This report does not constitute a rating action. Overview Key strengths Key risks Leading market positions in Spain, Brazil, and Germany, supported by extensive fixed and mobile infrastructure and convergent service offerings. More acquisitive capital allocation should attractive in-market consolidation opportunities emerge. Demonstrated commitment to investment-grade rating, supported by a reported leverage target of about 2.5x and a more conservative shareholder remuneration framework. Exposure to competitive telecom markets in Germany, ongoing pricing pressure in segments of the Spanish market, and emerging-market and foreign-exchange risks in Brazil. Simplified portfolio following the near-complete exit from Hispam operations. Subdued operating performance at Virgin Media O2 could limit future distributions to Telefónica. We expect headroom under the'BBB-'rating to gradually improve. We forecast
