Terra Meets its Target and Obtains Positive EBITDA in 2004 The company has reported net profit of 164 million euros MADRID, Feb. 24 /PRNewswire-FirstCall/ -- Terra Networks, S.A., (MC: TRR; Nasdaq: TRRA), the world's leading Spanish and Portuguese Internet group today released its financial results for 2004 and comparisons with 2003. Revenues The Company obtained revenues of 540 million euros in current euros in 2004, 1% lower than in 2003. Revenues were impacted by changes in the group's consolidation perimeter, specifically the sale of its shares in Lycos, Inc. in October 2004. Stripping out this effect, and the negative impact of the exchange rates of some currencies against the euro (Terra consolidates its accounts in euros), revenues would have risen 8% on 2003. The access business accounted for 44% of revenues; advertising and e-commerce accounted for 22%; value-added communication, portal and content services for 23%; and corporate and SME services and other revenues for 11%. Operating expenses Efficient management continuously improved processes and structures, and steadily brought down operating costs throughout 2004. Operating expenses totalled 263 million euros, an 18%, or 57 million euro improvement on 2003. The group implemented far-reaching headcount restructuring programs in 2004, primarily in Spain, the US and Mexico. At the end of 2004 Terra had 1,606 employees vs. 2,255 at the end of 2003. Positive EBITDA performance in 2004 Improvements on the gross profit line and the firm grip on other operating costs resulted in a sharp rise in operating income or EBITDA (Earning before Interest, Taxes, Depreciation and Amortization), which was positive for all four quarters of the year. EBITDA stood at 21 million euros, with an EBITDA margin over revenues of 4%. The company reported net income of 164 million euros in 2004, compare to a loss of 173 million euros in 2003. The Company has recognized a tax credit of 306 million euros, mainly due to the sale of its shares in Lycos, Inc. The net cash position at December 2004 was 529 million euros. The cash balance fell by 1,065 million euros compared to 2003 due mainly to the distribution of 1,136 million euros in dividends (2 euros per share) made at the end of July. Terra maintains a positive trend in the access and portal business which in 2004 has reached 6.3 million paid access and portal services customers, a rise of 25%. The Group had a total of 1.8 million paid access subscribers at December 31 2004, an advance of 9% vs. 2003. We would highlight the 66% increase in broadband subscribers, mainly ADSL, with 1.1 million at the end of the year, of which 68% were in Brazil, 18% in Spain and 12% in Chile. We would also highlight the rise in paid communication and portal services customers (4.5 million at December 2004). This figure is 33% up on 2003. Throughout 2004 Terra pursued a strategy of forging agreements with leading companies with the aim of including the best content and services in its portals network. Along these lines, Terra and Google signed an agreement designed to improve the quality of Terra's browser on all portals in Spain and Latin America, offering Google's browser services on Terra portals thereby allowing users to access the technology of the most powerful search engine on the market today. Terra has boosted the joint development of multimedia products and services with Real Madrid C.F. and FC Barcelona pursuant to the respective agreements made with the football clubs. The Real Madrid Exclusive Zone and the FC Barcelona Premium Zone are exclusive premium products offering a full range of multimedia services for internet and mobile, enabling domestic and international fans to keep up to date with the latest developments at both clubs. Terra has also launched other communications and content products and services. These include: Terra Musica Premium -- the first platform for downloading digital music from the Internet in Spain. This new service has a database of 500,000 songs and video clips in WMA format, and enables Terra ADSL clients to listen to songs from the database, enjoy predetermined channels or compile customised music lists according to their preferences for 6 euros (just music) or 9.95 euros (music and video clips) a month. Users can also download songs for 0.99 euros and even complete albums from 6.65 euros. The Company has also launched other products such as Antivirus Terra, designed to detect and block computer viruses; Kit Terra Mail Plus, a package offering email services with enhanced functions (larger capacity, increased security and easier access); and Fotolog services, a virtual photo album which allows users to share their photos online. Keeping commitment to customers Telefonica recently announced that it had offered to enter into negotiations with Terra with a view to their merger. The proposal made to Terra includes an exchange ratio of 2 Telefonica S.A. shares with a nominal value of 1 euro, for 9 Terra Networks, S.A. shares with a nominal value of 2 euros. On 23rd February 2004 Terra Networks S.A.'s Board of Directors approved Telefonica's merger proposal which is now subjected to the corresponding approval by shareholders at the Ordinary General Shareholders' Meeting of both companies. On the same meeting Terra's Board of Directors also approved the proposal to pay a dividend in the amount of 0.60 Euros per share, with a charge against the "Reserve for Shares Issuance Premium" account. The effectiveness of the distribution is subject to the corresponding approval by the shareholders at the Ordinary General Shareholders' Meeting of Terra. Payment is expected to be made during the days following the meeting and, in any event, before the merger of Telefonica and Terra is recorded with the Commercial Registry. Kim Faura, executive chairman of Terra Networks, S.A., said that "Terra plays a decisive role in driving the broadband market by providing value added content and services, as reflected by the satisfactory set of earnings the company has just reported." Mr. Faura added that "we have met our target of reporting positive EBITDA in 2004, we have increased our portfolio of paid customers and consolidated the first Latin American internet standard." He stated that "Terra has, and will continue to have, a clear commitment to its customers and suppliers in all its markets. A commitment to providing quality, value-added services and content products." Telephone numbers: Public Relations Investor Relations Pablo Fuentes Miguel von Bernard +34-91-452-4248 +34-91-452-3922 CONSOLIDATED STATEMENT OF OPERATIONS (in thousand of Euros - Spanish GAAP) Audited Twelve months Dec-31 2004 2003 (1) Revenues: Access 236,501 221,034 Advertising and e-commerce 119,661 143,021 Communication, portal and content services 122,304 119,023 Corporate & SMEs Services and Other 62,012 63,550 Total revenues 540,478 546,627 Goods purchased (256,307) (265,836) Gross profit 284,171 280,791 Personnel expenses (95,785) (119,653) Professional services (21,912) (23,191) Depreciation and amortization (79,513) (78,742) Marketing and Commissions (62,611) (79,104) Maintenance, supplies and leases (27,284) (41,306) Other expenses (55,713) (57,021) Total other operating expenses (342,818) (399,017) Operating loss (58,647) (118,226) Financial income (expense) 18,277 57,743 Amortization of goodwill (64,848) (82,297) Equity share in affiliate losses, net (14,559) (34,734) Extraordinary income (expense) and other (25,773) 4,534 Income (loss) before taxes (145,550) (172,980) Corporate income tax 306,456 (266) Minority interest 3,066 536 Net Loss (Spanish GAAP) 163,972 (172,710) Shares excluding Stock Options Plan ('000) 561,062 560,997 (1) Revenue by business line and some operating expenses show slight variations from previously reported figures due to reclassifications OPERATING DATA (in thousands) Dec-31 2004 2003 % Total Paid Subscribers (1) 6,280 5,033 25% Access: Narrowband 748 1,028 -27% Broadband 1,068 644 66% Total 1,816 1,672 9% VAS (CSP/Portal): 4,464 3,361 33% Broadband Access Subscribers: Spain 189 166 14% Latam 879 478 84% Total 1,068 644 66% (1) Based on number of services delivered. Some subscribers may be contracting access and Value Added Services at the same time NOTES TO CONSOLIDATED STATEMENT OF OPERATIONS (in thousands - Spanish GAAP) Unaudited EBITDA Dec-31 2004 2003 % Operating loss (58,647) (118,226) 50% Depreciation and amortization 79,513 78,742 -1% Leases (1) 0 10,133 100% EBITDA (2) 20,866 (29,353) 171% EBITDA Margin 4% -5% 9 b.p. (1) In all prior periods reported and for EBITDA guidance calculation purposes, expenses related to equipment leases recorded in Lycos are deemed to be depreciation costs (2) See EBITDA description in the Other Information section DATASOURCE: Terra Networks, S.A. CONTACT: Pablo Fuentes, +34-91-452-4248, , or Miguel von Bernard, +34-91-452-3922, both of Terra Networks, S.A.

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