in office until new presidential elections are held.

Exchange Rate Fluctuations

We publish our Consolidated Financial Statements in euros. Because a substantial portion of our assets, liabilities, revenues and expenses are denominated in currencies other than the euro, we are exposed to fluctuations in the values of these currencies against the euro. Currency fluctuations have had and may continue to have a material impact on our financial condition, results of operations and cash flows.

We estimate that in 2022 variations in currencies contributed to the year-on-year increase in our consolidated revenues by approximately 4.5 percentage points. Currency fluctuations can also have a significant impact on our statement of financial position, particularly equity attributable to equity holders of the parent, and on our statement of cash flows, when translating the financial statements of subsidiaries located outside the Eurozone into euro. In 2022 translation differences had a positive impact on equity attributable to equity holders of the parent of 1,169 million euros. In addition, our cash and cash equivalents increased by approximately 156 million euros due to the translation of the financial statements of our foreign subsidiaries, principally due to the appreciation of the Brazilian real relative to the euro.

We estimate that in 2021 variations in currencies contributed to the year-on-year decrease in our consolidated revenues by approximately 2.3 percentage points. In 2021 equity attributable to equity holders of the parent increased by 4,088 million euros (impacted by the negative translation differences of Telefónica United Kingdom accumulated in equity at June 1, 2021 and reclassified to the income statement as a result of the establishment of VMO2 (see Note 2 to the Consolidated Financial Statements), for an amount of 3,135 million euros). In addition, our cash and cash equivalents decreased by approximately 179 million euros due to the translation of the financial statements of our foreign subsidiaries, principally due to the depreciation of the Brazilian real relative to the euro.

We estimated that in 2020 variations in currencies decreased year-on-year growth in our consolidated revenues by approximately 6.5 percentage points. In 2020 equity attributable to equity holders of the parent decreased by 5,801 million euros and cash and cash equivalents decreased by approximately 402 million euros due to the translation of the financial statements of our foreign subsidiaries, principally due to the depreciation of the Brazilian real relative to the euro.

Venezuela is considered as a hyperinflationary economy since 2009. The inflation rates used to prepare the financial information included herein are based on the National Consumer Price Index of Venezuela (Indice Nacional de Precios al Consumidor de Venezuela) published by the Central Bank of Venezuela, or where a definitive index is not available, the best estimation. On an annual basis, these rates are 174.3%, 686.4% and 2,959.8% for 2022, 2021 and 2020, respectively. The exchange rates used to convert items denominated in Venezuelan bolivar, once adjusted for inflation, in the Consolidated Financial Statements are the closing rates as of December 31, 2022, 2021 and 2020, which were 45.18 bolivar digital per U.S. dollar (synthetic exchange rate), 16.47 bolivar digital per U.S. dollar (synthetic exchange rate) and 2,094,405 bolivar soberano per U.S. dollar (synthetic exchange rate), respectively. The bolivar fuerte was devalued in October 2021 and a new currency, the bolivar digital, was adopted.

Argentina is considered as a hyperinflationary economy since July 2018. The inflation rates used to prepare the financial information included herein are based on the National Consumer Price Index of Argentina (Indice de Precios al Consumidor con Cobertura Nacional de Argentina) published by the Central Bank of Argentina, or where a definitive index is not available, the best estimation. On an annual basis, this rate was 94.79% for 2022, 50.94% for 2021 and 36.1% for 2020. The exchange rate used to convert items denominated in Argentine peso, once

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adjusted for inflation, in the Consolidated Financial Statements are the closing rates as of December 31, 2022, 2021 and 2020, which were 177.1, 102.7 and 84.1 Argentine pesos per U.S. dollar, respectively.

The table below sets forth the average exchange rates against the euro of the U.S. dollar and the key currencies that impacted our consolidated results of operations for the periods indicated. Positive percentage changes represent a decline in the value of the applicable currency relative to the euro, and negative percentage changes represent increases in the value of the applicable currency relative to the euro.


	2020 (1)	2021 (1)	2022 (1)	% change 2020 vs 2021		% change 2021 vs 2022
	Average	Average	Average	Average		Average
Pound Sterling	0.89	0.86	0.85	(3.29	%)	(0.83	%)
U.S. Dollar	1.14	1.18	1.05	3.69	%	(11.10	%)
Brazilian Real	5.81	6.37	5.42	9.66	%	(15.00	%)
Argentine Peso (2)	103.23	116.37	189.08	12.73	%	62.48	%
Peruvian Nuevo Sol	3.98	4.59	4.03	15.26	%	(12.09	%)
Chilean Peso	901.81	896.59	916.52	(0.58	%)	2.22	%
Mexican Peso	24.36	23.98	21.12	(1.57	%)	(11.89	%)
Venezuelan Bolivar Digital (2)(3)	2.57	18.65	48.23	n.m.		n.m.
Colombian Peso	4,197.73	4,425.64	4,452.39	5.43	%	0.60	%

Notes:

n.m.:not meaningful

Source: Central treasury bank of the respective countries, except with respect to the Venezuelan bolivar digital

(1) These exchange rates are used to convert the income statements of our subsidiaries from local currency to euro.

(2) As Venezuela and Argentina are considered to be hyperinflationary economies, the income statement from operations in each such country is accounted for pursuant to the closing exchange rate of the relevant local currency to euro.

(3) Due to the depreciation of the Venezuelan Bolivar Soberano, a new currency was created in 2021 called Bolivar Digital. For comparative purposes the value of the Venezuelan Bolivar Soberano in 2020 was divided by one million.

We describe certain risks related to exchange rate fluctuations in “Item 3. Key Information—Risk Factors,” and we describe our policy with respect to limiting our exposure to short-term fluctuations in exchange rates under “Item 11. Quantitative and Qualitative Disclosures About Market Risk.”

Group Results of Operations

Please see “Item 4. Information on the Company — Business Overview”.

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B. Liquidity and Capital Resources

Cash Flow Analysis

The table below sets forth consolidated cash flow information for the years indicated. Positive figures refer to cash inflows and those in parentheses refer to cash outflows.


	2020	2021	2022
(Millions of euros)
Net cash from operating activities	13,196	10,268	11,763
Net cash from (used in) investing activities	(7,790)	5,896	(5,327)
Net cash used in financing activities	(5,438)	(12,990)	(7,925)

Net cash from (used in) investing activities was significantly impacted in 2021 by the cash received from the sale of the tower divisions of the Telxius Group and the incorporation of VMO2.

For additional details regarding our cash flows for the years ended December 31, 2020, 2021 and 2022, please see the Consolidated Statements of Cash Flows and Note 28 to our Consolidated Financial Statements.

Anticipated Uses of Funds

Our principal liquidity and capital resource requirements consist of the following:

•costs and expenses relating to the operation of our business;

•debt service requirements relating to our existing and future debt;

•capital expenditures (including spectrum acquisitions) for existing and new operations;

•acquisitions of new licenses or other operators or companies engaged in complementary or related businesses; and

•dividends, other shareholder remuneration, and pre-retirement payments.

In 2023, we expect to continue transforming our networks, evolving them towards all-IP hyper-connected networks, by investing in FTTx in key markets, and by expanding our mobile networks with LTE in most of our operations. We also expect to continue investing in TV and digital services to take advantage of the opportunities in the digital markets. We may also use funds to acquire new licenses engaged in complementary or related businesses in the digital world.

We also have liquidity requirements related to the costs and expenses relating to the operation of our business, financial investments (including investment commitments with joint venture partners), our payment of dividends, shareholder remuneration and pre-retirement payment commitments.

We also have liquidity constraints related to debt service requirements in connection with our existing and future debt. At December 31, 2022, we had gross financial debt of 39,079 million euros compared with 42,295 million euros at December 31, 2021. For the amortization schedule of our consolidated gross financial debt at December 31, 2022 and a further description of financing activity in 2022, see “—Anticipated Sources of Liquidity” below. Our net financial debt increased by 601 million euros to 26,687 million euros at December 31, 2022, compared with 26,086 million euros at December 31, 2021, despite a positive free cash flow generation of 4,566 million euros. This was due to (i) net financial investments of 1,000 million euros (mainly relating to the acquisition of Oi’s mobile assets, the acquisition of BE-terna Group and Incremental Group, net of the sale of Telefónica El Salvador and the fiber sale operations in Colombia and Spain), (ii) shareholder remuneration of 1,688 million euros (including coupon payments of capital instruments), (iii) labor-related commitment payments of 853 million euros, and, (iv) other net factors totaling 1,626 million euros (mainly the higher value in euros of net debt in foreign currencies, highlighting the impact of the appreciation of the Brazilian real, spectrum renewal in Colombia and, as an offset, the application of the favorable court ruling in Brazil).

For a reconciliation of net financial debt to gross financial debt, see “—Presentation of Financial Information—Non-GAAP Financial Information—Net financial debt and net financial debt plus commitments”.

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The following table describes our contractual obligations and commitments with definitive payment terms which may require significant cash outlays in the future. The amounts payable (including accrued interest payments) are as of December 31, 2022. For additional information, see our Consolidated Financial Statements.


	Payments Due by Period
Millions of euros	Total	Less than 1 year	1-3 years	3-5 years	More than 5 years
Financial liabilities (1)	39,079	4,020	5,827	7,490	21,742
Lease liabilities (2)	8,677	2,020	3,105	1,698	1,854
Purchase and other contractual obligations (3)	12,285	3,991	4,269	2,281	1,744
Other liabilities (4)	2,630	720	1,910	—	—
Total	62,671	10,751	15,111	11,469	25,340

(1)Estimated future interest payments as of December 31, 2022 on our interest-bearing debt (not included above) are as follows: 1,254 million euros in 2023, 1,147 million euros in 2024, 1,057 million euros in 2025, 978 million euros in 2026, 871 million euros in 2027 and 7,840 million euros in subsequent years. With respect to floating rate debt, we estimate future interest payments as the forward rates derived from yield curves quoted for the different currencies on December 31, 2022. This item includes the fair value of derivatives classified as financial liabilities (i.e., those with a negative mark-to-market) and excludes the fair value of derivatives classified as current financial assets (712 million euros), and those classified as non-current (2,668 million euros) (i.e., those with a positive mark-to-market). For a more detailed description of our financial derivative transactions, see Note 19 to our Consolidated Financial Statements. For details of the composition of this item, see “—Liquidity and Capital Resources—Anticipated Sources of Liquidity”).

(2)This item includes lease liabilities. For a more detailed description see Note 20 to our Consolidated Financial Statements.

(3)This item includes definitive payments (non-cancellable without penalty cost) due for agreements to purchase goods (such as network equipment) and services. For a more detailed description see Note 26 to our Consolidated Financial Statements.

(4)“Other liabilities” include: (a) long-term obligations that require us to make cash payments, excluding financial debt obligations included in the table under “Financial Liabilities” above and (b) other provisions. Because of the nature of the risks covered by “Other liabilities” such as other provisions, it is not possible to determine a reliable schedule of potential payments, if any. For details of the composition of other provisions, see Note 24 to our Consolidated Financial Statements.

Commitments for short-term leases and low value leases amounted to 33 million euros as of December 31, 2022.

In addition, at December 31, 2022, we had short-term and long-term employee benefits provisions amounting to 885 million euros and 4,093 million euros, respectively, not included in the table above (see Note 24 to our Consolidated Financial Statements) and non-current and current account payables, such as trade payables, payables to suppliers of property, plant and equipment and payables for spectrum acquisitions, amounting to 1,914 million euros and 12,018 million euros, respectively (see Notes 21 and 22 to our Consolidated Financial Statements), not included in the table above.

In addition, at December 31, 2022, VMO2 had commitments amounting to 6,877 million euros related to purchase, programming, network and connectivity and other commitments not included in the table above (see Note 10 to our Consolidated Financial Statements).

For details of the composition of, and changes in, our debt, see “—Liquidity and Capital Resources—Anticipated Sources of Liquidity” and Note 18 "Financial Liabilities" to our Consolidated Financial Statements.

For a discussion of our liquidity risk management policy, see Note 19 to our Consolidated Financial Statements.

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Anticipated Sources of Liquidity

Cash flows from operations are our primary source of cash funding for existing operations, capital expenditures, investments, licenses, interest obligations and principal payments. We also rely on external financing, including a variety of short, medium and long-term financial instruments, principally bonds and debentures, undated deeply subordinated securities and borrowings from financial institutions. Cash and cash equivalents are mainly held in euros and euro-denominated instruments.

We hold most our cash and cash equivalents in demand and in various terms up to three-month time deposits in euro. Additionally, we hold cash and cash equivalents in time deposits in U.S. dollars, typically with a term of less than one year. These transactions are executed with financial counterparties that have credit ratings that satisfy Telefónica’s standards.

In recent years, we raised funds by issuing principally equity instruments (undated deeply subordinated securities and mandatory convertible notes) and debt securities, and we may issue additional equity or debt securities at any time. We have also raised funds through a series of asset divestitures. In 2022, the main sources of funds from divestitures came from the completion of the agreement with Vauban and CAA for the deployment and commercialization of a fiber FTTH network mainly in rural areas in Spain, the sale of the entire share capital of Telefónica Móviles El Salvador and the agreement reached between Telefónica Colombia and a Colombian company controlled by KKR, for the sale of fiber assets and for the provision of connectivity services and deployment of the fiber network. See "Item 10. Additional Information—Material Contracts".

Financing

The following table shows the amortization schedule of our consolidated gross financial debt at December 31, 2022 as stated in euro, excluding estimated future interest payments. We may have exchange rate financial derivatives as instruments assigned to the underlying debt instruments. The table below includes the fair value of derivatives classified as financial liabilities (i.e., those with a negative mark-to-market) and excludes the fair value of derivatives classified as current financial assets (712 million euros), and those classified as non-current (2,668 million euros) (i.e., those with a positive mark-to-market). For description of the liquidity risk we face, see Note 19 to our Consolidated Financial Statements, and for a description of our financial liabilities, see Note 18 to our Consolidated Financial Statements.


Millions of euros
	Current	Non-current
Maturity	2023	2024	2025	2026	2027	Subsequent years	Non-current total	Total
Debentures and bonds	1,948	1,130	3,126	2,098	4,170	18,796	29,320	31,268
Promissory notes & commercial paper	544	127	54	12	3	159	355	899
Total Issues	2,492	1,257	3,180	2,110	4,173	18,955	29,675	32,167
Loans and other payables	1,184	673	572	202	376	1,537	3,360	4,544
Derivative instruments	344	80	65	109	520	1,250	2,024	2,368
Total	4,020	2,010	3,817	2,421	5,069	21,742	35,059	39,079

Notes:

- Estimated future interest payments as of December 31, 2022 on our interest-bearing debt (not included above) are as follows: 1,254 million euros in 2023, 1,147 million euros in 2024, 1,057 million euros in 2025, 978 million euros in 2026, 871 million euros in 2027 and 7,840 million euros in subsequent years. With respect to floating rate debt, we estimate future interest payments as the forward rates derived from yield curves quoted for the different currencies on December 31, 2022.

During 2022, we obtained financing (excluding the refinancing of euro commercial paper and short-term banking loans) totaling approximately 15,009 million euros of which 8,849 million euros was at the Group level, 1,740 million euros were obtained by VMO2 (the joint venture in the UK with Liberty Global plc), 599 million euros were obtained by Cornerstone Telecommunications Infrastructure Limited (a joint venture of Vantage Towers AG and VMO2), 61 million euros were obtained by FiBrasil (the joint venture in Brazil with CDPQ) and 3,760 million euros were obtained by nexfibre, the joint venture formed by Liberty Global (25%), T. Infra (25%) and Infravia (50%)). Telefónica's financing activity was focused on maintaining a solid liquidity position, as well as refinancing and maintaining long debt maturities.

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For a description of our financing, see Note 18 to our Consolidated Financial Statements.

As permitted under Rule 13-01(a)(4)(vi) of Regulation S-X, we have excluded the summarized financial information for Telefónica Emisiones, S.A.U and Telefónica Europe, B.V. because they are both considered to be a "finance subsidiary" (as defined in such Rule) of Telefónica, S.A., the debt securities issued by them are fully and unconditionally guaranteed by Telefónica, S.A., and no other subsidiaries of Telefónica, S.A. guarantee their debt issuances.

Our borrowing requirements are not significantly affected by seasonal trends.

Availability of funds

At December 31, 2022, we had funds available (including cash and cash equivalents, undrawn lines of credit and current financial assets) totaling 21,413 million euros. This amount included: undrawn lines of credit for an amount of 11,737 million euros (11,434 million euros expiring in more than 12 months); cash and cash equivalents; and certain current financial assets.

We believe that, in addition to internal generation of funds, our working capital, our medium-term note program, our euro commercial paper program, our corporate domestic promissory note program and available lines of credit will allow us to meet our future capital requirements, including (according to our liquidity policy) gross debt maturities in the next 12 months.

For a description of our liquidity and undrawn lines of credit available at December 31, 2022, see Note 18 to our Consolidated Financial Statements, and for a discussion of our liquidity risk management and our capital management, see Note 19 to our Consolidated Financial Statements.

Telefónica, S.A. is the parent company of the Telefónica Group and receives funding from its subsidiaries in the form of dividends and loans. Consequently, certain restrictions on the ability of the Group’s subsidiaries to transfer funds to Telefónica, S.A. in the form of cash dividends, loans or advances, capital repatriation and other forms would negatively affect our liquidity and thus our business.

Certain Latin American economies, such as currently Venezuela or Argentina, have experienced shortages in foreign currency reserves and their respective governments have adopted restrictions on the ability to transfer funds out of the country and/or convert local currencies into U.S. dollars. This may limit our ability to repatriate funds out of certain subsidiaries from such countries. Regarding net repatriation of funds to Spain, in 2022 we received 693 million euros from our Latin American subsidiaries, of which 652 million euros were related to dividends.

Credit Ratings

Our ability to use external sources of financing will depend largely on our credit ratings. We believe that we are well-positioned to raise capital in financial markets. However, negative conditions in the financial markets or a downgrade of any of the ratings of our debt or the Kingdom of Spain’s debt by any of Fitch, Moody’s and/or Standard & Poor’s may increase the cost of our future borrowings or may make it more difficult to access the public debt markets. In connection with the credit rating agencies’ review of our debt ratings, the rating agencies may give considerable weight to general macroeconomic and political conditions (including sovereign credit rating prospects), the performance of our businesses in countries where we operate, our financial and shareholder remuneration policy, our M&A and divestiture policy, our ability to integrate acquired companies and our ability to refinance debt.

At December 31, 2022, Telefónica, S.A.’s long-term issuer default rating is "BBB stable outlook" from Fitch, “BBB- stable outlook" from Standard & Poor's and “Baa3 stable outlook" from Moody's. During 2022, there have not been changes in the long-term credit ratings by any of the three agencies. The latest changes in the credit ratings took place in 2020 when Standard and Poor’s revised the outlook to “negative“ from “stable” on April 1, 2020 and later, on November 20, 2020 downgraded the rating to “BBB - stable” from “BBB negative”. On November 7, 2016 Moody's downgraded the rating to “Baa3 stable” from “Baa2 negative” and on September 5, 2016 Fitch downgraded the rating to “BBB stable” from “BBB+ stable”.

In 2022, measures taken to protect the credit rating included an active portfolio management through the closing of the sale of the entire share capital of Telefónica Móviles El Salvador. Telefónica also closed various strategic deals to reinforce its business profile, such as the agreement reached between Telefónica Colombia and a Colombian company controlled by KKR, for the sale of fiber assets and for the provision of connectivity services and deployment of fiber network. In December, Telefónica closed the agreement with Vauban Infrastructure Partners and

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Crédit Agricole Assurances for the deployment and commercialization of a FTTH network mainly in rural areas in Spain.

Additionally, Telefonica maintains a solid liquidity position and conservative approach to debt refinancing, as the Group took advantage of the historical low refinancing rates in recent years to extend average debt life and smooth its maturity profile in coming years.

Intra-group Loans

We lend funds to our operating subsidiaries, directly or through holding companies that head our different lines of business. At December 31, 2022, companies in the Telefónica Group owed Telefónica, S.A. a total of 1,715 million euros (3,772 million euros at December 31, 2021), including amounts due under intra-group loans and dividends distributed and uncollected at December 31, 2022. Funds provided by Telefónica, S.A. to its subsidiaries are derived from retained cash flows, loans, bonds, issuances of undated deeply subordinated securities and other sources (such as dividends and asset disposals). For additional information, see "Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions—Intra-Group Loans".

C. Research and Development, Patents and Licenses, etc.

Telefónica remains committed to technological innovation as a fundamental tool for being one of the main players in the new digital universe, contributing to the creation of a more sustainable world while achieving competitive advantages and distinctive products. By introducing new technologies and developing business solutions and processes, we aim to become a more effective, efficient and customer-oriented Group.

Telefónica bases its innovation strategy on the balance between two main models:

–First, through our internal research, development and innovation (R&D&I), for which we have developed our own innovation model, which allows us to leverage R&D&I results and capabilities in developing commercial products and services benefiting from knowledge gained in collaborations with research centers, technological institutes and universities, amongst other sources; and

–Second, through the creation of open innovation ecosystems, in which the “Wayra” initiative stands out as a global program designed to connect entrepreneurs, start-ups, investors, venture capital funds and public and private organizations around the world to promote innovation in collaboration with other actors.

In addition to these two models, Telefónica seeks to promote the development of sustainable solutions that generate a positive impact on the environment and on the economic, social and technological progress of the regions in which we operate. To this effect, Telefónica invests in promoting sustainable innovation projects and in the activities that improve the accessibility of our solutions to all groups.

Internal Research, Development and Innovation:

Telefónica believes that competitive advantage cannot be based solely on acquired technology, and so has considered the promotion of internal R&D&I activities as a strategic axis, in an effort to achieve this differentiation and move forward in other activities which support the sustainability of our business.

To this end, Telefónica Group’s internal innovation policy focuses on contributing solutions that support Telefónica’s commitment to developing a responsible business under the criteria of economic, societal and environmental sustainability, by:

•Developing new products and services that enable growth and competition in an increasingly global environment, while being adapted to the diversity and local needs of each market;

•Increasing the revenue potential related to new products by creating value from the intellectual property rights of the generated technology;

•Increasing our customers' loyalty and satisfaction;

•Increasing the revenues, profits and value of the Company;

•Increasing the quality of our infrastructure and services;

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•Strengthening our relationship with our technology and solutions providers; and

•Improving business processes and operations with the aim of optimizing resources, increasing efficiency and reducing environmental impact.

During 2022, we carried out numerous technological innovation projects focused on sustainability, process efficiency, the creation of new sources of revenue, customer satisfaction, the consolidation of our presence in new markets and technological leadership.

The technological innovation activities of Telefónica are focused on three main areas:

a.Telecommunication networks. These activities aim at developing and integrating new assets and components into our networks and systems, with three main pillars: (i) next generation of network technologies such as the evolution of 5G and the early development of 6G networks, new in-home networks, open and disaggregated technologies, including efficiently deploying the network in remote, sparsely populated or difficult-to-serve areas, and networks that incorporate quantum technologies; (ii) cloud-native and fully virtualized, software-based network architectures, which enable us to have a more flexible and adaptable network that is dynamically adaptable to the new requirements of digital services and customers, in line with the “network slicing” paradigm and furthermore offering this adaptation capabilities to network users under a “Network as a Service” model; and (iii) Data-based Artificial Intelligence driven operations.

b.The development of new products and services which are carried out within the framework of the digital services strategy. Products and services for the mass market include: financial inclusion, healthcare, entertainment services, etc. Products and services for the B2B market include: a wide portfolio of cloud and cybersecurity services, IoT platforms and connectivity, Big Data, Artificial Intelligence and blockchain, with vertical services tailored to rural connectivity, programmatic advertising, mobility or energy efficiency sectors, among many others

c.Experimental and applied research: With a medium and long-term outlook, Telefónica also has specialized scientific groups whose mission is to investigate the possibilities of new networks and services and to solve the technological, social and environmental challenges that arise. These activities include research and development in fields like the Metaverse, Web3 or the application of Artificial Intelligence to sports and natural language processing.

The total research and development ("R&D") expense in the Group for 2022 amounted to 656 million euros, 21.4% lower than the 835 million euros incurred in 2021 (959 million euros in 2020), mainly due to exclusion of Telefónica United Kingdom from the consolidation perimeter in 2021. These expenses represented 1.6%, 2.1% and 2.2% of the Group’s consolidated revenues for 2022, 2021 and 2020, respectively. For comparison purposes, the investment in R&D in 2021, excluding the companies in the former Telefónica United Kingdom segment that now fall outside of the consolidation perimeter, amounted to 689 million euros, 4.7% higher than in 2022. These figures were calculated using guidelines of the Organization for Economic Co-operation and Development ("OECD") manual.

During 2022, Telefónica registered 14 new patent applications, 10 of which were European applications, and four of which were international applications (PCT). All of them were registered through the Spanish Patent and Trademark Office (OEPM). Moreover, two new industrial design families with European and Chilean scope were registered through the European Union Intellectual Property Office (EUIPO). This means a decrease of 12.5% in the number of new patents, compared with the 16 patent applications of 2021 (14 in 2020).

At the end of 2022, the Telefónica Group had a portfolio of 344 active patents, 91 industrial designs and nine utility models, resulting in a portfolio of 444 registered intangible assets (421 as of December 31, 2021).

Open Innovation

Wayra is Telefónica’s main Open Innovation program. It connects Telefónica and technological disruptors around the world. We seek to become their preferred strategic partner, with a view to accelerate their business and ours. Wayra offers a unique and smooth interface between entrepreneurs and our network of corporate, government and other partners, adding value to the ecosystems where we are present.

Wayra has eight physical hubs in Europe and Latin America serving nine countries. In 2020 Telefónica launched Wayra X, a 100% digital hub. In 2021 Wayra launched Wayra Builder, to capitalize on existing technology and talent

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and create our own startups from scratch, and Wayra Next Trend, to allow start-ups to connect with the consumer market.

In addition to Wayra, Telefónica’s Connected Open Innovation family includes:

a.Open Future, which is the Regional Open Innovation Strategy of Telefónica in partnership with public and private entities. Present in 30 hubs worldwide, we foster the development of the regional entrepreneurial ecosystems and support more than 800 startups. Our goal is to decentralize and democratize entrepreneurship.

b.Open Innovation Campus, a new collaboration model with the academia, that helps connect Telefonica with young talent.

c.Telefónica Ventures, which is Telefónica’s corporate venture vehicle for strategic investments. Telefónica Ventures aims to address the big challenges facing the telecommunications industry and create new businesses leveraging cutting edge technology. It invests, directly in startups or through a network of leading venture capital funds in key markets, to build strategic partners fully aligned with the Group’s global strategy.

Telefónica launched Wayra in 2011. Since then, it has helped create and transform local entrepreneurship ecosystems in Europe and Latin America investing more than 65 million euros in more than 850 startups, contributing to the creation of more than 10,000 highly skilled jobs.

Wayra invested in 40 startups in Europe and Latin America in 2022, for a total amount of 5.7 million euros and had interests in more than 450 active startups by the end of 2022. Telefónica Ventures devoted more than 20 million euros to several strategic investments in 2022.

Through these various programs, Telefónica has invested in more than 1,000 startups, and more than 300 startups have worked with Telefónica and its customers, generating through some of their solutions more than 600 million euros in revenues for Telefónica.

D. Trend Information

In 2022, inflation rates were significantly higher than normal, reaching four-decade highs in many countries, particularly in Europe. In Telefónica, we have been operating in high-inflationary environments for decades and feel we are better prepared to face this environment than others. To mitigate increasing costs, Telefónica is managing top line, OpEx and CapEx. On top line, Telefónica has relied on pricing power and inflation pass-through across its segments. On OpEx, Telefónica is managing operating expenses engaging in significant long-term hedging on energy prices and, overall, by focusing on cost efficiencies. On CapEx, Telefónica is benefiting from having made significant FTTH deployment ahead of the current inflationary environment, having passed the peak of investments in prior years, and also by developing new models for infrastructure investments, through which the company shares the effort with partners via fiber joint ventures.

Furthermore, in 2022, the foreign exchange effect has positively affected Telefónica’s results, after several years of negative impacts, mitigating the effects of inflation in Europe and certain Latin American markets and changes in the consolidation perimeter.

The Company has taken several steps designed to address recent trends (including increasing costs as a result of inflation and increased interest rates, the erosion of the Group’s traditional business and increased competition) and to face future uncertainties such as:

•First, while Telefónica has a long track record of generating cost efficiencies, we still have a long way to go in terms of digitalization and automation of sales channels and customer care, process improvements and modernization and rationalization of the network, such as switching from copper to fiber and legacy switch-off. In 2022, Telefónica has taken steps to hedge through long-term price agreements / power purchase agreements (PPAs), and intends to maintain a similar hedged ratio level of consumption for 2023 as in 2022. In 2023 we will have 71% of our energy needs hedged.

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•Second, the Company reduced costs with a redundancy program in Spain last year and intends to achieve cost efficiencies in 2023 due to the realization of synergies in the United Kingdom and Brazil, among other things.

•Third, Telefónica believes telecom spending will be resilient to price increases as digitalization and digital communications become increasingly important, as experienced during the COVID-19 pandemic.

•Fourth, in order to mitigate the intense competition in the markets where Telefónica operates, either through the entry of new competitors (either new players or providers of OTT Services), mergers of operators in certain markets (e.g. market consolidation in the United Kingdom following a potential merger of mobile operators Vodafone UK and Three UK) or changes in competitive dynamics in the different markets in Latin America, with aggressive customer acquisition offers, with unlimited data and discounts on certain services.

•Lastly, we seek to diversify our revenue mix with adjacent businesses. These efforts include:

•Solar 360, a joint venture of Repsol and Telefónica Spain, formed to develop a solar self-consumption business;

•Movistar Prosegur Alarmas, a security joint venture formed by Prosegur and Telefónica Spain in September 2020; and

•Vivo Ventures, a corporate venture capital fund created with Telefonica Open Innovation, through which Telefónica has committed to invest in the Brazilian "fintech" Klavi, to reinforce Telefónica's presence in the financial solutions sector.

On November 27, 2019 the Company presented the following strategic decisions, which continue to guide Telefónica's actions:

•Focus on our four key markets: Spain, Brazil, Germany and the United Kingdom (in-market consolidation with the creation of VMO2 in the UK).

•The creation of Telefónica Tech, the fast-growing technology company involving Cybersecurity & Cloud Tech and IoT & Big Data Tech, leveraging on strong capabilities to help customers digitally transform. During the past two years, Telefónica Tech has proactively reinforced its capabilities through acquisitions, including BE-terna Group and Incremental Group in 2022 and Cancom UK&I, Altostratus and Geprom in 2021.

•The creation of Telefónica Infra, which has focused on pursuing value creation opportunities in recent years, in line with the Group’s strategy of crystallizing the value of its infrastructure assets and capabilities and improving the competitive position of Telefónica’s operating business units by accelerating their FTTH rollout, while capturing future value upside from its infrastructure assets and co-investments. The creation of fiber vehicles or joint ventures to which certain assets and capabilities of the Group are transferred, and in which the Group typically retains minority interests (such as Bluevia in Spain, Onnet Fibra Colombia S.A.S in Colombia and nexfibre in the United Kingdom) in 2022, and the creation of UGG in Germany, FiBrasil in Brazil and InfraCo in Chile in 2021) has allowed for the monetization of part of the Group's assets and capabilities and the creation of growth opportunities, together with a pipeline of potential value-accretive infra deals.

•Reduce exposure to Latin America with a new operational model and portfolio simplification, capturing growth opportunities and operational synergies and optimizing CapEx.

•Simplify Telefónica's operating model overall.

E. Critical Accounting Estimates

Not applicable.

F. Non-GAAP Financial Information

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In addition to the measures expressly defined in the IFRS, the Group also uses a series of other measures for decision-making because they provide additional information useful to assess the Group’s performance, solvency and liquidity. These measures should not be viewed in isolation or as a substitute for the measures presented according to the IFRS.

The non-GAAP financial measures included in this Annual Report are 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.

Operating income before depreciation and amortization

Operating income before depreciation and amortization (OIBDA) is calculated by excluding solely depreciation and amortization from operating income. OIBDA is used to track the performance of the business and to establish operating and strategic targets of Telefónica Group companies. OIBDA is a commonly reported measure and is widely used among analysts, investors and other stakeholders in the telecommunications industry. However, it is not a measure expressly defined in the IFRS and therefore it may not be comparable to similar indicators used by other companies. OIBDA should not be considered as a substitute for operating income.

Furthermore, the Group management uses the measure OIBDA margin, which is the result of dividing the OIBDA by the revenues.

The following table provides a reconciliation of our OIBDA to operating income for the periods indicated.


Year ended December 31,
Millions of euros	2020	2021	2022
Operating income	4,139	13,586	4,056
Depreciation and amortization	(9,359)	(8,397)	(8,796)
Operating income before depreciation and amortization	13,498	21,983	12,852

The following tables provide a reconciliation of OIBDA to operating income for the Group and for each of the Group’s segments (and our former Telefónica United Kingdom segment) for the periods indicated.


2020
Millions of euros	Telefónica Spain	Telefónica United Kingdom	Telefónica Germany	Telefónica Brazil	Telefónica Hispam	Other companies	Eliminations	Total Group
Operating income	2,862	1,675	(85)	1,223	(1,284)	(109)	(143)	4,139
Depreciation and amortization	(2,184)	(389)	(2,394)	(1,965)	(2,274)	(468)	315	(9,359)
Operating income before depreciation and amortization	5,046	2,064	2,309	3,188	990	359	(458)	13,498


2021
Millions of euros	Telefónica Spain	Telefónica United Kingdom(1)	Telefónica Germany	Telefónica Brazil	Telefónica Hispam	Other companies	Eliminations	Total Group
Operating income	1,224	919	30	1,220	(155)	10,292	56	13,586
Depreciation and amortization	(2,153)	—	(2,394)	(1,918)	(1,873)	(356)	297	(8,397)
Operating income before depreciation and amortization	3,377	919	2,424	3,138	1,718	10,648	(241)	21,983

(1) Our former Telefónica United Kingdom segment was replaced by our new VMO2 segment on June 1, 2021. For additional information on this change and how segment information is presented in this Annual Report, see “Item 4. Information on the Company―History and Development of the Company―Business areas”. In particular, in the 2021 table, the “Telefónica United Kingdom” column reflects the results of such segment from January 1, 2021 until its elimination on June 1, 2021.

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2022
Millions of euros	Telefónica Spain	Telefónica Germany	Telefónica Brazil	Telefónica Hispam	Other companies	Eliminations	Total Group
Operating income	2,431	263	1,363	159	(124)	(36)	4,056
Depreciation and amortization	(2,157)	(2,295)	(2,369)	(1,799)	(218)	42	(8,796)
Operating income before depreciation and amortization	4,588	2,558	3,732	1,958	94	(78)	12,852

The OIBDA of 2021 includes the gains on the sale of the towers divisions of Telxius, amounting to 6,099 million euros and from the establishment of VMO2, amounting to 4,460 million euros (see Note 4 to the Consolidated Financial Statements).

OIBDA-CapEx and OIBDA-CapEx excluding spectrum acquisitions

OIBDA-CapEx is defined as operating income before depreciation and amortization, reduced by accrued capital expenditures, and OIBDA-CapEx excluding spectrum acquisitions is defined as operating income before depreciation and amortization, reduced by accrued capital expenditures excluding those related to spectrum acquisitions.

We believe that it is important to consider capital expenditures, and capital expenditures excluding spectrum acquisitions, together with OIBDA in order to have a more complete measure of the performance of our telecommunications businesses. For example, we believe that considering capital expenditures, and capital expenditures excluding spectrum acquisitions together with OIBDA provides useful information regarding both our performance during the year as well as the investments we made during such year in order to support our business going forward. As a result, we use these measures internally to track the performance of our business, to establish operating and strategic targets of the businesses of the Group and in our internal budgeting process.

In addition, we believe that these measures provide useful information to investors and other stakeholders to allow them to better compare performance across telecommunications companies with business models that differ based on whether they obtain network access, IT and other infrastructure services by paying fees that would be reflected in OIBDA versus through the development of owned networks and infrastructures that would be reflected in capital expenditures. Furthermore, similar metrics are reported externally by other telecommunications companies, and investors and analysts often track and compare these measures across different telecommunications companies.

Based on our use of OIBDA-CapEx and OIBDA-CapEx excluding spectrum acquisitions, we consider such measures to be primarily performance measures. While our primary liquidity measure is free cash flow, OIBDA-CapEx and OIBDA-CapEx excluding spectrum acquisitions also provide certain information regarding our liquidity given that they provide an indication of the resources generated by the operation of our business during the year, after deducting the investments we made during such year in order to support our business going forward.

Neither OIBDA-CapEx nor OIBDA-CapEx excluding spectrum acquisitions are measures expressly defined in IFRS, and therefore they may not be comparable to similar indicators used by other companies. In addition, neither OIBDA-CapEx nor OIBDA-CapEx excluding spectrum acquisitions should be considered substitutes for operating income, the most comparable financial measure calculated in accordance with IFRS, or any measure of liquidity calculated in accordance with IFRS.

The Group management also uses the measures OIBDA-CapEx margin and OIBDA-CapEx excluding spectrum acquisitions margin, which is the result of dividing these measures by revenues.

In the table below we provide a reconciliation of our OIBDA-CapEx and OIBDA-CapEx excluding spectrum acquisitions to operating income for the periods indicated.

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Year ended December 31,
Millions of euros	2020	2021	2022
Operating income	4,139	13,586	4,056
Depreciation and amortization	(9,359)	(8,397)	(8,796)
OIBDA	13,498	21,983	12,852
Capital expenditures in intangible assets	(1,266)	(2,981)	(1,530)
Capital expenditures in property, plant and equipment	(4,595)	(4,286)	(4,289)
CapEx	(5,861)	(7,267)	(5,819)
OIBDA-CapEx	7,637	14,716	7,033
Spectrum acquisitions	126	1,704	173
OIBDA-CapEx excluding spectrum acquisitions	7,763	16,420	7,206

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Net financial debt, net financial debt plus leases, net financial debt plus commitments and net financial debt plus leases plus commitments

As calculated by us, net financial debt includes:

(A) adding the following liabilities:

i. Current and non-current financial liabilities in our consolidated statement of financial position (which includes the negative mark-to-market value of derivatives),

ii. Other liabilities included in "Payables and other non-current liabilities" and "Payables and other current liabilities" (mainly corresponding to payables for deferred payment of radio spectrum that have an explicit financial component and supplier financing for customer financing of terminal sales), and

iii. Financial liabilities included in "Liabilities associated with non-current assets and disposal groups held for sale".

(B) subtracting the following amounts from the resulting amount of the preceding step:

i. "Cash and cash equivalents",

ii. "Other current financial assets" (which include short-term derivatives),

iii. Cash and other current financial assets included in "Non-current assets and disposal groups held for sale",

iv. The positive mark-to-market value of derivatives with a maturity beyond one year,

v. Other interest-bearing assets (included in "Financial assets and other non-current assets", "Receivables and other current assets" and "Tax receivables" in our consolidated statement of financial position),

vi. Mark-to-market adjustment by cash flow hedging activities related to debt, and

vii. Fair value of derivatives adjustment used for the economic hedging of gross commitments related to employee benefits.

In 2022, the classification of these derivatives within the Group's debt indicators has been revised, and these are now presented together with the "Net commitments related to employee benefits". This change in the presentation allows us to include in the same section the economic underlying and the derivative associated with the hedged risk. As a result, the effects on the underlying and the economic hedge are offset, avoiding distortions resulting from being registered under different headings, particularly at times of strong volatility, as has occurred in recent months compared to previous years. The totals of "Net financial debt plus commitments" and "Net financial debt plus leases plus commitments" are not affected by this presentation change. The new criteria has been applied retroactively, so the figures at December 31, 2021 have been restarted accordingly.

With respect to step (B)(v), "Financial assets and other non-current assets" includes derivatives, installments for the long-term sales of terminals to customers and other long-term financial assets, and "Receivables and other current assets" includes the customer financing of terminal sales classified as short-term. In 2022, other liabilities included in "Payables and other current liabilities" and other assets included in "Receivables and other current assets" of points (A)(ii) and (B)(v), respectively, have been reviewed, including non-material changes in the customer financing of terminal sales and the resulting changes have been applied retroactively to the net financial debt figures as of December 31, 2021.

We calculate net financial debt plus leases by adding lease liabilities calculated under IFRS 16 (including those corresponding to the companies held for sale) to net financial debt and deducting assets from subleases.

We calculate net financial debt plus commitments by adding gross commitments related to employee benefits and the fair value of the derivatives used for the economic hedging of such commitments to net financial debt, and deducting the value of long-term assets associated with those commitments related to employee benefits and the tax benefits arising from the future payments of those commitments related to employee benefits. Gross commitments related to employee benefits are current and non-current provisions recorded for certain employee benefits such as termination plans, post-employment defined benefit plans and other benefits.

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We believe that net financial debt, net financial debt plus leases, net financial debt plus commitments and net financial debt plus leases plus commitments are meaningful for investors and analysts because they provide an analysis of our solvency using the same measures used by our management. We use them to calculate internally certain solvency and leverage ratios. Nevertheless, none of them as calculated by us should be considered as a substitute for gross financial debt as presented in the consolidated statement of financial position.

The following table presents a reconciliation of net financial debt, net financial debt plus leases, net financial debt plus commitments and net financial debt plus leases plus commitments as of December 31, 2022 and 2021 to the Telefónica Group’s gross financial debt as indicated in the consolidated statement of financial position.


Millions of euros	12/31/2021	12/31/2022
Non-current financial liabilities	35,290	35,059
Current financial liabilities	7,005	4,020
Gross financial debt	42,295	39,079
Cash and cash equivalents	(8,580)	(7,245)
Other current financial assets	(3,823)	(2,431)
Cash and other current financial assets included in "Non-current assets and disposal groups held for sale" (see Note 30 to the Consolidated Financial Statements)	(7)	—
Positive mark-to-market value of long-term derivative instruments	(2,772)	(2,668)
Other liabilities included in "Payables and other non-current liabilities"	933	1,431
Other liabilities included in "Payables and other current liabilities"	635	402
Other assets included in "Financial assets and other non-current assets"	(1,808)	(1,892)
Other assets included in "Receivables and other current assets"	(659)	(646)
Other current assets included in "Tax receivables"	(250)	(123)
Financial liabilities included in "Liabilities associated with non-current assets and disposal groups held for sale" (see Note 30 to the Consolidated Financial Statements)	35	—
Mark-to-market adjustment by cash flow hedging activities related to debt	22	1,102
Fair value of derivatives adjustment used for the economic hedging of gross commitments related to employee benefits	65	(322)
Net financial debt	26,086	26,687
Lease liabilities	8,080	8,645
Net financial debt plus leases	34,166	35,332
Gross commitments related to employee benefits and associated economic hedging	6,272	5,291
Value of associated long-term assets	(94)	(104)
Tax benefits	(1,626)	(1,281)
Net commitments related to employee benefits	4,552	3,906
Net financial debt plus commitments	30,638	30,593
Net financial debt plus leases plus commitments (*)	38,718	39,238
(*) Includes assets and liabilities considered to be Net financial debt plus leases plus commitments related to employee benefits for companies classified as held for sale (see Note 30 to the Consolidated Financial Statements).

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Free Cash Flow

The Group’s free cash flow is calculated starting from "Net cash flow provided by operating activities" as indicated in the consolidated statement of cash flows; deducting (Payments on investments)/Proceeds from the sale of investments in property, plant and equipment and intangible assets, net, adding the cash received from government grants, deducting dividends paid to non-controlling interests and payments of financed spectrum without explicit interest. The cash used to pay for commitments related to employee benefits (included in the Net cash flow provided by operating activities) is added back since it represents the payments of principal of the debt incurred with those employees.

We believe that free cash flow is a meaningful measure for investors and analysts because it provides an analysis of the cash flow available to protect solvency levels and to remunerate the parent company’s shareholders and other equity holders (which is why free cash flows do not consider payments to minority interests). The same measure is used internally by our management. Nevertheless, free cash flow as calculated by us should not be considered as a substitute for the various cash flows presented in the consolidated statements of cash flows.

The following table presents the reconciliation between the Telefónica Group’s Net cash flow provided by operating activities as indicated in the consolidated statement of cash flows and the free cash flow for 2022, 2021 and 2020:


Millions of euros	2020	2021	2022
Net cash flow provided by operating activities	13,196	10,268	11,763
(Payments on investments)/Proceeds from the sale of investments in property, plant and equipment and intangible assets, net	(7,020)	(6,164)	(5,508)
Dividends paid to non-controlling interests	(471)	(410)	(438)
Payments for commitments related to employee benefits	963	844	853
Payments of financed spectrum without explicit interest	(87)	(108)	(108)
Free Cash Flow excluding lease principal payments	6,581	4,430	6,562
Lease principal payments	(1,787)	(1,782)	(1,996)
Free Cash Flow	4,794	2,648	4,566

Item 6. Directors, Senior Management and Employees

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A. Directors and Senior Management

During 2022, our Board of Directors met 14 times. As of February 23, 2023, our Board of Directors had met twice during 2023. As of February 23, 2023, our directors, their respective positions on our Board and the year they were first appointed were as follows:


Name	Age	First Appointed	Current Term Ends
Chairman
Mr. José María Álvarez-Pallete López (1)	59	2006	2025
Vice-Chairmen
Mr. Isidro Fainé Casas (1)(2)	80	1994	2024
Mr. José María Abril Pérez (1)(3)(6)	70	2007	2026
Mr. José Javier Echenique Landiríbar (1)(4)(7)	71	2016	2024
Members
Mr. Ángel Vilá Boix (1)	58	2017	2026
Mr. Juan Ignacio Cirac Sasturain (5)(6)(8)	57	2016	2024
Mr. Peter Erskine (1)(6)(7)	71	2006	2024
Ms. Carmen García de Andrés (5)(4)(8)	60	2017	2025
Ms. María Luisa García Blanco (5)(7)(8)	57	2018	2026
Mr. Peter Löscher (1)(4)(7)	65	2016	2024
Ms. Verónica Pascual Boé (6)	44	2019	2024
Mr. Francisco Javier de Paz Mancho (1)(5)(7)(8)	64	2007	2026
Mr. Francisco José Riberas Mera	58	2017	2025
Ms. María Rotondo Urcola (4)(8)	58	2021	2026
Ms. Claudia Sender Ramírez (6)(8)	48	2019	2024

(1) Member of the Executive Commission of the Board of Directors.

(2) Name or company name of the shareholder represented or that has proposed their appointment: CaixaBank, S.A.

(3) Name or company name of the shareholder represented or that has proposed their appointment: Banco Bilbao Vizcaya Argentaria, S.A.

(4) Member of the Audit and Control Committee.

(5) Member of the Regulation and Institutional Affairs Committee.

(6) Member of the Strategy and Innovation Committee.

(7) Member of the Nominating, Compensation and Corporate Governance Committee.

(8) Member of the Sustainability and Quality Committee.

Board Committees

At February 23, 2023, the Committees of our Board of Directors and members thereof are as follows:

Executive Commission

Our Board of Directors has expressly delegated all of its authority and power to the Executive Commission except as prohibited by the Spanish Corporation Act, under our Articles of Association, or under our Board Regulations. This Commission is made up of fewer directors and meets more frequently than our Board of Directors. The members of the Executive Commission are Mr. José María Álvarez-Pallete López (Chairman), Mr. Isidro Fainé Casas, Mr. José María Abril Pérez, Mr. José Javier Echenique Landiríbar, Mr. Ángel Vilá Boix, Mr. Peter Erskine, Mr. Francisco Javier de Paz Mancho, Mr. Peter Löscher and Mr. Pablo de Carvajal González, as Secretary. During 2022, the Executive Commission met 15 times and, as of the date of this Annual Report, had met three times in 2023.

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Audit and Control Committee

The Audit and Control Committee functions are regulated by our bylaws, our Board Regulations and the Audit and Control Committee Regulations. The Audit and Control Committee has the primary objective of providing support to our Board of Directors in its supervisory and oversight functions, specifically having the following responsibilities:

•To report to the shareholders at the General Shareholders’ Meeting regarding matters raised therein for which it is responsible.

•To submit to the Board of Directors proposals for the selection, appointment, re-election and replacement of the external auditor, as well as the terms and conditions of the contract therewith, and regularly obtain from such external auditor information regarding the audit plan and the implementation thereof, in addition to the preservation of its independence in the performance of its duties.

•To supervise the risk control and management unit, the effectiveness of the Company’s internal control system, the internal audit and the systems for the management of financial and non-financial risks (including operational, technological, legal, tax, social, environmental, political, reputational and corruption-related risks), as well as to discuss with the external auditor the significant weaknesses in the internal control system detected during the audit.

•To supervise the process of preparation and submission of regulated financial information and to ensure that the annual accounts submitted by the Board of Directors to the shareholders at the General Shareholders’ Meeting are prepared in accordance with the legal provisions on accounting.

•To establish and maintain appropriate relations with the external auditor in order to receive, for review by the Committee, information on all matters that could jeopardize the independence thereof, as well as any other matters related to the audit procedure, and such other communications as may be provided for in auditing legislation and in technical auditing regulations. In any event, the Audit and Control Committee must receive annually written confirmation from the external auditor of its independence vis-á-vis the entity or entities directly or indirectly related thereto, as well as information regarding additional services of any kind provided to such entities by the external auditor, or by the persons or entities related thereto, pursuant to the legislation in force.

•To issue on an annual basis, prior to the issuance of the audit report, a report stating an opinion regarding the independence of the external auditor. This report must in all cases include an opinion on the provision of the additional services referred to in the preceding paragraph.

•To supervise the application of the general policy on the disclosure of economic/financial, non-financial and corporate information and communication with shareholders and investors, proxy advisers and other stakeholders, and to monitor the manner in which the Company communicates and engages with small and medium-sized shareholders, all with respect to those aspects within the purview of the Committee.

•To report to the Board of Directors in advance on all matters contemplated by law, the bylaws and the Regulations of the Board of Directors.

•Any other powers granted to it under the Regulations of the Board of Directors.

The Audit and Control Committee meets at least once per quarter and as many times as considered necessary. During 2022, the Audit and Control Committee met 12 times and, as of the date of this Annual Report, had met twice in 2023. The members of the Audit and Control Committee are Mr. Peter Löscher (Chairman), Mr. José Javier Echenique Landiríbar, Ms. Carmen García de Andrés and Ms. María Rotondo Urcola. Our Board of Directors has determined that all the members of the Audit and Control Committee meet the requirements of an “audit committee financial expert” as such term is defined by the SEC.

Nominating, Compensation and Corporate Governance Committee

The Nominating, Compensation and Corporate Governance Committee is responsible for, among other things, reporting to our Board of Directors with respect to proposals for the appointment, re-election and removal of directors, members of the Executive Commission and the other committees of our Board of Directors and top members of our management and management of our subsidiaries. In addition, the Nominating, Compensation and Corporate Governance Committee is responsible for proposing to the Board of Directors, within the framework

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established in the bylaws, the compensation for the directors and reviewing it periodically to ensure that it is in keeping with the tasks performed by them, as provided in Article 36 of the Board Regulations, to propose to the Board of Directors, within the framework established in the bylaws, the extent and amount of the compensation, rights and remuneration of a financial nature, of the chairman, the executive directors and the senior executive officers of Telefónica, including the basic terms of their contracts, for purposes of contractual implementation thereof and to supervise compliance with the corporate governance rules in effect from time to time.

The members of the Nominating, Compensation and Corporate Governance Committee are Mr. José Javier Echenique Landiríbar (Chairman), Mr. Peter Erskine, Mr. Peter Löscher, Ms. María Luisa García Blanco and Mr. Francisco Javier de Paz Mancho. During 2022, the Nominating, Compensation and Corporate Governance Committee met 12 times, and as of the date of this Annual Report, it had met twice in 2023.

Regulation and Institutional Affairs Committee

The Regulation and Institutional Affairs Committee was created in 2016 by merging the Regulation Committee and the Institutional Affairs Committee. The main objective of the Regulation and Institutional Affairs Committee is to monitor the main regulatory matters which affect us. Additionally, the Regulation and Institutional Affairs Committee acts as a communication and information channel between our management team and our Board of Directors concerning regulatory matters. Another responsibility is to review, report and propose to the Board of Directors the principles that are to govern the Group’s Sponsorship and Patronage Policy, to monitor such policy, and to individually approve sponsorships or patronages the amount or importance of which exceed the limit set by the Board and which require its approval.

The members of the Regulation and Institutional Affairs Committee are Mr. Francisco Javier de Paz Mancho (Chairman), Ms. María Luisa García Blanco, Ms. Carmen García de Andrés and Mr. Juan Ignacio Cirac Sasturain. During 2022, the Regulation and Institutional Affairs Committee met 11 times, and as of the date of this Annual Report, the Committee had met twice in 2023.

Strategy and Innovation Committee

In 2016, the Strategy Committee and the Innovation Committee merged into a new Committee, the so-called Strategy and Innovation Committee. Without prejudice to any other tasks granted to it under article 26 of the Regulations of the Board of Directors, the primary duty of this Committee is to support the Board of Directors in the analysis and implementation of the global strategy policy of the Telefónica Group. The Strategy and Innovation Committee is also responsible for advising and assisting in all matters regarding innovation. Its main object is to examine, analyze and periodically monitor the Group’s innovation projects, provide guidance and help ensure the implementation and development of innovation initiatives across the Group. The members of the Strategy and Innovation Committee are Mr. Peter Erskine (Chairman), Mr. José María Abril Pérez, Mr. Juan Ignacio Cirac Sasturain, Ms. Verónica Pascual Boé and Ms. Claudia Sender Ramírez. The Strategy and Innovation Committee met 9 times during 2022, and as of the date of this Annual Report, it had met twice in 2023.

Sustainability and Quality Committee

The Sustainability and Quality Committee is responsible for, among other things, reviewing the strategies and policies relating to Telefónica's "Responsible Business" policy and sustainability practices in the environmental and social areas, supervising the impact and risk analysis of its "Responsible Business" strategy and analyzing Telefónica Group's objectives, action plans and practices in the field of social and environmental responsibility. In addition, the Sustainability and Quality Committee seeks to ensure that the corporate culture is aligned with its purpose and values with transparency towards its stakeholders and, together with the Audit and Control Committee, knows of the process of reporting non-financial information in matters of social responsibility and sustainability.

The members of the Sustainability and Quality Committee are Ms. María Luisa García Blanco (Chairman), Mr. Juan Ignacio Cirac Sasturain, Ms. Carmen García de Andrés, Mr. Francisco Javier de Paz Mancho, Ms. María Rotondo Urcola and Ms. Claudia Sender Ramírez. During 2022 the Sustainability and Quality Committee met 10 times and, as of the date of this Annual Report, had met twice in 2023.

Biographies of Directors

Mr. José María Álvarez-Pallete López serves as the Chairman of our Board of Directors and Chief Executive Officer of the Company. He is currently Chairman of the Telefónica Foundation, trustee of the Profuturo Foundation and member of Board of Trustees of ”la Caixa” Banking Foundation since February 2022. He is also member of the

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Advisory Council of SEAT, S.A. since March 2019 and Chairman of the Board of GSMA since February 2022. He is also member of the Board of Directors of VMED O2 UK Ltd. He began his career at Arthur Young Auditors in 1987. In 1988, he joined Benito & Monjardín/Kidder, Peabody & Co. In 1995, he joined Compañía Valenciana de Cementos Portland, S.A. (CEMEX) as head of the Investor Relations and Analysis department. In 1996, he was promoted to Chief Financial Officer in Spain, and in 1998, to Chief Administration and Financial Officer of CEMEX Group in Indonesia, headquartered in Jakarta, and he was appointed member of the Board of CEMEX Asia, Ltd. In February 1999 he joined the Telefónica Group as General Manager of Finance for Telefónica International, S.A. In September of the same year he was promoted to Chief Financial Officer of Telefónica. In July 2002, he was appointed Chairman and Chief Executive Officer of Telefónica Internacional, S.A.U.; in July 2006 General Manager of Telefónica Latin America, and in March 2009, Chairman of Telefónica Latin America. He has been the Chairman of Telefónica Europa since September 2011 and a member of Telefónica, S.A.'s Board of Directors since July 2006. Since September 2012 and until April 2016, Mr. Álvarez- Pallete served as Chief Operating Officer. Since April 2016 he is the Chairman of our Board of Directors and Chief Executive Officer of the Company. In 2001, he was awarded as ‘CFO Europe Best Practices’ at Mergers & Acquisitions 2000 by CFO Europe Magazine, and in 2003 as Member of Merit at the Iberian-American Forum of the Carlos III Foundation. In 2007 he was awarded with the Gold Master of the Executive Management Forum and in 2011, he received the Personality of the Year in Economics Award granted by the Spanish newspaper “El Economista”. In 2013 the Spanish Telecommunication Engineers Association awarded him with the Excellence Award of that same year, for his contribution to the development of telecommunications. In 2014, Mr. José María Álvarez-Pallete received Medalla Sorolla by the Hispanic Society of America and he was named “Innovative Corporate Leader of the Year” by the Latin Trade magazine and the magazine FastCompany included him in its "100 Most Creative People in Business 2014". In 2016, he was named the "Best CEO" in Spain by Forbes Magazine and the Consejo Superior de Deportes granted him the entry in the Royal Order of Merit Sports in the category of Bronze Medal. In 2019 he was granted with the Cross of Military Merit with white distinction, he received the "Manager of the Year" award in the Large Corporations category granted by the Asociación Española de Directivos, and was chosen “Business Leader of the Year” by the Spain-US Chamber of Commerce. In 2020, he was awarded with the ECOFIN prize for "Financiero del Año" and the Spanish Marketing Association has named him "Lider Empresarial Impulso del Marketing". In 2021, he was appointed Honorary Ambassador of Leading Brands of Spain Forum. Mr. Álvarez-Pallete holds a degree in Economics from the Complutense University in Madrid, also studied Economics at the Université Libre i Belgique and holds an International Management Program (IMP) degree from the Pan-American Institute of Executive Business Administration (IPADE) and a Diplome of Advanced Studies (DEA) from the Department of Financial Economics and Accounting of the Complutense University of Madrid.

Mr. Isidro Fainé Casas serves as Vice-Chairman of our Board of Directors. For over 40 years, Mr. Fainé has worked in several financial institutions, including amongst others: Banco Atlántico, S.A., (1964), Banco de Asunción (Paraguay) (1969), Banca Riva y García, S.A. (1973), Banca Jover, S.A. (1974), and Banco Unión, S.A. (1978). In 1982, he joined "la Caixa" as Deputy Executive General Manager, subsequently taking on various positions of responsibility. In April 1991, he was appointed Deputy Executive Managing Director and in 1999 rose to General Manager of the bank, before becoming Chairman from June 2007 to June 2014. He was also a member of the Board of Directors of CaixaBank since 2000, presiding from 2011 until his resignation in 2016. Likewise, he was Chairman of Naturgy Energy Group, S.A. from September 2016 until February 2018. Furthermore, he served as Director of Suez, S.A. from 2014 to 2020. Mr. Fainé is currently Chairman and Member of the Executive Commission of the Board of Trustees of the Fundación Bancaria Caixa d’Estalvis i Pensions de Barcelona la "Caixa”, Chairman of the Board and of the Executive Commission of Criteria Caixa, S.A.U. and of Caixa Capital Risc SGEIC, S.A., and Chairman of the Board of Directors of Inmo Criteria Caixa, S.A.U. He also serves as Special Advisor of the Bank of East Asia, and Chairman of the Spanish Confederation of Savings Banks (CECA) and of the World Savings Banks Institute (WSBI). Additionally, he is Deputy Chairman of the European Savings Banks Group (ESGB). He is currently the Chairman of the Spanish Confederation of Executives (CEDE) and of the Spanish Chapter of the Club of Rome. He is also Deputy-Chairman of the Royal Academy of Economic and Financial Sciences, Founder of the Financial Circle and a Trustee of the Museo Nacional del Prado Foundation and the Carlos Slim Foundation. He was also appointed Honorary Chairman of Naturgy Energy Group, S.A. in 2018 and was recognized with the Forbes 2018 Award for Philanthropy. Mr. Fainé holds a Doctorate degree in Economics from the Universidad de Barcelona, a Diploma in Senior Management from IESE Business School and an ISMP certificate in Business Administration from Harvard University. He is a member of the Royal Academy of Economics and Finance and of the European Royal Academy of Doctorate Holders.

Mr. José María Abril Pérez serves as Vice-Chairman of our Board of Directors. From 1975 to 1982 he served as Financial Manager of Sociedad Anónima de Alimentación (SAAL). Since then, and until he joined the Banco Bilbao Vizcaya Argentaria Group (BBVA), he was Financial Manager of Sancel-Scott Ibérica, S.A. In 1985 he joined Banco

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Bilbao, S.A. as Managing Director of Investment Corporate Banking. From January to April 1993, he was appointed Executive Coordinator of Banco Español de Crédito, S.A. In 1998, he became General Manager of the Industrial Group of BBV. In 1999, he was appointed member of the Executive Committee of the BBV Group. He has also been a member of the Board of Directors of Repsol, S.A., Iberia, S.A., Corporación IBV, Ibermática, S.A., and Vice-Chairman of Bolsas y Mercados Españoles, S.A. In 2002 he became Managing Director of the Wholesale and Investment Banking Division and a member of the Executive Committee of Banco Bilbao Vizcaya Argentaria, S.A. He is currently member of the Board of Directors of Arteche Lantegi Elkartea, S.A. He holds a degree in Economics from the University of Deusto (Bilbao, Spain) and he was professor of this University for nine years.

Mr. José Javier Echenique Landiríbar serves as Vice-Chairman of our Board of Directors. Mr. Echenique has been a Board Member and General Director of Allianz-Ercos as well as a General Director of BBVA Group, where he was responsible for wholesale business like Global Investment Banking or Global Corporate Banking among others. He has also been Member of the Board of Directors of Banco Sabadell, S.A. (Vice-Chairman), Repsol, S.A., Banco Guipuzcoano, S.A. (Chairman), Grupo Empresarial ENCE, S.A., ACS Servicios, Comunicaciones y Energía, S.L., Sevillana de Electricidad, S.A., Hidroeléctrica del Cantábrico, Metrovacesa and Abertis Infraestructuras, S.A. Mr. Echenique is currently Member of the Board of Directors of Telefónica Audiovisual Digital, S.L.U., ACS Actividades de Construcción y Servicios, S.A., Dragados, S.L. and Calcinor, S.L. He is also member of the Advisory Board of Telefónica España. He is also Trustee of the Novia Salcedo Foundation, a Board member of the Deusto Business School and a member of the McKinsey Advisory Council. He holds degrees in Economics and Actuarial Sciences from Basque Country University (UPV), where he was a professor of Social Security’s Quantitative Techniques of the Economic Sciences School of Bilbao for several years.

Mr. Ángel Vilá Boix serves as the Chief Operating Officer (COO) and as a Director of our Board of Directors. Previously, he served as the Chief Strategy and Finance Officer. Mr. Vilá joined Telefónica in 1997. He held positions of Group Controller, CFO of Telefónica Internacional, S.A.U. Group Head of Corporate Development and Chief Financial and Corporate Development Officer. In 2015, he was appointed Chief Strategy and Finance Officer. Prior to joining Telefónica, he held positions at Citigroup, McKinsey&Co, Ferrovial and Planeta. In the financial sector, he has served in the Board of directors of Banco Bilbao Vizcaya Argentaria (BBVA) and on the Advisory Panel of Macquarie MEIF Infrastructure funds. In the TMT sector, he was Chairman of Telefónica Contenidos, Vice-Chairman of Telco Spa (Italy) and Board member of Endemol, Digital+, Atento, Telefónica Czech, CTC Chile, Indra SSI and Terra Lycos. Institutional Investor nominated Ángel Vilá as the Best CFO in European Telecoms in 2015. He was also honored with the Thomson Reuters Extel Pan-European Awards as No.1 CFO in Spain both in 2013 and 2014, as well as No.1 CFO for Telecommunications in Europe in 2014. He currently is member of the Advisory Boards of Telefónica España and Telefónica Tech, and a Trustee of the Telefónica Foundation. He is also member of the Board of Directors of VMED O2 UK Ltd. Mr. Ángel Vilá holds an MBA from Columbia Business School where he studied with a Fulbright La Caixa fellowship. Prior to Columbia University, he graduated in Industrial Engineering from Universitat Politècnica de Catalunya in Barcelona.

Mr. Juan Ignacio Cirac Sasturain serves as a Director of our Board of Directors. Mr. Cirac began his career as full professor at the Applied Physics Department of Castilla La Mancha University. In 1996, he tutored at Institut für Theoretische Physik of Leopold Franzens Univesität Innsbruck, until 2001. In 2001, Mr. Cirac became Director of the Theory Division of Max-Planck Institut für Quantenoptik, a member of the Max Planck Society. Since 2002, he held the title of Honorarprofessor at Technical University of Munich. He has also served on advisory boards and scientific committees of several international research centers in the United States (Harvard, MIT), Asia (Kyoto, Tsinghua, Singapore) and Europe (Switzerland, Russia), as well as the BBVA Foundation, among other activities. He has also been a member of the Editorial Board of several national and international Physics journals and is the founder and editor of the journal Quantum Information and Computation. Since 2021, he is member of the Advisory Board of Telefónica Tech. He is also member of the Security Advisory Board of Telefónica Ingeniería de Seguridad and member of the Scientific Committee of La Caixa Foundation. Since 2019, he is Co-Director of the Munich Quantum Science and Technology Center. Since 2016, Mr. Cirac is a Director of International Max-Planck Research School Quantum Science and Technology. He has received several awards, such as the Hamburg Prize for Theoretical Physics, the Medal of Honor of Fundación García Cabrerizo or the Wolf Prize in Physics. He holds a degree in Theoretical Physics from Universidad Complutense de Madrid as well as a Ph.D. in Physics from this university. He is specialized in Theoretical Quantum Optics, Quantum Computing and Quantum Communication.

Mr. Peter Erskine serves as a Director of our Board of Directors. He began his career in the field of marketing in Polycell and in Colgate Palmolive. He worked for several years at the Mars Group, serving as Vice-Chairman for Europe of Mars Electronics. In 1990, he was appointed Vice-Chairman of Marketing and Sales of Unitel. From 1993 to 1998, he held a number of senior positions in BT, including Director of BT Mobile and President and Chief Executive Officer of Concert. In 1998, he was appointed Managing Director of BT Cellnet. Subsequently, in 2001, he

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was appointed Chief Executive Officer and a Director of the Board of Directors of O2 Plc (now Telefónica Europe, Plc). In 2006, he became Executive Chairman of Telefónica Europe, Plc (until December 31, 2007, after which he became a Non-Executive Director). In January 2009, he joined the Board of Ladbrokes Plc. as a Non-Executive Director until December 2015, becoming Chairman in May 2009. He stood down from the Board in December 2015, having taken a lead role in the merger of Ladbrokes Plc with Gala Coral Group. He was a member of the Supervisory Board of Telefónica Deutschland Holding AG since 2016 until December 31, 2021, and member of the Board of Directors of VMED O2 UK Ltd since June 2021. He also chairs the charity Brainstorm which is focused on funding research into brain tumors. Mr. Erskine holds a degree in Psychology from Liverpool University and an Honorary Doctorate from the University of Reading.

Ms. Carmen García de Andrés serves as a Director of our Board of Directors. Ms. García joined PricewaterhouseCoopers (Coopers & Lybrand Legacy) in 1985, where she held several positions. Thereafter, she held various leadership positions at Landwell -Abogados y Asesores Fiscales as well as at PwC. She has been representative of the Spanish brand at the International Specialist Group in Indirect Taxation for more than six years. Between 2004 and 2007, she was the Managing Partner of the Gran Consumo, Distribución, Industria y Servicios Group of Madrid with more than 30 experts in legal and taxation areas, and responsible for the Diversity Program, Women in PwC between 2005 and 2007. She has been member of the Trust of the Young Business Spain Foundation and Board member of the collective initiative Juntos por el empleo de los más desfavorecidos. She has been member since 2006 of the Trust of Tomillo Foundation, and in March 2008 became the Managing Director of this non-profit institution and its Executive Chairwoman in 2014. She is Treasurer of the Asociación Española de Fundaciones (AEF), member of the Trust of Secretariado Gitano, Somos F5 and Xavier de Salas Foundations and co-founder and member of the Trust of "Aprendiendo a ser" Foundation since December 2018. She holds a degree in Economic and Business Sciences from the Comillas Pontifical University, ICADE.

Ms. María Luisa García Blanco serves as a Director of our Board of Directors. Ms. García began her career in 1992 as a state attorney (abogado del estado). In 2002, she was appointed Deputy Director-General of Constitutional Law and Human Rights and state attorney-Head of the Constitutional Law and Human Rights Department as well as Agent of the Kingdom of Spain before the European Court of Human Rights. As Agent of the Kingdom of Spain she managed and coordinated the Spanish delegation composed of representatives from various Spanish Ministries and represented the Kingdom of Spain before various UN Committees in nonjudicial proceedings and individual claims and before the European Court of Human Rights (TEDH) in individual claims. As state attorney serving at the Constitutional Court, she has been involved in constitutional law proceedings such us claims for unconstitutionality and jurisdictional conflicts, appeals for protection of constitutional rights and other issues of unconstitutionality. Among other activities, she has been the Secretary of the Board of Directors of Sociedad Estatal de Infraestructuras Agrarias del Norte (SEIASA DEL NORTE) and, from 1999 to 2010, of its Audit and Control Committee. From 2010 to 2013, she served as a Director of Sociedad Estatal de Infraestructuras Agrarias (SEIASA). She served as a Director of Sociedad Estatal de Aguas de la Cuenca del Norte (ACUANORTE) between 2010 and 2013, and of Sociedad Estatal de Aguas de las Cuencas de España (AcuaEs) between 2012 and 2013. Furthermore, she has been involved in coordination and cooperation activities for the promotion and defense of human rights in Uruguay (2006), Colombia (2007 and 2008), Chile (2009) and Guatemala (2010). Additionally, in 2006 she was awarded with the Cross of Honor of the Order of St. Raymond of Penyafort. In October 2013 she left her position as state attorney and she is currently a partner at the law firm Salama García Blanco, SLP, which focuses on administrative, constitutional law, civil and commercial litigation, and arbitration matters, and provides legal advice to credit institutions. In 2014, she was appointed as Corresponding Member of the Royal Academy of Jurisprudence and Legislation. Since 2021, she is member of the Advisory Board of Telefónica España. She is currently Director of Ibercaja Banco, S.A., member of the CIMA Governance and Control Committee and President of the Committee of Experts of 65YMAS.COM. She holds a law degree from the University of Cordoba (Spain).

Mr. Peter Löscher serves as a Director of our Board of Directors. Mr. Löscher was the President of Global Human Health and a member of the Executive Board of Merck & Co., CEO of GE Healthcare Bio – Sciences and a member of GE’s Corporate Executive Council. He was also COO and a member of the Board of Amersham Plc. He held a senior leadership position in Aventis and Hoeschst. Mr. Löscher is former Chairman of the Supervisory Board of OMV AG, Austria. From 2014 to 2016, he was the CEO of Renova Management AG. In the past, he was also a member of the Supervisory Board of Deutsche Bank AG and Chairman and CEO of Siemens AG, among others, and until April 2022 Chairman of the Board of Directors of Sulzer AG. Since April 2020, he is Chairman of the Supervisory Board of Telefónica Deutschland Holding AG, member of the Supervisory Board of Philips, member of the Board of Thyssen-Bornemisza Group AG, Switzerland, and a non-executive member of the Board of Directors of Doha Venture Capital LLC, Qatar. He is also Honorary Professor at Tongi University Shangai and he holds the Grand Decoration of Honor in Gold of the Republic of Austria, the Order of Friendship of the Russian Federation

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and is a Knight Commander of the Order of Civil Merit of Spain. Mr. Löscher studied Economics at Vienna University of Economics, where he also received his MBA, and Business at the Chinese University of Hong Kong. He completed the Advanced Management Program (AMP) at Harvard Business School and an Honorary Doctorate of Engineering from Michigan State University and is a Doctor Honoris Causa of Slovak University of Engineering in Bratislava.

Ms. Verónica Pascual Boé serves as a Director of our Board of Directors. Ms. Pascual began her professional career at the international level in the strategic management department of Human Resources of the multinational industrial group Bouygues. In 2004, she joined the family firm ASTI, where she held different positions in the management of this company (technical management and sales management departments). At the end of 2006, she was appointed General Manager and in 2008 she decided to acquire the company. She has previously held various positions, including: Promoter and Founder of Burgos Digital Innovation Hub, through ASTI of DIHBU (2018); President of the Industry Working Group 4.0 of the Castile and Leon Government (2016-2018); President of the Industry Committee 4.0 and Vice President of Talent Development of AMETIC (2016-2018); Member of the Advisory Council of the Quality Agency of the University System (2015-2016); Member of the Advisory Council of EAE Business School (2015-2016); Member of the Governing Council of APD Castile and Leon (2014-2015); Member of the Board of Directors of Empresa Familiar Castile and Leon (2001-2013). Ms. Pacual is an entrepreneur who has led during 18 years a group of companies involved in digital transformation headed by ASTI Mobile Robotics Group, a company with affiliates in Spain, France, Germany, and the United States, engaged in the supply of autonomous vehicle systems for the automation of industrial processes in sectors such as the automotive, food, cosmetics, pharmaceuticals, and retail. Ms Pascual also Chairs the ASTI Tecnología y Talento Foundation and is also a Director of the company General Alquiler de Maquinaria, S.A. (GAM). Since August 2021, ASTI Mobile Robotics has been integrated into ABB Robotics and Ms. Pascual has moved to the position of Global Manager of Robótica Móvil Autónoma until January 2023. She currently leads her family office, ALBP Corp, one of whose main objectives is the investment in technology-based projects. In addition, she is member of the Advisory Board of Telefónica Tech. Ms. Pascual has a degree in Aeronautical Engineering from the Polytechnic University of Madrid, a Master in Business Administration (MBA) from the College des Ingenieurs de Paris and an Executive Master in Positive Leadership and Strategy (EXMPLS) from IE Business School. She also has several postgraduate qualifications from INSEAD, Stanford, and Harvard Business School.

Mr. Francisco Javier De Paz Mancho serves as a Director of our Board of Directors. From 1984 to 1993 he was the General Secretary of Juventudes Socialistas and a member of the PSOE Executive. From 1990 to 1993, he was general secretary of the Spanish Consumers Association (Unión de Consumidores de España, UCE). From 1993 to 1996, he served as General Manager of Internal Trade of the Spanish Ministry of Tourism and Commerce and Director of Tabacalera, S.A. From 1994 to 1996, he was Chairman of the Observatory of Trading of the Spanish Ministry of Tourism and Commerce (Observatorio de la Distribución Comercial del Ministerio de Comercio y Turismo); from 1996 to 2004, he was Corporate Strategy Manager of the Panrico Donuts Group and Deputy Chairman. From 1998 to 2004, he served as Director of Mutua de Accidentes de Zaragoza (MAZ). From 2004 to 2006, he was Director of Tunel de Cadí, S.A.C. and from 2003 to 2004, he served as Chairman of the Patronal Pan y Bollería Marca (COE). From 2004 to 2007, he was Chairman of the National Company MERCASA. He has also been a member of the Board of Directors of the Economic and Social Board and its Permanent Commission. From July 2006 to November 2014, he was a member of the Executive Committee of the Chambers Board (Consejo Superior de Cámaras) and from 2008 to 2012 he was the Chairman of Atento Inversiones y Teleservicios, S.A.U. From July 2016 to December 2021 he was the Chairman of Telefónica Ingeniería de Seguridad, S.A.U. From April 2018 to April 2021 he was Director of Telefónica Móviles de Argentina, S.A. From July 2020 to May 2021 he was Director of Pegaso PCS, S.A. de C.V. (Mexico). From September 2016 to July 2020, he was Director of Telefónica Móviles México, S.A. Currently, he is Director of Telefônica Brasil, S.A. and of Telefónica Audiovisual Digital, S.L.U. and member of the Advisory Boards of Telefónica de España and Telefónica Hispanoamérica. Mr. de Paz has a diploma in Publicity and Information and undertook studies in Law. He completed a Programa de Alta Dirección de Empresas from the IESE Business School (Instituto de Estudios Superiores de la Empresa, University of Navarra).

Mr. Francisco José Riberas Mera serves as a Director of our Board of Directors. He started his professional career at the Gonvarri Group, where he became Director of Corporate Development and Chief Executive Officer. Mr. Riberas has been the Chief Executive Officer of Gestamp Automoción since its incorporation. He has been member of the Board of Directors of General de Alquiler de Maquinaria, S.A. (GAM) and Chairman of Endeavor Foundation in Spain. Currently, Mr. Riberas is the Executive Chairman of Gestamp Automoción. He also serves as a member of the management team of certain companies of the Gestamp Group and the ACEK Group, including companies belonging to the Groups Gonvarri, Acek Renewables Energy and Inmobiliaria Acek. He also serves as a member of the Board of Directors of CIE Automotive and Wallbox, N.V. Furthermore, he is Chairman of SERNAUTO

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(Asociación Española de Proveedores de Automoción) and Foundation Consejo España-China. Mr. Riberas holds a Degree in Law (1987) and in Economics and Business Administration (1988) from Comillas Pontifical University (ICADE E-3).

Ms. María Rotondo Urcola serves as a Director of our Board of Directors. From 1989 to 2006 she was an Investment Analyst specializing in various sectors, particularly in the telecommunications sector, Macroeconomist, and Head of Equity Research Europe, at Santander Investment Sociedad de Valores y Bolsa. From 2006 to 2016, she was Global Head of the Telecommunications, Media and Technology at Santander Global Banking and Markets. From 2017 to 2020 she was an independent Director of Indra. She has also served on the Advisory Board of Instituto de Empresa (IE) "Transformation with Purpose", and of Hotelab. She is currently an independent Director of CACEIS Bank Spain, SANTANDER CACEIS LATAM HOLDO (since 2019) and Libertas 7 (since 2021). She also participates in the Advisory Board of Top Boards-Headspring (Financial Times - Instituto de Empresa) (since 2017). Ms. Rotondo teaches Capital Markets at the Instituto de Consejeros y Administradores (ICA), and Special Operations Communication in the Master Investor Relations at Bolsas y Mercados (BME). She is also Co-Director and professor in the Sustainability Programme at the Instituto de Empresa (IE) SYCA, where she teaches classes on corporate governance and sustainability. She has also been an internal trainer at Banco Santander, as well as a speaker at various forums and collaborates with several publications (Fide Monedas digitales in 2020, Gaptel, Telos, El Economista, others). Among the awards received, the most noteworthy are the following: Finalist 2016 TMT Finance EMEA, Best Corporate Finance Deal (OPA Orange-Jazztel); 1999-2002 Reuters-Institutional Investor, 1 and 3 Ranked European Telecom Analyst; 2001 Footsie- Actualidad Económica, 1 Ranked analyst all sectors in Spain 2001; 2000 Institutional Investors, First Equity Research team in Spain by Institutional Investors; and 1997 Vallehermoso Award, 1 Real Estate Analyst (Ladrillo de Oro 1997). Ms. Rotondo has a degree in Economics and Business Administration from the Complutense University of Madrid. She has received complementary training at various Institutions such as ESG Academy/Foretica, IESE, IC-A, EEC, IMD, NYU, Harvard, Boston College, among others.

Ms. Claudia Sender Ramírez serves as a Director of our Board of Directors. She has held various positions in, among others, the following companies: (i) Director of Yduqs University (formerly known as Estácio) (2019-2021) (ii) Latam Airlines Group where she served as Vice President, Chief Customer Officer (2017-2019), CEO of LATAM Brazil (2013-2017), Vice President of LATAM Brazil (2011-2013); (iii) Whirlpool, S.A. where she served as Vice President of Marketing (2009-2011), Divisional Director of Marketing (2007-2009), and Director of Strategic Planning (2005-2007); and (iv) Bain & Company Brazil where she served as a consultant specialising in Strategy (1998-2005). Currently, Ms. Sender is a Director of LafargeHolcim Ltd (since 2019); Director of Gerdau, S.A. (since 2019); Director of Amigos do Bem (since 2017), a Brazilian NGO dedicated to the eradication of poverty in the Northwest of Brazil; Director of Embraer, Empresa Brasileira de Aeronáutica, S.A. (since 2021); and Director of Metalúrgica Gerdau, S.A. (since 2021). In addition, she is member of the Advisory Board of Telefónica Tech and Telefónica Hispanoamérica. Ms. Sender has a degree in Chemical Engineering from the Polytechnic School of the University of São Paulo, and an MBA from Harvard Business School in Boston.

Terms and Conditions of Executive Directors' Contracts

The contracts signed with the Executive Directors are for an indefinite term and include a non-competition clause. This clause implies that, once the relevant contract has been terminated and during the valid term of the clause (two years after the termination of the contract for any reason), the Executive Directors may not indirectly or directly render their services themselves or through others, either on their own behalf or through third parties, to Spanish or foreign companies that engage in the same or similar business activities as the Telefónica.

Regarding the conditions related to the termination of the contracts, the Executive Chairman, Mr. José María Álvarez-Pallete López, and the Chief Operating Officer (“Consejero Delegado”), Mr. Ángel Vilá Boix, have the same terms and conditions as in their previous contracts, which specify agreed severance pay for termination of the relationship, when appropriate, which may amount to a maximum of four annual payments. Each annual payment consists of the last fixed remuneration and the arithmetic mean of the sum of the last two amounts of the annual variable remuneration paid pursuant to the contracts.

The contracts that currently regulate the performance of the Executive Directors’ duties and responsibilities are of a commercial nature and include clauses that are included in these kinds of contracts in normal practice. These contracts have been proposed by the Nominating, Compensation and Corporate Governance Committee and approved by the Board of Directors.

In addition to the prior notice and severance pay conditions explained in the previous point, a summary is provided

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below of the main terms and conditions of the Executive Directors’ contracts:

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			Executive Chairman and Chief Operating Officer
Term			Indefinite
Prior notice			There is an obligation to provide prior notice in the event of the contract being terminated due to a unilateral decision adopted by the Executive Director, being stipulated that he must notify the unilateral decision in writing with at least three months’ prior notice, except in cases of force majeure. If this obligation is not fulfilled, he must pay the company an amount equivalent to the Fixed Remuneration for the period of prior notice not observed.
Exclusivity			The contracts prohibit during the term thereof the signing (whether directly or through intermediaries) of any employment, commercial or civil contracts with other companies or institutions that engage in activities similar in nature to those of Telefónica.
Non-competition clause			The contract states the relationship is compatible with holding representative, administrative and management posts and other professional positions in other companies in the Telefónica Group or in any other undertakings unrelated to the company when expressly notified to the Nominating, Compensation and Corporate Governance Committee and the Board of Directors. In addition, it states that the relationship is incompatible, during the term of the clause (two years after the termination of the contract for any reason) with directly or indirectly rendering services, on an employed or self-employed basis, by themselves or through third parties, to any Spanish or foreign companies that engage in activities identical or similar to those of Telefónica.
Confidentiality			While the relationship remains in force and also after the termination thereof, there is a duty of confidentiality regarding any information, data and any kinds of reserved and confidential documents they have knowledge of or to which they have had access as a result of holding their positions.
Compliance with the regulatory system			The contracts include the obligation to abide by the rules and obligations set out within Telefónica’s regulatory system, which are contained, among other regulations, in the Board of Directors Regulations and Telefónica’s Internal Stock Market Conduct Regulations.

Executive Officers/Management Team

At February 23, 2023, our executive management team consisted of the following individuals:


Name	Position	Appointed	Age
Mr. José María Álvarez-Pallete López	Chairman of the Board of Directors and Chief Executive Officer	2016	59
Mr. Ángel Vilá Boix	Chief Operating Officer	2017	58
Mr. Pablo de Carvajal González	General Secretary, Secretary of the Board of Directors and Director Global of Regulation	2018	59
Ms. Laura Abasolo García de Baquedano	Chief Finance and Control Officer	2017	50
Mr. Eduardo Navarro de Carvalho	Chief Corporate Affairs and Sustainability Officer	2019	60
Mr. Mark Evans	Chief Strategy and Development Officer	2021	53
Mr. Juan Francisco Gallego Arrechea	General Manager of Internal Audit	2016	56

Biographies of the Executive Officers and Senior Management

We present below the biographies of our executive officers and senior management who do not also serve on our Board of Directors.

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Mr. Pablo de Carvajal González serves as the General Secretary, Secretary of the Board of Directors of Telefónica and Director Global of Regulation. He is also a member of the Executive Committee of Telefónica. From 1988 to 1989, he worked as legal counsel for La Unión y el Fénix Español, Compañía de Seguros y Reaseguros, S.A. In April 1991, he was appointed state attorney (abogado del Estado) until December 1999, when he became legal counsel of Jazz Telecom, S.A. In March 2000, he became secretary of the Board and head of the legal department of Yacom Internet Factory, S.A. Since June 1, 2001, he has been the General Secretary and Secretary of the Board of Directors of Telefónica de España, S.A. and, since April 2013, also Director of Regulation. He holds a law degree the Universidad Complutense de Madrid and a Master's degree in European law from the Free University of Brussels.

Ms. Laura Abasolo García de Baquedano is the Chief Finance and Control Officer of Telefónica, S.A. In addition, she is Head of Telefónica Hispam, Director of VMED O2 UK Ltd. and Member of the Advisory Board of Hispam and Telefónica España. She started her professional career at Goldman Sachs International, in the area of Investment Banking in Europe. She joined Telefónica in 1999 as the Management Control Officer at Terra Networks, S.A., where she was also a member of the Executive Committee. In July 2005, she assumed the role of Management Control Officer at Telefónica, S.A. and in December 2007, she became Planning, Budgets and Management Control Officer. In March 2014, she joined the Executive Committee of Telefónica, S.A. and also assumed the responsibility for the Simplification Office. In 2016, she became responsible for the Consolidation and Accounting Policies, and Tax divisions of the company. In July 2017, she is appointed Chief Finance and Control Officer of Telefónica, S.A. In February 2020, she was appointed Chief of the Procurement and Supply Chain division and the Corporate Development division, holding this last position until September 2021. She holds a Degree in Economics and Business Administration from Deusto Business School and an MBA in International Businesses by the Norwegian School of Economics and Business Administration.

Mr. Eduardo Navarro de Carvalho is the Chief Corporate Affairs and Sustainability Officer Telefónica, S.A. He began his career as an engineer in the Brazilian operation of ARBED, a steel and iron producer. Before joining the Telefónica Group, he was a consultant at McKinsey & Co., where he led Telecommunications and Infrastructure projects in Latin America, Europe and Africa. Eduardo joined Telefónica in 1999, as Vice-President of Corporate Strategy and Regulatory Affairs for Telefónica Brazil. Before assuming his current position, Eduardo was President and CEO of Telefônica Brasil | Vivo; before that Eduardo held key global positions in the Telefónica Group, including Chief Commercial Digital Officer (CCDO) and Director of Strategy and Business Development. He was also Director of Strategic Planning and Regulatory Affairs for Telefónica Internacional. Eduardo holds a Metallurgical Engineering degree from the Federal University of Minas Gerais, Brazil.

Mr. Mark Evans is the Chief Strategy and Development Officer of Telefónica, S.A. He joined the Executive Committee of Teléfonica on August 1, 2016, holding the role of Chief Executive Officer of Telefonica UK (O2) through to June 1, 2021. A time at which the business grew to become the UK’s largest mobile provider whilst delivering five years of consecutive profit growth and market leading customer satisfaction. Previously he was Chief Financial Officer for Telefonica UK, a position he held since January 2012. Prior to joining Telefónica, he held a number of senior positions within the Vodafone Group including Global Technology CFO, UK CFO and Ireland CFO and prior to joining Vodafone he held the role of Group Financial Controller for ntl. Mark was Chairman of Tesco Mobile, the largest Mobile Virtual Network Operator in the UK, a joint venture of Tesco Plc and Telefónica. He gained a Chartered Management Accounting qualification (ACMA) and was educated at Southampton Solent University.

Mr. Juan Francisco Gallego Arrechea is the General Manager of Internal Audit of the Telefónica Group since 2016. He began his career in Arthur Andersen, where he specialized in audit and financial consulting for business groups. In June 2000, he joined the Telefónica Group working as Director of Consolidation and Accounting Policies and serving, from 2009, as Chief Accounting Officer. Mr. Gallego is a speaker and a member of work teams in several master programs, conferences and courses on the matter of audit, consolidation and accounting practices held by regulators, private institutions and universities. He is currently Director and Chairman of the Audit Committee of the Institute of Internal Auditors of Spain. He obtained a degree in Economic Science at Universidad Complutense in Madrid.

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B. Compensation

Please see Note 29.g and Appendix II to our Consolidated Financial Statements for information on the compensation paid to members of our Board of Directors and Executive Officers/Senior Management Team during the year 2022.

Incentive Plans

Please see Note 27 to our Consolidated Financial Statements.

C. Board Practices

Please see “—Directors and Senior Management” above.

D. Employees

Please see “Headcount” in Note 26 to our Consolidated Financial Statements.

(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 (the Individual Suspension Plan).

E. Share Ownership

At February 23, 2023, the following members of our Board of Directors beneficially owned directly or indirectly an aggregate of 17,066,508 shares, representing approximately 0.296% of our capital stock.

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Name or corporate name of director	Number of direct voting rights	Number of indirect voting rights	% of total voting rights
Mr. José María Álvarez-Pallete López	2,168,658	—	0.038
Mr. Isidro Fainé Casas	734,460	—	0.013
Mr. José María Abril Pérez	374,529	466,378	0.015
Mr. José Javier Echenique Landiríbar	237,125	62,758	0.005
Mr. Ángel Vilá Boix	624,332	—	0.011
Mr. Juan Ignacio Cirac Sasturain	—	—	—
Mr. Peter Erskine	46,189	—	0.001
Ms. Carmen García de Andrés	869	—	—
Ms. María Luisa García Blanco	—	37,127	0.001
Mr. Peter Löscher	179,453	—	0.003
Ms. Verónica Pascual Boé	—	—	—
Mr. Francisco Javier de Paz Mancho	80,270	—	0.001
Mr. Francisco José Riberas Mera	—	12,014,980	0.208
Ms. María Rotondo Urcola	39,380	—	0.001
Ms. Claudia Sender Ramírez	—	—	—

At February 23, 2023, members of our executive management team (excluding members of our Board of Directors listed above) beneficially owned an aggregate of 914,696 of our shares, representing approximately 0.016% of our capital stock.

None of our directors or executive officers beneficially owned shares representing one percent or more of our share capital at February 23, 2023.

None of our directors and executive officers held options in respect of shares representing one percent or more of our share capital at February 23, 2023.

Please see Note 27 to our Consolidated Financial Statements for information on our share-based payment plans.

Item 7. Major Shareholders and Related Party Transactions

A. Major Shareholders

General

At February 23, 2023, we had 5,775,237,554 shares outstanding, each having a nominal value of 1.00 euro per share. All outstanding shares have the same rights.

At February 23, 2023, according to information provided to us or to the Spanish National Securities Commission (Comisión Nacional de Mercado de Valores or the “CNMV”), beneficial owners of 3% or more of our voting stock were as follows:


Name of Beneficial Owner	% of voting rights attributed to shares		% of voting rights through financial instruments		% of total voting rights
	Direct	Indirect	Direct	Indirect
Banco Bilbao Vizcaya Argentaria, S.A.(1)	4.85	0.02	0.00	0.00	4.87
CaixaBank, S.A.(2)	3.50	0.00	0.00	0.00	3.50
BlackRock, Inc.(3)	0.00	4.32	0.00	0.16	4.48

(1)Based on the information provided by Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) for our 2022 Annual Report on Corporate Governance. According to the aforementioned information provided by BBVA, the percentage of economic rights attributed to Telefónica, S.A. shares owned by BBVA amounts to 4.97% of the Company's share capital.

(2)Based on the information provided by CaixaBank, S.A. for our 2022 Annual Report on Corporate Governance.

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(3)Based on the information notified by BlackRock, Inc. to the CNMV on March 31, 2020 as updated per the share capital of Telefónica, S.A. as of December 31, 2022. Based on the Schedule 13G/A filed with the SEC on October 7, 2022, BlackRock, Inc. beneficially owned 4.96% of Telefónica, S.A. shares (4.49% of voting rights).

To the extent that our shares are represented by account in the book-entry form, we do not keep a shareholder registry and our ownership structure cannot be known precisely. Based on the information available to us there is no individual or corporation that directly or indirectly through one or more intermediaries may exercise any type of control over us. Nevertheless, we have certain shareholders whose holdings are considered material.

Ownership Limitations

There are no limitations with respect to the ownership of our assets or share capital except those related to assets derived from the application of the reciprocity principle. Article 6 of the General Telecommunications Law, or the GTL, provides for the application of the reciprocity principle under existing international treaties or agreements signed and ratified by Spain. The Spanish government, upon request, may authorize exceptions to the reciprocity principle contained in the GTL.

B. Related Party Transactions

During 2020, 2021 and 2022 through the date of this Annual Report, the Directors and senior executives did not enter into any transaction with Telefónica, S.A. or any Telefónica Group company other than those in the Group’s normal trading activity and business, except for the transactions with parties related to Directors during fiscal year 2022 disclosed in Note 11 to the Consolidated Financial Statements.

Our Board of Directors’ Regulations grant the Board of Directors the exclusive power to authorize any transactions with major shareholders or with our directors. Prior to authorizing any such transaction, our Board will receive an opinion from the Audit and Control Committee addressing the fairness of the transaction to our shareholders and us. Any of our directors that may have an interest in the proposed transaction must abstain from voting on the proposed transaction.

Please see Note 11 to our Consolidated Financial Statements for further information.

Related Party Transactions with Significant Shareholders

Two of our major shareholders are financial institutions (see “—Major Shareholders—General” above). We have entered into related party transactions with both companies within our ordinary course of business, and always on arm’s-length terms. During 2020, 2021 and 2022 through the date of this Annual Report, the executed transactions were generally loans, capital markets or derivative transactions provided to us by these financial institutions and agreements for us to provide telecommunications and broadband services to such institutions.

Please see Note 11 to our Consolidated Financial Statements for further information.

Intra-Group Loans

We are the parent company of the Telefónica Group and operate through our subsidiaries and affiliated companies. We coordinate group policies, including financial policy and, in some cases, actual financial management is conducted by us. Most of the transactions we perform with other members of the Telefónica Group relate to financing transactions, including covering their needs for funds and providing interest rate and exchange rate hedges.

At December 31, 2022, as recorded in our parent company accounts, companies in the Telefónica Group owed Telefónica, S.A. a total of 1,715 million euros (3,772 million euros at December 31, 2021), including amounts due under intra-group loans and dividends distributed and uncollected at December 31, 2022.

In addition, at December 31, 2022, companies of the Telefónica Group and their associates had loaned to us (Telefónica, S.A.) a total of 42,777 million euros (43,062 million euros at December 31, 2021), of which 10,019 million euros (10,499 million euros at December 31, 2021) was loaned to us by Telefónica Europe, B.V. and 26,468 million euros (28,817 million euros at December 31, 2021) was loaned to us by Telefónica Emisiones S.A.U., our financing subsidiaries devoted to raising funds in the capital markets, 6,290 million euros (3,580 million euros at December 31, 2021) was loaned to us by Telfisa Global, B.V., our financing subsidiary charged with centralizing and managing the cash pooling of our subsidiaries in Latin America, Europe and the United States, and no amount was loaned to us by other companies (166 million euros at December 31, 2021).

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C. Interests of Experts and Counsel

Not applicable.

Item 8. Financial Information

A. Consolidated Financial Statements

Please see Item 18.

(a) Legal Proceedings

Telefónica and its Group companies are party to several legal proceedings which are currently in progress in the courts of law and the arbitration bodies of the various countries in which we are present.

Based on the advice of our legal counsel we believe it is reasonable to assume that these legal proceedings will not materially affect the financial condition or solvency of the Telefónica Group.

The contingencies arising from the litigation and commitments described below were evaluated. The provisions recorded in respect of the commitments taken as a whole are not material.

The following unresolved legal proceedings or those underway in 2022 are highlighted (see “—(b) Tax Proceedings” below and Note 25 to the Consolidated Financial Statements for information on significant tax-related cases).

Appeal against the decision by Agencia Nacional de Telecomunicações (“ANATEL”) regarding the inclusion of interconnection and network usage revenues in the Fundo de Universalização de Serviços de Telecomunicações (“FUST”)

Vivo Group operators (currently "Telefónica Brasil"), together with other cellular operators, appealed ANATEL’s decision of December 16, 2005, to include interconnection and network usage revenues and expenses in the calculation of the amounts payable into the FUST (Fundo de Universalização de Serviços de Telecomunicações) –a fund which pays for the obligations to provide Universal Service– with retroactive application from 2000. On March 13, 2006, Brasilia Federal Regional Court no. 1 granted a precautionary measure which stopped the application of ANATEL’s decision. On March 6, 2007, a ruling in favor of the wireless operators was issued, stating that it was not appropriate to include the revenues received by transfer from other operators in the taxable income for the FUST’s calculation and rejecting the retroactive application of ANATEL’s decision. On January 26, 2016, ANATEL filed an appeal to overturn this decision with Brasilia Federal Regional Court no. 1, which was also dismissed. On May 10, 2017 ANATEL appealed to the higher courts on the merits of the case.

At the same time, Telefónica Brasil and Telefónica Empresas, S.A., together with other wireline operators through ABRAFIX (Associação Brasileira de Concessionárias de Serviço Telefonico Fixo Comutado) appealed ANATEL’s decision of December 16, 2005, also obtaining the precautionary measures requested. On June 21, 2007, Brasilia Federal Regional Court no. 1 ruled that it was not appropriate to include the interconnection and network usage revenues in the FUST’s taxable income and rejected the retroactive application of ANATEL’s decision. ANATEL filed an appeal to overturn this ruling on April 29, 2008, before Brasilia Federal Regional Court no. 1, which was dismissed on May 10, 2016. ANATEL filed an appeal against this dismissal.

The fixed operators filed an appeal to clarify that revenues obtained through interconnection and dedicated line operation should not be included in the calculation of the amounts payable to the FUST. In addition, the court was also requested to rule on two grounds which had not been analyzed in the initial decision: (i) that the FUST has become obsolete, among other reasons, by the advance of mobile telephony; and (ii) that amounts collected are not applied to the purpose for which the FUST was created, since only a very low percentage of the revenues collected by the FUST is used to finance fixed telephony. Although the petition for clarification was dismissed on August 23, 2016, the court noted that the FUST should not be funded with revenues from interconnection and dedicated line operation. ABRAFIX appealed to the higher courts on these two elements that had not been analyzed. ANATEL appealed all the holdings of the ruling to the higher courts.

The amount of the claim is quantified at 1% of the interconnection revenues.

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Appeal against the Decision of the European Commission dated January 23, 2013, to sanction Telefónica for the infringement of Article 101 of the Treaty on the functioning of the European Union

On January 19, 2011, the European Commission initiated formal proceedings to investigate whether Telefónica, S.A. (Telefónica) and Portugal Telecom SGPS, S.A. (Portugal Telecom) had infringed European Union antitrust laws with respect to a clause contained in the sale and purchase agreement of Portugal Telecom’s ownership interest in Brasilcel, N.V., a joint venture in which both companies were venturers and which was the owner of the Brazilian company Vivo.

On January 23, 2013, the European Commission passed a ruling on the formal proceedings. The ruling imposed a fine on Telefónica in the amount of 67 million euros, as the European Commission ruled that Telefónica and Portugal Telecom committed an infraction of Article 101 of the Treaty on the Functioning of the European Union for having entered into the agreement set forth in Clause Nine of the sale and purchase agreement of Portugal Telecom’s ownership interest of Brasilcel, N.V.

On April 9, 2013, Telefónica filed an appeal for annulment of this ruling with the European Union General Court. On August 6, 2013, the European Union General Court notified Telefónica of the response issued by the European Commission, in which the European Commission reaffirmed the main arguments of its ruling and, specifically, that Clause Nine includes a competition restriction. On September 30, 2013, Telefónica filed its reply. On December 18, 2013, the European Commission filed its appeal.

A hearing was held on May 19, 2015, at the European Union General Court.

On June 28, 2016, the European Union General Court ruled. Although it declared the existence of an infringement of competition law, it annulled Article 2 of the contested Decision and required the European Commission to reassess the amount of the fine imposed. The General Court considered that the European Commission has not neutralized the allegations and evidences provided by Telefónica on services in which there was not potential competition or were outside the scope of Clause Nine.

Telefónica understands that there are grounds for believing that the ruling does not suit at law; consequently, it filed an appeal to the Court of Justice of the European Union, on September 11, 2016.

On November 23, 2016, the European Commission filed its response against the Telefónica's appeal. On January 30, 2017, Telefónica filed its response. On March 9, 2017, the European Commission filed its rejoinder.

On December 13, 2017, the General Court dismissed the appeal filed by Telefónica. The European Commission, which was urged to recalculate the amount of the fine in the judgment of the General Court of June 2016, issued a resolution on January 25, 2022, imposing a fine of 67 million euros on Telefónica. In April 2022, Telefónica paid the fine of 67 million euros imposed, bringing the procedure to an end.

Decision by the High Court regarding the acquisition by Telefónica of shares in Český Telecom by way of a tender offer

Venten Management Limited ("Venten") and Lexburg Enterprises Limited ("Lexburg") were non-controlling shareholders of Český Telecom. In September 2005, both companies sold their shares to Telefónica in a mandatory tender offer. Subsequently, Venten and Lexburg, in 2006 and 2009, respectively, filed actions against Telefónica claiming a higher price than the price for which they sold their shares in the mandatory tender offer.

On August 5, 2016, the hearing before the High Court in Prague took place in order to decide the appeal against the second decision of the Municipal Court, which had been favorable to Telefónica's position (as was also the case with the first decision of the Municipal Court). At the end of the hearing, the High Court announced the Second Appellate Decision by which it reversed the second decision of the Municipal Court and ordered Telefónica to pay 644 million Czech korunas (approximately 23 million euros) to Venten and 227 million Czech korunas (approximately 8 million euros) to Lexburg, in each case plus interest.

On December 28, 2016, the decision was notified to Telefónica. Telefónica filed an extraordinary appeal, requesting the suspension of the effects of the decision.

In March 2017, Telefónica was notified of the decision of the Supreme Court, which ordered the suspension of the effects of the unfavorable decision to Telefónica issued by the High Court.

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Venten and Lexburg filed with the Supreme Court a motion to partially abolish the suspension of enforceability of the Decision of the High Court in Prague. On January 17, 2018, Telefónica filed its response seeking dismissal of such motion for lack of legal basis.

On February 14, 2019, notification was given to Telefónica of the resolution of the Supreme Court which, based on the extraordinary appeal filed by Telefónica, abolished the decision of the High Court in Prague dated August 5, 2016 and remanded the case back to the High Court.

In December 2021, the High Court of Prague confirmed its appointment of an expert in order to produce a new expert report to assess the reliability of market-based price criteria used in the mandatory tender offer and further technical issues discussed in this litigation, including a new discounted cashflow valuation of the shares of Český Telecom in 2005.

Appeal against the resolution of ANATEL to sanction Telefónica Brasil for breaches of the Fixed Telephony Regulation

In May 2018, Telefónica filed a judicial action for annulment against a resolution issued by ANATEL (the National Telecommunications Agency of Brazil) in March 2018 concluding the administrative process for determination of non-compliance with obligations (Processo Administrativo para Apuração de Descumprimento de Obrigações or "PADO") investigating alleged infractions of the Fixed Telephony Regulation by Telefónica Brasil.

This PADO investigation had been suspended during the negotiations of the conduct adjustment term (Termo de Ajustamento de Conduta or "TAC") between Telefónica and ANATEL relating to this and certain other PADO investigations. Since the negotiations concluded without agreement, the suspended PADO sanctioning procedures were reactivated and finalized.

In its resolution of March 2018, ANATEL considered that Telefónica Brasil committed several infractions, specifically those related to the inadequate notice of suspension of services to defaulting users, the terms of reactivation of services after payment of outstanding amounts by defaulting users and the disagreement with the terms of refunds claimed by users of the services.

The fine imposed by ANATEL and appealed by Telefónica Brasil is approximately 211 million Brazilian reals (approximately 38 million euros), which amounted to approximately 575 million Brazilian reals after currency value updates and accrued interest as of December 31, 2022 (approximately 103 million euros).

Telefónica Brasil has appealed the fine imposed by ANATEL based, fundamentally, on the following arguments: (i) ANATEL should have considered a smaller universe of users to determine the fine and (ii) the calculation of the fine is disproportionate and based on insufficient grounds.

Telefónica Brasil has not yet paid the fine, although Telefónica Brasil has guaranteed its payment through a guarantee insurance submitted to the court.

As of the date of this Annual Report, there has been no conciliation and the proceeding is following its normal course.

ICSID Arbitration Telefónica, S.A. vs. Republic of Colombia

In the local arbitration brought by Colombia against Colombia Telecomunicaciones (“ColTel”), on July 25, 2017, the local arbitration tribunal ordered ColTel to pay 470 million euros as economic compensation for the reversion of assets related to voice services in relation to the concession granted between 1994 and 2013.

On August 29, 2017, ColTel’s share capital was increased in order to make the payment ordered by the local arbitral award; Telefónica, S.A. contributed and disbursed an amount equivalent to 67.5% of the award’s amount (317 million euros) and the Colombian Government contributed an amount equivalent to the remaining 32.5% (153 million euros).

On February 1, 2018, Telefónica, S.A. filed a Request for Arbitration against Colombia at the International Centre for Settlement of Investment Disputes ("ICSID"), which was formally registered on February 20, 2018.

The ICSID Court was constituted on February 26, 2019, with José Emilio Nunes Pinto as President, Horacio A. Grigera Naón appointed by Telefónica, S.A., and Yves Derains appointed by Colombia.

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Colombia filed Preliminary Objections on Jurisdiction on August 5, 2019. Telefónica, S.A. responded to Colombia’s objections in its Claimant’s Memorial on September 23, 2019, in which it also requested that Colombia pay compensation for damages caused to Telefónica, S.A.

On October 23, 2019, Colombia submitted its Complementary Objections on Jurisdiction as well as a request for Bifurcation, to which Telefónica, S.A. responded on November 29, 2019.

On January 24, 2020, the Court dismissed the request for Bifurcation presented by Colombia, ordering the continuation of the proceeding. A decision on the merits of Telefónica, S.A.’s claim is pending.

On July 3, 2020, Colombia filed its reply to the claim filed by Telefónica before the ICSID.

On November 2, 2020, Telefónica presented its response to Colombia's reply.

After the hearing held in April 2021, on July 27, 2021 the hearing of closing arguments was held, and the parties are awaiting the issuance of the arbitration award.

Telefónica's lawsuit against Millicom International Cellular for default in the sale of Telefónica de Costa Rica

Telefónica, S.A. (Telefónica) and Millicom International Cellular, S.A. (Millicom) reached an agreement on February 20, 2019 for the purchase and sale of the entire capital stock of Telefónica de Costa Rica TC, S.A.

In March 2020, Telefónica informed Millicom that, once the pertinent regulatory authorizations had been obtained and all the other conditions established in the aforementioned agreement for the execution of the sale had been completed, the execution of the contract and the closing of the transaction should be in April 2020.

Millicom expressed its refusal to proceed with the closing, arguing that the competent Costa Rican administrative authorities had not issued the appropriate authorization.

On May 25, 2020, Telefónica filed a lawsuit against Millicom before the New York Supreme Court, considering that Millicom had breached the terms and conditions established in the sale contract, demanding compliance with the provisions of the aforementioned agreement, and compensation for all damages that this unjustified breach could cause to Telefónica.

On June 29, 2020, Millicom filed a Motion to Dismiss, to which Telefónica replied on July 8, 2020.

On August 3, 2020, Telefónica submitted an amendment to the lawsuit, removing the requirement to comply with the provisions of the sale and purchase contract and requesting only compensation for all damages that the unjustified breach of said agreement could cause to Telefónica.

On January 5, 2021, the Motion to Dismiss filed by Millicom in June 2020 was dismissed by the New York Supreme Court.

ICSID Arbitration Telefónica, S.A. vs. Republic of Peru

On February 5, 2021, Telefónica filed a request for arbitration against the Republic of Peru at the ICSID, which was formally registered on March 12, 2021.

Telefónica bases its claims on the Agreement for the Promotion and Reciprocal Protection of Investments between the Kingdom of Spain and the Republic of Peru ("APRPI") signed on November 17, 1994. Telefónica argues that the Peruvian tax administration (called Superintendencia Nacional de Aduanas y de Administración Tributaria, known as "SUNAT") and other state bodies have failed to comply with the obligations established in the APRPI, including by adopting arbitrary and discriminatory actions.

It is requested that the defendant be ordered to fully compensate Telefónica for all damages suffered. Once the Tribunal was constituted, on February 9, 2023, Telefónica filed a request for urgent injunctive relief together with a request for injunctive relief, requesting the suspension of the administrative litigation (acción contencioso-administrativa or ACA) related to the income tax for the years 1998, 2000 and 2001, as well as the extension of the deadline for submission by Telefónica of the memorial or claim. Following response of Peru, on February 16, 2023, the Tribunal ruled to dismiss Telefónica's request for urgent injunctive relief, to establish the procedural calendar to process the request for injunctive relief and to grant Telefonica two additional weeks to file the memorial or claim.

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Appeal against the ANATEL resolution on the calculation of amounts for the renewal of radio frequencies in Brazil associated with the provision of the personal mobile services (filed in 2013)

In 2013, Telefónica Brasil filed a lawsuit against the resolution of ANATEL which sets forth the calculation of the amount to be paid by Telefónica Brasil for the renewal of radio frequencies associated with the provision of personal mobile services (which has been granted to Telefónica Brasil for a period of fifteen years).

According to ANATEL the renewals, which must be carried out every two years, should be accompanied by a payment equivalent to 2% of all income derived from the provision of personal mobile services, while Telefónica Brasil believes that the calculation must be made with respect to the income derived from voice services only, which would exclude data services and interconnection revenues.

In February 2020, Telefónica Brasil filed an appeal before the Regional Federal Court of Brasilia after obtaining an unfavorable ruling in the Court of First Instance, which considered that the criteria defended by ANATEL was the one to be followed.

As of December 31, 2022, the amount under litigation was 774 million Brazilian reais (139 million euros based on the exchange rate of such date), resulting from the method of calculation of ANATEL that has been appealed.

Appeal against the ANATEL resolution on the calculation of amounts for the renewal of radio frequencies in Brazil associated with the provision of the personal mobile services (filed in 2015)

In 2015, Telefónica Brasil filed a lawsuit against the resolution of ANATEL which sets forth the calculation of the amount to be paid by Telefónica Brasil for the renewal of radio frequencies associated with the provision of personal mobile services (which has been granted to Telefónica Brasil for a period of fifteen years).

In August 2016, Telefónica Brasil filed an appeal before the Regional Federal Court of Brasilia after obtaining an unfavorable ruling in the Court of First Instance, which considered that the criteria defended by ANATEL was the one to be followed. Pending judgment on appeal.

As of December 31, 2022, the amount under litigation was 400 million Brazilian reais (72 million euros based on the exchange rate of such date), resulting from the method of calculation of ANATEL that has been appealed.

UK High Court claim by Phones 4 U Limited against various mobile network operators and other companies, among others, Telefónica, S.A., Telefonica O2 Holdings Limited and Telefonica UK Limited

In late 2018, Phones 4U Limited (in administration) (“P4U”) commenced a claim in the English High Court in London against various mobile network operators: Everything Everywhere, Deutsche Telekom, Orange, Vodafone, Telefónica, S.A., Telefonica O2 Holdings Limited and Telefonica UK Limited (together the “Defendants”).

P4U carried on a business of selling mobile phones and connections to the public, such connections being supplied by mobile network operators including the Defendants. In 2013 and 2014, the Defendants declined to extend and / or terminated their contracts to supply connections to P4U.

P4U went into administration in September 2014.

P4U alleges that the Defendants ceased to supply connections because they had colluded between themselves in contravention of the United Kingdom and the European Union competition laws and asserts that it has a basis to claim damages for breach of competition law by all the Defendants. The Defendants deny all P4U’s allegations.

The claim commenced on December 18, 2018 by P4U. The Defendants filed their initial Defences in the course of April and May 2019, with P4U filing replies on October 18, 2019. The first case management conference took place on March 2, 2020.

The trial was held between May and July 2022. The parties are awaiting the issuance of the sentence.

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(b) Tax Proceedings

Inspections in the tax group in Spain

In July 2019, new inspection procedure were initiated for several of the companies belonging to Tax Group 24/90, of which Telefónica, S.A. is the dominant company. The concepts and periods that have been audited are: Corporate Income Tax for the years 2014 to 2017 and Value Added Tax, Withholdings Income Tax for the second half of 2015 and from 2016 to 2018.

A Settlement Agreement was signed in October 2021, in which Telefónica manifested its agreement with certain of the tax assessments resulting from the inspection (specifically, with respect to the tax treatment of the exchange differences generated by assets denominated in Venezuelan bolivars), and its disagreement with others (mainly the consideration of exempt income of the “Juros sobre capital propio” since 2015), producing an impact on results (tax expense) of 387 million euros, with a deferred tax asset reduction as detailed in "Main changes registered in 2021" in Note 25 to the Consolidated Financial Statements. However, the tax assessments did not result in a significant cash outflow as the Telefónica Group had tax credits, which substantially offset their impact.

The closing of the inspection procedure took place in January 2022, with the Settlement Agreement being notified, and which the Company challenged in an economic-administrative procedure at the Central Economic-Administrative Court due to the adjustments with which it did not agree, mainly related to the "juros sobre el capital propio". On 9 December 2022, the Company received a rejection resolution from the Central Economic-Administrative Court, which will be challenged on the National High Court.

In relation to the 2008-2011 inspection procedure, in July 2022 Telefónica was notified of the Supreme Court's decision rejecting the appeal for cassation filed by the State Attorney's Office against the judgment of the Audiencia Nacional (National High Court) of October 29, 2021. This confirmed the criteria used by Telefónica, S.A. for the use of tax losses carryforward and deductions in relation to the liquidation agreements derived from the Corporate Income Tax inspection of those years.

On October 24, 2022, an Agreement for the Execution of the Judgment of the Audiencia Nacional (National High Court) was issued, which orders the refund to Telefónica of an amount of 790 million euros for taxes paid in those years, as well as an amount of 526 million euros as delayed interest. Said amounts were collected on October 28, 2022.

As a consequence of the final outcome of the litigation above mentioned, no additional liabilities were recorded as of December 31, 2022.

Telefónica Brazil

State taxes

The Telefónica Group is involved in a range of tax litigation in Brazil over direct and indirect taxes (including those relating to GVT). This includes a number of appeals relating to ICMS tax (a tax similar to VAT, levied on telecommunications services). There is a dispute with the Brazilian tax authorities over which services should be subject to this tax.

To date the most significant issues have focused on the requirement to collect ICMS on penalties charged to customers for non-compliance, and complementary or additional services to the basic telecommunications services such as value-added services, modem rental, and the application of this tax on the basic fee (assinatura básica). In the case of the latter (assinatura básica), the Supreme Court has established that the tax is only payable in respect of assessments for periods after October 2016.

All related procedures are being contested in all instances (administrative and court proceedings). The aggregate amount of the relevant proceedings, updated to take into account interest, fines and other items, is approximately 21,712 million Brazilian reais as of December 31, 2022 (approximately 3,898 million euros at the exchange rate on that date, see Note 24 to the Consolidated Financial Statements), 19,164 million Brazilian reais as of December 31, 2021 (approximately 3,032 million euros at the exchange rate on that date). Telefónica Brazil has obtained independent expert reports supporting its position, i.e. that the aforesaid services are not subject to ICMS.

Federal taxes

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In addition, there are possible contingencies in relation to the income tax federal taxes for the total amount of 29,778 million Brazilian reais as of December 31, 2022 (approximately 5,346 million euros at the exchange rate on that date), 18,078 million Brazilian reais as of December 31, 2021 (approximately 2,860 million euros at the exchange rate on that date), mainly related to the tax amortization in Brazil in the years 2011 to 2020 of the goodwill originated in the acquisitions of Vivo and GVT and their subsequent merger with Telefónica Brasil. These proceedings are at the administrative and judicial stage and no provisions have been made since the potential risk associated with them has been classified as "not probable" and Telefónica Brazil has received independent expert reports that support this view.

There are other probable contingencies in relation to the income tax federal taxes for the total amount of 104 million Brazilian reais as of December 31, 2022 (approximately 19 million euros at the exchange rate on that date), 98 million Brazilian reais as of December 31, 2021 (approximately 16 million euros at the exchange rate on that date). The Company has recognized a provision for this amount.

Telefónica del Perú

In relation to tax claims in Peru, it should be noted that Telefónica del Perú is party to numerous legal proceedings (contentious administrative proceedings (ACAs) and appeals (amparos)) for tax matters relating to corporate income tax and VAT, mainly for the years 1998 to 2005, the most relevant being those corresponding to the years 1998 to 2001 (relating to corporate income tax, payments in advance, credit balances, associated VAT, interest and applicable penalties).

The evolution of the appeals of the different cases from the period 1998 to 2001 has been uneven and complex over the last few years, but we can highlight the second instance Judgment of 2015, which was partially upheld; the Supreme Court Judgments of 2019; the January 2020 Supreme Court Ruling, annulling the previous rulings of 2000 and 2001 in relation to the provision for doubtful debts; the Constitutional Court Rulings in 2021 in relation to the settlement of late payment interest, partially upheld; and the Supreme Court Rulings of 2021 and 2022 on the credit balance from 1999 used in 2000.

On January 17 and 18, 2023, Telefónica del Perú received notifications of the judgments handed down by the Supreme Court that resolved, in the last instance and unfavorably to the Company (references to the “Company” in this section refer to Telefónica del Perú), the contentious administrative proceedings relating to income tax for the years 1998, 2000 and 2001.

The rulings issued by the Fifth Chamber of Constitutional and Social Transitory of the Supreme Court do not contain any payment mandate to the Company, as the rulings issued in the administrative contentious proceedings were resolved on concepts derived from a pronouncement of the Tax Court. At the end of these proceedings - and any others that may be applicable - the Tax Administration, through an administrative act, will determine the amount of the corresponding payment obligations.

Because there were certain adjustments on which the rulings had been definitive since 2015 (positively for the Company in relation to the deductibility of the rental of public spaces and negatively in the case of the deductibility of certain financial charges), the Company previously recorded a provision with an impact on income tax, the amount of which has been updated periodically and constantly depending on the evolution of the various proceedings and the applicable interest rates.

In addition to the above, in June 2022 a new ruling was received from the Tax Court in relation to the corporate income tax of Telefónica Móviles del Perú for 2000. This ruling was favorable to the Company with respect to the recognition of the tax value of certain network assets and unfavorable with respect to the deductibility of the exchange rate tax.

In relation to all these proceedings, the Group considers that the initial amount claimed by the Peruvian government has been exponentially increased by the accrual of interest generated by the delay, not attributable to the Company, of almost 20 years in processing the lawsuits, meaning that almost 80% of the total amount claimed is due to

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interest and fines. And all this, despite the fact that in 2021 the Constitutional Court itself ruled in favor of Telefónica del Perú, recognizing that it had been charged interest for delays not attributable to the company.

For this and other reasons, the Group has been in international arbitration before ICSID since March 2021 for various conducts of the Peruvian State in violation of the Agreement for the Promotion and Reciprocal Protection of Investments between Spain and Peru (see Note 29.a)

The Company has recorded the necessary provisions for the contingencies considered probable, leaving as possible contingencies an amount of 560 million Peruvian soles at December 31, 2022 (approximately 138 million euros).

As of December 31, 2022, the total amount of tax contingencies related to Telefónica del Perú that the Group has recognized in its consolidated financial statements, including as the most relevant amount that related to the aforementioned judgements and rulings received since 2015, plus accrued interest and other above-mentioned impacts, amounts to 3,849 million Peruvian soles which is equivalent to 945 million euros at the exchange rate of December 31, 2022.

Tax deductibility of financial goodwill in Spain

The tax regulations added article 12.5 to the Spanish Corporate Income Tax Law, which came into force on January 1, 2002. The article regulated the deductibility of tax amortization of financial goodwill (fondo de comercio) arising from the acquisition of non-Spanish companies, which could be amortized over 20 years at 5% per annum.

Following the entry into force of the Laws 9/2011 of August 19, 2011 and 16/2013 of October 29, 2013, the amount of goodwill amortization deductible for tax purposes under article 12.5 for the years 2011 to 2015 was reduced from 5% to 1%. The effect is temporary because the 4% not amortized for five years (20% in total) will be recovered extending the deduction period from the initial 20 years to 25 years.

The Telefónica Group, under this regulation, has been amortizing for tax purposes the financial goodwill from its investments, both direct and indirect, in O2, BellSouth and ColTel (prior to December 21, 2007) and Vivo (acquired in 2010). The positive accumulated effect of the corresponding settlements of corporate income tax from 2004 to the closing of December 31, 2022, was 2,042 million euros.

In relation to this tax incentive, the European Commission (EC) has in recent years commenced three proceedings against the Spanish State, as it deems that this tax benefit could constitute an example of state aid. Although the EC itself acknowledged the validity of the tax incentive for those investors that invested in European companies for operations carried out before December 21, 2007 in the first decision, and before May 21, 2011 for investments in other countries in the second decision, in its third decision issued on October 15, 2014 it calls into question the applicability of the principle of legitimate expectations in the application of the incentive for indirect acquisitions, whatever the date of acquisition may have been.

There are also doubts in the Spanish Courts about the classification of the incentive as a deduction and its maintenance in the case of subsequent transmission.

On October 6, 2021, the Court of Justice of the European Union concluded that the European Commission correctly classified the Spanish tax depreciation scheme of the Fondo de Comercio as State aid incompatible with the internal market for the First and Second Decisions.

With regard to the recognition of legitimate expectations for the First and Second decisions, the Court of Justice of the European Union confirms its applicability.

The proceedings initiated on the Third Decision, suspended until the resolution of the 1st and 2nd Decisions, were reactivated in October 2021, and are still pending first instance judgment.

Notwithstanding the above, the "Tax and Customs Control Unit of the Spanish Tax Authority" (Dependencia de Control Tributario y Aduanero de la Agencia Tributaria), in compliance with the obligation set out in the EC Decision (EU) 2015/314, recovered in March 2019 and February 2021, the amounts that had been deducted in connection with the amortization of goodwill for the indirect acquisition of non-resident companies from 2005 to 2015 and 2016 to 2018 respectively, and has notified in December 2022 the recovery of the relevant amounts for the years 2019 to 2020.The recovery of such amounts is provisional, pending the final rulings on the appeals brought against the three decisions. The amount paid by Telefónica after offsetting outstanding tax credits (tax losses carryforward and deductions) amounted to 12 million euros.

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Notwithstanding the fact that Telefónica understands that the principle of legitimate expectations in relation to this tax incentive applies, in relation to tax-amortized goodwill through the purchase of some companies for which the applicability of the legitimate expectations principle is questioned, mainly Vivo, the Group has released in 2021 the provision for the recovered part, 143 million euros, and has decided to continue provisioning the amount of the goodwill amortized for tax purposes, and not recovered by the Administration which amounted to 406 million euros as of December 31, 2022 (343 million euros as of December 31, 2021).

Years open for inspection in the Group companies

The years open for review by the tax inspection authorities for the main applicable taxes vary from one consolidated company to another, based on each country’s tax legislation, taking into account their respective statute of limitations periods. In Spain the taxes from 2018 onwards are open to inspection.

In the other countries in which the Telefónica Group has a significant presence, the years open for inspection by the relevant authorities are generally as follows:

•The last eleven years in Germany.

•The last eight years in the United Kingdom.

•The last seven years in Argentina.

•The last six years in Venezuela

•The last five years in Brazil, Mexico, Colombia, Uruguay and the Netherlands.

•The last four years in Peru.

•The last three years in Chile, Ecuador and the United States.

The tax inspection of the open years is not expected to give rise to additional material liabilities for the Group.

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.

Dividend information and shareholders’ return

Dividend background

The table below sets forth the annual dividends declared per share and the year to which such dividends correspond. Generally, the dividend for a given year is paid in two tranches, one in the second half of the relevant year and the other during the first half of the following year.


Year ended December 31,			Dividends per share (euro)
2022 (1)			0.30
2021 (2)			0.30
2020 (3)			0.40
2019 (4)			0.40
2018 (5)			0.40

(1) Company’s shareholder remuneration in 2022 consists of paying a dividend of up to 0.30 euros per share. A cash dividend of 0.15 euros was paid on December 15, 2022. The second tranche of the dividend is expected to be paid in the second quarter of 2023.

(2) Company’s shareholder remuneration in 2021 consists of paying a dividend of up to 0.30 euros per share in scrip dividend: a scrip dividend of up to 0.15 euros was paid in December 2021, and a scrip dividend of up to 0.15 euros was paid in June 2022. A scrip dividend consists of the assignment of free allotment rights with an irrevocable purchase commitment by the Company, and a subsequent capital increase by means of the issue of new shares to fulfill said allotments.

(3) Company’s shareholder remuneration in 2020 consists of paying a dividend of up to 0.40 euros per share in scrip dividend: a scrip dividend of up to 0.20 euros was paid in December 2020, and a scrip dividend of up to 0.20 euros was paid in June 2021. A scrip dividend consists of

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the assignment of free allotment rights with an irrevocable purchase commitment by the Company, and a subsequent capital increase by means of the issue of new shares to fulfill said allotments.

(4) Company’s shareholder remuneration in 2019 consists of paying a dividend of up to 0.40 euros per share. A cash dividend of 0.20 euros was paid on December 19, 2019. A scrip dividend of up to 0.20 euros was paid in June 2020, consisting of the assignment of free allotment rights with an irrevocable purchase commitment by the Company, and a subsequent capital increase by means of the issue of new shares to fulfill said allotments.

(5) Company’s shareholder remuneration in 2018 consists of paying a dividend of 0.40 euros per share. A cash dividend of 0.20 euros was paid on December 20, 2018. The second tranche of the dividend of 0.20 euros per share was paid in cash on June 20, 2019.

Payments of any future dividends will be dependent on the Group’s earnings, cash generation, solvency, liquidity and flexibility to make strategic investments, all of which may be influenced by a variety of factors. See “Cautionary Statement Regarding Forward-Looking Statements”.

Treasury shares and share buybacks

We have performed, and may consider performing, transactions with treasury shares and financial instruments or contracts that confer the right to acquire treasury shares or assets whose underlying is Company’s shares.

Treasury share transactions will always be for legitimate purposes, including:

•undertaking treasury share acquisitions approved by the Board of Directors or pursuant to General Shareholders’ Meeting resolutions;

•honoring previous legitimate commitments assumed;

•covering requirements for shares to allocate to employees and management under stock option plans; and

•other purposes in accordance with prevailing legislation. In the past, treasury shares purchased on the stock market were exchanged for other shares or securities (as in the case of preferred capital securities), swapped for stakes in other companies (e.g. China Unicom, Telco, S.p.A., or Telefônica Brasil in 2015) or acquired to reduce the number of shares in circulation (by redeeming the shares acquired), thereby improving earnings per share.

For a description of transactions on treasury shares, see Note 17 (h) to our Consolidated Financial Statements and “Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchaser”.

B. Significant Changes

No significant change has occurred since the date of the Consolidated Financial Statements other than those mentioned in this Annual Report or our Consolidated Financial Statements.