IV Sustainable

Innovation Initiative 2018

Our commitment with sustainable development

Sustainable InnovationTelefonica S.A.September 2018

Introduction

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A Telefonica initiative for the promotion of new ideasabout:

• Products & Services• Internal transformation projects• Commercial & Marketing activities

with the intention to generate a measurable and beneficialsocial or environmental impact alongside a financialreturn.

What is the Sustainable Innovation Initiative (SII)?

BoostingTelefonica’s businesswhile creating a better world.

From October 1st to October 31st 2018

• Challenges into Telefonica´s footprint which are related to ourbusiness

• Aligned with the Telefonica strategic transformation process• Disruptive, innovative and affordable solutions• Real issues with a potential market

The initiative looks for ideas for the development of new solutions that havea positive social or environmental impact, aside from creating added value forTelefonica.

These ideas must address the most urgent challenges faced by humanity, whichare summarized in the Sustainable Development Goals (SDGs) establishedby the United Nations.

All the ideas and proposals from any business unit of the Telefonica Group arewelcome. Also the startups accelerated by Telefonica Open Future canpresent their ideas; as well as Telefonica's suppliers.

Telefonica will offer capital and know-how resources for the selected units toexecute their projects.

The initiative will measure the social and environmental impact, as well as thedevelopment of the investments, with a view to ensure transparency andaccountability.

In September 2015, governments, businesses and civil society togetherwith the United Nations have started to mobilize efforts to achieve theSustainable Development Agenda by 2030.

The 2030 Agenda for Sustainable Development gathers a set of 17"Global Goals" with 169 targets.

Universal, inclusive and indivisible, the Agenda calls for action by allcountries to improve the lives of people everywhere.

Our commitment to transform the worldUnited Nations Sustainable Development Goals (SDG)

Over the next fifteen years, with these new Goals that universally apply to all (governments, civil society and private sector) efforts will be mobilized to end all forms of poverty, fight against inequalities and tackle climate change, while ensuring that no one is left behind.

What are we looking for?

New products and services, or improvement of

their features

Internal transformation projects

Planning and development of commercial and

marketing activities

SUSTAINABLE INNOVATION PROJECTS

Testing of new commercial solutions,modifications or new features ofalready existing products that couldaddress the goals of the initiative.

To deliver internal projects ofefficiency, cost savings orimprovements of operations andinfrastructures or employeeprofessional activities anddevelopment.

To carry out marketing or commercialinitiatives that can show the social /environmental value of our productsbringing brand value.

Particularly, in 2018 the initiative will be focused on promoting the following challenges, although any other potential idea addressing theSustainable Development Goals will be also duly considered

IV Sustainable Innovation IniciativeThe Sustainable Innovation Initiative aims to drive solutions to address global challenges in the following areas, whereTelefonica’s assets can impact positively as well as generate new business opportunities or get internal efficienciesimprovements and savings.

Protecting the Planet

Impacton SDGs

Connecting Everyone Developing Sustainable Societies

Bringing connectivity and services to everybody and everywhere. All services should be adapted and developed ensuring that everybody can use them. Our technology can also enable people with disability to improve their quality of life. Moreover, we aim at connecting our clients in a better & totally transparent manner.

What are welooking for?

Ideas to reach everybody and everywhere with our products and services, adapting oursolutions for people with any kind of disability, delivering new services to improve theirquality of life, or bringing connectivity and Internet to remote areas.

The promotion of diversity (gender, age, etc.) and solutions to avoid discrimination andfoster inclusion. All in all, ideas which improve our customer’s experience.

Connecting Everyone

- Connectivity and services in remote or rural areas.- Improvement of infrastructure & already existent systems efficiency.- Improve access to our products and services for everyone.- Accessible ICTs to improve people’s quality of life: devices, products,

services…- Accessible customer service- Inclusive product and services as, for instance, Movistar + 5S.- Commercial offers and initiatives adapted to the total diversity. Of our

clients- Market and client based profiles and social groups.

EXAM

PLES

Digital services and ideas for Telefonica’s internal transformation driven to solve environmental challenges such as climate change, water scarcity, circular economy and atmospheric pollution.

What are welooking for?

Ideas to foster circular economy principles in Telefonica’s operations as well as initiatives which promote ourmitigation and adaptation to climate change.

Development of new services and digital products which could address main environmental issues (climate change,water and other resources, biodiversity loss…)

Protecting the Planet

- Equipment ecodesign.- Ecosmart services related to 4.0 industry.- Energy efficiency services: Smart Energy.- Big Data to improve car traffic and air quality in cities.- Green portfolio of devices- Ecorating.- Renewable energy.- Sustainable mobility and digitalization- Smart Agro-Smart, Water Smart metering.- Removal of disposable plastics and promotion of reciclable or

biodegradable materials, in offices, equipment, etc.

EXAM

PLES

With 60% of population living in cities, technology becomes the key to sustainable development.

Besides, Big Data plays an invaluable role in guaranteeing more informed and transparent societies while preserving citizens privacy and security.

What are welooking for?

Ideas to offer new solutions which can improve life in cities and communities while ensuring citizens privacy andsecurity.Improve governments and companies transparency towards people. We are also looking for ideas oriented towardsmaking emergencies & natural disasters management more efficient.

Developing Sustainable Societies

- Big Data initiatives or Artificial Intelligence to improve communitiesmanagement.

- Open Government apps and electronic administration.- Privacy and security solutions.- IoT solutions to make societies more sustainable.- Solutions to be prepared and respond to emergencies and natural

disasters efficiently.

EXAM

PLES

Benefits y Prizes

Benefits for Telefonica

To promote the potential of Telefonica to build a sustainable Worldthrough responsible, ICT-enabled transformation.

To find out new business opportunities for Telefonica addressingglobal challenges.

To deliver new digital solutions to drive progress towards theSustainable Development Goals.

To improve internal efficiencies and savings, while combating climatechange and its impacts.

Benefits forTelefonica Open Future

Reinforcement of value proposition for startups invested by TOF

Increased capillarity of Sustainable Innovation among invested companies.

Earn attractive for impact investment funds.

Standard funds

Workingspace Visibility

Access tofunds

Business development

Benefits for Suppliers

Increase in income.

Greater innovation in products and services.

Educate in sustainability, bringing sustainability values to business.

Increase in the sense of belonging and the organizational values of employees.

Increase in the reputational value of the company.

Strengthening of alliances with Telefónica.

Prizes

Up to 40,000€ per project.

An economic support will be granted up to 3 proposals.

Mentoring and specialized support could be provided if required.

Projects information will be published through Telefonica communication channels.

ECONOMIC MENTORING & SUPPORT

VISIBILITY & PROMOTION

Someexamples

Making technology accessible for everybody

Persuasive SUB_ was one of projectsselected during the first SustainableInvestment Initiative in 2015,Pervasive SUB was presented in May2017 as the most innovative solutionfor making accessible the TV for blind-deaf people

Pervasive SUB collect all the subtitles and transfer them to a server which it is managed and relay them to mobile devices connected to braille tablets.

Pervasive SUB_An accessible solution for blind-deaf disabled people

To test new products or enhanced features

Antifire Drones_Wild fires early warning system.

One of the III Sustainable Innovation Initiative 2017 winners and currently underdevelopment.

Wild fires early warning systemhelped by a dron which tracksaffected areas and gives back theinformation to emergeny units.

A pilot test is beingconducted in Spain, Matachines.

To test new products or enhanced features

Protect the Planet andmitigate climate change.

Smart Energy SEM is a project which has won theIII Sustainable Innovation Initiative 2017. SmartEnergy is an integral management system whichwas designed for large energy consumers to date.The implementation of Smart Energy SEM couldprevent the emmission to up to 20 CO2 tonnes

Smart Energy for SEM_ To test new products or enhanced features

The impact is high since>100M people lack fromaccess to the Internet.

Connectivity is a key factor to close the digital gap.

After winning the III Sustainable Innovation Initiative 2017, a technology based in off-grid autonomous solar energy has been proposed within theframework of the Internet for allproject.

Disruptive solution to connect rural regions across Latin America.

Connectivity in rural areas in Peru Internet for allOff-grid autonomous systems

To carry out internal transformation projects

Fénix Project_Celular connectivity by satelite torespond in the event of natural disastersand improve climate change adaptationcapacity.

One of the projects selected during the II Sustainable Investment Initiative in 2016 which is currently under development.

Objective: To provide with a portable satellite communication backpack

A planned trial to be carried out in Mexico in Q4 2018

To test new products or enhanced features

Smart Heritage in ChileSALITRERAS HUMBERSTONE and SANTA LAURA

Salitreras is an UNESCO World Heritage Site in one of the most arid deserts. This site is also included in the UNESCO Heritage Risk list due to the extreme weather conditions.

Sensor spread out through all the monument to track information about the monument conditions

Financed in 2016, the project aims to validate the Smart Patrimonio –Smart Heritage technology (already tested successfully in Europe) in extreme conditions and open new markets in LATAM.

To test new products or enhanced features

SubmissionProcess

• All the areas, departments and units from any Telefonica Operating Business can send theirproposals, which will be developed within its area or department if selected.

• Proposals can also be submitted by suppliers or startups from the ecosystem of Telefonica Open FutureFuture as long as they can be implemented together with a Telefonica business unit.

Submitted ideas must be approved by the Unit Director/Manager of the Telefonica Business Unit.

Selected ideas must be developed within the Telefonica area or department responsible for theirsubmission.

If the idea is submitted by a provider or startup, the project can be developed outside the area orTelefonica’s department whenever the activity is also supervised by the Telefonica’s team.

Who can participate?

How to participate?

Participation through Telefonica Open Future Platform: https://www.openfuture.org/

Direct link to participate: https://calls.openfuture.org/calls/iv_sustainable_innovation_initiative_2018/EN

For further information please contact:

Jose Maria Bolufer FranciaEmail: josemaria.boluferfrancia@telefonica.comTeléfono: + 34 649 139 984

Elena Quiroga FernandezEmail: elena.quirogafernandez@telefonica.comTeléfono: + 34 676 549 595

Selection criteria

Alignment with Telefonica strategy.

The idea has to be differential and innovative.

Social or environmental impact of the submitted proposal.

Business Case. Ideas should have a positive business case.

The idea has to leverage on Telefonica’s know-how, assets and expertise.

1st of October

Submission processOPEN

31st of October

18th of December

Submission processCLOSED

Publicationof winners

AwardsCeremony

Round of presentations

3rd of September

Final presentation to Awards Committee

Project evaluation

11th of December 29th of November

1st of November- 15th of November

Selectionof finalists

Timeframe

The financial support will be up to 40.000€, depending on the project needs and distributed in several payments.

Mentoring from experts (marketing, strategy, finance, etc…) could be provided if required.

Communication and diffusion of winning projects at an internal and external level.

And the most important prize… to help the Planet and Society with your ideas!

Prizes

Telefonica’s commitment with the Goals for a Sustainable Development