Telmex

2010 Annual Report

of technological development

INDEX 02 Highlights 03 TELMEX 1991-2010 Facts 04 20 Years of Technological Development 06 20 Years of Investing and Technological Development to Offer More and Higher Connectivity 08 20 Years Committed to the Future of Mexico, Education and the Digital Culture 10 20 Years Driving Innovation to Enhance Information Technologies 12 Letter toOur Shareholders 16 Chief Executive Officer’s Report 36 Comments on the Consolidated Financial Statements 39 Audit Committee Report 41 Corporate Practices Committee Report 42 Consolidated Financial Statements 74 Proposal to the Shareholders’ Meeting 75 Significant Results of Accounting Separation of Local and Long Distance Telephone Services in Mexico 76 Board of Directors 77 Advisory Board 78Directory

Teléfonos de México (TELMEX) is celebrating 20 years as a private company. During this time we have extensively modernized and updated our capabilities, transforming our company from one that exclusively offered telephony services to become one of the nation’s leaders in telecommunications, in a highly competitive market. Our commitment for the past two decades has been to connectMexico through the best technological platform, offering our customers complete access to the best services and promoting technical innovation as well as communications and information technologies in the country. Twenty years ago, TELMEX had one of the world’s most backward infrastructures, a limited ability to meet the population’s demand for services and a culture that paid little attention tocustomers. In order to change this situation, we built a company that sets the pace for communications in Mexico with our use of a telecommunications platform that also contributes to the development of the domestic economy. We achieved these goals by investing more than 32 billion dollars from 1990 to 2010 to expand, modernize, transform and foster a digital cultural change in the company and in thecountry. As we celebrate 20 years, we thank you for choosing TELMEX and promise that we will continue the commitment that we made 20 years ago as we began the transformation and development of telecommunications in our country.

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highlights
[Millions of Mexican pesos, unless otherwise indicated]*

2010

2009

2008

2007

2006

Financial Total revenues Voice services DataOther Total costs and expenses Costs of sales and services Commercial, administrative and general expenses Interconnection Depreciation and amortization Operating income EBITDA(1) Income from continuing operations Assets from continuing operations Debt from continuing operations Stockholders’ equity(2) Data per share(3) (pesos) Earnings per share from continuing operations Nominal dividend paid (3)Outstanding shares at year-end (millions) 0.85 0.490 18,158 1.11 0.845 18,192 1.07 0.413 18,555 1.46 0.440 19,360 1.32 0.403 20,203 113,563 73,941 32,879 6,743 85,146 34,711 22,351 10,561 17,523 28,417 45,940 15,371 157,754 74,521 44,224 119,100 82,406 30,817 5,877 84,736 34,178 20,811 11,796 17,951 34,364 52,315 20,469 178,397 102,874 38,321 124,105 92,657 25,387 6,061 84,362 32,523 19,863 14,04317,933 39,743 57,676 20,177 187,125 107,055 39,371 130,768 104,029 22,280 4,459 86,884 32,364 19,553 16,542 18,425 43,884 62,309 28,889 172,826 91,462 42,159 129,755 105,178 21,035 3,542 83,491 32,059 19,383 13,338 18,711 46,264 64,975 27,701 188,182 90,417 121,321

(*) The financial information for 2006 and 2007 is presented in constant pesos with purchasing power as of December 2007 and from2008 and beyond is presented in nominal pesos (see Note 1 II.b to the consolidated financial statements). (1) EBITDA defined as operating income plus depreciation and amortization. (2) The decrease in 2007 was due to the split-up (escisión) of Telmex Internacional. (3) An extraordinary dividend of P. 0.40 Mexican cents per outstanding share was paid in December 2009.

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1991-2010
With...