~~Table~~SECURITIES ofAND ~~Contents~~EXCHANGE COMMISSION

~~SECURITIES~~Washington, ~~AND~~D.C. ~~EXCHANGE~~20549 ~~COMMISSION~~

~~Washington,~~FORM ~~D.C.~~6-K ~~20549~~

~~FORM~~Report ~~6-K~~of Foreign Private Issuer

~~Report~~Pursuant ofto ~~Foreign~~Rule ~~Private~~13a-16 ~~Issuer~~or 15d-16

~~Pursuant~~under ~~to Rule~~the ~~13a-16~~Securities orExchange ~~15d-16~~Act of 1934

~~under~~For the ~~Securities~~month ~~Exchange Act~~ of ~~1934~~September 2003

~~For~~Telefonica ~~the~~Holding ~~month~~ of ~~August~~Argentina ~~2003~~ Inc.

~~Telefonica~~(Translation ~~Holding~~ of ~~Argentina~~registrant’s ~~Inc.~~name into English)

~~(Translation~~Telefónica ofHolding ~~registrant’s~~de ~~name~~Argentina ~~into~~S.A. ~~English)~~

~~Telefónica~~Avenida ~~Holding~~Ingeniero deHuergo ~~Argentina~~723 ~~S.A.~~

~~Avenida~~(C1107AOT) ~~Ingeniero~~Buenos ~~Huergo~~Aires, ~~723~~ Argentina

(~~C1107AOT)~~Address ~~Buenos~~of ~~Aires,~~Principal ~~Argentina~~Executive Offices)

~~(Address~~Indicate by check mark whether the registrant files or will file annual reports under cover of ~~Principal~~Form ~~Executive~~20-F ~~Offices)~~or Form 40-F:

~~Indicate by check mark whether the registrant files or will file annual reports under cover of~~ Form 20-F or : x Form 40-F: ¨

Indicate by check mark if the registrant is submitting the Form 206-~~F: x Form~~K 40in paper as permitted by Regulation S-FT Rule 101(b)(1): ¨

~~Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):~~ Yes: ¨ No: x

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ~~Yes: ¨ No: x~~

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes: ¨ No: x

IfIndicate ~~“Yes”~~by ischeck ~~marked,~~mark ~~indicate~~whether by ~~below~~furnishing the ~~file~~information ~~number~~contained ~~assigned~~in tothis Form, the registrant inis ~~connection~~also ~~with~~thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b): ~~82-~~ under the Securities Exchange Act of 1934.

~~Table~~Yes: ¨ No: x ~~of Contents~~

If “Yes” is marked, indicate below the file number assigned to the ~~TABLE~~registrant OFin ~~CONTENTS~~connection with Rule 12g3-2(b): 82-

~~Item~~TABLE 1.OF ~~Our~~CONTENTS consolidated financial statements as of March 31, 2003. 2. Management’s discussion and analysis of financial condition and results of operations. 3. The report of independent public accountants on interim financial statements.

Item 1. Our consolidated financial statements as of June 30, 2003. 2. Management’s discussion and analysis of financial condition and results of operations. 3. The report of independent public accountants on interim financial statements.

~~Table~~TELEFONICA ofHOLDING ~~Contents~~DE ARGENTINA S.A.

~~Item~~Financial 1Statements and Management’s

~~TELEFONICA~~Discussion ~~HOLDING~~and DEAnalysis ~~ARGENTINA~~of ~~S.A.~~Financial

~~Financial~~Condition ~~Statements~~ and ~~Management’s~~Results of Operations

~~Discussion~~as ~~and Analysis~~ of ~~Financial~~June 30, 2003

~~Condition~~TELEFONICA ~~and~~HOLDING ~~Results~~DE ofARGENTINA ~~Operations~~S.A.

Consolidated Financial Statements as of ~~March~~June 3130, 2003

~~Table~~(Chart ofI) ~~Contents~~

~~TELEFONICA~~1 ~~HOLDING DE ARGENTINA S.A.~~

~~Consolidated~~(English ~~Financial~~translation ~~Statements~~of asthe offinancial ~~March~~statements 31originally issued in Spanish, ~~2003~~except for note 13.

~~(Chart~~to Ithe unconsolidated financial statements)

~~Table~~TELEFONICA ofHOLDING ~~Contents~~DE ARGENTINA S.A.

Registered Address: Av. Ingeniero Huergo 723 - Ground floor, Buenos Aires (1)

~~(English~~FISCAL ~~translation~~YEAR ofNo. ~~the~~28 ~~financial statements originally issued in Spanish, except for note 13~~

toBEGINNING ~~the~~JANUARY ~~unconsolidated~~1, ~~financial statements)~~2003

~~TELEFONICA~~FINANCIAL ~~HOLDING~~STATEMENTS DEAS ~~ARGENTINA~~OF ~~S.A.~~JUNE 30, 2003

~~Registered~~Principal ~~Address~~business of the Company: ~~Av.~~Direct ~~Ingeniero~~or ~~Huergo~~indirect ~~723~~participation -in businesses ~~Ground~~related ~~floor,~~to ~~Buenos~~the ~~Aires~~areas ~~(1)~~of

~~FISCAL~~telecommunications, ~~YEAR~~media N°and 28energy.

~~BEGINNING~~Registration ~~JANUARY~~with 1,the ~~2003~~Public Registry of Commerce:

~~FINANCIAL~~• ~~STATEMENTS~~Of the articles of incorporation: October 25, 1976.

~~FOR~~• ~~THE~~Of ~~THREE-MONTH~~the ~~PERIOD~~last ~~ENDED~~change ~~MARCH~~to 31the bylaws: July 11, 2003 (2).

~~Principal~~Registration ~~business:~~number ~~Direct~~with orthe ~~indirect~~“Inspección ~~participation~~General inde ~~businesses~~Justicia” ~~related~~(the togovernmental ~~the~~regulatory ~~areas~~agency of ~~telecommunications,~~ ~~media~~corporations): ~~and energy~~6,133.

~~Registration~~Duration ~~with~~of the ~~Public~~corporation: ~~Registry~~through ~~of Commerce:~~October 24, 2075.

•Fiscal ~~Of the articles of incorporation~~year-end: ~~October~~December ~~25, 1976~~31.

•Controlling ~~Of the last change to the bylaws~~company: ~~April 18, 2001.~~

~~Registration number with the “Inspección General de Justicia” (the governmental regulatory agency of corporations)~~Name: 6Telefónica Internacional,~~133~~ S.A.

~~Duration~~Registered ofaddress: ~~the~~Tucumán ~~corporation:~~1 ~~through~~- ~~October~~17th ~~24,~~floor ~~2075~~- Buenos Aires.

~~Fiscal year-end~~Principal business: ~~December~~Holding 31Company.

Controlling ~~company~~shareholding percentage of the Company’s capital stock: 99.96%. (See Note 8.1. to the unconsolidated financial statements)

~~Name:~~Controlling ~~Telefónica~~shareholding ~~Internacional,~~percentage Sof the Company’s total votes: 99.A97%.

~~Registered~~Capital ~~address~~structure: ~~Tucumán~~See Note 8.1. -to ~~17th~~the ~~floor~~unconsolidated -financial ~~Buenos Aires - Argentina~~statements.

~~Principal~~(1) ~~business:~~Corresponding ~~Holding~~to the Company.’s new corporate address, which was changed by the Board of Directors on April 7, 2003.

~~Controlling shareholding percentage of the Company’s capital stock: 99.96%.~~ (2) See Note 810.1. to the unconsolidated financial statements) .

~~Controlling~~2 ~~shareholding percentage of the Company’s total votes: 99.97%.~~

~~Capital~~(English ~~structure:~~translation ~~See~~of ~~Note~~the ~~8.1.~~financial tostatements ~~the~~originally ~~unconsolidated~~issued ~~financial~~in ~~statements~~Spanish, except for note 13.

		Subscribed and paid in (historical values)
Outstanding common shares (face value 1 peso each)
Class A, 5 votes per share		30,427,328
Class B, 1 vote per share		374,302,032
Total capital stock authorized for public offering (2)		404,729,360

to the unconsolidated financial statements)

~~(1)~~TELEFONICA ~~Corresponding~~HOLDING toDE ~~the~~ARGENTINA ~~new Company’s corporate address, which was changed by the Board of Directors on April 7, 2003~~S.A.

~~(2)~~CONSOLIDATED ~~See~~BALANCE ~~Note~~SHEETS ~~8.2. to the unconsolidated financial statements.~~

~~JUAN~~AS I.OF ~~LOPEZ~~JUNE ~~BASAVILBASO~~30, ~~President~~2003 AND DECEMBER 31, 2002

~~Table~~Amounts stated in millions of ~~Contents~~Argentine pesos restated as described in Note 2.1.

2to the unconsolidated financial statements

(~~English~~See ~~translation~~Notes of2.2. and 2.5. to the unconsolidated financial statements) ~~originally issued in Spanish, except for note 13~~

to the unconsolidated financial statements)

	June 2003		December 2002
CURRENT ASSETS
Cash and banks (Note 3.1.a)	15		26
Investments (Exhibit C and D)	283		177
Trade receivables (Note 3.1.b)	132		158
Other receivables (Note 3.1.c)	114		127
Inventories (Note 3.1.d)	8		8
Other assets (Note 3.1.e)	2		2

Total current assets	554		498

NONCURRENT ASSETS
Trade receivables (Note 3.1.b)	3		3
Other receivables (Note 3.1.c)	59		57
Investments (Exhibit C)	8		9
Fixed assets (Exhibit A)	3,930		4,238
Intangible assets (Exhibit B)	43		44

Subtotal noncurrent assets	4,043		4,351

Goodwill on investment in companies (Note 3.1.f)	718		743

Total noncurrent assets	4,761		5,094

Total assets	5,315		5,592

CURRENT LIABILITIES
Trade payables (Note 3.1.g)	179		209
Bank and other financial payables (Note 3.1.h)	3,082		3,698
Payroll and social security taxes payable (Note 3.1.i)	34		37
Taxes payable (Note 3.1.j)	43		49
Other payables (Note 3.1.k)	33		30
Reserves (Exhibit E)	2		2

Total current liabilities	3,373		4,025

NONCURRENT LIABILITIES
Trade payables (Note 3.1.g)	33		34
Bank and other financial payables (Note 3.1.h)	1,633		1,976
Payroll and social security taxes payable (Note 3.1.i)	12		14
Other payables (Note 3.1.k)	39		33
Reserves (Exhibit E)	92		80

Total noncurrent liabilities	1,809		2,137

Total liabilities	5,182		6,162

MINORITY INTEREST IN TELEFONICA	560		425
COINTEL’S PREFERRED CAPITAL STOCK AND ACCUMULATED PREFERRED DIVIDENDS (Note 6.)	23		22
SHAREHOLDERS’ EQUITY (per related statement)	(450	)	(1,017	)

Total liabilities, minority interest in Telefónica, Cointel’s preferred capital stock and shareholders’ equity	5,315		5,592

~~TELEFONICA~~The ~~HOLDING~~accompanying DENotes and ~~ARGENTINA~~supplementary statements (Notes 1 to 19 and Exhibits A to H) and the accompanying unconsolidated financial statements of Telefónica Holding de Argentina S.A. are an integral part of these financial statements and must be read together with these.

~~CONSOLIDATED~~3 ~~BALANCE SHEETS~~

AS(English OFtranslation ~~MARCH~~of ~~31,~~the ~~2003~~financial ~~AND~~statements ~~DECEMBER~~originally 31issued in Spanish, ~~2002~~ except for note 13.

~~Amounts~~to ~~stated~~the inunconsolidated ~~millions~~financial statements) ~~of Argentine pesos restated as described in Note 2.1.~~

toTELEFONICA ~~the~~HOLDING ~~unconsolidated~~DE ~~financial~~ARGENTINA ~~statements~~S.A.

~~(See~~CONSOLIDATED ~~Notes~~STATEMENTS ~~2.2.~~OF ~~and~~OPERATIONS ~~2.6. to the unconsolidated financial statements)~~

	March 31,2003		December 31,2002
CURRENT ASSETS
Cash and banks (Note 3.1.a)	18		26
Investments (Exhibit C and D)	245		177
Trade receivables (Note 3.1.b)	112		158
Other receivables (Note 3.1.c)	115		127
Inventories (Note 3.1.d)	9		8
Other assets (Note 3.1.e)	2		2
Total current assets	501		498
NONCURRENT ASSETS
Trade receivables (Note 3.1.b)	3		3
Other receivables (Note 3.1.c)	44		57
Investments (Exhibit C)	8		9
Fixed assets (Exhibit A)	4,081		4,238
Intangible assets and deferred charges (Exhibit B)	42		44
Subtotal	4,178		4,351
Goodwill on investment in companies (Note 3.1.f)	730		743
Total noncurrent assets	4,908		5,094
Total assets	5,409		5,592
CURRENT LIABILITIES
Trade payables (Note 3.1.g)	187		209
Bank and other financial payables (Note 3.1.h)	3,266		3,698
Payroll and social security taxes payable (Note 3.1.i)	39		37
Taxes payable (Note 3.1.j)	58		49
Other payables (Note 3.1.k)	30		30
Reserves (Exhibit E)	1		2
Total current liabilities	3,581		4,025
NONCURRENT LIABILITIES
Trade payables (Note 3.1.g)	34		34
Bank and other financial payables (Note 3.1.h)	1,725		1,976
Payroll and social security taxes payable (Note 3.1.i)	11		14
Other payables (Note 3.1.k)	38		33
Reserves (Exhibit E)	86		80
Total noncurrent liabilities	1,894		2,137
Total liabilities	5,475		6,162
MINORITY INTEREST IN TELEFONICA	517		425
COINTEL’S PREFERRED CAPITAL STOCK AND ACCUMULATED PREFERRED DIVIDENDS (Note 6.)	22		22
SHAREHOLDERS’ EQUITY (per related statement)	(605	)	(1,017	)
Total liabilities, minority interest in Telefónica, Cointel’s preferred capital stock and shareholders’ equity	5,409		5,592

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2003 AND 2002

~~The~~Amounts ~~accompanying~~stated ~~Notes to~~in ~~Chart~~millions Iof ~~(Notes~~Argentine 1pesos, toexcept 19for ~~and~~per ~~Exhibits~~share Aamounts ~~to H) and the accompanying unconsolidated financial statements~~

which are anstated ~~integral~~in ~~part~~Argentine ofpesos, ~~these financial~~restated ~~statements~~as described in Note 2.1.

~~JUAN~~to I.the ~~LOPEZ~~unconsolidated ~~BASAVILBASO~~financial ~~President~~statements

~~Table~~(See ofNotes ~~Contents~~2.2. and 2.5. to the unconsolidated financial statements)

	June 2003		June 2002
NET REVENUES	669		918
COST OF SERVICES PROVIDED (Note 3.1.l)	(486	)	(606	)

Gross profit	183		312
ADMINISTRATIVE EXPENSES (Exhibit H)	(92	)	(112	)
SELLING EXPENSES (Exhibit H)	(39	)	(143	)
DEPRECIATION OF GOODWILL (Note 3.1.f.)	(25	)	(25	)
OTHER INCOME RELATING TO SECTION 33 BUSINESS ASSOCIATION LAW(“LSC”) COMPANIES AND RELATED PARTIES, NET (Notes 2.3.h) and 6.a). to the unconsolidated financial statements)	26		39

Operating income	53		71
(LOSS) GAIN ON EQUITY INVESTMENTS	(1	)	1

FINANCIAL INCOME (LOSS) AND HOLDING INCOME (LOSS) ON ASSETS, NET (2)
Exchange Differences	(56	)	78
Interest and financial charges	19		(7	)
Holding (losses)/gains on inventories	(1	)	1
Inflation loss on monetary accounts	(1	)	(429	)

FINANCIAL INCOME (LOSS) AND HOLDING INCOME (LOSS) ON LIABILITIES, NET (3)
Exchange Differences	990		(3,392	)
Interest and financial charges	(257	)	(201	)
Holding gains of derivative financial instruments	2		—
Interest tax	—		(7	)
Intangible assets depreciation	(8	)	(2	)
Tax on checking account credits and debits	(3	)	—
Inflation gain on monetary accounts	2		311
OTHER EXPENSES, NET (Exhibit H)	(17	)	(26	)

Income (loss) for the period before income tax, tax on minimum presumed income and minority interest in Telefónica	722		(3,602	)
INCOME TAX AND TAX ON MINIMUM PRESUMED INCOME (Note 2.2.j))	—		18
MINORITY INTEREST IN TELEFONICA	(143	)	760

Net income (loss) for the period	579		(2,824	)

Net earnings (losses) per share for the period (Note 2.3.i) to the unconsolidated financial statements)(1)	1.43		(6.98	)

(~~English~~1) ~~translation~~Basic ofand ~~the~~diluted ~~financial~~earnings ~~statements~~(losses) ~~originally~~per ~~issued in Spanish, except for note 13~~ share.

(2) Corresponds mainly to ~~the~~current ~~unconsolidated~~investments, ~~financial statements)~~trade receivables, other receivables and inventories.

~~TELEFONICA~~(3) ~~HOLDING~~Corresponds DEmainly ~~ARGENTINA~~to ~~S.A.~~trade payables, bank and other financial payables and other payables.

~~CONSOLIDATED~~The ~~STATEMENTS~~accompanying OFNotes ~~OPERATIONS~~and supplementary statements (Notes 1 to 19 and Exhibits A to H) and the

~~FOR~~accompanying ~~THE~~unconsolidated ~~THREE-MONTH~~financial ~~PERIODS~~statements ~~ENDED~~of ~~MARCH~~Telefónica ~~31,~~Holding ~~2003~~de ~~AND~~Argentina ~~2002~~S.A. are an integral part of

~~Amounts~~these ~~stated~~financial instatements ~~millions~~and ofmust ~~Argentine~~be ~~pesos,~~read ~~except~~together ~~for~~with ~~per~~these. ~~share amounts~~

~~which~~4 ~~are stated in Argentine pesos, restated as described in Note 2.1.~~

to(English ~~the~~translation ~~unconsolidated~~of the financial statements originally issued in Spanish, except for note 13.

~~(See Notes 2.2. and 2.6.~~ to the unconsolidated financial statements)

	March 31,2003		March 31,2002
NET REVENUES	306		573
COST OF SERVICES PROVIDED (Note 3.1.l)	(240	)	(314	)
Gross profit	66		259
ADMINISTRATIVE EXPENSES (Exhibit H)	(47	)	(68	)
SELLING EXPENSES (Exhibit H)	(22	)	(95	)
DEPRECIATION OF GOODWILL (Note 3.1.f.)	(13	)	(13	)
OTHER INCOME RELATING TO EQUITY INTERESTS IN RELATED PARTIES, NET (Notes 2.3.h) and 6.a) to the unconsolidated financial statements)	15		22
Operating (loss) income	(1	)	105
(LOSS) GAIN ON EQUITY INVESTMENTS	(1	)	2
FINANCIAL INCOME (LOSS) ON ASSETS, NET (Exhibit H)	(29	)	(98	)
FINANCIAL INCOME (LOSS) ON LIABILITIES, NET (Exhibit H)	565		(3,586	)
OTHER EXPENSES, NET (Exhibit H)	(11	)	(15	)
Income (loss) for the period before income tax and minority interest in Telefónica	523		(3,592	)
INCOME TAX (Note 2.2.j))	—		26
MINORITY INTEREST IN TELEFONICA	(99	)	639
Net income (loss) for the period	424		(2,927	)
Net earnings (losses) per common share for the period (Note 2.3.i) to the unconsolidated financial statements) (1)	1.05		(7.23	)

TELEFONICA HOLDING DE ARGENTINA S.A.

~~(1)~~CONSOLIDATED ~~Basic~~STATEMENTS ~~and~~OF ~~diluted~~CASH ~~earnings~~FLOWS (~~losses~~1) ~~per share, stated in Argentine pesos.~~

~~The~~FOR ~~accompanying~~THE ~~Notes~~SIX-MONTH toPERIODS ~~Chart~~ENDED IJUNE ~~(Notes~~30, 12003 toAND 192002 ~~and Exhibits A to H) and the accompanying unconsolidated~~

~~financial~~Amounts ~~statements~~stated ~~are~~in anmillions ~~integral~~of ~~part~~Argentine ofpesos ~~these~~restated ~~financial~~as ~~statements~~described in Note 2.1.

~~JUAN~~to I.the ~~LOPEZ~~unconsolidated ~~BASAVILBASO~~financial ~~President~~statements

~~Table~~(See ofNotes ~~Contents~~2.2. and 2.5. to the unconsolidated financial statements)

	June 2003		June 2002
CHANGES IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at end of period	298		172
Cash and cash equivalents at beginning of year	203		80

Increase in cash and cash equivalents	95		92

CAUSES OF CHANGES IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
Net income (loss) for the period	579		(2,824	)
Adjustments to reconcile net income (loss) for the period to net cash provided by operating activities:
Income tax and tax on minimum presumed income	—		(18	)
Financial expenses (2) (3)	(749	)	3,648
Depreciation of fixed assets	321		348
Material consumption	8		15
Depreciation of intangible assets	10		5
Depreciation of goodwill	25		25
Cost of goods sold	5		10
Holding gains in derivative financial instruments	(2	)	—
Increase in allowances and reserves (4)	15		105
(Gain) Loss on equity investments	1		(1	)
Holding (gains) losses in inventories	1		(1	)
Minority interest in Telefónica	143		(760	)
Changes in assets and liabilities:
Trade receivables	23		5
Other receivables	1		(48	)
Inventories	(6	)	(3	)
Trade payables	(27	)	31
Payroll and social security taxes payable	(4	)	(2	)
Taxes payable	15		(32	)
Other payables	(1	)	(33	)
Allowances and reserves	(1	)	(7	)
Interest collected	10		5
Payment of tax on minimum presumed income	(25	)	—

Total cash flows from operating activities	342		468

Cash flows (used in) provided by financing activities:
Increase in bank and other financial payables	23		58
Payment of bank and other financial payables	(69	)	(266	)
Payment of interest	(179	)	(107	)
Increase in intangible assets (7) (8)	(1	)	(2	)

Total cash flows used in financing activities	(226	)	(317	)

Cash flows used in investing activities:
Purchases of fixed assets (5) (6)	(21	)	(59	)

Total cash flows used in investing activities	(21	)	(59	)

Total increase in cash and cash equivalents	95		92

(~~English~~1) ~~translation~~Cash and Current investments with an original maturity not exceeding three months are considered to be cash and cash equivalents which totals: (i) 15 million and 283 million, respectively, as of June 30, 2003; (ii) 26 million and 177 million, respectively, as of December 31, 2002 (cash at the ~~financial~~beginning ~~statements~~of ~~originally~~the ~~issued~~fiscal inyear); ~~Spanish~~(iii) 14 million and 158 million, ~~except~~respectively, ~~for~~as ~~note~~of 13June 30, 2002; and (iv) 48 million and 32 million, respectively, as of December 31, 2001.

(2) Net of 36 million of gains and 27 million of losses corresponding to the ~~unconsolidated~~exchange ~~financial statements~~difference (net of monetary gain (loss)) originated by cash and cash equivalents in foreign currency, respectively, as of June 30, 2003 and 2002.

~~TELEFONICA~~(3) ~~HOLDING~~In DE2002, ~~ARGENTINA~~net ~~S.A.~~of 18 million of gain corresponding to inflation loss originated by local currency cash and cash equivalents.

~~CONSOLIDATED~~(4) ~~STATEMENTS~~Net OFof ~~CASH~~net ~~FLOWS~~deferred ~~(1)~~tax assets.

~~FOR~~(5) ~~THE~~In ~~THREE-MONTH~~2002, ~~PERIODS~~net ~~ENDED~~of ~~MARCH~~23 ~~31,~~million ~~2003~~of ~~AND~~capitalized ~~2002~~exchange differences.

~~Amounts~~(6) ~~stated~~In in2002, ~~millions~~net of ~~Argentine~~5 ~~pesos~~million ~~restated~~financed asby ~~described~~bank inand ~~Note 2.1.~~other financial payables.

to(7) ~~the~~In ~~unconsolidated~~2002, ~~financial~~net ~~statements~~of 3 million corresponding to capitalized exchange differences.

(~~See~~8) ~~Notes~~In ~~2.2.~~2003 and ~~2.6.~~2002, tonet ~~the~~of ~~unconsolidated~~8 ~~financial~~million ~~statements)~~and 4 million, respectively, financed by trade payables.

	March 31,2003		March 31,2002
CHANGES IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at end of period	263		137
Cash and cash equivalents at beginning of year/period	203		80
Increase in cash and cash equivalents	60		57
CAUSES OF CHANGES IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
Net income (loss) for the period	424		(2,927	)
Adjustments to reconcile net income (loss) for the period to net cash provided by operating activities:
Income tax	—		(26	)
Financial expenses (2) (3)	(564	)	3,649
Fixed assets depreciation	161		175
Material consumption	5		5
Depreciation of intangible assets and deferred charges	2		2
Depreciation of goodwill	13		13
Cost of goods sold	1		6
Holding gains in derivative financial instruments	(4	)	—
Increase in allowances and reserves (4)	13		66
(Loss) Gain on equity investments	1		(2	)
Holding losses in inventories	1		3
Minority interest in Telefónica	99		(639	)
Changes in assets and liabilities:
Trade receivables	36		71
Other receivables	19		(113	)
Inventories	(2	)	(2	)
Trade payables	(13	)	28
Payroll and social security taxes payable	(1	)	—
Taxes payable	6		(35	)
Other payables	(7	)	(7	)
Allowances and reserves	(1	)	—
Interest collected	5		2
Total cash flows from operating activities	194		269
Cash flows (used in) provided by financing activities:
Increase in bank and other financial payables	23		46
Payment of bank and other financial payables	(56	)	(163	)
Interest paid	(93	)	(42	)
Total cash flows used in financing activities	(126	)	(159	)
Cash flows used in investing activities:
Purchases of fixed assets (5) (6)	(8	)	(53	)
Total cash flows used in investing activities	(8	)	(53	)
Total increase in cash and cash equivalents	60		57

The accompanying Notes and supplementary statements (Notes 1 to 19 and Exhibits A to H) and the accompanying unconsolidated financial statements of Telefónica Holding de Argentina S.A. are an integral part of these financial statements and must be read together with these.

~~(1)~~5 Cash and cash equivalents (current investments) with an original maturity not exceeding three months are considered to be cash and cash equivalents which totals: (i) 18 million and 245 million, respectively, as of March 31, 2003; and (ii) 26 million and 177 million, respectively, as of December 31, 2002 (cash at the beginning of the fiscal year).

(2)English Intranslation ~~2003 and 2002, net~~ of ~~(22) million and 29 million corresponding to~~ the ~~exchange~~financial ~~difference~~statements ~~net~~originally ofissued ~~monetary~~in ~~gain~~Spanish, ~~(loss)~~except ~~originated~~for bynote ~~cash and cash equivalents in foreign currency, respectively~~13.

~~(3) In 2002, net of 13 million corresponding~~ to ~~inflation~~the ~~loss~~unconsolidated ~~originated~~financial statements) ~~by local currency cash and cash equivalents.~~

~~(4)~~TELEFONICA ~~Net~~HOLDING ofDE ~~net~~ARGENTINA ~~deferred tax assets~~S.A.

~~(5)~~NOTES InTO ~~2002,~~THE ~~net~~CONSOLIDATED ofFINANCIAL ~~625~~STATEMENTS ~~million of capitalized exchange differences.~~

~~(6)~~AS InOF ~~2002~~JUNE 30, ~~net~~2003 ofAND 2COMPARATIVE ~~million~~INFORMATION ~~financed by bank and financial payables.~~

~~The~~(Amounts ~~accompanying~~stated ~~Notes~~in toArgentine ~~Chart~~pesos I (~~Notes~~except 1where toexpressly 19indicated ~~and~~that ~~Exhibits~~figures ~~A to H) and the accompanying unconsolidated~~

~~financial~~are ~~statements~~stated ~~are~~in another ~~integral~~currency) ~~part~~restated ofas ~~these~~described in Note 2.1. to the unconsolidated financial statements.)

~~JUAN I~~1. ~~LOPEZ~~BASIS ~~BASAVILBASO~~OF ~~President~~PRESENTATION AND FINANCIAL STATEMENTS USED IN THE CONSOLIDATION

~~Table~~In accordance with General Resolution No. 368/01 of ~~Contents~~the National Securities Commission (Comisión Nacional de Valores or “CNV”), Telefónica Holding de Argentina S.A. (“the Company”) discloses its consolidated financial statements prior to the unconsolidated financial statements. The accompanying notes and supplementary statements to the consolidated and unconsolidated financial statements of the Company as of June 30, 2003 are an integral part of these financial statements and must be read together with them.

Following the procedure established by Technical Resolution (“RT”) No. 4, and the modifications introduced by RT No. 19 of the Governance Board of the Argentine Federation of Professional Councils in Economic Sciences (“FACPCE”) (see Note 2.2. to the unconsolidated financial statements), and the applicable standards of the CNV, the Company has consolidated, in proportion to its equity interest (see Note 2.2.b)2. to the unconsolidated financial statements), line by line their balance sheets as of June 30, 2003 and December 31, 2002 and their statements of operations and cash flows for the six-month periods ended on June 30, 2003 and 2002, with the consolidated balance sheets as of June 30, 2003 and December 31, 2002, and the statements of operations and cash flows for the six-month periods ended on June 30, 2003 and 2002 included in the consolidated financial statements of Compañía Internacional de Telecomunicaciones S.A. (“Cointel”) and their subsidiaries Telefónica de Argentina S.A. (“Telefónica”) and Telinver S.A. (“Telinver”) over which the Company has joint control according to RT No. 5 (modified by RT No. 19).

~~(English~~In ~~translation~~addition, pursuant to new accounting standards, in the case of seasonal businesses, the ~~financial~~balance ~~statements~~sheet ~~originally~~corresponding ~~issued~~to the same date of the prior year should also be included as comparative information. In this respect, in ~~Spanish~~the Company’s opinion, ~~except~~although ~~for~~Telinver’s ~~note~~transactions 13may be considered to be seasonal as a result of the cyclical nature of the business, the corresponding impact on the financial data presented in the consolidated balance sheet as of December 31, 2002 is not significant.

The Company has decided not to include financial statements consolidated according to its equity interest (proportional consolidation method) with E-Commerce Latina S.A. (“ECL”, related company) as supplementary information since the ~~unconsolidated~~assets, liabilities and operations of such company are not significant. In Management’s opinion, the non presentation of the Company’s, Cointel’s and Telefónica’s financial statements consolidated with ECL’s financial statements as of June 30, 2003 and December 31, 2002 and for the six-month periods ending June 30, 2003 and 2002 does not constitute a significant omission considering the Company’s, Cointel’s and Telefónica’s financial statements) taken as a whole.

~~TELEFONICA~~The ~~HOLDING~~information DEincluded ~~ARGENTINA~~in Sthe notes to the consolidated financial statements related to balances and operations of Cointel and Telefónica is disclosed based on the Company’s equity interest in Cointel, except where expressly indicated that it is disclosed in other way.A.

~~NOTES~~2. TOBASIS ~~THE~~OF ~~CONSOLIDATED~~PRESENTATION ~~FINANCIAL~~AND ~~STATEMENTS~~ACCOUNTING PRINCIPLES APPLIED

AS2.1. OFAccounting ~~MARCH~~principles ~~31, 2003 AND COMPARATIVE INFORMATION~~ applied

~~Amounts~~The ~~stated~~application of the new standards in ~~Argentine~~accordance ~~pesos~~with ~~restated~~Resolution asNo. 434/03 of CNV gave rise to the following changes in valuation and presentation criteria, in addition to those described in Note 2.12. to the unconsolidated financial statements, for the preparation of the consolidated financial statements of the Company:

~~financial~~6 ~~statements (except where expressly indicated that figures are stated in other currency).~~

1.(English ~~BASIS~~translation OFof ~~PRESENTATION~~the ~~AND~~financial ~~FINANCIAL~~statements ~~STATEMENTS~~originally ~~USED~~issued INin ~~THE~~Spanish, ~~CONSOLIDATION~~except for note 13.

In accordance with General Resolution No. 368 of the National Securities Commission (Comisión Nacional de Valores or “CNV”), Telefónica Holding de Argentina S.A. (“the Company”) discloses its consolidated financial statements prior to the unconsolidated financial ~~statements. The accompanying notes and supplementary statements to the~~ ~~consolidated and unconsolidated financial~~ statements) ~~as of March 31, 2003 are an integral part of these financial statements and must be read together with them.~~

~~Following the procedure established by Technical Resolution (“RT”~~a) ~~No.~~Changes ~~4, and the modifications introduced by RT No. 19 of the Governance Board of the Argentine Federation of Professional Councils~~ in ~~Economic~~valuation Sciences (“FACPCE”) (see Note 2.2. to the unconsolidated financial statements), and the applicable standards of the CNV, the Company has consolidated, in proportion to its equity interest (see Note 2.2.b)2. to the unconsolidated financial statements), line by line, their balance sheets as of March 31, 2003 and December 31, 2002, and their statements of operations and cash flows for the three-month periods ended on March 31, 2003 and 2002, with the consolidated balance sheets as of March 31, 2003 and December 31, 2002, and the statements of operations and cash flows for the three-month periods ended on March 31, 2003 and 2002 included in the consolidated financial statements of Compañía Internacional de Telecomunicaciones S.A. (“Cointel”) and their subsidiaries Telefónica de Argentina S.A. (“Telefónica”) and Telinver S.A. (“Telinver”) over which the Company has joint control according to RT No. 5 (modified by RT No. 19). criteria

In- ~~addition,~~Derivative pursuant to new accounting standards, in the case of seasonal businesses, the balance sheet corresponding to the same date of the prior year should also be included as comparative information. In this respect, in the Company’s opinion, although Telinver’s transactions may be considered to be seasonal as a result of the cyclical nature of the business, the corresponding impact on the financial ~~data presented in the consolidated balance sheet as of December 31, 2002 is not significant.~~ instruments

~~The~~RT ~~Company~~No. ~~has~~20 ~~decided~~sets ~~not~~forth the specific valuation and disclosure criteria to ~~include~~be applied to derivative financial instruments and hedging transactions. According to this standard, hedging derivative instruments must be disclosed in the financial statements ~~consolidated~~as either assets or liabilities at their fair value as of the date of the measurement. Should the derivative instrument be intended to cover cash flow risks, the variation in fair value must be charged, according to ~~its~~the ~~equity~~amendment ~~interest~~introduced ~~(proportional~~by ~~consolidation~~the ~~method)~~Professional ~~with E-Commerce~~Council ~~Latina~~of ~~S.A.~~Economic Sciences of the City of Buenos Aires (“~~ECL~~CPCECABA”), to a specific account “Temporary differences in the measurement of derivative instruments intended as ~~supplementary~~effective ~~information~~coverage” ~~since~~in the ~~assets,~~balance ~~liabilities~~sheet and ~~operations~~subsequently charged to the statement of operations for the period once the assets or liabilities covered have an impact on the income/loss for such period. ~~company~~If, ~~are~~instead, ~~not~~the ~~significant~~derivative instrument were to protect the risk against changes in fair value, any variation in fair value must be directly charged to the statement of operations for the period. In ~~management’s~~both ~~opinion~~cases, the non-effective ~~presentation~~coverage portion of derivative financial instruments must be directly charged to the ~~Company’s,~~statement ~~Cointel’s~~of ~~and~~operations for the period at the time such condition is known. The transition rule for the initial application sets forth that the difference between the ~~Telefónica’s~~previous ~~financial~~measurement ~~statements~~and ~~consolidated~~that ~~with~~resulting ~~ECL’s~~from ~~financial~~this ~~statements~~new asrule to determine the valuation of ~~March~~the 31instruments not designated as for hedging purposes, ~~2003~~as ~~and~~well ~~December~~as 31those with no effective hedging coverage as defined in the standard, ~~2002~~should ~~and~~be ~~for~~charged to the balance ~~three~~of ~~month-periods~~Unappropriated ~~ending~~retained ~~March~~earnings/losses ~~31,~~at ~~2003~~the ~~and~~beginning ~~2002~~of ~~does~~the fiscal year in which this standard applies for the first time. Comparative figures have not ~~constitute~~been arestated ~~significant~~as ~~omission considering~~required by the ~~Company’s~~transition rule that establishes that, ~~Cointel’s~~first ~~and~~year of ~~Telefónica’s~~application ~~financial~~accounting ~~statements~~balances ~~taken~~of asthe aprevious ~~whole~~years are not to be corrected.

~~The~~b) ~~information~~Changes ~~included~~ in ~~the~~presentation notes to the consolidated financial statements related to balances and operations of Cointel and Telefónica is disclosed based on the Company’s equity interest in Cointel, except where expressly indicated that it is disclosed in other way. criteria

2.- ~~BASIS~~Preferred OFcapital ~~PRESENTATION AND ACCOUNTING PRINCIPLES APPLIED~~stock

2As of the issuance date of Cointel’s preferred stock, there were no specific accounting principles ruling the accounting of redeemable preferred stock.1 Therefore, Cointel decided to disclose such preferred stock in its statement of changes in shareholders’ equity at their nominal value adjusted to their redemption value in accordance with its issuance conditions (see Note 6. ~~Accounting~~to ~~principles~~the consolidated ~~applied~~financial statements).

~~The~~RT ~~application~~No. of17 ~~the~~sets ~~new~~forth ~~standards~~as a inspecific ~~accordance~~rule ~~with~~that ~~Resolution~~redeemable ~~No.~~preferred ~~434~~stock ofis ~~CNV~~part ~~gave~~of ~~rise~~liabilities towhen ~~changes~~its inissuance ~~valuation~~conditions, ~~and~~directly ~~presentation~~or ~~criteria~~indirectly, inrequire ~~addition to~~that ~~those~~the ~~described~~issuer inredeems ~~Note~~them ~~2.2.~~for toa ~~the~~determined ~~unconsolidated~~or ~~financial~~determinable ~~statements,~~amount ason ~~detailed~~a ~~below:~~fixed or determinable date.

~~Table~~Based on the issuance conditions of ~~Contents~~Cointel ’s preferred stock and on their current status, Cointel has concluded that their preferred capital stock have not met the conditions mentioned above, therefore they are a part of Cointel ’s shareholder’s equity. See Note 6. to the consolidated financial statements.

62.2. Valuation methods and additional information

~~(English~~The ~~translation~~consolidated financial statements of ~~the~~Cointel ~~financial~~and ~~statements~~its ~~originally~~controlled ~~issued~~companies have been prepared in ~~Spanish,~~accordance ~~except~~with ~~for~~accounting ~~note~~principles 13consistent to those used by the Company (See Notes 2.1. and 2.2. to the unconsolidated financial statements)

toThe principal valuation methods used in the ~~unconsolidated~~preparation of the consolidated financial statements (in addition to those described in the unconsolidated financial statements) are as follows:

a) ~~Changes~~Current ~~in valuation criteria~~investments:

1.Investments ~~Derivative~~in ~~financial~~Government ~~instruments~~bonds in foreign currency: valued at the exchange rate at the end of each period/year.

RT7 No. 20 sets forth the specific valuation and disclosure criteria to be applied to derivative financial instruments and hedging transactions. According to this standard, hedging derivative instruments must be disclosed in the financial statements as either assets or liabilities at their fair value as of the date of the measurement. Should the derivative instrument be intended to cover cash flow risks, the variation in fair value must be charged, according to the amendment introduced by the Professional Council of Economic Sciences of the City of Buenos Aires (“CPCECABA”), to a specific account “Temporary differences in the measurement of derivative instruments intended as effective coverage” in the balance sheet and subsequently charged to the statement of operations for the period once the assets or liabilities covered have an impact on the income/loss for such period. If, instead, the derivative instrument were to protect the risk against changes in fair value, any variation in fair value must be directly charged to the statement of operations for the period. In both cases, the non-effective coverage portion of derivative financial instruments must be directly charged to the statement of operations for the period at the time such condition is known. The transition rule for the initial application sets forth that the difference between the previous measurement and that resulting from this new rule to determine the valuation of the instruments not designated as for hedging purposes, as well as those with no effective hedging coverage as defined in the standard, should be charged to the balance of Unappropriated retained earnings/losses at the beginning of the fiscal year in which this standard applies for the first time. This rule standard has been implemented prospectively as to January 1, 2003, as required by the transition rule.

b)(English ~~Changes~~translation of the financial statements originally issued in ~~presentation~~Spanish, ~~criteria~~except for note 13.

1.to ~~Preferred~~the ~~capital~~unconsolidated ~~stock~~financial statements)

AsInvestments ofin ~~the~~Government ~~issuance~~bonds ~~date~~with ofan ~~Cointel’s~~adjustment ~~preferred~~clause ~~stock,~~in ~~there~~U.S. ~~were~~dollars: novalued ~~specific~~at ~~accounting principles ruling~~ the ~~accounting~~exchange ~~of redeemable preferred~~rate ~~stock.~~indicated ~~Therefore,~~by ~~Cointel~~the ~~decided~~Banco toCentral ~~disclose~~de ~~such~~la ~~preferred~~República ~~stock~~Argentina ~~in its statement of changes in shareholders’ equity at their nominal value adjusted to their redemption value in accordance with its issuance conditions~~ (~~see Note 6. to the consolidated financial statements~~“BCRA”).

RTb) ~~No.~~Receivables 17and sets forth as a specific rule that redeemable preferred stock is part of liabilities when its issuance conditions, directly or indirectly, require that the issuer redeems them for a determined or determinable amount, on a fixed or determinable date. payables:

~~Based~~Trade onreceivables ~~the~~include ~~issuance~~services ~~conditions~~provided ~~of Cointel ‘s preferred stock~~ and on ~~their~~settlements ~~current~~with ~~status~~foreign correspondents, ~~Cointel~~both ~~has~~billed ~~concluded~~and ~~that~~services ~~their~~and ~~preferred~~settlements ~~capital~~accrued ~~stock~~but ~~have~~unbilled ~~not~~as of ~~met~~ the ~~conditions~~end ~~mentioned~~of ~~above~~each ~~and~~period/year, ~~that~~the ~~therefore~~latter ~~they~~being ~~are~~determined abased ~~part~~upon ofinformation ~~Cointel~~about ‘sactual ~~shareholder’s~~consumption, ~~equity.~~subsequent ~~See~~billings ~~Note~~and 6.estimates tousing ~~the~~historical ~~consolidated financial statements~~data.

2Trade receivables are disclosed net of the allowance for doubtful accounts, which has been assessed based on historical data and the estimated trend of collections.2 Telefónica includes as a receivable the portion accrued as of each period/year-end of the surcharge for late payment included in the invoices for payments until the “second due-date” of the invoice. ~~Valuation~~For ~~methods~~amounts ~~and~~that ~~additional~~are ~~information~~past-due beyond the second due-date provided in the original invoice, the interest for late payment is recorded in the cases in which Telefónica estimates that it is likely that it will recover it.

~~The~~Prepaid ~~consolidated~~services ~~financial~~include ~~statements~~payments made to IBM Argentina S.A. (“IBM”) in excess of ~~Cointel~~the ~~and~~portion ~~its~~of ~~controlled~~the ~~companies~~contract’s ~~have~~total ~~been~~cost ~~prepared~~expensed inthrough ~~accordance~~each ~~with~~period/year-end ~~accounting~~for ~~principles~~the ~~consistent~~basic services received. Such amount is disclosed net of the deferred gain from the sale of the assets transferred to IBM, ~~those~~which ~~used~~will bybe recognized as income on a straight-line basis over the ~~Company~~term ~~(See~~of ~~Notes~~the 2contract.1. Likewise, ~~2.2.~~annual ~~and~~increases 2in service costs as agreed upon between the parties (See Note 8.4. to the ~~unconsolidated~~consolidated financial statements) are accrued and recorded in the statement of operations during the fiscal year in which such increases occur.

~~The~~“Patriotic ~~principal~~Bond”: ~~valuation~~was ~~methods~~accounted ~~used~~for at face value in ~~the~~foreign ~~preparation~~currency, ofstated at the ~~consolidated~~exchange ~~financial~~rate ~~statements~~applicable (to its settlement in ~~addition~~effect at the end of each period/year according to the intended uses for the Patriotic Bond by Telefónica, plus the financial income accrued until those ~~described~~dates, inwhich is not different from the ~~unconsolidated~~measurement at the discounted value by the interest rate of the instrument. Telefónica intends to hold the Patriotic ~~financial~~Bond ~~statements)~~until ~~are~~the asrelated ~~follows:~~maturity date and apply it against future taxes (see Note 13.1. to the consolidated financial statements).

a)Tax ~~Current~~credit ~~investments~~certificates (“TCC”): were accounted for at face value plus the benchmark stabilization coefficient (“CER”) and the financial income accrued until the end of each period/year, which is not different from the measurement at the discounted value by the interest rate of the instrument. Telefónica intends to hold the tax credit certificates until the related maturity date and apply them against future taxes (see Note 13.2. to the consolidated financial statements).

~~Investments~~Universal inService ~~Government~~contribution ~~bonds~~(see inNote ~~local~~15. ~~currency~~to the consolidated financial statements): atTelefónica ~~their~~calculates ~~cost,~~the ~~increased~~charge ~~using~~for the ~~effective~~universal ~~interest~~service contribution, ~~rate~~consisting ~~method~~in ~~based~~1% onof revenues from telecommunications services, net of automatic deductions provided by the ~~internal~~related ~~rate~~Regulation and in accordance with Telefónica’s estimates of ~~return~~the amounts payable within each period/year, atsince the ~~time~~detailed rules of ~~acquisition~~calculation and payment of this tax are still pending. If resulting in a balance payable to the ~~time~~universal ~~lapsed~~service ~~since~~fund, ~~then~~such net amount is booked as liability. On the other hand, all deductions and subsidies that must first be approved by the regulatory entity will be booked by Telefónica as receivable in each year in which its reimbursement is approved by such entity.

~~Investments in Government bonds with an adjustment clause in U.S. dollars: valued at the exchange rate indicated by the Banco Central de la República Argentina (“BCRA”~~c). Inventories:

~~Investments~~Raw inmaterials, ~~mutual~~telephony ~~funds~~equipment, other equipment intended for sale (including telephone accessories and prepaid cards) and supplies: ~~measured~~raw materials and supplies are related to paper for printing directories and have been accounted for at replacement cost, which does not exceed their ~~net~~estimated realizable value. Equipment have been accounted for at the replacement cost up to the limit of their estimated realizable value. The Company determines the cost in accordance with the weighted average cost.

~~Table~~Directories ofin ~~Contents~~edition process have been accounted for at their production cost adjusted for inflation. This amount does not significantly differ from restated reproduction cost and does not exceed its estimated realizable value.

7Inventories are accounted for net of the allowance for impairment in value and slow turnover, determined based on inventory recoverability analysis at the end of each period/year.

~~(English~~8 ~~translation of the financial statements originally issued in Spanish, except for note 13~~

to(English ~~the~~translation ~~unconsolidated~~of the financial statements) originally issued in Spanish, except for note 13.

b)to ~~Receivables~~the ~~and~~unconsolidated ~~payables:~~financial statements)

~~Trade~~d) ~~receivables~~Other include services provided and settlements with foreign correspondents, both billed and services and settlements accrued but unbilled as of the end of each period/year, the latter being determined based upon information about actual consumption, subsequent billings and estimates using historical data. assets:

~~Trade~~Other ~~receivables~~assets ~~are~~include ~~disclosed~~buildings ~~net~~no oflonger ~~the~~used ~~allowance~~in ~~for~~Telefónica’s ~~doubtful~~operations ~~accounts, which has been assessed based on historical data~~ and ~~the~~intended ~~estimated trend of collections. Telefónica includes as a receivable the portion accrued as of each period/year-end of the surcharge~~ for ~~late payment included in the invoices for payments until the “second due-date” of the invoice~~sale. ~~For~~The ~~amounts~~carrying ~~that~~book ~~are~~value ~~past-due~~has ~~beyond~~been ~~the second due-date provided in the original invoice, the interest for late payment is~~ recorded based inon ~~the~~its ~~cases~~estimated inrealizable ~~which Telefónica estimates that it is likely that it will recover it~~value.

~~Prepaid services include payments made to IBM Argentina S.A. (“IBM”~~e) inNoncurrent excess of the portion of the contract’s total cost expensed through each period/year-end for the basic services received. Such amount is disclosed net of the deferred gain from the sale of the assets transferred to IBM, which will be recognized as income on a straight-line basis over the term of the contract. Likewise, annual increases in service costs as agreed upon between the parties (See Note 8. to the consolidated financial statements) are accrued and recorded in the statement of operations during the fiscal year in which such increases occur. investments:

~~“Patriotic~~Telefónica’s ~~Bond”~~50% ~~(see~~interest ~~Note 3.1.c) to the consolidated financial statements) was accounted for at face value~~ in ~~foreign~~ECL ~~currency,~~as ~~stated at the exchange rate applicable to its settlement in effect at the end~~ of ~~each~~June ~~period/year according to the intended uses for the Patriotic Bond by Telefónica~~30, ~~plus~~2003 ~~the~~and ~~financial~~December ~~income accrued until those dates~~31, ~~which~~2002 iswas ~~not~~accounted ~~significantly~~for ~~different~~by ~~from~~ the ~~measurement~~equity atmethod ~~the~~based ~~discounted~~on ~~value by~~ the ~~interest~~financial ~~rate~~statements as of ~~the~~June ~~instrument.~~30, ~~Telefónica~~2003 ~~intends~~and toDecember ~~hold~~31, ~~the~~2002, ~~Patriotic~~respectively, ~~Bond~~prepared ~~until~~in ~~the~~accordance ~~related~~with ~~maturity~~accounting ~~date~~principles ~~and~~consistent ~~apply~~with itthose ~~against~~used ~~future~~by ~~taxes (see Note 13.1. to~~ the ~~consolidated financial statements)~~Company.

~~Tax~~Other ~~credit~~investments ~~certificates~~are Telefónica’s interest in Intelsat Ltd. (formerly known as International Telecommunications Satellite Organization (“~~TCC~~Intelsat”)) ~~(see~~and ~~Note~~its 3interest in New Skies Satellites N.1V.c) toas ~~the consolidated~~of ~~financial~~June ~~statements)~~30, ~~were~~2003 and December 31, 2002. They have been accounted for at ~~face~~the ~~value~~U.S. ~~plus~~dollar ~~the~~amount ~~benchmark~~of ~~stabilization~~paid-in ~~coefficient~~capital, ~~(“CER”)~~stated ~~and~~at the ~~financial~~exchange ~~income~~rate ~~accrued~~applicable to ~~until~~its settlement in effect at the end of ~~each~~ period/year, ~~which~~up isto ~~not~~the ~~significantly~~limit ~~different~~of ~~from~~its ~~the measurement~~interest atvalued by the ~~discounted~~equity ~~value~~method, bydetermined on the ~~interest~~basis ~~rate~~ of the ~~instrument.~~latest ~~Telefónica~~available ~~intends~~financial information (see Note 17. to ~~hold~~the consolidated financial statements). As a result of the ~~tax~~registration ~~credit~~of ~~certificates~~Intelsat ~~until~~as a commercial entity, the ~~related~~requirement ~~maturity~~that ~~date~~Telefónica ~~and~~may ~~apply~~not ~~them~~sell ~~against~~its ~~future~~interest ~~taxes~~in ~~(see~~Intelsat ~~Note~~without ~~13.2.~~the toprior consent of the ~~consolidated financial~~regulatory ~~statements)~~authorities was eliminated.

~~Pre-retirement agreements charges and charges of employees eligible for retirement are recorded on the basis of the discounted value of such agreements (see Note 3.1.i~~f) toFixed ~~the consolidated financial statements).~~ assets:

~~Universal~~Fixed ~~Service~~assets ~~contribution~~have ~~(see~~been valued at their transfer price to Telefónica restated as indicated in Note 152.1. to the ~~consolidated~~unconsolidated financial statements):, depreciated ~~Telefónica~~by ~~calculates~~ the ~~charge~~ ~~for~~straight-line ~~the~~method ~~universal~~over ~~service~~their ~~contribution,~~remaining ~~consisting~~useful inlives. 1%The cost of ~~revenues~~work ~~from~~in ~~telecommunications services~~process, ~~net~~whose ofconstruction ~~automatic~~extends ~~deductions~~over ~~(deductions~~a ~~not~~period ~~requiring~~of ~~regulatory~~time, ~~approval)~~includes ~~provided~~the byfinancial cost net of the ~~related~~effect ~~Regulation~~of ~~and~~inflation, inif ~~accordance~~applicable, ~~with~~generated by third ~~Telefónica’s~~parties, ~~estimates~~related ofto the ~~amounts~~investment ~~payable~~during ~~within~~the ~~each~~construction period~~/year,~~ ~~since~~through the ~~detailed~~time ~~rules~~the ofasset ~~calculation~~is ~~and~~ready ~~payment~~to ofbe ~~this~~used ~~tax~~for ~~are~~a ~~still~~productive ~~pending~~purpose. IfCapitalized ~~resulting~~interest included in aconstruction ~~balance~~in ~~payable~~process tofor the ~~universal~~six-month ~~service~~period ~~fund,~~ended ~~such~~June ~~net~~30, ~~amount~~2003 isamounts ~~booked~~to as1 ~~liability.~~million, Onand capitalized interest and exchange difference net of the ~~other~~effect ~~hand~~of inflation, ~~all~~if ~~deductions~~applicable, ~~and~~included ~~subsidies~~in ~~that~~construction ~~must~~in ~~first~~process befor ~~approved~~the byyear ~~the~~ended ~~regulatory~~December ~~entity~~31, ~~will~~2002 betotaled ~~booked~~19 bymillion ~~Telefónica~~(includes as15 ~~receivable~~million inof ~~each~~capitalized ~~year~~exchange difference), inrestated ~~which~~as ~~its~~described ~~reimbursement~~in isNote ~~approved~~2.1. byto ~~such~~the ~~entity~~unconsolidated financial statements.

c)For ~~Inventories:~~fixed assets whose operating condition warrants replacement earlier than the end of the useful life assigned by Telefónica to the fixed asset category, Telefónica calculates depreciation charge based on the adjusted remaining useful life in accordance with Telefónica’s related assets replacement plan.

~~Raw~~As ~~materials,~~indicated ~~telephony~~in ~~equipments,~~Resolution ~~other~~MD ~~equipments~~No.3/2002 ~~intended~~of ~~for~~CPCECABA ~~sale~~ (~~including~~as ~~telephony~~described ~~accessories~~in ~~and~~Note ~~prepaid cards~~2.3.h) ~~and~~to ~~supplies:~~the ~~raw~~unconsolidated ~~materials~~financial statements), the capitalized exchange ~~and~~differences ~~supplies~~act ~~are~~as ~~related~~an toanticipated ~~paper~~recognition ~~for~~of ~~printing~~the ~~directories~~changes in the purchasing power of the currency and ~~have~~are ~~been~~to ~~accounted~~be ~~for~~absorbed atby ~~replacement~~the ~~cost,~~inflation ~~which~~restatement ~~does~~of ~~not~~the ~~exceed~~book ~~their~~values ~~estimated~~of ~~realizable~~the ~~value~~assets that qualify for recognition of exchange differences. ~~Equipment~~In ~~have~~this regard, ~~been~~the ~~accounted~~residual ~~for~~value atof the ~~replacement~~capitalizable ~~cost~~exchange updifferences toas provided by Resolution MD 3/2002 as of June 30, 2003 and December 31, 2002 has been fully absorbed by the ~~limit~~value of ~~their~~these items that has been restated into constant pesos as of ~~estimated~~those ~~realizable~~dates, ~~value.~~as ~~The~~the ~~Company~~inflation ~~determines~~coefficients are applied to the ~~cost~~book incosts ~~accordance~~immediately ~~with~~prior to the ~~weighted~~capitalization ~~average~~provided ~~cost~~by this resolution.

~~Directories~~Fixed inassets ~~edition~~relating ~~process~~to ~~have~~Telefónica’s ~~been~~telecommunications ~~accounted~~business were assessed for atimpairment based on their ~~production~~recoverable ~~cost~~value ~~adjusted~~on ~~for~~the ~~inflation~~basis of Telefónica’s Management best estimate of future cash flows of its telecommunications business, considering current information and future telephone service rates estimates. ~~This~~However, ~~amount~~due ~~does~~to ~~not~~the ~~significantly~~regulatory ~~differ~~uncertainty regarding the precise future evolution of rates which, as described in Note 9.1. to the consolidated financial statements, derive from the pending renegotiation with the Government, whether the participation of the Company in the recorded amount of ~~restated~~Telefónica’s ~~reproduction~~telecommunications ~~cost~~fixed ~~and~~assets ~~does~~as ~~not~~of ~~exceed~~June ~~its~~30, ~~estimated~~2003 ~~realizable~~of ~~value~~2,543 million (amount calculated considering the Company’s indirect ownership interest in Telefónica) is fully recoverable, depends on the outcome of such renegotiation.

~~Table~~9 ~~of Contents~~

8(English translation of the financial statements originally issued in Spanish, except for note 13.

~~(English~~to ~~translation of~~ the ~~financial~~unconsolidated financial statements) ~~originally issued in Spanish, except for note 13~~

~~to the unconsolidated financial statements~~g) Intangible assets:

~~Inventories~~In ~~are~~addition ~~accounted~~to ~~for~~what ~~net~~is ofdescribed ~~the~~in ~~allowance~~Note ~~for~~2.3.c) ~~impairment~~and ind) ~~value~~to ~~and~~the ~~slow~~unconsolidated ~~turnover~~financial statements, ~~determined based~~intangible onassets ~~inventory~~as ~~recoverability~~of ~~analysis~~June at30, ~~the~~2003 ~~end~~and ofDecember ~~each~~31, 2002 ~~period/year.~~correspond to:

d)• ~~Other~~Cointel’s ~~assets~~goodwill on investment in Telefónica: represents the excess of the investment cost over the investment valued by the equity method as of the purchase dates related to Cointel’s increase in Telefónica’s equity interest from 51.0% to 56.2% generated during the fiscal year ended September 30, 1998 as a consequence of the redemption of Telefonica’s class C shares by such company. Cointel depreciates this goodwill over a 240-month term by the straight-line method.

~~Other~~The ~~assets~~recoverability ~~include~~analysis ~~buildings~~of nothe ~~longer~~goodwill’s ~~used~~booked value generated by the investment in Telefónica as of June 30, 2003 has been made on the basis of the Company’s ~~operations~~Management best estimate of Telefónica’s future cash flows, considering current information and ~~intended~~Telefónica’s ~~for~~future ~~sale~~service rates estimates. ~~The~~However, ~~carrying~~owing ~~book~~to ~~value~~the ~~has~~regulatory ~~been~~uncertainty ~~recorded~~regarding ~~based~~the onprecise future evolution of rates and the outcome of Telefónica’s negotiations to obtain financing in order to repay its ~~estimated~~liabilities ~~realizable~~within ~~value~~the regular course of business (see Notes 9.1. and 12. to the consolidated financial statements), whether booked goodwill, as of June 30, 2003 in the amount of 718 million is fully recoverable, depends on the outcome of the above mentioned matters.

e)• ~~Noncurrent~~The ~~investments:~~license merged into Telefónica, in connection with the corporate reorganization mentioned in Note 5. to the consolidated financial statements related to the data transmission business, including the authorizations to use the “B” Band, has been restated as described in Note 2.1. to the unconsolidated financial statements, and is depreciated by the straight-line method over a 10-year term.

~~Telefónica’s~~• ~~50%~~Trademarks ~~interest~~and inthe ~~ECL~~license asto ofuse ~~March~~the ~~31,~~logo ~~2003~~were ~~and~~valued ~~December~~at ~~31,~~acquisition ~~2002~~cost ~~was~~restated ~~accounted~~as ~~for~~described byin ~~the~~Note ~~equity~~2.1. ~~method~~to ~~based on~~ the unconsolidated financial statements, asnet of ~~March~~accumulated ~~31,~~depreciation ~~2003~~which ~~and~~is ~~December~~calculated ~~31,~~based ~~2002,~~on ~~respectively,~~the ~~prepared~~remaining induration ~~accordance~~of ~~with~~the ~~accounting~~Telinver ~~principles~~contract, ~~consistent~~until ~~with~~October ~~those used by the Company~~2007.

~~Other~~• ~~investments~~Expenses ~~are~~incurred ~~Telefónica’s interest~~ in ~~Intelsat~~connection ~~Ltd.~~with ~~(formerly~~the ~~known~~issuance asof ~~International Telecommunications~~negotiable ~~Satellite~~obligations ~~Organization~~have ~~(“Intelsat”))~~been ~~and~~restated ~~its~~as ~~interest~~mentioned in ~~New~~Note ~~Skies Satellites N~~2.V1. asto ofthe ~~March~~unconsolidated ~~31,~~financial ~~2003~~statements and ~~December~~are ~~31,~~depreciated ~~2002.~~by ~~They~~the ~~have~~straight-line ~~been~~method ~~accounted~~as ~~for~~from at the ~~U.S.~~issuance ~~dollar~~date ~~amount~~to ofthe ~~paid-in~~maturity ~~capital,~~of ~~stated~~such atnegotiable ~~the exchange~~obligations ~~rate~~of ~~applicable~~Telefónica. toThese ~~its~~expenses ~~settlement~~include ~~in effect at~~ the ~~end~~amount ofrelated ~~period/year, up~~ to the ~~limit~~“authorization offee” ~~its~~in ~~interest~~connection ~~valued~~with waivers granted by the ~~equity~~holders ~~method,~~of ~~determined~~Telefónica’s onnegotiable ~~the~~obligations ~~basis~~which ofare ~~the~~depreciated ~~latest~~on ~~available~~a ~~financial~~straight-line ~~information~~basis through maturity. (~~see~~See Note 1711. to the consolidated financial statements). AsThe aportion ~~result~~ of ~~the~~expenses ~~registration~~related ofto ~~Intelsat~~Telefónica’s asnegotiable aobligations ~~commercial~~that ~~entity,~~have been settled in the ~~requirement~~exchange ~~that~~offer ~~Telefónica~~on ~~may~~August ~~not~~7, ~~sell~~2003 ~~its~~have ~~interest~~been infully ~~Intelsat~~amortized ~~without~~in the ~~prior~~period ~~consent~~based ofon the ~~regulatory~~proceeds ~~authorities~~through ~~was~~the ~~eliminated~~referred exchange offer. (see Note 11. to the consolidated financial statements).

f)• ~~Fixed~~The ~~assets:~~licenses to use links have been valued at the acquisition cost restated as described in Note 2.1. to the unconsolidated financial statements and are depreciated by the straight-line method over a 15 year, the term of the license.

~~Fixed~~• ~~assets~~The ~~received~~assignment ~~from~~to ~~Empresa~~Telinver ~~Nacional~~of deMeller ~~Telecomunicaciones~~Comunicaciones ~~(“Entel”)~~S.A.’s ~~have~~rights ~~been~~pursuant ~~valued~~to atthe ~~their~~contract ~~transfer~~for ~~price~~publishing to Telefónica ~~restated~~’s astelephone ~~indicated~~directories inand ~~Note~~the ~~2.1.~~non tocompetition ~~the~~clause ~~unconsolidated~~undertaken ~~financial~~by ~~statements,~~Meller ~~and~~Comunicaciones ~~subsequent~~S.A., ~~additions~~ have been valued at historical cost, ~~depreciated~~restated byas ~~the~~described ~~straight-line~~in ~~method~~Note ~~over their remaining useful lives~~2.1. ~~The~~to ~~cost of work in process, whose construction extends over a period of time, includes~~ the unconsolidated financial ~~cost~~statements ~~net~~and ofare ~~the~~depreciated ~~effect~~as offrom ~~inflation,~~October ~~if applicable~~1, ~~generated~~1997 ~~by third parties, related to the investment during the construction period~~ through ~~the~~September ~~time the asset is ready to be used for a productive purpose. Capitalized interest included in construction in process for the three-month period ended March 31~~30, ~~2003~~and ~~amounts~~October to 1 ~~million~~, ~~and capitalized interest and exchange difference net of the effect of inflation~~2007, ~~if applicable~~respectively, ~~included~~according into ~~construction in process for~~ the ~~year~~terms ~~ended December 31, 2002 totaled 19 million (includes 15 million~~ of ~~capitalized exchange difference), restated as described in Note 2.1. to~~ the ~~unconsolidated~~contracts ~~financial statements~~above-mentioned.

~~For~~10 fixed assets whose operating condition warrants replacement earlier than the end of the useful life assigned by Telefónica to the fixed asset category, Telefónica calculates depreciation charge based on the adjusted remaining useful life in accordance with Telefónica’s related assets replacement plan.

As(English ~~indicated~~translation ~~in Resolution MD No.3/2002~~ of ~~CPCECABA,~~ the ~~capitalized~~financial ~~exchange~~statements ~~differences~~originally ~~act~~issued ~~as an anticipated recognition of the changes~~ in ~~the~~Spanish, ~~purchasing~~except ~~power of the currency and are to be absorbed by the inflation restatement of the book values of the assets that qualify~~ for ~~recognition~~note ~~of exchange differences~~13. In this regard, the residual value of the capitalizable exchange differences as provided by General Resolution MD 3/2002 as of March 31, 2003 and December 31, 2002 has been fully absorbed by the value of these items that has been restated into constant pesos as of those dates, as the inflation coefficients are applied to the book costs immediately prior to the capitalization provided by this resolution.

~~Likewise, by application of the methodology described above, in the three-month period ended March 31, 2002, 597 million has been capitalized in fixed assets (restated as described in Note 2.1.~~ to the unconsolidated financial statements). ~~This amount corresponds to exchange losses resulting from liabilities in foreign currency in existence as of January 6, 2002, used in financing such assets.~~

~~Fixed~~h) assets relating to Telefónica’s telecommunications business were assessed for impairment based on their recoverable value on the basis of Telefónica’s Management best estimate of future cash flows of its telecommunications business, considering current information and future telephone service rates estimates. However, due to the regulatory uncertainty regarding the precise future evolution of rates which, as described in Note 9.1. to the consolidated financial statements, derive Reserves:

~~Table~~During the normal course of ~~Contents~~business, Telefónica is subject to several labor, commercial, tax and regulatory claims. The outcome of such individual matters is not predictable with assurance. Charges have been recorded for contingencies where it is probable that Telefónica will incur a loss. The amount of loss is based on Telefónica’s Management’s assessment of the likelihood of occurrence after consideration of legal counsel’s opinion regarding the matter. As of June 30, 2003, the amount booked for such purpose is 94 million.

9i) Financial Instruments:

~~(English~~Telefónica ~~translation~~uses currency swaps, which, in the context of the ~~financial~~Convertibility ~~statements~~Law ~~originally~~between ~~issued~~the U.S. dollar and the Argentine Peso, were intended to eliminate the variability in ~~Spanish~~the cash flows of its debts denominated in Yens and in Euros and that currently reduce such variability in relation to the variations in the exchange rate between the Yen and the U.S. dollar so that, ~~except~~Telefónica has ensured a fixed exchange rate between the yen/euro and the U.S. dollar for ~~note~~these 13obligations paying for this coverage a fixed percentage. Telefónica values the covered obligations at the period/year closing exchange rate and also recognizes separately the derivative instruments at their estimated fair value (see Note 2.1.a) to the consolidated financial statements).

toj) ~~the~~Income ~~unconsolidated~~tax ~~financial statements)~~and Tax on minimum presumed income:

~~from~~Cointel ~~the~~and ~~pending~~Telefónica ~~renegotiation~~record ~~with~~income ~~the~~tax ~~Government,~~by ~~whether~~application ~~the participation~~ of the ~~Company~~deferred method, in ~~the recorded~~accordance ~~amount~~with ofthe ~~Telefónica’s~~provisions ~~telecommunications fixed assets as~~ of ~~March~~RT ~~31,~~No. ~~2003~~17 ofand ~~2,641 million (amount calculated considering~~ the considerations ~~Company’s~~described ~~indirect ownership interest~~ in ~~Telefónica~~Note 2.3.f) isto ~~fully recoverable, depends on~~ the ~~effect~~unconsolidated ~~that~~financial ~~the outcome of such renegotiation may have on Telefónica’s operations and cash flows~~statements.

g)Deferred ~~Intangible~~tax assets result mainly from the temporary differences arising from allowances and ~~deferred~~financial charges: that are not yet deductible for tax purposes and from tax loss carryforwards. Deferred tax liabilities result mainly from temporary differences in the valuation of fixed assets for accounting and tax purposes basically due to different depreciation criteria and to the treatment of capitalized interest.

InThe ~~addition~~cumulative toeffect ~~what~~on isTelefónica’s ~~described~~shareholders’ inequity at ~~Note~~the ~~2.3.c)~~beginning toof the ~~unconsolidated~~six-month ~~financial~~period ~~statements~~ended June 30, ~~intangible~~2002 ~~assets~~arising ~~and~~from the application of this new standard resulted in the recognition of net deferred ~~charges~~tax asliabilities of ~~March~~51 ~~31,~~million ~~2003 and~~(17 ~~December~~million ~~31,~~calculated ~~2002~~considering ~~corresponds~~the ~~to:~~Company’s indirect ownership interest in Telefónica).

•On ~~Cointel’s~~April ~~goodwill~~2, on2003, CPCECABA ~~investment~~issued inResolution ~~Telefónica:~~MD ~~represents~~No. ~~the~~11/2003 ~~excess~~establishing ofthat the ~~investment~~effect ~~cost~~of ~~over~~ the ~~investment~~inflation ~~valued~~restatement byof the ~~equity~~original ~~method~~cost as of ~~the~~fixed ~~purchase~~assets ~~dates~~must ~~related~~not tobe ~~Cointel’s~~considered ~~increase in Telefónica’s equity interest from 51.0%~~ to ~~56.2%~~be ~~generated~~a ~~during~~temporary ~~the~~difference ~~fiscal year ended September 30, 1998~~ as ait ~~consequence~~is ofnot ~~the redemption of Telefonica’s class C shares by such company. Cointel depreciates this goodwill over~~ a ~~240-month~~different ~~term~~valuation ~~by the straight-line method~~basis.

~~The~~In ~~recoverability~~considering ~~analysis~~their ofestimates, ~~the goodwill~~Telefónica’s ~~booked~~Management ~~value~~takes into ~~generated~~account by the ~~investment~~reversal intime ~~Telefónica~~period as of ~~March~~deferred ~~31,~~tax ~~2003~~liabilities, ~~has~~projected ~~been~~taxable ~~made~~income ~~on the~~and ~~basis~~tax ofplanning ~~the~~strategies. ~~Company’s~~This ~~management~~assessment ~~best~~is ~~estimate~~based ofon ~~Telefónica’s~~a ~~future~~series ~~cash~~of ~~flows,~~internal ~~considering~~forecasts ~~current~~updated ~~information~~to ~~and~~reflect ~~Telefónica’s~~the ~~future~~most ~~service~~recent ~~rates~~operating ~~estimates~~trends. ~~However,~~In ~~owing~~accordance with toaccounting ~~the~~principles ~~regulatory~~in ~~uncertainty regarding~~force, the ~~precise~~Company must recognize deferred tax assets when future ~~evolution~~deductibility ofis ~~rates~~likely. ~~and~~Therefore, taking into account the ~~outcome~~variables ofwhich ~~Telefónica’s~~affect ~~negotiations~~the tofuture ~~obtain~~fiscal ~~financing~~income, inincluding ~~order~~the touncertainty ~~repay~~related ~~its~~to ~~liabilities~~the effect ~~within~~of the ~~regular~~final ~~course~~outcome of ~~business~~the tariff renegotiation (~~see~~See ~~Notes~~Note 9.1. ~~and 12.~~ to the consolidated financial statements), ~~whether~~Telefónica has booked ~~goodwill,~~a asreserve offor ~~March 31, 2003 in~~ the ~~amount~~balance of ~~730~~net ~~million,~~deferred istax ~~fully~~assets ~~recoverable~~whose recovery depends onupon the ~~effect~~generation ~~that the outcome~~ of ~~the above mentioned matters may have on Telefónica’s operations and cash~~future ~~flows~~taxable income.

•According ~~The~~to ~~license~~Law ~~merged~~No ~~into Telefónica~~25,561, which is described in ~~connection~~Note ~~with~~2.3.f) to the ~~corporate~~unconsolidated ~~reorganization~~financial ~~mentioned~~statements, Telefónica’s foreign exchange tax loss as calculated by the above procedures and by application of a $1.40 exchange rate for each U.S. dollar was approximately 750 million, which will be computed in ~~Note~~equal 5parts in five years starting December 31, 2002. toApproximately ~~the~~150 ~~consolidated~~million ~~financial~~will ~~statements~~be ~~related~~computed tofor tax purposes in the ~~data~~fiscal ~~transmission~~year ~~business~~ended December 31, ~~including~~2003, ~~the~~while ~~authorizations~~450 million will be carried forward and applied to offset ~~use~~taxes in equal amounts over the ~~“B”~~next ~~Band~~three years. Cointel’s foreign exchange tax loss was approximately 122 million, ~~restated~~of inwhich ~~constant~~approximately ~~Argentine~~24 ~~Pesos~~million aswere ~~stated~~computed infor ~~Note~~tax ~~2.1.~~purposes toin the ~~unconsolidated~~fiscal ~~financial~~year ~~statements~~ended September 30, is2002, ~~depreciated~~6 bymillion were ~~the~~computed ~~straight-line~~for ~~method~~tax ~~over~~purposes ain 10the three-month fiscal year ~~term~~ended December 31, 2002, while the remaining amount will be carried forward and applied proportionally to offset taxes until December 31, 2006, accordingly to the related legislation.

•11 Trademarks and the license to use the logo were valued at acquisition cost restated as described in Note 2.1. to the unconsolidated financial statements, net of accumulated depreciation which is calculated based on the remaining duration of the Telinver contract, until October 2007.

•(English ~~Expenses~~translation ~~incurred in connection with the issuance~~ of ~~negotiable obligations have been restated as mentioned in Note 2.1. to~~ the ~~unconsolidated~~ financial statements, ~~were~~originally ~~deferred~~issued ~~and~~in ~~are being of depreciated by the straight-line method as from the issuance date to the maturity of such negotiable obligations. In addition~~Spanish, ~~expenses~~except ~~include~~for ~~the~~note ~~amount related to the “authorization fee” in connection with waivers granted by the holders of negotiable obligations which are depreciated on a straight-line basis through maturity (see Note 11~~13. ~~to the consolidated financial statements).~~

~~• The licenses~~ to ~~use links have been valued at~~ the ~~acquisition cost restated as indicated in Note 2.1. to the~~ unconsolidated financial statements) ~~and are depreciated by the straight-line method over a 15 year, the term of the license.~~

•Additionally, ~~The~~as ~~assignment~~of toDecember 31, 2002, Cointel, Telefónica and Telinver had a tax loss carryforward of ~~Meller~~approximately ~~Comunicaciones~~4,653 ~~S.A.’s~~million ~~rights~~(1,628 ~~pursuant~~million toat ~~the~~35% ~~contract~~tax ~~for~~rate), ~~publishing~~before ~~Telefónica’s~~the ~~telephone~~offsetting ~~directories~~mentioned ~~and~~in the ~~non~~above ~~competition~~paragraph, ~~clause~~according ~~undertaken~~to bythe ~~Meller~~respective ~~Comunicaciones~~tax ~~S.A.~~returns filed, ~~have~~that ~~been~~could ~~valued~~be atapplied ~~historical~~to ~~cost~~offset ~~restated~~future asincome ~~described~~tax incharge ~~Note~~of ~~2.1.~~the current toyear and the ~~unconsolidated~~subsequent ~~financial~~years ~~statements~~until ~~and~~2007, ~~are~~according ~~depreciated~~to asCointel’s ~~from~~financial ~~October~~statements. 1,For ~~1997~~the ~~through~~six-month ~~September~~period ended June 30, 2003, Cointel, Telefónica and ~~October~~Telinver have estimated a consolidated taxable income in the income tax of approximately 1,038 ~~2007,~~million; ~~respectively~~if such situation remains at the end of the fiscal year, ~~according~~it towill be fully offset with tax loss carryforwards existing at the ~~terms~~beginning of the ~~contracts~~current ~~above-mentioned~~fiscal year.

Available until		Tax loss carryforward (historical value)
2003		15
2004		60
2005		82
2006		795
2007		3,701

		4,653

10The following table presents the components of the Company’s consolidated deferred income tax balance (in millions of Argentine pesos):

(English translation of the financial statements originally issued in Spanish, except for note 13

	June 30, 2003		December 31, 2002
Deferred tax assets
Common income tax loss carryforwards	979	(1)	1,254
Specific income tax loss carryforwards	61		62
Exchange differences deductible in future fiscal years	159		182
Allowance for doubtful accounts	54		67
Interests deductible in future fiscal years	—		30
Accrual for contingencies and other non-deductible allowances	35		31
Other non-deductible accruals	22		16
Other	—		1

	1,310	(2)	1,643	(2)
Allowance for deferred tax assets	(1,231	)(2)	(1,563	)(2)

Subtotal	79		80

Deferred tax liabilities
Fixed assets	(66	)	(69	)
Dismissal accrual for tax purposes	(7	)	(7	)
Other liabilities	(6	)	(4	)

Subtotal	(79	)(2)	(80	)(2)

Total	—		—

(1) Net of 264 million of tax loss carryforwards that offset the tax payable with respect to the ~~unconsolidated~~taxable ~~financial statements)~~income estimated for the six-month period ended June 30, 2003.

h(2) ~~Reserves:~~As of June 30, 2003, the effect of discounting the balances of deferred tax assets, deferred tax liabilities and allowance for deferred tax assets in accordance with accounting rules of the CPCECABA would have resulted in a reduction of those balances of 32 million, 1 million and 31 million, respectively. As of December 31, 2002, this effect on deferred tax assets, deferred tax liabilities and allowance for deferred tax assets would have resulted in a reduction of those balances of 42 million, 1 million and 41 million, respectively.

~~During~~The ~~the~~following ~~normal course of business, Telefónica~~ is ~~subject~~the toreconciliation ~~several~~of ~~labor,~~the ~~commercial,~~income tax ~~and~~as ~~regulatory~~charged ~~claims.~~to ~~The~~the ~~outcome~~consolidated statement of ~~such~~operations ~~individual~~(that ~~matters~~has isbeen ~~not~~nil ~~predictable~~for ~~with~~the ~~assurance.~~six-month ~~Charges have been~~period ~~recorded~~ended ~~for~~June ~~contingencies~~30, ~~where~~2003 itand ~~is probable that Telefónica will incur~~ a ~~loss.~~tax’s ~~The~~recovery ~~amount~~for ofthe ~~loss~~six-month isperiod ~~based~~ended onJune ~~Telefónica’s~~30, ~~management’s~~2002) ~~assessment~~and of the ~~likelihood~~amount ofresulting ~~occurrence~~from ~~after~~the ~~consideration~~application of ~~legal counsel’s opinion regarding~~ the ~~matter.~~corresponding Astax ofrate ~~March~~on ~~31,~~pre-tax ~~2003,~~net ~~the~~income ~~amount~~(in ~~booked~~millions ~~for~~of ~~such~~Argentine ~~purpose~~pesos): ~~is 87 million.~~

i)12 ~~Financial Instruments:~~

~~Telefónica~~(English ~~uses~~translation ~~currency swaps, which, in the context~~ of the ~~Convertibility~~financial ~~Law~~statements ~~between~~originally ~~the~~issued ~~U.S. Dollar and the Argentine Peso, were intended to eliminate the variability~~ in ~~the cash flows of its debts denominated in Yens and in Euros and that currently reduce such variability in relation to the variations in the exchange rate between the Yen and the U.S. Dollar so that~~Spanish, ~~Telefónica has~~except ~~ensured a fixed exchange rate between the yen/euro and the U.S. dollar~~ for ~~these~~note ~~obligations paying for this coverage a fixed percentage~~13. Telefónica values the covered obligations at the period/year closing exchange rate and also recognizes separately the derivative instruments at their estimated fair value (see Note 2.1.a)1. to the consolidated financial statements).

j)to ~~Income~~the ~~tax~~unconsolidated ~~and~~financial statements) ~~Tax on minimum presumed income:~~

Cointel and Telefónica record income tax by application of the deferred method, in accordance with the provisions of RT No. 17 and the considerations described in Note 2.3.f) to the unconsolidated financial statements.

	June 30,
	2003		2002
Net income (loss) before tax at statutory income tax rate	203		(998	)
Permanent differences:
Loss on equity investments	—		(1	)
Non deductible expenses, (non taxable earnings)	11		(3	)
Inflation restatement effect	59		(439	)
Variation of allowance for deferred tax assets	(332	)	—
Goodwill depreciation	9		9
Allowance for deferred tax assets	—		1,672
Effect of minority interest in Telefónica	50		(266	)

Total income tax	—		(26	)(1)

Tax on minimum presumed income	—		8

Total income tax and tax on minimum presumed income	—		(18	)

~~Deferred~~(1) ~~tax~~Corresponds ~~assets~~to ~~result mainly from~~ the ~~temporary~~reversal ~~differences~~of ~~arising~~net ~~from~~deferred ~~allowances and financial charges that are not yet deductible for~~ tax ~~purposes and from tax loss carryforwards. Deferred tax~~ liabilities ~~result~~ ~~mainly~~at ~~from temporary differences in~~ the ~~valuation~~beginning of ~~fixed~~the ~~assets~~six-month ~~for~~period ~~accounting~~as ~~and tax purposes basically due to different depreciation criteria and to the treatment~~ of ~~capitalized~~June ~~interest.~~30, 2002.

~~The~~Telefónica ~~cumulative~~has ~~effect~~determined ona ~~Telefónica’s~~minimum ~~shareholders’~~presumed ~~equity at~~income ~~the~~tax ~~beginning~~charge of for the ~~three~~six-month period ended ~~March~~June 3130, ~~2002~~2003 ~~arising~~in ~~from~~ the ~~application~~amount of ~~this~~22 ~~new~~million ~~standard~~that ~~resulted~~was included in the ~~recognition~~caption “Other non-current receivables” as Telefónica’s management has estimated that such tax would be recoverable based on its tax projections and the terms for recovery established by the law (10 years). However, whether the booked amount of ~~net~~minimum ~~deferred~~presumed income tax ~~liabilities~~of Telefónica of 5121 million ~~(17~~and 16 million (calculated considering the Company’s ~~indirect~~ indirect ownership ~~interest~~ in Telefónica) as of June 30, 2003 and December 31, 2002, respectively, is fully recoverable depends upon the final outcome of the tariff issue (See Note 9. to the consolidated financial statements). The amounts capitalized as minimum presumed income tax have been measured at discounted value, based on Telefónica’s tax projections.

OnAs ~~April 2~~of June 30, 2003, ~~CPCECABA~~and ~~issued~~2002 ~~Resolution~~Cointel ~~MD°~~estimated ~~11/2003 establishing~~ that at the ~~effect~~end of ~~the~~each ~~inflation~~fiscal ~~restatement~~year there will be no tax to pay and consequently Cointel did not include any charge for tax on minim presumed income in its statement of ~~the~~operations. ~~original~~In ~~cost~~the statements of ~~fixed~~operations ~~assets~~for ~~must~~the ~~not~~six-month beperiod ~~considered~~ended June 30, 2002, Cointel has included 0.5 million corresponding to bethe aaccumulated ~~temporary~~balance ~~difference~~of tax on minimum presumed income as itof isSeptember ~~not~~30, a2001, ~~different~~on ~~valuation~~the basis of its recoverability analysis considering last available information.

In considering their estimates, Telefónica’s Management takes into account the reversal time period of deferred tax liabilities, projected taxable income and tax planning strategies. This assessment is based on a series of internal forecasts updated to reflect the most recent operating trends. In accordance with accounting principles in force, the Company must recognize deferred tax assets when future deductibility is likely. Therefore, given the uncertainty related to the effect of the final outcome of the tariff renegotiation (See Note 9.1. to the consolidated financial statementsk), ~~Telefónica~~Statement ~~has booked a reserve for the balance~~ of ~~net~~operations ~~deferred tax assets whose recovery depends upon the generation of future taxable income.~~ accounts:

~~According~~Revenues toand ~~Law~~expenses Noare ~~25,561,~~credited ~~which~~or ischarged ~~described in Note 2.3.f)~~ to ~~the unconsolidated~~income ~~financial~~on ~~statements,~~an ~~Telefónica’s~~accrual ~~foreign exchange tax loss as calculated by the above procedures and by application of a $1~~basis.40 ~~exchange~~Telefónica ~~rate~~recognizes ~~for~~income ~~each~~from ~~U.S.~~fixed ~~dollar~~telephony ~~was~~services ~~approximately~~(local ~~750 million, which will be computed in~~and ~~equal~~long ~~parts~~distance inand ~~five~~access ~~years~~to ~~starting~~the ~~December 31~~network, ~~2002.~~among ~~Approximately~~others) ~~150~~based ~~million~~on ~~will be computed for tax purposes in~~ the ~~fiscal~~use ~~year~~of ~~ended December 31, 2003, while 450 million will be carried forward and applied to offset taxes in equal amounts over~~ the ~~next three years~~network. ~~Cointel’s~~Charges ~~foreign exchange tax loss was approximately 122 million, of which approximately 24 million were computed~~ for ~~tax purposes in~~ the ~~fiscal~~installation ~~year~~of ~~ended~~telephone ~~September~~lines ~~30,~~are ~~2002,~~recognized 6as ~~million~~revenues ~~were~~when ~~computed for tax purposes in~~ the ~~three-month~~service ~~fiscal~~connection ~~year~~is ~~ended December 31, 2002, while the remaining amount will be carried forward and applied proportionally to offset taxes until December 31, 2006, accordingly to the related legislation~~made.

~~Table~~Telefónica recognizes income from sales of ~~Contents~~equipment when they are delivered and accepted by its customers. For contracts where Telefónica provides customers with an indefeasible right to use network capacity, Telefónica recognizes revenue ratably on stated life of the agreement. In addition, the effects of the adjustment of prices agreed upon with customers in relation to services are recognized when all necessary conditions are met to consider them as such. Sales for the six-month period ended on June 30, 2003 include approximately 22 million corresponding to the one-off effect of this type of transactions.

Telinver recognizes revenues and cost of sales for sales of advertisements in telephone directories when the directories are published and distributed. For the main telephone directories undergoing the process of edition as of June 30, 2003, the total amount of advertisement sales not yet booked as income, because of the revocability of the advertisement orders as of that date, is 11 million.

~~(English~~2.3. ~~translation~~Concentration of ~~the~~operations ~~financial~~and ~~statements originally issued in Spanish, except for note 13~~ credits

toThe only significant concentration of credit and operations of Telefónica was with the ~~unconsolidated~~Argentine ~~financial~~Government (Federal, Provincial and Municipal ~~statements~~Government and Governmental agencies). Sales with

~~For~~13 the three-month period ended March 31, 2003, Cointel and Telefónica have estimated a taxable income in the income tax of approximately 888 million. If such situation remains at the end of the fiscal year, the tax income will be fully offset with tax loss carryforwards existing at the beginning of the current fiscal year.

~~Additionally,~~(English astranslation of ~~December 31, 2002, Cointel and Telefónica had a tax loss carryforward of approximately 4,652 million (1,628 million at~~ the ~~35%~~financial ~~tax~~statements ~~rate),~~originally ~~before~~issued ~~the offsetting mentioned~~ in ~~the above paragraph~~Spanish, ~~according~~except tofor ~~the~~note ~~respective tax returns filed, that could be applied to offset future income tax charge of the current year and the subsequent years until 2007, according to Cointel’s financial statements~~13.

~~The~~to ~~consolidated~~the ~~tax~~unconsolidated ~~loss~~financial statements) ~~carryforwards of Cointel and Telefónica will mature as follows:~~

Available until		Tax loss carryforward (historical value)
2003		15
2004		60
2005		82
2006		795
2007		3,700
		4,652

such organizations considered as a whole during the six-month periods ended as of June 30, 2003 and 2002, respectively, amount to approximately 3.3% and 3% of net sales and balances as of June 30, 2003 and December 31, 2002 are 29 million and 34 million, respectively.

~~The~~Of ~~following~~the ~~table~~above-mentioned balances as of June 30, 2003 not yet collected as of the date of issuance of these financial ~~presents~~statements, approximately 23 million were past due as of June 30, 2003. On the ~~components~~basis of Telefónica’s current collection efforts and the ~~Company~~information available as of the date of issuance of these financial statements about Argentina’s future ~~consolidated~~economic ~~deferred~~perspectives, ~~income~~Telefónica’s ~~tax~~Management ~~balance:~~has estimated the possible collection terms and conditions of the receivables from government entities mentioned above.

	March 31,2003		December 31, 2002
Deferred tax assets
Common income tax loss carryforwards	1,028	(1)	1,254
Specific income tax loss carryforwards	61		62
Exchange differences deductible in future fiscal years	169		182
Allowance for doubtful accounts	60		67
Interests deductible in future fiscal years	37		30
Accrual for contingencies and other non-deductible allowances	32		31
Other non-deductible accruals	26		16
Other	4		3
	1,417	(2)	1,645	(2)
Allowance for deferred tax assets	(1,337	)(2)	(1,565	)(2)
Subtotal	80		80
Deferred tax liabilities
Fixed assets	(67	)	(69	)
Dismissal accrual for tax purposes	(7	)	(7	)
Other liabilities	(6	)	(4	)
Subtotal	(80	)(2)	(80	)(2)
Total	—		—

The estimated financial effects of the possible deferral of collections from such government agencies have been considered to value such balances as of June 30, 2003. The portion of net value booked related to these receivables that Telefónica estimated that will be collected beyond the next twelve months has been classified as noncurrent as of June 30, 2003 and December 31, 2002 (see Note 3.1.b) and 3.2. to the consolidated financial statements).

~~(1)~~2.4. ~~Net~~Cointel’s offiscal ~~214 million of tax loss carryforwards that offset the tax payable with respect to the taxable income estimated for the three~~year-~~month~~end ~~period ended March 31, 2003.~~change

~~(2)~~On AsNovember ~~of March 31~~11, ~~2003~~2002, ~~the~~Cointel’s ~~effect~~Ordinary ~~of discounting the balances of deferred tax assets, deferred tax liabilities~~ and ~~allowance~~Special ~~for~~Shareholders’ ~~deferred~~Meeting ~~tax~~approved ~~assets~~the inamendment ~~accordance~~of ~~with~~the ~~accounting~~fiscal ~~rules~~year section of the ~~CPCECABA~~Articles ~~would~~of Incorporation. ~~have~~This ~~resulted~~amendment consists in achanging ~~reduction~~Cointel’s offiscal ~~those~~year-end ~~balances~~from ofSeptember 3530 ~~million,~~to 1December ~~million~~31 ~~and~~of 34each ~~million, respectively~~year. AsOn of December 3112, 2002, ~~this~~the ~~effect~~CNV onapproved ~~deferred~~such ~~tax~~fiscal ~~assets,~~year-end ~~deferred~~change ~~tax liabilities~~ and ~~allowance~~on ~~for~~January ~~deferred~~21, ~~tax~~2003 ~~assets~~this ~~would~~amendment ~~have~~was ~~resulted~~registered with inthe aPublic ~~reduction~~Registry of ~~those balances of 42 million, 1 million and 41 million, respectively~~Commerce.

~~The~~3. ~~following~~BREAKDOWN isOF ~~the~~THE ~~reconciliation~~MAIN ofACCOUNTS ~~the income tax as charged to the consolidated statement of operations~~ (~~that~~Amounts ~~has~~stated ~~been~~in ~~nil for the three-month period ended March 31, 2003 and a tax gain for the three-month period ended March 31, 2002~~millions) ~~and the amount resulting from the application of the corresponding tax rate on pre-tax net income:~~

~~Table~~3.1 Breakdown of ~~Contents~~the main accounts

12The main accounts of the consolidated financial statements as of June 30, 2003 and December 31, 2002 and the consolidated statements of operations for the six-month periods ended June 30, 2003 and 2002 were made up as follows, restated as described in Note 2.1. to the unconsolidated financial statements (foreign currency balances are presented in Exhibit G):

~~(English~~a) ~~translation~~Cash ofand ~~the financial statements originally issued in Spanish, except for note 13~~ banks:

to the unconsolidated financial statements)

	June 30, 2003	December 31, 2002
Cash	1	1
Banks (1)	14	25

	15	26

	March 31,
	2003		2002
Net income (loss) before tax at statutory income tax rate	148		(1,025	)
Permanent differences:
Income (loss) on equity investments	1		(5	)
Non taxable earnings	12		(1	)
Inflation restatement effect	45		(227	)
Reversal of allowance for deferred tax assets	(228	)	—
Goodwill depreciation	5		5
Allowance for deferred tax assets	—		1,387
Effect of minority interest in Telefónica	17		(160	)
Income tax benefit (1)	—		(26	)(1)

(1)

In 2003 and 2002, includes 5 million and 6 million, respectively, from provincial bonds and 4 million and 2 million, respectively, from federal bonds.

(1b) ~~Corresponds~~Trade ~~to the reversal of net deferred tax liabilities at the beginning of the three-month period as of March 31, 2002.~~receivables:

Telefónica has determined a minimum presumed income tax charge for the three-month period ended March 31, 2003 in the amount of 12 million that was included in the caption “Other non-current receivables” as Telefónica’s management has estimated that such tax would be recoverable based on its tax projections and the terms for recovery established by the law (10 years). However, whether the booked amount of minimum presumed income tax of Telefónica of 18 million and 16 million (calculated considering the Company’s indirect interest in Telefónica) as of March 31, 2003 and December 31, 2002, respectively, is fully recoverable depends upon the final outcome of the tariff issue (See Note 9. to the consolidated financial statements). The amounts capitalized as minimum presumed income tax have been measured at discounted value, based on Telefónica’s tax projections.

	June 30, 2003				December 31, 2002
	Current		Noncurrent (2)		Current		Noncurrent
Past due (1)	183		14		223		16
Current	100		—		125		—

Subtotal	283		14		348		16
Allowance for doubtful accounts (Exhibit E)	(151	)	(11	)	(190	)	(13	)

Total	132		3		158		3

k)14 ~~Statement of operations accounts:~~

~~Revenues and expenses are credited or charged to income on an accrual basis. Telefónica recognizes income from fixed telephony services~~ (~~local~~English ~~and long~~translation ~~distance~~of ~~and access to~~ the ~~network,~~financial ~~among~~statements ~~others)~~originally ~~based~~issued onin ~~the~~Spanish, ~~use~~except ~~of the network. Charges~~ for ~~the~~note ~~installation of telephone lines are recognized as revenues when the service connection is made~~13.

~~Telefónica recognizes income from sales of equipment when they are delivered and accepted by its customers. For contracts where Telefónica provides customers with an indefeasible right~~ to ~~use network capacity, Telefónica recognizes revenue ratably on stated life of~~ the ~~agreement.~~unconsolidated financial statements)

~~Telinver~~(1) ~~recognizes~~As ~~revenues~~a ~~and~~result ~~cost~~ of ~~sales~~refinancing ~~for sales~~ of ~~advertisements in~~past-due ~~telephone~~receivables, ~~directories~~about ~~when~~7 ~~the~~million ~~directories are published~~ and ~~distributed.~~10 ~~For~~million ~~the~~of ~~main~~refinanced ~~telephone~~receivables ~~directories~~are ~~undergoing~~disclosed ~~the~~as ~~process~~current ofreceivables ~~edition~~ as of ~~March~~June 3130, 2003, ~~the~~and ~~total~~December ~~amount of advertisement sales not yet booked as income~~31, ~~because of the revocability of the advertisement orders as of that date~~2002, ~~is 7 million~~respectively.

(2) See Notes 2.3. ~~Concentrations~~to ofthe ~~operations~~consolidated ~~and~~financial ~~credits~~statements.

~~The~~15 only significant concentration of credit and operations of Telefónica as of March 31, 2003 and December 31, 2002 was with the Argentine Government (Federal, Provincial and Municipal Government and Governmental agencies). Sales with such organizations considered as a whole during the three-month periods ended as of March 31, 2003 and 2002, respectively, amount to approximately 3.1% and 3.2% of net sales and balances as of March 31, 2003 and December 31, 2002, are, respectively, 31 million and 34 million.

Of(English ~~the~~translation ~~above-mentioned balances as~~ of ~~March 31, 2003 not yet collected as of~~ the ~~date of issuance of these~~ financial statements, ~~approximately~~originally 23issued ~~million were~~in ~~past due as of March 31~~Spanish, ~~2003.~~except Onfor ~~the~~note basis of Telefónica’s current collection efforts and the information available as of the date of issuance of these financial statements about Argentina’s future economic perspectives, Telefónica’s Management has estimated the possible collection terms and conditions of the receivables from government entities mentioned above13.

~~The~~to ~~estimated financial effects of~~ the ~~possible~~unconsolidated ~~deferral of collections from such government agencies have been considered to value such balances as of~~financial ~~March~~statements) ~~31, 2003. The portion of net value booked related to these receivables that Telefónica estimated that will be collected beyond the next twelve~~

~~Table~~c) ofOther ~~Contents~~receivables:

	June 30, 2003			December 31, 2002
	Current	Noncurrent		Current	Noncurrent
Guarantee deposits	3	—		4	—
Prepayments to vendors	1	—		1	—
Related parties (4)	48	—		50	—
Financial prepayments	5	—		6	—
Prepaid rentals	—	—		1	—
Prepaid services	9	—		11	—
Tax credit certificates (1)	8	4		8	8
Legal deposits	2	—		1	—
Value Added Tax	—	—		1	—
Tax on minimum presumed income	—	35		—	26
Patriotic Bond (2)	23	18		30	21
Deferred income tax assets, net (3)	—	1,231		—	1,563
Other	15	2		14	2

Subtotal	114	1,290		127	1,620
Allowance for other receivables (Exhibit E)	—	(1,231	)	—	(1,563	)

Total	114	59		127	57

(~~English~~1) ~~translation~~See ofNote ~~the~~13.2. ~~financial~~to ~~statements~~the ~~originally~~consolidated ~~issued~~financial ~~in Spanish, except for note 13~~ statements.

(2) See Note 13.1. to the ~~unconsolidated~~consolidated financial ~~statements)~~ statements.

~~months has been classified as noncurrent as of March 31, 2003 and December 31, 2002~~ (~~see~~3) See Note 32.12.bj) ~~and 3.2.~~ to the consolidated financial statements).

2.(4) Includes balances with TYSSA Telecomunicaciones y Sistemas S.A. ~~Cointel´s~~(“TYSSA”), ~~fiscal~~Telefónica ~~year~~Data Argentina S.A. (“TDA”), Telefónica Gestión de Servicios Compartidos S.A. (“T-~~end~~Gestiona”), ~~change~~Atento Argentina S.A. (“Atento”), Adquira Argentina S.A. (“Adquira”), Telefónica S.A. Sucursal Argentina (“TESA Arg.”), Telefónica Comunicaciones Personales S.A. (“TCP”) and Telefónica Internacional Holding B.V. (“TIHBV”).

Ond) November 11, 2002, Cointel´s Ordinary and Special Shareholders’ Meeting approved the amendment of the fiscal year section of the Articles of Incorporation. This amendment consists in changing Cointel´s fiscal year-end from September 30 to December 31 of each year. On December 12, 2002, the CNV approved such fiscal year-end change and on January 21, 2003 this amendment was registered with the Public Registry of Commerce. Inventories:

3. BREAKDOWN OF THE MAIN ACCOUNTS (amounts stated in millions)

	Current
	June 30, 2003		December 31, 2002
Raw materials and supplies	1		—
Directories in edition process	3		2
Telephony and other equipment	7		8
Prepayments to vendors	1		2

Subtotal	12		12
Allowance for impairment in value and slow turnover (Exhibit E)	(4	)	(4	)

Total	8		8

~~3.1~~e) ~~Breakdown~~Other ~~of the main accounts~~ assets:

As of the end of each period/year, the main accounts were made up as follows (foreign currency balances are presented in Exhibit G) (balances stated in millions of constant Argentine pesos of March 31, 2003 – See Note 2.1. to the unconsolidated financial statements):

	Current
	June 30, 2003	December 31, 2002
Real property intended for sale	2	2

a)16 ~~Cash and banks:~~

	March 31,2003	December 31,2002
Cash	1	1
Banks (1)	17	25
	18	26

(English translation of the financial statements originally issued in Spanish, except for note 13.

~~(1)~~to Inthe ~~2003~~unconsolidated ~~and~~financial statements) ~~2002, includes 6 million and 5 million, respectively, from provincial bonds and 2 million and 3 million, respectively, from federal bonds.~~

bf) ~~Trade~~Goodwill ~~receivables:~~on investment in companies:

	March 31, 2003					December 31, 2002
	Originalvalue		Depreciation					Net book value
	Current			Noncurrent (2)		Current			Noncurrent
	At beginning of year		At beginning of year		For the period/ year	Accumulated at end of period/year		As of June 30, 2003		As of December 31,2002
Past due (1)	182			17		223			16
Goodwill - Cointel	804		234		20	254		550		570
Current	98			—		125			—
Goodwill - Telefónica	225		52		5	57		168		173
Subtotal	280			17		348			16
Six-month period ended June 30, 2003	1,029		286		25	311		718
Allowance for doubtful accounts (Exhibit E)	(168	)		(14	)	(190	)		(13	)
Fiscal year ended December 31, 2002	1,029		235		51	286				743
Total	112			3		158			3

(1g) AsTrade ~~a result of refinancing of past-due receivables, about 10 million of refinanced receivables are disclosed as current receivables as of March 31, 2003.~~payables:

(2) See Notes 2.3. to the consolidated financial statements.

	June 30, 2003		December 31, 2002
	Current	Noncurrent	Current	Noncurrent
Vendors, contractors and correspondents	124	—	151	—
Management fee	32	—	37	—
Billing on account and behalf of cellular and audiotext companies	16	—	13	—
Services collected in advance(1)	2	33	1	34
Other	5	—	7	—

Total	179	33	209	34

~~Table~~(1) In 2003 and 2002, includes deferred future revenues related to the sale of ~~Contents~~indefeasible right to use network capacity, recognized ratably over the stated life of the agreement.

14h) Bank and other financial payables:

(English translation of the financial statements originally issued in Spanish, except for note 13

	June 30, 2003		December 31, 2002
	Current	Noncurrent	Current	Noncurrent
Credit balances with banks	2	—	3	—
Bank loans and long-term financing	65	157	79	212
Import financing	12	17	30	14
Section 33 LSC companies and related parties – Telefónica Internacional, S.A. (“TISA”)(2)	2,966	—	3,542	—
Negotiable obligations(1)	37	1,459	44	1,750

Total	3,082	1,633	3,698	1,976

(1) See issuance conditions in Note 11. to the ~~unconsolidated~~consolidated financial statements) and Note 11. to unconsolidated financial statements.

(2) In 2003 and 2002, includes 1,581 million and 1,853 million, respectively, corresponding to the Company (see Note 6.c) ~~Other~~(iii) ~~receivables:~~to the unconsolidated financial statements), 176 million and 178 million, respectively, corresponding to Cointel (see Note 7.1. to the consolidated financial statements), and 1,209 million and 1,511 million, respectively, corresponding to Telefónica (see Note 12. to the consolidated financial statements).

	March 31, 2003			December 31, 2002
	Current	Noncurrent		Current	Noncurrent
Guarantee deposits	3	—		4	—
Prepayments to vendors	1	—		1	—
Related companies – Telefónica Comunicaciones Personales S.A. (“TCP”), TYSSA Telecomunicaciones y Sistemas S.A. (“TYSSA”), Telefónica Data Argentina S.A. (“TDA”), Telefónica Gestión de Servicios Compartidos S.A. (“T-Gestiona”), Adquira Argentina S.A. (“Adquira”), Atento Argentina S.A. (“Atento”) and Telefónica S.A. Sucursal Argentina (“TESA Arg.”)	43	—		50	—
Financial prepayments	2	—		6	—
Prepaid rentals	—	—		1	—
Prepaid services	8	1		11	—
Tax credit certificates (1)	8	4		8	8
Legal deposits	1	—		1	—
Value Added Tax	—	—		1	—
Tax on minimum presumed income	—	30		—	26
Patriotic Bond (2)	35	8		30	21
Deferred income tax assets, net (3)	—	1,337		—	1,565
Other	14	1		14	2
Subtotal	115	1,381		127	1,622
Allowance for other receivables (Exhibit E)	—	(1,337	)	—	(1,565	)
Total	115	44		127	57

(1)English ~~See~~translation ~~Note~~of ~~13.2. to~~ the ~~consolidated~~ financial statements originally issued in Spanish, except for note 13.

~~(2) See Note 13.1.~~ to the ~~consolidated~~unconsolidated financial statements.)

(3i) ~~See~~Payroll ~~Note~~and ~~2.2.j)~~social tosecurity ~~the~~taxes ~~consolidated financial statements.~~payable:

d) Inventories:

	June 30, 2003		December 31, 2002
	Current	Noncurrent	Current	Noncurrent
Vacation and bonus accrual	19	1	22	—
Social security taxes payable	7	—	7	—
Pre-retirement agreements(1)	7	11	6	14
Other	1	—	2	—

Total	34	12	37	14

	Current
	March 31,2003		December 31,2002
Raw materials and supplies	1		—
Directories in edition process	3		2
Telephony and other equipment	8		8
Prepayments to vendors	1		2
Subtotal	13		12
Allowance for impairment in value and slow turnover (Exhibit E)	(4	)	(4	)
Total	9		8

(1)

Pre-retirement agreements mature through 2009, and do not have adjustment clauses. In 2003, includes 3 million related to benefits granted to employees included in such agreements, which are to be allocated by them to pension payments corresponding to the period between the date of the agreement and June 30, 2003 and are to be paid until the worker qualifies to obtain legal pension benefits.

ej) ~~Other~~Taxes ~~assets~~payable:

	Current
	March 31,2003	December 31,2002
	June 30, 2003	December 31, 2002
Real property intended for sale	2	2
Turnover tax accrual (net of prepayment)	5	6
Total	2	2
Health and safety assessment	9	8
Value added tax	7	—
Tax on minimum presumed income (net of prepayments)	10	25
Other	12	10
Total	43	49

~~Table~~k) ofOther ~~Contents~~payables:

	June 30, 2003		December 31, 2002
	Current	Noncurrent	Current	Noncurrent
Financial instruments(1)	4	27	3	16
International Telecommunications Union	11	—	10	—
Debt with related companies(2)	2	—	1	—
Other	16	12	16	17

Total	33	39	30	33

(~~English~~1) ~~translation~~Corresponds ofto the ~~financial~~foreign ~~statements~~currency ~~originally~~swaps ~~issued~~described in ~~Spanish,~~Note ~~except~~12. ~~for~~to ~~note~~the 13consolidated financial statements.

to(2) ~~the~~Includes ~~unconsolidated~~balances ~~financial statements)~~with TCP and Atento.

fl) ~~Goodwill~~Cost onof ~~investment~~services ~~in companies~~provided:

	Originalvalue	Depreciation			Net bookvalue	Net bookvalue
	June 30, 2003	June 30, 2002
	Atbeginningof year	Atbeginningof year	For theperiod/year	At end ofperiod/year	As of March 31,2003	As of December 31,2002
Operating expenses of Telecommunications services (Exhibit H)	481	592
Goodwill - Cointel	804	234	10	244	560	570
Cost of services provided (Exhibit F)	5	14
Goodwill - Telefónica	225	52	3	55	170	173
Total	486	606
Three-month period ended March 31, 2003	1,029	286	13	299	730
Fiscal year endedDecember 31, 2002	1,029	235	51	286		743

g)18 ~~Trade payables:~~

	March 31, 2003		December 31, 2002
	Current	Noncurrent	Current	Noncurrent
Vendors, contractors and correspondents	129	—	151	—
Management fee	41	—	37	—
Billing on account and behalf of cellular and audiotext companies	11	—	13	—
Services collected in advance (1)	2	34	1	34
Other	4	—	7	—
Total	187	34	209	34

(English translation of the financial statements originally issued in Spanish, except for note 13.

~~(1) Deferred revenues related~~ to the ~~sale~~unconsolidated offinancial statements) ~~indefeasible right to use network capacity, recognized ratably over the stated life of the agreement.~~

h)3.2 ~~Bank~~AGING ~~and~~OF ~~other~~CURRENT ~~financial~~INVESTMENTS, ~~payables:~~RECEIVABLES AND LIABILITIES AS OF JUNE 30, 2003:

	March 31, 2003				December 31, 2002
	Assets							Liabilities
	Current		Noncurrent		Current	Noncurrent
	Investments			Tradereceivables(a)		OtherReceivables(c)		Tradepayables	Bank andfinancialpayables(d)		Payrolland SocialSecurityTaxespayables	Taxpayables	Otherpayables
Credit balances with banks	—		—		3	—
Past-due:
Bank loans and long-term financing	68		167		79	212
Up to three months	—			62		1		6	—		—	—	—
Import financing	24		11		30	14
From three to six months	—			19		—		2	—		—	—	—
Related company – Telefónica Internacional, S.A. (“TISA”)(2)	3,123		—		3,542	—
From six to nine months	—			5		2		1	—		—	—	—
Negotiable obligations (1)	51		1,547		44	1,750
From nine to twelve months	—			10		—		—	—		—	—	—
Total	3,266		1,725		3,698	1,976
From one to two years	—			55		3		2	—		—	—	—
From two to three years	—			18		—		1	—		—	—	—
Over three years	—			28		—		—	—		—	—	—
At sight:	14			—		40		—	2		—	10	22
Current:
Up to three months	269			89		37		160	3,017		15	22	6
From three to six months	—			4		9		3	39		4	1	—
From six to nine months	—			5		14		3	20		12	—	5
From nine to twelve months	—			2		8		1	4		3	10	—
From one to two years	—			—		26		2	869		5	—	7
From two to three years	—			—		—		2	37		3	—	7
From three to four years	—			—		—		2	138		2	—	6
From four to five years	—			—		33		1	533		1	—	6
Over five years	—			—		—		26	56		1	—	12
Subtotal	283			297		173		212	4,715		46	43	71
Allowance for doubtful accounts	—			(162	)	—		—	—		—	—	—
Benefits under the Collective Labor Agreements	—			—		—		—	—		—	—	1
Total	283			135		173		212	4,715		46	43	72
Percentage accruing interest at fixed rate	92	%		1	%	9	%	—	41	%	—	—	44	%
Percentage accruing interest at variable rate	—			65	%(b)	26	%	—	58	%	—	—	—
Percentage with variable return	5	%		—		—		—	—		—	—	—
Average interest rate in foreign currency	1	%		—		6	%	—	9	%	—	—	6	%
Average interest rate in local currency	11	%		62	%	4	%	—	10	%	—	—	—

(1a) ~~See~~Includes ~~issuance~~14 ~~conditions~~million classified as past-due in non-current trade receivables taking into account Telefónica’s management estimates regarding probable collection terms (see Note 112.3. to the consolidated financial statements).

(2b) InSuch ~~2003~~percentage ~~and~~is ~~2002,~~related ~~includes 1,645 million and 1,853 million, respectively, corresponding~~ to the ~~Company~~portion ~~(see~~of ~~Note~~receivables ~~6.c)~~over ~~(iii)~~which tosurcharges ~~the~~are ~~unconsolidated~~applicable ~~financial~~for ~~statements),~~being ~~183~~in ~~million and 179 million, respectively, corresponding to Cointel (see Note 7~~arrears.1. toThe ~~the~~rate ~~consolidated~~indicated ~~financial~~is ~~statements),~~that ~~and 1,295 million and 1,510 million, respectively,~~ corresponding to ~~Telefónica~~bills ~~(see~~collected ~~Note~~with ~~12.~~such ~~to the consolidated financial statements)~~surcharges.

~~Table~~(c) ofNot ~~Contents~~including amounts corresponding to net deferred tax asset totally reserved.

16(d) See Note 11.3 to consolidated financial statements.

~~(English~~4. ~~translation~~TELEFONICA’S ~~of the financial statements originally issued in Spanish, except for note 13~~ OPERATIONS

Sociedad Licenciataria Sur S.A., nowadays Telefónica, was created in compliance with the provisions of the List of Conditions for the privatization of Empresa Nacional de Telecomunicaciones (“Entel”). Telefónica has a license for an unlimited period of time to provide Basic Telephone Services to the ~~unconsolidated~~Southern ~~financial~~Region of Argentina. The license, as granted, was exclusive through ~~statements~~November 8, 1997, with the possibility of a three-year extension. On March, 1998 the National Executive Power (“NEP”) has issued Decree No. 264/98 which generally extended the period of exclusivity with respect to the provision of Basic Telephone Services until late 1999 and over time opening the telecommunications sector in Argentina to increased competition.

i)Decree ~~Payroll~~No. 264/98 issued by the NEP, established subject to the results of the above-mentioned legal proceedings, a period of transition to competition in the telecommunications industry, during which all of Telefónica’s rights and ~~social~~obligations ~~security~~related ~~taxes~~to ~~payable:~~the exclusivity of the license not otherwise modified, should remain in effect. Decree No. 264/98 established a timetable for the liberalization, subject to issuance of related regulations, first liberalizing the area of public telephones followed by liberalization of the rural telephone market, the liberalization of the market for basic telephone services with the addition of up to two

	March 31, 2003		December 31, 2002
	Current	Noncurrent	Current	Noncurrent
Vacation and bonus accrual	22	—	22	—
Social security taxes payable	6	—	7	—
Pre-retirement agreements (1)	8	11	6	14
Other	3	—	2	—
Total	39	11	37	14

(1)English ~~Pre-retirement~~translation ~~agreements~~of ~~mature~~the ~~through~~financial ~~2009,~~statements ~~and~~originally doissued ~~not have adjustment clauses. The amount includes 3 million related to benefits granted to employees included~~ in ~~such agreements~~Spanish, ~~which~~except ~~are~~for tonote ~~be allocated by them to pension payments corresponding to the period between the date of the agreement and March 31, 2003 and are to be paid until the worker qualifies to obtain legal pension benefits~~13.

j)to ~~Taxes~~the ~~payable:~~unconsolidated financial statements)

	Current
	March 31,2003	December 31,2002
Turnover tax accrual (net of prepayment)	4	6
Health and safety assessment	9	8
Value added tax	6	—
Tax on minimum presumed income	30	25
Other	9	10
Total	58	49

new licenses (two new operators) to provide such services at the end of the period of exclusivity and concluding with the total liberalization of local, domestic and international long-distance services on November 8, 2000. In this context, the Secretary of Communications (“SC”) issued Resolution No. 1,686/99, which provided that the transition period to competition in telecommunications ended on October 10, 1999.

k)On ~~Other~~March ~~payables:~~31, 1999, Telefónica signed a license agreement with the SC for an unlimited period of time, to provide local and domestic and international long-distance telephone services and telex services in the Northern region of the country. Telefónica’s obligations under the license, mainly related to service quality and coverage of the areas to be serviced.

	March 31, 2003		December 31, 2002
	Current	Noncurrent	Current	Noncurrent
Financial instruments (1)	4	26	3	16
International Telecommunications Union	10	—	10	—
Debt with TYSSA, Atento, TCP and TDA	—	—	1	—
Other	16	12	16	17
Total	30	38	30	33

Also, on June 9, 2000, the NEP issued Decree No. 465/00, which provides for the total deregulation of the telecommunications market as from November 9, 2000.

~~(1)~~On ~~Corresponds~~September to3, 2000, the ~~foreign~~NEP ~~currency~~issued ~~swaps~~Decree ~~described~~No. 764/2000 which, in ~~Note~~the 12context of such deregulation approved the Rules for Licenses for Telecommunication Services, the Rules for Interconnection, the Rules for Universal Service and the Rules for the Management and Control of Radioelectric Spectrum. These rules constitute the current regulatory framework applicable to Telefónica. The above-mentioned rules provide, among other issues, the ~~consolidated~~requirements ~~financial~~to ~~statements~~obtain the licenses to render telecommunications service, the conditions to establish rates and the providers’ obligations, the technical and economic aspects for interconnection to the networks of different providers, the programs, administration and economic issues of the Universal Service, as well as the principles that will govern the management and control of the radioelectric spectrum.

l)On ~~Cost~~September 19, 2000, Telefónica filed a reconsideration petition against certain issues of ~~services~~Decree ~~provided:~~No. 764/2000. The Court has not as yet ruled on this issue.

	March 31,2003	March 31,2002
Telecommunications services (Exhibit H)	238	306
Cost of services provided (Exhibit F)	2	8
Total	240	314

Telefónica’s short-term strategy has been to continuously adapt its business strategy to address the challenges and risks presented by the Argentine economic crisis. Therefore, the short-term strategy focuses on the renegotiation of tariffs, cost controls and efficiency improvements, capital expenditures controls, improvements in working capital and management of cash and liquidity.

~~Table~~Telefónica’s current long-term business strategy is to maintain and enhance its position in Argentina’s competitive telecommunications market. The implementation of ~~Contents~~this strategy involves the introduction of service offerings in new geographic areas, improving and expanding services Telefónica currently serve in the markets and its continuous development as a provider of telecommunications services for corporate and residential customers.

17In the long term, Telefónica intends to continue to solidify its position as the leading provider at integrated business solutions in Argentina by providing a full range of services including voice, value added services, broad band (“ADSL”), dial-up Internet access, sales of telephone equipment and other high-technology products for corporate users through different marketing channels. Telefónica also intends to continue to invest substantial resources and efforts into training and personnel development and incentive programs to reduce costs and improve efficiency.

~~(English~~Telefónica ~~translation~~considers that the implementation of these short and long-term business strategies will continue having a positive impact on the ~~financial~~competitiveness ~~statements~~of ~~originally~~telecommunications ~~issued~~activities inreducing ~~Spanish,~~the ~~except~~adverse ~~for~~effects ~~note~~of 13growing competition and Argentina’s economic and political situation.

toSince the ~~unconsolidated~~previous fiscal year, additional factors have had material effects on Telefónica’s operations, results and financial condition. Such factors arise from the Argentine economic crisis and the effect of the current regulatory framework on Telefónica’s ability to respond to the above mentioned effects (see Notes 9. and 12. to the consolidated financial statements).

3Furthermore, Telefónica maintains a Management Agreement with the operator Telefónica, S.2A. ~~AGING~~(“TESA”, spanish OFcompany ~~CURRENT~~which ~~INVESTMENTS~~controls the Company indirectly). Under this Agreement, ~~RECEIVABLES~~the ~~AND~~full ~~LIABILITIES~~management ASof OFTelefónica ~~MARCH~~is 31entrusted to the operator. Such agreement was automatically extended until April 2003 at TESA’s option. The management fee amounted to 9% of the “gross margin”, as defined in the agreement. In addition, on October 30, 2002, TESA notified the Company about the exercise of the option to extend the term of the Management Agreement for an additional period of five years to be counted as from April 30, 2003: by virtue of the right conferred by such agreement. In that respect, on July 30, 2003, Telefónica entered into a Supplement to the Management Agreement, which had been in force as of that date pursuant to successive extensions and in conformity with the clauses of the original agreement, pursuant to which the management fees as from May 1, 2003 were agreed upon in 4% of the gross margin, as described above.

	Assets						Liabilities
	CurrentInvestments		Tradereceivables(a)		OtherReceivables(c)		Tradepayables	Bank andfinancialpayables		Payrolland SocialSecurityTaxespayables	Taxpayables	Otherpayables
Past-due:
Up to three months	—		66		—		34	—		—	—	—
From three to six months	—		3		—		4	—		—	—	—
From six to nine months	—		7		—		—	—		—	—	—
From nine to twelve months	—		18		—		2	—		—	—	—
From one to two years	—		55		3		3	—		—	—	1
From two to three years	—		20		—		4	—		—	—	—
Over three years	—		27		—		—	—		—	—	—
At sight:	—		—		34		4	15		1	10	21
Current:
Up to three months	245		93		37		125	3,047		17	48	1
From three to six months	—		4		15		6	158		4	—	2
From six to nine months	—		2		11		4	26		6	—	—
From nine to twelve months	—		2		15		1	20		11	—	5
From one to two years	—		—		14		3	915		4	—	7
From two to three years	—		—		—		3	39		3	—	6
From three to four years	—		—		2		3	145		2	—	6
From four to five years	—		—		—		2	17		1	—	4
Over five years	—		—		28		23	609		1	—	14
Subtotal	245		297		159		221	4,991		50	58	67
Allowance for doubtful accounts	—		(182	)	—		—	—		—	—	—
Benefits under the Collective Labor Agreements	—		—		—		—	—		—	—	1
Total	245		115		159		221	4,991		50	58	68
Percentage accruing interest at fixed rate	84	%	1	%	9	%	—	34	%	—	—	45	%
Percentage accruing interest at variable rate	—		66	%(b)	31	%	—	63	%	—	—	—
Percentage with variable return	3	%	—		—		—	—		—	—	—
Average interest rate in foreign currency	1	%	—		6	%	—	10	%	—	—	6	%
Average interest rate in local currency	24	%	81	%	4	%	—	10	%	—	—	—

(a)English ~~Include~~translation 17of ~~million~~the ~~classified~~financial asstatements ~~non-current~~originally ~~taking~~issued ~~into~~in ~~account~~Spanish, ~~Telefónica’s~~except ~~management~~for ~~estimates~~note ~~regarding probable collection terms (see Note 2~~13.3. ~~to the consolidated financial statements).~~

~~(b) Such percentage is related~~ to the ~~portion~~unconsolidated offinancial statements) ~~receivables over which surcharges are applicable for being in arrears. The rate indicated is that corresponding to bills collected with such surcharges.~~

~~(c)~~On ~~Not~~April ~~including~~10, ~~amounts~~2002, ~~corresponding~~Telefónica’s General Ordinary and Special Shareholders’ Meetings approved an amendment to ~~net~~the ~~deferred~~corporate purpose. The corporate purpose was broadened for Telefónica to be able to engage in other types of businesses not strictly related to rendering telecommunications services, including: purchasing equipment, infrastructure, and telecommunications-related goods, as well as rendering any type of services, such as consulting and accounting, human resources and tax ~~asset~~administration ~~totally~~services. ~~reserved~~In view of the broadening of the corporate purpose, it is necessary to obtain the related authorization of the telecommunication regulatory authorities. The related request has been made to the SC and is pending. Therefore, the mentioned changes to Telefónica’s corporate purpose are subject to administrative approval by the SC.

45. ~~TELEFONICA’S~~CORPORATE ~~OPERATIONS~~REORGANIZATION

~~Sociedad~~TESA, ~~Licenciataria~~the ~~Sur~~indirect ~~S.A.,~~controlling ~~nowadays~~shareholder of Telefónica, ~~was~~has ~~created~~carried inout ~~compliance~~its ~~with~~plan ~~the~~to ~~provisions~~make ofa ~~the~~global ~~List~~reorganization of ~~Conditions~~its ~~for~~activities ~~the~~and ~~privatization~~the activities of ~~Empresa~~its ~~Nacional~~subsidiaries deby ~~Telecomunicaciones~~business ~~(“Entel”)~~line. ~~Telefónica~~As ~~has~~ a ~~license~~consequence ~~for an unlimited period~~ of ~~time~~this toplan, ~~provide~~on ~~Basic~~January ~~Telephone Services to the Southern Region of Argentina. The license~~30, as2001 ~~granted,~~and ~~was~~March ~~exclusive through November 8~~30, ~~1997~~2001, ~~with~~Telefónica’s ~~the~~Board ~~possibility~~ of aDirectors ~~three-year~~and ~~extension.~~Special OnShareholders’ ~~March~~Meeting, ~~1998~~respectively, ~~the~~resolved ~~National Executive Power has issued Decree No. 264/98 which generally extended the period of exclusivity with respect~~ to ~~the~~reorganize ~~provision~~some of ~~Basic Telephone Services~~ ~~until~~its ~~late 1999 and over time opening the telecommunications sector in Argentina to increased competition~~businesses.

~~Decree~~As ~~No.~~a ~~264/98~~consequence ~~issued~~of by the ~~National~~above ~~Executive Power~~mentioned reorganization, ~~established~~Telefónica ~~subject~~spin tooff ~~the~~its ~~results~~assets ofand ~~the~~liabilities ~~above-mentioned~~related ~~legal~~to ~~proceedings,~~the adata ~~period~~transmission ~~of transition~~business toand ~~competition~~no inlonger ~~the~~holds ~~telecommunications~~any ~~industry~~interest in TCP, ~~during~~TDA ~~which~~(formerly ~~all~~known ofas ~~Telefónica’s~~Advance ~~rights~~Telecomunicaciones S.A.) and ~~obligations~~TYSSA, ~~related~~whose tobusinesses ~~the~~had previously ~~exclusivity~~been ofreorganized ~~the~~to ~~license~~merge ~~not~~certain ~~otherwise~~assets ~~modified,~~and ~~should~~liabilities ~~remain~~of inthose ~~effect.~~companies ~~Decree~~in NoTelefónica. ~~264/98 established~~According ato ~~timetable for~~ the ~~liberalization,~~Board ~~subject~~of toDirectors’ ~~issuance~~and ofSpecial ~~related~~Shareholders’ ~~regulations,~~Meetings ~~first~~of ~~liberalizing~~Telefónica ~~the~~and ~~area~~ of ~~public~~the ~~telephones~~above-mentioned subsidiaries, ~~followed~~Telefónica’s byequity ~~liberalization~~interests ofin the ~~rural~~above-mentioned ~~telephone~~former ~~market,~~subsidiaries ~~the~~were ~~liberalization~~spun-off of(and ~~the~~therefore ~~market~~Telefónica’s ~~for~~capital ~~basic telephone~~stock ~~services~~was ~~with~~reduced) ~~the~~and ~~addition~~those ofinterests upwere tomerged ~~two~~into ~~new~~certain ~~licenses~~companies ~~(two~~indirectly controlled ~~new~~by ~~operators)~~TESA to(those ~~provide~~companies ~~such~~operating ~~services at~~ the ~~end~~related ofspecific ~~the~~business ~~period~~lines of– ~~exclusivity~~Mobile and Data).

~~Table~~Furthermore, as approved by Telefónica’s Board of ~~Contents~~Directors’ and Special Shareholders’ Meeting, the minority shareholders that are not related to TESA exchanged the shares of Telefónica for shares of the companies into which the spun-off businesses were merged, in proportion to their interest in Telefónica. As a result of the capital reduction caused by the spin-offs, the shares exchanged by the minority shareholders were cancelled, holding an approximately equal equity interest percentage in Telefónica and in the companies into which the spun-off businesses were merged. Registration with the Public Registry of Commerce of the above mentioned reorganization became effective November 16, 2001 and the share exchange mentioned above was completed on December 12, 2001. As a consequence of the operation previously mentioned, Telefónica acquired, at their listing value, the fractions of Telefónica shares held by minority shareholders. The related 2,355 treasury shares were acquired at a price of $2.24 (restated as described in Note 2.1. to the unconsolidated financial statements) per share. Until these shares are sold, Telefónica may not exercise any of the rights inherent therein.

186. PREFERRED SHARES

~~(English~~Cointel’s ~~translation~~capital stock is comprised of ~~the~~common ~~financial~~and ~~statements~~preferred ~~originally~~shares issued inunder ~~Spanish~~Argentine law. The main issuance clauses of the preferred shares related to dividend payments, ~~except~~preferences ~~for~~among ~~note~~the 13various classes of preferred shares, preferences of the latter over common shares and the redemption of preferred shares, and, as may be seen from the issuance minutes, are as follows:

toa) Three different classes of preferred shares were issued, A, B and C. Each class accrues an annual preferred dividend at the ~~unconsolidated~~rates ~~financial statements)~~established in the issuance clauses. Class C shares were amortized in two equal installments on April 30, 1996 and 1995.

~~concluding~~b) ~~with~~The original issuance conditions of preferred shares provided that the ~~total~~redemption ~~liberalization~~value of ~~local,~~preferred ~~domestic~~capital and ~~international~~the ~~long-distance~~preferred ~~services~~dividends ~~on November~~were 8,established ~~2000~~in U.S. Indollars ~~this~~and ~~context~~until March 31, ~~the~~2002, ~~Secretary~~Cointel ofvalued ~~Communications~~them ~~(“SC”)~~in ~~issued~~accordance ~~Resolution~~with Nosuch clauses. 1However,~~686/99~~ and according to Cointel’s and its legal advisors’ final analysis, ~~which~~such redemption value and the preferred dividends have been affected by the conversion into pesos provided ~~that~~by the ~~transition~~new ~~period~~legal toframework ~~competition~~in effect in ~~telecommunications~~Argentina, ~~ended~~established onby ~~October~~Decrees ~~10,~~No. ~~1999~~214/02 and No. 320/02 (see Note 4. to the unconsolidated financial statements). Consequently, the

On21 March 31, 1999, Telefónica signed a license agreement with the SC for an unlimited period of time, to provide local and domestic and international long-distance telephone services and telex services in the Northern region of the country. Telefónica’s obligations under the license, mainly related to service quality and coverage of the areas to be serviced.

~~Also,~~(English ontranslation ~~June~~of ~~9, 2000,~~ the ~~National~~financial ~~Executive~~statements ~~Power~~originally issued ~~Decree~~in ~~No. 465/00~~Spanish, ~~which~~except ~~provides~~ for ~~the~~note ~~total deregulation of the telecommunications market as from November 9, 2000~~13.

On September 3, 2000, the National Executive Power issued Decree No. 764/2000 which, in the context of such deregulation approved the Rules for Licenses for Telecommunication Services, the Rules for Interconnection, the Rules for Universal Service and the Rules for the Management and Control of Radioelectric Spectrum. These rules constitute the current regulatory framework applicable to ~~Telefónica. The above-mentioned rules provide, among other issues,~~ the ~~requirements~~unconsolidated ~~to obtain the licenses to render telecommunications service, the conditions to~~financial ~~establish~~statements) rates and the providers’ obligations, the technical and economic aspects for interconnection to the networks of different providers, the programs, administration and economic issues of the Universal Service, as well as the principles that will govern the management and control of the radioelectric spectrum.

Onredemption ~~September~~value ~~19,~~of ~~2000,~~preferred ~~Telefónica~~capital ~~filed~~and athe ~~reconsideration~~preferred ~~petition~~dividends ~~against~~have ~~certain~~been ~~issues~~converted ofinto ~~Decree~~pesos ~~No.~~at ~~764/2000~~a one peso ($1) = one U.S. ~~The~~dollar ~~Court~~(US$ ~~has~~1) ~~not~~exchange asrate, ~~yet~~being ~~ruled~~applicable onto ~~this~~such ~~issue.~~amounts the adjustment by the benchmark stabilization coefficient accrued until the redemption date.

~~Telefónica’s~~c) ~~short-term~~The ~~strategy~~first ~~has~~accrual ~~been~~period toof ~~continuously~~preferred ~~adapt its~~dividends ~~business~~started ~~strategy~~on toNovember ~~address~~8, ~~the~~1990 ~~challenges~~and ended on December 31, 1991, and ~~risks~~thereafter, ~~presented~~to byJune ~~the~~29, ~~Argentine~~1998 ~~economic~~such ~~crisis~~periods coincided with Cointel’s fiscal year-end. ~~Therefore~~The Special Shareholders’ Meeting held on June 29, ~~the~~1998, ~~short~~resolved to modify Cointel’s year-~~term~~end ~~strategy~~date. ~~focuses~~Such onMeeting also established that the ~~renegotiation~~periods offor ~~tariffs,~~accruing ~~cost~~preferred ~~controls~~dividends ~~and~~will ~~efficiency~~be ~~improvements,~~computed ~~capital~~as ~~expenditures controls,~~from ~~improvements~~January in1 ~~working~~through ~~capital~~December ~~and~~31 ~~management~~each year, irrespective of ~~cash~~Cointel’s ~~and~~year-end ~~liquidity~~date.

~~Telefónica’s~~d) ~~current~~Preferred ~~long-term~~dividends ~~business~~are ~~strategy~~cumulative. isThe toissuance ~~maintain~~clauses ~~and~~of ~~enhance~~preferred ~~its~~stock ~~position~~state inthat ~~Argentina’s~~such ~~competitive~~shares ~~telecommunications~~enjoy ~~market.~~preference ~~The~~over ~~implementation~~common ofstock. ~~this~~Likewise, ~~strategy~~Class ~~involves~~A ~~the introduction~~preferred ofstock ~~service~~enjoys ~~offerings~~preference inover ~~new~~Class ~~geographic~~B ~~areas,~~preferred ~~improving~~stock. ~~and~~Dividend ~~expanding~~preferences ~~services~~include ~~Telefónica~~a ~~currently~~priority ~~serve~~order infor ~~the~~voting ~~markets~~ and ~~its~~approval ~~continuous~~as ~~development~~well as ~~a provider of telecommunications services~~ for ~~corporate and residential customers~~payment.

Ine) ~~the~~Preferred ~~long~~dividend ~~term,~~payment ~~Telefónica~~dates ~~intends~~are ~~to continue solidifing its position~~ as the leading provider at integrated business solutions in Argentina by providing a full range of services including voice, value added services, broad band (“ADSL”), dial-up Internet access, sales of telephone equipment and other high-technology products for corporate users through different marketing channels. Telefónica also intends to continue to invest substantial resources and efforts into training and personnel development and incentive programs to reduce costs and improve efficiency. follows:

~~Telefónica~~1. ~~considers~~Preferred ~~that~~dividends ~~the~~on ~~implementation~~Class ofA ~~these~~shares: ~~short~~the ~~and~~first ~~long-term~~date ~~business~~was ~~strategies~~April ~~will~~30, ~~continue~~1994 ~~having~~and athereafter ~~positive~~dividends ~~impact~~are paid on the ~~competitiveness~~30th day of ~~telecommunications~~April ~~activities~~in ~~reducing~~each ~~the~~year ~~adverse~~to ~~effects of growing competition~~ and ~~Argentina’s~~including ~~economic and political situation~~2003.

~~During~~2. ~~2002,~~Preferred ~~additional~~dividends ~~factors~~on ~~have~~Class ~~had~~B ~~material~~shares: ~~effects~~the onfirst ~~Telefónica´s~~date ~~operations~~was April 30, ~~results~~1992 and ~~financial~~thereafter ~~condition.~~dividends ~~Such~~are ~~factors~~paid ~~arise~~on ~~from~~ the ~~Argentine~~30th ~~economic~~day ~~crisis and the effect~~ of ~~the~~April ~~current~~in ~~regulatory~~each ~~framework~~year ~~on Telefónica´s~~to ~~ability~~and toincluding ~~respond~~2007. toOn ~~the~~each ~~above~~payment ~~mentioned~~date ~~effects~~any ~~(see~~dividend ~~Notes~~accrued 9.during ~~and~~the ~~12.~~immediately topreceding ~~the~~accrual ~~consolidated~~period ~~financial~~shall ~~statements).~~be paid.

~~Furthermore, Telefónica has signed a Management Agreement with the operator Telefónica, S.A. (“TESA”~~f). ~~Under~~Preferred ~~this~~capital ~~Agreement,~~amortization ~~the full~~dates ~~management~~are of Telefónica is entrusted to the operator. Such agreement was automatically extended until April 2003 at TESA’s option, and may be extended again through 2008, at its option. The management fee amounts to 9% of the “gross margin”, as defined in the agreement, and in the case that its term is extended, the amount would range from 1.5% to 5% of the gross margin until 2008. The operator has advised Telefónica of its intention to renew the agreement, with fees to be negotiated within the above indicated range. On April 30, 2003, Telefónica and TESA entered into another agreement to supplement the Management Agreement in force between them. Pursuant to this supplementary agreement, Telefónica and TESA have agreed as follows: (i) as from May 1, 2003 through June 30, 2003, the parties will continue renegotiating the management fees to be paid by Telefónica to TESA, in the latter’s position as operator responsible for the comprehensive management of Telefónica’s activities, and (ii) that during the

~~Table~~1. Class A shares of ~~Contents~~Preferred Stock: the first date was April 30, 1997 and thereafter, amortizations are made on the 30th day of April in each year until and including 2003, in installments equal to a seventh of the preferred capital of this type of stock. The Regular and Special Shareholders’ Meeting held on March 31, 1997 voted an early redemption of Class A preferred shares for a total US$38,460,047 (face value of 20,306,905 (historical value)).

2. Class B shares of Preferred Stock: beginning on April 30, 1998 and thereafter, amortizations shall be made on the 30th day of April in each year until and including 2007, in installments equal to a tenth of the preferred capital of this type of stock. The Regular and Special Shareholders’ Meeting held on March 31, 1997 voted an early redemption of Class B preferred shares for a total US$37,848,336 (face value of 19,983,921 (historical value)).

~~(English~~The ~~translation~~Special Shareholders’ Meetings held on April 30, 2001, April 28, 2000 and April 30, 1999 voted partial redemptions of Class A and B preferred shares for a total, in each redemption, US$1,640,000 (face value 865,920 in historical pesos) and US$4,030,000 (face value 2,127,840 in historical pesos), respectively, as set forth in the ~~financial~~issuance ~~statements~~conditions ~~originally~~of ~~issued~~such shares. These reductions were registered in ~~Spanish~~the Public Registry of Commerce on June 12, ~~except~~2001, ~~for~~July ~~note~~21, 132000 and September 10, 1999, respectively.

g) For the preferred capital stock fully amortized and to the ~~unconsolidated~~extent ~~financial statements)~~that there shall be any preferred dividends unpaid, beneficial bonds shall be issued pursuant to Section 228 of LSC, as amended. Bondholders shall have the same preference as the holders of Preferred Stock. Amortization payments shall be made from liquid realized profits or free reserves.

~~extension~~h) ofIf, ~~the~~for ~~established~~any ~~renegotiation term~~reason, ~~payment~~preferred ofcapital ~~the~~amortization ~~management~~cannot ~~fee will~~ be ~~temporarily suspended,~~made ason the ~~fee~~appropriate todate, besuch ~~agreed~~payments ~~upon~~shall ~~between~~be ~~the~~made ~~parties~~on ~~would~~the benext ~~applied~~succeeding ~~retroactively~~amortization asdate ~~from~~and ~~May~~so ~~1, 2003~~on.

~~Additionally,~~i) onIn ~~April 10, 2002, Telefónica’s General Ordinary and Special Shareholders’ Meetings approved an amendment to~~ the ~~corporate purpose.~~event ~~The corporate purpose was broadened for Telefónica to be able to engage in other types~~ of ~~businesses~~liquidation ~~not strictly related to rendering telecommunications services, including: purchasing equipment, infrastructure, and telecommunications-related goods, as well as rendering any type~~ of ~~services~~Cointel, ~~such~~for aswhatever ~~consulting and accounting~~reason, ~~human resources and tax administration services. In view of~~ the ~~broadening~~holders of ~~the~~Preferred ~~corporate~~Stock ~~purpose,~~shall itcollect isfirst ~~necessary~~any topreferred ~~obtain~~unamortized ~~the related~~capital ~~authorization of the telecommunication regulatory authorities. The related request has been made to the SC~~ and isthen ~~pending.~~any ~~Therefore,~~preferred ~~the~~dividends ~~mentioned changes to Telefónica’s corporate purpose are subject to administrative approval by the SC~~accrued.

5.j) ~~CORPORATE~~Cointel, ~~REORGANIZATION~~among other provisions detailed in the issuance conditions, has agreed:

~~TESA,~~1. ~~the~~Not ~~indirect~~to ~~controlling~~reduce ~~shareholder of Telefónica, has carried out~~ its ~~plan~~holding toof ~~make~~shares aof ~~global~~common ~~reorganization~~stock of ~~its activities and~~ the ~~activities~~ ofcontrolled ~~its~~company ~~subsidiaries~~to byless ~~business~~than ~~line. As~~ a ~~consequence~~majority ~~of this plan~~thereof, onwithout ~~January~~the ~~30,~~prior ~~2001~~consent ~~and~~of ~~March 30, 2001,~~ the ~~Telefónica’s~~holders ~~Board~~ of ~~Directors~~Preferred ~~and~~Stock ~~Special~~in ~~Shareholders’~~a Special Meeting, ~~respectively, resolved to reorganize some~~ of ~~its~~Preferred ~~businesses~~Shareholders.

As22 a consequence of the above mentioned reorganization, Telefónica spin off its assets and liabilities related to the data transmission business and no longer holds any interest in TCP, TDA (formerly known as Advance Telecomunicaciones S.A.) and TYSSA, whose businesses had previously been reorganized to merge certain assets and liabilities of those companies in Telefónica. According to the Board of Directors’ and Special Shareholders’ Meetings of Telefónica and of the above-mentioned subsidiaries, Telefónica’s equity interests in the above-mentioned former subsidiaries were spun-off (and therefore Telefónica’s capital stock was reduced) and those interests were merged into certain companies indirectly controlled by TESA (those companies operating the related specific business lines – Mobile and Data).

~~Furthermore,~~(English astranslation ~~approved by Telefónica’s Board~~ of ~~Directors’ and Special Shareholders’ Meeting,~~ the minority shareholders that are not related to TESA exchanged the shares of Telefónica for shares of the companies into which the spun-off businesses were merged, in proportion to their interest in Telefónica. As a result of the capital reduction caused by the spin-offs, the shares exchanged by the minority shareholders were cancelled, holding an approximately equal equity interest percentage in Telefónica and in the companies into which the spun-off businesses were merged. Registration with the Public Registry of Commerce of the above mentioned reorganization became effective November 16, 2001 and the share exchange mentioned above was completed on December 12, 2001. Telefónica acquired, at their listing value, the fractions of Telefónica shares held by minority shareholders. The related 2,355 treasury shares were acquired at a price of $2.24 (restated as described in Note 2.1. to the unconsolidated financial statements) ~~per~~originally ~~share.~~issued ~~Until~~in ~~these shares are sold~~Spanish, ~~Telefónica~~ ~~may~~except ~~not~~for ~~exercise~~note ~~any of the rights inherent therein~~13.

6.to ~~PREFERRED~~the ~~SHARES~~unconsolidated financial statements)

~~Cointel’s capital stock is comprised of common and preferred shares issued under Argentine law~~2. ~~The~~To ~~main~~control ~~issuance~~decisions ~~clauses~~inside of the ~~preferred~~Board ~~shares related to dividend payments, preferences among the various classes~~ of ~~preferred~~Directors ~~shares, preferences of the latter over common shares~~ and ~~the~~General ~~redemption~~Shareholders’ Meetings of ~~preferred shares, and, as may be seen from~~ the ~~issuance~~controlled ~~minutes, are as follows:~~ company.

a)3. ~~Three~~To ~~different~~make ~~classes~~no ofinvestment ~~preferred~~other than in shares ~~were~~of ~~issued,~~the A,controlled Bcompany and C.assets ~~Each~~incidental ~~class~~to ~~accrues an annual preferred dividend at~~ the ~~rates~~holdings ~~established~~of insuch ~~the issuance clauses. Class C~~ shares ~~were~~by ~~amortized in two equal installments on April 30, 1996 and 1995~~Cointel.

b)4. ~~The~~To ~~original~~incur ~~issuance~~no ~~conditions~~debt ofthat ~~preferred~~shall ~~shares~~cause ~~provided~~all ~~that~~ the ~~redemption~~debts ~~value~~ of ~~preferred capital and the preferred dividends were established in US dollars and until March 31, 2002,~~ Cointel ~~valued them in accordance with such clauses. However, and according~~ to ~~Cointel’s~~exceed ~~and~~at ~~its~~any ~~legal~~time ~~advisors’ final analysis, such redemption value and~~ the ~~preferred~~amount ~~dividends~~of ~~have~~US$850 ~~been~~million ~~affected by the conversion into pesos provided by the new legal framework in effect in Argentina, established by Decrees No~~over. ~~214/02 and No. 320/02 (see Note 4. to the unconsolidated financial statements).~~

~~Table~~As of ~~Contents~~the date of issuance of these financial statements, Cointel has met all obligations arising from the issuance conditions of preferred stock. As of the date of issuance of these financial statements, there are accumulated unpaid but not yet due preferred dividends and preferred capital stock that have not been redeemed as set forth in the original schedule, because as of April 30, 2002, Cointel did not have liquid realized profits or free reserves as stipulated by issuance conditions. Consequently these unpaid amounts are to be considered not due.

20k) The holders of Preferred Stock shall have no right to receive common stock dividends whether from capitalization of reserves, capital adjustments or otherwise.

~~(English~~l) ~~translation~~The holders of ~~the~~Preferred ~~financial~~Stock ~~statements~~shall ~~originally~~have ~~issued~~no voting rights except as provided in ~~Spanish~~clause 8 of the issuance conditions of each class of the preferred shares which mainly relate to: (i) the provisions of Sections 217 and 244 of LSC as amended, ~~except~~(ii) ~~for~~if ~~note~~voluntary 13dissolution of Cointel has been elected by Cointel or if its dissolution is decided by the appropriate corporate body or authority and (iii) if there is any preferred capital unredeemed and past-due at the maturity date. In these cases the holders of Preferred Stock shall have one vote per share.

The right to ~~the~~vote ~~unconsolidated~~shall ~~financial~~cease after Cointel has complied with all its obligations, when it has ceased all acts that may prejudice preferred shareholders, ~~statements)~~after the delay is corrected or after the noncompliance is remedied or its effects are compensated.

~~Consequently,~~The ~~the~~detail ~~redemption value~~ of Cointel’s preferred capital ~~and~~determined ~~the~~in ~~preferred~~accordance ~~dividends~~with ~~have~~the ~~been~~issuance ~~converted~~clauses ~~into~~prevailing ~~pesos~~and atthe apreferred ~~one~~dividends ~~peso~~accumulated, unpaid ~~($1)~~but =not ~~one~~yet ~~U.S.~~due ~~dollar~~as ~~(US$~~of 1)June ~~exchange rate~~30, ~~being~~2003 ~~applicable~~as toestablished ~~such~~in ~~amounts~~ the ~~adjustment~~issuance byclauses, ~~the~~is ~~benchmark~~as ~~stabilization~~follows: ~~coefficient (see Note 4. to the unconsolidated financial statements) accrued until the redemption date.~~

c) The first accrual period of preferred dividends started on November 8, 1990 and ended on December 31, 1991, and thereafter, to June 29, 1998 such periods coincided with Cointel’s fiscal year-end. The Special Shareholders’ Meeting held on June 29, 1998, resolved to modify Cointel’s year-end date. Such Meeting also established that the periods for accruing preferred dividends will be computed as from January 1 through December 31 each year, irrespective of Cointel’s year-end date.

	Capital stock			Amounts stated in millions of Argentine pesos
Class of Preferred Stock	Face value in millions of Argentine pesos		Redemption value in millions of Argentine pesos(1)	Accumulated unpaid dividends as of December 31, 2002(2)	Thirteenth preferred dividend period(3)	Total accumulated unpaid but not due preferred dividends
“A”	2		5	—	—	—
“B”	13		35	5	1	6

	14	(4)	40	5	1	6

d(1) ~~Preferred~~See ~~dividends~~b) ~~are~~in ~~cumulative.~~this ~~The issuance clauses of preferred stock state that such shares enjoy preference over common stock~~Note. ~~Likewise, Class A preferred stock enjoys preference over Class B preferred stock. Dividend preferences include a priority order for voting and approval as well as for payment.~~

e(2) ~~Preferred~~Corresponds ~~dividend~~to ~~payment~~the ~~dates~~preferred dividends accrued during the twelve-month periods ended December 31, 2002 and 2001, which are unpaid as ~~follows:~~of June 30, 2003, plus the adjustment for the benchmark stabilization coefficient as of June 30, 2003.

1.(3) Preferred dividends onaccrued ~~Class~~during ~~A shares:~~ the ~~first~~six-month ~~date~~period ~~was~~ended ~~April~~June 30, ~~1994~~2003 for Class A and ~~thereafter~~B ~~dividends~~preferred ~~are~~stock, ~~paid~~as onstated in the ~~30th~~issuance ~~day~~conditions and considering the effects of ~~April~~Decree inNo. ~~each~~214/02 ~~year~~and related laws, amounted to approximately 36,000 and ~~including~~1,174,000, ~~2003~~respectively.

2.(4) ~~Preferred~~The ~~dividends~~table onmay ~~Class~~not Bsum ~~shares:~~due ~~the~~to ~~first~~rounding ~~date was April 30, 1992 and thereafter dividends are paid on the 30th day of April~~ in ~~each year to and including 2007~~millions.

OnAs ~~each~~of ~~payment~~June ~~date~~30, ~~any~~2003 ~~dividend~~Cointel’s ~~accrued~~preferred stock adjusted for inflation as stated in Note 2.1. to the unconsolidated financial statements amounts to 58 ~~during~~million, while preferred capital stock determined in accordance with the ~~immediately~~issuance ~~preceding~~clauses ~~accrual~~and ~~period~~the ~~shall~~legal beframework ~~paid~~mentioned above amounts to 40 million. Cointel believes that the difference of 18 million in the value of preferred stock represents a redistribution of the total value of Cointel’s capital stock between its common and preferred shareholders. The difference as of June 30, 2003 is comprised of an initial balance as of December 31, 2002 of 19 million negative amount (restated as described in Note 2.1 to unconsolidated financial statements) and an increase of 1 million, corresponding to the evolution of the net balance of the preferred stock, generated by the effect of Decree No. 214/02 and related laws.

f)23 ~~Preferred capital amortization dates are as follows:~~

1.(English ~~Class~~translation ~~A shares~~ of ~~Preferred Stock:~~ the ~~first~~financial ~~date~~statements ~~was~~originally ~~April~~issued ~~30, 1997 and thereafter, amortizations are made on the 30th day of April~~ in ~~each year until and including 2003~~Spanish, inexcept installments equal to a seventh of the preferred capital of this type of stock. The Regular and Special Shareholders’ Meeting held on March 31, 1997 voted an early redemption of Class A preferred shares for anote ~~total US$38,460,047 (face value of 20,306,905 (historical value))~~13.

~~2. Class B shares of Preferred Stock: beginning on April 30, 1998 and thereafter, amortizations shall be made on the 30th day of April in each year until and including 2007, in installments equal~~ to ~~a tenth of~~ the ~~preferred~~unconsolidated capital of this type of stock. The Regular and Special Shareholders’ Meeting held on March 31, 1997 voted an early redemption of Class B preferred shares for a total US$37,848,336 (face value of 19,983,921 (historical valuefinancial statements)).

The ~~Special Shareholders’~~issuance ~~Meetings~~provisions ~~held on April 30, 2001, April 28, 2000 and April 30, 1999 voted partial redemptions~~ of ~~Class~~Cointel’s preferred A and B ~~preferred~~ shares ~~for~~provide ~~a total~~that, inshould ~~each~~there ~~redemption,~~be ~~US$1,640,000~~no liquid ~~(face~~realized ~~value~~profits ~~865,920~~or infree ~~historical pesos) and US$4~~reserves,~~030,000 (face~~ ~~value~~Cointel ~~2,127,840~~will innot ~~historical~~partially ~~pesos),~~amortize ~~respectively,~~preferred ascapital ~~set~~or ~~forth~~pay in the ~~issuance~~respective ~~conditions~~preferred ~~of such shares~~dividends. ~~These~~Should ~~reductions~~there ~~were~~be ~~registered~~preferred inun-amortized ~~the~~past ~~Public~~due ~~Registry of Commerce on June 12~~capital, ~~2001,~~stockholders ~~July~~would ~~21,~~be ~~2000~~entitled ~~and~~to ~~September~~one ~~10,~~vote ~~1999, respectively.~~per share.

g)Based ~~For~~on the ~~preferred~~situations ~~capital~~described ~~stock~~in ~~fully~~Note ~~amortized~~5.a) ~~and~~ to the unconsolidated ~~extent~~financial ~~that~~statements ~~there~~and ~~shall~~according beto ~~any~~the ~~preferred~~above-mentioned ~~dividends unpaid~~provisions, ~~beneficial~~Cointel ~~bonds~~did ~~shall~~not beamortize ~~issued~~preferred ~~pursuant~~stock toor ~~Section~~pay ~~228~~preferred ofdividends ~~Business~~corresponding ~~Association~~to ~~Law~~the ~~(“LSC”),~~eleventh asand ~~amended~~twelfth period. ~~Bondholders~~For ~~shall have~~ the ~~same~~above ~~preference~~reasons asthis ~~the~~situation ~~holders~~is ofnot ~~Preferred Stock. Amortization payments shall~~ to be ~~made~~considered ~~from liquid realized profits or free reserves~~default.

h)According ~~If,~~to ~~for~~item ~~any~~5.a ~~reason~~of the preferred shares issuance conditions, the holders of Class A shares of preferred ~~capital~~stock ~~amortization~~are ~~cannot~~entitled beto ~~made~~one onvote per share as from April 30, 2003, since the ~~appropriate~~tenth dividend payment date, for such ~~payments~~kind ~~shall~~of beshares ~~made~~has ontaken ~~the~~place, ~~next~~and ~~succeeding~~there ~~amortization~~is ~~date~~preferred ~~and~~capital unredeemed soas onof such date.

i)7. InSECTION ~~the~~33 ~~event~~LSC ofCOMPANIES ~~liquidation~~AND ofRELATED ~~Cointel, for whatever reason, the holders of Preferred Stock shall collect first any preferred unamortized capital and then any preferred dividends accrued.~~COMPANIES

j)7.1. Cointel,’s ~~among~~outstanding ~~other~~balances ~~provisions~~and ~~detailed~~transactions inwith ~~the~~related ~~issuance conditions, has agreed:~~companies

~~Table~~As of ~~Contents~~June 30, 2003, there are eleven outstanding loan agreements executed between TISA (as lender) and Cointel (as borrower) as set forth in the table included below. These loans accrued interest at six-month LIBOR plus a differential between 8% and 9%, payable semiannually. The principal (except for what is described in reference (a) of the following table) has a semiannual repayment term, renewable automatically for an equal period of time unless TISA notifies in writing its intention not to extend the contract at least three business days before expiration date. During the fiscal year ended September 30, 2002, Cointel and TISA executed an amendment to certain loan agreements whereby they agreed that TISA could determine, prior written notice, the conversion into principal of accrued interests as of each due date. During the six-month period ended June 30, 2003, interests converted into principal under the above-mentioned loans amounted to US$5 million, according to Cointel’s financial statements as of such date.

21The detail of the loans, as arise from Cointel’s financial statements as of June 30, 2003, is as follows:

(English translation of the financial statements originally issued in Spanish, except for note 13

Original agreement date	Last renewal date as of June 30, 2003	Maturity date	Principal as of June 30, 2003 (in millions of US$)
06-07-01	03-10-03	09-10-03	40.0
07-26-01	04-30-03	10-30-03	11.4
07-27-01	04-30-03	10-30-03	10.4
09-13-01	03-18-03	09-18-03	4.8
03-29-02	04-21-03	09-19-03	11.5
07-29-02	01-29-03	07-29-03(b)	0.3
07-30-02	01-30-03	07-30-03(b)	2.6
07-24-02	01-24-03	07-24-03(b)	10.6
05-09-02	04-30-03	(a)	16.0	(a)
01-30-03	N/A	07-30-03(b)	0.9
01-30-03	N/A	07-30-03(b)	13.6

to(a) Amortization of this loan is in equal annual consecutive installments until April 30, 2007, except for the ~~unconsolidated~~first ~~financial statements~~one, which matured on October 30, 2002 (on such date it was refinanced setting its maturity on April 30, 2003 and on that date refinanced together with second installment, setting July 30, 2003 as its maturity date). As of June 30, 2003, Cointel has classified such loan as current, taking into account the maturity date of the waiver mentioned below in this note.

1.(b) ~~Not~~These toloans ~~reduce~~were ~~its~~renewed ~~holding~~as ofthey ~~shares~~became ofdue ~~common~~and ~~stock~~accrued ofinterests ~~the~~as ~~controlled~~of ~~company~~such todate ~~less~~were ~~than~~converted ainto ~~majority~~principal ~~thereof,~~accordingly ~~without~~to the ~~prior~~clauses ~~consent~~ of the ~~holders~~above-described ~~of Preferred Stock in a Special Meeting of Preferred Shareholders~~contracts.

2.24 ~~To control decisions inside the Board of Directors and General Shareholders’ Meetings of the controlled company.~~

3.(English Totranslation ~~make no investment other than in shares~~ of the ~~controlled~~financial ~~company~~statements ~~and~~originally ~~assets~~issued ~~incidental~~in toSpanish, ~~the~~except ~~holdings~~for ofnote ~~such shares by Cointel~~13.

~~4. To incur no debt that shall cause all the debts of Cointel~~ to ~~exceed at any time~~ the ~~amount~~unconsolidated offinancial statements) ~~US$850 million.~~

As of ~~the~~June ~~date~~30, ~~of issuance of these financial statements~~2003, ~~Cointel has met all obligations arising from~~ the ~~issuance~~book ~~conditions~~value of ~~preferred stock. As of~~ the ~~date~~above-mentioned ofloans ~~these~~calculated ~~financial~~considering ~~statements,~~the Company’s ~~there~~interest ~~are~~in ~~accumulated~~Cointel ~~unpaid~~amounts ~~but~~to ~~not~~US$63 ~~yet~~million ~~due~~(equivalent ~~preferred~~to ~~dividends~~176 ~~and~~million ~~preferred capital stock that has not been redeemed~~ as ~~set forth in the original schedule, because, as~~ of ~~April~~June 30, ~~2002,~~2003) ~~Cointel~~of ~~did~~which ~~not~~US$61 ~~have~~million ~~liquid~~corresponds ~~realized~~to ~~profits~~the orprincipal ~~free~~amount ~~reserves~~and asapproximately ~~stipulated~~US$2 bymillion ~~issuance conditions. Consequently these unpaid amounts are~~ to ~~be considered not due~~interests.

kIn obtaining the above-mentioned loans, Cointel has undertaken certain commitments, mainly involving restrictions on the sale of assets and on the encumbrance of certain assets, on Cointel or any of its affiliates becoming a party to mergers or acquisitions, with certain exceptions. In addition, the loans shall forthwith become due and payable upon Cointel defaulting on any of the obligations undertaken under the loan agreement, changes in Cointel’s controlling shareholders, Cointel or its affiliates defaulting on their obligations in excess of euro 20 million or its equivalent in other currency, changes in Cointel’s main business activity and should Cointel or any of its affiliates lose the government licenses obtained and should Cointel’s financial and economic position be altered in such a way that, based on the adverse nature thereof, could affect Cointel’s ability to meet the terms and conditions assumed on such agreement, and should there be any restrictions affecting its ability to settle the payables to TISA. TISA has advised Cointel that until September 20, 2003: (i) ~~The~~the ~~holders~~effects of ~~Preferred~~the ~~Stock~~Public Emergency System implemented in Argentina by Decree No. 1,570/01, Law No. 25,561, as supplemented and amended, in force shall not be considered by TISA as an event of default as defined under the loan agreement; (ii) TISA shall not consider that, as of such date, loans have nobecome ~~right~~immediately due and payable due to ~~receive~~the ~~common~~restrictions ~~stock~~affecting ~~dividends~~Cointel’s ~~whether~~ability ~~from~~to ~~capitalization~~settle the payables to TISA in connection with the loan agreements and (iii) shall not consider that debts have become due and payable for Cointel’s failure to meet certain financial ratios established in most of ~~reserves~~the contracts. Regarding the maximum term provided by the above mentioned waiver, ~~capital~~as ~~adjustments~~of orJune ~~otherwise~~30, 2003, Cointel has classified as current liabilities, maturing in September 2003, a loan of US$4 million (equivalent to 10 million at the exchange rate in effect at June 30, 2003), whose original maturity date was noncurrent.

l)Additionally, ~~The~~some ~~holders~~ of ~~Preferred~~the ~~Stock~~loan ~~shall~~agreements ~~have~~in noeffect ~~voting~~include acceleration ~~rights~~events ~~except~~in ascase ~~provided~~certain injudicial ~~clause~~or 8extra-judicial ofproceedings ~~the~~are ~~issuance~~filed ~~conditions~~for ofamounts ~~each~~in ~~class~~excess of ~~the~~certain ~~preferred~~net ~~shares~~equity ~~which~~percentages ~~mainly~~of ~~relate~~Cointel ~~to:~~or ~~(i)~~material ~~the~~subsidiary ~~provisions~~in ofaccordance ~~Sections~~with ~~217~~the ~~and~~definition ~~244~~stipulated ofin ~~LSC~~such asloan ~~amended,~~agreements. ~~(ii)~~As of ifthe ~~voluntary~~date ~~dissolution~~ of ~~Cointel~~issuance ~~has~~of ~~been~~these ~~elected~~financial bystatements, Cointel orobtained ifa ~~its~~waiver ~~dissolution~~in isconnection ~~decided~~with bythose ~~the~~proceedings ~~appropriate~~existing ~~corporate~~as ~~body~~of orthat ~~authority~~date, ~~and~~subject ~~(iii)~~to ifa ~~there~~condition isthat ~~any~~no ~~preferred~~other ~~capital~~debt ~~unredeemed~~be ataccelerated ~~the~~on ~~maturity~~similar ~~date.~~grounds, Incovering ~~these~~at ~~cases~~least the current ~~holders~~terms of ~~Preferred~~those ~~Stock shall have one vote per share~~loans.

~~The~~During ~~right~~the tosix-month ~~vote~~period ended ~~shall~~June ~~cease~~30, ~~after~~2003 and 2002, Cointel ~~has~~accrued ~~complied~~interest ~~with~~related ~~all~~to ~~its~~loan ~~obligations,~~agreements ~~when~~with itcompanies ~~has~~relating ~~ceased~~to ~~all~~Section ~~acts~~33 ~~that~~of ~~may~~the ~~prejudice~~LSC ~~preferred~~for ~~shareholders, after~~an ~~the~~amount ~~delay~~of is9 ~~corrected~~million orand ~~after~~6 ~~the~~million ~~noncompliance~~(restated isas ~~remedied~~described orin ~~its~~Note ~~effects~~2.1. ~~are~~to ~~compensated~~unconsolidated financial statements), respectively.

~~The~~Additionally, ~~detail~~as of ~~Cointel’s~~June ~~preferred~~30, ~~capital~~2003 ~~determined~~and inDecember 31, ~~accordance~~2002, ~~with~~Cointel ~~the~~maintains ~~issuance~~with ~~clauses~~Telefónica ~~prevailing~~a ~~and~~loan ~~the~~for ~~preferred~~approximately ~~dividends~~2 ~~accumulated, unpaid~~million ~~but~~and ~~not~~3 ~~yet due as of March 31~~million, ~~2003~~respectively (as ~~established~~arise infrom ~~the~~Cointel’s ~~issuance~~financial ~~clauses~~statements). ~~and current law, is as follows:~~

	Capital stock			Amounts stated in millions of Argentine pesos
Class of Preferred Stock	Face value inmillions ofArgentinepesos		Redemptionvalue in millionsof Argentinepesos (1)	Accumulatedunpaid dividendsas of December31, 2002 (2)	Thirteenthpreferreddividendperiod (3)	Total accumulatedunpaid but notdue preferreddividends
“A”	2		5	—	—	—
“B”	13		34	4	1	5
	14	(4)	39	4	1	5

Furthermore, as of June 30, 2003, Cointel maintains other receivables with TIHBV, one of its shareholders, for 1 million (as arise from Cointel’s financial statements as of such date).

~~(1)~~As ~~See~~of b)June in30, 2003 and December 31, 2002, Cointel did not have other balances with related parties apart from those described at the beginning of this ~~Note~~note. Therefore, during the six-month periods ended June 30, 2003 and 2002, Cointel did not accrue other interests with related companies.

(7.2). ItTelefónica’s isoutstanding ~~related~~balances toand ~~the~~transactions ~~preferred~~with ~~dividends~~related ~~accrued~~companies ~~during~~(calculated ~~the~~in ~~twelve-month~~proportion ~~periods~~to ~~ended~~the ~~December~~Company’s ~~31,~~interest ~~2002~~in ~~and 2001~~Cointel, ~~which~~restated ~~are unpaid~~ as ofdescribed ~~March~~in ~~31,~~Note ~~2003,~~2.1. ~~plus~~to the ~~adjustment~~unconsolidated ~~for~~financial ~~the benchmark stabilization coefficient as of March 31, 2003.~~statements)

~~(3)~~During ~~Preferred dividends accrued by Cointel during~~ the ~~three~~six-month ~~period~~periods ended ~~March~~June 3130, 2003 ~~for Class A~~ and ~~B preferred stock~~2002, asTelefónica ~~stated~~made in the ~~issuance~~following ~~conditions~~transactions ~~and~~with ~~considering the effects of Decree No. 214/02 and~~ related ~~laws,~~parties ~~amounted~~(in tomillion ~~approximately~~of ~~34,000~~Argentine ~~and~~pesos): ~~584,000, respectively.~~

~~(4)~~25 ~~The table may not sum due to rounding in millions.~~

As(English translation of ~~March 31, 2003 Cointel’s preferred stock adjusted for inflation as stated in Note 2.1. to~~ the ~~unconsolidated~~ financial statements ~~amounts~~originally toissued ~~58 million, while preferred capital stock determined~~ in accordance with the issuance clauses and the legal framework mentioned above amounts to 39 million. Cointel believes that the difference of 19 million in the value of preferred stock represents a redistribution of the total value of Cointel’s capital stock between its common and preferred shareholders. The difference as of March 31Spanish, ~~2003~~except isfor ~~comprised~~note ~~of an initial balance as of December 31, 2002 of 19 million negative amount (in constant pesos of March 31, 2003) and an increase of 0~~13.7 ~~million (in constant pesos of March 31, 2003),~~

~~Table~~to ofthe ~~Contents~~unconsolidated financial statements)

	June 30,
	2003		2002
Management Fee:
TESA Arg.	28		40

Revenues (Losses) from goods and services provided, net:
TCP	26		33
TDA	8		10
Atento	(2	)	(4	)
Telefónica Ingeniería de Seguridad S.A.	(1	)	(2	)
Telefónica Data USA	(1	)	—
Emergia Argentina S.A. (“Emergia”)	2		1
Adquira	(1	)	—
C.P.T. Telefónica Perú	1		(3	)
T-Gestiona	—		(1	)
TESA	—		(1	)
Telefónica Mundo	—		1

Total	32		34

Financial charges, net
TISA	61		76
Atento	—		(1	)
Cointel	—		(1	)

Total	61		74

Telefónica’s balances with the operator (~~English~~TESA) ~~translation~~and other of ~~the~~Cointel’s ~~financial~~shareholders ~~statements~~and ~~originally~~other ~~issued~~related incompanies ~~Spanish~~as of June 30, ~~except~~2003 ~~for~~and ~~note~~December 1331, 2002 are (in millions of Argentine pesos):

to the unconsolidated financial statements)

	June 30, 2003	December 31, 2002
ASSETS
Trade receivables:
CTC Mundo S.A.	3	3
Emergia	4	2
Atlántida Comunicaciones S.A.	1	1
C.P.T. Telefónica Perú	1	—
TESA	1	—

Total Trade Receivables	10	6

Other receivables:
TDA	16	14
Cointel	1	1
TCP	—	2
Adquira	1	1
T-Gestiona	2	2
TYSSA	—	1
Atento	3	2

Total Other Receivables	23	23

TOTAL ASSETS	33	29

~~corresponding~~26 ~~to the evolution of the net balance of the preferred stock, generated by the effect of Decree No. 214/02 and related laws.~~

~~The~~(English ~~issuance~~translation ~~provisions~~ of ~~Cointel’s preferred A and B shares provide that, should there be no liquid realized profits or free reserves, Cointel will not partially amortize preferred capital or pay~~ the ~~respective~~financial ~~preferred~~statements ~~dividends.~~originally ~~Should~~issued there be preferred un-amortized past due capital, the issuance provisions of preferred A and B stock provide that preferred stockholders would be entitled to one vote per share. Based on the situations described in ~~Note 5.1.a) to the unconsolidated financial statements and according to the above-mentioned provisions~~Spanish, ~~Cointel~~except ~~did~~for ~~not~~note ~~amortize preferred stock or pay preferred dividends corresponding to the eleventh and twelfth periods~~13. ~~For the above reasons this situation is not to be considered default.~~

~~According~~ to ~~item 5.a of~~ the ~~preferred~~unconsolidated ~~shares issuance~~financial ~~conditions,~~statements) the holders of Class A shares of preferred stock are entitled to one vote per share as from April 30, 2003, since the tenth dividend payment date for such kind of shares has taken place, and there is preferred capital unredeemed as of such date.

7. SECTION 33 – LAW No. 19,550 AND RELATED COMPANIES

LIABILITIES
Trade Payables
TESA Arg.	32	38
TESA	1	2
Emergia	34	35
Telefónica Procesos y Tecnología de la Información	1	13
Emergia Uruguay S.A.	4	5
Telefónica Servicios Audiovisuales	1	1
Telefónica Sistemas S.A.	1	—
C.P.T. Telefónica del Perú	2	2
Telefónica Investigación y Desarrollo S.A.	—	1

Total Trade Payables	76	97

Bank and Financial Liabilities
TISA(1)	1,209	1,511

Total Bank and Financial Liabilities	1,209	1,511

Other payables
TESA (Top Program)	4	4
TCP	2	—
Atento	—	1

Total Other Payables	6	5

TOTAL LIABILITIES	1,291	1,613

7.(1.) ~~Cointel’s~~See ~~outstanding~~Note ~~balances~~12. ~~and~~to ~~transactions~~the ~~with~~consolidated ~~related~~financial ~~companies~~ statements.

~~As of March 31, 2003, there are eleven outstanding loan agreements executed between TISA (as lender) and Cointel (as borrower) as set forth in the table included below~~7. These loans accrued interest at six-month LIBOR plus a differential between 8% and 9%, payable semiannually. The principal (except for what is described in reference (a) of the following table) has a semiannual repayment term, renewable automatically unless TISA notifies in writing its intention not to extend the contract at least three business days before expiration date. During the fiscal year ended September 30, 2002, Cointel and TISA executed an amendment to certain loan agreements whereby they agreed that TISA could determine, prior written notice, the conversion into principal of accrued interests as of each due date. During the three-month period ended March 31, 2003, interests converted into principal under the above-mentioned loans amounted to US$3 ~~million, according to Cointel’s financial statements as of such date~~. Telinver

~~The~~As ~~detail~~ of ~~the~~June ~~loans~~30, 2003, as arise from Cointel’´s consolidated financial statements, current liabilities in foreign currency of Telinver exceed current assets in foreign currency by approximately US$35 million and, in addition, total liabilities exceed total assets, so there is a negative shareholders’ equity of 35 million as of ~~March~~June 3130, 2003 and consequently Telinver falls under the conditions for mandatory dissolution caused by loss of company’s capital stock due to accumulated losses set forth in clause 5 of Section 94 of the LSC. However, Decree No. 1,269/02 dated July 16, 2002 has suspended the enforcement of clause 5 of section 94 and section 206 of the LSC until December 10, 2003. Telefónica is asevaluating ~~follows:~~Telinver’s financing needs considering the Argentine economic situation and the current difficulties to have access to credit, including the possibility to grant direct financing to cover short-term cash requirements and, if applicable, grant additional financing. However, if the current difficulties to obtain refinancing or additional loans for Telinver continue, Telefónica plans, and has so agreed with Telinver, to make its best efforts to provide such financing directly subject to Telefónica’s own fund availability, which depends on the evolution of the issues affecting Telefónica’s financial situation and cash flows described in Notes 9. and 12. to the consolidated financial statements.

Original agreement date	Last renewal date as of March 31, 2003	Maturity date	Principal as of March 31, 2003 (in millions of US$)
06-07-01	03-10-03	09-10-03	40.0
07-26-01	10-30-02	04-30-03(b)	10.8
07-27-01	10-30-02	04-30-03(b)	9.9
09-13-01	03-18-03	09-18-03	4.8
03-29-02	10-21-02	04-21-03(b)	11.0
07-29-02	01-29-03	07-29-03	0.3
07-30-02	01-30-03	07-30-03	2.6
07-24-02	01-24-03	07-24-03	10.6
05-09-02	10-30-02	(a)	15.2(a)
01-30-03	N/A	07-30-03	0.9
01-30-03	N/A	07-30-03	13.6

7.4.

ECL

~~(a)~~As ~~Amortization~~arise offrom ~~this~~Cointel’s ~~loan~~financial isstatements inas ~~equal~~of ~~annual~~June ~~consecutive installments until April~~ 30, ~~2007~~2003, ~~except~~Telefónica ~~for~~holds ~~the~~together ~~first~~with ~~one,~~Alto ~~which~~Palermo ~~matured~~S.A. on(“APSA”) ~~April~~a ~~30,~~50% interest ~~2003~~in ~~(on~~ECL ~~such~~for ~~date~~the itdevelopment ~~was~~of ~~refinanced~~an ~~together~~e-commerce ~~with~~shopping ~~second~~center. ~~installment~~Thus, ~~setting~~Telefónica, ~~October~~as ~~30,~~successor ~~2003~~of asthe ~~its~~rights ~~maturity~~and ~~date).~~obligations Asassumed ofby ~~March~~Telinver ~~31,~~with ~~2003,~~respect ~~Cointel~~to ~~has~~this ~~classified~~business, ~~such~~was ~~loan~~bound asto ~~current~~make, ~~taking~~together ~~into~~with ~~account~~APSA, ~~the~~irrevocable contributions ~~maturity~~for ~~date~~the amount of ~~the~~US$10 ~~waiver~~million, ~~mentioned~~which ~~below~~were made effective in ~~this~~equal ~~note~~parts on April 30, 2001.

~~(b)~~Additionally, ~~These~~the ~~loans~~parties ~~were~~undertook ~~renewed~~to asmake ~~they~~a ~~became~~capital ~~due~~contribution ~~and~~for ~~accrued~~the ~~interests~~development as of ~~such~~new ~~date~~business ~~were~~lines ~~converted~~for ~~into~~a ~~principal~~maximum ~~accordingly~~of to12 ~~the~~million, ~~clauses~~75% of ~~the~~which ~~above-described~~is to ~~contracts~~be contributed by Telefónica.

As27 of March 31, 2003, the book value of the above-mentioned loans calculated considering the Company’s interest in Cointel amounts to US$62 million (equivalent to 183 million as of March 31, 2003) of which US$60 million corresponds to the principal amount and approximately US$2 million to interests.

~~Table~~(English translation of ~~Contents~~the financial statements originally issued in Spanish, except for note 13.

23to the unconsolidated financial statements)

~~(English~~7.5. ~~translation~~Commitments ofrelated ~~the~~to ~~financial~~TCP ~~statements~~(See ~~originally~~Note ~~issued~~5. into ~~Spanish,~~the ~~except~~consolidated ~~for~~financial ~~note 13~~ statements).

In July 1999, Telefónica supplied to the ~~unconsolidated~~Argentine ~~financial~~Government with performance guarantees to ensure TCP’s service coverage in Argentina under its PCS licenses in the amounts of US$22.5 million individually and 45 million (jointly with Telecom Argentina Stet France Telecom S.A. (“Telecom”)) until December 31, 2001. As informed by TCP, the duties arising from its PCS licenses have been complied with. As of the date of issuance of these financial statements, the National Communications Comission (“CNC”) has not completed the technical audit related to the performance guarantees mentioned above. The outstanding performance guarantees denominated in foreign currency have been converted into pesos.

In obtaining the above-mentioned loans, Cointel has undertaken certain commitments, mainly involving restrictions on the sale of assets and on the encumbrance of certain assets, on Cointel or any of its affiliates becoming a party to mergers or acquisitions, with certain exceptions8. InCONTRACTS addition, the loans shall forthwith become due and payable upon Cointel defaulting on any of the obligations undertaken under the loan agreement, changes in Cointel’s controlling shareholders, Cointel or its affiliates defaulting on their obligations in excess of euro 20 million, changes in Cointel’s main business activity and should Cointel or any its affiliates lose the government licenses obtained and should Cointel’s financial and economic position be altered in such a way that, based on the adverse nature thereof, could affect Cointel’s ability to meet the terms and conditions assumed on such agreement, and should there be any restrictions affecting its ability to settle the payables to TISA. TISA has advised Cointel that until September 20, 2003: (i)figures ~~the~~according effects of the Public Emergency System implemented in Argentina by Decree No. 1,570/01, Law No. 25,561, as supplemented and amended, in force shall not be considered as an event of default as defined under the loan agreement; (ii) TISA shall not consider that, as of such date, loans have become immediately due and payable due to ~~the restrictions affecting~~ Cointel’s ~~ability~~consolidated ~~to settle the payables to TISA in connection with the loan agreements and (iii) shall not consider that debts have become due and payable for Cointel’s failure to meet certain~~ financial ~~ratios~~statements ~~established in most of the contracts. Regarding the maximum term provided by the abovementioned waiver,~~ as of ~~March~~June 3130, 2003~~, Cointel has classified as current liabilities, maturing in September 2003, a loan of US$5 million (equivalent to 14 million at the exchange rate in effect at March 31, 2003~~)~~, whose original maturity date was noncurrent.~~

~~Additionally, some of the loan agreements in effect include acceleration events in case certain judicial or extra~~-~~judicial proceedings~~ ~~are~~IBM ~~filed~~– ~~for~~Telefónica ~~amounts~~Contract in excess of certain net equity percentages of Cointel or material subsidiary in accordance with the definition stipulated in such loan agreements. As of the date of issuance of these financial statements, Cointel obtained a waiver in connection with those proceedings existing as of that date, subject to a condition that no other debt be accelerated on similar grounds, covering at least the current terms of those loans.

~~During~~On March 27, 2000, Telefónica’s Board of Directors approved, considering the ~~three~~benefits foreseen by Telefónica based on the proposals received, the outsourcing through IBM of the operation and maintenance of the infrastructure of certain Telefónica’s information systems. Telefónica, TCP, Telinver and TDA (referred to jointly herein as “the Companies”) have executed certain contracts (the “Contracts”) with IBM whereby the operation and maintenance of the information technology infrastructure is outsourced to IBM for a six and a half-~~month~~year ~~period~~term. ~~ended~~Also, ~~March~~under 31this agreement, ~~2003~~the Companies transferred gradually to IBM the assets used to render the services outsourced under the Contract. In consideration for the assets transferred, IBM paid 37.5 million, and has ~~2002~~the obligation to renew the assets transferred periodically. Telefónica transferred such assets during August 2000. The agreement included that at contract expiration, ~~Cointel~~IBM ~~accrued~~shall transfer to the Companies for a fixed price, the assets at ~~interest~~such ~~related~~date dedicated to ~~loan~~providing ~~agreements~~the ~~with~~services. ~~companies~~On ~~relating~~the other hand, IBM has hired the personnel of some of the Companies that had been assigned to ~~Section~~render 33the services. Over the duration of the ~~LSC~~Contract, the Companies shall pay to IBM decreasing monthly installments in consideration for anthe ~~amount~~base line services to be received under the Contract, and other charges for the use of 5additional ~~million~~resources. The total contract’s amount, which for Telefónica and 1Telinver was US$213 million and (the above-mentioned fixed price for the transfer of assets, have fallen within the scope of the legal provisions applicable to contracts denominated in ~~constant~~U.S. ~~pesos~~dollars described in Note 4. to the unconsolidated financial statements. The charges for the service received during the periods ended June 30, 2003 and 2002, arise from final agreements between the parties regarding the value of ~~March~~the 31services received. Pursuant to a supplementary agreement between the parties, one of the points agreed upon by Telefónica consists in paying IBM for the services rendered under the Agreement, from January through December 2003, 16.2 million (plus CVS adjustment) and US$ 12.3 million, ~~respectively~~in twelve equal monthly installments.

~~Additionally,~~- asOther ~~of December 31, 2002, Cointel maintained with Telefónica a loan for approximately 3 million (as arise from Cointel’s financial statements).~~

AsTelefónica ofsigned ~~March 31,~~contracts ~~2003~~covering ~~and~~works ~~December~~to ~~31,~~be ~~2002,~~executed ~~Cointel~~in ~~did not have other balances with related companies apart from those described at~~ the outside ~~beginning~~and ofinside ~~this note. During the three-month periods ended March 31~~plant, ~~2003~~of ~~and~~which ~~2002,~~approximately ~~Cointel~~26 ~~did~~million ~~not~~are ~~accrue interests with related companies~~pending.

79.2. Telefónica’s consolidated outstanding balances and transactions with related companies (calculated in proportion to the Company’s interest in Cointel, restated as described in Note 2.1. to the unconsolidated financial statements)TARIFF

~~During~~9.1. ~~the~~Tariff ~~three-month periods ended March 31, 2003 and 2002, Telefónica made the following transactions with related companies (in millions of Argentine pesos):~~ system

	March 31,
	2003		2002
Management Fee:
TESA	15		24
Net revenues from goods and services provided:
TCP	15		23
TDA	4		7
Atento	(1	)	(3	)
Telefónica Ingeniería de Seguridad S.A.	(1	)	—
Telefónica Data USA	(1	)	—
Emergia Argentina S.A.	1		2
C.P.T. Telefónica Perú	—		(1	)
Total	17		28

Decree No. 764/00 on telecommunications deregulation establishes that providers may freely set rates and/or prices for the services rendered and for customer categories, which shall be applied on a nondiscriminatory basis. However, if there was no effective competition, the “historical” providers of such areas shall respect the maximum rates established in the General Rate Structure, which is the current situation for almost all the material services provided by Telefónica. Below the rates established in such rate structure, such providers may freely set their rates by areas, routes, long-distance legs and/or customer groups.

~~Table~~28 ~~of Contents~~

24(English translation of the financial statements originally issued in Spanish, except for note 13.

~~(English~~to ~~translation of~~ the ~~financial~~unconsolidated financial statements) ~~originally issued in Spanish, except for note 13~~

To determine the existence of effective competition, the historical interested provider shall demonstrate to the ~~unconsolidated~~application ~~financial~~authority that another or other providers of the same service have obtained 20% of the total revenues for such service in the local area of the Basic Telephony Service involved. In 2000, Telefónica filed a request to the ~~statements)~~effect that effective competition be officially acknowledged to exist in the Buenos Aires Multiple Area. As no response to its request was obtained from the SC within a reasonable term, Telefónica brought the matter before the courts. Effective competition shall be considered to exist in the provision of national or international long-distance services for the calls originated in a local area of the Basic Telephony Service, when the customers in such area are able to choose, through the dialing selection method, among more than two service providers, if each of them, offers more than one long-distance destination.

Net financial charges
TISA	32	29
TCP	—	1
Total	32	30

Except for areas and services where effective competition is demonstrated to exist, the rate agreements established a maximum rate per pulse denominated in U.S. dollars. These agreements also provided for the right of Telefónica to adjust this rate for changes in the Consumer Price Index of the United States of America on April 1 and October 1 of each year. However, Law of Public Emergency and Currency Exchange System Reform No. 25,561, dated January 6, 2002, provides that, in the agreements executed by the Federal Administration under public law regulations, including public works and services, indexation clauses based on foreign countries price index or any other indexation mechanism are annulled. In this regard, it sets forth that the prices and rates resulting from such provisions shall be established in pesos at a one peso ($1) = one U.S. dollar (US$ 1) exchange rate. Furthermore, Section No. 9 of the above-mentioned Law authorizes the NEP to renegotiate the above contracts taking into account the following criteria in relation to public utility services: (a) the impact of the rates on the competitiveness of the economy and on distribution of income; (b) service quality and investment plans, when such aspects are contemplated in the contracts; (c) the interest of users and access to the services; (d) the security of the comprised systems; and (e) the profitability of the companies.

~~Telefónica’s~~Under ~~consolidated~~the ~~balances~~rate ~~with~~regulation mechanism in effect known as Price Cap, Decree No. 264/98 provided a 4% reduction (in constant U.S. dollar terms) in rates, in terms similar to the ~~operator~~method ~~and~~provided ~~other~~by point 12.5.1. of ~~Cointel’s~~the ~~shareholders~~List ~~and~~of ~~other~~Conditions, ~~related~~to ~~companies~~be asapplied during each year of ~~March~~the transition ~~31,~~period ~~2003~~to basic telephone service rates; and ~~December~~90% 31of such reduction to be applied to domestic long distance services. Telintar and now Telefónica as it successor, ~~2002~~had ~~are~~to ~~(in~~apply ~~millions~~the ofsame ~~Argentine~~4% ~~pesos):~~reduction to international rates.

	March 31,2003	December 31,2002
ASSETS
Trade receivables and other receivables
TDA	14	14
Cointel	—	1
CTC Mundo	4	3
TCP	3	2
Emergia Argentina S.A.	3	2
Adquira	—	1
T-Gestiona	2	2
TYSSA	1	1
Katalyx	1	—
Atento	2	2
Atco	1	1
Total Trade receivables and Other receivables	31	29
TOTAL ASSETS	31	29

On November 3, 1999, the SC issued Resolution No. 2,925/99, whereby, based on the assumption of the nonexistence of effective competition as of such date, provided a 5.5% reduction in telephone basic service rates for the period November 8, 1999, through November 2000. Such reduction was applied to detailed billing, domestic and international long-distance services. Likewise, the starting time of the domestic and international long-distance reduced rate was brought forward.

	March 31,2003	December 31,2002
LIABILITIES
Trade Payables
TESA (Management Fee)	40	37
Telefónica de España S.A. (Suc. Argentina)	1	1
Emergia Argentina S.A.	36	35
Telefónica Procesos y Tecnología de la Información	6	13
Emergia Uruguay	4	5
Telefónica Servicios Audiovisuales	1	1
Telefónica Sistemas S.A.	1	—
TESA (other trade payables)	1	2
C.P.T. Telefónica del Perú	2	2
Telefónica Empresas S.A. de Brasil	1	—
Telefónica Investigación y desarrollo	1	1
Total Trade Payables	94	97
Bank and Financial Liabilities
TISA (1)	1,295	1,510
Total Bank and Financial Liabilities	1,295	1,510
Other payables
TESA (Top Program)	4	4
Atento S.A.	—	1
Total Other payables	4	5
TOTAL LIABILITIES	1,393	1,612

In April 2000 and March 2001, Telefónica, Telecom and the SC executed rate agreements which, subject to the approval by the Economy Ministry and of Infrastructure and Housing, provided the terms under which the Price Caps would be applied:

(1. Price Cap for the period 2000/2001: the SC established that the efficiency factor for the price cap for the period 2000/2001 would amount to 6.75%. The reduction would be applied through: a) ~~See~~discount ~~Note~~plans that were effective as from March 2000 (commercial and government basic rates, local measured service, and the application of certain preferential rates for internet access), the non-application of charges set forth in Resolution SC N° 2,926/99 until November 8, 2001 and the non-application over the year of the two semiannual adjustments to the pulse value for the US Consumer Price Index mentioned above; b) given that such plans were brought into effect ahead of schedule, the accumulated effects of the above-mentioned efficiency factor for the price cap would be applied to the computation of Price Caps for the periods 2000, 2001 and 2002 adjusted at an interest rate of 12% per year; and c) furthermore, it was established that the difference between the effect of the discounts already granted and that of a 6% reduction would be applied on November 8, 2000 across different items of the tariff structure, and the additional 0.75% toreduction would be applied at the ~~consolidated~~same ~~financial~~date ~~statements~~as defined by the Licensees.

~~Table~~29 ~~of Contents~~

25(English translation of the financial statements originally issued in Spanish, except for note 13.

~~(English~~to ~~translation of~~ the ~~financial~~unconsolidated financial statements) ~~originally issued in Spanish, except for note 13~~

2. Price Cap for the period 2001/2002: the SC established that the efficiency factor for the Price Cap applicable for the period 2001/2002 would amount to 5.6%. This rate reduction is to be implemented through: a) the ~~unconsolidated~~non-application ~~financial statements~~of the two adjustments to the pulse value by the US Consumer Price Index for the year, adjusting the effect as of November 8, 2001 at the 12% annual rate in order to measure it against the total expected 5.6% reduction, b) any balance resulting from the non-application of the adjustment to the value of the telephone pulse in the period 2000/2001, as well as any balance remaining in respect of a variety of items included in the 2000 price cap; c) any unapplied price cap portion remaining after the rate reductions mentioned in a) and b) above with respect to the 5.6% rate reduction, should be applied in the following manner: 70% as provided by Telefónica, 15% to the local service, and 15% to other services as required by the SC, other than monthly basic charges and the local measured service.

7.3. ~~Telinver~~Price Cap for the period 2002/2003: The SC established that the efficiency factor could not exceed 5%, but it did not set its value.

AsAlthough ofthe ~~March~~reductions ~~31,~~mentioned ~~2003, as arise from Telinver’s financial statements current liabilities~~ in ~~foreign~~point ~~currency of Telinver exceed current assets in foreign currency by approximately US$36 million and~~1., ~~in addition, total liabilities exceed total assets, so there is a negative shareholders’ equity of 38 million as of March 31, 2003~~ and ~~consequently Telinver falls under~~ the ~~conditions~~early ~~for~~reductions ~~mandatory~~referred ~~dissolution caused by loss of company’s capital stock due~~ to ~~accumulated losses set forth~~ in ~~clause~~point ~~5 of Section 94 of the LSC~~2. ~~However~~, ~~Decree~~are ~~1269/02~~being ~~dated~~applied ~~July~~by 16Telefónica, ~~2002~~the ~~has~~related ~~suspended~~agreements ~~the~~have ~~enforcement~~not ofbeen ~~clause~~yet 5approved ofby ~~section~~the 94Economy Ministry and ~~section~~ ~~206~~ of ~~the~~Infrastructure ~~LSC~~and ~~until December 10, 2003~~Housing. ~~Telefónica~~As isof ~~evaluating Telinver’s financing needs considering~~ the ~~Argentine~~issuance ~~economic~~date ~~situation~~of ~~and~~these ~~the~~financial ~~current difficulties to have access to credit~~statements, ~~including~~ the ~~possibility~~effect toof ~~grant~~the ~~direct~~discount ~~financing~~plans toimplemented ~~cover~~has ~~short-term~~not ~~cash~~been ~~requirements~~established ~~and,~~as ifcompared ~~applicable, grant additional financing. However, if the current difficulties~~ to ~~obtain~~rate ~~refinancing~~reduction orpercentages ~~additional~~provided ~~loans~~by ~~for~~such ~~Telinver continue~~agreements, ~~Telefónica plans,~~ and ~~has~~the soregulatory ~~agreed with~~agency ~~Telinver,~~has tonot ~~use~~approved ~~its~~how ~~best efforts~~ to ~~provide~~apply ~~such financing directly subject to Telefónica’s own fund availability, which depends on~~ the ~~evolution~~rate ofreduction ~~the~~mentioned ~~issues affecting Telefónica’s financial situation and cash flows described~~ in ~~Notes~~point 91. ~~and 12. to the consolidated financial statements.~~

7On the other hand, in relation to the complaint filed by Consumidores Libres Cooperativa Limitada de Provisión de Servicios Comunitarios (“Consumidores Libres”), mentioned in Note 10.c) to the consolidated financial statements, on October 4, 2001, Court Room IV of the Federal Appellate Court on Administrative Contentious Matters of the City of Buenos Aires awarded a precautionary measure requested by the plaintiff ordering the National Government, Telefónica and Telecom “to refrain from applying the corrections set forth in Section 2 of the Agreements approved by Decree No. ~~ECL~~2,585/91 until final judgment is rendered in the case”, which meant that the rates could not be adjusted by the US consumer price index.

AsIn ~~arise~~the ~~from~~opinion ~~Cointel~~of Telefónica’s ~~financial~~Management ~~statements~~and ofits ~~March~~legal 31counsel, the ~~2003,~~outcome ~~Telefónica~~of ~~holds~~the ~~together~~issues ~~with~~related ~~Alto~~to ~~Palermo~~the ~~S.A.~~price ~~(“APSA”)~~cap aand ~~50%~~the ~~interest~~complaint infiled ~~ECL~~by ~~for~~Consumidores Libres could exclusively affect the ~~development~~maximum ofrates anfor ~~e-commerce~~future ~~shopping center.~~services ~~Thus,~~that Telefónica is authorized to charge its customers regarding services, asareas, or ~~successor~~customers ofin which the ~~rights~~government ~~and~~did ~~obligations~~not ~~assumed~~declare bythe ~~Telinver~~existence ~~with~~of ~~respect~~effective tocompetition. ~~this~~As ~~business~~of June 30, ~~was~~2003, ~~bound~~these tomaximum ~~make,~~rates ~~together~~are ~~with~~determined ~~APSA,~~by ~~irrevocable~~applying ~~contributions~~to ~~for~~rates ~~the~~effective ~~amount~~as of ~~US$10~~November ~~million~~7, ~~which~~2000, ~~were~~the ~~made effective~~discounts applied in ~~equal~~order ~~parts~~to onimplement the ~~April~~price 30caps related to November 8, 2000, and November 8, 2001, under the above-mentioned agreements.

~~Additionally~~Under the price cap mechanism currently in effect, the ~~parties~~ ~~undertook~~rate reduction percentage and the services to ~~make~~which asuch ~~capital~~reductions ~~contribution~~will ~~for~~eventually apply depend on the ~~development~~final approval of ~~new~~the ~~business~~above-mentioned ~~lines~~rate ~~for~~agreements, aand ~~maximum~~on the outcome of 12the ~~million~~legal proceedings commenced by Consumidores Libres regarding the effective rate system. Based on current rate regulation mechanisms and considering Telefónica’s defense against the above-mentioned legal proceedings, ~~75%~~in the opinion of ~~which~~Telefónica’s isManagement toand beits ~~contributed~~legal bycounsel, the outcome of these issues will not have a negative impact upon Telefónica’s financial position or a significant adverse effect on its results of operations.

7In connection with the agreements executed by the Federal Administration under public law regulations, including public services, Law No.5 25,561 provided for: (i) the annulment of U.S. ~~Commitments~~dollar ~~related~~or toother ~~TCP~~foreign currency adjustments and indexing provisions; (~~See~~ii) ~~Note~~the 5establishment of an exchange rate for U.S. dollar-denominated prices and rates ($1 = US$ 1); and (iii) the authorization of the NEP to renegotiate the ~~consolidated~~conditions ~~financial~~of ~~statements~~the above contracts taking into account the following criteria: a) the impact of the rates on the competitiveness of the economy and on distribution of income; b) service quality and investment plans, when such aspects are contemplated in the contracts; c) the interest of users and access to the services; d) the security of the comprised systems; and e) the profitability of the companies.

In30 July 1999, Telefónica supplied to the Argentine Government with performance guarantees to ensure TCP’s service coverage in Argentina under its PCS licenses in the amounts of US$22.5 million and 45 million (jointly with Telecom Argentina Stet France Telecom S.A. (“Telecom”)). As informed by TCP, the duties arising from its PCS licenses have been complied with. As of the date of issuance of these financial statements, the CNC has not completed the technical audit related to the performance guarantees mentioned above. The outstanding performance guarantees denominated in foreign currency have been converted into pesos.

~~8. CONTRACTS~~ (~~figures~~English ~~according~~translation toof ~~Cointel’s~~the ~~consolidated~~ financial statements asoriginally ofissued ~~March~~in 31Spanish, ~~2003)~~except for note 13.

•to ~~IBM~~the –unconsolidated ~~Telefónica~~financial statements) ~~Contract~~

OnThe ~~March 27~~NEP, ~~2000,~~by ~~Telefónica’s~~means ~~Board~~ of ~~Directors~~Decree ~~approved,~~No. ~~considering the benefits foreseen by Telefónica based on the proposals received~~293/2002, ~~the~~dated ~~outsourcing~~February ~~through IBM of the operation and maintenance of the infrastructure of certain Telefónica’s information systems. Telefónica~~12, ~~TCP~~2002, ~~Telinver~~entrusted ~~and TDA (referred to jointly herein as “~~the ~~Companies”) have~~Economy ~~executed~~Ministry ~~certain contracts (the “Contracts”)~~ with ~~IBM whereby~~ the ~~operation~~renegotiation ~~and maintenance~~ of ~~the~~such ~~information technology infrastructure is outsourced to IBM for a six and a half-year term. Also~~agreements, ~~under~~including ~~this~~agreements ~~agreement,~~that ~~the~~govern ~~Companies transferred gradually to IBM~~ the ~~assets~~provision ~~used~~of tobasic ~~render~~telephony ~~the~~ services ~~outsourced under the Contract~~. InThe ~~consideration~~contractual ~~for~~renegotiation ~~the~~proposals ~~assets~~were ~~transferred, IBM paid 37.5 million, and has the obligation~~ to ~~renew~~be ~~the~~submitted ~~assets transferred periodically. Telefónica transferred such assets during August 2000. The agreement included that at contract expiration, IBM shall transfer~~ to the ~~Companies~~NEP ~~for~~within a120 ~~fixed~~days ~~price,~~after the ~~assets~~effective ~~at such~~ date ~~dedicated~~of tothis ~~providing the services~~Decree. ~~On the other hand,~~ ~~IBM~~Telefónica ~~has~~fulfilled ~~hired~~ the ~~personnel~~filing of ~~some of~~ the ~~Companies~~information ~~that~~required ~~had~~by ~~been assigned to render~~ the ~~services.~~Government, ~~Over~~which ~~the~~included ~~duration~~proposals ~~of the Contract the Companies shall pay IBM decreasing monthly installments in consideration for the base line services~~ to ~~be received~~overcome ~~under~~ the ~~Contract, and other charges for the use of additional resources~~emergency. The total contract’s amount, which for Telefónica was US$213 million and the above-mentioned fixed price for the transfer of assets, have fallen within the scope of the legal provisions applicable to contracts

~~Table~~In the opinion of ~~Contents~~Telefónica’s Management and its legal counsel, the deep changes in the Argentine economic model experienced since the beginning of 2002, including the enactment of the Economic Emergency Law, the depreciation of the Argentine peso against the U.S. dollar, the increase of domestic prices and the de-dollarization of rates, constitute extraordinary economic events that modified the economic and legal framework established by the Convertibility Law, which have therefore significantly changed the economic and financial equation and so justify an adjustment of the rate scheme to gear with the currently prevailing circumstances, such adjustment being fully in agreement with the principles set forth in the List of conditions and the Transfer Contract, so as to ensure a regular, continued and efficient service supply.

26The Transfer Contract contemplates the possibility of automatically adjusting rates in view of extraordinary unforeseen events as therein defined, or events or acts by the Government that materially affect the original economic and financial equation contemplated in the Transfer Contract. The Transfer Contract also establishes that the Company shall receive compensation from the Argentine Government when extraordinary events take place, including the Argentine Government decisions such as tariffs freezing and price caps, as well as the procedures to be applied to obtain the referred compensation.

In accordance with the foregoing, the proposal filed by Telefónica to the Government consists in the reinstatement of the rate scheme committed under the Transfer Contract, which provides rates denominated in pesos restated by applying the monthly Consumer Price Index (~~English~~“CPI”) ~~translation~~prevailing in Argentina, or in the case of significant differences between it and the ~~financial~~variation ~~statements~~of ~~originally~~the ~~issued~~U.S. dollar, by applying a polynomial formula that considers 40% of the monthly variation in ~~Spanish~~the price of the U.S. dollar and 60% of the variation of the monthly CPI in Argentina, ~~except~~that ~~for~~had ~~note~~been 13set aside by the advent of the Convertibility Law and Decree No. 2,585/91. In addition, based on the above, Telefónica proposed alternative approaches to achieve that objective, in particular to manage the transition from the current rates to those resulting from the application of the Transfer Contract.

Subsequently, under Decree No. 1,839/2002 dated September 16, 2002, the NEP extended for an additional term of one hundred and twenty business days since the expiration of the term set forth by Decree No. 293/2002, the term for the Ministry of Economy to submit to the ~~unconsolidated~~NEP ~~financial~~the proposals for contracts renegotiation affected by the provisions of Section 8 of Law N° 25,561. Resolution No. 62/2003 ~~statements)~~dated January 31, 2003, extended for an additional term of sixty business days since the expiration set forth under Decree No. 1,839/2002.

~~denominated~~According ~~in dollars described in Note 4.~~ to the ~~unconsolidated~~Emergency ~~financial~~Decree ~~statements~~No.120/03 ~~The~~issued ~~charges~~on ~~for the~~January ~~service received during the periods ended March 31~~23, 2003 ~~and 2002~~, ~~arise~~the ~~from~~Argentine ~~final~~Government ~~agreements~~may ~~between~~provide ~~the~~for ~~parties~~interim ~~regarding~~tariff ~~the~~reviews ~~value~~or ofadjustments considered ~~the~~necessary ~~services~~or ~~received.~~advisable ~~Pursuant~~ to aensure ~~supplementary~~continuity ~~agreement~~in ~~between~~ the ~~parties~~availability, ~~one~~security ofand ~~the~~quality ~~points~~of ~~agreed upon~~services byprovided ~~Telefónica~~to ~~consists~~users inunder ~~paying~~these ~~IBM~~contracts ~~for~~until the ~~services~~conclusion ~~rendered~~of ~~under~~ the ~~Agreement,~~renegotiation ~~from~~of ~~January~~public ~~through~~utilities ~~December~~agreements ~~2003, 16.2 million (plus CVS adjustment)~~ and ~~US$~~licenses ~~12.3~~provided ~~million,~~ for in ~~twelve~~the ~~equal~~Public ~~monthly~~Emergency ~~installments~~Law.

•On ~~Other~~January 29, 2003, the Argentine Government issued Decree No. 146/03 establishing a transitional adjustment in the electric light and natural gas supply rates. However, such measure has been challenged in court and has been suspended by a court order. As part of the renegotiation process mentioned in preceding paragraphs, Telefónica has also applied for a transitional adjustment in tariffs, but no decision has been made yet.

In accordance with Resolution No. 72/03, in February 2003 the Ministry of Economy approved a methodology to calculate and transfer to Telefónica’s ~~signed~~customers ~~contracts~~the ~~covering~~impact ~~works~~of the tax on checking account transactions imposed by Law No. 25,413 paid by Telefónica as from the date the resolution comes into force. Resolution No. 72/03 expressly refers to bethe Transfer ~~executed~~Contract as the basis for the approval of such method. Telefónica considers that the position taken by the Ministry of Economy in this Resolution is consistent with the ~~outside~~proposal ~~and~~submitted ~~inside~~regarding ~~plant~~its rights under the Transfer Contract. In accordance with Resolution No. 72/03, ofall ~~which~~taxes ~~approximately~~paid 64before ~~million~~that date are ~~pending~~included in the contractual renegotiation imposed by the Public Emergency Law.

9.31 ~~TARIFFS~~

~~9.1.~~(English ~~Tariff~~translation ~~agreement~~of the financial statements originally issued in Spanish, except for note 13.

~~Decree~~to ~~N° 764/00 on telecommunications deregulation establishes that providers may freely set rates and/or prices for~~ the ~~services~~unconsolidated ~~rendered and for~~financial ~~customer~~statements) categories, which shall be applied on a nondiscriminatory basis. However, if there was no effective competition, the “historical” providers of such areas shall respect the maximum rates established in the General Rate Structure, which is the current situation for almost all the material services provided by Telefónica. Below the rates established in such rate structure, such providers may freely set their rates by areas, routes, long-distance legs and/or customer groups.

ToOn ~~determine~~July ~~the~~3, ~~existence of effective competition~~2003, ~~the~~ ~~historical~~through ~~providers~~Decree ~~shall~~No. ~~demonstrate~~311/03 ~~that~~a ~~another~~Renegotiation orand ~~other~~Analysis ~~providers~~ of ~~the~~Public ~~same~~Utilities ~~service~~Agreements Unit ~~have~~was ~~obtained~~created, ~~20%~~which ofshall ~~the~~be ~~total~~headed ~~revenues~~by ~~for such service in~~ the ~~local~~Ministers ~~area~~ of ~~the~~Economy ~~Basic~~and ~~Telephony Service involved. In 2000~~Production, ~~Telefónica~~Federal filed a request to the effect that effective competition be officially acknowledged to exist in the Buenos Aires Multiple Area. As no response to its request was obtained from the SC within a reasonable termPlanning, ~~Telefónica~~Public ~~brought~~Investment ~~the~~and ~~matter before the courts~~Services. ~~Effective~~The ~~competition~~referred ~~shall~~Unit will be ~~considered to exist~~ in ~~the~~charge ~~provision~~ of ~~national~~carrying orout ~~international~~the ~~long-distance~~renegotiation ~~services~~process ~~for~~through the ~~calls~~Renegotiation ~~originated in a local area~~ of ~~the Basic Telephony Service, when the customers in such area are able to~~Public ~~choose,~~Works ~~through~~and ~~the~~Services ~~dialing~~Agreements ~~selection~~Committee ~~method,~~created ~~among~~by ~~more~~Decree ~~than~~No. ~~two service providers, if each of them, offers more than one long-distance destination~~293/02.

~~Except~~In ~~for~~the ~~areas~~opinion ~~and~~of ~~services~~Telefónica’s ~~where~~Management ~~effective~~and ~~competition~~its islegal ~~demonstrated to exist~~counsel, ~~the~~in ~~rate~~conformity ~~agreements~~with ~~established~~the ageneral ~~maximum~~principles ~~rate~~of ~~per~~administrative ~~pulse~~law ~~denominated in~~applicable USto ~~dollars.~~the ~~These~~Transfer ~~agreements~~Contract ~~also~~and ~~provided for~~ the ~~right~~List of ~~Telefónica~~Conditions, tofuture ~~adjust~~tariffs ~~this~~should ~~rate~~be established ~~for~~at ~~changes~~a inlevel ~~the~~deemed ~~Consumer~~sufficient ~~Price~~to ~~Index~~cover of the ~~United~~costs ~~States~~ of ~~America~~the onservice ~~April~~in 1order ~~and~~to ~~October~~maintain 1a ofregular, ~~each~~continuous ~~year.~~and ~~However,~~efficient ~~Law~~supply of ~~Public~~the ~~Emergency~~telephony ~~and Currency~~services ~~Exchange~~as ~~System~~set ~~Reform~~forth ~~No.~~in ~~25,561,~~the ~~dated~~legal ~~January~~framework 6,governing ~~2002,~~the ~~provides~~Transfer ~~that~~Contract. However, init cannot ~~the~~be ~~agreements~~assured ~~executed~~that by the ~~Federal~~Argentine ~~Administration~~Government ~~under~~shall ~~public~~adopt ~~law~~Telefónica’s ~~regulations,~~position ~~including~~with ~~public~~respect ~~works~~to ~~and~~the ~~services,~~effects ~~indexation~~of ~~clauses~~the ~~based~~current onsituation ~~foreign countries~~in ~~price~~connection ~~index~~with orsuch ~~any~~Transfer ~~other~~Contract ~~indexation~~clauses. ~~mechanism~~It ~~are~~is ~~annulled.~~possible Inthat this ~~regard,~~tariff itregime ~~sets~~shall ~~forth~~not maintain ~~that~~ the ~~prices~~value ~~and~~of ~~rates~~tariffs ~~resulting~~in ~~from~~U.S. ~~such~~Dollars ~~provisions~~or ~~shall~~in beconstant ~~established~~pesos inwith ~~pesos~~respect atto aany ~~one~~prior ~~peso~~increase ~~($1)~~or =possible ~~one~~future ~~U.S.~~increase ~~dollar~~in ~~(US$~~the 1)general ~~exchange~~price ~~rate~~level. ~~Furthermore~~ If, ~~Section~~as ~~No.~~a 9result of the ~~above-mentioned~~renegotiation, ~~Law~~future ~~authorizes~~tariffs ~~the~~were ~~National~~to ~~Executive~~evolve ~~Power~~at toa ~~renegotiate~~pace significantly below the ~~above~~levels ~~contracts~~established ~~taking~~in ~~into~~the ~~account~~Transfer Contract, the ~~following~~tariff ~~criteria~~regime inwould ~~relation~~have toa ~~public~~substantial ~~utility~~adverse ~~services:~~effect ~~(a)~~on ~~the~~Telefónica’s ~~impact~~financial ofposition ~~the~~and ~~rates~~future onoperating ~~the competitiveness~~results. As of the ~~economy~~date ~~and~~of onissuance ~~distribution~~ of ~~income;~~these ~~(b)~~financial ~~service~~statements, Telefónica’s ~~quality~~Management ~~and~~cannot ~~investment~~predict ~~plans,~~the ~~when~~final ~~such~~outcome ~~aspects~~of ~~are~~the ~~contemplated~~renegotiation inrequired by the ~~contracts;~~Public ~~(c)~~Emergency ~~the~~Law ~~interest~~or ofthe ~~users~~tariff ~~and~~regime ~~access~~ to ~~the~~be ~~services;~~effective ~~(d)~~in the ~~security~~future ofor ~~the~~when ~~comprised systems;~~such ~~and~~outcome ~~(e)~~shall ~~the~~take ~~profitability of the companies~~place.

~~Under the rate regulation mechanism in effect known as Price Cap, Decree No~~9. ~~264/98 provided a 4% reduction (in constant dollar terms) in rates, in terms similar to the method provided by point 12~~2.~~5.1.~~ ofTariff the List of Conditions, to be applied during each year of the transition period to basic telephone service rates; and 90% of such reduction to be applied to domestic long distance services. Telintar and now Telefónica as it successor, has applied the same 4% reduction to international rates. restructuring

The tariff restructuring granted by Decree No. 92/97, effective on February 1, 1997, established an increase in the price of the monthly basic charge and in domestic service rates, and a decrease in the rates for domestic long distance and international services and for Telefónica’s local and domestic long distance public phone service for longer distances. The net impact of the rate restructuring was to be neutral on revenues during two years after its effectiveness. On ~~November~~December 31, 1999, the SC has issued Resolution No. 24,~~925~~269/99, ~~whereby,~~ ~~based~~which onestablished the ~~assumption~~SC’s final determination of the ~~nonexistence~~impact of ~~effective~~the ~~competition~~tariff restructuring as an excess in revenues of ~~such~~approximately ~~date~~18 million (which had previously been provisionally determined by the SC in 14 million). In accordance with Resolution No. 18,968/99, ~~provided~~the aSC’s 5Resolution No.5% 4,269/99 also states that the Regulatory Authority will determine the form and time of implementation of the future rate reduction into ~~telephone~~compensate such excess revenues. Telefónica has filed an appeal for revision of this resolution, on the grounds that the calculation method used by the Regulatory Authority to determine the impact of the tariff restructuring established by Decree No. 92/97 has defects and should be challenged. As of the date of these financial statements such appeal has not been resolved.

~~Table~~In the opinion of ~~Contents~~Telefónica’s Management and its legal counsel, the outcome of these issues could exclusively affect the maximum rates for future services that Telefónica is authorized to charge its customers regarding services, areas, or customers in which the government did not declare the existence of effective competition. Therefore, in the opinion of Telefónica’s Management and its legal counsel the outcome of these issues will not have a negative impact upon Telefónica’s financial position or a significant adverse effect on its results of operations.

2710. LAWSUITS AND CLAIMS

~~(English~~a) ~~translation~~Labor oflawsuits ~~the~~attributable ~~financial~~to ~~statements originally issued in Spanish, except for note 13~~ ENTel

The Transfer Contract provides that ENTel and not Telefónica is liable for all amounts owing in connection with claims based upon ENTel’s contractual and statutory obligations to former ENTel employees, whether or not such claims were made prior to the ~~unconsolidated~~Transfer ~~financial~~Date if the events giving rise to such claims occurred prior to the Transfer Date. However, using a theory of successor ~~statements)~~enterprise liability that they assert is based upon generally applicable Argentine labor law, certain former employees of ENTel have brought claims against Telefónica, arguing that neither the Transfer Contract nor any act of the NEP can be raised as a defense to Telefónica’s joint and several liability under allegedly applicable labor laws.

~~basic~~32 service rates for the period November 8, 1999, through November 2000. Such reduction was applied to detailed billing, domestic and international long-distance services. Likewise, the starting time of the domestic and international long-distance reduced rate was brought forward.

In(English ~~April~~translation ~~2000~~of ~~and March 2001, Telefónica, Telecom and~~ the SCfinancial ~~executed~~statements ~~rate~~originally ~~agreements~~issued ~~which,~~in ~~subject to the approval by the Economy Ministry and of Infrastructure and Housing~~Spanish, ~~provided~~except ~~the~~for ~~terms~~note ~~under~~13. ~~which the Price Caps would be applied:~~

~~i) Price Cap for the year 2000/2001: the SC established that the rate reduction for the period November 2000/2001 would amount~~ to ~~6.75%. The reduction would be applied through: a) discount plans that were effective as from March 2000 (commercial and government basic rates, local measured service, and~~ the ~~application~~unconsolidated ~~of certain preferential rates for internet access~~financial statements), the non-application of charges set forth in Resolution N° 2,926/99 until November 8, 2001 and the non-application over the year of the two semiannual adjustments to the pulse value for the US Consumer Price Index; b) given that such plans were brought into effect ahead of schedule, the accumulated effects of the above-mentioned rate reductions would be applied to the computation of Price Caps for the periods beginning November 2000, 2001 and 2002 adjusted at an interest rate of 12% per year; and c) furthermore, it was established that the difference between the effect of the discounts already granted and that of a 6% reduction would be applied on November 8, 2000 across different items of the tariff structure, and the additional 0.75% reduction would be applied as defined by the Licensees.

~~ii)~~In ~~Price~~an ~~Cap~~attempt ~~for~~to ~~the~~clarify ~~year 2001/2002:~~ the SCissue ~~established~~of ~~that~~successor ~~the~~liability ~~efficiency factor~~ for ~~the~~labor ~~Price~~claims, ~~Cap~~Decree ~~applicable~~No. ~~for the period November 2001~~1,803/~~November~~92 ~~2002~~was issued ~~would~~by ~~amount~~the ~~to 5~~NEP.~~6%.~~ ~~This~~Such ~~rate~~Decree ~~reduction~~states isthat tovarious bearticles ~~implemented~~of ~~through:~~the a)Work ~~the~~Contract ~~non-application~~Law of ~~the~~Argentina ~~two adjustments to~~ (the ~~pulse~~“Articles”), ~~value~~which byare the USbasis ~~Consumer Price Index~~ for the ~~year,~~foregoing ~~adjusting~~claims ~~the~~of ~~effect~~joint asand ofseveral ~~November 8~~liability, ~~2001~~would atnot ~~the~~be ~~12%~~applicable ~~annual~~to ~~rate~~privatizations completed inor ~~order~~ to ~~measure~~be itcompleted ~~against~~under the ~~total~~State ~~expected~~Reform 5Law.6% ~~reduction,~~Although ~~b) any balance resulting from~~ the ~~non-application~~issuance of ~~the~~Decree ~~adjustment~~No. to1,803/92 ~~the~~should ~~value~~have ofbeen ~~the~~seen ~~telephone~~as ~~pulse~~favorable into ~~the period 2000/2001~~Telefónica, asit ~~well~~did asnot ~~any~~bring ~~balance~~about ~~remaining in respect of~~ a ~~variety~~final ofsolution ~~items~~to ~~included in~~ the ~~2000 price cap; c) any unapplied price cap portion remaining after the rate reductions mentioned in a) and b)~~ above ~~with respect to the 5~~claims.6% ~~rate~~In ~~reduction~~effect, ~~should be applied~~ in ~~the~~deciding ~~following~~a ~~manner:~~case brought ~~70%~~before ~~as provided by Telefónica~~it, ~~15% to~~ the ~~local~~Supreme ~~service,~~Court ~~and~~of ~~15%~~Justice toupheld ~~other~~the ~~services~~provisions asof ~~required by~~ the ~~SC,~~law ~~other than monthly basic charges~~ and declared the ~~local~~Decree ~~measured service~~inapplicable.

~~iii~~As of June 30, 2003, the claims filed against Telefónica including accrued interest and expenses with respect thereto totaled approximately 105 million. Telefónica has not booked an accrual for possible adverse judgments in such legal actions since a) ~~Price~~in ~~Cap~~the Transfer Contract, ENTel has agreed to indemnify Telefónica in respect of such claims and b) the Argentine Government has agreed to be jointly and severally liable with ENTel in respect of such indemnity obligations and has therefore authorized Telefónica to debit an account of the Government at Banco Nación Argentina for any amount payable by Telefónica. Under the Debt Consolidation Law, ENTel and the Argentine Government may discharge their above-described indemnity obligations by the issuance to Telefónica of 16-year ~~2002/~~bonds. As of June 30, 2003: ~~The~~Telefónica SChas ~~established~~paid approximately ~~that~~6.6 million in cash for the ~~efficiency~~above-mentioned ~~factor~~claims. ~~could~~Telefónica ~~not~~initiated ~~exceed~~a 5%claim for indemnification and reimbursement in connection with this matter. The case is being argued in court, ~~but~~and itno ~~did~~ruling ~~not~~has ~~set~~yet ~~its~~been ~~value~~issued.

~~Although~~Court decisions have followed the ~~reductions~~precedent laid down by the Supreme Court of Justice in the area of joint liability in labor matters mentioned in ~~point~~the i)second paragraph, criterion that Telefónica and ~~the~~its ~~early~~legal ~~reductions referred~~counsel consider that will apply to inpending ~~point~~cases. ~~ii),~~Notwithstanding ~~are~~this ~~being~~and ~~applied~~the instruments that may be used by ~~Telefónica,~~the Argentine Government to reimburse the ~~related~~amounts ~~agreements~~that ~~have~~would ~~not~~be ~~been~~paid, ~~yet~~given ~~approved~~the obligation incurred by the ~~Economy~~Argentine ~~Ministry~~Government ~~and~~in the List of ~~Infrastructure~~Conditions and ~~Housing.~~in ~~As of~~ the ~~issuance~~Transfer ~~date~~Contract, ofon ~~these~~the ~~financial~~one ~~statements~~hand, and on the ~~effect~~basis of the ~~discount~~opinion ~~plans~~of ~~implemented~~Telefónica’s ~~has~~legal ~~not~~counsel ~~been~~regarding ~~established~~the aspossible ~~compared~~amount tofor ~~rate~~which ~~reduction~~existing ~~percentages~~claims ~~provided~~may bybe ~~such~~resolved, ~~agreements~~on the other, in the opinion of Telefónica and its legal counsel the ~~regulatory~~final ~~agency~~outcome ~~has~~of the issue should not ~~approved~~have ~~how~~a material toadverse ~~apply~~impact ~~the~~on ~~rate~~Telefónica’s ~~reduction~~results ~~mentioned~~of inoperations ~~point~~or i)financial position.

~~On the other hand, in relation to the complaint filed by Consumidores Libres Cooperativa Limitada de Provisión de Servicios Comunitarios (“Consumidores Libres”~~b), ~~mentioned~~Reimbursement ~~in Note 10.c), on October 4, 2001, Court Room IV~~ of ~~the~~Value ~~Federal~~Added ~~Appellate~~Taxes ~~Court on Administrative Contentious Matters of the City of Buenos Aires awarded a precautionary measure requested by the plaintiff ordering the National Government, Telefónica and Telecom~~ (“~~to refrain from applying the corrections set forth in Section 2 of the Agreements approved by Decree N° 2,585/91 until final judgment is rendered in the case~~VAT”~~, which meant that the rates could not be adjusted by the US consumer price index.~~ )

InOn ~~the~~April ~~opinion~~24, ~~of Telefónica’s Management and its legal counsel~~1995, ~~the~~Telecomunicaciones ~~outcome~~Internacionales ofde ~~the~~Argentina ~~issues~~S.A. ~~related~~(“Telintar”) tofiled ~~the~~an ~~price~~application ~~cap~~with ~~and~~ the ~~complaint~~Federal ~~filed~~Public byRevenue Agency ~~Consumidores~~(“AFIP”) ~~Libres~~for ~~could~~the ~~exclusively~~reimbursement ~~affect~~of ~~the~~approximately ~~maximum~~21.3 ~~rates~~million ~~for~~(historical ~~future~~pesos) ~~services~~arising ~~that~~from ~~Telefónica~~the ismodifications ~~authorized~~of tocertain ~~charge~~prior ~~its~~positions ~~customers~~originally ~~regarding~~taken ~~services,~~by ~~areas,~~Telintar orwith ~~customers~~respect into ~~which~~ the ~~government~~computation ~~did~~of ~~not~~VAT ~~declare~~credits ~~the~~applicable ~~existence~~to ofcertain ~~effective~~transactions ~~competition.~~for Asthe ofperiod ~~March~~January 311, ~~2003,~~1993 ~~these~~through ~~maximum~~February ~~rates~~28, ~~are~~1995. ~~determined~~In byaddition ~~applying~~and toas ~~rates~~a ~~effective~~consequence as of ~~November~~the 7,situation ~~2000~~mentioned above, ~~the~~Telintar ~~discounts~~ applied infor ~~order~~the toreimbursement ~~implement~~of ~~the~~approximately ~~price~~5.9 ~~caps~~million ~~related~~(historical topesos) ~~November~~in 8,income ~~2000,~~ and ~~November 8, 2001,~~asset ~~under~~taxes ~~the above-mentioned agreements~~.

~~Under~~During the ~~price~~fiscal ~~cap mechanism~~year ~~currently~~ended inSeptember ~~effect~~30, 1997, the AFIP-DGI ~~rate~~accepted ~~reduction~~Telintar’s ~~percentage~~position ~~and~~on the ~~services~~first claim and reimbursed 20.7 million of principal and 3.6 million (historical pesos) of interest to ~~which~~this ~~such~~company. ~~reductions~~Since ~~will~~the ~~eventually~~AFIP-DGI ~~apply~~has ~~depend~~still not given its opinion on the ~~final~~second ~~approval~~claim, Telefónica ofas a successor in Telefónica Larga Distancia Argentina S.A. (“TLDA”)’s business has not recorded any amounts relating to the ~~above-~~latter claim mentioned ~~rate~~in the previous paragraph. In this regard, should a decision be passed sustaining Telintar’s case, the successor companies will then agree on the criterion to be followed for distributing the resulting proceeds between them.

~~Table~~c) ~~of Contents~~Other

28Consumidores Libres initiated a legal action against Telefónica, Telecom, Telintar and the Federal Government. The object of this action is to declare the nullity, unlawfulness and unconstitutionality of all standards and rate agreements issued since the Transfer Contract, Consumidores Libres’s objective being to have the rates of the basic telephone service reduced and the amount supposedly collected in excess refunded, limiting them in such a way that the Licensees’ rate of return should not exceed 16% per annum on the assets as determined in point 12.3.2. of the List of Conditions approved by Decree No. 62/90. Also, other points of Telefónica’s contracting policy have been called into question.

~~(English~~33 ~~translation of the financial statements originally issued in Spanish, except for note 13~~

to(English ~~the~~translation ~~unconsolidated~~of the financial statements) originally issued in Spanish, except for note 13.

~~agreements,~~to ~~and on~~ the ~~outcome~~unconsolidated ~~of the legal proceedings commenced by Consumidores Libres regarding the~~financial ~~effective~~statements) rate system. Based on current rate regulation mechanisms and considering Telefónica’s defense against the above-mentioned legal proceedings, in the opinion of Telefónica’s Management and its legal counsel, the outcome of these issues will not have a negative impact upon Telefónica’s financial position or a significant adverse effect on its results of operations.

InAfter ~~connection~~analyzing ~~with~~ the ~~agreements~~claim, ~~executed~~Telefónica’s bylegal ~~the~~counsel ~~Federal~~contested ~~Administration~~it, ~~under~~petitioning ~~public~~that ~~law~~it should ~~regulations,~~be ~~including~~dismissed ~~public services,~~on ~~Law~~the ~~No.~~grounds ~~25,561~~that ~~provided~~it ~~for:~~fails ~~(1)~~to ~~the~~state ~~annulment~~a ofclaim ~~dollar~~with ora ~~other~~basis ~~foreign~~in ~~currency~~law. ~~adjustments~~The ~~and~~court ~~indexing~~of ~~provisions;~~original ~~(2)~~jurisdiction ~~the~~ruled ~~establishment~~in ofTelefónica’s anfavor, ~~exchange~~but ~~rate~~this ~~for~~resolution ~~dollar-denominated~~was ~~prices~~revoked ~~and~~by ~~rates~~the ~~($1~~Court =of ~~US$~~Appeals ~~1);~~that ~~and~~resolved ~~(3)~~that the claim ~~authorization~~must ofnot ~~the~~be ~~National~~dismissed ~~Executive~~but ~~Power~~must tobe ~~renegotiate~~substantiated at the ~~conditions~~court of ~~the~~original ~~above~~jurisdiction. ~~contracts~~None ~~taking~~of ~~into~~these ~~account~~courts ~~the~~have ~~following~~yet ~~criteria:~~ruled ~~(a)~~on the ~~impact~~substance of the ~~rates~~claim. onThrough ~~the~~its ~~competitiveness~~legal ofcounsel, ~~the~~Telefónica ~~economy~~filed ~~and~~an onappeal ~~distribution~~to ofthe ~~income;~~Supreme ~~(b)~~Court of Justice ~~service~~against ~~quality~~the ~~and~~Appeal ~~investment~~Court’s ~~plans~~resolution, ~~when~~which ~~such~~was ~~aspects~~denied. ~~are~~Telefónica ~~contemplated~~subsequently infiled ~~the~~an ~~contracts;~~appeal ~~(c) the interest~~ of ~~users~~such ~~and~~denial ~~access~~with to the ~~services;~~Supreme ~~(d)~~Court ~~the security~~ of ~~the~~Justice ~~comprised systems;~~ and ~~(e)~~a ~~the~~decision ~~profitability~~regarding ofsuch ~~the~~matter ~~companies~~is pending.

~~The~~In ~~National~~this ~~Executive Power~~scenario, byon ~~means~~October of4, ~~Decree N° 293/02~~2001, ~~dated February~~Court ~~12,~~Room ~~2002,~~IV ~~entrusted~~of the ~~Economy~~Federal ~~Ministry~~Appellate Court ~~with~~on Administrative Contentious Matters of the ~~renegotiation~~City of ~~such~~Buenos ~~agreements,~~Aires ~~including~~awarded ~~agreements~~a ~~that~~precautionary ~~govern~~measure ~~the~~requested ~~provision~~by ofthe ~~basic~~plaintiff ~~telephony~~ordering ~~services.~~the ~~The~~Federal ~~contractual~~Government, ~~renegotiation~~Telefónica ~~proposals~~and ~~were~~Telecom “to berefrain ~~submitted~~from toapplying the ~~National~~corrections set ~~Executive~~forth ~~Power~~in ~~within~~Section ~~120~~2 ~~days~~of ~~after~~ the ~~effective~~Agreements ~~date~~approved ofby ~~this~~ Decree No. ~~Telefónica~~2,585/91 ~~fulfilled~~until ~~the~~final ~~filing~~judgment ofis rendered in the ~~information~~case”, ~~required~~which bymeant that the ~~Government,~~rates ~~which~~could ~~included~~not ~~proposals~~be toadjusted ~~overcome~~by the ~~emergency~~US consumer price index.

~~In the opinion of~~ Telefónica’s ~~management~~appealed ~~and~~such ~~its~~decision ~~legal~~before ~~counsel,~~ the ~~deep changes in the~~ Argentine ~~economic~~Supreme ~~model experienced since the beginning~~ Court of ~~2002,~~Justice ~~including~~rejecting the ~~enactment~~arguments ofstated ~~the Economic Emergency Law, the depreciation of the Argentine peso against the U~~therein.S. ~~dollar,~~No ~~the~~decision ~~increase~~on ~~of domestic prices and~~ the ~~de-dollarization~~ ofappeal ~~rates,~~has ~~constitute~~been ~~extraordinary~~rendered ~~economic~~as ~~events that modified the economic and legal framework established by the Convertibility Law, which have therefore significantly changed the economic and financial equation and so justify an adjustment~~ of the ~~rate~~date ~~scheme to gear with the currently prevailing circumstances, such adjustment being fully in agreement with the principles set forth in the List~~ of ~~conditions~~these ~~and~~financial ~~the Transfer Contract, so as to ensure a regular, continued and efficient service supply~~statements.

~~The~~In ~~Transfer Contract contemplates~~ the ~~possibility~~opinion of ~~automatically~~Telefónica’s ~~adjusting~~Management ~~rates~~and inits ~~view~~legal ofcounsel, ~~extraordinary~~it ~~unforeseen~~is ~~events~~unlikely asand ~~therein~~remote ~~defined,~~that orthe ~~events~~resolution orof ~~acts~~this byissue ~~the~~could ~~Government~~have ~~that~~a negative ~~materially~~effect ~~affect~~on the ~~original~~results ~~economic~~of ~~and~~its ~~financial~~operations ~~equation~~or ~~contemplated~~financial ~~in the Transfer Contract~~position.

InOn ~~accordance~~July ~~with~~29, ~~the foregoing~~2003, ~~the proposal~~Telefónica ~~filed~~received a communication sent by the CNC requesting Telefónica and TLDA (a company currently merged with Telefónica) to ~~the~~deposit ~~Government~~51 ~~consists~~million in(that ~~the~~includes ~~reinstatement~~principal and interest as of ~~the~~July ~~rate~~31, ~~scheme~~2003), ~~committed~~which, ~~under~~according to such communication, would correspond to the ~~Transfer~~savings ~~Contract~~obtained, ~~which~~plus ~~provides~~interest, ~~rates~~by ~~denominated~~such companies through reductions in ~~pesos~~employers’ ~~restated~~social bysecurity ~~applying~~contributions ~~the~~instructed ~~monthly~~by ~~Consumer~~Decree ~~Price~~No. ~~Index~~1,520/98 ~~(“CPI”)~~and ~~prevailing~~supplementary ~~in Argentina~~standards, orthat inwere ~~the~~applied ~~case~~to ofthe ~~significant~~salaries ~~differences~~to ~~between~~such itcompanies’ ~~and~~personnel in the ~~variation~~period ofApril ~~the~~1999 Uthrough June 2001.S Pursuant to Resolution SC No. ~~dollar~~18,771/99, bythese ~~applying~~savings awere ~~polynomial~~to ~~formula~~be ~~that~~applied ~~considers~~to ~~40%~~the execution of ~~the~~programs ~~monthly~~or promotional ~~variation~~projects in the ~~price~~framework of the ~~U.S.~~presidential ~~dollar~~initiative ~~and 60%~~“argentin@internet.todos”, ofto ~~the~~be ~~variation~~managed ofby the ~~monthly~~International ~~CPI~~Telecommunications inUnion ~~Argentina~~(UIT). Telefónica, ~~that~~both ~~had~~in ~~been~~its ~~set~~own ~~aside~~right byand to continue the ~~advent~~rights and duties of ~~the~~TLDA ~~Convertibility~~has ~~Law~~recorded ~~and~~liabilities ~~Decree~~that ~~2,585/91.~~correspond Into ~~addition,~~these ~~based~~savings onand reflect the ~~above~~outstanding principal, 21 million which Telefónica ~~proposed~~understands ~~alternative~~is ~~approaches~~its tototal ~~achieve~~liability ~~that~~as ~~objective~~of June 30, 2003. Telefónica has solid grounds to hold that it is not in ~~particular~~arrears. toHowever, ~~manage~~as of the ~~transition~~date ~~from~~of ~~the~~issuance ~~current~~of ~~rates~~these tofinancial ~~those~~statements ~~resulting~~and ~~from~~as ~~the~~this ~~application~~claim ofis fairly recent, Telefónica and its legal advisors are analyzing its legal grounds and the ~~Transfer~~actions ~~Contract.~~to be taken to defend its rights in relation to this issue

Subsequently, under Decree 1839/2002 dated September 16, 2002, the National Executive Power extended for an additional term of one hundred and twenty business days since the expiration of the term set forth by Decree 293/2002, the term for the Ministry of Economy to submit to the National Executive Power the proposals for contracts renegotiation affected by the provisions of Section 8 of Law N° 25,56111. ~~Resolution~~COINTEL’S ~~No.~~AND ~~62/2003~~TELEFONICA’S ~~dated~~NEGOTIABLE ~~January 31, 2003, extended for an additional term of sixty business days since the expiration set forth under Decree 1,839/2002.~~ OBLIGATIONS

~~In accordance with Resolution No~~11.1. ~~72/03,~~Cointel’s inNegotiable ~~February~~obligations ~~2003~~(figures ~~the~~according ~~Ministry of Economy approved a methodology~~ to ~~calculate and transfer to Telefónica~~Cointel’s ~~customers~~consolidated ~~the~~financial ~~impact~~statements ~~of the tax on checking account transactions imposed by Law No. 25,413 paid by Telefónica~~ as ~~from the date Resolution No. 72/03 comes into force. Resolution No. 72/03 expressly refers to the Transfer Contract as the basis for the approval~~ of ~~such~~June method. Telefónica considers that the position taken by the Ministry of Economy in this Resolution is consistent with the proposal submitted regarding its rights under the Transfer Contract. In accordance with Resolution No. 72/0330, ~~all taxes paid before that date are included in the contractual renegotiation imposed by the Public Emergency Law.~~ 2003)

~~Table~~The Regular and Special Shareholders’ Meeting held on March 31, 1997, approved the creation of ~~Contents~~a Global Program for the issuance of Negotiable obligations (the “Program”). Such Negotiable obligations are nonconvertible into shares, for a maximum outstanding amount during the term of the Program of US$800 million or its equivalent amount in other currencies, unsecured, to be issued in different classes, which could be cumulative or not; such bonds are to allow for early redemption in cash or in kind, in the latter case with securities of other companies. In addition, the above-mentioned Shareholders’ Meeting delegated broad powers to the Board of Directors to determine the timing, features and other terms and conditions of the issuance.

29Under the Program, Cointel’s Board of Directors decided the issuance of two classes of Negotiable obligations: Class “A” for US$225 million and Class “B” for 175 million (historical currency); the maturity date is August 1, 2004, for both classes. On July 3, 1997 the CNV approved the issuance. On July 24, 1997, Cointel placed all of the issuance on the market. The net proceeds of this transaction which totaled approximately US$395 million were used to refinance bank debts maturing from January through September 1998.

~~(English~~34 ~~translation of the financial statements originally issued in Spanish, except for note 13~~

to(English ~~the~~translation ~~unconsolidated~~of the financial statements) originally issued in Spanish, except for note 13.

~~According~~ to the ~~Emergency~~unconsolidated ~~Decree No.120/03 issued by the National Executive Power on January 23, 2003,~~financial ~~the~~statements) government may provide for interim tariff reviews or adjustments considered necessary or advisable to ensure continuity in the availability, security and quality of services provided to users under these contracts until the conclusion of the renegotiation of public utilities agreements and licenses provided for in the Public Emergency Law.

OnThe ~~January~~main ~~29,~~terms ~~2003, the Argentine Government issued Decree No. 146/03 establishing a transitional adjustment in the electric light~~ and ~~gas~~conditions ~~supply~~of ~~rates. However,~~this ~~such~~issuance ~~measure~~of ~~has~~Negotiable ~~been~~obligations ~~challenged~~are: in court and has been suspended by a court order. In addition to the renegotiation process mentioned in preceding paragraphs, Telefónica has also applied for a transitional adjustment in tariffs, but no decision has been made yet. Therefore, Telefónica may not assure that any transitional adjustment in tariffs shall be granted, and should the Government grant the right to introduce such adjustments, Telefónica cannot assure that the Government’s decision will not be challenged in court.

Ina) ~~the~~Face ~~opinion~~value: ofUS$1 ~~Telefónica’s Management~~ and ~~its~~$1 ~~legal~~for ~~counsel, in conformity with~~ the ~~general~~Classes ~~principles~~“A” ~~of administrative law applicable to the Transfer Contract~~ and ~~the List of Conditions~~“B”, ~~future tariffs are to be established at a level deemed sufficient to cover the costs of the service in order to maintain a regular~~respectively, ~~continuous~~bearer and ~~efficient supply of the telephony services as set forth in the legal framework governing the Transfer Contract. However~~registered, it cannot be assured that the Argentine Government shall adopt Telefónica’s position with respect to the effects of the current situation in connection with such Transfer Contract covenants. It is possible that this tariff regime shall not maintain the value of tariffs in U.S. Dollars or in constant pesos with respect to any prior increase or possible future increase in the general price level. Ifordinary, asnonconvertible ainto result of the renegotiation, future tariffs were to evolve at a pace significantly below the levels established in the Transfer Contract, the tariff regime would have a substantial adverse effect on Telefónica’s financial position and future operating resultsshares. As of the date of issuance of these financial statements, Telefónica’s Management cannot predict the final outcome of the renegotiation required by the Public Emergency Law or the tariff regime to be effective in the future or when such outcome shall take place.

9b) The total amortization of the Negotiable obligations is to take place in one single installment payable at 7 (seven) years for both classes.2 Such amortization, as well as accrued interest, is to be paid in U.S. ~~Tariff~~dollars ~~restructuring~~in the case of the Class “A”, and in U.S. dollars or Argentine pesos in the case of the Class “B” (at the discretion of the obligee). Cointel may redeem such obligations for fiscal reasons, at 100% of their face value plus interest accrued through the redemption date.

c) The ~~tariff~~securities ~~restructuring~~accrue ~~granted by Decree No. 92/97, effective on February 1, 1997, established~~ an ~~increase~~annual ininterest ~~the price~~ of ~~the~~8.85% ~~monthly basic charge~~ and in domestic service rates, and a decrease in the rates for domestic long distance and international services and for Telefónica’s local and domestic long distance public phone service for longer distances10.375% ~~The net impact of the rate restructuring was to be neutral~~ on ~~revenues~~Class ~~during~~“A” ~~two~~and ~~years~~Class ~~after its effectiveness. On December 1~~“B”, ~~1999 the SC has issued Resolution No. 4~~respectively,~~269/99,~~ ~~which~~payable ~~established~~half-yearly ~~the SC’s final determination of the impact of the tariff restructuring as an excess~~ in ~~revenues~~arrears ~~of 18 million (which had previously been provisionally determined by the SC in 14 million). In accordance~~ with ~~Resolution~~due ~~No.~~dates ~~18,968/99,~~on ~~the~~February ~~SC’s~~1 ~~Resolution No. 4,269/99 also states that the SC will determine the form~~ and ~~time~~ ~~of implementation of the future rate reduction to compensate such excess revenues. Telefónica has filed an appeal for revision of this resolution,~~ on ~~the~~August ~~grounds~~1 ~~that the calculation method used by the SC to determine the impact~~ of ~~the tariff~~each ~~restructuring~~year ~~established by Decree No. 92/97 has defects~~ and ~~should~~beginning beon ~~challenged.~~February As1, ~~of the date of these financial statements such appeal has not been resolved~~1998.

Ind) ~~the~~This ~~opinion~~issuance ofdoes ~~Telefónica’s~~not ~~Management~~constitute ~~and~~either ~~its~~a ~~legal~~secured ~~counsel,~~or ~~the~~a ~~outcome~~subordinated debt of ~~these issues could exclusively affect the maximum rates for future services that Telefónica is authorized to charge its customers regarding services~~Cointel, ~~areas,~~ranking orpari-passu ~~customers~~-with inno ~~which~~preferences- ~~the government did not declare the existence of effective competition. Therefore,~~ in ~~the opinion~~respect of ~~Telefónica~~Cointel’s ~~Management~~current and ~~its~~future ~~legal~~unsecured ~~counsel~~and ~~the~~unsubordinated ~~outcome of these issues will not have a negative impact upon Telefónica’s financial position or a significant adverse effect on its results of operations~~debts.

10The prospectus for this issuance gives a detailed description of their terms and conditions. ~~LAWSUITS~~The ~~AND~~main ~~CLAIMS~~stipulations concern: a) a commitment of Cointel not to encumber or grant real property rights, with certain exceptions, on its assets or present and future revenues unless Cointel complies with certain requirements, b) conditions for the early redemption of the issuance, and c) events of default that would allow obligees to consider such negotiable obligations as immediately due and payable, such causes being, among others, nonpayment of the Negotiable obligations, defaults in the payment of indebtedness of Cointel or any material subsidiary aggregating US$20 million or more (see Note 7.1. to the consolidated financial statements), the sale of all or a significant proportion of Cointel’s assets, the loss of control over Telefónica’s corporate decisions and noncompliance with certain financial ratios.

~~Telefónica~~On ~~faces~~July ~~various labor~~4, ~~commercial~~2003, ~~tax~~the ~~and~~meeting ~~regulatory~~of ~~lawsuits~~the ~~and~~holders ~~claims~~of ~~considered~~Cointel’s toClass be“A” ~~normal~~Negotiable inobligations approved the amendments ~~course~~to ofthe ~~business.~~terms ~~The~~and ~~outcome~~ conditions of ~~each~~the ~~situation~~notes ~~may~~issued ~~not~~in be1997 ~~predicted~~in ~~with~~order ~~assurance.~~to ~~Telefónica~~delete ~~has~~substantially ~~booked~~all anthe ~~accrual~~events ~~for~~of ~~contingencies~~default toother ~~cover~~than ~~situations~~those ~~estimated~~related asto ~~probable~~non-payment ~~that~~of ~~might~~principal ~~generate~~and ~~liabilities~~interest. ~~The~~On ~~amount~~the ~~has~~other ~~been~~hand, ~~estimated~~on ~~based~~July on22, 2003, the ~~likelihood~~meeting of ~~occurrence~~ ~~considering~~ the holders ~~Telefónica~~of Cointel’s ~~legal~~Class ~~counsel~~“B” ~~opinion.~~Negotiable Asobligations discussed the current amendments to the terms and conditions of ~~March~~the ~~31,~~notes ~~2003,~~issued in 1997 in order to delete substantially all the ~~amount~~events ~~booked~~of ~~for~~default ~~such~~other ~~purpose~~than isthose 87related ~~million~~to non-payment of principal and interest. Such Class “B” negotiable obligations holders rejected the amendments mentioned above (see ~~Exhibit~~Note E11.3.b) to the consolidated financial statements).

~~Table~~The meetings of ~~Contents~~the holders of Cointel’s Negotiable obligations were held on December 28, 2000. Those meetings approved certain amendments to the terms and conditions of issuance of those negotiable obligations which allowed TESA’s reorganization described in Note 5. to the consolidated financial statements. Cointel paid bondholders that approved the reorganization an “authorization fee” equal to 0.75% of the amount of the principal for those bondholders who voted in favor, in the aggregate amount of 4.8 million plus 2.8 million (restated as described in Note 2.1 to the unconsolidated financial statements) corresponding to fees and other related expenses. Additionally, Cointel obtained approvals from certain creditors that permitted TESA’s reorganization.

30As of the date of issuance of these financial statements, Cointel has met all obligations arising from the issuance of the above-mentioned debt instruments.

~~(English~~11.2. ~~translation~~Telefónica’s ofNegotiable ~~the~~obligations ~~financial~~(figures ~~statements~~according ~~originally~~to ~~issued~~Cointel’s inconsolidated ~~Spanish,~~financial ~~except~~statements ~~for~~as ~~note~~of 13June 30, 2003)

toAs ~~the~~of ~~unconsolidated~~June ~~financial~~30, 2003, there were three Negotiable obligations issues ~~statements)~~outstanding with the following issuance conditions:

a)35 ~~Labor lawsuits attributable to ENTel~~

~~The~~(English ~~Transfer~~translation ~~Contract~~of ~~provides~~the ~~that~~financial ~~ENTel~~statements ~~and~~originally ~~not~~issued ~~Telefónica is liable for all amounts owing~~ in ~~connection with claims based upon ENTel’s contractual and statutory obligations to former ENTel employees~~Spanish, ~~whether~~except orfor ~~not~~note ~~such claims were made prior to the Transfer Date if the events giving rise to such claims occurred prior to the Transfer Date~~13. However, using a theory of successor enterprise liability that they assert is based upon generally applicable Argentine labor law, certain former employees of ENTel have brought claims against Telefónica, arguing that neither the Transfer Contract nor any act of the National Executive Power can be raised as a defense to Telefónica’s joint and several liability under allegedly applicable labor laws.

~~In an attempt~~ to ~~clarify~~ the ~~issue~~unconsolidated ~~of successor liability for labor claims, Decree No. 1,803/92 was issued by the National Executive Power. It states~~financial ~~that various articles of the Work Contract Law of Argentina (the “Articles”~~statements), which are the basis for the foregoing claims of joint and several liability, would not be applicable to privatizations completed or to be completed under the State Reform Law. Although the issuance of Decree No. 1,803/92 should have been seen as favorable to Telefónica, it did not bring about a final solution to the above claims. In effect, in deciding a case brought before it, the Supreme Court of Justice upheld the provisions of the law and declared the Decree inapplicable.

As of March 31, 2003, the claims filed against Telefónica including accrued interest and expenses with respect thereto totaled approximately 104 million. Telefónica has not booked an accrual for possible adverse judgments in such legal actions since (a) in the Transfer Contract, ENTel has agreed to indemnify Telefónica in respect of such claims and (b) the Argentine Government has agreed to be jointly and severally liable with ENTel in respect of such indemnity obligations and has therefore authorized Telefónica to debit an account of the Government at Banco Nación Argentina for any amount payable by Telefónica. Under the Debt Consolidation Law, ENTel and the Argentine Government may discharge their above-described indemnity obligations by the issuance to Telefónica of 16-year bonds. As of March 31, 2003 Telefónica has paid approximately 6.3 million in cash for the above-mentioned claims. Telefónica initiated a claim for indemnification and reimbursement in connection with this matter. The case is being argued in court, and no ruling has yet been issued.

Month and year of issuance	Face value (in million)		Term in years	Maturity month/year	Rate per annum %	Use of proceeds
11/94	US$ 300		10	11/2004	11.875	(b)
05/98	US$ 400	(a)	10	05/2008	9.125	(b)
06/02	US$71.4		4	07/2006	9.875	(c)

~~Court~~(a) ~~decisions~~In ~~have~~August ~~followed the precedent laid down by the Supreme Court of Justice in the area of joint liability in labor matters mentioned in the second paragraph~~1998, ~~criterion that~~ Telefónica bought and ~~its~~cancelled ~~legal~~in ~~counsel~~advance ~~consider that will apply to pending cases~~US$31.5 ~~Notwithstanding~~million ~~this~~of ~~and~~ the ~~instruments~~first ~~that~~class ~~may~~under ~~be used by~~ the ~~Argentine~~global ~~Government~~program. ~~to reimburse the amounts that would be paid~~Accordingly, ~~given~~ the ~~obligation~~amount ~~incurred~~of byprincipal ~~the~~owed ~~Argentine~~as ~~Government in the List~~ of ~~Conditions~~June ~~and in the Transfer Contract~~30, ~~on the one hand~~2003, ~~and on the basis of the opinion of Telefónica’s legal counsel regarding the possible amount~~ for ~~which~~such ~~existing~~issuance ~~claims~~is may be resolved, on the other, in the opinion of Telefónica and its legal counsel the final outcome of the issue should not have a material impact on Telefónica’s results of operations or financial positionUS$368.5 million.

(b) ~~Reimbursement~~Financing of ~~Value~~capital ~~Added~~expenditures ~~Taxes~~in ~~(“VAT”) paid by Telintar~~Argentina.

~~On April 24, 1995, Telecomunicaciones Internacionales de Argentina~~ (~~“Telintar”~~c) ~~filed~~Refinancing ~~an application with the AFIP-DGI for the reimbursement~~ of ~~approximately~~ 21liabilities.3 million arising from the modifications of certain prior positions originally taken by Telintar with respect to the computation of VAT credits applicable to certain transactions for the period January 1, 1993 through February 28, 1995. In addition and as a consequence of the situation mentioned above, Telintar applied for the reimbursement of approximately 5.9 million in income and asset taxes.

~~During~~The prospectuses related to the ~~fiscal~~issuance ~~year~~of ~~ended~~these ~~September~~Negotiable 30obligations describe the issuance conditions in detail. The main stipulations concern: a) commitment of Telefónica not to encumber or grant real property rights, ~~1997~~except certain permitted charges, ~~the~~its ~~AFIP-DGI~~present ~~accepted~~or ~~Telintar~~future assets or revenues, unless Telefónica’s ~~position~~commitments onunder the ~~first~~Negotiable ~~claim~~obligations ~~and~~meet certain ~~reimbursed~~requirements; ~~20.7~~b) ~~million~~conditions for the early redemption of ~~principal~~the issuance and ~~3.6~~c) ~~million~~events of ~~interest~~default tothat ~~this~~would ~~company.~~allow ~~Since~~obligees declare the ~~AFIP-DGI~~lapse ~~has~~of ~~still~~all ~~not~~due ~~given~~dates, ~~its~~such ~~opinion~~causes onbeing, ~~the~~among ~~second claim~~others, ~~Telefónica~~failure asto apay ~~successor~~on inthe ~~TLDA’s~~securities, ~~business~~default ~~has~~on ~~not~~other ~~recorded~~debts ~~any~~ in amounts ~~relating~~ equal to ~~the~~or ~~latter~~exceeding ~~claim~~US$20 ~~mentioned~~million, attachments which in the ~~previous~~aggregate ~~paragraph.~~exceed InUS$10 ~~this regard~~million, ~~should~~among aothers. ~~decision~~On beJuly ~~passed~~22, ~~sustaining~~2003, ~~Telintar~~the meetings of Telefónica’s ~~case,~~bondholders approved the ~~successor~~amendments ~~companies~~to ~~will~~the ~~then~~terms ~~agree~~and onconditions of the notes ~~criterion~~issued toin be1994 ~~followed~~and ~~for~~1998 ~~distributing~~in order to delete substantially all the ~~resulting~~events ~~proceeds between~~of ~~them~~default, as well as some information requirements, other than those related to non-payment of principal and interest.

c)As ~~Other~~of the date of these financial statements, in the opinion of Telefónica’s Management, such company has met all obligations arising from the issuance of the above-mentioned debt instruments.

~~Consumidores~~Telefónica ~~Libres~~issued ~~initiated~~Negotiable aobligations ~~legal~~due ~~action~~in ~~against~~2006 ~~Telefónica,~~and ~~Telecom,~~2008 ~~Telintar~~under ~~and~~ the ~~Federal~~Company’s ~~Government~~US$1.5 ~~The~~billion ~~object~~Global ofProgram ~~this~~or ~~action~~its isequivalent ~~to declare the nullity, unlawfulness~~ and ~~unconstitutionality of all~~the ~~standards~~commitments ~~and~~are ~~rate~~those ~~agreements~~customary ~~issued~~for ~~since~~this ~~the~~kind ~~Transfer Contract, Consumidores Libres’s objective being to have the rates~~ of ~~the~~transactions. ~~basic telephone service reduced and the amount supposedly collected in~~

~~Table~~Telefónica’s Negotiable obligations due in 2006 include a mandatory redemption clause at the option of ~~Contents~~holders, exercisable after July 1, 2004, if, as of July 1, 2004 the total principal outstanding amount of Telefónica’s negotiable obligations due in 2004, plus any other refinancing of such notes with maturity prior to July 1, 2006, were to exceed 30% of the total original principal amount of Negotiable obligations due in 2004. Such mandatory redemption will not be applicable, as the percentage of notes due 2004 upon conclusion of the exchange offers referred in Note 11.3.a) to the consolidated financial statements is 27% of the total initial principal amount.

3111.3. Exchange Offer of Telefónica’s and Cointel’s negotiable obligations (figures according to Cointel’s consolidated financial statements as of June 30, 2003)

~~(English~~On ~~translation~~May 19, 2003 Telefónica’s Board of ~~the~~Directors ~~financial~~resolved ~~statements~~to ~~originally~~launch offers to exchange outstanding notes issued inby ~~Spanish,~~Telefónica ~~except~~and Cointel for ~~note~~new 13notes issued by Telefónica, plus a cash payment.

toa) ~~the~~Exchange ~~unconsolidated~~Offer ~~financial statements)~~of Telefónica’s Negotiable Obligations

~~excess~~Telefónica’s ~~refunded,~~Negotiable ~~limiting~~obligations ~~them~~included in ~~such a way that~~ the ~~Licensees´~~exchange ~~rate~~offer ofare ~~return~~those ~~should~~issued ~~not~~in ~~exceed~~November ~~16%~~1994 ~~per~~for ~~annum~~a onprincipal ~~the~~amount ~~assets~~of asUS$ ~~determined~~300 ~~in point~~million ~~12.3.2.~~due ofin ~~the~~November ~~List~~2004 ofand ~~Conditions~~those ~~approved~~issued byin ~~Decree~~May ~~No.~~1998 ~~62/90.~~for ~~Also,~~a ~~other~~remaining ~~points~~principal amount of ~~Telefónica’s~~US$ ~~contracting~~368.5 ~~policy~~million ~~have~~due ~~been~~in ~~called~~May ~~into question~~2008.

~~After~~The ~~analyzing~~holders ~~the~~who ~~claim,~~validly ~~Telefónica’s~~offered ~~legal~~their ~~counsel~~notes ~~contested~~reached ~~it,~~for ~~petitioning~~73% ~~that~~of itthe ~~should~~total beamount ~~dismissed~~of on the ~~grounds~~notes ~~that~~issued itin ~~fails~~November to1994 ~~state~~and a ~~claim~~66% ~~with~~of athe ~~basis~~total inamount ~~law. The court~~ of notes ~~original~~issued ~~jurisdiction ruled~~ in ~~Telefónica’s~~May ~~favor~~1998. Therefore, ~~but~~on ~~this~~August ~~resolution~~7, ~~was~~2003, ~~revoked~~Telefónca byissued ~~the~~new ~~Court~~notes offor ~~Appeals~~a ~~that~~total ~~resolved~~amount ~~that the claim must not be dismissed but must be substantiated at the court~~ of ~~original~~US$ ~~jurisdiction~~189.8 ~~None~~million ofdue ~~these~~in ~~courts~~November ~~have~~2007 ~~yet~~at ~~ruled~~a onnominal ~~the~~interest ~~substance~~rate of ~~the claim~~11.875% ~~Through~~per ~~its legal counsel~~annum, ~~Telefónica~~and ~~filed~~US$ an220.1 ~~appeal~~million todue ~~the~~in ~~Supreme~~November ~~Court~~2010 ofat ~~Justice against the Appeal~~a ~~Court’s~~nominal ~~resolution,~~interest ~~which~~rate ~~was~~of ~~denied~~9.125% ~~Telefónica~~per ~~subsequently~~annum, ~~filed~~respectively, anand ~~appeal~~paid ofUS$ ~~such~~51.9 ~~denial~~million ~~with~~in ~~the~~cash. ~~Supreme~~Additionally ~~Court~~were ofpaid ~~Justice~~US$ ~~and~~12.5 amillion ~~decision~~as ~~regarding~~interest ~~such~~accrued ~~matter~~to isthat ~~pending~~date.

Inb) ~~this~~Exchange ~~scenario,~~Offer ~~on October 4, 2001, Court Room IV~~ of ~~the~~Cointel’s ~~Federal Appellate~~Negotiable Court on Administrative Contentious Matters of the City of Buenos Aires awarded a precautionary measure requested by the plaintiff ordering the Federal Government, Telefónica and Telecom “to refrain from applying the corrections set forth in Section 2 of the Agreements approved by Decree No. 2,585/91 until final judgment is rendered in the case”, which meant that the rates could not be adjusted by the US consumer price index. Obligations

Cointel’s Negotiable obligations included in Telefónica’s ~~appealed~~exchange ~~such~~offer ~~decision~~are ~~before~~Cointel’s ~~the~~Class ~~Argentine~~“A” ~~Supreme~~notes ~~Court of~~issued ~~Justice~~in ~~rejecting~~July ~~the~~1997 for ~~arguments~~US$ ~~stated~~225 ~~therein.~~million Noand ~~decision~~Class on“B” ~~the~~notes ~~appeal~~for ~~has~~175 ~~been~~million, ~~rendered~~which asaccrue ofan ~~the~~annual ~~date~~nominal interest rate of ~~these~~8.85% ~~financial~~and ~~statements~~10.375% respectively.

In36 the opinion of Telefónica’s management and its legal counsel, it is unlikely and remote that the resolution of this issue could have a negative effect on the results of its operations or financial position.

~~11.~~(English ~~COINTEL’S~~translation ~~AND~~of ~~TELEFONICA’S~~the ~~NEGOTIABLE~~financial ~~OBLIGATIONS~~statements originally issued in Spanish, except for note 13.

~~11.1. Cointel’s Negotiable obligations (figures according~~ to ~~Cointel’s~~the ~~consolidated~~unconsolidated financial statements ~~as of March 31, 2003~~)

~~The~~On ~~Regular~~August ~~and~~7, ~~Special~~2003, ~~Shareholders´~~Telefónica ~~Meeting~~issued ~~held~~Negotiable onobligations ~~March~~for ~~31,~~US$ ~~1997,~~148.2 million due in August ~~approved~~2011, ~~the~~at ~~creation~~an annual nominal interest rate of a8.85% ~~Global~~and ~~Program~~paid ~~for~~in cash the ~~issuance~~amount of ~~Negotiable~~US$ ~~obligations~~24 ~~(the~~million ~~“Program”)~~and 4.6 ~~Such~~million ~~Negotiable~~(plus ~~obligations~~US$ ~~are~~0.2 ~~nonconvertible~~million ~~into~~and ~~shares,~~0.1 ~~for~~million aas ~~maximum~~interest ~~outstanding~~accrued ~~amount~~to ~~during~~that ~~the~~date) ~~term~~in ofexchange ~~the~~for ~~Program~~Cointel’s ofNegotiable ~~US$800~~obligations (Class ~~million~~“A” orand ~~its~~Class ~~equivalent~~“B”). ~~amount~~In inaddition, ~~other~~Telefónica ~~currencies,~~issued ~~unsecured,~~Negotiable toobligation befor ~~issued~~0.2 million in ~~different~~pesos ~~classes~~at ~~and/or~~an ~~successive~~interest ~~series,~~rate ~~which~~of ~~could~~10.375% bedue ~~cumulative~~in or2011 ~~not;~~which ~~such~~on ~~bonds~~August ~~are~~1, to2004 ~~allow~~will ~~for~~be ~~early~~converted ~~redemption~~into inU.S. ~~cash~~dollars orand inwill ~~kind,~~start into accrue ~~the~~interest ~~latter~~at ~~case~~a ~~with securities~~nominal rate of ~~other companies~~8.85% Infor ~~addition,~~Cointel’s ~~the~~Class ~~above-mentioned~~“B” ~~Shareholders´~~notes. ~~Meeting~~Additionally, ~~delegated~~as ~~broad~~described ~~powers~~in toNote ~~the~~12., ~~Board~~Telefónica oftransferred ~~Directors~~Cointel’s notes to ~~determine~~TISA ~~the~~in ~~timing,~~exchange ~~features~~for ~~and~~an ~~other~~equivalent ~~terms~~reduction ~~and~~in Telefónica’s ~~conditions~~short-term offinancial ~~the~~debt ~~issuance~~to TISA.

~~Under~~After the ~~Program,~~exchange ~~Cointel’s~~completed ~~Board~~on ~~of Directors decided the issuance of two series of Negotiable obligations: “A” Series for US$225 million and “B” Series for 175 million; the maturity date is~~ August 17, ~~2004~~2003, ~~for~~Telefónica’s ~~both~~outstanding ~~series.~~notes Onand ~~July~~amounts 3,are ~~1997~~as ~~the~~follows: CNV approved the issuance. On July 24, 1997, Cointel placed all of the issuance on the market. The net proceeds of this transaction which totaled approximately US$395 million were used to refinance bank debts maturing from January through September 1998.

The main terms and conditions of this issuance of Negotiable obligations are:

Month and year of issuance	Face Value (in millions)	Term in years	Maturity month-year	Rate per annum(%)	Use of proceeds
11/94	US$81	10	11/2004	11.875	a)
05/98	US$125.6	10	05/2008	9.125	a)
06/02	US$71.4	4	07/2006	9.875	b)
08/03	US$189.8	4	11/2007	11.875	b)
08/03	US$220.1	7	11/2010	9.125	b)
08/03	0.2c)	8	11/2011	10.375	b)
08/03	US$148.2	8	11/2011	8.85	b)

a) ~~Face~~Financing ~~value:~~of ~~US$1~~investments ~~and~~in $1fixed ~~for~~assets ~~the~~in ~~“A” and “B” Series, respectively, bearer and registered, ordinary, nonconvertible into shares~~Argentina.

b) ~~The~~Refinancing ~~total amortization~~ of ~~the Negotiable obligations is to take place in one single installment payable at seven years for both series~~liabilities. Such amortization, as well as accrued interest, is to be paid in US dollars in the case of the “A” Series, and in US dollars or Argentine pesos in the case of the “B” Series (at the discretion of the obligee). Cointel may redeem such obligations for fiscal reasons, at 100% of their face value plus interest accrued through the redemption date.

~~Table~~c) On August 1, 2004 they will be converted to U.S. dollars and will start to accrue interest at a nominal rate of ~~Contents~~8.85% per annum.

32Telefónica’s shareholders’ meeting held on June 26, 2003 has approved the issuance of the new Negotiable obligations under the scope of the above exchange offers.

~~(English~~12. ~~translation~~FINANCIAL ~~of the financial statements originally issued in Spanish, except for note 13~~ OPERATIONS

toCointel and Telefónica have followed a financing policy that has combined the ~~unconsolidated~~use ~~financial~~of internally generated funds with the use of third-parties’ and direct or indirect majority shareholder’s financing. As of June 30, 2003, as arise from Cointel’s financial statements as of such date, consolidated current assets in foreign currency are lower than consolidated current liabilities in foreign currency in the amount of US$894 million (equivalent to 2,502 million as of June 30, 2003).

c) The ~~securities~~general ~~accrue~~financing anpolicy ~~annual~~is ~~interest~~to ofcover ~~8.85%~~future ~~and~~fund ~~10.375%~~needs onto ~~“A”~~continue ~~Series~~Telefónica’s ~~and~~investment ~~“B”~~plan ~~Series,~~and ~~respectively,~~repay ~~payable~~short ~~half~~and long-~~yearly~~term indebt ~~arrears~~ mainly with ~~due~~funds ~~dates~~generated onby ~~February~~the 1operations ~~and~~plus; onif ~~August~~it 1is possible, regarding the evolution of ~~each~~the ~~year~~economic situation and ~~beginning~~the oncurrent ~~February~~economic 1policies, ~~1998~~bank loans and access to capital markets. Alternatively, they would seek for long-term refinancing of their payables.

d)However, ~~This~~owing ~~issuance~~to ~~does~~the ~~not~~macroeconomic situation ~~constitute~~described ~~either~~in aNote ~~secured~~4. orto athe ~~subordinated~~unconsolidated ~~debt~~financial statements, as of ~~Cointel~~the date of issuance of these financial statements, ~~ranking~~third ~~pari-passu~~parties’ ~~-with~~credit nolines ~~preferences-~~are not available in ~~respect~~amounts ofsufficient to enable the Company, Cointel’s and Telefónica, together with internally generated funds, to meet current ~~and~~debt ~~future~~obligations. ~~unsecured~~Furthermore, ~~and~~it ~~unsubordinated~~is ~~debts~~not possible to determine whether this situation will improve in the short term.

~~The prospectus~~Since ~~for~~early ~~this~~December ~~issuance~~2001, ~~gives~~Argentine aauthorities ~~detailed~~implemented ~~description of their terms and conditions. The main stipulations concern:~~ a) anumber ~~commitment~~ of monetary ~~Cointel~~and ~~not~~currency toexchange ~~encumber~~control ormeasures ~~grant~~that ~~real~~mainly ~~property~~included ~~rights,~~restrictions ~~with certain exceptions,~~ on ~~its~~the ~~assets~~withdrawal orof ~~present~~funds ~~and future~~deposited ~~revenues unless Cointel complies~~ with ~~certain~~banks ~~requirements,~~and b)tight ~~conditions~~restrictions for ~~the~~making ~~early~~transfers ~~redemption~~abroad, ofwith the ~~issuance,~~exception ~~and c) causes~~ of ~~default~~those ~~that~~related ~~would allow obligees~~ to ~~consider~~foreign ~~such~~trade ~~bonds as immediately due~~ and ~~payable, such causes being,~~other ~~among~~authorized ~~others~~transactions, ~~nonpayment~~most of ~~the~~which ~~Negotiable~~have ~~obligations,~~been ~~defaults~~eliminated inas of the ~~payment~~date of ~~indebtedness~~issuance of ~~Cointel~~these orfinancial ~~any~~statements ~~material subsidiary aggregating US$20 million or more~~ (~~see~~See Note 74.1. to the ~~consolidated~~unconsolidated financial statements)~~, the sale of all or a significant proportion of Cointel’s assets, the loss of control over Telefónica’s corporate decisions and noncompliance with certain financial ratios~~.

~~The~~As ~~meetings~~ of ~~the~~June ~~Holders~~30, of2003, Cointel’s ~~Negotiable~~and ~~obligations~~Telefónica ~~were~~have ~~held~~financial onand ~~December~~banking ~~28,~~debts ~~2000.~~for ~~Those~~the ~~meetings~~equivalent ~~approved certain amendments~~ to ~~the~~6,116 ~~terms~~million ~~and~~(as arise ~~conditions~~from ~~of issuance of those negotiable obligations which allowed TESA~~Cointel’s ~~reorganization described in Note 5. to the~~ consolidated financial statements.), ~~Cointel~~3,160 ~~paid~~million ~~bondholders that approved the reorganization an “authorization fee” equal to 0.75%~~ of ~~the~~which ~~amount~~are ofclassified ~~the~~as ~~principal~~non-current ~~for those bondholders who voted~~ in ~~favor, in~~ the ~~aggregate~~general ~~amount~~balance ofsheet ~~4.8 million plus 2.8 million (in constant pesos of March 31, 2003) corresponding to fees~~ and ~~other~~ related ~~expenses.~~to ~~Additionally,~~agreements ~~Cointel obtained approvals from certain creditors~~ that ~~permitted~~provide ~~TESA’s~~for ~~reorganization.~~the immediate

As37 ~~of the date of these financial statements, Cointel has met all obligations arising from the issuance of the above-mentioned debt instruments.~~

~~11.2. Telefónica’s Negotiable obligations~~ (~~figures~~English ~~according~~translation toof ~~Cointel’s~~the ~~consolidated~~ financial statements asoriginally ofissued ~~March~~in 31Spanish, ~~2003)~~except for note 13.

Asto ofthe ~~March~~unconsolidated ~~31, 2003, there are three~~financial ~~Negotiable~~statements) ~~obligations issues outstanding:~~

Month and year ofissuance

Face value(in million)

Termin years

Maturitymonth/year

Rate perannum %

Use ofproceeds

11/94

US$

300

11/2004

11.875

(b)

05/98

US$

400

(a)

05/2008

9.125

(b)

06/02

US$

07/2006

9.875

(c)

enforcement, after the implementation of certain steps, of the amounts outstanding in the event of default of other obligations.

On the other hand, TESA (aTISA’s parent company) Inhas ~~August~~advised ~~1998~~the Company, Cointel and Telefónica ~~bought~~that, ~~and~~as ~~cancelled~~of inthe ~~advance~~date ~~US$31.5~~of ~~million~~issuance of ~~the~~these ~~first~~financial ~~class~~statements, ~~under~~it was still evaluating the ~~global~~Argentine ~~program~~macroeconomic context and analyzing financing alternatives for such companies (see Note 11.3 ~~Accordingly~~to the consolidated financial statements), including the ~~amount~~possibility of ~~principal~~refinancing ~~owed~~over asthe oflong-term ~~March~~its ~~31,~~current ~~2003,~~loans ~~for~~to such ~~issuance~~companies isand, ~~US$368.5~~if ~~million~~necessary, providing additional financing.

~~(b)~~Consequently, ~~Financing~~the Company’s, Cointel’s and Telefónica’s ability to settle their payables to local and foreign creditors depends upon the possibility of ~~capital~~obtaining ~~expenditures~~financing inor, ~~Argentina~~if not possible, of refinancing financial payables, as well as, if necessary, the granting of additional financing by its direct or indirect controlling companies.

Should no financing alternatives be available for the Company, Cointel and Telefónica or should the Company, Cointel and Telefónica not succeed in obtaining refinancing, such companies would not have sufficient funds available to meet their current liabilities (c)including ~~Refinancing~~those disclosed as current on the consolidated balance sheet as of June 30, 2003 and those liabilities that would turn into current payables if creditors claimed a default) payable to local and foreign creditors.

~~The~~Although ~~prospectuses related to~~ the ~~issuance~~Company, ofCointel ~~these~~and ~~Negotiable~~Telefónica ~~obligations~~will ~~describe~~continue ~~the~~to ~~issuance~~make ~~conditions~~their inbest ~~detail.~~efforts ~~The~~to ~~main~~obtain ~~stipulations~~such ~~concern:~~financing, a)which ~~commitment~~up ofto ~~Telefónica~~date ~~not~~have tohad ~~mortgage~~favorable orresults ~~charge,~~through ~~except~~obtaining ~~certain~~waivers ~~permitted~~from ~~charges~~creditors, ~~its~~the ~~present~~exchange orfor ~~future~~long-term ~~assets~~debt or(see ~~revenues,~~Note ~~unless~~11. ~~Telefónica’s~~to ~~commitments under~~ the ~~Negotiable~~consolidated ~~obligations~~financial ~~meet~~statements ~~certain requirements; b~~) ~~conditions~~ ~~for~~and ~~the~~short-term ~~early~~refinancing, ~~redemption~~as of the ~~issuance~~date ~~and~~of c)issuance ~~events~~ of ~~default~~these infinancial statements, ~~which~~it ~~event~~is ~~the~~not ~~bondholders~~possible ~~could~~to ~~declare~~assure what the ~~lapse~~result of ~~all~~such ~~due~~negotiations ~~dates,~~will ~~such~~be ~~causes being~~nor, ~~among others~~consequently, ~~failure~~whether ~~to pay on~~ the ~~securities~~Company, ~~default~~Cointel onand ~~other~~Telefónica ~~debts~~will ~~in amounts~~be ~~equal~~able to orsettle ~~exceeding~~their ~~US$20~~current ~~million,~~liabilities ~~attachments which~~ in the ~~aggregate~~normal ~~exceed~~course ~~US$10~~of ~~million,~~business ~~among~~and maintain ~~others~~their normal operations.

As• ofCointel’s ~~the~~call ~~date~~option ofinvolving ~~these~~Telefónica ~~financial~~Class ~~statements,~~“B” inshares ~~the~~(figures ~~opinion~~according ofto ~~Telefónica~~Cointel’s ~~Management,~~consolidated ~~such~~financial ~~company~~statements ~~has~~as ~~met all obligations arising from the issuance~~ of ~~the~~June ~~above-mentioned~~30, ~~debt instruments.~~ 2003)

~~Telefónica~~On ~~has~~March 6, 1998 Cointel had granted Merryll Lynch International (“ML”) a ~~global~~call ~~program~~option inon ~~effect~~40.2 million Telefónica’s Class “B” shares to ~~issue~~be ~~Negotiable~~exercised ~~obligations~~on May 28, 2003, for aan ~~total~~approximate value of up6.2 toper ~~US$1~~share adjusted for the dividend distributions made by Telefónica through that date. On June 30,~~500~~ ~~million~~2000, ~~pesos~~Cointel orand ~~any~~ML ~~currency~~amended orcertain ~~currencies,~~conditions ~~securities~~of atthis ~~par~~agreement, ~~and~~whereby ~~repayable~~ML inhas 31the ~~days~~right to 30require ~~years.~~from ~~The~~Cointel, ~~covenants~~on ~~and~~May 28, 2003, the delivery of capital stock of TESA instead of ~~commitments~~Telefónica ~~are~~shares, modifying the ~~usual~~strike ~~ones~~price of the call option for ~~this~~such ~~kind~~TESA’s ofshares, ~~transaction~~in proportion to the price offered for Telefónica shares in the TESA Tender Offer described in Note 5. ~~The~~to ~~issuances~~the ofconsolidated ~~Negotiable~~financial statements. ~~obligations~~If, ofon May ~~1998~~28, ~~and~~2003, ~~June~~the ~~2002~~market price of TESA ADRs would have been ~~issued~~higher ~~under~~than ~~that~~US$102.79 ~~program~~(the exercise price), ML might have acquired from Cointel 2.23 ~~Telefónica~~million TESA ADRs at the exercise price. As on May 28, 2003, the maturity date of the above-mentioned options, the TESA’s ADRs market price was below US$102.79, ML has not exercised the call option.

~~Table~~• Telefónica’s long-term bank financing (figures according to Cointel’s consolidated financial statements as of ~~Contents~~June 30, 2003)

33Telefónica has borrowed funds from major financial institutions in an amount equivalent to 314 million as of June 30, 2003. These funds have been borrowed under terms and conditions customary in this kind of transaction, which generally refer to the commitment not to encumber or grant security interests on its assets or on present or future revenues, other than certain permitted encumbrances or unless certain predetermined conditions are met.

~~(English~~Additionally, ~~translation~~Telefónica ofuses ~~the~~other ~~financial~~long-term ~~statements~~bank ~~originally~~credit ~~issued~~lines into ~~Spanish,~~finance ~~except~~imports ~~for~~from ~~note~~different 13commercial banks.

• Telefónica’s financial instruments (figures according to ~~the~~Cointel’s ~~unconsolidated~~consolidated financial statements) as of June 30, 2003)

During September 1999, Telefónica entered into a foreign currency ~~obtained~~swap anagreement ~~authorization~~with Citibank N.A. to ~~make~~hedge ~~public~~the ~~offering~~risk of ~~Negotiable~~fluctuations ~~obligations~~in ~~under~~the ~~such~~yen-dollar ~~global~~exchange ~~program~~rate, ~~from~~in connection with the ~~CNV~~loan amounting to 8.3 billion Japanese yen granted by The Export Import Bank of Japan (currently the Japan Bank for International Cooperation) and ~~from~~maturing in February 2011, which accrues interest at a rate of 2.3% per annum. Such swap agreement provides a fixed exchange rate of 104.25 yen per U.S. dollar. The interest rate to be paid to Citibank N.A. during the validity ~~Luxembourg~~of ~~Stock~~the ~~Exchange~~loan for the U.S. dollars received is

•38 ~~Exchange of negotiable obligations~~

On(English ~~May~~translation ~~20, 2002 Telefónica’s Board~~ of ~~Directors decided to launch an offer to exchange~~ the ~~full~~financial ~~amount~~statements oforiginally ~~the~~issued ~~issue made~~ in ~~July~~Spanish, ~~1999~~except for ~~a principal~~note ~~amount of US$100 million due July 1, 2002, hereinafter the “2002 Notes”~~13.

~~This~~to ~~exchange offer began on May 28, 2002, and for each US$1,000 in principal in circulation of~~ the ~~2002~~unconsolidated ~~Notes,~~financial statements) ~~Telefónica offered to exchange:~~

• 7.98% aper ~~principal~~annum. ~~amount~~As of ~~US$850~~June ~~for~~30, ~~new~~2003, ~~notes~~the torelated beliability, ~~issued~~taking atinto ~~9.875%~~account the effect of the above-mentioned swap and the additional interest accrued, amounts ~~due~~to ~~July~~US$93 1million. The contract establishes, ~~2006~~among other provisions for this type of transaction, ~~hereinafter~~certain events of default under which the ~~“2006~~creditor ~~Notes”,~~may ~~plus~~accelerate payment terms. Events of default include failure to pay financial debts for amounts in excess of 2% of Telefónica’s shareholders’ equity.

•During ~~US$100~~December in1999, ~~cash~~Telefónica ~~for~~entered ~~all~~into ~~2002~~a ~~Notes~~foreign ~~included~~currency swap agreement with Citibank N.A. to hedge the risk of fluctuations in ~~valid~~the ~~tenders~~euro-U.S. ~~until~~dollar ~~June~~exchange, 21in connection with a portion of Telefónica’s net position of assets and liabilities in euros, ~~2002~~including the balance of the loan granted by Istituto Centrale per il Credito a Medio Termine (“Mediocredito Centrale”) which matures in November 2014, ~~plus~~and accrues interest at a rate of 1.75% per annum. Such swap agreement has an 8-year term until November 2007 and provides a fixed exchange rate of 0.998 euro per U.S. dollar. The interest rate paid to Citibank N.A. during the validity of the loan for the U.S. dollars to be received is 2.61% per annum.

• ~~US$50~~Telefónica’s infinancing ~~cash~~with ~~for~~Related ~~all~~Parties ~~2002~~(figures ~~Notes~~according into ~~valid~~Cointel’s ~~tenders~~consolidated ~~made~~financial ~~until~~statements ~~June~~as ~~13,~~of ~~2002 (a date subsequently extended to~~ June 1830, ~~2002~~2003) ~~as Early Tender Fee.~~

~~Holders~~As ~~making~~of ~~valid~~June ~~tenders~~30, of2003, ~~their~~Telefónica ~~2002~~and ~~Notes~~its subsidiary ~~amounted~~owed approximately 2,419 million (about US$864 million) to ~~83.971%~~related ofparties, ~~the total~~which ~~value~~matures ofthrough ~~the~~August ~~issue~~2003. AsThese aloans ~~result~~accrued interests at one-month LIBOR plus 8% per annum, ~~Telefónica~~payable ~~issued~~monthly. ~~2006~~These ~~Notes~~agreements ~~for~~established athe ~~total~~usual commitments ~~amount~~for these kinds of ~~US$71~~transactions,~~375,350~~ ~~and~~as ~~paid~~well ~~US$12.6~~as ~~million~~clauses inthat ~~cash~~establish ~~(of~~that ~~which~~the ~~US$4.1~~creditor ~~million~~may ~~corresponded~~accelerate to the ~~Early~~terms ~~Tender~~of ~~Fee).~~Telefónica’s ~~Subsequently,~~payables on(“events of anticipated maturity”) ofif ~~the~~there ~~2002~~are changes in ~~Notes~~Telefónica’s equity, economic and financial situation that due to their adverse nature may affect Telefónica’s ~~proceeded~~capacity to ~~redeem~~comply with the ~~notes~~obligations ~~that~~assumed ~~were~~in ~~not~~the ~~exchanged~~agreements byor ~~means~~if ofthere aare ~~payment~~restrictions that may limit the capacity of ~~US$16.03~~Telefónica ~~million~~to repay its debts.

The creditor ~~2006~~has ~~Notes~~advised ~~accrue~~Telefónica ~~interest~~that asuntil ~~from~~September ~~July~~20, 12003, ~~2002~~(beyond atthe andue ~~annual~~date ~~rate~~ of ~~9.875%~~such ~~payable~~debt): ~~six-monthly~~(i) onthe ~~January~~effects 1of ~~and~~the ~~July~~Public 1.Emergency ~~The~~System ~~first~~implemented ~~interest~~in ~~payment date~~Argentina ~~was~~by ~~January~~Decree No. 1,570/01, ~~2003~~Law No. ~~The~~25,561, ~~2006~~as ~~Notes~~supplemented ~~include~~and aamended ~~mandatory~~in force, ~~redemption~~shall ~~right~~not ~~that can~~ be ~~exercised~~considered by the ~~holders~~creditor ~~after~~as ~~July~~an 1,event ~~2004~~of ifanticipated bymaturity; ~~July~~and ~~1, 2004 the total outstanding principal amount corresponding to the issue made by Telefónica in November 1994~~ (~~hereafter~~ii) the ~~2004~~creditor ~~Notes)~~shall ~~plus~~not ~~any~~consider ~~refinancing~~that, as of such ~~notes due prior to July 1~~date, ~~2006,~~loans ~~were~~have tobecome ~~exceed~~immediately ~~30%~~due ofand ~~the~~payable ~~total~~in ~~initial~~accordance ~~principal~~with ~~amount of~~ the ~~2004 Notes~~agreements.

~~Furthermore,~~The onloan ~~June~~agreements ~~21,~~currently ~~2002~~in aeffect ~~Meeting~~additionally ofcontain ~~Holders~~acceleration clauses that would be triggered in the event of ~~2008~~certain ~~Notes~~court ~~issued~~or byout-of-court ~~Telefónica~~procedures ~~was~~being ~~held~~initiated atin ~~which~~connection ~~approval~~with ~~was given~~claims ~~for~~exceeding ~~the~~a ~~waiver~~certain percentage of the ~~right~~shareholders’ toequity ~~demand~~of ~~accelerated~~Telefónica ~~maturity~~or one of ~~the~~its ~~notes~~significant subsidiaries in accordance with the ~~event~~definition ofstipulated ~~failure~~in tosuch ~~pay~~loan ~~any~~agreements. ~~other~~Telefónica ~~class~~has ofobtained ~~notes~~a ~~issued~~waiver ~~under~~in ~~the~~respect ~~same~~of ~~program,~~procedures ~~through~~of anthis ~~amendment~~nature tothat ~~Section~~were 11pending ofagainst ~~the~~Telefónica ~~program~~as ~~issue~~of ~~terms~~August ~~and~~8, ~~conditions.~~2003, ~~In consideration~~subject ~~for~~to ~~this~~a condition ~~waiver~~that ~~Telefónica~~no ~~made~~other adebt ~~cash~~be ~~payment~~accelerated ofon ~~US$1~~similar ~~million~~grounds.

12On May 20, 2003, the Telefónica and TISA entered into an agreement whereby the former immediately assigned to TISA title to and all credit rights arising from Cointel’s notes acquired by Telefónica under the Exchange Offer of Telefónica-Cointel’s notes upon consummation of the Offer to Exchange Cointel’s notes for Telefónica’s new notes as described in note 11.3 ~~FINANCIAL~~(“Exchange ~~OPERATIONS~~Offer of Telefónica-Cointel”), with the notes being immediate and unconditionally accepted by TISA. Simultaneously with the assignment of credits mentioned above, TISA settled a portion of Telefónica’s principal financial debt to TISA as of that date for an amount equal to: i) the nominal value of Cointel’s notes denominated in U.S. dollars and acquired by Telefónica; plus (ii) the nominal value of Cointel’s notes denominated in Pesos acquired by Telefónica, converted to U.S. dollars at an exchange rate of US$ 1 = $3.31; plus (iii) an amount in U.S. dollars equal to the amount paid by Telefónica to the holders of Cointel’s notes as interest accrued and unpaid to August 7, 2003. For that purpose, in the case of interest on Cointel’s Argentine peso-denominated notes the exchange rate applied was that prevailing at the date of consummation of the Offer to Exchange Telefónica-Cointel’s notes. In addition, Telefónica paid the interest accrued and unpaid in cash to TISA (accrued on the principal owed by the Telefónica to TISA and settled as described above).

~~Cointel~~As ~~and~~of ~~Telefónica have followed a financing policy that has combined~~ the ~~use~~date of ~~internally~~issuance ~~generated~~of ~~funds~~these ~~with~~financial ~~the~~statements, ~~use~~pursuant ofto ~~third-parties’ and~~the ~~direct~~exchange ortransaction ~~indirect~~described ~~majority~~in ~~shareholder’s~~note ~~financing~~11.3., Asin ofAugust ~~March 31,~~ 2003, asTelefónica is ~~arise~~scheduled ~~from~~to ~~Cointel’s~~assign, ~~financial~~in ~~statements~~principal asat ofmaturity ~~such~~plus ~~date,~~accrued ~~consolidated~~interest ~~current~~paid ~~assets~~by inTelefónica, ~~foreign~~an ~~currency~~amount ~~are~~equivalent ~~lower~~to ~~than~~US$ ~~consolidated~~174 ~~current~~million ~~liabilities~~of ~~in foreign~~Cointel’s ~~currency~~notes in(Class ~~the~~“A” ~~amount~~and of“B”) ~~US$961~~to ~~million~~TISA, ~~(equivalent~~which tohas ~~2,865~~settled ~~million~~financial asdebts of Telefónica ~~March~~in ~~31,~~an ~~2003)~~equivalent amount.

~~The~~39 Company, Cointel and Telefónica have prepared their financing projections and plans expecting to cover future fund needs to continue Telefónica’s investment plan and repay short and long-term debt mainly with funds generated by the operations plus bank loans and access to capital markets. Alternatively, they would seek for long-term refinancing of their payables.

~~However,~~(English ~~owing~~translation ~~to the macroeconomic situation described in Note 4. to the unconsolidated financial statements, as~~ of the ~~date of issuance of these~~ financial statements, ~~third~~originally ~~parties’~~issued ~~credit lines are not available~~ in ~~amounts sufficient to enable the Company and Telefónica~~Spanish, ~~together~~except ~~with internally~~for ~~generated~~note ~~funds, to meet current debt obligations~~13. ~~Furthermore, it is not possible to determine whether this situation will improve in the short term.~~

Since early December 2001, Argentine authorities implemented a number of monetary and currency exchange control measures that mainly included restrictions on the withdrawal of funds deposited with banks and tight restrictions for making transfers abroad, with the exception of those related to ~~foreign trade and other authorized transactions, most of which have been eliminated as of~~ the ~~date of issuance of these financial statements (See Note 4. to the~~ unconsolidated financial statements).

~~Table~~13. PATRIOTIC BOND AND TAX CREDIT CERTIFICATES (figures according to Cointel’s consolidated financial statements as of ~~Contents~~June 30, 2003)

3413.1. Patriotic Bond

~~(English~~In ~~translation~~May 2001, under the scope of Decree No. 424/01 from the ~~financial~~NEP ~~statements~~dated ~~originally~~April 10, 2001, Joint Resolution No. 63/01 (Treasury Secretary) and No. 23/01 (Finance Secretary), as supplemented, Telefónica executed a Patriotic Bond subscription commitment (bond issued by the Argentine Government) for a total amount of US$30 million, which was completely paid in ~~Spanish~~that month. This bond is denominated in U.S. dollars, ~~except~~is made out to bearer, and is negotiable in local and foreign stock markets. It will be amortized in 5 equal and successive quarterly installments payable from May 11, 2003 through May 11, 2004. It accrues interest equivalent to the average obtained from the 30 days immediately preceding each monthly interest period (including the first day of each period) of the BCRA survey for ~~note~~fixed-term 13deposits in private banks with a term from 30 to 35 days and higher than US$1 million, plus an annual 4.95%, payable on a monthly basis past the due date. Issuance clauses allow using this security to pay Federal taxes in the event that amortization and /or interest are not paid by the related due dates. Since the federal Government has not paid off since January 2002, the related interest on such bond, Telefónica has compensated such interest against taxes payable. As of June 30, 2003 this bond has been disclosed under “Other receivables” in view of its intended use.

toIn ~~the~~addition, ~~unconsolidated~~under ~~financial~~Decree No. ~~statements)~~1,657/02, the NEP suspended from September 6, 2002 the payment of national tax liabilities with Government debt securities including the Patriotic Bond.

OnSubsequently, ~~the~~Decree ~~other~~No. ~~hand~~2,243/02 ~~TESA~~establishes ~~(TISA’s~~an ~~parent~~80 ~~company)~~million ~~has~~monthly ~~advised~~quota for the ~~Company,~~application ~~Cointel~~on ~~and~~the payment of national fiscal liabilities of tax credits ~~Telefónica~~originated ~~that~~in the interest coupons, asdue or not, related to the Government debt securities above mentioned. This quota is allotted by the Treasury Secretary by making monthly tenders in which the holders of the ~~date~~above mentioned securities file bids for cancellation of ~~issuance~~national tax liabilities. The Treasury Secretary allots the quota among such bids that propose the largest amount of ~~these~~Argentine ~~financial~~pesos ~~statements~~until completing the referred quota. On the other hand, itthrough ~~was~~Decree ~~still~~No. ~~evaluating~~1264/03 published in the ~~Argentine~~Official ~~macroeconomic~~Bulletin ~~context~~on ~~and~~May ~~analyzing~~22, ~~financing~~2003, ~~alternatives~~the ~~for~~coupons corresponding to such ~~companies,~~bonds ~~including~~were included in the ~~possibility~~regime established by Decree No. 2243/02. Telefónica has valued and exposed its holding of ~~refinancing~~Patriotic ~~over~~Bonds ~~the~~considering that it shall be ~~long~~recovered in the form of a like-~~term~~amount tax credit. Telefónica has made its ~~current~~estimates ~~loans~~on tothe ~~such~~assumption ~~companies~~that ~~and,~~the ifspecial ~~necessary~~conditions under which the bonds were issued will be honored, ~~providing~~thereby ~~additional~~ensuring ~~financing~~their recoverability (see Note 2.2.b) to the consolidated financial statements).

~~Consequently,~~13.2. ~~the~~Tax ~~Company’s,~~Credit ~~Cointel’s~~Certificates and Telefónica’s ability to settle their payables to local and foreign creditors depends upon the possibility of obtaining financing or, if not possible, of refinancing financial payables, as well as, if necessary, the granting of additional financing by its direct or indirect controlling companies. (“TCC”)

~~Should~~During noAugust ~~financing~~2001, ~~alternatives~~under bethe ~~available~~legal ~~for~~framework ~~the~~of ~~Company~~Decree No. 979/01, ~~Cointel~~Telefónica ~~and~~signed a TCC subscription agreement for a total amount of US$15 ~~Telefónica~~million, orwhich ~~should~~was fully paid. Under the ~~Company,~~provisions ~~Cointel~~of Decrees No. 410/02 and ~~Telefónica~~No. ~~not~~471/02, ~~succeed~~as from February 3, 2002, these certificates, originally denominated in ~~obtaining~~U.S. ~~refinancing~~dollars, ~~such~~were ~~companies~~converted ~~would~~into ~~not~~Argentine ~~have~~pesos ~~sufficient~~at ~~funds~~the ~~available~~$1.40 = US$1 exchange rate (increasing the amount of the subscription to ~~meet~~21 ~~their~~million), ~~current~~the ~~liabilities~~benchmark stabilization coefficient being effective as from that date (~~including~~the ~~those~~mentioned ~~disclosed~~benchmark amounts to 44% as ~~current~~of June 30, 2003). Such book entry certificates accrue interest at a maximum annual nominal rate of 2% (as from February 3, 2002, under Decree N°471/02) on the original nominal value balances and may be applied at their notional value against VAT or income tax or any other substituting or replacing tax, both for ~~consolidated~~payment ~~balance~~of ~~sheet~~tax asreturns and for prepayments. Such tax obligations may be honored by compensating 25% of ~~March~~the 31total of such certificates upon each expiration date as from January 1, 2003, July 1, 2003, January 1, 2004 and ~~those~~July ~~liabilities~~1, ~~that~~2004. ~~would~~Any ~~turn~~TCC ~~into~~not totally ~~current~~or ~~payables~~partially ifused ~~creditors~~in ~~claimed~~the amanner ~~default)~~foreseen above may be applied, after 1 year has elapsed from each of such dates, to settle other tax liabilities payable to ~~local~~the AFIP, whether own or third parties’. After expiration of ninety days after each of the dates mentioned above and ~~foreign~~until ~~creditors~~December 31, 2006, any unused tax credit certificate will be freely transferable, whether fully or partially. The Federal Government may redeem, fully or partially, any unused amount of the TCC after June 30, 2005, at their technical value as of the prepayment date. Otherwise, any unused balance of the TCC as of December 31, 2006, will be prepaid by the Federal Government at their technical value as of that date.

~~Although~~40 the Company, Cointel and Telefónica will continue to make their best efforts to obtain such financing, which up to date have had favorable results through obtaining waivers from creditors, the exchange for long-term debt (see Note 11. to the consolidated financial statements ) and short-term refinancing, as of the date of issuance of these financial statements, it is not possible to assure what the result of such negotiations will be and, consequently, whether the Company, Cointel and Telefónica will be able to settle their current liabilities in the normal course of business and maintain their normal operations.

~~• Cointel’s call option involving Telefónica Class B shares~~ (~~figures~~English ~~according~~translation toof ~~Cointel’s~~the ~~consolidated~~ financial statements asoriginally ofissued ~~March~~in 31Spanish, ~~2003)~~except for note 13.

~~On March 6, 1998 Cointel had granted ML a call option on 40.2 million Telefónica Class B shares~~ to ~~be exercised on May 28, 2003, for an approximate value of US$6.2 per share adjusted for~~ the ~~dividend~~unconsolidated distributions made by Telefónica through that date. On June 30, 2000, Cointel and ML amended certain conditions of this agreement, whereby ML has the right to require from Cointel, on May 28, 2003, the delivery of capital stock of TESA instead of Telefónica shares, modifying the strike price of the call option for such TESA’s shares, in proportion to the price offered for Telefónica shares in the TESA Tender Offer described in Note 5. to the consolidated financial ~~statements. If, on May 28, 2003, the market price of TESA ADRs is higher than US$102.79~~ ~~(the exercise price~~statements), ~~ML may acquire from Cointel 2.23 million TESA ADRs at the exercise price. The call option market value as of March 31, 2003 is zero.~~

•The ~~Telefónica’s~~procedure ~~long-term~~for ~~bank~~application ~~financing~~of ~~(figures~~TCC ~~according~~issued tounder ~~Cointel’s~~Decree ~~consolidated~~No. ~~financial~~979/01 ~~statements~~was asmade ofpublic ~~March~~in 31the Official Bulletin and came into effect on January 23, 2003), through Resolution No. 38/2003 of the Ministry of Economy.

~~Telefónica~~The ~~has~~AFIP ~~borrowed~~have ~~funds~~regulated ~~from~~the ~~major financial~~above ~~institutions~~measure inby anissuing ~~amount~~Resolution ~~equivalent~~No. to1433 ~~333~~published ~~million~~in asthe ofOfficial ~~March~~Bulletin 31on February 4, 2003. ~~These~~This ~~funds~~resolution ~~have~~regulates the ~~been~~requirements, ~~borrowed~~formalities ~~under terms~~ and conditions ~~customary~~to inbe ~~this~~met ~~kind of transaction, which generally refer~~ to ~~the~~use ~~commitment~~TCC ~~not~~ to ~~encumber~~settle ortax ~~grant security interests on its assets or on present or future revenues, other than certain permitted encumbrances or unless certain predetermined conditions are met~~liabilities.

~~Additionally~~In conformity with such regime, in February 2003, Telefónica ~~uses~~settled ~~other~~tax ~~long-term~~liabilities ~~bank~~by ~~credit~~applying ~~lines~~25% of the total amount of TCC corresponding to ~~finance~~the ~~imports~~first ~~from~~installment ~~different~~due ~~commercial~~for ~~banks.~~a technical value of approximately 7 million adjusted by CER.

•14. ~~Telefónica’s~~REGISTRABLE ~~financial~~ASSETS ~~instruments~~OF ~~(figures according to Cointel’s consolidated financial statements as of March 31, 2003)~~TELEFONICA

~~During~~On ~~September~~October ~~1999~~27, ~~Telefónica~~1994, ~~entered~~“ENTel ~~into~~in aliquidation” ~~foreign~~issued ~~currency swap~~Resolution ~~agreement~~No. ~~with~~96/94 ~~Citibank~~whereby ~~N.A.~~it undertakes to ~~hedge~~perform all necessary acts to accomplish the transfer ~~risk~~of title of ~~fluctuations~~registrable inassets ~~the~~for ~~yen-dollar~~such ~~exchange~~time ~~rate~~as may be necessary, innotifying ~~connection~~Telefónica ~~with~~60 days before the ~~loan~~date ~~amounting~~that tomay 8be defined as the expiration of ENTel’s commitment.3 ~~billion~~This ~~Japanese~~resolution ~~yen~~recognized ~~granted~~that bythe ~~The~~licensee ~~Export~~companies will ~~Import~~be ~~Bank~~entitled ofto ~~Japan~~claim ~~(currently~~the indemnity stipulated in the ~~Japan~~Transfer ~~Bank~~Contract for ~~International~~ ~~Cooperation)~~the ~~and~~real ~~maturing~~property inwhose ~~February~~title ~~2011,~~had ~~which~~not ~~accrues~~been ~~interest~~conveyed atto athem ~~rate~~by the time of ~~2.3%~~the ~~per~~expiration ~~annum.~~of ~~Such~~the ~~swap~~above ~~agreement~~mentioned ~~provides~~period. aAs ~~fixed~~of ~~exchange~~June ~~rate~~30, of2003 ~~104.25~~these ~~yen~~assets ~~per~~have ~~U.S.~~a ~~dollar.~~net ~~The~~book value ~~interest~~of ~~rate~~about to314 bemillion ~~paid~~(restated toas ~~Citibank~~described Nin Note 2.A1. ~~during~~to the ~~validity~~ unconsolidated financial statements), of ~~the~~which ~~loan~~approximately ~~for~~274 ~~the~~million ~~dollars~~(restated ~~received~~as isdescribed ~~7.98%~~in ~~per~~Note ~~annum~~2.1. Asto ofthe ~~March~~unconsolidated ~~31,~~financial ~~2003,~~statements) ~~the~~have ~~related~~been ~~liability,~~registered ~~taking~~in Telefónica’s ~~into~~name. ~~account~~In Telefónica’s Management opinion, the ~~effect~~registration of ~~the~~title ~~above~~of ~~mentioned~~a ~~swap~~major ~~and~~portion of the ~~additional~~most ~~interest~~significant ~~accrued,~~assets ~~amounts~~contributed toby ~~US$89~~ENTel ~~million~~will be successfully completed. ~~The~~Accordingly, ~~contract~~in Telefónica’s ~~establishes~~Management opinion, ~~among~~the ~~other~~final ~~provisions~~outcome ~~for~~of this ~~type~~matter ofwill ~~transaction,~~not ~~certain~~have ~~events~~a significant impact on Telefónica’s results of ~~default~~operations ~~under~~and/or ~~which~~its ~~the~~financial position.

~~Table~~15. ofRULES ~~Contents~~GOVERNING THE PROVISION OF BASIC TELEPHONE SERVICES AND OTHERS

35(figures according to Cointel’s consolidated financial statements as of June 30, 2003)

As from March 1992, and in compliance with its specific functions, the CNC, formerly known as National Telecommunication Commission (~~English~~“CNT”), ~~translation~~and the SC have regulated certain aspects related to the supply of basic and international telephone services as well as the ~~financial~~procedures ~~statements~~to ~~originally~~be ~~issued~~followed in ~~Spanish~~filing claims, ~~except~~contracting ~~for~~services, ~~note~~invoicing 13and service quality, some of which have been appealed by Telefónica.

Under Resolution No. 983/2002, the CNC imposed a penalty on Telefónica consisting of a fine of 0.7 million for alleged breach of the General Basic Telephone Service Regulations (“GBTSR”), and further imposed several other related obligations on Telefónica, mainly related to the ~~unconsolidated~~restitution ~~financial~~of those services affected by stolen cables. The referred penalty was appealed by Telefónica. In the opinion of Telefónica and its legal advisors, the referred breach lacks of legal grounds for the ~~statements~~sanction to succeed, as: a) the theft of cables is an event of force majeure that releases Telefónica from liability; b) Telefónica has reinstated more than 90% of the services affected by theft; c) there are sufficient public telephones installed and in operation in the affected areas so as to warrant effective service supply, and certain steps have been taken with the security forces so as to safeguard the integrity of the cables; d) Telefónica is reimbursing customers for non-service days and has timely answered each of the CNC’s requests for information.

~~creditor~~In ~~may~~the ~~accelerate~~context ~~payment terms. Events~~ of ~~default~~the ~~include~~transition ~~failure~~ to ~~pay~~competition ~~financial~~in ~~debts~~telecommunications, ~~for~~the ~~amounts~~NEP inand ~~excess~~the ofSC 2%have ofissued ~~Telefónica’s shareholders’~~the ~~equity.~~following resolutions:

~~During~~• ~~December~~NEP ~~1999, Telefónica~~Decree ~~entered into a foreign currency swap agreement with Citibank N~~No.A. to764/2000, ~~hedge~~which ~~the~~approved ~~risk of fluctuations in~~ the ~~euro-dollar~~Rules ~~exchange,~~for ingranting ~~connection with a portion~~ of ~~Telefónica’s~~Licenses ~~net~~for ~~position~~Telecommunications ~~of assets and liabilities in euros~~Services, ~~including~~ the ~~balance~~Rules offor ~~the~~Interconnection ~~loan~~and ~~granted~~the byRules ~~Istituto~~for ~~Centrale~~Management ~~per il Credito a Medio Termine (“Mediocredito Centrale”) which matures in November 2014,~~ and ~~accrues~~Control ~~interest at a rate~~ of ~~1.75%~~Radioelectric ~~per~~Spectrum, ~~annum.~~that ~~Such~~constitute ~~swap~~the ~~agreement~~current ~~has~~regulatory ~~an 8-year~~framework ~~term~~applicable ~~until~~to ~~November 2007 and provides a fixed exchange rate of 0~~Telefónica.~~998~~ ~~euro~~See ~~per~~Note U4.S. ~~dollar. The interest rate paid~~ to ~~Citibank N.A. during~~ the ~~validity~~consolidated offinancial ~~the loan for the dollars to be received is 2~~statements.~~61% per annum.~~

•41 ~~Telefónica’s other financing – Related Parties~~

~~As of March 31, 2003, Telefónica and Telinver owed approximately 2,589 million~~ (~~about~~English ~~US$869~~translation million) to related parties, which matures through June 2003. These loans accrued interests at one-month LIBOR plus 8% per annum, payable monthly. These agreements established the usual commitments for these kinds of ~~transactions, as well as clauses that establish that~~ the ~~creditor~~financial ~~may~~statements ~~accelerate the~~originally ~~terms~~issued ~~of Telefónica’s payables (“events of anticipated maturity”) if there are changes~~ in ~~Telefónica’s equity~~Spanish, ~~economic~~except ~~and~~for ~~financial~~note situation that due to their adverse nature may affect Telefónica’s capacity to comply with the obligations assumed in the agreements or if there are restrictions that may limit the capacity of Telefónica to repay its debts13.

~~The~~to ~~creditor has advised Telefónica that until September 20, 2003, (beyond~~ the ~~due~~unconsolidated date of such debt): (i) the effects of the Public Emergency System implemented in Argentina by Decree No. 1,570/01, Law No. 25,561, as supplemented and amended, in force shall not be considered by the creditor as an event offinancial ~~anticipated maturity; and (ii~~statements) ~~the creditor shall not consider that, as of such date, loans have become immediately due and payable in accordance with the agreements.~~

~~The~~• ~~loan~~Decree ~~agreements~~No. ~~currently~~764/2000 inrepealed ~~effect~~Resolutions ~~additionally~~No. ~~contain~~18,971/99 ~~acceleration~~and ~~clauses~~16,200/99 ~~that~~and ~~would~~approved bethe ~~triggered~~Universal inService rules and regulations to promote the ~~event~~access ~~of certain~~to ~~court~~telecommunications orservices ~~out-of-court~~by ~~procedures~~customers ~~being~~either ~~initiated~~located in ~~connection~~high-cost access or maintenance areas, or with ~~claims~~physical ~~exceeding~~limitations aor ~~certain~~special ~~percentage~~social ofneeds. ~~the~~Such ~~shareholders’~~rules ~~equity~~and ofregulations ~~Telefónica~~effective orfrom ~~one~~January 1, 2001, establish that the deficit for the provision of ~~its~~these ~~significant~~services ~~subsidiaries~~will inbe ~~accordance~~financed ~~with~~through the ~~definition stipulated~~payment inby ~~such~~all ~~loan~~telecommunications ~~agreements.~~providers (including Telefónica) ~~has~~of ~~obtained~~1% aof ~~waiver~~total inrevenues ~~respect~~for oftelecommunications ~~procedures~~services net of ~~this~~taxes, ~~nature~~the ~~that~~“Universal ~~were~~Service ~~pending~~Fund”. ~~against~~As ~~Telefónica~~of asthe date of ~~May~~these 9,financial ~~2003~~statements, ~~subject~~the toSC ahas ~~condition~~not ~~that~~defined nothe ~~other~~mechanism ~~debt~~through bewhich ~~accelerated~~Telefónica onshould ~~similar grounds.~~recover the cost incurred for rendering these services.

~~13.~~• ~~PATRIOTIC~~The ~~BOND~~SC ~~AND~~issued ~~TAX~~Resolution ~~CREDIT~~No. ~~CERTIFICATES~~18,927/99, ~~(figures~~establishing, ~~according~~once the transition to ~~Cointel’s~~competition ~~consolidated~~in ~~financial~~telecommunications ~~statements~~ended, asthe ofderegulation ~~March~~in 31the provision of goods, ~~2003)~~services and works required by the licensees of Basic Telephone services.

13Through Resolution No.1 109/00, the SC declared the Radio Spectrum Administration and Management in state of administrative emergency for a term of 120 calendar days, thus suspending: the assignment of frequencies related to certain radio bands, such as the ones assigned to “data transmission and value added services” and “high-density systems”; the acceptance and/or processing of applications requesting new frequency assignments; and any procedure related to license transferring and/or modifying the license terms and conditions. ~~Patriotic~~Through ~~Bond~~Resolution No. 271/00, the SC subsequently extended the term of emergency until July 24, 2000. Decree No. 764/00 dated September 5, 2000, approved new regulations concerning the radio spectrum administration and management whereas the revision of frequency assignments under Resolution No. 109/00 continues.

InPursuant ~~May~~to ~~2001,~~Resolution ~~under the scope of Decree~~ No. ~~424~~75/2003 ~~from~~published in the ~~National~~Official ~~Executive~~Bulletin ~~Power~~on ~~dated~~February ~~April 10~~6, ~~2001~~2003, ~~Joint Resolution 63/01 (Treasury Secretary) and 23/01 (Finance Secretary), as supplemented, Telefónica executed a Patriotic Bond subscription commitment (bond issued by~~ the ~~Argentine~~Ministry ~~Government) for a total amount~~ of ~~US$30~~Economy ~~million,~~introduced ~~which~~amendments ~~was~~to ~~completely~~the ~~paid in that month. This bond is~~“Long ~~denominated~~Distance inDialing USCarrier ~~dollars,~~Selection isRules” ~~made~~approved ~~out~~by toResolution ~~bearer, and is negotiable in local and foreign stock markets~~No. It613/2001 ~~will~~of bethe ~~amortized~~then inMinistry 5of ~~equal~~Housing and ~~successive quarterly installments payable from May 11, 2003 through May 11, 2004~~Infrastructure. ItMobile ~~accrues~~and ~~interest equivalent~~fixed tooperators ~~the~~must ~~average~~have ~~obtained from~~ the 30Dialing ~~days~~Carrier ~~immediately~~Selection ~~preceding~~system ~~each~~available ~~monthly~~within ~~interest~~120 ~~period~~calendar ~~(including~~days following the ~~first~~publication ~~day~~ of ~~each~~such ~~period)~~resolution ofin the BOfficial Bulletin.~~C.R.A.~~ ~~survey~~As ~~for~~of ~~fixed-term deposits in private banks with a term from 30~~ to ~~35 days and higher than US$1 million~~date, ~~plus~~not ~~an annual 4.95%, payable on~~ a ~~monthly~~single ~~basis~~carrier ~~past~~has ~~the~~requested ~~due date. Issuance clauses allow using~~ this ~~security~~service to(See ~~pay~~Note ~~Federal taxes in the event that amortization and /or interest are not paid by the related due dates~~9.1. ~~Since~~to the ~~federal~~ ~~Government~~consolidated ~~has~~financial ~~not paid off since January 2002, the related interest on such bond, Telefónica has compensated such interest against taxes payable~~statements). ~~As of March 31, 2003 this bond has been disclosed under “Other receivables” in view of its intended use.~~

In16. ~~addition,~~EXECUTIVE ~~under~~INCENTIVE ~~Decree 1657/02,~~PROGRAM ~~published~~AND inSTOCK ~~the~~PURCHASE ~~Official~~AND ~~Bulletin~~STOCK onOPTION September 6, 2002, the National Executive Power suspended for a period of ninety days as from that date, the rules contained in Decrees 424/01; 1615/01; 1005/01 and 1226/01 regarding the payment of national tax PROGRAM

~~Table~~On August 9, 2000, Telefónica decided to approve an incentive program (the “TOP” Program) initiated following a framework plan designed by TESA for certain TESA’s group executives, consisting of ~~Contents~~granting stock options of TESA (the indirect controlling shareholder of Telefónica) to 17 of Telefónica’s top executives who are bound to hold them for the Program term. During May 2001, each executive signed the incentive program agreement and bought a predetermined number of TESA shares at market price to assign them to the Program. The executives were granted a number of TESA stock options at a given strike price, adjusted for dilution, currently equivalent to 13.9420 euro per share, equal to ten times the number of shares purchased and assigned to the Program, plus a number of TESA stock options at another given strike price, adjusted for dilution, currently equivalent to 20.9106 euro per share, equal to ten times the number of shares purchased and assigned to the Program. The program term is three years during which the options may be exercised no more than three times. Currently, the eligible shares under the Program total 17,481 involving a total amount of 349,620 options that corresponds to a total of 11 executives of Telefónica. The total cost of the program for Telefónica, which was contracted with TESA, is 1.2 million. This amount has been deferred, and is being recognized as expenses over the term of the program, in “Salaries and social security taxes and other expenses” in Exhibit H.

36Furthermore, TESA approved a program whereby all Telefónica employees who chose to participate acquired a number of TESA shares, which number was based on their annual compensation, for the equivalent of 5 euro per share. In addition, TESA granted the participants 26 stock options for every TESA share purchased at a strike price of 5 euro per option. The actual number of options eligible for exercise depends on the appreciation, if any, of the stock price of TESA over the reference value established at 20.50 euros (originally 24.50 euros). The program term is four years and participating employees may exercise the options granted on three different occasions during such four-year term.

~~(English~~42 ~~translation of the financial statements originally issued in Spanish, except for note 13~~

to(English ~~the~~translation ~~unconsolidated~~of the financial statements) originally issued in Spanish, except for note 13.

~~liabilities with public debt securities, and~~ to ~~suspend for~~ the ~~same~~unconsolidated ~~term the transferability of the~~financial ~~public~~statements) ~~securities referred to in those decrees.~~

~~Subsequently, under~~The ~~Decree~~benefits ~~2243/02,~~under ~~published~~this inprogram ~~the~~are ~~Official~~contingent ~~Bulletin~~ on ~~November 7, 2002, Decree 1657/02 was amended effective November 8, 2002, by introducing, inter alia,~~ the ~~following~~participants ~~changes:~~continued i)employment ~~the~~with ~~holders of tax credits corresponding to~~ the ~~securities~~ ~~under~~Telefónica ~~Decrees 424/01~~group, ~~1005/01~~i.e. ~~and~~they ~~1226/01~~may ~~are~~not ~~conferred~~unilaterally ~~the right to return to the original securities, thus recovering the possibility of transferring them but losing the right to allocate them to the payment of taxes;~~ and ~~ii)~~voluntarily ~~establishing~~terminate antheir ~~80 million~~employment ~~monthly~~with ~~quota for~~ the ~~application~~group onbefore the ~~payment~~exercise ofdate ~~national~~without ~~fiscal~~losing ~~liabilities of tax credits originated in~~ the ~~interest~~benefits ~~coupons,~~under ~~due or not, related to~~ the ~~securities~~program. ~~under~~Since the above ~~mentioned~~benefits ~~decrees.~~are ~~This~~granted ~~quota~~by ~~will~~TESA bedirectly, ~~allotted by the~~this ~~Treasury~~program ~~Secretary~~does bynot ~~making~~involve ~~monthly~~any ~~tenders~~expenses into ~~which the holders of the abovementioned securities may file bids for cancellation of national tax liabilities~~Telefónica. The ~~Treasury~~eligible ~~Secretary~~options ~~will~~under ~~allot~~ the ~~quota~~program ~~among~~as ~~such bids that propose the largest amount~~ of ~~pesos~~June ~~until~~30, ~~completing~~2003 ~~the~~and ~~referred~~December ~~quota.~~31, ~~Bidding~~2002 ~~regulations~~total ~~were issued by the Treasury Secretary in its Resolutions No. 7~~2,671,734 ~~No. 13~~ and No2,679,820 ~~21. In addition~~respectively, ~~AFIP~~over ~~issued~~a ~~Resolutions~~total ~~No.~~amount 1of 102,~~446~~759 and 1103,~~490~~070 ~~setting~~shares, ~~supplemental~~as ~~regulations~~of tothat ~~conduct the biddings~~dates.

~~Telefónica has valued its holding of Patriotic Bonds considering that it shall be recovered in the form of a like-amount tax credit~~17. ~~Even~~RESTRICTED though biddings to date have been favorable, Telefónica cannot predict the exact possible effects that may derive from the bidding procedure that the government has recently implemented, and has made its estimates on the assumption that the special conditions under which the bonds were issued will be honored, thereby ensuring their recoverability (see Note 2.2. to the consolidated financial statements). ASSETS

~~13.2.~~Pledged ~~Tax~~shares ~~Credit~~of ~~Certificates~~INTELSAT

~~During~~Under ~~August 2001, under~~ the ~~legal~~agreement ~~framework~~signed ofbetween ~~Decree 979/01,~~ Telefónica ~~signed~~and aIntelsat ~~TCC subscription agreement for a total amount of US$15 million, which was fully paid~~U. ~~Under the provisions of Decrees No~~K. ~~410/02 and No. 471/02~~, asa ~~from~~company ~~February~~registered 3,under ~~2002, these certificates, originally denominated in US dollars, were converted into pesos at~~ the ~~$1.40~~laws ~~= US$1 exchange rate (increasing the amount~~ of ~~the subscription to 21 million)~~England, the ~~benchmark~~common ~~stabilization~~shares ~~coefficient~~held ~~being~~by Telefónica ~~effective~~in asIntelsat ~~from~~have ~~that~~been ~~date~~pledged ~~(the mentioned benchmark amounts to 40%~~ as ofcollateral ~~March~~for ~~31, 2003). Such book entry certificates accrue interest at a maximum annual nominal rate of 2% (as from February 3, 2002, under Decree N°471/02) on~~ the ~~original nominal value balances and may be applied at their notional value against VAT or income tax or any other substituting or replacing tax, both for~~ payment of ~~tax~~the ~~returns and for prepayments. Such tax~~ obligations ~~may~~arising be honored by compensating 25% of the total of such certificates upon each expiration date as from January 1, 2003, July 1, 2003, January 1, 2004 and July 1, 2004. Any TCC not totally or partially used in ~~the~~relation ~~manner foreseen above may be applied, after 1 year has elapsed from each of such dates,~~ to ~~settle~~segment ~~other~~capacity ~~tax liabilities payable to the AFIP, whether own or third parties’~~utilized. ~~After~~Telefónica ~~expiration~~retains ofits ~~ninety~~voting ~~days after each of the dates mentioned above~~ and ~~until~~dividend ~~December~~rights ~~31,~~on ~~2006,~~such ~~any~~shares ~~unused~~as ~~tax~~long ~~credit~~as ~~certificate will be freely transferable, whether fully or partially. The Federal Government may redeem, fully or partially, any unused amount of the certificate after June 30, 2005, at their~~Telefónica ~~technical~~does ~~value~~not asincur ~~of the prepayment date. Otherwise,~~ any ~~unused~~event ~~balance~~ of ~~the tax credit certificates as of December 31, 2006, will be prepaid by the Federal Government at their technical value as of that date~~default.

~~The~~In ~~procedure~~the ~~for~~opinion ~~application~~ of ~~tax credit certificates issued under Decree~~ ~~No.~~Telefónica’s ~~979/01~~Management, ~~was~~the ~~made~~above ~~public~~mentioned inrestriction ~~the~~will ~~Official~~not ~~Bulletin~~have ~~and~~a ~~came~~significant ~~into~~ effect on ~~January~~Telefónica’s ~~23, 2003, through Resolution No~~operations. ~~38/2003 of the Ministry of Economy.~~

~~The tax authorities have regulated the above measure by issuing Resolution No~~18. ~~1433~~TELEFONICA´S ~~published~~BUSINESS inSEGMENT ~~the Official Bulletin on February 4, 2003. This resolution regulates the requirements, formalities and conditions to be met to use tax credit certificates to settle tax liabilities.~~ INFORMATION

InOn ~~conformity~~the ~~with~~basis ~~such~~of ~~regime~~the nature, inproduction ~~February~~process, ~~2003~~distribution method and differential regulations, for the purpose of the information requested by Professional Accounting Principles, Telefónica ~~settled~~has ~~tax~~identified ~~liabilities~~two reportable segments: i) the segment related to Telefónica’s telecommunications activities, regulated by ~~applying~~the ~~25%~~SC ofand the ~~total~~CNC, ~~amount~~and ofderived ~~tax~~from ~~credit~~the ~~certificates~~use of the network ~~corresponding~~and torelated equipment: the ~~first~~supply ~~installment~~of ~~due~~telecommunications ~~for~~services asegment, ~~technical~~which ~~value~~includes Telefónica’s operations (local and long distance services) and ii) the publication of ~~approximately~~telephone 7directories ~~million~~(Yellow ~~adjusted~~Pages) byand ~~CER~~call center operations segment included in Telinver’s operations.

~~Table~~For the purpose of ~~Contents~~disclosing the above mentioned information required by Professional Accounting Principles, the Company includes the information related to operations of Telefónica and Telinver based on the Company’s equity interest in Cointel. See Note 2.2.b)2. to the unconsolidated financial statements.

	Basic Telephone Services	Yellow Pages	Consolidation adjustments(1)		Total
June 30, 2003
Net revenues to third parties	662	7	—		669
Net intersegment revenues	2	—	(2	)	—

Total Net Revenues	664	7	(2	)	669

Net Income for the period	401	5	—		406
Depreciation of fixed assets and intangible assets	329	2	—		331
Investment on Fixed assets and Intangible assets	30	—	—		30
Total Assets	4,526	44	—		4,570
Total Liabilities	2,916	61	—		2,977
Investments in subsidiaries	2	—	—		2

(~~English~~1) ~~translation~~Corresponding ofto ~~the~~elimination ~~financial~~of ~~statements~~intersegment ~~originally~~balances ~~issued~~and ~~in Spanish, except for note 13~~ operations.

to43 ~~the unconsolidated financial statements)~~

~~14.~~(English ~~REGISTRABLE~~translation ~~ASSETS~~of OFthe ~~TELEFONICA~~financial statements originally issued in Spanish, except for note 13.

~~On October 27, 1994, “ENTel in liquidation” issued Resolution No. 96/94 whereby it undertakes~~ to ~~perform all necessary acts to accomplish~~ the ~~transfer~~ of title of registrable assets for such time as may be necessary, notifying Telefónica 60 days before the date that may be defined as the expiration of ENTel’s commitment. This resolution recognized that the licensee companies will be entitled to claim the indemnity stipulated in the Transfer Contract for the real property whose title had not been conveyed to them by the time of the expiration of the above mentioned period. As of March 31, 2003 these assets have a net book value of about 316 million (restated as described in Note 2.1. to the unconsolidated financial statements), of which approximately 276 million (restated as described in Note 2.1. to the unconsolidated financial statements) have been registered in Telefónica’s name. In Telefónica’s opinion, the registration of title of a major portion of the most significant assets contributed by ENTel will be successfully completed. Accordingly, in Telefónica’s Management opinion, the final outcome of this matter will not have a significant impact on Telefónica’s results of operations and/or its financial position.

1519. ~~RULES~~OTHER ~~GOVERNING~~FINANCIAL ~~THE~~STATEMENT ~~PROVISION OF BASIC TELEPHONE SERVICES (figures according to Cointel’s consolidated financial statements as of March 31, 2003)~~DISCLOSURES

AsThe ~~from~~Notes ~~March~~to ~~1992, and in compliance with its specific functions,~~ the ~~CNC,~~unconsolidated ~~formerly~~financial ~~known~~statements asdescribe ~~National~~events ~~Telecommunication Commission (“CNT”),~~ and ~~the~~situations SCthat ~~have~~also ~~regulated~~affect ~~certain aspects related to~~ the ~~supply~~consolidates offinancial basic and international telephone services as well as the procedures to be followed in filing claims, contracting services, invoicing and service quality, some of which have been appealed by Telefónicastatements.

~~Under~~44 Resolution 983/2002, the CNC imposed a penalty on Telefónica consisting of a fine of 0.7 million for alleged breach of the General Basic Telephone Service Regulations (“GBTSR”), and further imposed several other related obligations on Telefónica, mainly related to the restitution of those services affected by stolen cables. The referred penalty was appealed by Telefónica. In the opinion of Telefónica and its legal advisors, the referred breach lacks of legal grounds for the sanction to succeed, as: a) the theft of cables is an event of force majeure that releases Telefónica from liability; b) Telefónica has reinstated more than 90% of the services affected by theft; c) there are sufficient public telephones installed and in operation in the affected areas so as to warrant effective service supply, and certain steps have been taken with the security forces so as to safeguard the integrity of the cables; d) Telefónica is reimbursing customers for non-service days and has timely answered each of the CNC’s requests for information.

In(English ~~the~~translation ~~context~~ of the ~~transition~~financial tostatements ~~competition~~originally issued in ~~telecommunications~~Spanish, ~~the National~~except ~~Executive~~for ~~Power~~note ~~and~~13. ~~the SC have issued the following resolutions:~~

• National Executive Power Decree No. 764/2000, which approved the Rules for granting of Licenses for Telecommunications Services, the Rules for Interconnection and the Rules for Management and Control of Radioelectric Spectrum, that constitute the current regulatory framework applicable to ~~Telefónica. See Note 4. to~~ the ~~consolidated~~unconsolidated financial statements.)

•EXHIBIT ~~Decree~~A No. 764/2000 repealed Resolutions No. 18,971/99 and 16,200/99 and approved the Universal Service rules and regulations to promote the access to telecommunications services by customers either located in high-cost access or maintenance areas, or with physical limitations or special social needs. Such rules and regulations effective from January 1, 2001, establish that the deficit for the provision of these services will be financed through the payment by all telecommunications providers (including Telefónica) of 1% of total revenues for telecommunications services net of taxes, the “Universal Service Fund”. As of the date of issuance of these financial statements, the SC has not defined the mechanism through which Telefónica should recover the cost incurred for rendering these services.

•TELEFONICA ~~The~~HOLDING SCDE ~~issued~~ARGENTINA ~~Resolution No~~S. 18,927/99, establishing, once the transition to competition in telecommunications ended, the deregulation in the provision of goods, services and works required by the licensees of Basic Telephone servicesA.

~~Through~~CONSOLIDATED ~~Resolution~~FINANCIAL ~~No.~~STATEMENTS ~~109/00,~~AS ~~the~~OF SCJUNE ~~declared the Radio Spectrum Administration and Management in state of administrative emergency for a term of 120 calendar days~~30, ~~thus~~2003 ~~suspending:~~AND ~~the~~DECEMBER ~~assignment of frequencies related to certain radio bands~~31, ~~such~~2002(1) as the ones assigned to “data transmission and value added services” and “high-density systems”; the acceptance and/or processing of applications requesting new frequency assignments; and any procedure related to license transferring and/or modifying the license terms

~~Table~~FIXED ofASSETS ~~Contents~~

38(stated in millions of constant Argentine pesos, restated as described in Note 2.1. to the

~~(English~~unconsolidated ~~translation of the~~ financial statements ~~originally issued in Spanish, except for note 13~~ )

to the unconsolidated financial statements)

	Original value
Main account	Amount at beginning of year	Increases of the period/year (3) (4)		Net retirements and transfers of the period/year (5)		Amount at the end of period/year
Land	59	—		—		59
Buildings	869	—		1		870
Switching equipment	2,070	—		3		2,073
Transmission equipment	1,843	—		10		1,853
Network installation	3,768	—		1		3,769
Telephones, switchboards and booths	313	3		(4	)	312
Furniture, software and office equipment	500	—		6		506
Automobiles	16	1		(4	)	13
Construction in process	115	13		(19	)	109
Materials(2)	52	5		(10	)	47
Prepayment to vendors	6	(1	)	—		5

Total 2003	9,611	21		(16	)	9,616

Total 2002	9,572	90		(51	)	9,611

and conditions. Through Resolution No. 271/00, the SC subsequently extended the term of emergency until July 24, 2000. Decree No. 764/00 dated September 5, 2000, approved new regulations concerning the radio spectrum administration and management whereas the revision of frequency assignments under Resolution No. 109/00 continues.

Main account	Depreciation						Net book value as of June 30, 2003	Net book value as of December 31, 2002
Main account	Accumulated at beginning of year	Useful life (in years)	For the period/ year	Retirements of the period/year		Accumulated at the end of period/ year	Net book value as of June 30, 2003	Net book value as of December 31, 2002
Land	—	—	—	—		—	59	59
Buildings	226	50	11	—		237	633	643
Switching equipment	1,494	10	83	—		1,577	496	576
Transmission equipment	1,085	10	79	—		1,164	689	758
Network installation	1,827	15	109	—		1,936	1,833	1,941
Telephones, switchboards and booths	294	5	11	(4	)	301	11	19
Furniture, software and office equipment	431	1 - 3	27	—		458	48	69
Automobiles	16	5	1	(4	)	13	—	—
Construction in process	—	—	—	—		—	109	115
Materials	—	—	—	—		—	47	52
Prepayment to vendors	—	—	—	—		—	5	6

Total 2003	5,373		321	(8	)	5,686	3,930

Total 2002	4,713		676	(16	)	5,373		4,238

Pursuant to Resolution No. 75/2003 published in the Official Bulletin on February 6, 2003, the Ministry of Economy introduced amendments to the “Long Distance Dialing Carrier Selection Rules” approved by Resolution No. 613/2001 of the then Ministry of Housing and Infrastructure. Mobile and fixed operators must have the Dialing Carrier Selection system available within 120 calendar days following the publication of such resolution in the Official Bulletin. As of to date, not a single carrier has requested this service (1) See Note 92.15. to the ~~consolidated~~unconsolidated financial statements).

~~16.~~(2) ~~EXECUTIVE~~“Net ~~INCENTIVE~~retirement ~~PROGRAM~~and ~~AND~~transfers ~~STOCK~~of ~~PURCHASE~~the ~~PROGRAM~~period/year” includes transfers from construction in process to materials for 2 million.

~~• On August 9, 2000, Telefónica decided to approve an incentive program~~ (~~the “TOP” Program~~3) ~~initiated~~In ~~following~~2003 a framework plan designed by TESA for certain TESA’s group executives, consisting of granting stock options of TESA (the indirect controlling shareholder of Telefónica) to 17 of Telefónica’s top executives who are bound to hold them for the Program term. During May 2001, each executive signed the incentive program agreement and ~~bought a predetermined number of TESA shares at market price to assign them to the Program. The executives were granted a number of TESA stock options at a given strike price~~2002, ~~adjusted~~capitalized ~~for~~interest ~~dilution,~~in ~~currently~~construction ~~equivalent~~in toprocess ~~13.9420~~amounts ~~euro per share, equal~~ to ~~ten~~1 ~~times~~million ~~the number of shares purchased~~ and ~~assigned~~4 ~~to the Program~~million, ~~plus a number of TESA stock options at another given strike price, adjusted for dilution, currently equivalent to 20~~respectively.~~9106~~ ~~euro~~See ~~per~~Note ~~share, equal to ten times the number of shares purchased and assigned to the Program~~2. The program term is three years during which the options may be exercised no more than three times. Currently, the eligible shares under the Program total 17,481 involving a total amount of 349,620 options that corresponds to a total of 11 executives of Telefónica. The total cost of the program for Telefónica is 1.2 ~~million euro based on the market value of the options on the grant date~~. ~~This amount has been deferred, and is being recognized as expenses over the term of the program, in “Salaries and social security taxes and other expenses” in Exhibit H~~f) to the consolidated financial statements.

•(4) Furthermore, TESA approved a program whereby all Telefónica employees who chose to participate acquired a number of TESA shares, which number was based on their annual compensation, for the equivalent of 5 euro per share. In ~~addition~~2002, ~~TESA~~includes ~~granted~~15 ~~the~~million ~~participants~~in 26construction ~~stock~~in ~~options~~process ~~for~~corresponding ~~every~~to ~~TESA share purchased at a strike price of 5 euro per option. The actual number of options eligible for exercise depends on~~ the ~~appreciation,~~capitalized ifexchange ~~any, of the stock price of TESA over the reference value established at 20~~differences.50 ~~euros~~See ~~(originally~~Note 242.~~50 euros)~~2.f) ~~The~~to ~~program term is four years and participating employees may exercise~~ the ~~options~~consolidated ~~granted~~financial ~~on three different occasions during such four-year term~~statements.

~~The benefits~~(5) ~~under~~In ~~this~~2002, ~~program~~includes ~~are~~2 ~~contingent~~million onof ~~the~~real ~~participants~~property ~~continued~~intended ~~employment~~for ~~with~~sale. ~~the~~See ~~Telefónica~~Note ~~group, i~~2.e2.d) ~~they~~to ~~may not unilaterally and voluntarily terminate their employment with~~ the ~~group~~consolidated ~~before~~financial ~~the exercise date without losing the benefits under the program~~statements. ~~Since the above benefits are granted by TESA directly, this program does not involve any expenses to Telefónica.~~

~~17.~~45 ~~RESTRICTED ASSETS~~

~~Pledged~~(English ~~shares~~translation of ~~INTELSAT~~the financial statements originally issued in Spanish, except for note 13.

~~Under~~to the ~~agreement~~unconsolidated ~~signed recently between Telefónica and Intelsat U.K., a company registered under the laws of England, the common shares held by~~financial ~~Telefónica~~statements) in Intelsat have been pledged as collateral for the payment of the obligations arising in relation to segment capacity utilized. Telefónica retains its voting and dividend rights on such shares as long as Telefónica does not incur any event of default.

InEXHIBIT ~~the~~B ~~opinion of Telefónica’s Management, the above mentioned restrictions will not have a significant effect on Telefónica’s operations.~~

~~Table~~TELEFONICA ofHOLDING ~~Contents~~DE ARGENTINA S.A.

39CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2003 AND DECEMBER 31, 2002(1)

~~(English~~INTANGIBLE ~~translation~~ASSETS ~~of the financial statements originally issued in Spanish, except for note 13~~

to(stated ~~the~~in ~~unconsolidated~~millions ~~financial statements)~~of constant Argentine pesos, restated as described in Note 2.1. to the

~~18.~~unconsolidated ~~BUSINESS~~financial ~~SEGMENT INFORMATION~~statements)

On the basis of the nature, production process, distribution method and differential regulations, for the purpose of the information requested by Professional Accounting Principles, the Company has identified three reportable segments: i) the holding segment that includes the Company’s and Cointel’s operations; ii) the segment related to Telefónica’s telecommunications activities, regulated by the SC and the CNC, and derived from the use of the network and related equipment: the supply of telecommunications services segment, which includes Telefónica’s operations (local and long distance services) and iii) the publication of telephone directories (Yellow Pages) and call center operations segment included in Telinver’s operations.

Main account	Original value
Main account	At beginning of year	Increases for the period/year		Decreases for the period/year		At end of period/ year
License to use and trademarks	25	—		—		25
Assignment of rights	11	—		—		11
No competition clause	3	—		—		3
Cost associated with the issuance of debt	89	9	(4)	—		98
Licenses (Frequencies)(2)	29	—		—		29

Total 2003	157	9		—		166

Total 2002	150	13		(6	)	157

For the purpose of disclosing the abovementioned information required by Professional Accounting Principles, the Company includes the information related to operations of Cointel, Telefónica and Telinver based on the Company’s equity interest in Cointel. See Note 2.2.b)2. to the unconsolidated financial statements.

	Depreciation
Main account	At beginning of year	Decrease for the period/year		For the period/ year	Accumulated at end of period/ year	Net book value as of June 30, 2003	Net book value as of December 31, 2002
License to use and trademarks	6	1		—	7	18	19
Assignment of rights	6	—		—	6	5	5
No competition clause	2	—		—	2	1	1
Cost associated with the issuance of debt	75	8	(3)	—	83	15	14
Licenses (Frequencies)(2)	24	1		—	25	4

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