##### Table of Contents

As filed with the Securities and Exchange Commission on May 11, 2010.





SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549





FORM 20-F





ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2009

Commission File Number: 001-32741

Teléfonos de México, S.A.B. de C.V.

(Exact name of Registrant as specified in its charter)

Telephones of Mexico

(Translation of Registrants name into English)

United Mexican States

(Jurisdiction of incorporation or organization)

Parque Vía 190, Colonia Cuauhtémoc, 06599 México, D.F., México

(Address of principal executive offices)

Anna Domínguez González

Teléfonos de México, S.A.B. de C.V.

Parque Vía 190

Colonia Cuauhtémoc

06599 México, D.F., México

Tel: (52) 55 52 22 17 74

Fax: (52) 55 55 45 55 50

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:



|                                                                                                     |  |  |  |                                                      
|---------------------------------------------------------------------------------------------------- |  |  |  | -----------------------------------------------------
|Title of each class                                                                                  |  |  |  | Name of each exchange on which registered            
|                                                                                                     |  | 
|American Depositary Shares, each representing 20 Series L Shares, without par value (L Share ADSs) |  |  |  | New York Stock Exchange                              
|                                                                                                     |  | 
|Series L Shares, without par value (L Shares)                                                      |  |  |  | New York Stock Exchange (for listing purposes only)  
|                                                                                                     |  | 
|American Depositary Shares, each representing 20 Series A Shares, without par value (A Share ADSs) |  |  |  | The NASDAQ Capital Market                            
|                                                                                                     |  | 
|Series A Shares, without par value (A Share ADSs)                                                  |  |  |  | The NASDAQ Capital Market (for
listing purposes only)
|                                                                                                     |  | 
|8.75% Senior Notes due 2016                                                                          |  |  |  | New York Stock Exchange                              

SECURITIES REGISTERED PURSUANT TO
SECTION 12(g) OF THE ACT: None

SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO SECTION 15(d) OF THE ACT: None

The number of outstanding shares of each class of capital or common stock as of December 31, 2009 was:



|              |  |          
|------------- |  | ---------
|8,115 million |  | AA Shares
|395 million   |  | A Shares 
|9,682 million |  | L Shares 



Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.  x Yes   ̈ No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.   ̈ Yes  x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90
days.  x Yes   ̈ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files).  N/A

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated
filer  x                 Accelerated
filer   ̈                 Non-accelerated filer   ̈

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this
filing:



|             |  |                                                                                                          |  |         
|------------ |  | -------------------------------------------------------------------------------------------------------- |  | --------
|U.S. GAAP   ̈ |  | International Financial Reporting Standards as issued
by the International Accounting Standards Board   ̈ |  | Other  x

If Other has been checked in response to the previous question, indicate by check mark which financial statement item the
registrant has elected to follow.   ̈ Item 17  x Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).   ̈ Yes  x No









---

##### Table of Contents

TABLE OF CONTENTS



|          |  |                                                                                |  |     
|--------- |  | ------------------------------------------------------------------------------ |  | ----
|          |  |                                                                                |  | Page
|          |  | Forward-Looking Statements                                                     |  | 1   
|Item 1.   |  | Identity of Directors, Senior Management and Advisers                          |  | 2   
|Item 2.   |  | Offer Statistics and Expected Timetable                                        |  | 2   
|Item 3.   |  | Key Information                                                                |  | 2   
|          |  | Selected Financial Data                                                        |  | 2   
|          |  | Exchange Rates                                                                 |  | 5   
|          |  | Risk Factors                                                                   |  | 6   
|Item 4.   |  | Information on the Company                                                     |  | 13  
|          |  | General                                                                        |  | 13  
|          |  | Operations                                                                     |  | 16  
|          |  | Regulation                                                                     |  | 23  
|          |  | Capital Expenditures                                                           |  | 31  
|          |  | Other Matters                                                                  |  | 31  
|Item 4A.  |  | Unresolved Staff Comments                                                      |  | 32  
|Item 5.   |  | Operating and Financial Review and Prospects                                   |  | 32  
|Item 6.   |  | Directors, Senior Management and Employees                                     |  | 48  
|Item 7.   |  | Major Shareholders and Related Party Transactions                              |  | 58  
|          |  | Major Shareholders                                                             |  | 58  
|          |  | Related Party Transactions                                                     |  | 61  
|Item 8.   |  | Financial Information                                                          |  | 63  
|          |  | Consolidated Financial Statements                                              |  | 63  
|          |  | Legal Proceedings                                                              |  | 63  
|          |  | Dividends                                                                      |  | 65  
|Item 9.   |  | The Offer and Listing                                                          |  | 66  
|          |  | Trading Market                                                                 |  | 66  
|          |  | Trading On The Mexican Stock Exchange                                          |  | 68  
|Item 10.  |  | Additional Information                                                         |  | 69  
|          |  | Bylaws And Mexican Law                                                         |  | 69  
|          |  | Certain Contracts                                                              |  | 75  
|          |  | Exchange Controls                                                              |  | 75  
|          |  | Taxation                                                                       |  | 75  
|          |  | Documents On Display                                                           |  | 81  
|Item 11.  |  | Quantitative and Qualitative Disclosures about Market Risk                     |  | 81  
|          |  | Exchange Rate And Interest Rate Risks                                          |  | 81  
|          |  | Sensitivity Analysis Disclosures                                               |  | 81  
|Item 12.  |  | Description of Securities Other Than Equity Securities                         |  | 82  
|Item 12A. |  | Debt Securities                                                                |  | 82  
|Item 12B. |  | Warrants and Rights                                                            |  | 82  
|Item 12C. |  | Other Securities                                                               |  | 82  
|Item 12D. |  | American Depositary Shares                                                     |  | 82  
|Item 13.  |  | Defaults, Dividend Arrearages and Delinquencies                                |  | 83  
|Item 14.  |  | Material Modifications to the Rights of Securities Holders and Use of Proceeds |  | 83  
|Item 15.  |  | Controls and Procedures                                                        |  | 83  
|Item 16A. |  | Audit Committee Financial Expert                                               |  | 86  
|Item 16B. |  | Code of Ethics                                                                 |  | 86  
|Item 16C. |  | Principal Accountant Fees and Services                                         |  | 87  
|Item 16D. |  | Exemptions from the Listing Standards for Audit Committees                     |  | 87  
|Item 16E. |  | Purchases of Equity Securities by the Issuer and Affiliated Purchasers         |  | 88  
|Item 16F. |  | Change in Registrants Certifying Accountant                                   |  | 89  
|Item 16G. |  | Corporate Governance                                                           |  | 90  
|Item 17.  |  | Financial Statements                                                           |  | 94  
|Item 18.  |  | Financial Statements                                                           |  | 94  
|Item 19.  |  | Exhibits                                                                       |  | 94  



i



---

##### Table of Contents

FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements. We may from time to time make forward-looking statements in our periodic reports
to the SEC on Form 6-K, in our annual report to shareholders, in offering circulars and prospectuses, in press releases and other written materials and in oral statements made by our officers, directors or employees to analysts, investors,
representatives of the media and others. Examples of such forward-looking statements include:



| |  |  | projections of operating revenues, net income, net income per share, capital expenditures, indebtedness levels, dividends, capital structure or other
financial items or ratios;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | statements of our acquisition or divestiture plans;
| | - |  | ---------------------------------------------------



| |  |  | statements about the impact of our acquisition of businesses;
| | - |  | -------------------------------------------------------------



| |  |  | statements about our plans, objectives or goals, including those relating to competition, regulation and rates;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | statements about competition in the business sectors in which we operate;
| | - |  | -------------------------------------------------------------------------



| |  |  | statements about our future financial performance or the economic performance of Mexico or other countries;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | statements about interest rates, currency exchange rates and foreign securities markets;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | statements about the availability and cost of external financing for our operations, which have been affected by the stress experienced by the global
financial markets;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | statements about the renewal, revocation or expropriation of our concessions, decisions of regulatory and judicial authorities, and the future impact
of regulations; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | statements of assumptions underlying such statements.
| | - |  | -----------------------------------------------------

Words such as believe, anticipate, plan, expect, intend, target,
estimate, project, predict, forecast, guideline, should and similar expressions are intended to identify forward-looking statements but are not the exclusive means of
identifying them.

Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of
important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements. These factors, some of which are discussed under Item 3. Risk
Factors beginning on page 6, include regulatory developments, economic and political conditions, which have been affected by the global economic crisis, competition, customer demand, government policies, inflation rates, exchange rates and
technological changes. We caution you that the foregoing list of factors is not exclusive and that other risks and uncertainties may cause actual results to differ materially from those in forward-looking statements.

Forward-looking statements speak only as of the date they are made. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information or future events or for any other reason.

You should
evaluate any statements made by us in light of these important factors.



1



---

##### Table of Contents

PART I

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

SELECTED FINANCIAL DATA

The selected consolidated financial data set forth below have been derived from our audited consolidated financial statements for each of
the five years in the period ended December 31, 2009, which have been reported on by Mancera, S.C., a Member Practice of Ernst & Young Global, an independent registered public accounting firm. The selected consolidated financial data
should be read in conjunction with, and are qualified in their entirety by reference to, our audited consolidated financial statements and notes thereto included elsewhere in this annual report.

Our consolidated financial statements have been prepared in accordance with Mexican Financial Reporting Standards, or Mexican FRS, which
differ in certain respects from generally accepted accounting principles in the United States, or U.S. GAAP. Note 17 to our audited consolidated financial statements provides a description of the principal differences between Mexican FRS and U.S.
GAAP, as they relate to us; a reconciliation to U.S. GAAP of net income and total stockholders equity; and condensed financial statements under U.S. GAAP.

Effect of Inflation Accounting

Due to the adoption of Mexican FRS B-10, effective January 1, 2008, we ceased to recognize the effects of inflation on our financial
information. Through December 31, 2007, under Bulletin B-10, inflation accounting had extensive effects on the presentation of our financial statements. In our financial information for 2008, inflation adjustments for prior periods have not
been removed from stockholders equity and the re-expressed amounts for non-monetary assets and liabilities at December 31, 2007 became the accounting basis for those assets and liabilities beginning on January 1, 2008 and for
subsequent periods, as required by Mexican FRS. Financial statements for periods prior to 2008 are presented in constant pesos as of December 31, 2007. See Item 5. Operating and Financial Review and ProspectsEffect of Inflation
Accounting.

In December 2007, we transferred our Latin American and yellow pages directory businesses to a new,
separate entity, Telmex Internacional, S.A.B. de C.V., or Telmex Internacional, in an escisión, or split-up. See Item 4. Information on the CompanyHistory. The businesses we transferred to
Telmex Internacional are presented as discontinued operations for dates and periods prior to the effective date of the Escisión, which was December 26, 2007 under Mexican FRS and June 10, 2008 under U.S. GAAP.
See Item 5. Operating and Financial Review and ProspectsU.S. GAAP Reconciliation and Note 2 to our audited consolidated financial statements.



2



---

##### Table of Contents

The figures below have been adjusted to give effect for all periods to the two-for-one stock
split that occurred in May 2005.



|                                                         |  |                                                                                                                                            |         |         |    |         |  |      |         |      |    |         |  |    |        
|-------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------ | ------- | ------- | -- | ------- |  | ---- | ------- | ---- | -- | ------- |  | -- | -------
|                                                         |  | Year ended December 31,                                                                                                                   
|                                                         |  | 2009(2)                                                                                                                                    |         | 2008(2) |    | 2007    |  | 2006 |         | 2005
|                                                         |  | (2009 and 2008 in millions of pesos, previous years in millions of constantpesos as
of December 31, 2007, except share and per share data)
|Income Statement Data:                                   |  |                                                                                                                                            |         |         |    |         |  |      |         |      |    |         |  |    |        
|Mexican FRS:                                             |  |                                                                                                                                            |         |         |    |         |  |      |         |      |    |         |  |    |        
|Operating revenues                                       |  | P.                                                                                                                                         | 119,100 |         | P. | 124,105 |  | P.   | 130,768 |      | P. | 129,755 |  | P. | 131,449
|Operating costs and expenses                             |  |                                                                                                                                            | 84,736  |         |    | 84,362  |  |      | 86,884  |      |    | 83,491  |  |    | 85,210 
|Operating income                                         |  |                                                                                                                                            | 34,364  |         |    | 39,743  |  |      | 43,884  |      |    | 46,264  |  |    | 46,239 
|Financing cost, net                                      |  |                                                                                                                                            | 4,314   |         |    | 9,233   |  |      | 3,349   |      |    | 3,770   |  |    | 5,699  
|Income from continuing operations, net of income tax     |  |                                                                                                                                            | 20,469  |         |    | 20,177  |  |      | 28,889  |      |    | 27,701  |  |    | 27,263 
|Income from discontinued operations, net of income tax   |  |                                                                                                                                            |        |         |    |        |  |      | 7,166   |      |    | 2,615   |  |    | 4,926  
|Net income                                               |  |                                                                                                                                            | 20,469  |         |    | 20,177  |  |      | 36,055  |      |    | 30,316  |  |    | 32,189 
|Earnings per
share(1)                                    |  |                                                                                                                                            | 1.11    |         |    | 1.07    |  |      | 1.80    |      |    | 1.41    |  |    | 1.35   
|Earnings per share from continuing operations            |  |                                                                                                                                            | 1.11    |         |    | 1.07    |  |      | 1.46    |      |    | 1.32    |  |    | 1.19   
|Earnings per share from discontinued operations          |  |                                                                                                                                            |        |         |    |        |  |      | 0.34    |      |    | 0.09    |  |    | 0.16   
|Dividends paid per share
(nominal)(1)                    |  |                                                                                                                                            | 0.845   |         |    | 0.413   |  |      | 0.440   |      |    | 0.403   |  |    | 0.370  
|Weighted average number of shares outstanding (millions) |  |                                                                                                                                            | 18,383  |         |    | 18,906  |  |      | 19,766  |      |    | 20,948  |  |    | 22,893 
|U.S. GAAP:                                               |  |                                                                                                                                            |         |         |    |         |  |      |         |      |    |         |  |    |        
|Operating revenues                                       |  | P.                                                                                                                                         | 119,100 |         | P. | 124,105 |  | P.   | 130,768 |      | P. | 129,755 |  | P. | 131,449
|Operating costs and expenses                             |  |                                                                                                                                            | 87,128  |         |    | 85,749  |  |      | 89,983  |      |    | 87,676  |  |    | 89,782 
|Operating income                                         |  |                                                                                                                                            | 31,972  |         |    | 38,356  |  |      | 40,785  |      |    | 42,079  |  |    | 41,667 
|Income from continuing operations, net of income tax     |  |                                                                                                                                            | 19,818  |         |    | 19,782  |  |      | 28,985  |      |    | 27,087  |  |    | 26,221 
|Income from discontinued operations, net of income tax   |  |                                                                                                                                            |        |         |    | 2,173   |  |      | 6,848   |      |    | 1,081   |  |    | 3,100  
|Net
income(3)                                            |  |                                                                                                                                            | 19,818  |         |    | 21,955  |  |      | 35,833  |      |    | 28,168  |  |    | 29,321 
|Earnings per
share(1)                                    |  |                                                                                                                                            | 1.08    |         |    | 1.16    |  |      | 1.79    |      |    | 1.37    |  |    | 1.28   
|Earnings per share from continuing operations            |  |                                                                                                                                            | 1.08    |         |    | 1.05    |  |      | 1.47    |      |    | 1.29    |  |    | 1.14   
|Earnings per share from discontinued operations          |  |                                                                                                                                            |        |         |    | 0.11    |  |      | 0.32    |      |    | 0.08    |  |    | 0.14   
|Dividends paid per share
(nominal)(1)                    |  |                                                                                                                                            | 0.845   |         |    | 0.413   |  |      | 0.440   |      |    | 0.403   |  |    | 0.370  

(See footnotes on
following page)



3



---

##### Table of Contents

|                                                      |  |                                                                                                                                                       |           |         |  |           |  |      |           |      |  |           |  |  |          
|----------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | ------- |  | --------- |  | ---- | --------- | ---- |  | --------- |  |  | ---------
|                                                      |  | December 31,                                                                                                                                         
|                                                      |  | 2009(2)                                                                                                                                               |           | 2008(2) |  | 2007      |  | 2006 |           | 2005
|                                                      |  | (2009 and 2008 in millions of pesos, previous years in millions of constantpesos as of December 31, 2007, except share and per share data
and ratios)
|Balance Sheet Data:                                   |  |                                                                                                                                                       |           |         |  |           |  |      |           |      |  |           |  |  |          
|Mexican FRS:                                          |  |                                                                                                                                                       |           |         |  |           |  |      |           |      |  |           |  |  |          
|Plant, property and equipment, net                    |  |                                                                                                                                                       | P.104,305 |         |  | P.112,865 |  |      | P.120,649 |      |  | P.124,613 |  |  | P.130,088
|Total assets from continuing operations               |  |                                                                                                                                                       | 178,355   |         |  | 187,125   |  |      | 172,826   |      |  | 188,182   |  |  | 200,793  
|Total assets from discontinued operations             |  |                                                                                                                                                       |          |         |  |          |  |      |          |      |  | 107,366   |  |  | 93,980   
|Total assets                                          |  |                                                                                                                                                       | 178,355   |         |  | 187,125   |  |      | 172,826   |      |  | 295,548   |  |  | 294,773  
|Short-term debt and current portion of long-term debt |  |                                                                                                                                                       | 19,769    |         |  | 22,883    |  |      | 12,282    |      |  | 9,041     |  |  | 14,501   
|Long-term debt                                        |  |                                                                                                                                                       | 83,105    |         |  | 84,172    |  |      | 79,180    |      |  | 81,376    |  |  | 75,696   
|Total stockholders equity                            |  |                                                                                                                                                       | 38,321    |         |  | 39,371    |  |      | 42,159    |      |  | 121,321   |  |  | 135,879  
|Capital stock                                         |  |                                                                                                                                                       | 9,020     |         |  | 9,139     |  |      | 9,403     |      |  | 28,011    |  |  | 29,728   
|Number of outstanding shares (millions)               |  |                                                                                                                                                       |           |         |  |           |  |      |           |      |  |           |  |  |          
|Series AA                                             |  |                                                                                                                                                       | 8,115     |         |  | 8,115     |  |      | 8,115     |      |  | 8,115     |  |  | 8,115    
|Series A                                              |  |                                                                                                                                                       | 395       |         |  | 407       |  |      | 430       |      |  | 446       |  |  | 479      
|Series L                                              |  |                                                                                                                                                       | 9,682     |         |  | 10,033    |  |      | 10,815    |      |  | 11,642    |  |  | 13,451   
|U.S. GAAP:                                            |  |                                                                                                                                                       |           |         |  |           |  |      |           |      |  |           |  |  |          
|Plant, property and equipment, net                    |  |                                                                                                                                                       | P.106,453 |         |  | P.115,676 |  |      | P.124,825 |      |  | P.130,215 |  |  | P.136,824
|Total assets from continuing operations               |  |                                                                                                                                                       | 167,453   |         |  | 177,033   |  |      | 163,263   |      |  | 183,815   |  |  | 207,272  
|Total assets from discontinued operations             |  |                                                                                                                                                       |          |         |  |           |  |      | 132,191   |      |  | 87,807    |  |  | 70,466   
|Total assets                                          |  |                                                                                                                                                       | 167,453   |         |  | 177,033   |  |      | 295,454   |      |  | 271,622   |  |  | 277,738  
|Short-term debt and current portion of long-term debt |  |                                                                                                                                                       | 19,769    |         |  | 22,883    |  |      | 12,282    |      |  | 9,041     |  |  | 14,501   
|Long-term debt                                        |  |                                                                                                                                                       | 83,105    |         |  | 84,172    |  |      | 79,180    |      |  | 81,376    |  |  | 75,696   
|Total stockholders
equity(3)                         |  |                                                                                                                                                       | 7,465     |         |  | 11,309    |  |      | 122,414   |      |  | 103,195   |  |  | 117,935  
|Capital stock                                         |  |                                                                                                                                                       | 9,020     |         |  | 9,139     |  |      | 27,231    |      |  | 28,011    |  |  | 29,728   
|                                                      |  |                                                                                                                                                       |           |         | 
|Other Data:                                           |  |                                                                                                                                                       |           |         |  |           |  |      |           |      |  |           |  |  |          
|Mexican FRS:                                          |  |                                                                                                                                                       |           |         |  |           |  |      |           |      |  |           |  |  |          
|Ratio of earnings to fixed
charges(4)                 |  |                                                                                                                                                       | 5.7       |         |  | 4.9       |  |      | 7.1       |      |  | 6.7       |  |  | 7.0      
|U.S. GAAP:                                            |  |                                                                                                                                                       |           |         |  |           |  |      |           |      |  |           |  |  |          
|Ratio of earnings to fixed
charges(5)                 |  |                                                                                                                                                       | 5.6       |         |  | 4.9       |  |      | 7.0       |      |  | 6.7       |  |  | 6.8      



|(1) | We have not presented net income or dividends on a per ADS basis. Each L Share ADS represents 20 L Shares, and each A Share ADS represents 20 A Shares. At a regular
meeting held on December 1, 2009, the stockholders agreed to declare an extraordinary cash dividend of P. 0.40 per outstanding share, to be paid in a single payment beginning on December 17, 2009.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Note 1 to our audited consolidated financial statements describes new accounting pronouncements under Mexican FRS that became effective in 2009 and 2008. The
pronouncements that became effective on January 1, 2009 and 2008 were fully implemented in the financial statements included in this annual report. These new accounting pronouncements were applied on a prospective basis. As a result, the
financial statements of prior years, which are presented for comparative purposes, have not been modified and may not be comparable to our financial statements for 2009 and 2008.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Prior years were retrospectively adjusted for presentation and disclosure purposes, in accordance with amendments to ASC 810 Consolidation. See Note 17. Differences
between Mexican FRS and U.S. GAAPto our audited consolidated financial statements. ASC 810 states that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the
consolidated financial statements, and requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Earnings for this purpose consist of earnings from continuing operations before provision for income tax and equity interest in net income of affiliates, plus fixed
charges during the period. Fixed charges for this purpose consist of interest expense during the period. Fixed charges do not take into account gain or loss from monetary position or exchange gain or loss attributable to our indebtedness.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Earnings for this purpose consist of earnings from continuing operations before provision for income tax and equity interest in net income of affiliates, plus fixed
charges and depreciation of capitalized interest and minus interest capitalized during the period. Fixed charges for this purpose consist of interest expense plus interest capitalized during the period. Fixed charges do not take into account gain or
loss from monetary position or exchange gain or loss attributable to our indebtedness.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



4



---

##### Table of Contents

EXCHANGE RATES

The following table sets forth, for the periods indicated, the high, low, average and period-end exchange rate expressed in pesos per
U.S. dollar.



|         |  |      |           |     |    |            |  |            |           |  |   |         
|-------- |  | ---- | --------- | --- | -- | ---------- |  | ---------- | --------- |  | - | --------
|Period   |  | High |           | Low |    | Average(1) |  | Period End
|2005     |  |      | P.  10.41 |     | P. | 11.41      |  |            | P.  10.87 |  | P | .  10.63
|2006     |  |      | 10.43     |     |    | 11.46      |  |            | 10.90     |  |   | 10.80   
|2007     |  |      | 10.67     |     |    | 11.27      |  |            | 10.84     |  |   | 10.92   
|2008     |  |      | 9.92      |     |    | 13.94      |  |            | 11.21     |  |   | 13.83   
|2009     |  |      | 12.63     |     |    | 15.41      |  |            | 13.58     |  |   | 13.06   
|         |  |      |           |    
|2009:    |  |      |           |     |    |            |  |            |           |  |   |         
|December |  |      | 12.63     |     |    | 13.08      |  |            | 12.86     |  |   | 13.06   
|2010:    |  |      |           |     |    |            |  |            |           |  |   |         
|January  |  |      | 12.65     |     |    | 13.03      |  |            | 12.81     |  |   | 13.03   
|February |  |      | 12.76     |     |    | 13.19      |  |            | 12.94     |  |   | 12.76   
|March    |  |      | 12.30     |     |    | 12.74      |  |            | 12.57     |  |   | 12.30   
|April    |  |      | 12.16     |     |    | 12.41      |  |            | 12.24     |  |   | 12.23   



Sources: The U.S. Federal Reserve Bank of New York and the U.S. Federal Reserve Board.



|(1) | Average of month-end rates, where applicable.
|--- | ---------------------------------------------

On May 7, 2010, the exchange rate was P.12.83 to U.S.$1.00, according to the U.S. Federal Reserve Board.

We pay cash dividends in pesos, and exchange rate fluctuations affect the U.S. dollar amounts received by holders of our American
Depositary Shares, or ADSs, on conversion by the depositary of cash dividends on the shares represented by such ADSs. Fluctuations in the exchange rate between the peso and the U.S. dollar affect the U.S. dollar equivalent of the peso price of our
shares on the Mexican Stock Exchange (Bolsa Mexicana de Valores, S.A.B. de C.V.) and, as a result, can also affect the market price of the ADSs.



5



---

##### Table of Contents

RISK FACTORS

Risks Relating to Our Business Generally

Competition and shifting usage patterns are adversely affecting our revenues and profitability

Our revenues and our profitability continue to be adversely affected by increasing competition and by changes in how customers use
telecommunications services. Our fixed-line network services face increasing competition from other technologies including wireless telephone service, wireless data service, cable television providers that offer telephone service, Voice over
Internet Protocol (VoIP) service and others  and the substitution of fixed-line telephony by these technologies. This process has adversely affected our traffic volume and our results of operations and will likely continue to do so in the
future.

In addition to competition from other technologies, we also have numerous competitors in local service and in
long-distance services. Governmental authorities in Mexico continue to grant new licenses and concessions to new market entrants, which results in increased competition.

The Mexican authorities have also adopted regulations to permit cable television providers to provide voice-transmission services to
local fixed-line telecommunications operators and data and broadband Internet access services to the Mexican public. As of December 31, 2009, 28 cable television providers, which have been granted a total of 60 concessions, have been authorized
to provide local fixed-line voice-transmission service in various cities in Mexico. Regulations have also been adopted to allow us and other local telephone service providers to provide paid television and audio services, but to date we have been
unable to obtain authorization to do so.

The effects of competition on our business are highly uncertain and depend on a
variety of factors, including economic conditions, regulatory developments, the behavior of our customers and competitors and the effectiveness of measures we take in response to competition. Our ability to compete successfully depends on customer
service, marketing and our ability to anticipate and respond to various competitive factors affecting the telecommunications industry, including new services and technologies, changes in consumer preferences, demographic trends, economic conditions
and the commercial strategies of our competitors. If we are unable to respond to competition and compensate for declining prices by adding new customers, increasing usage and offering new services, our revenues and profitability could decline.

Regulatory developments could hurt our business by limiting our ability to pursue competitive and profitable strategies

Our business is subject to extensive government regulation, and it can be adversely affected by changes in law,
regulation or regulatory policy that limit our ability to modify our business strategy. In particular, the regulatory developments described below could adversely affect us.



| |  |  | Between November 2007 and February 2008, the Competition Commission (Comisión Federal de Competencia) began seven industry-wide
investigations into market power and monopolistic practices in certain segments of the Mexican telecommunications market. In four of these investigations, final resolutions have concluded that we and our subsidiary, Teléfonos del Noroeste,
S.A. de C.V. or Telnor, have substantial power in the relevant markets investigated. Based on these final resolutions, the Mexican Federal Telecommunications Commission (Comisión Federal de Telecomunicaciones, or Cofetel) could impose
specific tariff requirements or other special regulations such as additional requirements regarding disclosure of information or quality of service. We have filed
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



6



---

##### Table of Contents

petitions for constitutional protection (amparo) to challenge these resolutions, all
of which are pending. The three remaining investigations, relating to monopolistic practices, are in the stage of information collection and analysis, and we cannot predict their outcome. Findings adverse to us in any of the Competition Commission
proceedings may lead to the imposition of additional regulations, prohibitions or monetary penalties, which in turn could have an adverse effect on our business and results of operations.



| |  |  | In February 2009, Cofetel published a Fundamental Technical Plan of Interconnection and Inter-Operability, or the Fundamental Technical Plan, which
requires operators with the greatest number of access points to provide other operators with access to our network on an unbundled basis that disaggregates the prices for different service elements. We believe this may result in pricing
network access at rates below the recovery cost for our infrastructure investments and may have a negative impact on us and the Mexican telecommunications sector in general. In October 2009, Cofetel issued two resolutions determining that we and
Telnor are operators with the largest number of access points in our respective concession coverage areas. We have filed petitions for constitutional protection (amparo) against the Fundamental Technical Plan and these resolutions, which are
pending.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In November 2005, Cofetel issued guidelines for making changes to local service areas, including the consolidation of such local service areas. We are
challenging the legality of the underlying guidelines in the Mexican courts. If the guidelines are upheld and new resolutions to consolidate our local service areas are implemented, we believe this consolidation would have an adverse impact on our
revenues from long-distance service.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Adverse global economic conditions and, in particular, the
slowdown of the U.S. and Mexican economies, could have a negative impact on our operating results and financial condition

Our business is influenced by general economic conditions worldwide and in Mexico. Further deterioration in the economic environment could
have an adverse effect on demand for some of our products and services. The Mexican economy is influenced by the U.S. economy, so a deterioration in economic conditions or delayed recovery of the U.S. economy may hinder a recovery in Mexico. In
difficult economic conditions our customers may seek to reduce discretionary spending. Under these conditions our business customers may delay purchasing decisions, delay full implementation of service offerings or reduce their use of services.
Adverse economic conditions may also lead to an increase in the number of our residential and business customers that are unable to pay for services. If these events were to occur, it could have a material adverse effect on our business and results
of operations.

The ongoing uncertainty in global financial markets could adversely affect our financing costs and
exposure to our customers and counterparties

The recent instability in the global financial markets and ongoing
uncertainty affecting these markets have resulted in extreme volatility in the credit, equity and fixed income markets. This volatility has limited many companies access to funding. If access to credit tightens further and borrowing costs
rise, our costs could be adversely affected. Difficult financial markets may also adversely affect some of our customers, including other telecommunications carriers that pay us for interconnection and other services. In addition, we enter into
derivative transactions with large financial institutions to support our treasury operations, including contracts to hedge our exposure to interest rates and foreign exchange, and we could be adversely affected by severe financial difficulties faced
by our counterparties.



7



---

##### Table of Contents

Our industry is subject to rapid technological changes, which could adversely affect
our ability to compete

The telecommunications industry is subject to rapid technological change. Our future success
depends, in part, on our ability to anticipate and adapt in a timely manner to technological changes. We expect that new products and technologies will emerge and that existing products and technologies will further develop. These new products and
technologies may reduce the prices we can charge for our services or they may be superior to, and render obsolete, the products and services we offer and the technologies we use. They may consequently reduce the revenues generated by our products
and services or require investment in new technology. As a result, our most significant competitors in the future may be new entrants to our markets that would not be burdened by an installed base of older equipment.

Developments in the telecommunications sector may result in substantial write-downs of the carrying value of certain of our assets

We review the value of our long-lived assets, where the circumstances require, to assess whether those carrying values
can be supported by the future cash flows expected to be derived from those assets. In addition, whenever we consider that our fixed assets, intangible assets or goodwill may be impaired due to changes in the economic, regulatory or business
environment, we consider the necessity of performing certain valuation tests, which may result in impairment charges. The recognition of impairments of long-lived tangible and intangible assets could result in a non-cash charge on our income
statement, which could adversely affect our results of operations.

A network failure could cause delays or
interruptions of service, which could cause us to lose customers and revenues

We will need to continue to provide our
users with reliable service over our network. Some of the risks to our network and infrastructure include physical damage to our network, natural disasters such as hurricanes, earthquakes, floods and storms, among others, and other disruptions
beyond our control. Although we carry casualty insurance against loss and we have implemented redundancy in our network and installed backup technologies, disruptions may cause interruptions in service or reduced capacity for customers, either of
which could cause us to lose customers and revenues or incur additional expenses.

We are exposed to currency and
interest rate risk on our debt, and we have entered into derivatives contracts to limit these risks

A substantial part
of our indebtedness is denominated in U.S. dollars, and we have relatively limited assets and revenues denominated in U.S. dollars. As of December 31, 2009, our U.S. dollar-denominated indebtedness amounted to P.66,643 million. In addition, a
substantial part of our indebtedness bears interest at variable rates. As a result, we are exposed to risks from changing currency exchange rates and interest rates.

To offset these risks, we enter into derivative financial instruments with large financial institutions to minimize the impact of
fluctuations in exchange rates and variable interest rates on our indebtedness. We have not entered into derivative financial instruments for any other purposes, although we may do so in the future. The types of derivative instruments we have
typically entered into in recent periods include cross-currency swaps (in which we generally pay peso amounts based on peso interest rates and receive U.S. dollar amounts based on dollar interest rates), interest-rate swaps (in which we generally
pay amounts based on fixed interest rates and receive amounts based on variable interest rates) and forward exchange contracts (in which we generally agree to use pesos to purchase U.S. dollars at a future date).



8



---

##### Table of Contents

Our derivative financial instruments do not provide complete protection against the exchange
rate or interest-rate risk of our indebtedness. We may determine that the risks are acceptable or that the protection available through derivative financial instruments in the market is insufficient or too costly. These determinations depend on many
factors, including market conditions, the specific risks in question, and our expectations concerning future market developments. We review and change our derivatives positions regularly, and our hedging policies change from time to time.

When the financial markets are volatile, as they have been in recent periods, our results of operations may be substantially
affected by variations in exchange rates and, to a lesser degree, interest rates. These effects include foreign exchange gain and loss on assets and liabilities denominated in U.S. dollars, fair value gain and loss on derivative financial
instruments, and changes in interest income and interest expense. These effects are much more volatile than our operating performance or our operating cash flows.

We attempt to match the cash flows on our derivative financial instruments with the cash flows on our indebtedness. The net effects on
our reported results in any period are difficult to predict and depend on market conditions and on the specifics of our derivatives positions. For example, in 2009 the peso appreciated against the U.S. dollar by 3.5%. As a result, in 2009, we
recognized a net exchange gain on our U.S. dollar denominated debt and a net fair value loss on currency derivatives. In 2009, we also recognized lower interest expense due to a lower average level of debt.

Our derivative financial instruments are also subject to the risk that counterparties will default or seek bankruptcy protection. The
instability and uncertainty in the financial markets has made it more difficult to assess the risk of counterparties to derivatives contracts. Moreover, in light of the greater volatility in the global securities and exchange markets, there may be
fewer financial entities available with which we could continue entering into derivative financial instruments to protect against currency and interest rate risk.

Substantially all our business is in Mexico, so we are affected by adverse economic or political conditions in Mexico

Substantially all of our business operations and assets are located in Mexico. Our financial performance may be
affected by general economic, political and social conditions in Mexico. In the past, Mexico has experienced both prolonged periods of weak economic conditions and deterioration in economic conditions that have had a negative impact on our company.
Mexico has also experienced high levels of inflation and high domestic interest rates in the past, which significantly lowered the purchasing power of consumers and businesses. Mexico began to enter a recession in the fourth quarter of 2008, during
which GDP fell by approximately 1.6%. GDP fell by an additional 6.5% in 2009. If the current Mexican economic downturn continues or worsens or if inflation and interest rates increase significantly, our business, financial condition and results of
operations could suffer material adverse consequences because, among other things, demand for telecommunications services may decrease and consumers may find it difficult to pay for the services we offer.

Risks Relating to Our Controlling Shareholder and Capital Structure

We are controlled by one shareholder

A majority of the voting shares of our company (71.6% as of January 15, 2010) is owned by Carso Global Telecom, S.A.B. de C.V., or
Carso Global Telecom. Carso Global Telecom has the effective power to designate a majority of the members of our Board of Directors and to determine the outcome of other actions requiring a vote of the shareholders, except in very limited cases that
require a



9



---

##### Table of Contents

vote of the holders of L Shares. Carso Global Telecom is controlled by Carlos Slim Helú and members
of his immediate family, who, taken together, own a majority of the common stock of Carso Global Telecom.

On May 11, 2010,
América Móvil launched two concurrent public exchange offers to acquire the outstanding shares of Carso Global Telecom and Telmex Internacional. Shareholders of Carso Global Telecom have been offered 2.0474 shares of América
Móvil for each share of Carso Global Telecom. If the exchange offer is accepted by the shareholders of Carso Global Telecom, América Móvil will indirectly acquire 59.4% of our shares. Like Carso Global Telecom, América
Móvil is controlled by Carlos Slim Helú and members of his immediate family.

The protections afforded to
minority shareholders in Mexico are different from those in the United States

Our bylaws provide that any dispute
between us and our shareholders will be governed by Mexican law and that legal actions relating to the execution, interpretation or performance of the bylaws may be brought only in Mexican courts. Under Mexican law, the protections afforded to
minority shareholders are different from those in the United States. In particular, the case law concerning fiduciary duties of directors is not well developed, there is no procedure for class actions, there are different procedural requirements for
bringing shareholder lawsuits and there are different discovery rules. As a result, it may be more difficult in practice for minority shareholders of Telmex to enforce their rights against us, our directors or our controlling shareholder than it
would be for shareholders of a U.S. company.

We engage in transactions with related parties that may create the
potential for conflicts of interest

We engage in transactions with entities that, like us, are controlled, directly or
indirectly, by Carlos Slim Helú and members of his immediate family. These entities include (a) Telmex Internacional, and its subsidiaries, (b) Grupo Carso, S.A.B. de C.V., or Grupo Carso, and its subsidiaries, (c) Grupo
Financiero Inbursa, S.A.B. de C.V., or Grupo Financiero Inbursa, and its subsidiaries, (d) América Móvil and its subsidiaries, and (e) Carso Global Telecom. Our transactions with Telmex Internacional include the completion of
international traffic in each others countries of operation, Telmex Internacionals printing and distribution of our directories and Telmex Internacionals access to our customer database and our billing and collection system in
connection with its directories business. Transactions with Grupo Carso include the purchase of network construction services and materials, and transactions with Grupo Financiero Inbursa include financial services and insurance. The largest
component of our transactions with América Móvil in terms of amounts paid is interconnection between our respective networks in Mexico. We pay fees for consulting and management services to Carso Global Telecom and AT&T
International (one of our principal shareholders), and have agreements with AT&T International that provide for the completion of calls in our respective countries of operation.

We may also make investments jointly with related parties, sell our investments to related parties and buy investments from related
parties. We pursued joint investments with América Móvil to acquire equity interests in Compañía Anónima Nacional Teléfonos de Venezuela in 2006 and Olimpia, an Italian company that owns 18% of the total
capital of Telecom Italia in 2007. Neither of these transactions was completed.

Our transactions with related parties may
create the potential for conflicts of interest.



10



---

##### Table of Contents

Holders of L Shares and L Share ADSs have limited voting rights

Our bylaws provide that holders of L Shares are not permitted to vote except on such limited matters as the transformation or merger of
Telmex or the cancellation of registration of the L Shares with the National Securities Registry (Registro Nacional de Valores), managed by the Mexican National Banking and Securities Commission (Comisión Nacional Bancaria y de
Valores), or any stock exchange on which they are listed. If you hold L Shares or L Share ADSs, you will not be able to vote on most matters, including the declaration of dividends, that are subject to a shareholder vote in accordance with our
bylaws.

Holders of ADSs are not entitled to attend shareholders meetings, and they may only vote through the ADS
depositary

Under Mexican law, a shareholder is required to deposit its shares with a custodian in order to attend a
shareholders meeting. As long as a shareholder holds shares in ADS form, the shareholder will not be able to satisfy this requirement. There can be no assurance that holders of ADSs will receive notice of shareholders meetings from our
ADS depositary in sufficient time to enable such holders to return voting instructions to the ADS depositary in a timely manner. In the event that instructions are not received with respect to any shares underlying ADSs, the ADS depositary will,
subject to certain limitations, grant a proxy to a person designated by us. In the event that this proxy is not granted, the ADS depositary will vote these shares in the same manner as the majority of the shares of each class for which voting
instructions are received.

You may not be entitled to preemptive rights

Under Mexican law, if we issue new shares for cash as part of a capital increase, we generally must grant our shareholders the right to
purchase a sufficient number of shares to maintain their existing ownership percentage in Telmex. Rights to purchase shares in these circumstances are known as preemptive rights. Preemptive rights do not arise upon the sale of newly issued shares in
a public offering or the resale of shares of capital stock previously repurchased by us.

We may not legally be permitted to
allow holders of ADSs or holders of L Shares or A Shares in the United States to exercise any preemptive rights in any future capital increase unless we file a registration statement with the U.S. Securities and Exchange Commission, or SEC, with
respect to that future issuance of shares. At the time of any future capital increase, we will evaluate the costs and potential liabilities associated with filing a registration statement with the SEC and any other factors that we consider important
to determine whether we will file such a registration statement. We cannot assure you that we will file a registration statement with the SEC to allow holders of ADSs or U.S. holders of L Shares or A Shares to participate in a preemptive rights
offering. As a result, the equity interest of such holders in Telmex may be diluted proportionately. In addition, under current Mexican law, it is not practicable for the ADS depositary to sell preemptive rights and distribute the proceeds from such
sales to ADS holders.

Our bylaws restrict the acquisition of shares in some circumstances

Our bylaws provide that any acquisition of more than 10% of our capital stock by any person or group of persons acting together requires
the approval of our Board of Directors. If you wish to acquire more than 10% of our capital stock, you will not be able to do so without the approval of our Board of Directors.



11



---

##### Table of Contents

Our bylaws restrict the ability of non-Mexican shareholders to invoke the protection
of their governments with respect to their rights as shareholders

As required by Mexican law, our bylaws provide that
non-Mexican shareholders shall be considered as Mexicans in respect of their ownership interests in Telmex and shall be deemed to have agreed not to invoke the protection of their governments in certain circumstances. Under this provision, a
non-Mexican shareholder is deemed to have agreed not to invoke the protection of his own government by asking such government to interpose a diplomatic claim against the Mexican government with respect to the shareholders rights as a
shareholder, but is not deemed to have waived any other rights he may have, including any rights under the U.S. securities laws, with respect to his investment in Telmex. If you invoke such governmental protection in violation of this agreement,
your shares could be forfeited to the Mexican government.

It may be difficult to enforce civil liabilities against us
or our directors, officers and controlling persons

Telmex is organized under the laws of Mexico, and most of our
directors, officers and controlling persons reside outside the United States. In addition, all or a substantial portion of our assets and the assets of our directors, officers and controlling persons are located in Mexico. As a result, it may be
difficult for investors to effect service of process within the United States on such persons or to enforce judgments against them, including in any action based on civil liabilities under the U.S. federal securities laws. There is doubt as to the
enforceability against such persons in Mexico, whether in original actions or in actions to enforce judgments of U.S. courts, of liabilities based solely on the U.S. federal securities laws.



12



---

##### Table of Contents

Item 4. Information on the Company

GENERAL

Overview

We own and
operate a fixed-line telecommunications system in Mexico, where we are the only nationwide provider of fixed-line telephony services. We also provide other telecommunications and telecommunications-related services such as corporate networks,
Internet access services, information network management, telephone and computer equipment sales, and interconnection services to other carriers.

We have developed a multi-service network in which 94.5% of our lines have the capacity to provide simultaneous transmission of voice and
data through a broadband connection. Our network capability allowed us to increase the number of customers of our broadband Internet access service by 30.2% in 2009 to over 6.5 million. At the same time, we are extending our voice and Internet
access services to remote areas. We participate in the Social Coverage Fund II (Fondo de Cobertura Social) that, together with the Social Coverage Fund I, will allow us to provide voice, data and Internet access services to more than
8.7 million people in over 11,000 communities, through 254,000 rural lines. We currently provide these services to 6.9 million people in over 8,500 communities.

In 2009, we continued our efforts to grow voice and data service revenues by offering multiple-service products. In addition, we have
made investments to increase our service offerings and to update the telecommunications platform in rural areas where we are the sole telecommunications carrier. We plan to continue expanding our multiple-service offerings in the future and to take
advantage of technological advances in order to provide our customers with packages that combine voice, data and video.

We
intend to provide paid television and audio services and to expand our multi-service products to include triple play packages, which would include telephone, Internet access and paid television services in a single subscription. However,
we have not been able to obtain the regulatory authorization we need to offer television and audio services. A Convergence Agreement (Acuerdo de Convergencia), issued in October 2006 by the Communication Ministry, established the requirements
that market participants must meet to foster full convergence of telephone, Internet and television services in Mexico. Even though we believe we have met all the requirements, we still do not have authorization to offer television and audio
services, and we believe that this situation is negatively affecting the technological development of our country.

Substantially all of our operations are now conducted in Mexico. Our strategy is to increase the value of our lines by capitalizing on
our extensive and modern infrastructure and our technical capabilities to provide high-quality services to our customers across Mexico, pursuing growth in the broadband and data businesses, introducing and promoting packaged service offerings
combining broadband with voice services at attractive prices, and maintaining our focus on customer service. In Mexicos major population centers, data is a source of growth, and we are well positioned to deliver Internet access and meet the
demands of the growing data market. We plan to increase sales of computer equipment at our Telmex stores and increase the Internet penetration rate in Mexico.

We are a Mexican corporation headquartered in Mexico City, Mexico. Our legal name is Teléfonos de México, S.A.B. de C.V.,
and we frequently refer to ourselves commercially as Telmex. Our principal executive offices are located at Parque Vía 190, Colonia Cuauhtémoc, 06599 México, D.F., México. Our telephone number at this location is
(52) 55 5703-3990. Our website can be accessed at www.telmex.com.



13



---

##### Table of Contents

In this annual report, we, us or our refers to
Teléfonos de México, S.A.B. de C.V. and, where the context requires, its consolidated subsidiaries.

History

We were formed in 1947 under private foreign ownership to acquire the Mexican telephone business of a wholly owned subsidiary of the LM
Ericsson group of Sweden. In 1950, we acquired the Mexican telephone business of a wholly owned subsidiary of the International Telephone and Telegraph Company, which operated the only other national telephone network in Mexico at that time. In
1972, the Mexican federal government acquired the majority of our capital stock. In December 1990, the Mexican government sold shares representing voting control of our company. The Mexican government sold the balance of its shares in a series
of transactions beginning in May 1991.

In September 2000, we transferred our Mexican wireless
business and our foreign operations at the time to América Móvil in an escisión, or split-up. Beginning in 2004, we expanded our operations outside Mexico through a series of acquisitions in
Brazil, Argentina, Chile, Colombia, Peru, Ecuador and the United States. In December 2007, we transferred our Latin American and yellow pages directory businesses to a new, separate entity, Telmex Internacional, in a second
escisión, or split-up (the Escisión). In an escisión, an existing company is divided, creating a new company to which
specified assets and liabilities are allocated. The shares of the new company are issued to the shareholders of the existing company, pro rata to their share ownership in the existing company. This procedure differs from the procedure by which a
spin-off is typically conducted in the United States, where a parent company distributes to its shareholders shares of a subsidiary.

The Escisión was approved by our shareholders on December 21, 2007. The establishment of Telmex Internacional became
effective on December 26, 2007. As of the effective date of the Escisión, each holder of Telmex shares became the owner of an equal number of Telmex Internacional shares of the corresponding class, and each Telmex ADS represented
an equal number of Telmex and Telmex Internacional shares. On June 10, 2008, the shares and ADSs of Telmex Internacional began trading separately from our shares and ADSs on the Mexican Stock Exchange and the New York Stock Exchange.

On May 11, 2010, América Móvil launched two concurrent public exchange offers to acquire the outstanding shares
of Carso Global Telecom and Telmex Internacional. Shareholders of Carso Global Telecom have been offered 2.0474 shares of América Móvil for each share of Carso Global Telecom. If the exchange offer is accepted by the shareholders of
Carso Global Telecom, América Móvil will indirectly acquire 59.4% of our shares. Like Carso Global Telecom, América Móvil is controlled by Carlos Slim Helú and members of his immediate family.



14



---

##### Table of Contents

Significant Subsidiaries and Investees

The following table sets forth our significant subsidiaries and investees accounted for using the equity method at December 31, 2009:



|                                                    |  |                              |  |                                          |   |  |                                                                                                                                                                                                                                                                                                             
|--------------------------------------------------- |  | ---------------------------- |  | ---------------------------------------- | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name of Company                                     |  | Jurisdiction ofestablishment |  | Percentage ofownershipand votinginterest |   |  | Description                                                                                                                                                                                                                                                                                                 
|Subsidiaries                                        |  |                              |  |                                          |   |  |                                                                                                                                                                                                                                                                                                             
|                                                    |  |                              | 
|Integración de Servicios TMX, S.A. de C.V.          |  | Mexico                       |  | 100                                      | % |  | Intermediate holding company.                                                                                                                                                                                                                                                                               
|                                                    |  |                              | 
|Alquiladora de Casas, S.A. de C.V.                  |  | Mexico                       |  | 100                                      | % |  | Real estate company owning our facilities.                                                                                                                                                                                                                                                                  
|                                                    |  |                              | 
|Compañía de Teléfonos y Bienes Raíces, S.A. de C.V. |  | Mexico                       |  | 100                                      | % |  | Real estate company owning our facilities.                                                                                                                                                                                                                                                                  
|                                                    |  |                              | 
|Consorcio Red Uno, S.A. de C.V.                     |  | Mexico                       |  | 100                                      | % |  | Supplier of telecommunications network integration services and information systems.                                                                                                                                                                                                                        
|                                                    |  |                              | 
|Teléfonos del Noroeste, S.A. de C.V.                |  | Mexico                       |  | 100                                      | % |  | Fixed-line public network concessionaire for the state of Baja California Norte and the San Luis Rio Colorado region of the state of Sonora.                                                                                                                                                                
|                                                    |  |                              | 
|Uninet, S.A. de C.V.                                |  | Mexico                       |  | 100                                      | % |  | Provider of corporate networks and Internet access services to Telmex and corporate customers.                                                                                                                                                                                                              
|                                                    |  |                              | 
|Telmex USA, L.L.C.                                  |  | Delaware                     |  | 100                                      | % |  | Authorized long-distance service re-seller, provider of prepaid telephone cards and payment collection services for lines in Mexico (installation and monthly rental), and
authorized by the FCC to provide facility-based long-distance services, data transmission and cross-border data transit services.
|                                                    |  |                              | 
|Affiliated companies                                |  |                              |  |                                          |   |  |                                                                                                                                                                                                                                                                                                             
|Grupo Telvista S.A. de C.V.                         |  | Mexico                       |  | 45                                       | % |  | Provider of telemarketing services in the United States and Mexico.                                                                                                                                                                                                                                         
|                                                    |  |                              | 
|2Wire, Inc.                                         |  | California                   |  | 13                                       | % |  | Broadband network equipment and service provider for residential and small-business customers.                                                                                                                                                                                                              



15



---

##### Table of Contents

OPERATIONS

At March 31, 2010, we had 15.8 million local fixed billed lines in service in Mexico, down 9.7 % from
March 31, 2009.

Of our revenues in 2009, 37.8% was attributable to local service, 17.5% to long-distance service,
13.9% to interconnection and 25.9% to data services. Other services, including primarily sales of computers, telephones and accessories at Telmex stores and billing and collection services to third parties, accounted for 4.9% of revenues.

Overview

The following table gives selected data on the size and usage of our network:



|                                                                    |  |              |  |        |  |        |  |        |  |       
|------------------------------------------------------------------- |  | ------------ |  | ------ |  | ------ |  | ------ |  | ------
|                                                                    |  | December 31,
|                                                                    |  | 2009         |  | 2008   |  | 2007   |  | 2006   |  | 2005  
|Billed lines
(thousands)(1)                                         |  | 15,882       |  | 17,589 |  | 17,800 |  | 18,251 |  | 18,375
|Internet access accounts (thousands)                                |  | 6,651        |  | 5,217  |  | 3,320  |  | 2,660  |  | 2,116 
|Billed lines per
employee(1)                                        |  | 384.5        |  | 413.8  |  | 401.8  |  | 402.0  |  | 399.6 
|Domestic long-distance call minutes for the year (millions)         |  | 19,837       |  | 19,687 |  | 18,275 |  | 18,108 |  | 17,853
|International long-distance call minutes for the year
(millions)(2) |  | 7,526        |  | 8,733  |  | 9,531  |  | 8,997  |  | 7,131 
|Total local calls (millions)                                        |  | 20,835       |  | 22,583 |  | 24,892 |  | 26,575 |  | 26,680
|Prepaid telephone service cards sold (millions)                     |  | 83           |  | 120    |  | 187    |  | 230    |  | 258   



|(1) | Until 2008, includes lines with at least two months behind on bill payments.
|--- | ----------------------------------------------------------------------------

|(2) | Includes incoming and outgoing traffic.
|--- | ---------------------------------------

Local Service

We are a
nationwide provider of local telephone service in Mexico. We provide local telephone service to approximately 23 thousand communities throughout Mexico. Of all lines in service, 31.4% are in the Mexico City, Monterrey and Guadalajara
metropolitan areas, with 21.4% in the Mexico City metropolitan area alone. We provide service to approximately 21.6 thousand communities with fewer than five thousand inhabitants, exceeding our obligations to extend services to rural areas.

Local traffic in 2009 decreased by 7.7% compared to 2008, for a total of 20,835 million calls. The decrease in traffic
in 2009 was attributable primarily to competition from mobile phone operators, fixed-line local service providers and cable television providers, the reduction of billed lines, as well as the migration of switched traffic to corporate networks,
virtual private networks, VoIP and other alternative service offerings. We expect that further market penetration by alternative service offerings and increasing competition will continue to adversely affect measured service growth.

Our charges for fixed-line local telephone service include (a) installation charges, (b) monthly line rental charges,
(c) monthly measured service charges, (d) digital services and (e) charges for other services, such as the transfer of a line to another address and reconnection. Residential customers pay a fixed charge per local call in excess of a
monthly allowance of 100 local calls, and commercial customers pay for every local call at the same fixed rate per call. The concession we hold to operate a public network for basic telephone services, or the Concession, permits but does not require
us to base our



16



---

##### Table of Contents

charges on the duration of each call, with a monthly allowance of free calls or call minutes for residential
customers. We currently do not charge by duration of invoiced calls in any region, except in the case of prepaid services.

In
order to promote local service among our customers, we have introduced multi-service offers that include unlimited local and domestic long-distance calls. We also have introduced packages that include a certain number of local calls and/or minutes
for domestic long-distance. In 2009, we did not increase rates for local telephone service. We have had lower rates in real terms for every year since March 2001.

Domestic Long-distance Service

Our nationwide domestic long-distance transmission network consists of 31.1 thousand kilometers of optical fiber connecting
Mexicos major cities, and includes secondary branches and additional transmission rings throughout Mexico designed to avoid network congestion.

Domestic long-distance traffic increased 0.8% in 2009 and 7.7% in 2008, reaching a total of 19,837 and 19,687 million minutes,
respectively. The growth in domestic long-distance traffic in both years was primarily due to the introduction of multi-service packages that include long-distance minutes and an increase in mobile-to-fixed long-distance traffic, offset by the
decrease in traffic delivered by other long-distance carriers to us for completion.

Our rates for domestic long-distance
service are based on call duration and type of service (direct-dial or operator-assisted) once customers exceed the number of minutes included in their service packages.

We offer a variety of domestic long-distance discount plans that reduce the effective rates paid by our customers based on their total
monthly consumption and whether calls were made at peak or off-peak times. We also offer plans that include a certain number of minutes at no extra cost or include unlimited minutes.

In 2009 we did not increase our rates for domestic long-distance calls. This continues our trend of offering lower rates in real terms
every year since March 1999.

International Long-distance Service

We are a nationwide provider of international long-distance telecommunications services in Mexico. International long-distance traffic
with the United States, Canada, Central America and other countries is carried by a combination of fiber optic network, microwave transmission, satellite systems and submarine cable.

In 2009, incoming international long-distance traffic decreased by 8.6%, for a total of 6,174 million minutes, while outgoing
international long-distance traffic declined 31.8% for a total of 1,352 million minutes. We believe international long-distance traffic has been affected by, among other things, the increased use of VoIP technology, which transmits ordinary
telephone calls over the Internet. For long-distance calls made through VoIP services, we do not receive the international long-distance service revenues that we would otherwise receive, such as revenues generated from billed minutes and termination
fees. International long-distance traffic generated by mobile phone companies also affect our revenues.



17



---

##### Table of Contents

Charges for international long-distance calls are based on call duration, type of service
(direct-dial or operator-assisted) and the destination of the call once customers exceed the number of minutes included in their plan. Customers can choose from a variety of discount rate plans.

In 2009, we reduced our rates for international long-distance calls, continuing our trend of offering lower rates in real terms every
year since March 1999.

Bilateral agreements with foreign carriers govern the rates we pay to foreign carriers for completing
international calls from Mexico and the rates foreign carriers pay us for completing international calls to Mexico. The rates of payment under such agreements are negotiated with each foreign carrier. Settlements among carriers are made on a net
basis. Settlement amounts payable to us in respect of calls from the United States to Mexico generally exceed amounts payable by us in respect of calls from Mexico to the United States. As a result, we receive net settlement payments from U.S.
carriers. We make net settlement payments to other international carriers taken as a whole.

The international settlement
rates that U.S. carriers pay to foreign carriers have been subject to intense downward pressure due to competition and regulatory factors, including initiatives by the U.S. government. Since 1999, there has been a cumulative reduction of 88% in our
settlement rates with U.S. carriers. We negotiate settlement rates with U.S. carriers on an annual basis. We are in the process of negotiating new settlement rates with most of the U.S. carriers for the period beginning January 1, 2010. In
2009, we paid U.S.$0.026 per minute for northbound (Mexico to the United States) calls (compared to U.S.$0.025 per minute in 2008) and in 2009 we received an average rate of U.S.$0.028 for completing international calls originated in the United
States (compared to U.S.$0.038 per minute in 2008).

Interconnection

We provide interconnection services pursuant to which (a) long-distance, local and mobile phone carriers operating in Mexico
establish points of interconnection between their networks and our network and (b) we carry calls between the points of interconnection and our customers. When a customer of another carrier calls a local service customer of ours, we complete
the call by carrying the call from the point of interconnection to the particular customer, and when a local service customer of ours who has preselected a competing long-distance carrier makes a long-distance call, we carry the call from the
customer to the point of interconnection with that other long-distance carriers network. Excluding the calling party pays service, we have only one rate for interconnecting all categories of carriers and all types of calls. As a
result of Mexicos bill and keep system, under which local carriers and cable television providers do not pay interconnection fees to other local carriers, we do not receive an interconnection fee from these calls.

In 2009, interconnection traffic decreased 5.7%, for a total of 43,367 million minutes, and increased by 1.4%, for a total of
46,003 million minutes, in 2008. The decrease in 2009 was due to a decrease of 12.0% in traffic under the calling party pays service and a decrease of 5.1% in traffic service operators for interconnection of local and long distance
calls. We believe that our interconnection revenues have been affected by a practice we call local bypass, in which incoming international calls are routed from domestic long-distance carriers to local lines other than ours and then connected to our
local network for termination. Without local bypass, we would receive a domestic termination fee for completing these incoming calls. Although we have requested regulatory intervention to eliminate local bypass, we believe our interconnection
revenues will continue to be adversely affected by what we consider to be an unlawful practice.



18



---

##### Table of Contents

Data services

Our data services segment is comprised of corporate network services and Internet access service.

Corporate networks consist of the transmission of voice, video and data between two or more end points using private circuits. Our
principal product offerings for corporate networks are Ladaenlaces(Ladalinks) and Multi-service Virtual Private Networks, which allows us to provide different levels of service for voice, data and video applications. We also provide
specialized assistance and technical support for these applications.

We provide network outsourcing services that include
maintenance, support and integration of communication networks and information systems.

Internet access services connect both
business and residential customers to the Internet through either a dial-up or a broadband connection. In 2009, the number of our Internet customers increased to approximately 6.7 million at year-end, an increase of 27.5% compared with 2008.

Our broadband service, Infinitum, allows our customers to use our high-capacity connectivity services with applications such
as video-conferencing, file transfer, terminals and e-mail. Infinitum operates over Asymmetric Digital Subscriber Line, or ADSL, technology. In 2009, as a result of improved ADSL service packages and a price reduction that took effect in April 2007,
we increased our ADSL customer base by approximately 1.5 million accounts. At year-end 2009, we had over 6.5 million ADSL customer accounts, an increase of 30.2% over 2008. Prodigy Móvil (Prodigy Mobile), our high-speed
wireless service for residential and business customers, connects users at speeds of up to 1 Mbps within a range of up to 100 meters. At December 31, 2009, we maintained public hot spots in over 90 cities in Mexico, provided
coverage at approximately 95% of commercial airports in Mexico, and entered into international agreements to provide our customers with Internet access at over 140,000 sites worldwide.

Multi-Service Packages

Consistent with our strategy of retaining our current customers and maximizing the value of residential and business Internet accounts, in
2009 we continued to offer flexible plans permitting Infinitum customers to create their own individualized packages of additional voice services, including a combination of local and long-distance calls.

In March 2008, we introduced a plan that includes a monthly line rental, broadband Internet access, 200 local calls, unlimited minutes of
domestic long-distance service, six digital services and special rates for international long-distance calls, for a fixed monthly payment. In June 2008, we launched a plan aimed at low-income residential customers for a lower monthly price that
includes a monthly line rental, 100 local calls, 100 domestic long distance minutes, six digital services, and special rates for long-distance calls.

In June 2009, we began to double the speed for the following high speed Internet access packages: Paquete Conectes en
Infinitum was increased from 512 Kbps to 1 Mbps, Paquete Acerques was increased from 1 Mbps to 2 Mbps, and Paquete Todo México sin Límites was increased from 2 Mbps to 5 Mbps. In
addition, Paquete Todo México sin Límites had its free international long-distance minutes to the U.S. increased from 200 minutes to 300 minutes.



19



---

##### Table of Contents

Other Products and Services

We provide various telecommunications and telecommunications-related products and services that include sales of computers,
telecommunications equipment and accessories, public phones and billing and collection services to third parties.

In July
2009, we launched a new financing offer for computer equipment under which for a small down payment and a monthly fee of only P.100 customers can acquire home computers.

In November 2008, we entered into several agreements with Dish Mexico and its affiliates, which operate a direct-to-home (DTH) pay
television system in Mexico. We are currently providing customary billing and collection services, customer equipment and access to the Telmex retail distribution network. Subject to specified authorizations, we could invest directly in a joint
venture with Dish.

Telmex Stores

We use our network of 385 Telmex stores (Tiendas Telmex) to offer our products and services throughout Mexico. In addition to their
function as customer service centers, the Telmex stores offer a wide range of computer and telecommunications equipment and accessories, which may be purchased outright or through installment payment plans. The network of Telmex stores serves not
only as a focal point for interaction with our current and prospective customers but also as a growing source of revenue. Our computer sales strategy, including store financings of up to 48 months, has substantially helped increase broadband
coverage in Mexico.

Billing and Customer Service

Our invoices detail the number and destination of local and long-distance calls made, and charges for other services. On our website
(www.telmex.com) our customers can view their statements in detail: SI@NA for corporate customers and Mi Telmex for residential and commercial customers. On our website we provide information about our services, corporate
information and access to online transactions such as order services and the payment of invoices.

We provide support to our
customers through our customer service centers, call centers and our website. We service our corporate clients through our integrated service plans that can be customized to meet the specific of individual clients. We assign specialized staff to
service large corporate clients.

We also offer billing and collection services to other companies through our phone bill. We
currently provide billing and collection services to companies such as Medicalhome, Socio Águila, Teletón, Telecomunicaciones de México and Dish México.

Public Telephony and Prepaid Phone Cards

We have several programs to meet the need for different kinds of public telephone service in different areas. We had close to
703 thousand fixed-line public telephones in operation at December 31, 2009. In the increasingly competitive market to provide telecommunications services, independent operators have installed public telephones for which we provide access.
There were more than 87 thousand independently operated public telephones at December 31, 2009, an increase of 4.8% compared with 2008.

In 2009, we sold 60.6 million prepaid cards under the brand name Ladatel for use in public phones, a decrease of 35.0%
from 2008, and 22.2 million prepaid cards under the brand name Multifón for use in public and residential telephones, a decrease of 17.9% from 2008. Revenues from sales of prepaid cards accounted for 2.2% of our consolidated
revenues in 2009. In 2009, our revenues from public telephony decreased by 28.2% as a result of intense competition from wireless carriers.



20



---

##### Table of Contents

Operations in the United States

Our U.S. subsidiary, Telmex USA, L.L.C., or Telmex USA, holds a facilities-based authorization from the U.S. Federal Communications
Commission permitting Telmex USA to install and operate telecommunications facilities in the United States. Telmex USA offers data transmission and cross-border data transit services. Telmex USA is also authorized to resell long-distance services
and sell prepaid telephone cards in the United States, and to collect installation and monthly rent payments for telephone lines in Mexico.

In December 2005, we agreed with Alcatel and AT&T International (one of our principal shareholders) to jointly invest in an
aggregate 51% interest in 2Wire, Inc., or 2Wire, a broadband network equipment and service provider for homes and small offices in the United States. Our current interest in 2Wire is 13.0%.

Network

Through our
network we offer many advanced services that include voice, data and video transmission, Internet access and integrated solutions to all types of customers. These services encompass public, rural and residential telephony; specific solutions for
small and medium sized commercial customers; and integrated offers for large domestic and international corporations.

Our
local and long-distance fiber optic network consists of more than 109 thousand kilometers, reaches more than 90% of Mexicos population, connects the major cities in Mexico and connects Mexico via submarine cables with 28 other countries.
Our network included 15.9 million local fixed billed lines (until 2008, this figure included lines that were at least two months behind on bill payments) at December 31, 2009, a decrease of 3.5% compared to December 31, 2008,
reflecting 1.2 million new and 1.7 million disconnected lines in 2009.

Our network consists of five principal
components: (i) an access network, which includes access to end customers via cable, copper, fiber-optic or wireless transmission; (ii) a switch network, which controls communications and services; (iii) a transport network, which
transmits information between the nodes of our network; (iv) a convergent network, which allows us to provide integrated services of voice, data and video through a common platform based on IP, and (v) a management network, which allows us
to verify the performance of our networks in real time.

Access Network

Our external copper network is capable of supporting conventional telephone services, as well as modern broadband services using different
digital technologies such as Asymmetric Digital Subscriber Line 2 plus, or ADSL2+, which allows us to use existing telephone lines at speeds close to 20 Mbps. Currently we are delivering high speed Internet access with speeds of up to 5 Mbps.

Access by fiber-optic is available to our corporate customers for broadband multi-services. Access by fiber-optic is
increasing for our residential customers. We have installed fiber optic lines based on the Fiber to the Node and Fiber to the Building models as part of our strategy to increase the bandwidth available for all our customers
by extending our fiber-optic lines and reducing the length of our external copper network.



21



---

##### Table of Contents

We also have wireless access platforms that are supported by radio direct access and
multiple access systems, WLL (wireless local loop) systems, Wimax systems as well as satellite systems to provide voice, data and Internet access services to customers who are geographically remote from our fiber optic infrastructure.

Switch Network

Voice processing in our network is controlled by digital local and long-distance telephone exchanges employing high levels of redundancy
and load sharing to enhance network availability and service quality. We also use an Advanced Intelligent Network platform, which currently can manage close to 50 applications and value-added services with high levels of reliability. Furthermore,
this platform is capable of implementing new services and applications throughout our network in a short amount of time. As part of our network evolution, we have installed a centralized control platform based on the IMS (Internet Multimedia
Subsystem) model. The aim of this new platform is to offer new multimedia services to our customers.

Transport Network

Our transport network is fully redundant and is supported by optic rings and equipment using Synchronous Digital
Hierarchy, or SDH, and Next Generation SDH technologies, which allow the network to be restored within 50 milliseconds and minimize the risk of signal interruption in the event of a system failure. The Next Generation SDH technology also permits a
scalable increase in the required bandwidth.

In order to increase our transmission capacities, we also use Dense Wavelength
Division Multiplexing, or DWDM, technology which divides the optic fiber signals into multiple wavelengths and allows us to operate our network at speeds of up to 370 Gbps over one optic fiber pair, equivalent to managing almost 4.5 million
simultaneous telephone conversations.

We have introduced optical cross-connect technology equipment, which enables the
interconnection of signals transported optically, allowing us to connect the signals transmitted by fiber more effectively in the network.

Our digital microwave network serves as a partial backup for the fiber optic network and as a primary means of transmission in rural
areas and small towns where fiber optic infrastructure is not economically feasible.

Convergent Network

Part of our core network operates under a Next Generation Network architecture that uses a format of switching
information packages with the following features: convergence of multimedia services, devices and network infrastructure based on centralized control designed to rapidly deliver new services to our customers; and an integrated service management
structure focused on our customers needs. It allows us to provide voice, data and video services with different levels of service quality in an environment where the functions of control and creation of services are centralized and independent
from the type of connection.

All of our IP-based services are offered through a multi-service IP/MPLS platform. IP/MPLS is a
high-capacity, high-performance network platform based on service convergence and is designed to complement our transport network, with a feature that allows us to expand our backbone network with routes of up to 10 Gbps, maintain redundant routes
and offer national coverage of our IP-based services. The technology used in our network provides the necessary flexibility to offer speeds of access from 64 Kbps to 155 Mbps.



22



---

##### Table of Contents

The technological capacity of our IP network permits the differentiation of distinct classes
of service through which integrated voice, data and video services can be provided. This feature allows us to efficiently offer a wide variety of services such as Internet access for residential and corporate customers, corporate networks, VoIP,
wireless access and multimedia applications.

Management Network

We continuously control and monitor our networks performance and traffic levels and manage the routing of traffic and other network
functions through a centralized network management platform that operates 24 hours a day, 365 days a year. This centralized management facilitates geographical expansion of the network, permits faster implementation of network systems and enables us
to comply with the Service Level Agreements required by our business customers.

Competition

We face competition from a large number of market participants using a variety of technologies to address different elements of the demand
for telecommunications services. Currently our principal competitors include: holders of long-distance licenses; holders of licenses to provide fixed-line local service, of which Axtel and Maxcom are the largest; cable television operators with
licenses to provide telephone and internet services, led by Megacable, Cablevisión and Cablemás; and the mobile telecommunications operators, of which Telcel and Movistar are the largest.

The Mexican telecommunications market is increasingly complex, and the barriers between formerly distinct markets are eroding as a result
of regulatory and technological change. While we have a strong share in certain segments of the market, such as switched long-distance service or broadband data connections, our overall share of the telecommunications market is difficult to
evaluate. For example, according to Select Estrategia, S.C., a leading market research firm in Mexico, at year-end 2009 we had approximately 15.9 million billed lines in service in our network, while mobile phone carriers had an estimated
combined total of 82.0 million mobile lines in service. At the same date, the other local fixed-line operators, mobile fixed-line operators and cable television providers, together, had approximately 3.8 million fixed lines in service, an
increase of 14.7% over the previous year.

We anticipate continued intense competition as mobile phone carriers promote
mobile-to-mobile calls and text messages as less expensive alternatives to fixed-to-mobile calls. We also face increasing competition in international and domestic long-distance and local services from VoIP, a technology that transmits ordinary
telephone calls over the Internet. More recently, we have begun to face competition in voice services and, to a more significant extent, Internet access services from cable television operators.

REGULATION

Our business is subject to comprehensive regulation and oversight by the Communications Ministry and Cofetel. The Communications Ministry
is part of the executive branch of the Mexican federal government, and Cofetel is an agency of the Communications Ministry. Regulation and oversight are governed by the Law of General Means of Communication (Ley de Vías Generales de
Comunicación, or the General Communications Law), the Federal Telecommunications Law (Ley Federal de Telecomunicaciones) and the related Telecommunications Regulations adopted by the Communications Ministry and Cofetel, the
Concession and other concessions and licenses granted by the Communications Ministry. We are also subject to the regulations and oversight by the Agency for Consumer Protection (Procuraduría Federal del Consumidor) and the Competition
Commission.



23



---

##### Table of Contents

Set forth below is a summary of certain provisions of the General Communications Law, the
Federal Telecommunications Law, the Telecommunications Regulations and our concessions.

General

The General Communications Law, the Federal Telecommunications Law and the Telecommunications Regulations provide the general legal
framework for the regulation of telecommunications services in Mexico. The Federal Telecommunications Law replaced most of the provisions of the General Communications Law relating to telephone communications, but those provisions of the General
Communications Law not specifically addressed in the Federal Telecommunications Law remain in effect. The Telecommunications Regulations implement particular provisions of the Federal Telecommunications Law, and regulations implementing other
provisions of the law are pending. The objectives of the Federal Telecommunications Law are to promote the efficient development of the telecommunications industry, to encourage fair competition in the provision of quality, low-priced services and
to assure satisfactory breadth of coverage of the Mexican population.

Regulatory Oversight

The Communications Ministry is the Mexican federal government agency principally responsible for regulating telecommunications services.
Approval from the Communications Ministry is required for any change in our bylaws. It also has broad powers to monitor our compliance with the Concession, and it may revoke our Concession or temporarily seize or expropriate our assets. The
Communications Ministry may require us to supply it with such technical, administrative and financial information as it may request.

Cofetel was established by the Federal Telecommunications Law as a separate administrative body that enjoys operative, budgetary and
management independence from the Communications Ministry. Cofetel is charged with the regulation, promotion and supervision of the telecommunications and radio broadcasting markets in Mexico, with full autonomy to issue its own resolutions. Cofetel
is headed by five commissioners appointed by the President of Mexico, one of whom serves as chairman. Many of the faculties and obligations of the Communications Ministry under the Federal Telecommunications Law and the Telecommunications
Regulations were transferred to Cofetel. We regularly provide reports to Cofetel on our operations, financial performance and other matters. We are also required to publish our annual network expansion program and must inform Cofetel of
the progress of our expansion program on an annual basis.

Mexican law gives certain rights to the Mexican government in its
relations with concessionaires and provides that when the Concession expires we may not sell or transfer any of our assets unless we give the Mexican government a right of first refusal. If the Mexican government declines to exercise its right, our
unions also have a right of first refusal. In addition, Mexican law permits the Mexican government to expropriate our assets in certain circumstances.

Concessions

Under the
Federal Telecommunications Law and the Telecommunications Regulations, a provider of public telecommunications services must operate under a concession granted by the Communications Ministry. Such a concession may not be transferred or assigned
without the approval of the Communications Ministry. A concession to provide public fixed-line local and long-distance services generally has a term of up to 30 years and may be extended for additional 30-year terms. Our Concession



24



---

##### Table of Contents

was granted in 1976 and amended in August 1990. Currently set to expire in 2026, our Concession may be
extended for an additional 15-year term. Our subsidiary Telnor holds a separate concession in a region located in two states in northwestern Mexico, which will also expire in 2026 and may be extended for an additional 15-year term thereafter. The
material terms of the Telnor concession are essentially the same as the terms of the Concession.

Operators of private
networks that do not use electro-magnetic frequencies are not required to obtain a concession to provide private telecommunications services but are required to obtain approval from the Communications Ministry.

In addition to the Concession, we currently hold concessions for the use of frequencies to provide wireless local access and
point-to-point and point-to-multipoint transmission, which we obtained from Cofetel through a competitive bidding process. These concessions are granted for a term of up to 20 years and may be extended for additional 20-year terms.

Termination of the Concession

The Concession provides that it will remain in force until 2026 and that we may renew it for an additional 15-year term, subject to
additional requirements that the Communications Ministry may impose. Thereafter, it may be renewed for successive 30-year terms as provided under the Federal Telecommunications Law.

The General Communications Law provides that upon the expiration of the Concession the Mexican government is entitled to purchase our
telecommunications assets at a price determined on the basis of an appraisal by a public official, and the Telecommunications Regulations provide that upon expiration of the Concession, the Mexican government has a right of first refusal to acquire
our telecommunications assets. However, the General Communications Law also provides that in certain cases, upon expiration of the Concession our telecommunications assets will revert to the Mexican government free of charge. There is substantial
doubt as to how these provisions of the General Communications Law and the Telecommunications Regulations would be applied, and accordingly there can be no assurance that upon expiration of the Concession our telecommunications assets would not
revert to the Mexican government free of charge.

The General Communications Law, the Federal Telecommunications Law and the
Concession include various provisions under which the Concession may be terminated before its scheduled expiration date. Under the General Communications Law and the Federal Telecommunications Law, the Communications Ministry may cause early
termination of the Concession in certain cases, including:



| |  |  | Failure to comply with the terms of the Concession;
| | - |  | ---------------------------------------------------



| |  |  | Interruption of all or a material part of the services provided by us;
| | - |  | ----------------------------------------------------------------------



| |  |  | Transfer or assignment without the Communications Ministry approval of the Concession, the rights provided under the Concession or any asset used to
provide telephone service;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Violation of the prohibition against ownership of our shares by foreign states;
| | - |  | -------------------------------------------------------------------------------



| |  |  | Violation of the prohibition against any material modification of the nature of our services without prior Communications Ministry approval; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Breach of certain other obligations under the General Communications Law and the Federal Telecommunications Law.
| | - |  | ----------------------------------------------------------------------------------------------------------------



25



---

##### Table of Contents

In addition, the Concession provides for early termination by the Communications Ministry
following administrative proceedings in the event of:



| |  |  | Material and continuing violation of any of the conditions set forth in the Concession;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | Material failure to meet any of the service expansion requirements under the Concession;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | Material failure to meet any of the requirements under the Concession for improvement in the quality of service;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | Engagement in any telecommunications business not authorized under the Concession and requiring prior approval of the Communications Ministry;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Following notice and a cure period, failure without just cause to allow other concessionaires to interconnect their telephone networks to our telephone
network; or
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our bankruptcy.
| | - |  | ---------------

Under the Federal Telecommunications Law, our concessions could be terminated if: (a) the term of any concession expires;
(b) we resign our rights under any concession; (c) the Mexican government through the Communications Ministry expropriates any of the concessions; (d) we are liquidated or become bankrupt; or (e) the Communications Ministry
revokes any of the concessions.

The General Communications Law provides that in the event of early termination of the
Concession for certain specified causes, including violation of the prohibition on ownership of our shares by foreign states, we would forfeit all of our telecommunications assets to the Mexican government. In the event of early termination of the
Concession for any other causes, the General Communications Law provides that a portion of our telecommunications assets would revert to the Mexican government free of charge, and that we may be required to dismantle the remaining portion. There is
substantial doubt as to whether the provisions of the Concession and the Telecommunications Regulations regarding the consequences of expiration of the Concession would apply to mitigate the provisions of the General Communications Law in the event
of early termination.

Our assets and rights under the concessions may also be temporarily seized by the Communications
Ministry.

Competition

The Telecommunications Regulations and the Concession contain various provisions designed to foster competition in the provision of
telecommunications services. In general, the Communications Ministry is authorized to grant concessions to other parties for the provision of any of the services provided by us under the Concession. There are currently 17 competing long-distance
carriers operating in Mexico (including Telmex and Telnor) and concessions have been granted to a total of 49 long-distance companies, all of which also have concessions for international long-distance services.

As of December 31, 2009, there were 30 local fixed-line licensees (including Telmex and Telnor), three of which also hold local
wireless licenses (including Telmex), primarily in Mexico City, Guadalajara, Monterrey, Puebla and other large and medium-sized cities. SeeOperationsCompetition. Concessionaires are not required to operate certain private local
telecommunications networks or to provide value-added services, although other authorizations may be required.



26



---

##### Table of Contents

With respect to international long-distance services, Cofetel rules cover matters such as
the termination of international calls and mechanisms for routing calls into and out of Mexico. Currently, international traffic must be carried by Mexican concessionaires and through authorized international gateways consistent with Cofetels
international long-distance rules.

The Communications Ministry has greatly expanded the ability of cable television operators
to compete with us. Since 2003, it has permitted them to provide bidirectional transmission of data. Since 2004, it has permitted them to provide signal-transmission services to local fixed-line operators and data and broadband Internet access
services to the public. Since 2006, it has permitted some of them to provide fixed-line local telephone services. See RegulationTelevision and Audio Services.

We also experience competition from unregulated sources. For example, some operators offer VoIP services, although the application of
current regulations to these services is unclear.

The competitive environment in the Mexican telecommunications market has
been the subject of controversy and of attention from Mexican regulators and from abroad. In the past, the Competition Commission determined that we were a dominant provider of certain telecommunications services and Cofetel adopted specific
regulations applicable to us as a dominant carrier. These resolutions and regulations were later held invalid and were nullified by Mexican federal courts. The Competition Commission also has repeatedly ruled that we have engaged in certain
monopolistic practices. Most, but not all, of these past Competition Commission rulings also have been declared null and void by federal courts or have been withdrawn by the Competition Commission. The Competition Commission is currently conducting
investigations relating to monopolistic practices and recently issued final resolutions concluding that we and Telnor have substantial power in certain markets. See Regulatory Initiatives Relating to Competition below and Item 8.
Financial InformationLegal Proceedings.

In 2005, Mexico resolved a WTO dispute brought by the United States by
adopting regulations authorizing resale of outgoing international and domestic long-distance service, adding to the downward pressure on the rates we charge our customers for our long-distance services.

Regulatory Initiatives Relating to Competition

The Federal Telecommunications Law provides that, if a company is determined to have substantial market power in a relevant market, the
Communications Ministry may adopt specific regulations on rates, quality of service and information to be provided by the dominant company. In addition, if a company is determined by the Competition Commission to have engaged in monopolistic
practices, it may be subject to prohibitions or monetary sanctions.

Between November 2007 and February 2008, the Competition
Commission began seven industry-wide investigations to determine whether any operators, including Telmex and certain of its affiliates, possess substantial market power or are engaged in monopolistic practices in certain segments of the Mexican
telecommunications market. Four final resolutions have determined that, in the geographic areas covered by our network, Telmex and Telnor have substantial power in the following markets: (i) switched call completion provided to other
concessionaires of local and long-distance service; (ii) call origination offered to other concessionaires of long-distance service; (iii) transit services offered to concessionaires of local and long-distance services in 198 areas of
local service that such concessionaires cover; and (iv) certain wholesale markets for dedicated, leased local and domestic long-distance links, as well as the wholesale markets for dedicated, leased international long-distance and
interconnection. We and Telnor filed administrative appeals with the Competition Commission for reconsideration of these four resolutions, which were rejected. As a result, we filed petitions for constitutional protection (amparo), which are
pending.



27



---

##### Table of Contents

If the four final resolutions are upheld, Cofetel could impose specific tariff requirements
or other special regulations such as additional requirements regarding disclosure of information or quality of service. We cannot predict the form any such regulations will take or their impact on our business, but we believe they would reduce our
flexibility and ability to adopt competitive market policies. We also cannot predict the timing of the proposed adoption of any such regulations, or whether we will be able to challenge their implementation.

In the three remaining cases, the Competition Commission is investigating whether we and, in one case, Telnor engaged in monopolistic
practices in the following markets: (i) broadband Internet access service for residential customers in Mexico; (ii) interconnection service in fixed networks; and (iii) interurban transport for exchanged long-distance traffic. The
three remaining investigations are in the stage of information collection and analysis, and we cannot predict their outcome. Findings adverse to us in any of the three remaining investigations may lead to the imposition of regulations, prohibitions
or monetary penalties on us.

Television and Audio Services

The regulatory framework governing the provision of television and audio services by telecommunications companies and of
telecommunications services by television and audio providers has been the subject of an ongoing amendment process since 2003. The outcome of this process and the resulting changes in the regulatory framework may affect our business.

In 2003, the Communications Ministry expanded the concessions granted to cable television operators to permit them to provide
bidirectional transmission of data. In 2004, the Communications Ministry began to permit cable operators to provide signal-transmission services to local fixed-line operators and data and broadband Internet access services to the Mexican public.

In April 2006, the Mexican Congress approved an amendment to the Federal Telecommunications Law and the Federal
Radio and Television Law. The amendment allows radio and television broadcasters to provide telecommunications services after complying with certain conditions and makes Cofetel responsible for overseeing all telecommunications services, including
those related to broadcasting. In June 2007, the Mexican Supreme Court (Suprema Corte de Justicia de la Nación) declared various provisions of the law invalid, including those that would allow radio and television
broadcasters to provide telecommunications services without seeking more than a simple authorization and to use their frequencies free of charge, and concluded that such broadcasters would be required to participate in public bidding processes in
order to obtain frequencies for use in providing such services.

In October 2006, the Communications Ministry
adopted regulations that permit paid television and audio concessionaires to provide fixed-line local telephone services and local telephone service providers like us to provide paid television and audio services. These regulations facilitate the
convergence of voice, data and video services into one integrated product that could be delivered over a broadband network. The regulations allow concessionaires to provide these new services, subject to certain regulatory steps to be taken by
Cofetel. As of December 31, 2009, 28 cable television providers, holding a total of 60 concessions, provide or have been authorized to provide local fixed-line voice-transmission and one fixed-line local service provider offers paid television
services. In the case of Telmex, due to certain restrictions on our concession, additional conditions have been imposed, including the implementation of network interoperability, telephone number portability and verification of compliance with
existing concession obligations, as well as the adoption of an interconnection framework. Telephone number portability was initiated in July 2008, allowing customers to change their telephone provider and keep their telephone number. We intend to
provide television and audio services and we believe we have met all the requirements necessary to do so; however, to date we have been unable to obtain authorization.



28



---

##### Table of Contents

We cannot predict the outcome and the effect of the regulatory processes described above,
but they could result in the entry of new competitors to our business and could have an adverse effect on our competitive position and results of operations.

Consolidation of Local Service Areas

In November 2005 Cofetel issued guidelines for making changes to local service areas, including the consolidation of such local service
areas. We contested these guidelines in an administrative proceeding that was rejected by the Communications Ministry. We subsequently challenged the legality of the guidelines before the Third Metropolitan Regional Federal Court of Justice for Tax
and Administrative Matters, which is pending. In addition, beginning in March 2007 Cofetel issued several resolutions pursuant to these guidelines to consolidate 198 local service areas, reducing the number of local service areas from the current
total of 397. These resolutions were nullified by a federal court in November 2009. If the guidelines are upheld and new resolutions to consolidate our local service areas are implemented by Cofetel, we believe this consolidation could have an
adverse impact on our revenues from long-distance service. See Item 8. Financial InformationLegal Proceedings.

Rates

The General Communications Law, the Federal Telecommunications Law and the Telecommunications Regulations provide that the
basis for setting the rates charged by a telecommunications concessionaire is set forth in its concession.

Under the
Concession, our rates in any period for basic telephone services, including installation, monthly rent, measured local service and long-distance service, are subject to a ceiling on the price of a basket of such services weighted to
reflect the volume of each service provided by us during the preceding period. There is also a price floor based on our average long-run incremental cost. Within this aggregate price range, we are free to determine the structure of our own rates. We
must get permission from Cofetel before our rates can take effect.

The price cap varies directly with the Mexican National
Consumer Price Index, permitting us to raise nominal rates to keep pace with inflation (minus a productivity factor set for the telecommunications industry), subject to consultation with the Communications Ministry. We have not raised our nominal
rates since March 2001 for local service and since March 1999 for long-distance service. Under the Concession, the price cap is also adjusted downward periodically to pass on the benefits of our increased productivity to our customers. The
Communications Ministry sets a new periodic adjustment for every four-year period to permit us to maintain an internal rate of return equal to our weighted average cost of capital. The Communications Ministry fixed the adjustment per quarter in
nominal terms at 0.74% for 2003-2006 and 0.84% for 2007-2010. For services extending beyond basic telephone service, the Federal Telecommunications Law and the Concession permit us, under certain conditions and subject to registration with Cofetel,
to set our prices free of rate regulation. These services include data transmission, directory services and services based on digital technology, such as caller ID, call waiting, speed dialing, automatic redialing, three-way conference and call
transfer.



29



---

##### Table of Contents

Interconnection

We are required under the Federal Telecommunications Law to permit any other long-distance concessionaire to connect to our network in a
manner that enables customers to choose the network by which their long-distance calls are carried. Cofetel rules governing the interconnection rights and obligations of local service concessionaires require local service concessionaires to provide
interconnection on a nondiscriminatory basis to any other concessionaire.

The Concession provides that other terms of
interconnection, including fees, are to be negotiated between us and each other long-distance carrier, and that, in the event the parties are unable to agree, the Communications Ministry imposes the terms. In 2002, we agreed with competing
long-distance carriers to set an interconnection rate of U.S.$0.00975 per minute and per interconnection point. This rate will remain in effect so long as we and the other carriers do not agree to set a new rate.

As of December 31, 2009, we have entered into interconnection agreements with all operators that have requested interconnection
services. Nevertheless, in 2008, Cofetel notified us of several resolutions to reduce interconnection and transit rates, and to eliminate resale charges. We have appealed these resolutions and a final determination is pending. We will continue
collecting the rates that have been applied since 2002 until these proceedings are concluded.

In Mexico, under the
calling party pays service, our fixed-line customers pay us an interconnection charge when they call a mobile telephone, and during 2009 we paid 68.1% of that amount to the mobile phone carrier that completes the call. Historically, this
interconnection charge applied only to local calls. In November 2006, however, Cofetel extended the calling party pays charge to domestic and international long-distance calls, while concurrently eliminating the fee that mobile
phone carriers charge their customers for receiving long-distance calls from fixed-line and mobile callers.

In February 2009,
Cofetel published the Fundamental Technical Plan, which requires operators with the greatest number of access points to provide other operators with access to our network on an unbundled basis that disaggregates the prices for different
service elements. This plan could have a negative impact on us and on the telecommunications sector in general, since it establishes additional obligations to concessionaries. In particular, we believe this may result in pricing network access at
rates below the recovery cost for our infrastructure investments. In October 2009, Cofetel issued two resolutions determining that we and Telnor are operators with the largest number of access points in our respective concession coverage areas. We
have filed petitions for constitutional protection (amparo) against the Fundamental Technical Plan and these resolutions, which are pending.

New Telecommunications Tax

Effective January 1, 2010, the Mexican government imposed a new tax of 3% on the revenues of certain telecommunication services we
provide. We cannot yet predict the effects of this tax will have on our financial performance.



30



---

##### Table of Contents

CAPITAL EXPENDITURES

The following table sets forth, in constant pesos as of December 31, 2009, our capital expenditures, before retirements, for each
year in the three-year period ended December 31, 2009. Like other financial information in this annual report, the amounts shown below for capital expenditures reflect only our continuing operations.



|                                            |  |                                                                                                 |       |      |    |        |  |    |       
|------------------------------------------- |  | ----------------------------------------------------------------------------------------------- | ----- | ---- | -- | ------ |  | -- | ------
|                                            |  | Year ended December 31,                                                                        
|                                            |  | 2009                                                                                            |       | 2008 |    | 2007  
|                                            |  | (2009 and 2008 in millions of pesos, 2007 in millions ofconstant pesos as of December 31,
2007)
|Data, connectivity and transmission network |  | P.                                                                                              | 6,061 |      | P. | 7,506  |  | P. | 7,787 
|Internal plant                              |  |                                                                                                 | 334   |      |    | 608    |  |    | 1,444 
|Outside plant                               |  |                                                                                                 | 753   |      |    | 851    |  |    | 1,329 
|Systems                                     |  |                                                                                                 | 165   |      |    | 319    |  |    | 748   
|Other                                       |  |                                                                                                 | 1,685 |      |    | 797    |  |    | 2,132 
|                                            |  |                                                                                                 |       |      |    |        |  |    |       
|Total telephone plant capital expenditures  |  | P.                                                                                              | 8,998 |      | P. | 10,081 |  | P. | 13,440
|                                            |  |                                                                                                 |       |      |    |        |  |    |       

Our total capital expenditures decreased by 10.7% in
2009. In 2009, our consolidated capital expenditures totaled P.9.0 billion (U.S.$661.3 million). The investments in our data, connectivity and transmission networks represented 67.4% of our consolidated capital expenditures (P.6.1 billion or
U.S.$445.4 million).

We have budgeted capital expenditures in an amount equivalent to approximately P.10.2 billion
(U.S.$761.2 million) for the year 2010, of which 76.7% (P.7.8 billion or U.S.$583.8 million) are budgeted for investments in our data, connectivity and transmission network. Budgeted capital expenditures for 2010 exclude any other investments we may
make to acquire other companies. For subsequent years, our capital expenditures will depend on economic and market conditions. Our budgeted capital expenditures are financed through operating cash flows and limited borrowing.

OTHER MATTERS

Investments

We
occasionally make investments and enter into joint ventures in telecommunications-related businesses within and outside Mexico. We also invest in publicly traded equity securities of companies in technology and communications businesses.

Portugal Telecom

In 2006, we acquired 20.7 million common shares in Portugal Telecom, SGPS S.A., or Portugal Telecom, for P.2,956.8 million
(U.S.$252.3 million). We sold 15.7 million of these shares during 2006 and 2007 and the remaining five million shares in January 2008 for P.3,086.9 million (U.S.$282.2 million) in the aggregate. We recognized a gain of P.129.7 million as a
result of the sale of these shares.

Plant, Property and Equipment

We have transmission facilities, exchanges, outside plant and commercial and administrative offices throughout Mexico. We own most of the
locations of our exchanges and offices and lease other locations. We hold a small number of equipment under financial leases, but the aggregate amount of such financing is not material to our operations as a whole. We carry casualty insurance
against loss or damage to buildings, equipment contained in buildings and outside plant, including our fiber optic network.



31



---

##### Table of Contents

We have purchased equipment from a variety of suppliers, and there are sufficient
alternative sources of equipment so that interruption of any source would be unlikely to cause a significant disruption to our operations or our investment plan.

The Telmex Foundation

In 1996, we helped create the Telmex Foundation (Fundación Telmex, A.C.), a not-for-profit entity active in the areas of
education, health, nutrition, justice, culture, sports and natural disaster relief. We do not consolidate the Telmex Foundation in our financial statements.

Item 4A. Unresolved Staff Comments

None.

Item 5. Operating and Financial Review and Prospects

The following discussion should be read in conjunction with
the consolidated financial statements and notes thereto included in this annual report. Our audited consolidated financial statements have been adjusted to treat as discontinued operations the businesses we transferred to Telmex Internacional in the
Escisiónin December 2007. Accordingly, they differ from the financial statements we have previously published. Except where we specify otherwise, the discussion below concerns only our continuing operations and not those we
transferred to Telmex Internacional in the Escisión.

Our consolidated financial statements have been prepared
in accordance with Mexican Financial Reporting Standards, or Mexican FRS, which differ in certain respects from generally accepted accounting principles in the United States, or U.S. GAAP. Note 17 to our audited consolidated financial statements
provides a description of the principal differences between Mexican FRS and U.S. GAAP, as they relate to us; a reconciliation to U.S. GAAP of net income and total stockholders equity; and condensed financial statements under U.S. GAAP.

Overview

Our total revenues have fallen in recent years, as declining average revenues from local, interconnection and long-distance services have
been only partly offset by increasing revenues from the data business. In response to competitive market pressures, we have not raised our nominal rates since 2001, and we have given discounts for our services, particularly domestic long-distance.
Revenues have also declined, partly because wide range of services included in our packages that implicitly include larger discounts.

Competition and changing technologies have had important effects on our financial performance. We expect continued pressure on prices for
basic telephone services. In local service, rapid growth in mobile telecommunications has made mobile phone operators the main competitors for local networks. In addition, local and long-distance services face competition from other means of
communication such as cable providers, private circuits and the Internet, including VoIP, a technology that transmits ordinary telephone calls over the Internet. On the other hand, the number of our broadband Internet access subscribers (Infinitum
ADSL) grew by 30.2% in 2009 and 71.3% in 2008, and we expect that it will continue to grow and to affect usage of other services.



32



---

##### Table of Contents

Our mix of revenues has been changing as a result. Revenues from voice services represented
69.2% of our total revenues in 2009 compared to 74.7% in 2008, while revenues from data services represented 25.9% of our total revenues in 2009 compared to 20.4% in 2008. These changes have also affected our profit margins. In 2009, total revenues
decreased by 4.0% and our operating income by 13.5%. Our operating margin decreased to 28.9% in 2009 from 32.0% in 2008, because of the changing mix of our revenues.

We expect that our revenues attributable to voice services will continue to decline as a result of continued pressure on prices and
continued migration of customers to mobile and alternative products. We expect our revenues from data services will continue to increase as a percentage of our total revenues as demand for integrated telecommunications solutions among corporate
customers and Internet penetration rates among residential customers continue to rise. We expect that the decline in revenues from voice services will be partly offset by an increase in data services revenues.

Our future results may be affected significantly by the general economic and financial conditions in Mexico and the United States,
including the level of economic growth, exchange rate and interest rate fluctuations and inflation. The current global recessionary environment may further exacerbate the impact of these factors on us. Our performance may also be affected by
acquisitions and other investments we may make. Exchange rate variations on our U.S. dollar-denominated indebtedness contribute to the volatility of our financing cost, which we manage through the use of derivative instruments. Exchange gain, net,
was P.1,097 million in 2009 and exchange loss, net, was P.2,494 million in 2008.

We may be affected by actions taken by
regulatory authorities and legal proceedings in connection with regulatory matters. See Item 4. Information on the CompanyRegulationand Item 8. Legal Proceedings.

Transition to IFRS

Beginning in 2012, Mexican issuers with securities listed on a Mexican securities exchange will be required to prepare financial
statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the International Accounting Standards Board (IASB). Issuers may voluntarily report using IFRS before the change in the reporting standards becomes
mandatory.

Effect of Inflation Accounting

Due to the adoption of Mexican FRS B-10, effective January 1, 2008, we ceased to recognize the effects of inflation on our financial
information. Prior to 2008, inflation accounting had extensive effects on the presentation of our financial statements. Our financial statements for periods through December 31, 2007 have been re-expressed in constant pesos as of
December 31, 2007, using a factor that is based on the Mexican consumer price index. The value of the re-expression factor has a significant impact on the comparison between our results of operations for 2007 and for prior years. See Note
1(II)(b) to our audited consolidated financial statements.

Cessation of inflation accounting under Mexican FRS in 2008

Mexican FRS have changed for periods beginning in 2008, and the inflation accounting methods summarized below will no
longer apply, unless the economic environment in which we operate qualifies as inflationary for purposes of Mexican FRS. An environment is inflationary if the cumulative inflation rate equals or exceeds an aggregate of 26% over three
consecutive years (equivalent to an average of 8% in each year). Based on current forecasts, we do not expect the Mexican economic environment to qualify as inflationary in 2010, but that could change depending on actual economic performance.



33



---

##### Table of Contents

As a result, we presented financial statements without the inflationary effects in 2009 and
2008. In this respect, our financial statements in 2009 and 2008 are not comparable to those for prior periods. In comparing our results for 2009 and 2008 to results for prior periods, the most important consequence of no longer recognizing the
effects of inflation during 2009 and 2008, and of related changes in other accounting standards, are as follows:



| |  |  | We no longer recognize a monetary gain and loss attributable to the effects of inflation on our monetary assets and liabilities.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | We ceased to adjust the carrying values of nonmonetary assets for inflation. The re-expressed amounts for nonmonetary assets at December 31, 2007
became the accounting basis for those assets for 2008 and subsequent years.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We ceased to re-express results of prior periods. Financial information for dates and periods prior to 2008 remains expressed in constant pesos as of
December 31, 2007.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We ceased to use inflation-adjusted assumptions in determining our employee benefit obligations and instead use nominal discount rates and other
assumptions. This change did not have a significant effect on our financial results in 2009 and 2008.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Recognition of effects of inflation for periods prior to 2008

All our financial statements and other financial information included in this annual report recognized effects of inflation in accordance
with Mexican FRS through 2007. The main inflation adjustments were as follows:



| |  |  | In general, nonmonetary assets were adjusted for inflation based on the consumer price index of the country in which the assets were located. This
includes plant, property and equipment, inventories, and licenses and trademarks. The carrying value of our nonmonetary assets in Mexico was adjusted at the end of each period to reflect Mexican inflation in that period, as measured by the Mexican
National Consumer Price Index.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A special rule applied to plant, property and equipment that were imported. Such assets were adjusted for inflation based on the consumer price index
of the country of origin, and then converted into pesos using the exchange rate at the balance sheet date. For example, the carrying value of switching equipment purchased in the United States and used in our Mexican operations was adjusted at the
end of each period to reflect U.S. inflation in that period and the appreciation or depreciation of the Mexican peso against the U.S. dollar.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Gains and losses in purchasing power that resulted from holding monetary assets and liabilities were recognized in income.
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | Capital stock, other capital contributions and retained earnings were adjusted for inflation based on the Mexican consumer price index.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------

Re-expression in constant pesos for periods prior to 2008

Financial statements for periods prior to 2008 have been re-expressed in constant pesos as of December 31, 2007. The re-expression in
constant pesos uses a factor that is determined using the Mexican National Consumer Price Index. The value of the re-expression factor has a significant impact on the comparison between our results of operations for 2007 and for prior years.



34



---

##### Table of Contents

Effects of inflation accounting on U.S. GAAP reconciliation for periods prior to 2008

U.S. GAAP does not ordinarily contemplate the recognition of effects of inflation or the expression of prior-period
financial statements. However, in reconciling our net income and stockholders equity to U.S. GAAP, we have generally not reversed the effect of inflation accounting under Mexican FRS in 2007, pursuant to a long-established practice under which
Mexican FRS inflation accounting is acceptable in financial statements filed with the SEC, with one exception with respect to the special rule applicable to plant, property and equipment manufactured in a country other than the country in which they
are located. Our reconciliation does reverse the effects of that special rule. See Note 17 to our audited consolidated financial statements.

Changes in Mexican FRS and US GAAP

Notes 1 and 17 to our audited consolidated financial statements discuss new accounting pronouncements under Mexican FRS and US GAAP
that became effective in 2009 and 2008 and that will become effective in 2010. The pronouncements that became effective on January 1, 2009 and 2008 were fully implemented in the financial statements included in this annual report. In 2010,
other pronouncements might affect certain aspects of our financial statements. The 2009 and 2008 accounting pronouncements were applied on a prospective basis and prior years financial statements have not been adjusted. As a result, our
financial statements for 2009 and 2008 may not be comparable to our financial statements of prior years.

TheEscisión

In December 2007, we transferred our Latin American and yellow pages directory
businesses to a new, separate entity, Telmex Internacional, in an escisión, or split-up. See Item 4. Information on the CompanyHistory. The businesses we transferred to Telmex Internacional are presented as
discontinued operations for dates and periods prior to the effective date of the Escisión, which was December 26, 2007 under Mexican FRS and June 10, 2008 under U.S. GAAP. See Note 2 to our audited consolidated financial
statements.



35



---

##### Table of Contents

Summary of Operating Income and Net Income

The table below summarizes our consolidated income statement for the past three years.



|                                                       |  |                                                                                                            |         |   |                                  |       |   |                     |    |         |                                  |  |       |                     |  |    |                                  |   |  |       |  
|------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------- | ------- | - | -------------------------------- | ----- | - | ------------------- | -- | ------- | -------------------------------- |  | ----- | ------------------- |  | -- | -------------------------------- | - |  | ----- | -
|                                                       |  | Year ended December 31,                                                                                    |        
|                                                       |  | 2009                                                                                                       |         |   | 2008                             |       |   | 2007                |   
|                                                       |  | (millions of pesos)                                                                                        |         |   | (percentage ofoperatingrevenues) |       |   | (millions of pesos) |    |         | (percentage ofoperatingrevenues) |  |       | (millions of pesos) |  |    | (percentage ofoperatingrevenues) |  
|                                                       |  | (in millions of pesos in 2009 and 2008 and in millions of constant pesos as of December 31, 2007 for 2007) |        
|Operating revenues:                                    |  |                                                                                                            |         |   |                                  |       |   |                     |    |         |                                  |  |       |                     |  |    |                                  |   |  |       |  
|Local service                                          |  | P.                                                                                                         | 45,028  |   |                                  | 37.8  | % |                     | P. | 48,982  |                                  |  | 39.5  | %                   |  | P. | 54,398                           |   |  | 41.6  | %
|Domestic long-distance service                         |  |                                                                                                            | 14,143  |   |                                  | 11.9  |   |                     |    | 15,742  |                                  |  | 12.7  |                     |  |    | 17,349                           |   |  | 13.3  |  
|International long-distance service                    |  |                                                                                                            | 6,662   |   |                                  | 5.6   |   |                     |    | 8,793   |                                  |  | 7.1   |                     |  |    | 9,678                            |   |  | 7.4   |  
|Interconnection service                                |  |                                                                                                            | 16,573  |   |                                  | 13.9  |   |                     |    | 19,140  |                                  |  | 15.4  |                     |  |    | 22,604                           |   |  | 17.3  |  
|Data services                                          |  |                                                                                                            | 30,817  |   |                                  | 25.9  |   |                     |    | 25,387  |                                  |  | 20.4  |                     |  |    | 22,280                           |   |  | 17.1  |  
|Other                                                  |  |                                                                                                            | 5,877   |   |                                  | 4.9   |   |                     |    | 6,061   |                                  |  | 4.9   |                     |  |    | 4,459                            |   |  | 3.3   |  
|                                                       |  |                                                                                                            |         |   |                                  |       |   |                     |    |         |                                  |  |       |                     |  |    |                                  |   |  |       |  
|                                                       |  |                                                                                                            | 119,100 |   |                                  | 100.0 |   |                     |    | 124,105 |                                  |  | 100.0 |                     |  |    | 130,768                          |   |  | 100.0 |  
|                                                       |  |                                                                                                            |         |   |                                  |       |   |                     |    |         |                                  |  |       |                     |  |    |                                  |   |  |       |  
|Operating costs and expenses:                          |  |                                                                                                            |         |   |                                  |       |   |                     |    |         |                                  |  |       |                     |  |    |                                  |   |  |       |  
|Cost of sales and services                             |  |                                                                                                            | 34,159  |   |                                  | 28.7  |   |                     |    | 32,523  |                                  |  | 26.2  |                     |  |    | 32,364                           |   |  | 24.7  |  
|Commercial, administrative and general expenses        |  |                                                                                                            | 20,830  |   |                                  | 17.5  |   |                     |    | 19,863  |                                  |  | 16.0  |                     |  |    | 19,553                           |   |  | 15.0  |  
|Interconnection                                        |  |                                                                                                            | 11,796  |   |                                  | 9.9   |   |                     |    | 14,043  |                                  |  | 11.3  |                     |  |    | 16,542                           |   |  | 12.6  |  
|Depreciation and amortization                          |  |                                                                                                            | 17,951  |   |                                  | 15.0  |   |                     |    | 17,933  |                                  |  | 14.5  |                     |  |    | 18,425                           |   |  | 14.1  |  
|                                                       |  |                                                                                                            |         |   |                                  |       |   |                     |    |         |                                  |  |       |                     |  |    |                                  |   |  |       |  
|                                                       |  |                                                                                                            | 84,736  |   |                                  | 71.1  |   |                     |    | 84,362  |                                  |  | 68.0  |                     |  |    | 86,884                           |   |  | 66.4  |  
|                                                       |  |                                                                                                            |         |   |                                  |       |   |                     |    |         |                                  |  |       |                     |  |    |                                  |   |  |       |  
|Operating income                                       |  |                                                                                                            | 34,364  |   |                                  | 28.9  | % |                     |    | 39,743  |                                  |  | 32.0  | %                   |  |    | 43,884                           |   |  | 33.6  | %
|                                                       |  |                                                                                                            |         |   |                                  |       |   |                     |    |         |                                  |  |       |                     |  |    |                                  |   |  |       |  
|Other expenses, net                                    |  |                                                                                                            | 1,350   |   |                                  |       |   |                     |    | 679     |                                  |  |       |                     |  |    | 44                               |   |  |       |  
|Financing cost:                                        |  |                                                                                                            |         |   |                                  |       |   |                     |    |         |                                  |  |       |                     |  |    |                                  |   |  |       |  
|Interest income                                        |  |                                                                                                            | (711    | ) |                                  |       |   |                     |    | (913    | )                                |  |       |                     |  |    | (1,396                           | ) |  |       |  
|Interest expense                                       |  |                                                                                                            | 6,122   |   |                                  |       |   |                     |    | 7,652   |                                  |  |       |                     |  |    | 6,615                            |   |  |       |  
|Exchange (gain) loss, net                              |  |                                                                                                            | (1,097  | ) |                                  |       |   |                     |    | 2,494   |                                  |  |       |                     |  |    | 643                              |   |  |       |  
|Monetary gain,
net(1)                                  |  |                                                                                                            |        |   |                                  |       |   |                     |    |        |                                  |  |       |                     |  |    | (2,513                           | ) |  |       |  
|                                                       |  |                                                                                                            |         |   |                                  |       |   |                     |    |         |                                  |  |       |                     |  |    |                                  |   |  |       |  
|                                                       |  |                                                                                                            | 4,314   |   |                                  |       |   |                     |    | 9,233   |                                  |  |       |                     |  |    | 3,349                            |   |  |       |  
|Equity interest in net income (loss) of affiliates     |  |                                                                                                            | 255     |   |                                  |       |   |                     |    | (62     | )                                |  |       |                     |  |    | 17                               |   |  |       |  
|                                                       |  |                                                                                                            |         |   |                                  |       |   |                     |    |         |                                  |  |       |                     |  |    |                                  |   |  |       |  
|Income before income tax                               |  |                                                                                                            | 28,955  |   |                                  |       |   |                     |    | 29,769  |                                  |  |       |                     |  |    | 40,508                           |   |  |       |  
|Income tax                                             |  |                                                                                                            | 8,486   |   |                                  |       |   |                     |    | 9,592   |                                  |  |       |                     |  |    | 11,619                           |   |  |       |  
|                                                       |  |                                                                                                            |         |   |                                  |       |   |                     |    |         |                                  |  |       |                     |  |    |                                  |   |  |       |  
|Income from continuing operations                      |  |                                                                                                            | 20,469  |   |                                  |       |   |                     |    | 20,177  |                                  |  |       |                     |  |    | 28,889                           |   |  |       |  
|Income from discontinued operations, net of income tax |  |                                                                                                            |        |   |                                  |       |   |                     |    |        |                                  |  |       |                     |  |    | 7,166                            |   |  |       |  
|                                                       |  |                                                                                                            |         |   |                                  |       |   |                     |    |         |                                  |  |       |                     |  |    |                                  |   |  |       |  
|Net income                                             |  | P.                                                                                                         | 20,469  |   |                                  |       |   |                     | P. | 20,177  |                                  |  |       |                     |  | P. | 36,055                           |   |  |       |  
|                                                       |  |                                                                                                            |         |   |                                  |       |   |                     |    |         |                                  |  |       |                     |  |    |                                  |   |  |       |  
|Distribution of net income:                            |  |                                                                                                            |         |   |                                  |       |   |                     |    |         |                                  |  |       |                     |  |    |                                  |   |  |       |  
|Controlling interest                                   |  | P.                                                                                                         | 20,469  |   |                                  |       |   |                     | P. | 20,177  |                                  |  |       |                     |  | P. | 35,485                           |   |  |       |  
|Non-controlling interest                               |  |                                                                                                            |        |   |                                  |       |   |                     |    |        |                                  |  |       |                     |  |    | 570                              |   |  |       |  
|                                                       |  |                                                                                                            |         |   |                                  |       |   |                     |    |         |                                  |  |       |                     |  |    |                                  |   |  |       |  
|                                                       |  | P.                                                                                                         | 20,469  |   |                                  |       |   |                     | P. | 20,177  |                                  |  |       |                     |  | P. | 36,055                           |   |  |       |  
|                                                       |  |                                                                                                            |         |   |                                  |       |   |                     |    |         |                                  |  |       |                     |  |    |                                  |   |  |       |  
|Earnings per share from continuing operations          |  | P.                                                                                                         | 1.11    |   |                                  |       |   |                     | P. | 1.07    |                                  |  |       |                     |  | P. | 1.46                             |   |  |       |  
|                                                       |  |                                                                                                            |         |   |                                  |       |   |                     |    |         |                                  |  |       |                     |  |    |                                  |   |  |       |  
|Earnings per share from discontinued operations        |  | P.                                                                                                         |        |   |                                  |       |   |                     | P. |        |                                  |  |       |                     |  | P. | 0.34                             |   |  |       |  
|                                                       |  |                                                                                                            |         |   |                                  |       |   |                     |    |         |                                  |  |       |                     |  |    |                                  |   |  |       |  
|Earnings per share                                     |  | P.                                                                                                         | 1.11    |   |                                  |       |   |                     | P. | 1.07    |                                  |  |       |                     |  | P. | 1.80                             |   |  |       |  
|                                                       |  |                                                                                                            |         |   |                                  |       |   |                     |    |         |                                  |  |       |                     |  |    |                                  |   |  |       |  



|(1) | We do not report monetary gain after 2007, because we are no longer required to present the effects of inflation under Mexican FRS after 2007.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------



36



---

##### Table of Contents

Revenues

Total revenues in 2009 were P.119,100 million, a decrease of 4.0% compared to 2008, primarily due to a decline in revenues from local
services, long-distance services and the calling party pays service, partly offset by the increase in revenues generated from data services. The percentage of our revenues attributable to voice services (including local, long-distance
and interconnection services) declined from 74.7% in 2008 to 69.2% in 2009, while revenues from data services grew to 25.9% of our revenues in 2009 compared to 20.4% in 2008.

Local Service Revenues

Operating revenues from local services include installation charges for new lines, monthly line rental charges, monthly fees for digital
services and monthly measured service charges based on the number of calls. These revenues depend on the number of billed lines, the number of new lines installed and the volume of calls. Measured service charges are due from residential customers
only for the number of local calls exceeding a specified monthly allotment. Accordingly, revenues from local service for residential customers do not depend solely on usage volume.

Revenues from local service decreased by 8.1% in 2009 and 10.0% in 2008. The decreases in 2009 and 2008 were principally due to a
decrease in billed lines, lower average revenue per local billed call and reductions in local traffic due to competition from both wireless and other fixed-line service providers.

Domestic Long-distance Revenues

Operating revenues from domestic long-distance service consist of (a) amounts earned from our customers and (b) amounts earned
from other telecommunications operators for terminating their domestic long-distance calls. The amount of operating revenues from domestic long-distance service depends on rates and traffic volume.

Domestic long-distance revenues decreased by 10.2% in 2009 and by 9.3% in 2008. The decrease in 2009 was primarily due to lower average
revenue per minute. The decrease in 2008 was primarily because the increase in traffic was not enough to offset the lower average revenue per minute. Lower average revenue per minute in both 2009 and 2008 was due to our increased offerings of
multi-service packages that include long-distance minutes, which promote traffic volume but reduce average revenue per minute.

International Long-distance Revenues

Operating revenues from international long-distance service consist of (a) amounts earned from our customers and (b) amounts
earned from foreign telecommunications carriers for terminating international calls. The amount of operating revenues from international long-distance service depends on the volume of traffic, the rates charged to our customers, the rates charged by
each party under agreements with foreign carriers, principally in the United States, and the effects of competition. We report international long-distance revenues gross of the settlement amounts payable to foreign carriers, which are recorded in
cost of sales and services. In 2009, settlement payments from foreign carriers represented 2.2% of our consolidated revenues and 38.7% of our international long-distance revenues. Settlement payments under service agreements with foreign carriers
are generally denominated in U.S. dollars.

International long-distance revenues decreased by 24.2% in 2009 and by 9.1% in
2008. The decrease in 2009 was primarily due to a decline in outgoing traffic of 31.8%, reflecting a decrease in



37



---

##### Table of Contents

Mexicos economic activity as well as a decrease in traffic from mobile operators, partially offset by
an increase in average revenue per minute. Revenues from incoming international long-distance traffic decreased by 22.8% in 2009, mainly due to an 8.6% decline in incoming traffic and a reduction in average revenue per minute. The decrease in 2008
was primarily due to lower average revenue per minute and a decline of incoming traffic. Outgoing billed minutes increased by 2.1% and incoming billed minutes decreased by 11.1%.

Revenues from Interconnection Service

Revenues from interconnection service are comprised of fees for connection with our network of fixed-to-mobile, mobile-to-fixed and
long-distance calls. Calls between fixed and mobile telephones are subject to the calling party pays service, which covers long-distance calls as well as local calls. In the case of local and domestic long-distance service, under the
calling party pays service, our fixed-line customers pay us an interconnection charge when they call a mobile telephone. Of that amount, we pay a percentage to the mobile carrier that completed the call (68.1% in 2009). We recognize the
amount paid to us under interconnection revenue, and we recognize the amount we pay under interconnection cost.

Revenues from
interconnection service decreased by 13.4% in 2009 and by 15.3% in 2008. The decreases in 2009 and 2008 were primarily due to a decrease of the calling party pays rates and a decline in traffic due to increased market penetration by
mobile phone carriers. In 2009, revenues from fixed-to-mobile calls represented 84.2% of interconnection revenues (88.2% in 2008) and revenues from local and long-distance operators represented 10.6% of interconnection revenue (8.2% in 2008 ). The
balance of interconnection revenues represented payments from mobile phone carriers for mobile-to-fixed calls. Pursuant to an agreement with all mobile phone operators in Mexico concluded in 2006, the calling party pays rate for local,
domestic long-distance and international long-distance services declined from 2006 to 2010.

Revenues from Data Services

Revenues from data services consist of revenues from Internet access service and corporate networks. Revenues from
Internet access service include service fees for broadband and dial-up Internet access. Revenues from corporate networks mainly consist of revenues from installing and leasing dedicated private lines, revenues from virtual private network (VPN)
services and revenues from the sale of value-added services to these customers.

Revenues from data services increased by
21.4% in 2009 and by 13.9% in 2008. The increases in 2009 and 2008 were primarily due to increases in the number of Internet access accounts by 30.2% in 2009 and 71.3% in 2008 (totaling 6.5 million in 2009 and 5.0 million in 2008),
partially offset by lower average revenues per Internet access account. Revenue from data services also increased in 2009 and 2008 due to higher revenues from VPN services and data-related value-added services for the corporate market.

Other Revenues

The main components of other revenues are sales of computers, telephones and accessories at Telmex stores and billing and collection
services offered to third parties. Other revenues decreased by 3.0% in 2009 and increased by 35.9% in 2008. The decrease in 2009 was mainly due to lower revenues from our billing and collection services, partially offset by increased sales of
computers at Telmex stores. The increase in 2008 was primarily due to higher sales of computers at Telmex stores.



38



---

##### Table of Contents

Operating Costs and Expenses

Cost of Sales and Services

Cost of sales and services increased by 5.0% in 2009 and by 0.5% in 2008. The increase in 2009 was primarily due to higher labor costs,
cost of goods sold attributable to higher sales of computers and telecommunications equipment and third party services for corporate customers. The increase in 2008 was due to cost of goods sold attributable to higher sales of computers, higher
utilities expenses, and higher expenses for maintenance and third party services related to our corporate customers networks as well as our data network.

Commercial, Administrative and General Expenses

Commercial, administrative and general expenses increased by 4.9% in 2009 and 1.6% in 2008. The increase in 2009 was primarily due to
higher charges for doubtful accounts receivable, higher labor costs and higher sales activities related to the growth of Internet broadband services, effects partially offset by various initiatives to reduce costs. The increase in 2008 was primarily
due to increased expenses related to sales activities and a higher charge for doubtful accounts receivable, partially offset by lower expenses related to a lower number of prepaid cards sold in 2008.

Interconnection Costs

Interconnection costs include payments to mobile phone carriers for calling party pays services. Interconnection costs
decreased by 16.0% in 2009 and by 15.1% in 2008. The decreases in 2009 and 2008 were due to both a decline in the rate paid to mobile phone operators for calls under the calling party pays services and a decline in fixed-to-mobile
traffic.

Depreciation and Amortization

Depreciation and amortization remained stable in 2009 and decreased by 2.7% in 2008. The decrease in 2008 was due to a decrease in the
amount of our depreciable assets. According to Mexican FRS applicable through 2007, we adjusted imported fixed assets based on the rate of inflation in the country of origin of the asset and the prevailing exchange rate. Fixed assets acquired in
Mexico were adjusted based on the rate of Mexican inflation.

Operating Income

In 2009, operating income decreased by 13.5%, reflecting a 4.0% decrease in revenues and a 0.4% increase in operating costs and expenses.
Operating margin decreased to 28.9% in 2009 from 32.0% in 2008.

In 2008, operating income decreased by 9.4%, reflecting a
5.1% decrease in revenues and a 2.9% decrease in operating costs and expenses. Operating margin decreased to 32.0% in 2008 from 33.6% in 2007. The decrease in operating margins in both periods reflects a continuing shift in our mix of revenues, with
voice services representing a lower proportion of revenues and data services representing a higher proportion.



39



---

##### Table of Contents

Other Expenses, Net

Other expenses, net, amounted to P.1,350 million in 2009, P.679 million in 2008 and P.44 million in 2007. Other expenses, net, mainly
consist of the net amount we are required to recognize under our employee profit sharing obligations. Telmex, like other Mexican companies, is required by law to pay to its employees, in addition to their agreed compensation and benefits, profit
sharing in an aggregate amount equal to 10% of our taxable income (calculated without reference to inflation adjustments).

In
2007, other expenses were offset by a gain of P.1,653 million as a result of the favorable resolution of legal proceedings between us and the Mexican tax authorities regarding the deductibility of employee profit sharing amounts we paid in 2004 and
2005. Other expenses in 2007 were also offset by a gain of P.372 million from the sale of marketable securities and a gain of P.188 million from recoveries under our insurance policies, principally in connection with damages caused by hurricanes.

Financing Cost, Net

Under Mexican FRS, net financing cost reflects interest income, interest expense, and foreign exchange gain or loss. Through 2007, it also
included the gain or loss attributable to the effects of inflation on monetary liabilities and assets. A substantial proportion of our indebtedness (64.8% at December 31, 2009) is denominated in U.S. dollars, and we engage in derivative
transactions to manage our exposure to exchange rate variation.

In 2009, net financing cost was P.4,314 million compared with
P.9,233 million in 2008. The changes in each component were as follows:



| |  |  | Interest income decreased by 22.1% in 2009 and by 34.6% in 2008. The decreases in 2009 and 2008 were both due to a lower average level of
interest-bearing assets.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Interest expense decreased by 20.0% in 2009 and increased by 15.7% in 2008. The decrease in 2009 was primarily due to a lower average level of debt.
The increase in interest expense in 2008 was partly due to the losses on interest-rate swaps, offset by a lower average interest rate and a lower average level of debt. In each year, we recognized net losses on interest-rate swaps (P.2,057 million
in 2009, P.2,440 million in 2008 and P.176 million in 2007).
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We recorded net exchange gain of P.1,097 million in 2009 and net exchange loss of P.2,494 million in 2008. In 2009, the net exchange gain was due to a
gain caused by the appreciation of the peso against the U.S. dollar by approximately 3.5% during 2009, partly offset by net fair value losses on currency hedging instruments. In 2008, the net exchange loss was due to a loss caused by the
depreciation of the peso against the U.S. dollar by approximately 24.6% during 2008, offset by a net fair value gain on currency hedging instruments.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Beginning 2008, we did not recognize the effects of inflation because of a change in Mexican FRS. Through 2007, we recognized a net gain in our
monetary position because average monetary liabilities exceeded average monetary assets.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



40



---

##### Table of Contents

Income Tax

The statutory rate of the Mexican corporate income tax was 28% in 2009, 2008 and 2007. Under the Mexican Tax Reform Law approved in
December , 2009, the corporate income tax rate will be increased from 28% to 30% for 2010 through 2012, and will be scaled back to 29% in 2013 and to 28% in 2014 and future years. Our effective rate of corporate income tax as a percentage of pre-tax
profit was 29.3% in 2009, 32.2% in 2008 and 28.7% in 2007. Although after 2007 we no longer recognize the effects of inflation in our financial statements, we do continue to recognize the impact of inflation for tax reporting purposes. This
causes our pretax income to be affected by taxable monetary gain on our net monetary liabilities and by higher depreciation due to the application of inflation indexation on our assets. As a result, our effective tax rate in 2009 was lower than in
2008 due to a lower rate of inflation of 3.6% in 2009 compared to 6.5% in 2008. In 2008, as a result of the impact of inflation for tax purposes, our taxable income was higher than our income under Mexican FRS, and our effective tax rate
was higher in 2008 than in 2007.

On October 1, 2007, the Flat-Rate Business Tax Law (FRBT or Impuesto Empresarial
a Tasa Única) was published and became effective as of January 1, 2008. Beginning January 1, 2008, the FRBT is computed by applying the applicable rate to income determined on the basis of cash flows, which is determined by
deducting authorized deductions from all income collected from those activities that are subject to the tax. As established under the FRBT, certain FRBT credits also may be deducted from the FRBT payable. Under the FRBTs transitory provisions,
the FRBT rate is 16.5% in 2008, 17% in 2009 and 17.5% in 2010 and succeeding years.

Income from Continuing Operations, Net

Income from continuing operations, net, increased by 1.4% in 2009 and decreased by 30.2% in 2008. The increase in 2009 was due to lower
financing cost and income taxes, offset by the decline in revenues from voice services. The decrease in 2008 was due to a decline in revenues from voice services and an increase in the financing cost, partly offset by a decrease in income taxes.

Liquidity and Capital Resources

Our main capital requirements are capital expenditures, dividend payments, share repurchases and the repayment of debt. We have generally
met our capital requirements primarily from operating cash flows and some limited borrowing. Cash flows provided by operating activities were P.40,235 million in 2009 and P.45,905 million in 2008.

We had a working capital surplus of P.14,547 million at December 31, 2009. We believe that our working capital is sufficient to
cover our current requirements.

Our capital expenditures were P.8,998 million in 2009, P.10,081 million in 2008 and P.13,440
million in 2007. In 2009, we used 67.4% of our capital expenditures for projects in data, connectivity and transmission networks, and the balance for other projects. We expect that our capital expenditures in 2010 will be approximately P.10.2
billion (U.S.$761 million), excluding expenditures for any business acquisitions we may make. If we receive authorization to provide triple-play services, we will evaluate whether to increase our capital expenditures to invest in related equipment.

The amount we spent on share repurchases was P.4,095 million in 2009, P.12,872 million in 2008 and P.15,783 million in 2007.
The amount spent on share repurchases is determined from time to time by the Board of Directors taking into account factors including the price of our shares and our capital resources. See Item 16E.Purchases of Equity Securities by
the Issuer and Affiliated Purchasers.



41



---

##### Table of Contents

Dividends paid totaled P.15,093 million in 2009, P.7,609 million in 2008 and P.8,630 million
in 2007.

In the table below we set forth certain contractual obligations as of December 31, 2009, consisting of debt and
purchase obligations, and the period in which the contractual obligations come due. The amount of our long-term debt reported in the table excludes interest and fee payments, which are primarily variable amounts, and does not reflect derivative
instruments, which provide for payment flows that vary depending on exchange rates and interest rates. Purchase obligations include capital commitments primarily for equipment supply and maintenance contracts. The table below does not include
pension liabilities, deferred taxes or current accounts payable.



|                         |  |                                                 |           |      |    |           |  |           |        |                |   |         |  |    |       
|------------------------ |  | ----------------------------------------------- | --------- | ---- | -- | --------- |  | --------- | ------ | -------------- | - | ------- |  | -- | ------
|                         |  | Payments Due by Period(as of
December 31, 2009)
|                         |  | Total                                           |           | 2010 |    | 2011-2012 |  | 2013-2014 |        | 2015 andbeyond
|                         |  | (in millions of pesos)                         
|Contractual obligations: |  |                                                 |           |      |    |           |  |           |        |                |   |         |  |    |       
|Total
debt(1)            |  |                                                 | P.102,874 |      | P. | 19,769    |  | P.        | 31,201 |                | P | .19,725 |  | P. | 32,179
|Purchase obligations     |  |                                                 | 3,373     |      |    | 2,133     |  |           | 1,240  |                |   |        |  |    |      
|                         |  |                                                 |           |      |    |           |  |           |        |                |   |         |  |    |       
|Total                    |  |                                                 | P.106,247 |      | P. | 21,902    |  | P.        | 32,441 |                | P | .19,725 |  | P. | 32,179
|                         |  |                                                 |           |      |    |           |  |           |        |                |   |         |  |    |       



|(1) | Excludes interest payments, fees and the effect of derivative instruments.
|--- | --------------------------------------------------------------------------

At December 31, 2009, we had total indebtedness of P.102,874 million (approximately U.S.$7,878 million) compared to total
indebtedness of P.107,055 million (approximately U.S.$7,908 million) at December 31, 2008. In 2009, we incurred additional U.S. dollar and peso-denominated debt and reduced our debt by repaying P.22,052 million (approximately U.S.$1,689
million).

We have a total amount of P.19,769 million (U.S.$1,514 million) in debt that has come, or will come, due in 2010,
part of which has been financed with debt incurred in 2009 and part of which we plan to refinance with new debt in 2010. Of that total amount, we already repaid P.12,294 (U.S.$950 million) in senior notes that came due in January 2010.

The major categories of indebtedness are as follows:



| |  |  | U.S. dollar-denominated bank loans. These include two syndicated loan facilities, loans with support from export credit agencies and other
loans. Most of our bank facilities bear interest at specified spreads over LIBOR. The weighted average interest rate at December 31, 2009 was approximately 0.7%. We had U.S.$2,855 million (P.37,282 million) in bank loans outstanding at
December 31, 2009. The largest component is a credit facility that we obtained in August 2006, of which U.S.$1,700 million remain outstanding in two tranches: U.S.$1,000 million maturing in 2011 and U.S.$700 million maturing in 2013. In June
2006, we obtained a U.S.$500 million syndicated loan facility divided into two equal tranches maturing in 2010 and 2012.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Certain of our bank loans contain financial and operating covenants. The financial covenants require us to maintain a consolidated ratio
of EBITDA to interest expense of no less than 3.00 to 1.00 and a consolidated ratio of total debt to EBITDA of no more than 3.75 to 1.00 (using terms defined in the credit agreements). Compliance with these covenants has not been a significant
constraint on our ability to obtain financing.



42



---

##### Table of Contents

| |  |  | Senior notes issued outside Mexico.We had U.S.$2,248 million (P.29,361 million) and P.4,500 million aggregate principal amounts of senior notes
outstanding at December 31, 2009. After repayment of P.12,294 million (U.S.$950 million) in senior notes that came due in January 2010, we have three outstanding series of senior notes issued outside of Mexico:
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|              |  |                       |  |          |   |  |                              |      
|------------- |  | --------------------- |  | -------- | - |  | ---------------------------- | -----
|Maturity      |  | Issuance              |  | Interest |   |  | Outstanding Amount(millions)
|January 2015  |  | January/February 2005 |  | 5.50     | % |  | U.S.$                        | 798  
|January 2016  |  | January 2006          |  | 8.75     | % |  | P.                           | 4,500
|November 2019 |  | November 2009         |  | 5.50     | % |  | U.S.$                        | 500  



| |  |  | Peso-denominated senior notes issued in Mexico.We have issued peso-denominated senior notes (certificados bursátiles) from time
to time in the Mexican market. Some of these notes bear interest at fixed rates and some bear interest at specified spreads based on the Mexican interbank equilibrium interest rate (Tasa de Interés Interbancaria de Equilibrio). At
December 31, 2009, we had P.25,900 million of such notes outstanding, maturing from 2011 to 2037, and the weighted average interest rate was 6.3%.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We also have smaller amounts of other categories of outstanding indebtedness, including peso-denominated loans from Mexican banks and
supplier credits for equipment financing. We rely primarily on borrowings in the Mexican and international capital markets and from Mexican and international banks, although if market conditions change, we may seek funding from export credit
agencies or other sources. A number of our financing instruments are subject to either acceleration or repurchase at the holders option if there is a change of control, as defined in the respective instruments. The definitions of change of
control vary, but none of them is met so long as Carso Global Telecom or its present controlling shareholders continue to control a majority of our voting stock.

At December 31, 2009, 64.8% of our total consolidated indebtedness was denominated in U.S. dollars, 32.3% was denominated in Mexican
pesos and the remainder was denominated in other currencies. Our currency hedging practices are described below.

At
December 31, 2009, 59.1% of our debt obligations bore interest at floating rates. The weighted average cost of all borrowed funds at December 31, 2009 (including interest and reimbursement of certain lenders for Mexican taxes withheld, but
excluding fees and the effect of interest-rate swaps) was approximately 4.0% (compared to approximately 4.1% at December 31, 2008). The inclusion of fees and the effect of interest-rate swaps in the calculation of weighted average cost of all
borrowed funds at December 31, 2009 would increase such cost by 1.9% to approximately 5.9% (compared to approximately 6.2% at December 31, 2008). Such cost does not include the effect of exchange rate variations. We have not pledged any
assets as security for our debt.

Derivatives and Hedging

A substantial part of our indebtedness is denominated in U.S. dollars (64.8% as of December 31, 2009), and we have relatively limited
assets and revenues denominated in U.S. dollars. As of December 31, 2009, our U.S. dollar-denominated indebtedness amounted to P.66,643 million. In addition, a substantial part of our indebtedness bears interest at variable rates (59.1% as of
December 31, 2009). As a result, we are exposed to risks from changing currency exchange rates and interest rates.



43



---

##### Table of Contents

To offset these risks, we enter into derivative financial instruments with large financial
institutions to minimize the impact of fluctuations in exchange rates and variable interest rates on our indebtedness. We have not entered into derivative financial instruments for any other purposes, although we may do so in the future. The types
of derivative instruments we have typically entered into in recent periods include cross-currency swaps (in which we generally pay peso amounts based on peso interest rates and receive U.S. dollar amounts based on dollar interest rates),
interest-rate swaps (in which we generally pay amounts based on fixed interest rates and receive amounts based on variable interest rates) and forward exchange contracts (in which we generally agree to use pesos to purchase U.S. dollars at a future
date).

Our use of derivatives varies from time to time, depending on our judgment about our level of exposure to exchange
rate and interest rate risk, and the costs of derivative instruments. The aggregate notional amount of our interest-rate swaps may be greater or less than the principal amount of our debt, and we may discontinue hedging at any time. We review and
change our derivatives positions regularly, and our derivatives policies change from time to time. Under Mexican FRS, we account for the derivative instruments on a fair value basis. See Note 7 to our audited consolidated financial statements.

We have engaged in derivatives transactions to reduce our exposure to changes in exchange rates. As of December 31,
2009, our cross-currency swaps covered foreign currency liabilities of U.S.$4,178 million and short-term forwards contracts covered U.S. dollar liabilities of U.S.$245 million, although the amount of our derivatives position varies substantially
from time to time.

We have also engaged in derivatives transactions to reduce our exposure to changes in interest rates.
Specifically, we have entered into interest-rate swaps in which we pay interest at a fixed rate and receive interest at a variable rate, on a notional amount in Mexican pesos or U.S. dollars. From time to time, we have also entered into
interest-rate swaps in which we pay variable rates and receive fixed rates, as part of the management of our overall position. The general effect of these swaps is to replace an obligation to pay variable-rate interest on our debt with an obligation
to pay fixed-rate interest. As of December 31, 2009, the aggregate notional amount of our peso-denominated variable rate to fixed rate interest-rate swaps was P.23,752 million. In the past, we entered into U.S. dollar-denominated interest rate
swaps, including U.S.-dollar-denominated fixed rate to variable rate interest-rate swaps in the aggregate notional amount of P.1,354 million, which matured during 2009.

The fair value of our derivative instruments was an asset of P.11,377 million as of December 31, 2009.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements of the type that we are required to disclose under Item 5E of Form 20-F.

U.S. GAAP Reconciliation

Under Mexican FRS, the Escisión was deemed effective as of December 26, 2007. Under U.S. GAAP, however, the
Escisión was deemed effective as of June 10, 2008, the date on which the Telmex Internacional share certificates were delivered to our shareholders, and therefore the businesses transferred to Telmex Internacional pursuant to the
Escisiónwere included in our consolidated balance sheet as of December 31, 2007 and in our consolidated income statement for part of 2008.



44



---

##### Table of Contents

Net income under U.S. GAAP was P.19,818 million in 2009, P.21,955 million in 2008 and
P.35,833 million in 2007. Compared to Mexican FRS, net income under U.S. GAAP was 3.2% lower in 2009, 8.8% higher in 2008 and 0.6% lower in 2007.

There are certain differences between Mexican FRS and U.S. GAAP that affect our net income and stockholders equity. The most
significant effects concern the treatment of the Escisióndescribed above and elements of inflation accounting that are determined differently under U.S. GAAP than under Mexican FRS. See Effect of Inflation
AccountingEffects of inflation accounting on U.S. GAAP reconciliation for periods prior to 2008 above.

Other
differences that affected net income relate to accounting for costs of pension and seniority premium plans, capitalization of interest on assets under construction and deferred profit sharing. The differences in stockholders equity under
Mexican FRS and U.S. GAAP reflect these same matters. For a discussion of the principal differences between Mexican FRS and U.S. GAAP, see Note 17 to our audited consolidated financial statements.

Use of Estimates in Certain Accounting Policies

In preparing our financial statements, we make estimates concerning a variety of matters. Some of these matters are highly uncertain, and
our estimates involve judgments we make based on the information available to us. In the discussion below, we have identified several of these matters for which our financial presentation would be materially affected if either (a) we used
different estimates that we could reasonably have used or (b) in the future we change our estimates in response to changes that are reasonably likely to occur.

The discussion addresses only those estimates that we consider most important based on the degree of uncertainty and the likelihood of a
material impact if we used a different estimate. There are many other areas in which we use estimates about uncertain matters, but the reasonably likely effect of changed or different estimates is not material to our financial presentation.

Estimated Useful Lives of Plant, Property and Equipment

We estimate the useful lives of particular classes of plant, property and equipment in order to determine the amount of depreciation
expense to be recorded in each period. Depreciation expense is a significant element of our costs, amounting in 2009 to P.17,828 million, or 21.0% of our operating costs and expenses, under Mexican FRS, and P.18,491 million, or 21.2% of our
operating costs and expenses, under U.S. GAAP. See Notes 4 and 17 to our audited consolidated financial statements.

The
estimates were based on historical experience with similar assets, anticipated technological changes and other factors, taking into account the practices of other telecommunications companies. We review estimated useful lives when we consider it
necessary to determine whether they should be changed, and at times we have changed them for particular classes of assets. We may shorten the estimated useful life of an asset class in response to technological changes, changes in the market or
other developments. This results in increased depreciation expense, and in some cases it can result in our recognizing an impairment charge to reflect a write-down in value. The same kind of developments can also lead us to lengthen the useful life
of an asset class, resulting in reduced depreciation expense.



45



---

##### Table of Contents

Employee Pensions and Seniority Premiums

We recognize liabilities on our balance sheet and expenses in our income statement to reflect our obligations to pay employees under
defined benefit retirement and seniority premium plans. The amounts we recognize are determined on an actuarial basis that involves many estimates and accounts for post-retirement and termination benefits in accordance with Mexican FRS. In 2009, we
recognized net period cost relating to these obligations of P.5,022 million under Mexican FRS and P.5,208 million under U.S. GAAP.

We use estimates in four specific areas that have a significant effect on these amounts: (a) the discount rates that we use to
calculate the present value of our future obligations, (b) the rate of increase in salaries that we assume we will observe in future years, (c) the rate of return we assume our pension fund will achieve on its investments and (d) the
expected rate of inflation. The assumptions we have applied are identified in Note 10 (Mexican FRS) and Note 17 (U.S. GAAP) to our audited consolidated financial statements. These estimates are based on our historical experience, on
current conditions in the financial markets and on our judgments about the future development of our salary costs and the financial markets. We review the estimates each year, and if we change them, our reported expense for pension costs may
increase or decrease. In 2008, we began using nominal rates instead of real rates in preparing these estimates as a result of the cessation of inflation accounting under Mexican FRS.

Our liability for future pensions and seniority premiums is also affected by our estimate of the number of retired employees, and our
pension fund is affected by the estimated rate of return on investments. Actual results may vary from these estimates. In 2009, the net actuarial loss of P.5,829 million was due to (i) the effect of an actuarial gain of P.4,372 million due to
variations in reference rates that resulted in an increase in the value of plan assets invested in equity securities and fixed-income instruments, offset by (ii) an actuarial loss of P.10,201 million attributable principally to a higher than
estimated number of employees retiring and higher than estimated salaries and pension benefits of retired employees.

As of
December 31, 2009, 45.9% of fund assets consisted of peso-denominated fixed-income securities and 54.1% consisted of variable-income securities. The fund has experienced volatile returns on its investments in equity securities, which resulted
in net losses on plan assets in prior years.

Allowance for Doubtful Accounts Receivable

We maintain an allowance for doubtful accounts receivable based on our estimates of losses we may experience because our customers or
other telecommunications carriers do not pay the amounts they owe us. At December 31, 2009, the amount of the allowance was P.3,621 million. For our customers, we perform a statistical analysis based on our past experience, current
delinquencies and economic trends. For carriers, we make individual estimates that may reflect our evaluation of pending disputes over amounts owed. Our allowance mainly consists of accounts that are over 90 days delinquent. Our allowance could
prove insufficient if our statistical analysis of our customer receivables is inadequate, or if one or more carriers refuse or are unable to pay us. See Note 3 to our audited consolidated financial statements.



46



---

##### Table of Contents

Revenues from Prepaid Telephone Cards

We recognize revenues from the sale of our prepaid telephone service cards based on our estimate of the usage of time covered by the
prepaid card. We estimate the period for usage of prepaid telephone cards in accordance with available statistics that reflect the total usage of cards and the total amounts sold. The cards do not have an expiration date.

The prepaid telephone card contains a data chip that tracks the number of units of service the card can provide. Each time
the card is used, the telephone equipment records the number of units used and reduces the number of available units on the chip. When the number of available units in the chip is reduced to zero, it ceases to function. We track the aggregate number
of units sold and the aggregate number of units used, but we do not track the number of units used on a card-by-card basis.

Impairment of Long-Lived Assets

We have large amounts of long-lived assets on our balance sheet. Under Mexican FRS and U.S. GAAP, we are required to test long-lived
assets for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable for plant, property and equipment and licenses. Impairment testing for goodwill is required to be performed on an annual basis. At
December 31, 2009, these include plant, property and equipment (P.104,305 million, net of accumulated depreciation), licenses (P.918 million, net of accumulated amortization) and goodwill (P.276 million, included in our equity investments). To
estimate the fair value of long-lived assets, we typically make various assumptions about the future prospects for the business that the asset relates to, consider market factors specific to that business and estimate future cash flows to be
generated by that business. Based on these assumptions and estimates, and guidance provided by Mexican FRS and U.S. GAAP relating to the impairment of long-lived assets, we determine whether we need to take an impairment charge to reduce the net
carrying value of the asset stated on our balance sheet to reflect its estimated fair value. Assumptions and estimates about future values and remaining useful lives are complex and often subjective. They can be affected by a variety of factors,
including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts.

During 2009, 2008 and 2007 we did not recognize any impairment of long-lived assets, licenses or goodwill.

Fair Value of Derivatives

Under Mexican FRS (Bulletin C-10, Instrumentos Financieros Derivados y Operaciones de Cobertura (Derivative Financial
Instruments and Hedging Activities)) and U.S. GAAP (ASC 815, Derivatives and Hedging), we are required to recognize all derivatives as either assets or liabilities on our balance sheet and measure those instruments at fair value. Accounting
for derivative transactions allows us to use the fair values as determined by the financial institutions with whom we enter into these transactions, which we use as the basis for recognition of the derivative instruments in our financial statements.
The fair value of derivative financial instruments is based on estimated settlement costs or quoted market prices supported by confirmations of these values received from the counterparties to these financial instruments and by determinations of
independent third parties applying technical models based on statistical and market data. Changes in the fair value of derivative financial instruments are recorded each year in net income or as a component of accumulated other comprehensive income,
based on the type of hedging instrument and the effectiveness of the hedge and whether or not the derivative has been designated, and qualifies, as an accounting hedge.



47



---

##### Table of Contents

Item 6. Directors, Senior Management and Employees

Directors

Management of
our business is vested in the Board of Directors and the chief executive officer. Our bylaws provide for the Board of Directors to consist of a maximum of 21 directors and up to an equal number of alternate directors. A majority of the
directors and a majority of the alternate directors must be Mexican nationals and elected by Mexican shareholders. Each alternate director may attend meetings of the Board of Directors and vote in the absence of a corresponding director.

Directors are elected by a majority of the holders of the AA Shares and A Shares voting together, provided that any holder or group of
holders of 10% of the total AA Shares and A Shares is entitled to name one of such directors and one of such alternate directors, and two directors and two alternate directors are elected by a majority vote of the holders of L Shares. Directors and
alternate directors are elected at each annual ordinary general meeting of shareholders and each annual special meeting of holders of L Shares. Pursuant to our bylaws and Mexican law, at least 25% of our directors must qualify as independent, as
determined by our shareholders at their annual ordinary general meeting pursuant to the Mexican Securities Market Law (Ley del Mercado de Valores). In order to have a quorum for a meeting of the Board of Directors, a majority of those present
must be Mexican nationals.

Each of Carso Global Telecom and AT&T International has agreed to vote for the directors and
alternate directors named by the other in accordance with their respective share ownership.



48



---

##### Table of Contents

Our bylaws provide that the members of the Board of Directors are appointed for terms of one
year and may be reelected. The names and positions of the current 14 members of our Board of Directors elected at the annual ordinary general meeting of our shareholders held on April 29, 2010, their dates of birth and information on their
principal business activities outside Telmex are as follows:



|                               |  |                                               |  |                                                                                                                                                                                                                                                                                               
|------------------------------ |  | --------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Carlos Slim Domit              |  | Born:                                         |  | 1967                                                                                                                                                                                                                                                                                          
|Chairman; chairman of          |  | First elected:                                |  | 1995                                                                                                                                                                                                                                                                                          
|the executive committee        |  | Term expires:                                 |  | 2011                                                                                                                                                                                                                                                                                          
|                               |  | Principal occupation and other directorships: |  | Chairman of the board of directors of
Teléfonos de México, S.A.B. de C.V.;
Chairman of the board of directors of Grupo
Carso, S.A.B. de C.V., Grupo Sanborns, S.A. de C.V. and U.S. Commercial Corp., S.A. de C.V.;
Chairman of the board of directors of Carso Global Telecom, S.A.B. de C.V.
|                               |  | Business experience:                          |  | Chief Executive Officer of Sanborn
Hermanos, S.A.                                                                                                                                                                                                                                             
|                               |  |                                              
|Antonio Cosío Ariño            |  | Born:                                         |  | 1935                                                                                                                                                                                                                                                                                          
|Director; member of the audit  |  | First elected:                                |  | 1991                                                                                                                                                                                                                                                                                          
|committee; alternate member of |  |                                               |  |                                                                                                                                                                                                                                                                                               
|the executive committee        |  | Term expires:                                 |  | 2011                                                                                                                                                                                                                                                                                          
|                               |  | Principal occupation:                         |  | Chief Executive Officer of Cía. Industrial de Tepeji del Río, S.A. de C.V. and Fábrica de Hilados y Tejidos Puente Sierra, S.A de C.V.                                                                                                                                                        
|                               |  | Other directorships:                          |  | Chairman of the board of directors of
Bodegas de Santo Tomás, S.A. de C.V., Grupo Hotelero Brisas, S.A. de C.V. and Cía. Industrial de Tepeji del Río, S.A. de
C.V.                                                                                                                           
|                               |  |                                              
|Amparo Espinosa Rugarcía       |  | Born:                                         |  | 1941                                                                                                                                                                                                                                                                                          
|Director                       |  | First elected:                                |  | 1991                                                                                                                                                                                                                                                                                          
|                               |  | Term expires:                                 |  | 2011                                                                                                                                                                                                                                                                                          
|                               |  | Principal occupation:                         |  | Chief Executive Officer of Documentación y Estudios de Mujeres, A.C.                                                                                                                                                                                                                          
|                               |  | Business experience:                          |  | Newspaper columnist; speaker at various domestic and international events                                                                                                                                                                                                                     



49



---

##### Table of Contents

|                              |  |                       |  |                                                                                                                                                                                                                                                                    
|----------------------------- |  | --------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                              |  |                      
|Élmer Franco Macías           |  | Born:                 |  | 1940                                                                                                                                                                                                                                                               
|Director                      |  | First elected:        |  | 1991                                                                                                                                                                                                                                                               
|                              |  | Term expires:         |  | 2011                                                                                                                                                                                                                                                               
|                              |  | Principal occupation: |  | Chief Executive Officer and president of the board of directors of Infra, S.A. de C.V.                                                                                                                                                                             
|                              |  | Other directorships:  |  | Member of the board of directors of Corporación Infra, S.A. de C.V., Consolidación Comercial Infra, S.A de C.V., ICA, S.A. de C.V. and Banco Nacional de México,
S.A.                                                                                              
|                              |  | Business experience:  |  | Various positions at Grupo Infra since 1958                                                                                                                                                                                                                        
|                              |  |                      
|José Kuri Harfush             |  | Born:                 |  | 1949                                                                                                                                                                                                                                                               
|Director; member of the audit |  | First elected:        |  | 1995                                                                                                                                                                                                                                                               
|committee                     |  | Term expires:         |  | 2011                                                                                                                                                                                                                                                               
|                              |  | Principal occupation: |  | Chief Executive Officer of Productos Dorel, S.A. de C.V. and Janel, S.A. de C.V.                                                                                                                                                                                   
|                              |  | Other directorships:  |  | Member of the board of directors of Banco Inbursa, Seguros Inbursa, S.A. de C.V., Grupo Carso, S.A.B. de C.V., Carso Global Telecom, S.A.B. de C.V. and Impulsora del Desarrollo y el
Empleo en América Latina S.A.B. de C.V.                                      
|                              |  |                      
|Ángel Losada Moreno           |  | Born:                 |  | 1955                                                                                                                                                                                                                                                               
|Director                      |  | First elected:        |  | 1991                                                                                                                                                                                                                                                               
|                              |  | Term expires:         |  | 2011                                                                                                                                                                                                                                                               
|                              |  | Principal occupation: |  | Chairman of the board of directors and Chief Executive Officer of Grupo Gigante, S.A.B. de C.V.                                                                                                                                                                    
|                              |  | Other directorships:  |  | Chairman of the board of directors of Controempresas, S.A. de C.V.; member of the board of directors of Grupo Financiero BanamexCitigroup, S.A. de C.V. and
Compañìa Mexicana de Aviación, S.A. de C.V.                                                           
|                              |  | Business experience:  |  | President of the Advisory Board of the National Association of Autoservice and Department Stores (ANTAD); member of the Board of Directors of Chamber of Commerce of Mexico City,
Casa de Bolsa Inverlat, S.A., Seguros de América, S.A. and Food Market Institute.



50



---

##### Table of Contents

|                           |  |                          |  |                                                                                                                                                                                                                                                    
|-------------------------- |  | ------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                           |  |                         
|Juan Antonio Pérez Simón   |  | Born:                    |  | 1941                                                                                                                                                                                                                                               
|Vice Chairman; chairman of |  | First elected:           |  | 1991                                                                                                                                                                                                                                               
|the corporate practices    |  | Term expires:            |  | 2011                                                                                                                                                                                                                                               
|committee; member of the   |  | Principal occupation and |  | Chairman of the board of directors and                                                                                                                                                                                                             
|executive committee        |  | other directorships:     |  | member of the executive committee of                                                                                                                                                                                                               
|                           |  |                          |  | Sanborn Hermanos, S.A.; member of the board of directors of Grupo Carso, S.A.B. de C.V., Grupo Financiero Inbursa, S.A.B. de C.V., Carso Global Telecom, S.A.B. de C.V., Cigarros
La Tabacalera Mexicana, and Sears Roebuck de México, S.A. de C.V.
|                           |  |                         
|Marco Antonio Slim Domit   |  | Born:                    |  | 1968                                                                                                                                                                                                                                               
|Director                   |  | First elected:           |  | 1995                                                                                                                                                                                                                                               
|                           |  | Term expires:            |  | 2011                                                                                                                                                                                                                                               
|                           |  | Principal occupation:    |  | Chairman of the board of directors and Chief Executive Officer of Grupo Financiero Inbursa, S.A.B. de C.V.                                                                                                                                         
|                           |  | Other directorships:     |  | Member of the board of directors of Grupo Carso, S.A.B. de C.V. and Carso Global Telecom, S.A.B. de C.V.                                                                                                                                           
|                           |  | Business experience:     |  | Various positions in the financial and commercial area at Grupo Financiero Inbursa, S.A.B. de C.V.                                                                                                                                                 
|                           |  |                         
|Patrick Slim Domit         |  | Born:                    |  | 1969                                                                                                                                                                                                                                               
|Director                   |  | First elected:           |  | 1999                                                                                                                                                                                                                                               
|                           |  | Term expires:            |  | 2011                                                                                                                                                                                                                                               
|                           |  | Principal occupation:    |  | Chairman of the board of directors of América Móvil, S.A.B. de C.V. and Chief Commercial Officer of Teléfonos de México, S.A.B. de
C.V.                                                                                                            
|                           |  | Other directorships:     |  | Vice President of the board of directors of Grupo Carso, S.A.B. de C.V. and member of the board of Impulsora del Desarrollo y el Empleo de América Latina, S.A.B. de C.V.
and Carso Global Telecom S.A.B. de C.V.                                  
|                           |  | Business experience:     |  | Chief Executive Officer of Industrias Nacobre, S.A. de C.V. and Chief Executive Officer of Proveedora Inbursa, S.A. de
C.V.                                                                                                                        



51



---

##### Table of Contents

|                                                             |  |                                                                               |  |                                                                                                                                                                          
|------------------------------------------------------------ |  | ----------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                             |  |                                                                              
|Héctor Slim Seade                                            |  | Born:                                                                         |  | 1963                                                                                                                                                                     
|                                                             |  |                                                                              
|Director; alternate member of                                |  | First elected:                                                                |  | 2007                                                                                                                                                                     
|the executive committee                                      |  | Term expires:                                                                 |  | 2011                                                                                                                                                                     
|                                                             |  | Principal occupation:                                                         |  | Chief Executive Officer of Teléfonos de México, S.A.B. de C.V.                                                                                                           
|                                                             |  | Other directorships:                                                          |  | Member of the board of directors of Grupo Financiero Inbursa, S.A.B. de C.V.                                                                                             
|                                                             |  | Business experience:                                                          |  | Director of Operational Support of Teléfonos de México, S.A.B. de C.V.; Chief Executive Officer of Fianzas Guardiana Inbursa and Administrative Officer of Banco
Inbursa.
|                                                             |  |                                                                              
|Michael J. Viola
Director; member of the executive committee |  | Born: First
elected: Term expires: Principal
occupation: Business experience: |  | 1954 2009
2011 Senior Vice President-Finance of AT&T,
Inc. Various positions at AT&T, Inc. since 2000.                                                                   
|                                                             |  |                                                                              
|Larry I. Boyle                                               |  | Born:                                                                         |  | 1957                                                                                                                                                                     
|Director; alternate member                                   |  | First elected:                                                                |  | 2006                                                                                                                                                                     
|of the executive committee                                   |  | Term expires:                                                                 |  | 2011                                                                                                                                                                     
|                                                             |  | Principal occupation:                                                         |  | Chief Financial Officer of AT&T Mexico, Inc.                                                                                                                             
|                                                             |  | Business experience:                                                          |  | Various positions at AT&T, Inc. since 1985                                                                                                                               
|                                                             |  |                                                                              
|Rafael Moisés Kalach Mizrahi                                 |  | Born:                                                                         |  | 1946                                                                                                                                                                     
|Director; chairman of the audit                              |  | First elected:                                                                |  | 1995                                                                                                                                                                     
|committee                                                    |  | Term expires:                                                                 |  | 2011                                                                                                                                                                     
|                                                             |  | Principal occupation:                                                         |  | Chairman of the board of directors and Chief Executive Officer of Grupo Kaltex, S.A. de C.V., Chairman of the board of directors of Coltejer, S.A.                       
|                                                             |  | Other directorships:                                                          |  | Member of the board of directors of Grupo Carso, S.A.B. de C.V., Sears Roebuck, S.A. de C.V.                                                                             
|                                                             |  | Business experience:                                                          |  | Member of the board of directors of Banco Nacional de México and Bursamex Casa de Bolsa.                                                                                 



52



---

##### Table of Contents

|                       |  |                       |  |                                                                                                                                                                                                                                                                                   
|---------------------- |  | --------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Ricardo Martín Bringas |  | Born:                 |  | 1960                                                                                                                                                                                                                                                                              
|Director               |  | First elected:        |  | 1998                                                                                                                                                                                                                                                                              
|                       |  | Term expires:         |  | 2011                                                                                                                                                                                                                                                                              
|                       |  | Principal occupation: |  | Chief Executive Officer of Organización Soriana, S.A.B. de C.V.                                                                                                                                                                                                                   
|                       |  | Other directorships:  |  | Member of the board of directors of Banco HSBC México, S.A., Grupo Financiero BanamexAccival, S.A. de C.V., Grupo Financiero Banorte, S.A.B. de C.V. and ING de
México; Vitro S.A.B. de C.V., Aeroméxico S.A. de C.V. and member of Consejo Mexicano de Hombres de Negocios, A.C.
|                       |  | Business experience:  |  | Various positions in the management and financial area at various companies, including Organización Soriana, La Ciudad de París and Restaurantes
Martins.                                                                                                                        

The alternate directors elected at the annual ordinary general meeting of our shareholders held
on April 29, 2010, each of whom serves a one-year term, are as follows:



|                                           |  |                                            
|------------------------------------------ |  | -------------------------------------------
|                                           |  | First Elected Directoror Alternate Director
|José Humberto Gutiérrez-Olvera Zubizarreta |  | 1996                                       
|Antonio Cosío Pando                        |  | 2002                                       
|Marcos Franco Hernaiz                      |  | 2009                                       
|Eduardo Tricio Haro                        |  | 2005                                       
|Jaime Alverde Goya                         |  | 1993                                       
|Eduardo Valdés Acra                        |  | 2000                                       
|Oscar Von Hauske Solís                     |  | 2007                                       
|Jorge A. Chapa Salazar                     |  | 2002                                       
|Jorge C. Esteve Recolons                   |  | 2004                                       

The Secretary of the
Board of Directors is Sergio F. Medina Noriega.

Of our directors and alternate directors, Marcos Franco Hernaiz is the nephew
of Élmer Franco Macías; Antonio Cosío Pando is the son of Antonio Cosío Ariño; Carlos Slim Domit, Marco Antonio Slim Domit and Patrick Slim Domit are sons of Carlos Slim Helú; and Héctor Slim Seade is
the nephew of Carlos Slim Helú.

Executive Committee

Our bylaws provide that the executive committee may generally exercise the powers of the Board of Directors. The Board of Directors is
also required to consult the executive committee before deciding on certain matters set forth in the bylaws, and the executive committee must provide its views within 10 calendar days following a request from the Board of Directors.

The executive committee is elected from among the directors and alternate directors by a majority vote of the AA Shares and A Shares
voting together. Under an agreement entered into in December 2000 between Carso Global Telecom and AT&T International, the executive committee consists of four members. The majority of its members must be of Mexican nationality and elected
by Mexican



53



---

##### Table of Contents

shareholders. Carso Global Telecom and AT&T International have agreed to vote for three
members named by Carso Global Telecom and one member named by AT&T International. The current members of the executive committee are Carlos Slim Domit, Juan Antonio Pérez Simón and Héctor Slim Seade, all nominated by Carso
Global Telecom and elected by various other Mexican investors, and Michael J. Viola, named upon nomination by AT&T International. The current alternate members of the executive committee are Oscar Von Hauske Solís and Antonio Cosío
Ariño, all nominated by Carso Global Telecom and elected by various other Mexican investors, and Larry I. Boyle, named upon nomination by AT&T International. The current members and alternate members of the executive committee were
appointed at the annual ordinary general meeting of shareholders held on April 29, 2010.

Audit Committee

The audit committee consists of Rafael Kalach M. (the audit committees chairman, appointed at the annual ordinary general meeting of
shareholders held on April 29, 2010), José Kuri Harfush and Antonio Cosío Ariño, all three of whom are directors. Each member of the audit committee qualifies as independent, as determined by our shareholders at their
annual ordinary general meeting pursuant to the Mexican Securities Market Law, and also meets the independence requirements of Rule 10A-3 under the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act. See
Item 16A. Audit Committee Financial Expert. The audit committee operates under a written charter approved by our Board of Directors.

The mandate of the audit committee is to oversee that proper procedures and controls have been established and ensure that the financial
information is useful, proper, reliable and accurately reflects our financial position. The mandate of our audit committee includes the following functions, among others:



| |  |  | give an opinion to the Board of Directors with respect to matters assigned to it under the Mexican Securities Market Law, including: (a) our
internal control and internal audit guidelines, (b) our accounting policies by reference to financial reporting standards, (c) our financial statements, (d) the appointment of our external auditors, and (e) transactions that
either are outside the ordinary course of our business or, in relation to the results for the immediately preceding fiscal quarter, in any of the following cases: (i) the acquisition or disposition of assets or (ii) the provision of
guaranties or the assumption of liabilities, in each case, equal to or greater than 5% of our consolidated assets;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | evaluate, analyze and supervise the work performed by our external auditors, including (a) review with them our annual and interim financial
statements; (b) approve non-audit services provided by them; (c) resolve any disagreements between them and management; and (d) ensure their independence and objectivity;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | discuss our financial statements with the persons responsible for their preparation and review and issue a recommendation to the Board of Directors
with respect to committees approval thereof;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | inform the Board of Directors of the status of our internal control and internal audit system, including any detected irregularities;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | prepare the opinion required by the Mexican Securities Market Law with respect to the annual report of our chief executive officer and submit it to our
Board of Directors, for subsequent presentation at the shareholders meeting;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



54



---

##### Table of Contents

| |  |  | assist the Board of Directors in the preparation of the reports required by the Mexican Securities Market Law regarding our principal accounting and
financial information policies and criteria, and the Board of Directors activities and operations;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | seek the opinion of independent experts and other advisors when required or deemed necessary;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | investigate possible violations of operational guidelines and policies or of the internal control, internal audit and accounting records system by
examining the documentation, records and other evidence deemed necessary;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | request periodic meetings with management and any information related to our internal control and internal audit;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | call a shareholders meeting and request the inclusion of matters it considers appropriate on the agenda;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | report to the Board of Directors on any detected significant irregularities and on its activities in general, propose corrective actions, and conduct
an annual self-evaluation;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | receive from our external auditors a report that includes an analysis of: (a) all critical accounting policies utilized by us; (b) all
policies and financial reporting standards that differ from those utilized by us and that have been discussed with management, including the implications of using such policies and practices; and (c) any other written communications regarding
significant matters between our external auditors and management, including the annual letter to management, in which our external auditors summarize their recommendations regarding our internal controls and the non-adjusted differences in inventory
identified during the audit process;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | establish procedures for receiving, retaining and addressing complaints regarding our accounting, internal control and audit matters, including
procedures for confidential submission of such complaints;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | set aside times during meetings for discussions and deliberations, and establish a schedule for meeting with the head of our internal audit department
and with our external auditors, without the presence of the chief executive officer and other executive officers;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | review and analyze with management and our external auditors this annual report and the quarterly financial results presented to the SEC;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | oversee that the chief executive officer executes the resolutions adopted by our shareholders or by the Board of Directors;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | oversee the establishment of mechanisms and internal controls that allow to verify that our actions and operations comply with applicable rules, as
well as implement methodologies that allow review of the fulfillment of the foregoing function;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | assist the Board of Directors in monitoring the principal risks to which we are exposed, as identified on the basis of the information presented by the
committees of our Board of Directors, our chief executive officer and our External Auditors, as well as in monitoring our accounting, internal control, internal audit, records, archive and information systems;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



55



---

##### Table of Contents

| |  |  | inform the Board of Directors of the activities performed by the audit committee; and
| | - |  | -------------------------------------------------------------------------------------



| |  |  | perform any other functions pursuant to its mandate or expressly conferred by our shareholders or the Board of Directors.
| | - |  | -------------------------------------------------------------------------------------------------------------------------

The audit committee has reviewed this annual report, as well as our consolidated financial statements and notes thereto included
elsewhere in this annual report, and recommended that such financial statements be included herein.

Corporate Practices Committee

The corporate practices committee consists of Juan Antonio Pérez Simón (a director and the corporate practices
committees chairman, appointed at the annual ordinary general meeting of shareholders held on April 29, 2010), Jaime Alverde Goya and Antonio Cosío Pando (both of whom are alternative directors). The corporate practices committee
operates under a written charter approved by our Board of Directors.

The mandate of our corporate practices committee
includes the following functions, among others:



| |  |  | give an opinion to the Board of Directors with respect to matters assigned to it under the Mexican Securities Market Law, including: (a) the
policies and guidelines for the use of our assets, including by related parties; (b) the policies and guidelines applicable to related party transactions; (c) the appointment, election or dismissal and the compensation of the chief
executive officer, and the policies relating to the appointment and compensation of senior management; (d) policies for the authorization of loans or guarantees to related parties; and (e) exemptions for directors and members of management
to participate in business opportunities that belong to us or to entities over which we have a significant influence;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | seek the opinion of independent experts when required or deemed necessary;
| | - |  | --------------------------------------------------------------------------



| |  |  | call a shareholders meeting and request the inclusion of matters it considers appropriate on the agenda;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | assist the Board of Directors in the preparation of the reports required by the Mexican Securities Market Law regarding our principal accounting and
financial information policies and criteria, and the Board of Directors activities and operations; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | perform any other functions pursuant to its mandate or expressly conferred by our shareholders or the Board of Directors.
| | - |  | -------------------------------------------------------------------------------------------------------------------------



56



---

##### Table of Contents

Executive Officers

The names, responsibilities and prior business experience of our executive officers are as follows:



|                                                               |  |                      |  |                                                                                                                                                                   
|-------------------------------------------------------------- |  | -------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Héctor Slim Seade                                              |  | Appointed:           |  | 2006                                                                                                                                                              
|Chief Executive Officer                                        |  | Business experience: |  | Director Operational Support of Teléfonos de México, S.A.B. de C.V.; Chief Executive Officer of Fianzas Guardiana Inbursa; Administrative Officer of Banco Inbursa
|                                                               |  |                     
|Adolfo Cerezo Pérez                                            |  | Appointed:           |  | 1991                                                                                                                                                              
|Chief Financial Officer                                        |  | Business experience: |  | Various positions in finance at Teléfonos de México, S.A.B. de C.V., including treasurer                                                                          
|                                                               |  |                     
|Arturo Elias Ayub                                              |  | Appointed:           |  | 2002                                                                                                                                                              
|Communication, Institutional Relations and Strategic Alliances |  | Business experience: |  | Chief Executive Officer of Sociedad Cadena and various positions at Telmex, including New Services, Regulation and Communication                                  
|                                                               |  |                     
|Javier Mondragón Alarcón                                       |  | Appointed:           |  | 1999                                                                                                                                                              
|Regulation and Legal Affairs                                   |  | Business experience: |  | General Counsel at Grupo Televisa S.A. de C.V.; executive vice president at Grupo Televicentro                                                                    
|                                                               |  |                     
|Sergio Medina Noriega                                          |  | Appointed:           |  | 1995                                                                                                                                                              
|Legal                                                          |  | Business experience: |  | Various legal positions at Bancomer S.A. (now BBVA Bancomer); legal director of Empresas Frisco                                                                   

Héctor Slim Seade is the nephew of Carlos Slim Helú, and Arturo Elias Ayub is the son-in-law of Carlos Slim Helú.

Compensation of Directors and Officers

For the year ended December 31, 2009, the aggregate compensation of all of our directors and executive officers paid for services in
all capacities was approximately P.56.8 million, which included bonus payments totaling P.15.3 million. Annual bonus payments are approved by our corporate practices committee on the basis of various factors, including achievement of performance
targets and seniority. Each director received an average fee of P.57.7 thousand for each meeting of the Board of Directors attended in 2009. Members of committees of the Board of Directors received an average fee of P.18.8 thousand for each
committee meeting attended in 2009. None of our directors is a party to any contract with us or any of our subsidiaries that provides for benefits upon termination of employment. We do not provide pension,



57



---

##### Table of Contents

retirement or similar benefits to our directors in their capacity as directors. Our executive officers are
eligible for benefits on the same terms as all other Telmex employees, and we do not separately set aside, accrue or determine the amount of our costs that is attributable to executive officers.

Share ownership of Carlos Slim Helú and certain members of his immediate family is set forth in
Item 7. Major Shareholders and Related Party TransactionsMajor Shareholders. Excluding the individuals discussed therein, our directors, alternate directors and executive officers as a group beneficially own
less than 1% of any class of our capital stock.

Employees

We are one of the largest non-governmental employers in Mexico. The following table sets forth the number of employees and a breakdown of
employees by main category of activity as of the end of each year in the three-year period ended December 31, 2009:



|                                   |  |              |  |        |  |       
|---------------------------------- |  | ------------ |  | ------ |  | ------
|                                   |  | December 31,
|                                   |  | 2009         |  | 2008   |  | 2007  
|End-of-period number of employees  |  | 52,946       |  | 54,317 |  | 56,796
|Employees by category of activity: |  |              |  |        |  |       
|Local                              |  | 34,364       |  | 35,505 |  | 37,683
|Long-distance                      |  | 4,518        |  | 4,801  |  | 5,016 
|Other                              |  | 14,064       |  | 14,011 |  | 14,097

At December 31,
2009, the Telephone Workers Union of Mexico (known by its Spanish acronym, STRM) represented approximately 76.0% of our employees, and members of other unions represented approximately 6.3% of our employees. All management positions are held
by non-union employees. Salaries and certain benefits for unionized personnel are renegotiated every year and the collective bargaining agreements with our unionized employees are renegotiated every two years. We have good relations with the STRM.

Item 7. Major Shareholders and Related Party Transactions

MAJOR SHAREHOLDERS

The AA Shares represented 44.6% of the total capital stock and 95.4% of the full voting shares (AA shares and A Shares) as of
January 15, 2010. The AA Shares are owned by (1) Carso Global Telecom, (2) AT&T International and (3) various other Mexican investors. Carso Global Telecom holds interests in telecommunications and was created in an
escisión of Grupo Carso in 1996. Carso Global Telecom may be deemed to control us. According to reports of beneficial ownership of our shares filed with the SEC, Carso Global Telecom is controlled by Mr. Carlos Slim Helú
and members of his immediate family.

On May 11, 2010, América Móvil launched two concurrent public exchange
offers to acquire the outstanding shares of Carso Global Telecom and Telmex Internacional. Shareholders of Carso Global Telecom have been offered 2.0474 shares of América Móvil for each share of Carso Global Telecom. If the exchange
offer is accepted by the shareholders of Carso Global Telecom, América Móvil will indirectly acquire 59.4% of our shares. Like Carso Global Telecom, América Móvil is controlled by Carlos Slim Helú and members of
his immediate family.

Carso Global Telecom and AT&T International are parties to an agreement entered into in
December 2000 providing for certain matters relating to their ownership of AA Shares. Among other things, the agreement subjects certain transfers of AA Shares by either party to a right of first offer in



58



---

##### Table of Contents

favor of the other party, although the right of first offer does not apply to the conversion of AA Shares to
L Shares, as permitted by our bylaws, or the subsequent transfer of L Shares. The agreement also provides for the composition of the Board of Directors and the executive committee (see Item 6. Directors, Senior Management and
EmployeesDirectorsand Item 6. Directors, Senior Management and EmployeesExecutive Committee) and for each party to enter into a Management Services Agreement with us (see Related Party
Transactions below).

The following table identifies each owner of five percent or more of any class of our shares as of
January 15, 2010, unless otherwise indicated. Except as described below, we are not aware of any holder of five percent or more of any class of our shares. Holders of five percent or more of any class of our shares have the same voting rights
with respect to their shares as do holders of less than five percent of the same class.



|                        |  |                  |  |                 |             |  |                  |                |                 |   |                            |                  |  |                 |   |  |      |  
|----------------------- |  | ---------------- |  | --------------- | ----------- |  | ---------------- | -------------- | --------------- | - | -------------------------- | ---------------- |  | --------------- | - |  | ---- | -
|                        |  | AA Shares(1)     |  |                 | A Shares(2) |  |                  | L Shares(3)(4) |                 |   | Percentof 
votingshares(5) |                 
|                        |  | Shares(millions) |  | Percentof class |             |  | Shares(millions) |                | Percentof class |   |                            | Shares(millions) |  | Percentof class |   | 
|Carso Global
Telecom(6) |  | 6,000.0          |  | 73.9            | %           |  | 92.0             |                | 23.3            | % |                            | 4,718.5          |  | 48.7            | % |  | 71.6 | %
|AT&T
International(6)   |  | 1,799.5          |  | 22.2            | %           |  |                 |                |                |   |                            |                 |  |                |   |  | 21.1 | %



|(1) | As of January 15, 2010, there were 8,115 million AA Shares outstanding, representing 95.4% of the total full voting shares (AA Shares and A Shares).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | As of January 15, 2010, there were 395 million A Shares outstanding, representing 4.6% of the total full voting shares (AA Shares and A Shares).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | As of January 15, 2010, there were 9,681 million L Shares outstanding.
|--- | ----------------------------------------------------------------------

|(4) | Based on reports of beneficial ownership filed with the SEC, (i) .Franklin Resources, Inc. beneficially owned less than 5% of our L Shares as of December 31,
2009 and December 31, 2008, compared to 5.5% as of April 10, 2007, (ii) Brandes Investment Partners, beneficially owned less than 5% of our L Shares as of December 31, 2009, compared to 7.6% as of June 11, 2008 and Capital
Research Global Investment beneficially owned less than 5% of our L Shares as of December 31, 2009 compared to 5.9% as of May 13, 2009.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | AA Shares and A Shares.
|--- | -----------------------

|(6) | Holders of AA Shares and A Shares are entitled to convert a portion of these Shares to L Shares, subject to the restrictions set forth in our bylaws. In accordance with
Mexican law and our bylaws, AT&T holds its AA Shares through a Mexican trust, pursuant to the terms of which the trustee votes AT&Ts AA Shares in the same way as Carso Global Telecom does, other than with respect to the election of the
members of our Board of Directors and the Executive Committee. See Item 10. Additional InformationBylaws and Mexican Law.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table sets forth the share ownership, as of January 15, 2010, of our officers and directors who own more than one
percent of any class of our capital stock. Carlos Slim Domit, Marco Antonio Slim Domit and Patrick Slim Domit, together with certain other members of Carlos Slim Helús immediate family, are the majority shareholders of Carso Global
Telecom, which owns 6,000 million AA Shares and, 92.5 million A Shares and 4,959.8 million L Shares are held by Carso Global Telecom and other companies that are under common control with us.



59



---

##### Table of Contents

|                            |  |                  |  |                 |             |  |                  |             |                 |   |                            |                  |  |                 |   |  |      |  
|--------------------------- |  | ---------------- |  | --------------- | ----------- |  | ---------------- | ----------- | --------------- | - | -------------------------- | ---------------- |  | --------------- | - |  | ---- | -
|                            |  | AA Shares(1)     |  |                 | A Shares(1) |  |                  | L Shares(1) |                 |   | Percentof 
votingshares(2) |                 
|                            |  | Shares(millions) |  | Percentof class |             |  | Shares(millions) |             | Percentof class |   |                            | Shares(millions) |  | Percentof class |   | 
|Carlos Slim
Domit(3)        |  | 6,000.0          |  | 73.9            | %           |  | 92.5             |             | 23.4            | % |                            | 4,969.4          |  | 51.3            | % |  | 71.6 | %
|Marco Antonio Slim
Domit(4) |  | 6,000.0          |  | 73.9            |             |  | 92.5             |             | 23.4            |   |                            | 4,969.4          |  | 51.3            |   |  | 71.6 |  
|Patrick Slim
Domit(5)       |  | 6,000.0          |  | 73.9            |             |  | 92.5             |             | 23.4            |   |                            | 4,970.4          |  | 51.3            |   |  | 71.6 |  
|Antonio Cosío
Ariño(6)      |  | 130.4            |  | 1.6             |             |  |                 |             |                |   |                            |                 |  |                |   |  | 1.5  |  
|Antonio Cosío
Pando(6)      |  | 130.4            |  | 1.6             |             |  |                 |             |                |   |                            |                 |  |                |   |  | 1.5  |  



|(1) | Holders of AA Shares and A Shares are entitled to convert a portion of these Shares to L Shares, subject to the restrictions set forth in our bylaws. See Item 10.
Additional InformationBylaws and Mexican Law. Based on reports of beneficial ownership filed with the SEC, as of January 15, 2010, 4,476,419,010 AA Shares and all A Shares could be converted to L Shares. Based on 2008 Carso Global
Telecom ́s annual report Carlos Slim Domit, Marco Antonio Slim Domit, and Patrick Slim Domit and certain other members of Carlos Slim Helús immediate family may be deemed to share directly or indirectly, beneficial ownership of
82.69% of Carso Global Telecom shareholders equity.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | AA Shares and A Shares.
|--- | -----------------------

|(3) | Includes 9,516,264 L Shares owned directly by Carlos Slim Domit.
|--- | ----------------------------------------------------------------

|(4) | Includes 9,529,864 L Shares owned directly by Marco Antonio Slim Domit.
|--- | -----------------------------------------------------------------------

|(5) | Includes 10,580,738 L Shares owned directly by Patrick Slim Domit.
|--- | ------------------------------------------------------------------

|(6) | Owned jointly by Antonio Cosío Ariño and Antonio Cosío Pando.
|--- | -------------------------------------------------------------

At December 31, 2009, 47.4% of our outstanding L Shares were represented by L Share ADSs, each representing the right to receive 20
L Shares, and 99.2% of the holders of L Share ADSs (10,702 holders, including The Depository Trust Company) had registered addresses in the United States. In November 2000, we established a sponsored ADS program for the A Share ADSs. 24.6% of
our outstanding A Shares were held in the form of A Share ADSs at December 31, 2009, each representing the right to receive 20 A Shares, and 99.5% of the holders of A Share ADSs (4,049 holders, including The Depository Trust Company) had
registered addresses in the United States.

We have no information concerning holders with registered addresses in the United
States that hold:



| |  |  | A Shares;
| | - |  | ---------



| |  |  | L Shares not represented by ADSs; or
| | - |  | ------------------------------------



| |  |  | A Share ADSs that are held under the unsponsored A Share ADS programs, which pre-date the establishment of the sponsored program, and have not been
exchanged for ADSs issued under such sponsored program. SeeItem 9. The Offer and ListingTrading Market.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We purchase our shares on the Mexican Stock Exchange from time to time up to a specified maximum aggregate value authorized by the
holders of AA Shares and A Shares and our Board of Directors. In 2009, we purchased 361.2 million L Shares and 1.9 million A Shares, representing 2.0% of the shares outstanding at the beginning of 2009, with an aggregate value of P.4,095
million.

Since January 1, 1997, Carso Global Telecom has purchased A Shares and L Shares on the open market from time to
time. In percentage terms, the ownership position of Carso Global Telecom has also increased as a result of our repurchase of our own shares. Carso Global Telecoms percentage ownership of A Shares was 23.3% on December 31, 2009,
22.6% on December 31, 2008 and 21.4% on December 31, 2007. Carso Global Telecoms percentage ownership of L Shares was 48.7% on December 31, 2009, 46.4% on December 31, 2008 and 42.9% on December 31, 2007.



60



---

##### Table of Contents

RELATED PARTY TRANSACTIONS

General

We engage in a
variety of transactions in the ordinary course of business with affiliates. Pursuant to Mexican law, our bylaws and applicable internal guidelines, provided that the corporate practices committee of our Board of Directors has opined favorably, our
Board of Directors has to vote on whether or not to approve any transaction with a related party (1) the value of which exceeds 1% of our consolidated assets, (2) that is outside the ordinary course of our business or at non-market prices,
or (3) that is with employees and is not on the same terms as transactions with any other customers and does not result from employee benefits of general character. A director with an interest in a transaction with a related party is not
permitted to vote on its approval.

Our transactions with affiliates include making interconnection payments to América
Móvil and to Telmex Internacional, purchasing network construction services and materials from a subsidiary of Grupo Carso and using insurance and bank services from Grupo Financiero Inbursa. In addition, we rent private circuits and provide
long-distance services to América Móvil, purchase network construction materials from Grupo Carso and provide certain services to Grupo Carso and Grupo Financiero Inbursa. Grupo Carso and Grupo Financiero Inbursa are under common
control with Carso Global Telecom, and several of their directors are also members of our Board of Directors. See Item 6. Directors, Senior Management and EmployeesDirectors.

The aggregate amount of our purchases from affiliates was P.14,142 million in 2009, P.17,993 million in 2008 and P.22,624 million in
2007. The aggregate amount of our sales to these affiliates was P.8,681 million in 2009, P.10,732 million in 2008 and P.9,306 million in 2007. We believe that these transactions are at market prices. See Note 13 to our audited consolidated financial
statements.

From time to time we make investments together with affiliated companies, sell our investments to affiliates and
buy investments from affiliates. Some of these transactions are described below.



| |  |  | We pursued joint investments with América Móvil to acquire equity interests in Compañía Anónima Nacional
Teléfonos de Venezuela in 2006 and Olimpia, an Italian company that owns 18% of the total capital of Telecom Italia, in 2007. Neither of these transactions was completed.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In January 2006, together with Alcatel and AT&T International (one of our principal shareholders), we acquired an aggregate 51% interest in
the capital stock of 2Wire. Subsequently in December 2006, we sold an approximate 5.5% in 2Wire to AT&T International, decreasing our ownership to approximately 13.0%.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We own a 45% interest in Grupo Telvista S.A. de C.V. together with América Móvil (45%) and Grupo Carso (10%).
| | - |  | -------------------------------------------------------------------------------------------------------------

We also pay fees to Carso Global Telecom and AT&T International for consulting and management services,
pursuant to agreements with each party negotiated on behalf of us by a special committee of directors unaffiliated with any of the parties. We paid an aggregate amount of U.S.$22.5 million in 2009, U.S.$45.0 million in 2008 and U.S.$47.5 million in
2007. In 2008, Telmex Internacional reimbursed us U.S.$22.5 million of the U.S.$45.0 million we paid to Carso Global Telecom. The current agreement with Carso Global Telecom was renewed for 2010 on substantially similar terms to the prior agreement
and we will pay U.S.$22.5 million this year under the agreement.



61



---

##### Table of Contents

Our corporate practices committee has established policies governing the use of our
corporate aircraft. For security reasons and due to the various activities related to their positions, the corporate practices committee allocates an annual amount of time for personal use free of charge to the chairman and co-chairman of our Board
of Directors and to the chief executive officer. Certain executives of our affiliates periodically use our corporate aircraft in accordance with those policies.

Ongoing Transactions with Telmex Internacional

We have a variety of contractual relationships with Telmex Internacional. The terms of our arrangements with Telmex Internacional are
generally similar to those on which each company does business with other, unaffiliated parties. These ongoing relationships include the following:



| |  |  | We complete international traffic from Telmex Internacional in Mexico.
| | - |  | ----------------------------------------------------------------------



| |  |  | Telmex Internacional completes international traffic from us in Brazil, Colombia, Argentina, Chile, Peru and Ecuador.
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | Telmex Internacional prints our white pages telephone directories.
| | - |  | ------------------------------------------------------------------



| |  |  | We provide Telmex Internacional access to our customer database for use in its yellow pages directory business in Mexico and handle the billing and
collection of payments from advertisers.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We provide a variety of administrative services to Telmex Internacional, including certain data processing and corporate support and administrative
services, generally at cost plus a specified percentage.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Transactions Relating to theEscisión

The creation of Telmex Internacional and the transfer of
assets and liabilities from Telmex to Telmex Internacional was effected pursuant to the Escisiónin December 2007. We have not made any representations regarding the value of any of the assets we transferred to Telmex Internacional in
the Escisión. Telmex Internacional has agreed to indemnify us against any liability, expense, cost or contribution asserted against us that arises out of the assets owned directly or indirectly by Controladora de Servicios de
Telecomunicaciones, S.A. de C.V., or Consertel, the subsidiary whose shares were transferred to Telmex Internacional in the Escisión. For more information on the Escisión, see Item 4. Information on the
CompanyHistory.

In connection with the Escisión, we entered into a master transition agreement with
Telmex Internacional, or the Master Transition Agreement. Among other things, this agreement provides in general terms as follows:



| |  |  | Telmex Internacional agrees to indemnify us against any loss or expense resulting from the assertion against us of any liabilities or claims that were
transferred to Telmex Internacional in the Escisión or that relate to the businesses transferred to Telmex Internacional in the Escisión.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We agree to indemnify Telmex Internacional against any loss or expense resulting from the assertion against Telmex Internacional of any liabilities or
claims that were retained by us in the Escisión or that relate to the businesses retained by us in the Escisión.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



62



---

##### Table of Contents

| |  |  | Each party agrees to provide the other with information required to prepare financial statements, tax returns, regulatory filings or submissions and
for other specified purposes.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Each party agrees to maintain the confidentiality of any information concerning the other that it obtained prior to the Escisión or that
it obtains in connection with the implementation of the Escisión.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Each party agrees that it will not take any action that could reasonably be expected to prevent the Escisión from qualifying as tax-free
under Mexican or U.S. federal tax laws.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Each party releases the other from certain claims arising prior to the Escisión. We made no representations concerning the assets
transferred directly or indirectly in the Escisión.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Transactions between Telmex and América
Móvil

América Móvil has a variety of contractual relationships with us and with our subsidiaries.
Because both we and América Móvil, the wireless operator that was established in an escisiónwe completed in 2000, provide telecommunications services in the same geographical markets, we have extensive operational
relationships. These include interconnection between our respective networks; use by América Móvil of our private circuits; our provision of long-distance service to América Móvils customers; use of facilities,
particularly for the co-location of equipment on premises we own; and use by each of the services provided by the other. These operational relationships are subject to a variety of agreements, which for the most part were in place prior to the
Escisión and were not significantly modified as a result of the Escisión. Many of them are also subject to specific regulations governing all telecommunications operators. Interconnection fees represent the largest
component of amounts paid under these agreements. In addition, we distribute América Móvils handsets and prepaid cards in our stores. The terms of the arrangements with América Móvil are generally similar to those
on which each company does business with other, unaffiliated parties.

International Long-distance Settlement with AT&T International

We have agreements with AT&T International, one of our principal shareholders that provide for AT&T International
completing our international calls to the United States and for our completing AT&T Internationals calls from the United States. The rates of payment under these agreements are consistent with the rates agreed with other international
carriers.

Item 8. Financial Information

CONSOLIDATED FINANCIAL STATEMENTS

See Item 18. Financial Statements and our consolidated financial statements beginning on page F-1. Since the date of the
financial statements, no significant change has occurred.

LEGAL PROCEEDINGS

We are involved in legal proceedings in the ordinary course of our business, none of which is material. In addition, we are in the
process of appealing various proceedings brought by our competitors alleging monopolistic practices by us before competition authorities in Mexico.



63



---

##### Table of Contents

The Competition Commission is conducting industry-wide investigations into market power and
monopolistic practices in the telecommunications market. In four of these investigations, the Competition Commission has issued final resolutions determining that we have substantial market power in the relevant markets investigated, which we have
challenged by filing petitions for constitutional protection (amparo). The three remaining investigations, relating to monopolistic practices, are still pending, and we cannot predict their outcome. See Item 4. Information on the
CompanyRegulationRegulatory Initiatives Relating to Competition and Note 12 to our audited consolidated financial statements.

In November 2005, Cofetel issued guidelines for making changes to local service areas, including the consolidation of such local service
areas. We are currently challenging the legality of the underlying guidelines before the Third Metropolitan Regional Federal Court of Justice for Tax and Administrative Matters. In addition, November 2009, a federal court nullified various
resolutions that Cofetel had issued under these guidelines to consolidate a number of our local service areas. See Item 4. Information on the CompanyRegulationConsolidation of Local Service Areas and Note 12 to our audited
consolidated financial statements.

In February 2009, Cofetel published the Fundamental Technical Plan, which requires
operators with the greatest number of access points to provide other operators with access to our network on an unbundled basis that disaggregates the prices for different service elements. In October 2009, Cofetel issued two resolutions
determining that we and Telnor are operators with the largest number of access points in our respective concession coverage areas. We have filed petitions for constitutional protection (amparo) against the Fundamental Technical Plan and these
resolutions, which are pending. See Item 4.Information on the CompanyRegulationInterconnection and Note 12 to our audited consolidated financial statements.

Following an audit of our social security obligations for the period from 1997 to 2001, the Mexican Social Security Institute
(Instituto Mexicano del Seguro Social) determined that we owed approximately P.330 million (historical amount) as of July 2, 2003 in past due obligations, penalties and accrued interest. We appealed these rulings to the Federal
Administration and Taxation Court (Tribunal Federal de Justicia Fiscal y Administrativa) and posted a bond in the amount of P.568.7 million to guarantee payment of the tax assessment. In October 2009, we obtained a final resolution in our
favor that nullified the schedule of rate payments, and, accordingly, we liquidated the bond on January 22, 2010.



64



---

##### Table of Contents

DIVIDENDS

We have paid cash dividends on our shares each year since 1958. The table below sets forth the nominal amount of dividends paid per share
in each year indicated, in pesos and translated into U.S. dollars at the exchange rate on each of the respective payment dates. The figures below have been adjusted to give effect to the two-for-one stock split that occurred in May 2005.



|                        |  |                 |  |                   |       
|----------------------- |  | --------------- |  | ----------------- | ------
|Year ended
December 31, |  | Pesos per Share |  | Dollars per Share
|2009                    |  | P.  0.8450      |  | U.S.$             | 0.0646
|2008                    |  | 0.4125          |  |                   | 0.0370
|2007                    |  | 0.4400          |  |                   | 0.0402
|2006                    |  | 0.4025          |  |                   | 0.0365
|2005                    |  | 0.3700          |  |                   | 0.0340

Since 1998, we have
paid dividends quarterly. The dividends from earnings in a given year are determined at the annual meeting of shareholders in April of the following year, and paid in June, September and December of such following year and in
March of the year after that. In April 2008, we declared a dividend of P.0.40 per share, which we paid in equal installments of P.0.10 per share in June 2008, September 2008, December 2008 and March 2009. In April 2009, we declared a
dividend of P.0.46 per share, which was paid in equal installments of P.0.1150 per share in June 2009, September 2009, December 2009 and March 2010. In December 2009, we declared a dividend of P.0.40 per share, which was paid in a single
installment. On April 29, 2010, we declared a dividend of P.0.50 per share, which will be payable in equal installments of P.0.1250 per share in June 2010, September 2010, December 2010 and March 2011.

The declaration, amount and payment of dividends are determined by majority vote of the holders of AA Shares and A Shares, generally on
the recommendation of the Board of Directors, and will depend on our results of operations, financial condition, cash requirements, future prospects and other factors deemed relevant by the holders of AA Shares and A Shares. Accordingly, we cannot
assure you that we will continue to pay dividends or that future dividends will be comparable to historical dividends. Our bylaws do not distinguish among holders of the AA Shares, the A Shares and the L Shares with respect to dividend payments and
other distributions.



65



---

##### Table of Contents

Item 9. The Offer and Listing

TRADING MARKET

The L Share ADSs, each representing 20 L Shares of Telmex, are issued by JPMorgan Chase Bank, N.A., or the Depositary, as depositary for
the L Share ADSs. The L Share ADSs are traded on the New York Stock Exchange and the L Shares are traded on the Mexican Stock Exchange and listed on the Mercado de Valores Latinoamericano (Latibex) in Madrid, Spain.

The A Share ADSs, each representing 20 A Shares of Telmex, are issued by the Depositary, as depositary for the A Share ADSs. The A Shares
are traded on the Mexican Stock Exchange, and the A Share ADSs are traded on the NASDAQ Capital Market.

The following table
sets forth, for the periods indicated, the reported high and low sales prices for the L Shares on the Mexican Stock Exchange and the reported high and low sales prices for the L Share ADSs on the New York Stock Exchange. Prices have not been
restated in constant currency units, but have been adjusted to give effect to the two-for-one stock split that occurred in May 2005. Following the Escisión and until June 10, 2008, the L Shares and L Share ADSs of Telmex and
Telmex Internacional traded together. On May 10, 2010, the closing price of the L Shares on the Mexican Stock Exchange was P.9.05 and the closing price of the L Share ADSs on the New York Stock Exchange was U.S.$14.48.



|                         |  |                        |  |                                |  |       |       |     |       |      
|------------------------ |  | ---------------------- |  | ------------------------------ |  | ----- | ----- | --- | ----- | -----
|                         |  | Mexican Stock Exchange |  | New York Stock Exchange       
|                         |  | High                   |  | Low                            |  | High  |       | Low
|                         |  | (pesos per L Share)    |  | (U.S. dollars per L Share ADS)
|Annual highs and lows    |  |                        |  |                                |  |       |       |     |       |      
|2009                     |  | P.  14.47              |  | P.  9.50                       |  | U.S.$ | 21.24 |     | U.S.$ | 12.54
|2008                     |  | 22.19                  |  | 10.47                          |  |       | 42.94 |     |       | 15.08
|2007                     |  | 23.29                  |  | 14.32                          |  |       | 43.26 |     |       | 25.89
|2006                     |  | 15.97                  |  | 10.01                          |  |       | 29.35 |     |       | 17.61
|2005                     |  | 13.27                  |  | 8.92                           |  |       | 24.79 |     |       | 16.49
|                         |  |                        |  |                               
|Quarterly highs and lows |  |                        |  |                                |  |       |       |     |       |      
|2010:                    |  |                        |  |                                |  |       |       |     |       |      
|First quarter            |  | P.  11.16              |  | P.  9.28                       |  | U.S.$ | 17.38 |     | U.S.$ | 14.77
|2009:                    |  |                        |  |                                |  |       |       |     |       |      
|First quarter            |  | 14.47                  |  | 9.50                           |  |       | 21.24 |     |       | 12.54
|Second quarter           |  | 11.55                  |  | 10.07                          |  |       | 17.44 |     |       | 14.85
|Third quarter            |  | 12.90                  |  | 10.33                          |  |       | 19.36 |     |       | 14.98
|Fourth quarter           |  | 12.21                  |  | 10.75                          |  |       | 19.12 |     |       | 16.23
|2008:                    |  |                        |  |                                |  |       |       |     |       |      
|First quarter            |  | 20.43                  |  | 16.96                          |  |       | 39.39 |     |       | 30.88
|Second quarter           |  | 22.19                  |  | 11.70                          |  |       | 42.94 |     |       | 22.01
|Third quarter            |  | 14.63                  |  | 11.30                          |  |       | 27.18 |     |       | 22.30
|Fourth quarter           |  | 15.50                  |  | 10.47                          |  |       | 26.14 |     |       | 15.08
|                         |  |                        |  |                               
|Monthly highs and lows   |  |                        |  |                                |  |       |       |     |       |      
|2009                     |  |                        |  |                                |  |       |       |     |       |      
|November                 |  | P.  11.93              |  | P.  10.93                      |  | U.S.$ | 18.32 |     | U.S.$ | 16.50
|December                 |  | 12.21                  |  | 10.86                          |  |       | 19.12 |     |       | 16.58
|2010                     |  |                        |  |                                |  |       |       |     |       |      
|January                  |  | 11.16                  |  | 10.46                          |  |       | 17.38 |     |       | 16.03
|February                 |  | 11.00                  |  | 9.82                           |  |       | 16.84 |     |       | 15.16
|March                    |  | 10.01                  |  | 9.28                           |  |       | 15.77 |     |       | 14.77
|April                    |  | 10.13                  |  | 9.36                           |  |       | 16.66 |     |       | 15.06



66



---

##### Table of Contents

The table below sets forth, for the periods indicated, the reported high and low sales
prices for the A Shares on the Mexican Stock Exchange and the high and low bid prices for A Share ADSs published by NASDAQ. Bid prices published by NASDAQ for the A Share ADSs are inter-dealer quotations and may not reflect actual transactions.
Prices have not been restated in constant currency units, but have been adjusted to give effect to the two-for-one stock split that occurred in May 2005. Following the Escisión and until June 10, 2008, the A Shares and A
Share ADSs of Telmex and Telmex Internacional traded together. On May 10, 2010, the closing price of the A Shares on the Mexican Stock Exchange was P.9.00, and the closing price of the A Share ADSs on NASDAQ was U.S.$14.26.



|                         |  |                        |  |                                |  |       |       |     |       |      
|------------------------ |  | ---------------------- |  | ------------------------------ |  | ----- | ----- | --- | ----- | -----
|                         |  | Mexican Stock Exchange |  | NASDAQ                        
|                         |  | High                   |  | Low                            |  | High  |       | Low
|                         |  | (pesos per A Share)    |  | (U.S. dollars per A Share ADS)
|Annual highs and lows    |  |                        |  |                                |  |       |       |     |       |      
|2009                     |  | P.  14.20              |  | P.  9.64                       |  | U.S.$ | 20.62 |     | U.S.$ | 12.20
|2008                     |  | 22.15                  |  | 10.50                          |  |       | 42.99 |     |       | 11.95
|2007                     |  | 22.65                  |  | 14.30                          |  |       | 43.14 |     |       | 25.71
|2006                     |  | 15.79                  |  | 10.30                          |  |       | 29.07 |     |       | 17.04
|2005                     |  | 13.25                  |  | 8.97                           |  |       | 24.50 |     |       | 16.40
|                         |  |                        |  |                               
|Quarterly highs and lows |  |                        |  |                                |  |       |       |     |       |      
|2010:                    |  |                        |  |                                |  |       |       |     |       |      
|First quarter            |  | P.  11.00              |  | P.  9.21                       |  | U.S.$ | 17.44 |     | U.S.$ | 14.25
|2009:                    |  |                        |  |                                |  |       |       |     |       |      
|First quarter            |  | 14.20                  |  | 9.64                           |  |       | 20.62 |     |       | 12.20
|Second quarter           |  | 11.40                  |  | 10.10                          |  |       | 18.18 |     |       | 14.11
|Third quarter            |  | 12.60                  |  | 10.35                          |  |       | 19.05 |     |       | 14.51
|Fourth quarter           |  | 11.95                  |  | 10.80                          |  |       | 19.00 |     |       | 16.04
|2008:                    |  |                        |  |                                |  |       |       |     |       |      
|First quarter            |  | 20.20                  |  | 17.60                          |  |       | 38.06 |     |       | 30.01
|Second quarter           |  | 22.15                  |  | 11.90                          |  |       | 42.99 |     |       | 22.50
|Third quarter            |  | 14.00                  |  | 11.90                          |  |       | 27.46 |     |       | 11.95
|Fourth quarter           |  | 14.40                  |  | 10.50                          |  |       | 25.80 |     |       | 14.61
|                         |  |                        |  |                               
|Monthly highs and lows   |  |                        |  |                                |  |       |       |     |       |      
|2009                     |  |                        |  |                                |  |       |       |     |       |      
|November                 |  | P.  11.70              |  | P.  11.00                      |  | U.S.$ | 18.15 |     | U.S.$ | 16.48
|December                 |  | 11.85                  |  | 10.80                          |  |       | 19.00 |     |       | 16.54
|2010:                    |  |                        |  |                                |  |       |       |     |       |      
|January                  |  | 11.00                  |  | 10.44                          |  |       | 17.44 |     |       | 16.08
|February                 |  | 10.31                  |  | 9.50                           |  |       | 16.75 |     |       | 14.50
|March                    |  | 10.00                  |  | 9.21                           |  |       | 15.75 |     |       | 14.25
|April                    |  | 9.85                   |  | 9.26                           |  |       | 16.45 |     |       | 14.98



67



---

##### Table of Contents

TRADING ON THE MEXICAN STOCK EXCHANGE

The Mexican Stock Exchange (Bolsa Mexicana de Valores, S.A.B. de C.V.), located in Mexico City, is the only stock exchange in
Mexico. Founded in 1894 and in continuous operation since 1907, it is organized as a Mexican corporation operating under a concession granted by the Ministry of Finance and Public Credit (SHCP). Trading on the Mexican Stock Exchange takes place
through automated systems. Trades in securities listed on the Mexican Stock Exchange can also be effected off the exchange. The Mexican Stock Exchange operates a system of automatic suspension of trading in shares of a particular issuer as a means
of controlling excessive price volatility, but under current regulations this system does not apply to securities such as the A Shares or the L Shares that are directly or indirectly (for example, through ADSs) quoted on a stock exchange (including
for these purposes NASDAQ) outside Mexico.

Settlement is effected three business days after a share transaction on the
Mexican Stock Exchange. Deferred settlement, even by mutual agreement, is not permitted without the approval of the Mexican National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores, or the CNBV). Most
securities traded on the Mexican Stock Exchange, including those of Telmex, are on deposit with S.D. Indeval, Institución para el Depósito de Valores, S.A. de C.V., a privately owned securities depositary that acts as a clearinghouse
for Mexican Stock Exchange transactions.



68



---

##### Table of Contents

Item 10. Additional Information

BYLAWS AND MEXICAN LAW

Set forth below is a brief summary of certain significant provisions of our bylaws. This description does not purport to be complete and
is qualified by reference to our bylaws, which are filed as an exhibit to this annual report.For a description of the provisions of our bylaws relating to our Board of Directors and its committees, see Item 6. Directors, Senior
Management and Employees.

Organization and Register

Telmex is a sociedad anónima bursátil de capital variable organized in Mexico under the Mexican Companies Law (Ley
General de Sociedades Mercantiles) and the Mexican Securities Market Law. It is registered with the Public Registry of Commerce of Mexico City under the number 5229.

Purpose

Our main
corporate purpose is to construct, install, maintain and operate a public telephony and telecommunications network to transmit voice, sound, data, text and images through local and domestic and international long-distance telecommunications
services.

Share Capital

Our capital stock comprises Series AA Shares, Series A Shares and Series L Shares, all such shares without par value. All of the
outstanding shares are fully paid and non-assessable.

AA Shares and A Shares have full voting rights. Holders of L Shares may
vote only in limited circumstances as described under Voting Rights. The rights of holders of all series of capital stock are otherwise identical except for limitations on non-Mexican ownership of AA Shares. The AA Shares, which
must always represent at least 51% of the combined AA Shares and A Shares, may be owned only by holders that qualify as Mexican investors as defined in the Foreign Investment Law and our bylaws. See Limitations on Share Ownership.

Each AA Share or A Share may be exchanged at the option of the holder for one L Share, provided that the AA Shares may never
represent less than 20% of our outstanding capital stock or less than 51% of our combined AA Shares and A Shares. As of December 31, 2009, the AA Shares represented 44.6% of our outstanding capital stock and 95.4% of our combined AA Shares
and A Shares.

Each L Share is exchangeable at the option of the holder for one AA Share by delivering the L Share certificate
to our treasury for cancellation and receiving the corresponding AA Share certificate. The right to exchange is subject to limitations on non-Mexican ownership of AA Shares and to the requirement that the AA Shares and A Shares together may never
represent more than 51% of our outstanding capital stock. As of December 31, 2009, the AA Shares and A Shares together represented 46.8% of our outstanding capital stock.

Voting Rights

Each AA
Share and A Share entitles the holder thereof to one vote at any meeting of our shareholders. Each L Share entitles the holder to one vote at any meeting at which holders of L Shares are entitled to vote. Holders of L Shares are entitled to vote
only to elect two members of the Board of Directors and the corresponding alternate directors and on the following matters:



| |  |  | the transformation of Telmex from one type of company to another;
| | - |  | -----------------------------------------------------------------



| |  |  | any merger in which Telmex is not the surviving entity or any merger with an entity whose principal corporate purposes are different from those of
Telmex (when Telmex is the surviving entity); and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



69



---

##### Table of Contents

| |  |  | cancellation of the registration of Telmex on the Mexican National Registry of Securities and any foreign stock exchange on which they are registered.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

A resolution on any of the specified matters requires the affirmative vote of both a majority of all outstanding shares and
a majority of the AA Shares and the A Shares voting together.

Under Mexican law, holders of shares of any series are also
entitled to vote as a class on any action that would affect the rights of holders of shares of such series. Additionally, holders of 20% or more of all outstanding shares would be entitled to request judicial relief against any such action taken
without such a vote. The determination whether an action requires a class vote on these grounds would initially be made by the Board of Directors or any other party calling for shareholder action. A negative determination could be subject to
judicial challenge by an affected shareholder, and a court would ultimately determine the necessity for a class vote. There are no other procedures for determining whether a proposed shareholder action requires a class vote, and Mexican law does not
provide extensive guidance on the criteria to be applied in making such a determination.

Shareholders Meetings

General shareholders meetings may be ordinary meetings or extraordinary meetings. Extraordinary general meetings are those called to
consider certain matters specified in Article 182 of the Mexican Companies Law, including, principally, amendments of the bylaws, liquidation, merger and transformation from one type of company to another, as well as to consider the removal of our
shares from listing on the Mexican Stock Exchange or any foreign stock exchange. General meetings called to consider other matters are ordinary meetings. The two directors elected by the holders of L Shares are elected at a special meeting of
holders of L Shares. All other matters on which holders of L Shares are entitled to vote would be considered at an extraordinary general meeting. Holders of L Shares are not entitled to attend or address meetings of shareholders at which they are
not entitled to vote.

A special meeting of the holders of L Shares must be held each year for the election of directors. An
ordinary general meeting of the holders of AA Shares and A Shares must be held each year to consider the approval of the financial statements for the preceding fiscal year, to elect directors and to determine the allocation of the profits of the
preceding year.

The quorum for an ordinary general meeting of the AA Shares and A Shares is 50% of such shares, and action
may be taken by a majority of the shares present. If a quorum is not available, a second meeting may be called at which action may be taken by a majority of the AA Shares and A Shares present, regardless of the number of such shares. Special
meetings of holders of L Shares are governed by the same rules applicable to ordinary general meetings of holders of AA Shares and A Shares. The quorum for an extraordinary general meeting at which holders of L Shares may not vote is 75% of the AA
shares and A Shares, and the quorum for an extraordinary general meeting at which holders of L Shares are entitled to vote is 75% of the outstanding capital stock. If a quorum is not available in either case, a second meeting may be called and
action may be taken, provided a majority of the shares entitled to vote is present. Whether on first or second call, actions at an extraordinary general meeting may be taken by a majority vote of the AA Shares and A Shares outstanding and, on
matters which holders of L Shares are entitled to vote, a majority vote of all the capital stock.



70



---

##### Table of Contents

Holders of 20% of our outstanding capital stock may have any shareholder action set aside by
filing a complaint with a court of law within 15 days after the close of the meeting at which such action was taken and showing that the challenged action violates Mexican law or our bylaws. In addition, any holder of our capital stock may bring an
action at any time within five years challenging any shareholder action. Relief under these provisions is only available to holders:



| |  |  | who were entitled to vote on, or whose rights as shareholders were adversely affected by, the challenged shareholder action; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | whose shares were not represented when the action was taken or, if represented, were voted against it.
| | - |  | ------------------------------------------------------------------------------------------------------

Shareholders meetings may be called by the Board of Directors, its chairman, co-chairman or secretary, by the committees that
perform audit and corporate practices functions or their chairmen, or by a court. The Board of Directors or the committees that perform audit and corporate practices functions may be required to call a meeting of shareholders by the holders of 10%
of the outstanding capital stock. Notice of meetings must be published in the Official Gazette or a newspaper of general circulation in Mexico City at least 15 days prior to the meeting. In order to attend a meeting, shareholders must deposit their
shares with us at our office in Mexico City, with a Mexican or foreign banking institution or with a Mexican exchange broker. If so entitled to attend the meeting, a shareholder may be represented by proxy. The depositary for the L Share ADSs and
the A Share ADSs does not satisfy this requirement, so ADS holders are not entitled to attend shareholder meetings. ADS holders must exercise their voting rights through the depositary.

Dividend Rights

At the
annual ordinary general meeting of holders of AA Shares and A Shares, the Board of Directors submits our financial statements for the previous fiscal year, together with a report thereon by the Board of Directors, to the holders of AA Shares and A
Shares for approval. The holders of AA Shares and A Shares, once they have approved the financial statements, determine the allocation of our net income for the preceding year. They are required by law to allocate 5% of such net income to a legal
reserve, which is not thereafter available for distribution except as a stock dividend, until the amount of the legal reserve equals 20% of our capital stock. The remainder of net income is available for distribution.

All shares outstanding at the time a dividend or other distribution is declared are entitled to participate in such dividend or other
distribution.

Limitation on Capital Increases

Our bylaws require that any capital increase be represented by new shares of each series in proportion to the number of shares of each
series outstanding.

Preemptive Rights

In the event of a capital increase, a holder of existing shares of a given series has a preferential right to subscribe for a sufficient
number of shares of the same series to maintain the holders existing proportionate holdings of shares of that series. Preemptive rights must be exercised within 30 calendar days following the publication of notice of the capital increase in
the Official Gazette and a newspaper of general circulation in Mexico City. Under Mexican law, preemptive rights cannot be traded separately from the corresponding shares that give rise to such rights. As a result, there is no trading market for the
rights in connection with a capital increase. Holders of ADSs may exercise preemptive rights only through the depositary. We are not required to take steps that may be necessary to make this possible.



71



---

##### Table of Contents

Under the Mexican Securities Market Law, however, if Telmex were to increase its capital
stock to effect a public offering of newly issued shares or were to resell any repurchased shares, no preemptive rights would be available to the holders of outstanding shares as a result of the issuance or resale. As of December 31, 2009,
Telmex had 13,998 million repurchased L Shares and 42 million repurchased A Shares in its treasury.

Limitations on Share
Ownership

Ownership by non-Mexicans of shares of Mexican enterprises in certain economic sectors, including telephone
services, is regulated by the Foreign Investment Law and the Regulations thereunder. The National Commission on Foreign Investment is responsible for administration of the Foreign Investment Law and Regulations. In order to comply with restrictions
on the percentage of their capital stock that may be owned by non-Mexican investors, Mexican companies typically limit particular classes of their stock to Mexican ownership. Under the Foreign Investment Law, a trust for the benefit of one or more
non-Mexican investors may qualify as Mexican if the trust meets certain conditions that will generally ensure that the non-Mexican investors do not determine how the shares are voted.

Non-Mexican investors are not permitted to own more than 49% of the capital stock of a Mexican corporation engaged in the telephone
business. Pursuant to a decision of the Foreign Investment Commission dated August 10, 1990, the L Shares of Telmex, because of their limited voting rights, are not taken into account in determining compliance with this restriction and
accordingly are not subject to Mexican ownership restrictions. The A Shares are also unrestricted. The AA Shares, however, which must always represent at least 51% of the combined AA Shares and A Shares, may be owned only by holders that qualify as
Mexican investors as defined in the Foreign Investment Law and our bylaws. A holder that acquires AA Shares in violation of the restrictions on non-Mexican ownership will have none of the rights of a shareholder with respect to those AA Shares. As a
consequence of these limitations, a non-Mexican investor cannot own AA Shares except through a trust that effectively neutralizes the votes of non-Mexican investors.

Pursuant to the Foreign Investment Law and Regulations, we have registered any foreign owner of our shares, and the depositary with
respect to the ADSs representing our shares, with the National Registry of Foreign Investment.

In addition, pursuant to the
Foreign Investment Law and Regulations, our Mexican shareholders retain the power to determine our administrative control and management.

Foreign states are prohibited under the General Communications Law from directly or indirectly owning shares of Telmex. The
Telecommunications Regulations provide, however, that foreign state-owned enterprises organized as separate entities with their own assets may own minority interests in Telmex or any number of shares with limited voting rights. Ownership of A Shares
or L Shares by such foreign state-owned companies, or by pension or retirement funds organized for the benefit of employees of state, municipal or other Mexican governmental agencies, is not considered direct or indirect ownership by foreign states
for the purposes of the General Communications Law.



72



---

##### Table of Contents

Restrictions on Certain Transactions

Our bylaws provide that any acquisition of more than 10% of our issued and outstanding shares, effected in one or more transactions by any
person or group of persons acting in concert, requires prior approval by our Board of Directors.

Restrictions on Deregistration in Mexico

Our shares are registered with the National Registry for Securities, as required under the Mexican Securities Market Law.
If we wish to cancel our registration, or if it is cancelled by the CNBV, we will be required to make a public offer to purchase all outstanding shares prior to such cancellation. Unless the CNBV authorizes otherwise, the offer price will be the
higher of: (1) the average of the closing price during the previous 30 days on which the shares may have been quoted, or (2) the book value of the shares in accordance with the most recent quarterly report submitted to the CNBV and to the
Mexican Stock Exchange. If, after the public offer is concluded, there are still outstanding shares held by the general public, we will be required to create a trust for a period of six months, into which we will be required to contribute funds in
an amount sufficient to purchase, at the same price as the offer price, the number of outstanding shares held by the general public. Within the five days prior to the commencement of the public offer, after taking into account the opinion of the
audit committee, our Board of Directors must publish its opinion regarding the offer price.

Tender Offer Rules

Our bylaws provide that any purchasers or group of purchasers that obtain or increase a significant participation (i.e., 30% or
more) in the capital stock of the company, without conducting a previous public offer in accordance with the Mexican Securities Market Law and applicable rules issued by the CNBV, would not have the right to exercise the corporate rights of their
shares, and that the company will not register such shares in the share registry book.

Other Provisions

Variable capital. We are permitted to issue shares constituting fixed and variable capital. All of our
outstanding shares of capital stock constitute fixed capital. The issuance of variable-capital shares, unlike the issuance of fixed-capital shares, does not require an amendment of the bylaws, although it does require a majority vote of the AA
Shares and the A Shares.

Forfeiture of shares. As required by Mexican law, our bylaws
provide that any alien who at the time of incorporation or at any time thereafter acquires an interest or participation in the capital of the corporation shall be considered, by virtue thereof, as Mexican in respect thereof and shall be deemed
to have agreed not to invoke the protection of his own government, under penalty, in case of breach of such agreement, of forfeiture to the nation of such interest or participation. Under this provision, a non-Mexican shareholder is deemed to
have agreed not to invoke the protection of his own government by asking such government to interpose a diplomatic claim against the Mexican government with respect to the shareholders rights as a shareholder, but is not deemed to have waived
any other rights he may have, including any rights under the U.S. securities laws, with respect to his investment in Telmex. If the shareholder invokes such governmental protection in violation of this agreement, his shares could be forfeited to the
Mexican government. Mexican law requires that such a provision be included in the bylaws of all Mexican corporations unless such bylaws prohibit ownership of shares by non-Mexican persons.



73



---

##### Table of Contents

Exclusive jurisdiction. Our bylaws provide that legal
actions relating to the execution, interpretation or performance of the bylaws shall be brought only in Mexican federal courts.

Duration. Telmexs existence under the bylaws is 100 years from the date of the public deed in
which its incorporation is evidenced.

Purchase of our own shares. We may repurchase our
shares on the Mexican Stock Exchange at any time at the then prevailing market price. Any such repurchase must be made in compliance with the policies established by the Board of Directors. The shareholders meeting approves the maximum amount
of funds that may be used during the year for the repurchase of shares. The ordinary shareholders meeting held on March 3, 2009 approved that up to an additional P.10.0 billion be used for share repurchases. Such funds may be used for the
repurchase of shares through the Mexican Stock Exchange. The economic and voting rights corresponding to repurchased shares may not be exercised during the period in which we own such shares, and such shares are not deemed to be outstanding for
purposes of calculating any quorum or vote at any shareholders meeting during such period.

Conflict of
interest. Shareholders with conflicting interests with Telmex with respect to a transaction are required to abstain from deliberating and voting on the specific transaction. A shareholder that votes on a specific business
transaction in which its interest conflicts with Telmexs may be liable for damages, but only if the transaction would not have been approved without its vote. A determination of conflicting interest would initially be made by the shareholder
subject to judicial challenge. Mexican law does not provide extensive guidance on the criteria to be applied in making such a decision.

Appraisal rights. Whenever the shareholders approve a change of corporate purposes, change of
nationality of the corporation or transformation from one type of company to another, any shareholder entitled to vote on such change that has voted against it may withdraw from Telmex and receive the book value attributable to its shares, provided
such shareholder exercises its right within 15 days following the adjournment of the meeting at which the change was approved.

Rights of
Shareholders

The protections afforded to minority shareholders under Mexican law are different from those in the United
States and many other jurisdictions. The case law concerning fiduciary duties of directors has not been developed and has not been the subject of extensive judicial interpretation in Mexico, unlike many states in the United States where duties of
care and loyalty elaborated by judicial decisions help to shape the rights of minority shareholders. Mexican civil procedure does not contemplate class actions, which permit shareholders in U.S. courts to bring actions on behalf of other
shareholders. Shareholders cannot challenge corporate action taken at a shareholders meeting unless they meet certain procedural requirements, as described above underShareholders Meetings. As a result of these factors, in
practice it may be more difficult for our minority shareholders to enforce rights against us or our directors or controlling shareholders than it would be for shareholders of a U.S. company.

Enforceability of Civil Liabilities

Telmex is organized under the laws of Mexico, and most of our directors, officers and controlling persons reside outside the United
States. In addition, substantially all of our assets and their assets are located in Mexico. As a result, it may be difficult for investors to effect service of process within the United States on such persons. It may also be difficult to enforce
against them, either inside or outside the United States, judgments obtained against them in U.S. courts, or to enforce in U.S. courts judgments obtained against them in courts in jurisdictions outside the United States, in any action based on civil
liabilities under the U.S. federal securities laws. There is doubt as to the enforceability against such persons in Mexico, whether in original actions or in actions to enforce judgments of U.S. courts, of liabilities based solely on the U.S.
federal securities laws.



74



---

##### Table of Contents

CERTAIN CONTRACTS

We are party to concession agreements that authorize us to provide certain telecommunications services on specific terms. These are
described in Item 4. Information on the CompanyRegulation.

Our agreements with related parties are
described in Item 
7. Major Shareholders and Related Party TransactionsRelated Party Transactions.

EXCHANGE
 CONTROLS

Mexico has had a free market for foreign exchange since 1991, and the Mexican government has allowed the peso
to float freely against the U.S. dollar since December 1994.

TAXATION

The following summary contains a description of certain Mexican federal and U.S. federal income tax consequences of the acquisition,
ownership and disposition of our L Shares, A Shares, L Share ADSs, or A Share ADSs, but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase, hold or sell shares or
ADSs.

The Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion and a Protocol thereto between
the United States and Mexico became effective on January 1, 1994 and has been amended by an additional protocol that became effective on July 3, 2003 (together, the Tax Treaty). The United States and Mexico have also entered
into an agreement concerning the exchange of information with respect to tax matters.

This discussion does not constitute,
and should not be considered as, legal or tax advice to holders. This discussion is for general information purposes only and is based upon the federal tax laws of Mexico (including the Mexican Income Tax Law and the Mexican Federal Tax Code) and
the United States as in effect on the date of this annual report (including the Tax Treaty), which are subject to change, and such changes may have retroactive effect. Holders of our shares or ADSs should consult their own tax advisers as to the
Mexican, U.S. or other tax consequences of the purchase, ownership and disposition of our shares or ADSs, including, in particular, the effect of any foreign, state or local tax laws.

Mexican Tax Considerations

The following is a general summary of the principal consequences under the Mexican Income Tax Law (Ley del Impuesto sobre la Renta)
and the rules and regulations thereunder, as currently in effect, of an investment in shares or ADSs by a holder that is not a resident of Mexico and that will not hold the shares or ADSs or a beneficial interest therein in connection with the
conduct of a trade or business through a permanent establishment in Mexico (a nonresident holder).

For purposes
of Mexican taxation, the definition of residence is highly technical and residence arises in several situations. Generally, an individual is a resident of Mexico if he or she has established his or her home in Mexico, or if he or she has his or her
center of interests in Mexico; a corporation is considered a resident if it has established its place of effective management in Mexico. However, any determination of residence should take into account the particular situation of each person or
legal entity.



75



---

##### Table of Contents

If a legal entity or an individual is deemed to have a permanent establishment in Mexico for
Mexican tax purposes, all income attributable to that permanent establishment will be subject to Mexican income taxes, in accordance with applicable tax laws.

This summary does not address all of the Mexican tax consequences that may be applicable to specific holders of the shares (including a
holder that controls us, an investor that holds 10% or more of the shares or holders that constitute a group of persons for purposes of Mexican law). It also does not purport to be a comprehensive description of all the Mexican tax considerations
that may be relevant to a decision to purchase, own or dispose of the shares. In particular, this summary does not describe any tax consequences arising under the laws of any state, locality, municipality or taxing jurisdiction other than certain
federal laws of Mexico.

Tax Treaties

The Mexican Income Tax Law has established procedural requirements for a nonresident holder disposing of shares to be entitled to benefits
under any of the tax treaties to which Mexico is a party. These procedural requirements include the obligation to (i) prove tax treaty residence, (ii) appoint a representative in Mexico for taxation purposes and (iii) present tax
calculations prepared by authorized certified public accountants. These requirements are also applicable to provisions of the Tax Treaty that may affect the taxation of certain U.S. holders (as defined in U.S. Federal Income Tax
Considerationsbelow).

Payment of Dividends

Dividends, either in cash or in kind, paid with respect to our shares or ADSs will not be subject to Mexican withholding tax.

Taxation of Dispositions

Gains on the sale of shares or ADSs by a non-Mexican holder will generally not be subject to Mexican income tax, provided that the
transaction is carried out through (a) the Mexican Stock Exchange, (b) other securities exchanges or markets approved by the Mexican Ministry of Finance or (c) other securities exchanges or markets with ample securities trading that
are located in countries with which Mexico has entered into an income tax treaty, such as the New York Stock Exchange, NASDAQ and the Mercado de Valores Latinoamericanos en Euros (Latibex).

The tax exemption described in the previous paragraph will not be applicable to pre-negotiated trades executed through the facilities of
a Mexican securities exchange. The exemption also will not be applicable in the case of a person or group of persons that, directly or indirectly, holds 10% or more of the shares representing our capital stock, or that holds a controlling interest
in us, if in a period of 24 months, a sale of 10% or more of our fully paid shares, or of a controlling interest in us, is carried out through one or several simultaneous or successive transactions, including those carried out through derivative
financial instruments or other similar transactions.

For a nonresident corporation or individual that does not meet the
requirements summarized above, proceeds obtained from the sale or disposition of shares will be subject to a 25% tax. Under certain circumstances, nonresident corporations and individuals, alternatively, may elect to pay a 20% tax on the gain
obtained from the transaction.

Pursuant to the Tax Treaty, gains realized by a U.S. holder (as defined inU.S.
Federal Income Tax Considerations) eligible for the benefits of the Tax Treaty from the sale or other disposition of shares,



76



---

##### Table of Contents

even if the sale or disposition is not carried out under the circumstances described in the preceding paragraphs, will not be subject to Mexican income tax, provided that such U.S. holder owned
less than 25% of the shares representing our capital stock (including ADSs), directly or indirectly, during the 12-month period preceding such disposition.

Gains realized by other nonresident holders that are eligible to receive benefits pursuant to other income tax treaties to which Mexico
is a party may be exempt from Mexican income tax in whole or in part. If the holder is a corporation that is a resident of a tax haven (as defined by the Mexican Income Tax Law), the applicable rate will be 40% on the gross income obtained. Non-U.S.
holders should consult their own tax advisers as to their possible eligibility under such treaties.

In other cases,
nonresident holders will be subject to Mexican income tax on the sale or other disposition of shares or ADSs. Such nonresident holders should consult with their own tax advisers as to how Mexican income tax would apply to their circumstances.

Other Mexican Taxes

Under certain circumstances, a nonresident holder will not be liable for estate, inheritance or similar taxes with respect to its holdings
of shares or ADSs. A gratuitous transfer of shares by a nonresident holder, however, may in certain circumstances result in the imposition of Mexican tax upon the recipient. There are no Mexican stamp, issue, registration or similar taxes payable by
a nonresident holder with respect to shares or ADSs.

U.S. Federal Income Tax Considerations

The following is a summary of certain U.S. federal income tax consequences to U.S. holders (as defined below) of the acquisition,
ownership and disposition of shares or ADSs. The summary does not purport to be a comprehensive description of all of the tax consequences of the acquisition, ownership or disposition of shares or ADSs that may be relevant to U.S. holders. The
summary applies only to U.S. holders that will hold their shares or ADSs as capital assets and does not apply to special classes of U.S. holders such as dealers in securities or currencies, holders with a functional currency other than the U.S.
dollar, holders of 10% or more of our voting shares (whether held directly or through ADSs or both), tax-exempt organizations, financial institutions, holders liable for the alternative minimum tax, securities traders electing to account for their
investment in their shares or ADSs on a mark-to-market basis, certain short-term holders of shares or ADSs and persons holding their shares or ADSs in a hedging transaction or as part of a straddle or conversion transaction.

For purposes of this discussion, a U.S. holder is a holder or beneficial owner of shares or ADSs that is:



| |  |  | a citizen or resident of the United States of America;
| | - |  | ------------------------------------------------------



| |  |  | a corporation organized under the laws of the United States of America or any state thereof; or
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | otherwise subject to U.S. federal income taxation on a net income basis with respect to the shares or ADSs.
| | - |  | -----------------------------------------------------------------------------------------------------------

If a partnership holds our shares or ADSs, the tax treatment of a partner will generally depend on the status of the partner and the
activities of the partnership. Partners of a partnership holding our shares or ADSs should consult their own tax advisers.



77



---

##### Table of Contents

Each U.S. holder should consult such holders own tax adviser concerning the overall
tax consequences to it of the ownership or disposition of shares or ADSs that may arise under foreign, state and local laws.

Treatment of ADSs

In general, a U.S. holder of ADSs will be treated as the owner of the shares represented by those ADSs for U.S. federal income tax
purposes. Deposits or withdrawals of shares by U.S. holders in exchange for ADSs will not result in the realization of gain or loss for U.S. federal income tax purposes. A U.S. holders tax basis in such shares will be the same as its tax basis
in such ADSs, and the holding period in such shares will be the same as the holding period for such ADSs. U.S. holders that withdraw any shares should consult their own tax advisers regarding the treatment of any foreign currency gain or loss on any
pesos received in respect of such shares.

Taxation of Distributions

In this discussion, we use the term dividends to mean distributions paid out of our current or accumulated earnings and
profits with respect to our shares or ADSs. In general, the gross amount of any dividends will be subject to U.S. federal income taxation. Dividends will be paid in pesos and will be includible in the income of a U.S. holder in a U.S. dollar amount
calculated by reference to the exchange rate in effect on the day that they are received by the U.S. holder in the case of shares or by the depositary in the case of ADSs. U.S. holders should consult their own tax advisers regarding the treatment of
foreign currency gain or loss, if any, on any pesos received by a U.S. holder or depositary that are converted into U.S. dollars on a date subsequent to receipt. Subject to certain exceptions for short-term and hedged positions, the U.S. dollar
amount of dividends received by an individual prior to January 1, 2011 with respect to the ADSs, L Shares, A Shares and AA Shares will be subject to taxation at a maximum rate of 15% if the dividends are qualified
dividends. Dividends paid on the ADSs, L Shares, A Shares and AA Shares will be treated as qualified dividends if (i) we are eligible for the benefits of a comprehensive income tax treaty with the United States that the Internal
Revenue Service has approved for the purposes of the qualified dividend rules and (ii) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign
investment company, or PFIC. The Tax Treaty has been approved for the purposes of the qualified dividend rules. In addition, based on our audited consolidated financial statements and relevant market and shareholder data, we believe that we were not
treated as a PFIC for U.S. federal income tax purposes with respect to our 2008 or 2009 taxable years. In addition, based on our audited consolidated financial statements and our current expectations regarding the value and nature of our assets, the
sources and nature of our income and relevant market and shareholder data, we do not anticipate becoming a PFIC for our 2010 taxable year.

To the extent that the amount of any distribution exceeds our current and accumulated earnings and profits for a taxable year, as
determined under United States federal income tax principles, the distribution will first be treated as a tax-free return of capital, causing a reduction in the adjusted basis of the shares or ADSs (thereby increasing the amount of gain, or
decreasing the amount of loss, to be recognized by you on a subsequent disposition of the shares or ADSs), and the balance in excess of adjusted basis will be taxed as capital gain recognized on a sale or exchange. However, we do not expect to keep
earnings and profits in accordance with United States federal income tax principles. Therefore, you should expect that a distribution will generally be treated as a dividend (as discussed above).

Dividends paid by us will not be eligible for the dividends-received deduction allowed to corporations under the U.S. Internal Revenue
Code of 1986, as amended (the Code).



78



---

##### Table of Contents

Distributions of additional shares or ADSs to U.S. holders with respect to their shares or
ADSs that are made as part of a pro rata distribution to all of our shareholders generally will not be subject to U.S. federal income tax. The basis of any new shares or ADSs so received will be determined by allocating the U.S. holders basis
in the old shares or ADSs and the new shares or ADSs, respectively, based on the relative fair market values on the date of distribution. For U.S. tax purposes, any such tax-free share distribution generally would not result in foreign-source income
to a U.S. holder. You should consult your own tax advisors regarding the application of the foreign tax credit rules to your investment in the shares or ADSs.

Taxation of Dispositions

A U.S. holder will recognize gain or loss on the sale or other disposition of the shares or ADSs in an amount equal to the difference
between the U.S. holders basis in such shares or ADSs (in U.S. dollars) and the amount realized on the disposition (in U.S. dollars, determined at the spot rate on the date of disposition or, for a cash basis U.S. holder (or an electing
accrual basis U.S. holder), at the exchange rate in effect on the settlement date, if the amount realized is denominated in a foreign currency). Gain or loss realized by a U.S. holder on such sale or other disposition generally will be long-term
capital gain or loss if, at the time of disposition, the shares or ADSs have been held for more than one year. The net amount of long-term capital gain recognized by an individual holder is taxed at a reduced rate. Such gain or loss generally will
be treated as U.S. source gain or loss for U.S. foreign tax credit purposes.

Gain, if any, realized by a U.S. holder on the
sale or other disposition of the shares or ADSs will be treated as U.S. source income for U.S. foreign tax credit purposes. Consequently, if a Mexican withholding tax is imposed on the sale or disposition of the shares or ADSs, a U.S. holder that
does not receive significant foreign source income from other sources may not be able to derive effective U.S. foreign tax credit benefits in respect of these Mexican taxes. U.S. holders should consult their own tax advisers regarding the
application of the foreign tax credit rules to their investment in, and disposition of, our shares or ADSs.

Exchange of
Shares

A U.S. holders exchange of A Shares for L Shares will not constitute a taxable event for U.S. federal
income tax purposes. An exchanging U.S. holder will have a tax basis in the L Shares equal to the basis such holder had in the exchanged A Shares. An exchanging U.S. holders holding period for the L Shares will include the holding period such
U.S. holder had in the A Shares before such shares were exchanged.

A U.S. holders exchange of L Shares for AA Shares,
pursuant to the option to exchange in respect of such L Shares, will not constitute a taxable event for U.S. federal income tax purposes. An exchanging U.S. holder will have a tax basis in the AA Shares received equal to the basis such holder had in
the exchanged L Shares. A U.S. holders holding period for AA Shares received in such an exchange will include the holding period such U.S. holder had in the L Shares prior to such exchange. The AA Shares, however, may be owned only by
holders that qualify as Mexican investors as defined in the Foreign Investment Law and our bylaws. See Bylaws and Mexican LawLimitation on Share Ownership.



79



---

##### Table of Contents

Information Reporting and Backup Withholding

Dividends on, and proceeds from the sale or other disposition of, the shares or ADSs paid to a U.S. holder generally may be subject to the
information reporting requirements of the Code and may be subject to backup withholding unless the holder:



| |  |  | establishes that it is a corporation or other exempt holder; or
| | - |  | ---------------------------------------------------------------



| |  |  | provides an accurate taxpayer identification number on a properly completed Internal Revenue Service Form W-9 and certifies that it is not subject to
backup withholding and otherwise complies with applicable requirements of the backup withholding rules.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The amount of any
backup withholding from a payment to a holder will be allowed as a credit against the U.S. holders U.S. federal income tax liability and may entitle such holder to a refund, provided that certain required information is furnished to the
Internal Revenue Service.

U.S. Tax Consequences for Non-U.S. holders

Distributions. A holder or beneficial owner of shares or ADSs that is not a U.S. holder for U.S. federal income tax purposes (a
non-U.S. holder) generally will not be subject to U.S. federal income or withholding tax on dividends received on shares or ADSs, unless such income is effectively connected with the conduct by the holder of a U.S. trade or business.

Dispositions. A non-U.S. holder of shares or ADSs will not be subject to U.S. federal income or withholding tax on
gain realized on the sale of shares or ADSs, unless:



| |  |  | such gain is effectively connected with the conduct by the holder of a U.S. trade or business; or
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | in the case of gain realized by an individual non-U.S. holder, the non-U.S. holder is present in the United States for 183 days or more in the taxable
year of the sale and certain other conditions are met.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Information reporting and backup withholding. Although
non-U.S. holders generally are exempt from backup withholding, a non-U.S. holder may be required to comply with certification and identification procedures in order to establish its exemption from information reporting and backup withholding.



80



---

##### Table of Contents

DOCUMENTS ON DISPLAY

We file reports, including annual reports on Form 20-F, and other information electronically with the SEC pursuant to the rules and
regulations of the SEC that apply to foreign private issuers. You may read and copy any materials filed with the SEC at its Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. Any filings we make are also available to the public over the Internet at the SECs website at www.sec.gov and at our website at www.telmex.com. (This URL is intended to
be an inactive textual reference only. It is not intended to be an active hyperlink to our website. The information on our website, which might be accessible through a hyperlink resulting from this URL, is not and shall not be deemed to be
incorporated into this annual report.)

Item 11. Quantitative and Qualitative Disclosures about Market Risk

EXCHANGE RATE AND INTEREST RATE RISKS

We are exposed to exchange rate risk and interest rate risk related to our indebtedness. Exchange rate risk exists principally with
respect to our indebtedness denominated in currencies other than Mexican pesos. As of December 31, 2009, indebtedness denominated in foreign currencies was P.69,674 million, of which P.66,643 million was denominated in U.S. dollars and P.3,031
million was denominated in other currency. Interest rate risk exists principally with respect to our indebtedness that bears interest at floating rates. We had P.60,830 million of indebtedness bearing interest at floating rates at December 31,
2009.

We use derivative financial instruments to minimize the impact of fluctuations in exchange rates and floating interest
rates on our indebtedness. We regularly assess our exposure and monitor opportunities to manage these risks. See Item 5. Operating and Financial Review and ProspectsHedging.

SENSITIVITY ANALYSIS DISCLOSURES

Exchange Rates

The
potential loss in fair value of financial instruments at December 31, 2009 that would have resulted from a hypothetical, instantaneous and unfavorable 10% change in currency exchange rates, taking into account our derivative transactions, would
have been approximately P.1,484 million. Such a change in currency exchange rates would also have resulted in additional interest expense of approximately P.59 million per year, assuming no change in the principal amount of such indebtedness,
reflecting the increased costs in pesos of servicing foreign currency indebtedness. This sensitivity analysis assumes an instantaneous unfavorable 10% change in exchange rates affecting the foreign currencies in which our indebtedness is
denominated.

Interest Rates

The potential loss in fair market value of financial instruments at December 31, 2009 that would have resulted from a hypothetical,
instantaneous and unfavorable change of 100 basis points in the interest rate applicable to such financial instruments, taking into account our derivative transactions, would have been approximately P.2,059 million. This effect would be fully
attributable to the impact of the interest rate change on fixed-rate financial assets and liabilities. A hypothetical, instantaneous and unfavorable change of 100 basis points in the interest rate applicable to floating-rate financial assets and
liabilities held at December 31, 2009, taking into account our derivative transactions, would have resulted in additional interest expense of approximately P.437 million per year, assuming no change in the principal amount of



81



---

##### Table of Contents

such indebtedness. The above sensitivity analyses are based on the assumption of an unfavorable 100 basis
point movement of the interest rates applicable to each homogeneous category of financial assets and liabilities. A homogeneous category is defined according to the currency in which financial assets and liabilities are denominated and assumes the
same interest rate movement with each homogeneous category. As a result, interest rate risk sensitivity analysis may overstate the impact of interest rate fluctuations for such financial instruments, as consistently unfavorable.

Item 12. Description of Securities Other Than Equity Securities

Item 12A. Debt Securities

Not applicable.

Item 12B. Warrants and Rights

Not applicable.

Item 12C. Other Securities

Not applicable.

Item 12D. American Depositary Shares

JPMorgan Chase Bank, N.A., or the Depositary, serves as the depositary for
our ADSs. ADS holders are required to pay various fees to the Depositary, and the Depositary may refuse to provide any service for which a fee is assessed until the applicable fee has been paid.

ADS holders are required to pay the Depositary: (i) an annual fee of up to US$0.02 per ADS (or portion thereof) for administering
the ADS program, and (ii) amounts in respect of expenses incurred by the Depositary or its agents on behalf of ADS holders, including expenses arising from compliance with applicable law, taxes or other governmental charges, facsimile
transmission, or conversion of foreign currency into U.S. dollars. In both cases, the Depositary may decide in its sole discretion to seek payment by either billing holders or by deducting the fee from one or more cash dividends or other cash
distributions.

ADS holders are also required to pay additional fees for certain services provided by the Depositary, as set
forth in the table below.



|                                                                                                        |  |                                                
|------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------
|Depositary service                                                                                      |  | Fee payable by ADS holders                     
|Issuance and delivery of ADRs, including in connection with share distributions, sales and stock splits |  | Up to US$5.00 per 100 ADSs (or portion thereof)
|Distribution of dividends                                                                               |  | US$0.02 or less per ADS                        
|Withdrawal, cancellation or reduction of shares underlying ADSs                                         |  | Up to US$5.00 per 100 ADSs (or portion thereof)
|Transfers, combining or grouping of ADRs                                                                |  | US$1.50 per ADS                                

Payments by the Depositary

The Depositary pays us an agreed amount, which includes reimbursements for certain expenses we incur in connection with
the ADS program. These reimbursable expenses include legal and accounting fees, listing fees, investor relations expenses and fees payable to service providers for the distribution of material to ADR holders. For the year ended December 31,
2009, this amount was U.S.$4.5 million.



82



---

##### Table of Contents

PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

None.

Item 14. Material Modifications to the Rights of Securities Holders and Use of Proceeds

None.

Item 15. Controls and Procedures

Disclosure Controls and Procedures

We have evaluated, with the participation of our chief executive officer and chief financial officer, the effectiveness of our disclosure
controls and procedures as of December 31, 2009. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the
controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our chief executive officer and chief financial officer
concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions
regarding required disclosure.

Managements Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with Mexican Financial Reporting Standards, including the reconciliation to U.S. GAAP in accordance with Item 18 of Form 20-F. Our internal control over financial reporting includes those policies and procedures
that:



| | (a) | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with Mexican Financial Reporting
Standards, including the reconciliation to U.S. GAAP in accordance with Item 18 of Form 20-F, and that receipts and expenditures of the company are being made only in accordance with authorizations of our management and directors; and
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the companys assets that could have a
material effect on the financial statements.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



83



---

##### Table of Contents

Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of
December 31, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework and, with respect to the effectiveness
of our information technology, the criteria set forth in the Control Objectives for Information and related Technology (COBIT).

Based on our assessment and those criteria, management believes that the company maintained effective internal control over financial
reporting as of December 31, 2009.

Mancera, S.C., a member practice of Ernst & Young Global, the independent
registered public accounting firm that has audited our financial statements, has issued an attestation report on our internal control over financial reporting, which appears below.

There has been no change in our internal control over financial reporting during 2009 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.



84



---

##### Table of Contents

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

The Board of Directors and Stockholders

Teléfonos de México, S.A.B. de C.V.

We have audited Teléfonos de México, S.A.B. de C.V.s internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Teléfonos de México, S.A.B. de
C.V.s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Managements Annual
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the companys internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States of America).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
Mexican Financial Reporting Standards, including the reconciliation to U.S. GAAP in accordance with Item 18 of Form 20-F. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with Mexican Financial Reporting Standards, including the reconciliation to U.S. GAAP in accordance with Item 18 of Form 20-F, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that
could have a material effect on the financial statements.

Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

In our opinion, Teléfonos de México, S.A.B. de C.V.
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009 based on the COSO criteria.



85



---

##### Table of Contents

We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States of America), the consolidated balance sheets of Teléfonos de México, S.A.B. de C.V. as of December 31, 2009 and 2008, the related consolidated statements of income and changes in stockholders
equity for each of the three years in the period ended December 31, 2009, and the consolidated statement of cash flows for each of the two years in the period ended December 31, 2009 and the consolidated statement of changes in financial
position for the year ended December 31, 2007, and our report dated March 23, 2010 expressed an unqualified opinion thereon.



Mancera, S.C.A member practice ofErnst & Young Global/s/ CPC David Sitt CofradíaC.P.C. David Sitt Cofradía


Mexico City, Mexico

March 23, 2010

Item 16A. Audit Committee Financial Expert

Our Board of Directors has determined that Rafael Kalach M., the chairman of our audit committee and a member of our Board of Directors,
qualifies as an audit committee financial expert. Rafael Kalach M. has a public accountant degree from the Universidad Nacional Autónoma de México. He has been a member of audit, finance and planning, and evaluation and compensation
committees of various Mexican companies. Rafael Kalach M. qualifies as independent, as determined by our shareholders at their annual ordinary general meeting pursuant to the Mexican Securities Market Law and as defined under the rules of the New
York Stock Exchange and the NASDAQ Stock Market, Inc. that are applicable to foreign private issuers. See Item 6. Directors, Senior Management and EmployeesAudit Committee.

Item 16B. Code of Ethics

We have adopted a code of ethics, as defined in Item 16B of Form 20-F. Our code of ethics applies to our chief executive officer,
chief financial officer, principal accounting officer, persons performing similar functions and other personnel. Our code of ethics is available on our website at www.telmex.com. If we amend the provisions of our code of ethics that apply to
our chief executive officer, our chief financial officer, our principal accounting officer and persons performing similar functions, or if we grant any waiver of such provisions, we will disclose such amendment or waiver on our website at the same
address.



86



---

##### Table of Contents

Item 16C. Principal Accountant Fees and Services

Audit and Non-Audit Fees

The following table sets forth the fees billed to us by our independent auditors, Mancera, S.C., a member practice of Ernst &
Young Global, an independent registered public accounting firm, and by other member practices of Ernst & Young Global during the years ended December 31, 2009 and 2008:



|                   |  |                         |          |             |  |         
|------------------ |  | ----------------------- | -------- | ----------- |  | --------
|                   |  | Year ended December 31,
|                   |  | 2009                    |          | 2008       
|                   |  | (thousands)             |          | (thousands)
|Audit fees         |  |                         | P.41,917 |             |  | P.38,444
|Audit-related fees |  |                         | 287      |             |  | 116     
|Tax fees           |  |                         | 1,266    |             |  | 2,035   
|All other fees     |  |                         |         |             |  |        
|                   |  |                         |          |             |  |         
|Total fees         |  |                         | P.43,470 |             |  | P.40,595
|                   |  |                         |          |             |  |         

Audit fees in the above table are the aggregate fees
billed in connection with the audit of our annual financial statements, the review of our interim financial statements, statutory and regulatory audits, and fees related to compliance with the Sarbanes-Oxley Act of 2002.

Audit-related fees in the above table are fees billed for assurance and related services that are reasonably related to the
performance of the audit or review of our financial statements and are not reported under Audit fees, in particular fees billed for the review of information provided to Mexican regulatory authorities.

Tax fees in the above table are fees billed for tax compliance, tax advice and tax planning services.

Audit Committee Approval Policies and Procedures

Our audit committee has established policies and procedures for the engagement of our independent auditors for services. Such policies and
procedures outline services that require specific approval on a case-by-case basis and general services that have been approved in advance by the audit committee, which include statutory and regulatory audits, tax compliance and evaluation of the
security of our information technology. Prior to providing any services that require specific pre-approval, our independent auditor, together with our chief financial officer, will jointly present to the audit committee a request for approval of
audit services, in which such persons confirm that the request complies with applicable rules.

Item 16D.
Exemptions from the Listing Standards for Audit Committees

Not applicable.



87



---

##### Table of Contents

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated
Purchasers

The following table provides information on L Shares purchased by our company and affiliated purchasers in
2009:



|                             |  |                                     |  |                                      |       |                                                                         |             |                                                                                    |    |                                                                                                          |  |    |           
|---------------------------- |  | ----------------------------------- |  | ------------------------------------ | ----- | ----------------------------------------------------------------------- | ----------- | ---------------------------------------------------------------------------------- | -- | -------------------------------------------------------------------------------------------------------- |  | -- | ----------
|Year ended
December 31, 2009 |  | Total Number ofL
SharesPurchased(1) |  | WeightedAverage PricePaid
perL Share |       | Total Number ofL SharesPurchased asPart of
theShareRepurchaseProgram(2) |             | WeightedAverage PricePaid 
perL SharePurchased asPart of theShareRepurchaseProgram |    | ApproximatePeso Value(in
Thousands)of L Sharesthat May YetBe PurchasedUnder theShareRepurchaseProgram(3)
|January 1-31                 |  | 29,384,800                          |  | P.                                   | 12.84 |                                                                         | 29,384,800  |                                                                                    | P. | 12.84                                                                                                    |  | P. | 537,217   
|February 1-28                |  | 19,734,200                          |  |                                      | 11.10 |                                                                         | 15,738,000  |                                                                                    |    | 11.18                                                                                                    |  |    | 361,043   
|March 1-31                   |  | 57,022,300                          |  |                                      | 10.22 |                                                                         | 30,845,600  |                                                                                    |    | 10.18                                                                                                    |  |    | 10,044,493
|April 1-30                   |  | 66,986,000                          |  |                                      | 11.13 |                                                                         | 19,990,000  |                                                                                    |    | 11.12                                                                                                    |  |    | 9,820,141 
|May 1-31                     |  | 26,826,100                          |  |                                      | 11.11 |                                                                         | 19,506,700  |                                                                                    |    | 11.08                                                                                                    |  |    | 9,603,064 
|June 1-30                    |  | 56,045,700                          |  |                                      | 10.69 |                                                                         | 35,500,000  |                                                                                    |    | 10.73                                                                                                    |  |    | 9,221,053 
|July 1-31                    |  | 99,384,900                          |  |                                      | 10.63 |                                                                         | 44,100,000  |                                                                                    |    | 10.66                                                                                                    |  |    | 8,749,248 
|August 1-31                  |  | 121,067,400                         |  |                                      | 11.09 |                                                                         | 42,000,000  |                                                                                    |    | 11.38                                                                                                    |  |    | 8,269,802 
|September 1-30               |  | 32,767,800                          |  |                                      | 12.22 |                                                                         | 32,767,800  |                                                                                    |    | 12.22                                                                                                    |  |    | 7,866,510 
|October 1-31                 |  | 58,544,200                          |  |                                      | 11.34 |                                                                         | 56,500,000  |                                                                                    |    | 11.35                                                                                                    |  |    | 7,222,177 
|November 1-30                |  | 15,505,800                          |  |                                      | 11.49 |                                                                         | 15,500,000  |                                                                                    |    | 11.49                                                                                                    |  |    | 7,042,446 
|December 1-31                |  | 23,500,000                          |  |                                      | 11.27 |                                                                         | 19,400,000  |                                                                                    |    | 11.31                                                                                                    |  |    | 6,821,419 
|                             |  |                                     |  |                                      |       |                                                                         |             |                                                                                    |    |                                                                                                          |  |    |           
|Total/Average                |  | 606,769,200                         |  |                                      | 11.09 |                                                                         | 361,232,900 |                                                                                    |    | 11.28                                                                                                    |  |    |           
|                             |  |                                     |  |                                      |       |                                                                         |             |                                                                                    |    |                                                                                                          |  |    |           



|(1) | We do not repurchase our L Shares other than through the share repurchase program. An aggregate of 246 million L Shares were purchased by our affiliated purchasers
in 2009. These shares were purchased in open-market transactions.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | We periodically repurchase our L Shares on the open market using funds authorized by our shareholders specifically for the repurchase of L Shares and A Shares by us at
our discretion. On March 3, 2009, our shareholders authorized an additional P.10,000 million for the repurchase of L Shares and A Shares.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | This is the approximate peso amount available at the end of the period for purchases of both L Shares and A Shares pursuant to the share repurchase program.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------



88



---

##### Table of Contents

The following table provides information on A Shares purchased by our company and affiliated
purchasers in 2009:



|                             |  |                                     |  |                                      |       |                                                                        |           |                                                                                   |    |                                                                                                           |  |    |           
|---------------------------- |  | ----------------------------------- |  | ------------------------------------ | ----- | ---------------------------------------------------------------------- | --------- | --------------------------------------------------------------------------------- | -- | --------------------------------------------------------------------------------------------------------- |  | -- | ----------
|Year ended
December 31, 2009 |  | Total Number ofA
SharesPurchased(1) |  | WeightedAverage PricePaid
perA Share |       | TotalNumber ofA
SharesPurchased asPart of theShareRepurchaseProgram(2) |           | WeightedAverage PricePaid per ASharePurchased asPart of
theShareRepurchaseProgram |    | ApproximatePeso Value (inThousands) of AShares thatMay Yet
BePurchasedUnder the ShareRepurchaseProgram(3)
|January 1-31                 |  | 168,700                             |  | P.                                   | 12.62 |                                                                        | 168,700   |                                                                                   | P. | 12.62                                                                                                     |  | P. | 537,217   
|February 1-28                |  | 13,900                              |  |                                      | 12.31 |                                                                        | 13,900    |                                                                                   |    | 12.31                                                                                                     |  |    | 361,043   
|March 1-31                   |  | 258,300                             |  |                                      | 10.01 |                                                                        | 258,300   |                                                                                   |    | 10.01                                                                                                     |  |    | 10,044,493
|April 1-30                   |  | 181,500                             |  |                                      | 11.08 |                                                                        | 181,500   |                                                                                   |    | 11.08                                                                                                     |  |    | 9,820,141 
|May 1-31                     |  | 89,500                              |  |                                      | 11.00 |                                                                        | 89,500    |                                                                                   |    | 11.00                                                                                                     |  |    | 9,603,064 
|June 1-30                    |  | 99,000                              |  |                                      | 10.80 |                                                                        | 99,000    |                                                                                   |    | 10.80                                                                                                     |  |    | 9,221,053 
|July 1-31                    |  | 165,200                             |  |                                      | 10.55 |                                                                        | 165,200   |                                                                                   |    | 10.55                                                                                                     |  |    | 8,749,248 
|August 1-31                  |  | 147,500                             |  |                                      | 11.41 |                                                                        | 147,500   |                                                                                   |    | 11.41                                                                                                     |  |    | 8,269,802 
|September 1-30               |  | 235,200                             |  |                                      | 12.33 |                                                                        | 235,200   |                                                                                   |    | 12.33                                                                                                     |  |    | 7,866,510 
|October 1-31                 |  | 282,300                             |  |                                      | 11.16 |                                                                        | 282,300   |                                                                                   |    | 11.16                                                                                                     |  |    | 7,222,177 
|November 1-30                |  | 147,900                             |  |                                      | 11.33 |                                                                        | 147,900   |                                                                                   |    | 11.33                                                                                                     |  |    | 7,042,446 
|December 1-31                |  | 139,200                             |  |                                      | 11.44 |                                                                        | 139,200   |                                                                                   |    | 11.44                                                                                                     |  |    | 6,821,419 
|                             |  |                                     |  |                                      |       |                                                                        |           |                                                                                   |    |                                                                                                           |  |    |           
|Total/Average                |  | 1,928,200                           |  |                                      | 11.25 |                                                                        | 1,928,200 |                                                                                   |    | 11.25                                                                                                     |  |    |           
|                             |  |                                     |  |                                      |       |                                                                        |           |                                                                                   |    |                                                                                                           |  |    |           



|(1) | No A Shares were purchased by us or our affiliated purchasers in 2009 other than under our share repurchase program.
|--- | --------------------------------------------------------------------------------------------------------------------

|(2) | We periodically repurchase our A Shares on the open market using funds authorized by our shareholders specifically for the repurchase of L Shares and A Shares by us at
our discretion. On March 3, 2009, our shareholders authorized an additional P.10,000 million for the repurchase of L Shares and A Shares.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | This is the approximate peso amount available at the end of the period for purchases of both L Shares and A Shares pursuant to the share repurchase program. These are
nominal figures and have not been restated for inflation.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Item 16F. Change in
Registrants Certifying Accountant

Not applicable.



89



---

##### Table of Contents

Item 16G. Corporate Governance

Pursuant to Section 303A.11 of the Listed Company Manual of the New York Stock Exchange (NYSE) and Rule 5615(a)(3) of the NASDAQ
Stock Market, Inc. (NASDAQ) Marketplace Rules, we are required to provide a summary of the significant ways in which our corporate governance practices differ from those required for U.S. companies under the NYSE and NASDAQ listing standards.

The table below discloses the significant differences between our corporate governance practices and the NYSE and NASDAQ
standards.



|                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NYSE Standards                                                                                                                                                                                                                                                                                                                                                       |  | NASDAQ Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | Our Corporate Governance
Practices                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Director Independence.Majority of board of directors must be independent. §303A.01. Controlled companies, which would include our company
if we were a U.S. issuer, are exempt from this requirement. A controlled company is one in which more than 50% of the voting power is held by an individual, group or another company, rather than the public. §303A.00. |  | Director Independence.Majority of board of directors must be independent and directors deemed independent must be identified in a listed companys
proxy statement (or annual report on Form 10-K or 20-F if the issuer does not file a proxy statement). Controlled companies, which would include our company if we were a U.S. issuer, are exempt from this requirement. A controlled company
is one in which more than 50% of the voting power is held by an individual, group or another company, rather than the public. Rules 5605(b)(1), 5615(c)(1) and (c)(2). |  | Director Independence. Pursuant to the Mexican Securities Market Law and our bylaws, our shareholders are required to appoint a Board of Directors of no more than 21
members, 25% of whom must be independent. Certain directors are per senon-independent, including insiders, control persons, major suppliers and any relatives of such persons. In accordance with the Mexican Securities Market Law, our
shareholders are required to make a determination as to the independence of our directors, though such determination may be challenged by the CNBV. There is no exemption from the independence requirement for controlled companies.
|                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Executive Sessions. 
Non-management directors must meet at regularly scheduled executive sessions without management. Independent directors should meet alone in an
executive session at least once a year. §303A.03.                                                                                                                                                |  | Executive Sessions. Independent directors must have regularly scheduled executive sessions at which only independent directors are present. Rule
5605(b)(2).                                                                                                                                                                                                                                                                                                                                                                                                              |  | Executive Sessions.Our independent directors have not held executive sessions without management, and under our bylaws and applicable Mexican law, they are not
required to do so.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Nominating/Corporate Governance Committee.Nominating/corporate governance committee composed entirely of independent directors is required. The committee
must have a charter specifying the purpose, duties and evaluation procedures of the committee. §303A.04. Controlled companies are exempt from these requirements. §303A.00.                              |  | Nominating Committee.Director nominees must be selected, or recommended for the boards selection, either by a nominating committee comprised solely of
independent directors or by a majority of independent directors. Each listed company also must certify that it has adopted a formal charter or board resolution addressing the nominations process. Controlled companies are exempt from this
requirement. Rules 5605(e)(1)(A) and 5615(c)(2).                                                                                                                  |  | Nominating Committee. We currently do not have a nominating committee. We are not required to have a nominating committee.
However, Mexican law requires us to have one or more committees that oversee the corporate governance function. 
We have an executive committee, an audit committee and a corporate practices committee, which together perform corporate governance
functions.                                                                                                                                                                                                                                                          



90



---

##### Table of Contents

|                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NYSE Standards                                                                                                                                                                                                                                                                                                                                                   |  | NASDAQ Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | Our Corporate Governance
Practices                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | As a controlled company, we would be exempt from this requirement if we were a U.S. issuer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Compensation Committee. Compensation committee composed entirely of independent directors is required, which must evaluate and approve executive officer
compensation. The committee must have a charter specifying the purpose, duties and evaluation procedures of the committee. §303A.05. Controlled companies are exempt from this requirement. §303A.00. |  | Compensation Committee. CEO compensation must be determined, or recommended to the board for determination, either by a compensation committee comprised solely of
independent directors or a majority of the independent directors and the CEO may not be present during voting or deliberations. Compensation of all other executive officers must be determined in the same manner, except that the CEO, and any other
executive officers, may be present. Controlled companies are exempt from this requirement. Rules 5605(e)(1)(B) and 5615(c)(2). |  | Compensation Committee.We have a corporate practices committee, which assists our Board of Directors in evaluating
and compensating our senior executives. The Mexican Securities Market Law requires that a majority of the members of the corporate practices committee of controlled listed companies be independent. All of the members of our corporate practices
committee are independent.  As a controlled company, we would be exempt
from this requirement if we were a U.S. issuer.                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Audit Committee. Audit committee satisfying the independence and other requirements of Rule 10A-3 under the Exchange Act and the more stringent requirements under
the NYSE standards is required. §§303A.06, 303A.07.                                                                                                                                           |  | Audit Committee. Audit committee satisfying the independence and other requirements of Rule 10A-3 under the Exchange Act and the more stringent requirements under
the NASDAQ standards is required. Rule 5605(c)(1)                                                                                                                                                                                                                                                                                                                                       |  | Audit Committee.We have an audit committee of three members. Each member of the audit committee qualifies as independent, as determined by our shareholders at
their annual ordinary general meeting pursuant to the Mexican Securities Market Law, and also meets the independence requirements of Rule 10A-3 under the Exchange Act. Our audit committee operates primarily pursuant to (1) a written charter approved
by our Board of Directors and (2) Mexican law. For a detailed description of the duties of our audit committee, see Item 6. Directors, Senior Management and EmployeesAudit Committee.
|                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Equity Compensation Plans. Equity compensation plans and all material revisions thereto require shareholder approval, subject to limited exemptions.
§§303A.08 and 312.03.                                                                                                                                                                                       |  | Equity Compensation Plans. Equity compensation plans or material amendments thereto require shareholder approval, subject to limited exemptions. Rule
5635(c).                                                                                                                                                                                                                                                                                                                                                                                             |  | Equity Compensation Plans.Shareholder approval is required under Mexican law for the adoption and amendment of an
equity compensation plan. Such plans should provide for general application to all executives. 
We do not have an equity compensation plans.                                                                                                                                                                                                                                                                                                                                                  



91



---

##### Table of Contents

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NYSE Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | NASDAQ Standards                                                                                                                                                                                                                                                                                                                                               |  | Our Corporate Governance
Practices                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Shareholder Approval for Issuance of Securities. Issuances of securities (1) that will result in a change of control of the issuer, (2) that are to a
related party or someone closely related to a related party, (3) that have voting power equal to at least 20% of the outstanding common stock voting power before such issuance or (4) that will increase the number of shares of common stock by at
least 20% of the number of outstanding shares before such issuance require shareholder approval. §§312.03(b)-(d). |  | Shareholder Approval for Issuance of Securities. Issuances of securities (1) that will result in a change of control of the issuer, (2) in connection
with certain acquisitions of the stock or assets of another company or (3) in connection with certain transactions other than public offerings require shareholder approval. Rules 5635(a), (b) and (d). |  | Shareholder Approval for Issuance of Securities. Mexican law and our bylaws require us to obtain shareholder approval of the issuance of new equity
securities.                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                               
|Code of Business Conduct and Ethics. Corporate governance guidelines and a code of business conduct and ethics is required, with disclosure of any
waiver for directors or executive officers. The code must contain compliance standards and procedures that will facilitate the effective operation of the code. §303A.10.                                                                                                                                                                                                 |  | Code of Business Conduct and Ethics. Corporate governance guidelines and a code of business conduct and ethics is required, with disclosure of any
waiver and the reasons for such waiver for directors or executive officers. The code must include an enforcement mechanism. Rule 5610.                                                                      |  | Code of Business Conduct and Ethics. We have adopted a code of ethics, which has been accepted by all of our directors and executive officers and other
personnel. A copy of our code of ethics is available on our website: www.telmex.com.                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                               
|Conflicts of Interest. Determination of how to review and oversee related party transactions is left to the listed company. The audit committee or comparable body,
however, could be considered the forum for such review and oversight. §303A.07. Certain issuances of common stock to a related party require shareholder approval. §312.03(b).                                                                                                                                                                           |  | Conflicts of Interest. Appropriate review of all related party transactions for potential conflict of interest situations
and approval by an audit committee or another independent body of the board of directors of such transactions is required. Rule 5630.                                                                                                |  | Conflicts of Interest.Pursuant to Mexican law, our bylaws and applicable internal guidelines, provided that the corporate
practices committee of our Board of Directors has opined favorably, our Board of Directors has to vote on whether or not to approve of any transaction with a related party (1) the value of which exceeds 1% of our consolidated assets, (2) that is
outside the ordinary course of our business, or at non-market prices, or (3) that is with employees and is not on the same terms as transactions with any others customers and does not result from employee benefits of general
character.



92



---

##### Table of Contents

|                                                                                                                                                                                                                    |  |                                                                                                                                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NYSE Standards                                                                                                                                                                                                      |  | NASDAQ Standards                                                                                                                                                                                               |  | Our Corporate Governance
Practices                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Solicitation of Proxies. Solicitation of proxies and provision of proxy materials is required for all meetings of shareholders. Copies of such proxy solicitations
are to be provided to NYSE. §§402.01 and 402.04. |  | Solicitation of Proxies. Solicitation of proxies and provision of proxy materials is required for all meetings of shareholders. Copies of such proxy solicitations
are to be provided to NASDAQ. Rule 5620(b). |  | Solicitation of Proxies. We are not required to distribute proxy materials to, or solicit the return of proxies from, our shareholders. In accordance with Mexican law
and our bylaws, we inform shareholders of all meetings by public notice, which states the requirements for admission to the meeting and provides a mechanism by which shareholders can vote through a representative using a power of attorney. Under the
new Mexican Securities Market Law, we have to make power of attorney forms available to shareholders at their request. Under the deposit agreement relating to our ADSs, holders of our ADSs receive notices of shareholders meetings and, where
applicable, instructions on how to vote at the shareholders meeting through the depositary.
|                                                                                                                                                                                                                    |  |                                                                                                                                                                                                               
|                                                                                                                                                                                                                    |  | Peer Review. A listed company must be audited by an independent public accountant that is registered as a public accounting firm with the Public Company Accounting
Oversight Board. Rule 5250(c)(3).          |  | Peer Review. Under Mexican law we must be audited by an independent public accountant that satisfies quality
control requirements as defined by the CNBV.  Mancera, S.C., a member
practice of Ernst & Young Global, our independent auditor, is not subject to peer review as such term is defined in NASDAQs Marketplace Rule 4350(k).                                                                                                                                                                                                                                                                                                                                                                                                                                  



93



---

##### Table of Contents

PART III

Item 17. Financial Statements

Not applicable.

Item 18. Financial Statements

See our consolidated financial statements beginning on page F-1, incorporated
herein by reference.

Item 19. Exhibits

Documents filed as exhibits to this annual report:



| | 1.1 | Amended and restated bylaws (estatutos sociales) of Teléfonos de México, S.A.B. de C.V., dated December 26, 2007 (English translation)
(incorporated by reference to the annual report on Form 20-F for the year ended December 31, 2008 (File No. 1-32741) filed on June 27, 2008).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2.1 | Form of Amended and Restated L Share Deposit Agreement (incorporated by reference to the post-effective amendment to our registration statement on Form F-6 (File
No. 333-125023) filed on September 28, 2006).
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2.2 | Form of Amended and Restated A Share Deposit Agreement (incorporated by reference to the post-effective amendment to our registration statement on Form F-6 (File
No. 333-12936) filed on September 28, 2006).
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2.3 | Loan Agreement, dated as of August 11, 2006, among Teléfonos de México, S.A.B. de C.V., the lenders party thereto, Citibank, N.A., as administrative
agent, ABN AMRO Bank N.V., BBVA Securities Inc., Citigroup Global Markets Inc., HSBC Securities (USA) Inc. and Calyon New York Branch, as joint bookrunners, ABN AMRO Bank N.V., as syndication agent, and Banco Bilbao Vizcaya Argentaria, S.A. and HSBC
Securities (USA) Inc., as co-documentation agents (incorporated by reference to our annual report on Form 20-F for the year ended December 31, 2006 (File No. 1-32741) filed on July 16, 2007).
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3.1 | Agreement dated December 20, 2000 between Carso Global Telecom, S.A.B. de C.V. and SBC International, Inc. (AT&T International since 2006) (incorporated by
reference to our annual report on Form 20-F for the year ended December 31, 2000 (File No. 1-10749) filed on May 4, 2001).
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4.1 | Master Transition Agreement between Teléfonos de México, S.A.B. de C.V. and Telmex Internacional, S.A.B. de C.V., dated as of December 26, 2007
(English translation) (incorporated by reference to the registration statement on Form 20-F of Telmex Internacional, S.A.B. de C.V. (File No. 1-34086) filed on May 30, 2008).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4.2 | Services Agreement dated January 1, 2010 between Teléfonos de México, S.A.B. de C.V. and Carso Global Telecom, S.A.B. de C.V. (English translation).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------



94



---

##### Table of Contents

|     |  |                                                                                                                                                                                                                                                                    
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.3  |  | Management Services Agreement, dated January 2, 2001, between Teléfonos de México, S.A. de C.V. and AT&T Mexico, Inc. (incorporated by reference to our annual
report on Form 20-F for the year ended December 31, 2003 (File No. 1-10749) filed on June 28, 2004).
|     | 
|7.1  |  | Calculation of ratios of earnings to fixed charges.                                                                                                                                                                                                                
|     | 
|8.1  |  | List of subsidiaries of Teléfonos de México, S.A.B. de C.V.                                                                                                                                                                                                        
|     | 
|12.1 |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                           
|     | 
|12.2 |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                           
|     | 
|13.1 |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                           



95



---

##### Table of Contents

The exhibits do not include any instrument defining the rights of holders of long-term debt of the
registrant or of its subsidiaries for which consolidated or unconsolidated financial statements are required to be filed when under such instrument the total amount of securities authorized does not exceed 10% of the total assets of the registrant
and its subsidiaries on a consolidated basis. The registrant agrees to furnish a copy of any such instrument to the SEC upon its request.



96



---

##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Teléfonos de México, S.A.B. de C.V.

We have audited the accompanying consolidated balance sheets of Teléfonos de México, S.A.B. de C.V. and subsidiaries as of
December 31, 2009 and 2008, and the related consolidated statements of income and changes in stockholders equity for each of the three years in the period ended December 31, 2009, the consolidated statements of cash flows for each of
the two years in the period ended December 31, 2009 and the consolidated statement of changes in financial position for the year ended December 31, 2007. These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with
auditing standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of Teléfonos de México, S.A.B. de C.V. and subsidiaries at December 31, 2009 and 2008,
the consolidated results of their operations for each of the three years in the period ended December 31, 2009, their cash flows for each of the two years in the period ended December 31, 2009 and changes in their financial position for
the year ended December 31, 2007, in conformity with Mexican Financial Reporting Standards, which differ in certain respects from U.S. generally accepted accounting principles (see Note 17 to the consolidated financial statements).

As discussed in Note 1 to the consolidated financial statements, as of January 1, 2008, Teléfonos de México, S.A.B. de C.V. adopted
Mexican Financial Reporting Standards B-10, Effects of Inflation; D-3, Employee Benefits; and B-2, Statement of Cash Flows.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States of America), Teléfonos de
México, S.A.B. de C.V.s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 23, 2010, expressed an unqualified opinion thereon.



Mancera, S.C.A Member Practice ofErnst & Young Global/s/ C.P.C. David Sitt
CofradíaC.P.C. David Sitt Cofradía


Mexico City, Mexico

March 23, 2010



F-1



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands of Mexican pesos, see Note 1 II.b)



|                                                               |  |              |             |      |    |            
|-------------------------------------------------------------- |  | ------------ | ----------- | ---- | -- | -----------
|                                                               |  | December 31,
|                                                               |  | 2009         |             | 2008
|Assets                                                         |  |              |             |      |    |            
|Current assets:                                                |  |              |             |      |    |            
|Cash and cash equivalents                                      |  | P.           | 14,379,768  |      | P. | 6,136,563  
|Accounts receivable, net (Note 3)                              |  |              | 21,113,323  |      |    | 20,808,763 
|Derivative financial instruments (Note 7)                      |  |              | 11,496,359  |      |    | 20,418,889 
|Inventories for sale, net                                      |  |              | 1,543,648   |      |    | 1,914,306  
|Prepaid expenses and others                                    |  |              | 3,303,275   |      |    | 2,839,702  
|                                                               |  |              |             |      |    |            
|Total current assets                                           |  |              | 51,836,373  |      |    | 52,118,223 
|                                                               |  |             
|Plant, property and equipment, net (Note 4)                    |  |              | 104,304,749 |      |    | 112,865,377
|Inventories for operation of the telephone plant, net          |  |              | 1,647,347   |      |    | 2,668,410  
|Licenses, net (Note 5)                                         |  |              | 918,341     |      |    | 1,025,027  
|Equity investments (Note 6)                                    |  |              | 1,775,380   |      |    | 1,494,133  
|Net projected asset (Note 10)                                  |  |              | 16,430,857  |      |    | 15,485,402 
|Deferred charges, net                                          |  |              | 1,442,330   |      |    | 1,468,775  
|                                                               |  |              |             |      |    |            
|Total assets                                                   |  | P.           | 178,355,377 |      | P. | 187,125,347
|                                                               |  |              |             |      |    |            
|                                                               |  |             
|Liabilities and stockholders equity                           |  |              |             |      |    |            
|Current liabilities:                                           |  |              |             |      |    |            
|Short-term debt and current portion of long-term debt (Note 7) |  | P.           | 19,768,894  |      | P. | 22,883,092 
|Accounts payable and accrued liabilities (Note 8)              |  |              | 14,204,188  |      |    | 15,918,106 
|Taxes payable                                                  |  |              | 2,211,626   |      |    | 783,543    
|Deferred credits (Note 9)                                      |  |              | 1,104,175   |      |    | 1,780,115  
|                                                               |  |              |             |      |    |            
|Total current liabilities                                      |  |              | 37,288,883  |      |    | 41,364,856 
|                                                               |  |             
|Long-term debt (Note 7)                                        |  |              | 83,105,454  |      |    | 84,172,355 
|Labor obligations (Note 10)                                    |  |              | 4,113,513   |      |    | 4,997,540  
|Deferred taxes (Note 15)                                       |  |              | 15,060,058  |      |    | 16,808,391 
|Deferred credits (Note 9)                                      |  |              | 466,696     |      |    | 411,106    
|                                                               |  |              |             |      |    |            
|Total liabilities                                              |  |              | 140,034,604 |      |    | 147,754,248
|                                                               |  |              |             |      |    |            
|                                                               |  |             
|Stockholders equity (Note 14):                                |  |              |             |      |    |            
|Capital stock                                                  |  |              | 9,020,300   |      |    | 9,138,632  
|Retained earnings:                                             |  |              |             |      |    |            
|Prior years                                                    |  |              | 7,907,079   |      |    | 7,197,720  
|Current year                                                   |  |              | 20,468,689  |      |    | 20,176,936 
|                                                               |  |              |             |      |    |            
|                                                               |  |              | 28,375,768  |      |    | 27,374,656 
|Accumulated other comprehensive income items                   |  |              | 883,225     |      |    | 2,816,625  
|                                                               |  |              |             |      |    |            
|Controlling interest                                           |  |              | 38,279,293  |      |    | 39,329,913 
|Noncontrolling interest                                        |  |              | 41,480      |      |    | 41,186     
|                                                               |  |              |             |      |    |            
|Total stockholders equity                                     |  |              | 38,320,773  |      |    | 39,371,099 
|                                                               |  |              |             |      |    |            
|Total liabilities and stockholders equity                     |  | P.           | 178,355,377 |      | P. | 187,125,347
|                                                               |  |              |             |      |    |            

The accompanying notes are an integral part of these financial
statements.



F-2



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Consolidated Statements of Income

(In thousands of Mexican pesos, except dividends per share, see Note 1 II.b)



|                                                                                                                                                                         |  |                         |             |   |      |    |             |      |  |    |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------- | ----------- | - | ---- | -- | ----------- | ---- |  | -- | ----------- | -
|                                                                                                                                                                         |  | Year ended December 31, |            
|                                                                                                                                                                         |  | 2009                    |             |   | 2008 |    |             | 2007 | 
|Operating revenues:                                                                                                                                                      |  |                         |             |   |      |    |             |      |  |    |             |  
|Local service                                                                                                                                                            |  | P.                      | 45,027,811  |   |      | P. | 48,982,383  |      |  | P. | 54,398,425  |  
|Long distance service:                                                                                                                                                   |  |                         |             |   |      |    |             |      |  |    |             |  
|Domestic                                                                                                                                                                 |  |                         | 14,142,688  |   |      |    | 15,741,771  |      |  |    | 17,348,649  |  
|International                                                                                                                                                            |  |                         | 6,662,102   |   |      |    | 8,793,262   |      |  |    | 9,678,537   |  
|Interconnection service                                                                                                                                                  |  |                         | 16,572,941  |   |      |    | 19,139,692  |      |  |    | 22,603,745  |  
|Data                                                                                                                                                                     |  |                         | 30,817,715  |   |      |    | 25,387,672  |      |  |    | 22,280,016  |  
|Other                                                                                                                                                                    |  |                         | 5,876,955   |   |      |    | 6,060,455   |      |  |    | 4,458,299   |  
|                                                                                                                                                                         |  |                         |             |   |      |    |             |      |  |    |             |  
|                                                                                                                                                                         |  |                         | 119,100,212 |   |      |    | 124,105,235 |      |  |    | 130,767,671 |  
|                                                                                                                                                                         |  |                         |             |   |      |    |             |      |  |    |             |  
|Operating costs and expenses:                                                                                                                                            |  |                         |             |   |      |    |             |      |  |    |             |  
|Cost of sales and services                                                                                                                                               |  |                         | 34,158,977  |   |      |    | 32,522,668  |      |  |    | 32,364,110  |  
|Commercial, administrative and general expenses                                                                                                                          |  |                         | 20,830,245  |   |      |    | 19,863,006  |      |  |    | 19,552,442  |  
|Interconnection                                                                                                                                                          |  |                         | 11,796,163  |   |      |    | 14,043,385  |      |  |    | 16,541,561  |  
|Depreciation and amortization (Notes 4 and 5) (includes P.17,152,939 in 2009, P.16,961,597 in 2008 and P.17,434,266 in 2007, not
included in cost of sales and services) |  |                         | 17,950,768  |   |      |    | 17,933,207  |      |  |    | 18,425,285  |  
|                                                                                                                                                                         |  |                         |             |   |      |    |             |      |  |    |             |  
|                                                                                                                                                                         |  |                         | 84,736,153  |   |      |    | 84,362,266  |      |  |    | 86,883,398  |  
|                                                                                                                                                                         |  |                         |             |   |      |    |             |      |  |    |             |  
|Operating income                                                                                                                                                         |  |                         | 34,364,059  |   |      |    | 39,742,969  |      |  |    | 43,884,273  |  
|                                                                                                                                                                         |  |                         |             |   |      |    |             |      |  |    |             |  
|Other expenses, net (Note 1 II.s)                                                                                                                                        |  |                         | 1,349,680   |   |      |    | 679,592     |      |  |    | 44,361      |  
|Financing cost:                                                                                                                                                          |  |                         |             |   |      |    |             |      |  |    |             |  
|Interest income                                                                                                                                                          |  |                         | (711,243    | ) |      |    | (913,462    | )    |  |    | (1,396,088  | )
|Interest expense                                                                                                                                                         |  |                         | 6,122,328   |   |      |    | 7,652,427   |      |  |    | 6,615,400   |  
|Exchange (gain) loss, net                                                                                                                                                |  |                         | (1,096,531  | ) |      |    | 2,493,729   |      |  |    | 643,137     |  
|Monetary gain, net                                                                                                                                                       |  |                         |             |   |      |    |             |      |  |    | (2,513,085  | )
|                                                                                                                                                                         |  |                         |             |   |      |    |             |      |  |    |             |  
|                                                                                                                                                                         |  |                         | 4,314,554   |   |      |    | 9,232,694   |      |  |    | 3,349,364   |  
|                                                                                                                                                                         |  |                         |             |   |      |    |             |      |  |    |             |  
|Equity interest in net income (loss) of affiliates                                                                                                                       |  |                         | 254,680     |   |      |    | (62,113     | )    |  |    | 17,245      |  
|                                                                                                                                                                         |  |                         |             |   |      |    |             |      |  |    |             |  
|Income before taxes on profits                                                                                                                                           |  |                         | 28,954,505  |   |      |    | 29,768,570  |      |  |    | 40,507,793  |  
|Provision for income tax (Note 15)                                                                                                                                       |  |                         | 8,485,522   |   |      |    | 9,591,659   |      |  |    | 11,618,710  |  
|                                                                                                                                                                         |  |                         |             |   |      |    |             |      |  |    |             |  
|Income from continuing operations                                                                                                                                        |  |                         | 20,468,983  |   |      |    | 20,176,911  |      |  |    | 28,889,083  |  
|Income from discontinued operations, net of income tax                                                                                                                   |  |                         |             |   |      |    |             |      |  |    | 7,166,312   |  
|                                                                                                                                                                         |  |                         |             |   |      |    |             |      |  |    |             |  
|Net income                                                                                                                                                               |  | P.                      | 20,468,983  |   |      | P. | 20,176,911  |      |  | P. | 36,055,395  |  
|                                                                                                                                                                         |  |                         |             |   |      |    |             |      |  |    |             |  
|Distribution of net income:                                                                                                                                              |  |                         |             |   |      |    |             |      |  |    |             |  
|Controlling interest                                                                                                                                                     |  | P.                      | 20,468,689  |   |      | P. | 20,176,936  |      |  | P. | 35,484,947  |  
|Noncontrolling interest                                                                                                                                                  |  |                         | 294         |   |      |    | (25         | )    |  |    | 570,448     |  
|                                                                                                                                                                         |  |                         |             |   |      |    |             |      |  |    |             |  
|                                                                                                                                                                         |  | P.                      | 20,468,983  |   |      | P. | 20,176,911  |      |  | P. | 36,055,395  |  
|                                                                                                                                                                         |  |                         |             |   |      |    |             |      |  |    |             |  
|Weighted average number of shares issued and outstanding (millions)                                                                                                      |  |                         | 18,383      |   |      |    | 18,906      |      |  |    | 19,766      |  
|                                                                                                                                                                         |  |                         |             |   |      |    |             |      |  |    |             |  
|Earnings per share from continuing operations                                                                                                                            |  | P.                      | 1.11        |   |      | P. | 1.07        |      |  | P. | 1.46        |  
|                                                                                                                                                                         |  |                         |             |   |      |    |             |      |  |    |             |  
|Earnings per share from discontinued operations                                                                                                                          |  | P.                      |             |   |      | P. |             |      |  | P. | 0.34        |  
|                                                                                                                                                                         |  |                         |             |   |      |    |             |      |  |    |             |  
|Earnings per share                                                                                                                                                       |  | P.                      | 1.11        |   |      | P. | 1.07        |      |  | P. | 1.80        |  
|                                                                                                                                                                         |  |                         |             |   |      |    |             |      |  |    |             |  

The accompanying notes are an integral part of these financial statements.



F-3



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders Equity for the years ended December 31, 2007, 2008 and 2009

(In thousands of Mexican pesos, except for dividends per share, see Note 1 II.b)



|                                                                                                        |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      |             |   |                        |    |             |                     |  |    |                          |   |  |    |             |   |  |    |            |   |  |    |            |   |  |    |             |  
|------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | ------------ | ----------------------- | -- | -------------- | ----------------- |  | ----- | ------------------------------------------ | - |  | -------------------- | ----------- | - | ---------------------- | -- | ----------- | ------------------- |  | -- | ------------------------ | - |  | -- | ----------- | - |  | -- | ---------- | - |  | -- | ---------- | - |  | -- | ----------- | -
|                                                                                                        |  | Capital stock |             |              | Premium onsale ofshares |    |                | Retained earnings |  |       | Accumulatedothercomprehensive
income items |   |  | Controllinginterest |             |   | Noncontrollinginterest |    |             | Comprehensiveincome |  |    | Totalstockholdersequity |  
|                                                                                                        |  |               |             | Legalreserve |                         |    | Unappropriated |                   |  | Total |                                            |   |  |                      |             |  
|Balance at December 31, 2006                                                                            |  | P.            | 28,011,334  |              |                         | P. | 20,919,197     |                   |  | P.    | 16,148,490                                 |   |  | P.                   | 117,811,741 |   |                        | P. | 133,960,231 |                     |  | P. | (64,725,867)             |   |  | P. | 118,164,895 |   |  | P. | 3,156,340  |   |  |    |            |   |  | P. | 121,321,235 |  
|Appropriation of earnings approved at regular stockholders meeting held in April 2007:                 |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      |             |   |                        |    |             |                     |  |    |                          |   |  |    |             |   |  |    |            |   |  |    |            |   |  |    |             |  
|Cash dividend declared at P.0.448 per share (P. 0.440 historical)                                       |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      | (8,820,074  | ) |                        |    | (8,820,074  | )                   |  |    |                          |   |  |    | (8,820,074  | ) |  |    |            |   |  |    |            |   |  |    | (8,820,074  | )
|Cash purchase of Companys own shares                                                                   |  |               | (780,210    | )            |                         |    |                |                   |  |       |                                            |   |  |                      | (15,002,629 | ) |                        |    | (15,002,629 | )                   |  |    |                          |   |  |    | (15,782,839 | ) |  |    |            |   |  |    |            |   |  |    | (15,782,839 | )
|Acquisition of noncontrolling interest                                                                  |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      | (164,575    | ) |                        |    | (164,575    | )                   |  |    |                          |   |  |    | (164,575    | ) |  |    | (450,572   | ) |  |    |            |   |  |    | (615,147    | )
|Gain on dilution of investment in affiliate spun-off                                                    |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      | 1,123,819   |   |                        |    | 1,123,819   |                     |  |    |                          |   |  |    | 1,123,819   |   |  |    |            |   |  |    |            |   |  |    | 1,123,819   |  
|Comprehensive income:                                                                                   |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      |             |   |                        |    |             |                     |  |    |                          |   |  |    |             |   |  |    |            |   |  |    |            |   |  |    |             |  
|Net income for the year                                                                                 |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      | 35,484,947  |   |                        |    | 35,484,947  |                     |  |    |                          |   |  |    | 35,484,947  |   |  |    | 570,448    |   |  | P. | 36,055,395 |   |  |    | 36,055,395  |  
|Other comprehensive income items:                                                                       |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      |             |   |                        |    |             |                     |  |    |                          |   |  |    |             |   |  |    |            |   |  |    |            |   |  |    |             |  
|Changes in fair value of swaps, net of deferred taxes                                                   |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      |             |   |                        |    |             |                     |  |    | 499,089                  |   |  |    | 499,089     |   |  |    |            |   |  |    | 499,089    |   |  |    | 499,089     |  
|Effect of translation of foreign entities                                                               |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      |             |   |                        |    |             |                     |  |    | (2,739,571               | ) |  |    | (2,739,571  | ) |  |    | (369,053   | ) |  |    | (3,108,624 | ) |  |    | (3,108,624  | )
|Deficit from holding non-monetary assets, net of deferred taxes                                         |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      |             |   |                        |    |             |                     |  |    | (927,126                 | ) |  |    | (927,126    | ) |  |    | (184,575   | ) |  |    | (1,111,701 | ) |  |    | (1,111,701  | )
|                                                                                                        |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      |             |   |                        |    |             |                     |  |    |                          |   |  |    |             |   |  |    |            |   |  |    |            |   |  |    |             |  
|Comprehensive income                                                                                    |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      |             |   |                        |    |             |                     |  |    |                          |   |  |    |             |   |  |    |            |   |  | P. | 32,334,159 |   |  |    |             |  
|                                                                                                        |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      |             |   |                        |    |             |                     |  |    |                          |   |  |    |             |   |  |    |            |   |  |    |            |   |  |    |             |  
|Reduction due to the split-up of Telmex Internacional                                                   |  |               | (17,828,563 | )            |                         |    | (20,919,197    | )                 |  |       | (14,267,977                                | ) |  |                      | (20,773,678 | ) |                        |    | (35,041,655 | )                   |  |    | (10,929,376              | ) |  |    | (84,718,791 | ) |  |    | (2,683,554 | ) |  |    |            |   |  |    | (87,402,345 | )
|                                                                                                        |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      |             |   |                        |    |             |                     |  |    |                          |   |  |    |             |   |  |    |            |   |  |    |            |   |  |    |             |  
|Balance at December 31, 2007                                                                            |  |               | 9,402,561   |              |                         |    |                |                   |  |       | 1,880,513                                  |   |  |                      | 109,659,551 |   |                        |    | 111,540,064 |                     |  |    | (78,822,851              | ) |  |    | 42,119,774  |   |  |    | 39,034     |   |  |    |            |   |  |    | 42,158,808  |  
|Effect of adopting Mexican FRS B-10, net of deferred taxes                                              |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      | (79,419,845 | ) |                        |    | (79,419,845 | )                   |  |    | 79,419,845               |   |  |    |             |   |  |    |            |   |  |    |            |   |  |    |             |  
|Cumulative effect adjustment for recognition of deferred employee
profit sharing, net of deferred taxes |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      | (4,136,583  | ) |                        |    | (4,136,583  | )                   |  |    | (53,552                  | ) |  |    | (4,190,135  | ) |  |    |            |   |  |    |            |   |  |    | (4,190,135  | )
|Appropriation of earnings approved at regular stockholders meeting held in April 2008:                 |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      |             |   |                        |    |             |                     |  |    |                          |   |  |    |             |   |  |    |            |   |  |    |            |   |  |    |             |  
|Cash dividend declared at P. 0.413 per share                                                            |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      | (7,774,143  | ) |                        |    | (7,774,143  | )                   |  |    |                          |   |  |    | (7,774,143  | ) |  |    |            |   |  |    |            |   |  |    | (7,774,143  | )
|Cash purchase of Company's own shares                                                                   |  |               | (263,929    | )            |                         |    |                |                   |  |       |                                            |   |  |                      | (12,607,913 | ) |                        |    | (12,607,913 | )                   |  |    |                          |   |  |    | (12,871,842 | ) |  |    |            |   |  |    |            |   |  |    | (12,871,842 | )
|Comprehensive income:                                                                                   |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      |             |   |                        |    |             |                     |  |    |                          |   |  |    |             |   |  |    |            |   |  |    |            |   |  |    |             |  
|Net income for the year                                                                                 |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      | 20,176,936  |   |                        |    | 20,176,936  |                     |  |    |                          |   |  |    | 20,176,936  |   |  |    | (25        | ) |  | P. | 20,176,911 |   |  |    | 20,176,911  |  
|Other comprehensive income items:                                                                       |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      |             |   |                        |    |             |                     |  |    |                          |   |  |    |             |   |  |    |            |   |  |    |            |   |  |    |             |  
|Changes in fair value of swaps, net of deferred taxes                                                   |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      |             |   |                        |    |             |                     |  |    | 2,126,088                |   |  |    | 2,126,088   |   |  |    |            |   |  |    | 2,126,088  |   |  |    | 2,126,088   |  
|Deferred taxes                                                                                          |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      | (403,860    | ) |                        |    | (403,860    | )                   |  |    |                          |   |  |    | (403,860    | ) |  |    | 2,177      |   |  |    | (401,683   | ) |  |    | (401,683    | )
|Effect of translation of foreign entities                                                               |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      |             |   |                        |    |             |                     |  |    | 147,095                  |   |  |    | 147,095     |   |  |    |            |   |  |    | 147,095    |   |  |    | 147,095     |  
|                                                                                                        |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      |             |   |                        |    |             |                     |  |    |                          |   |  |    |             |   |  |    |            |   |  |    |            |   |  |    |             |  
|Comprehensive income                                                                                    |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      |             |   |                        |    |             |                     |  |    |                          |   |  |    |             |   |  |    |            |   |  | P. | 22,048,411 |   |  |    |             |  
|                                                                                                        |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      |             |   |                        |    |             |                     |  |    |                          |   |  |    |             |   |  |    |            |   |  |    |            |   |  |    |             |  
|Balance at December 31, 2008                                                                            |  |               | 9,138,632   |              |                         |    |                |                   |  |       | 1,880,513                                  |   |  |                      | 25,494,143  |   |                        |    | 27,374,656  |                     |  |    | 2,816,625                |   |  |    | 39,329,913  |   |  |    | 41,186     |   |  |    |            |   |  |    | 39,371,099  |  
|Appropriation of earnings approved at regular stockholders meetings held in April and December 2009:   |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      |             |   |                        |    |             |                     |  |    |                          |   |  |    |             |   |  |    |            |   |  |    |            |   |  |    |             |  
|Cash dividends declared at P. 0.445 and P. 0.40 per share, respectively                                 |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      | (15,447,559 | ) |                        |    | (15,447,559 | )                   |  |    |                          |   |  |    | (15,447,559 | ) |  |    |            |   |  |    |            |   |  |    | (15,447,559 | )
|Cash purchase of Company's own shares                                                                   |  |               | (118,332    | )            |                         |    |                |                   |  |       |                                            |   |  |                      | (3,976,988  | ) |                        |    | (3,976,988  | )                   |  |    |                          |   |  |    | (4,095,320  | ) |  |    |            |   |  |    |            |   |  |    | (4,095,320  | )
|Excess of purchase price over book value of entities acquired from companies under common control       |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      | (43,030     | ) |                        |    | (43,030     | )                   |  |    |                          |   |  |    | (43,030     | ) |  |    |            |   |  |    |            |   |  |    | (43,030     | )
|Comprehensive income:                                                                                   |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      |             |   |                        |    |             |                     |  |    |                          |   |  |    |             |   |  |    |            |   |  |    |            |   |  |    |             |  
|Net income for the year                                                                                 |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      | 20,468,689  |   |                        |    | 20,468,689  |                     |  |    |                          |   |  |    | 20,468,689  |   |  |    | 294        |   |  | P. | 20,468,983 |   |  |    | 20,468,983  |  
|Other comprehensive income items:                                                                       |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      |             |   |                        |    |             |                     |  |    |                          |   |  |    |             |   |  |    |            |   |  |    |            |   |  |    |             |  
|Changes in fair value of swaps, net of deferred taxes                                                   |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      |             |   |                        |    |             |                     |  |    | (1,866,847               | ) |  |    | (1,866,847  | ) |  |    |            |   |  |    | (1,866,847 | ) |  |    | (1,866,847  | )
|Effect of translation of foreign entities, net of deferred taxes                                        |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      |             |   |                        |    |             |                     |  |    | (66,553                  | ) |  |    | (66,553     | ) |  |    |            |   |  |    | (66,553    | ) |  |    | (66,553     | )
|                                                                                                        |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      |             |   |                        |    |             |                     |  |    |                          |   |  |    |             |   |  |    |            |   |  |    |            |   |  |    |             |  
|Comprehensive income                                                                                    |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      |             |   |                        |    |             |                     |  |    |                          |   |  |    |             |   |  |    |            |   |  | P. | 18,535,583 |   |  |    |             |  
|                                                                                                        |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      |             |   |                        |    |             |                     |  |    |                          |   |  |    |             |   |  |    |            |   |  |    |            |   |  |    |             |  
|Balance at December 31, 2009 (Note 14)                                                                  |  | P.            | 9,020,300   |              |                         |    | P.             |                   |  | P.    | 1,880,513                                  |   |  | P.                   | 26,495,255  |   |                        | P. | 28,375,768  |                     |  | P. | 883,225                  |   |  | P. | 38,279,293  |   |  | P. | 41,480     |   |  |    |            |   |  | P. | 38,320,773  |  
|                                                                                                        |  |               |             |              |                         |    |                |                   |  |       |                                            |   |  |                      |             |   |                        |    |             |                     |  |    |                          |   |  |    |             |   |  |    |            |   |  |    |            |   |  |    |             |  

The accompanying notes are an integral part of these financial statements.



F-4



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands of Mexican pesos, see Note 1 II.b)



|                                                                        |  |                         |             |   |      |    |             |  
|----------------------------------------------------------------------- |  | ----------------------- | ----------- | - | ---- | -- | ----------- | -
|                                                                        |  | Year ended December 31, |            
|                                                                        |  | 2009                    |             |   | 2008 |   
|Operating activities                                                    |  |                         |             |   |      |    |             |  
|Income before taxes on profits                                          |  | P.                      | 28,954,505  |   |      | P. | 29,768,570  |  
|Add (deduct) items not requiring the use of cash:                       |  |                         |             |   |      |    |             |  
|Depreciation                                                            |  |                         | 17,828,006  |   |      |    | 17,815,050  |  
|Amortization                                                            |  |                         | 120,854     |   |      |    | 101,702     |  
|Allowance for obsolete inventories for operation of the telephone plant |  |                         | 69,669      |   |      |    | 14,675      |  
|Equity interest in net (income) loss of affiliates                      |  |                         | (254,680    | ) |      |    | 62,113      |  
|Gain on valuation of marketable securities                              |  |                         |             |   |      |    | (36,948     | )
|Net periodic cost of labor obligations                                  |  |                         | 6,646,858   |   |      |    | 5,742,803   |  
|Accrued interest expense                                                |  |                         | 6,122,328   |   |      |    | 7,652,427   |  
|Exchange (gain) loss, net                                               |  |                         | (1,232,671  | ) |      |    | 3,322,871   |  
|Other                                                                   |  |                         |             |   |      |    | 2,531       |  
|                                                                        |  |                         |             |   |      |    |             |  
|                                                                        |  |                         | 58,254,869  |   |      |    | 64,445,794  |  
|Changes in operating assets and liabilities:                            |  |                         |             |   |      |    |             |  
|Decrease (increase) in:                                                 |  |                         |             |   |      |    |             |  
|Marketable securities                                                   |  |                         |             |   |      |    | 760,420     |  
|Accounts receivable                                                     |  |                         | (304,561    | ) |      |    | (1,514,850  | )
|Inventories for sale                                                    |  |                         | 370,658     |   |      |    | 276,804     |  
|Prepaid expenses and others                                             |  |                         | (463,577    | ) |      |    | (103,370    | )
|Deferred charges                                                        |  |                         | 26,445      |   |      |    | (130,599    | )
|(Decrease) increase in:                                                 |  |                         |             |   |      |    |             |  
|Labor obligations:                                                      |  |                         |             |   |      |    |             |  
|Contributions to trust fund                                             |  |                         | (5,751,947  | ) |      |    | (4,321,922  | )
|Payments to employees                                                   |  |                         | (218,816    | ) |      |    | (197,297    | )
|Accounts payable and accrued liabilities                                |  |                         | (2,924,775  | ) |      |    | (2,961,080  | )
|Taxes on profits paid                                                   |  |                         | (10,649,903 | ) |      |    | (11,711,906 | )
|Taxes payable                                                           |  |                         | 2,517,125   |   |      |    | 493,448     |  
|Deferred credits                                                        |  |                         | (620,350    | ) |      |    | 869,732     |  
|                                                                        |  |                         |             |   |      |    |             |  
|Net cash flows provided by operating activities                         |  |                         | 40,235,168  |   |      |    | 45,905,174  |  
|                                                                        |  |                         |             |   |      |    |             |  
|Investing activities                                                    |  |                         |             |   |      |    |             |  
|Acquisition of plant, property and equipment                            |  |                         | (10,613,208 | ) |      |    | (11,771,793 | )
|Inventories for operation of the telephone plant                        |  |                         | 951,394     |   |      |    | (935,503    | )
|Acquisition of licenses                                                 |  |                         | (14,168     | ) |      |    | (135,271    | )
|(Acquisition) sale of long-term equity investments                      |  |                         | (116,640    | ) |      |    | 76,207      |  
|Other                                                                   |  |                         | 33,494      |   |      |    | 40,811      |  
|                                                                        |  |                         |             |   |      |    |             |  
|Net cash flows used in investing activities                             |  |                         | (9,759,128  | ) |      |    | (12,725,549 | )
|                                                                        |  |                         |             |   |      |    |             |  
|Cash surplus to be applied to financing activities                      |  |                         | 30,476,040  |   |      |    | 33,179,625  |  
|                                                                        |  |                         |             |   |      |    |             |  
|Financing activities                                                    |  |                         |             |   |      |    |             |  
|New loans                                                               |  |                         | 23,689,235  |   |      |    | 11,862,831  |  
|Repayment of loans                                                      |  |                         | (24,552,238 | ) |      |    | (15,781,356 | )
|Cash purchase of Companys own shares                                   |  |                         | (4,095,320  | ) |      |    | (12,871,842 | )
|Dividends paid                                                          |  |                         | (15,093,082 | ) |      |    | (7,609,477  | )
|Derivative financial instruments                                        |  |                         | 2,019,050   |   |      |    | (2,291,873  | )
|Interest paid                                                           |  |                         | (4,200,480  | ) |      |    | (5,049,097  | )
|                                                                        |  |                         |             |   |      |    |             |  
|Net cash flows used in financing activities                             |  |                         | (22,232,835 | ) |      |    | (31,740,814 | )
|                                                                        |  |                         |             |   |      |    |             |  
|Net increase in cash and cash equivalents                               |  |                         | 8,243,205   |   |      |    | 1,438,811   |  
|Cash and cash equivalents at beginning of year                          |  |                         | 6,136,563   |   |      |    | 4,697,752   |  
|                                                                        |  |                         |             |   |      |    |             |  
|Cash and cash equivalents at end of year                                |  | P.                      | 14,379,768  |   |      | P. | 6,136,563   |  
|                                                                        |  |                         |             |   |      |    |             |  

The accompanying notes are an integral part of these financial statements.



F-5



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Consolidated Statement of Changes in Financial Position

(In thousands of Mexican pesos, see Note 1 II.b)



|                                                                                       |  |                            |             |  
|-------------------------------------------------------------------------------------- |  | -------------------------- | ----------- | -
|                                                                                       |  | Year endedDecember 31,2007 |            
|Operating activities                                                                   |  |                            |             |  
|Net income                                                                             |  | P.                         | 36,055,395  |  
|Add (deduct) items not requiring the use of resources:                                 |  |                            |             |  
|Depreciation                                                                           |  |                            | 18,290,793  |  
|Amortization                                                                           |  |                            | 134,492     |  
|Deferred charges                                                                       |  |                            | 949,862     |  
|Deferred income tax                                                                    |  |                            | 1,206,747   |  
|Equity interest in net income of affiliates                                            |  |                            | (17,245     | )
|Net periodic cost of labor obligations                                                 |  |                            | 4,487,080   |  
|Net income from discontinued operations                                                |  |                            | (7,166,312  | )
|                                                                                       |  |                            |             |  
|                                                                                       |  |                            | 53,940,812  |  
|Changes in operating assets and liabilities:                                           |  |                            |             |  
|(Increase) decrease in:                                                                |  |                            |             |  
|Marketable securities                                                                  |  |                            | 2,212,415   |  
|Accounts receivable                                                                    |  |                            | 1,223,280   |  
|Inventories for sale                                                                   |  |                            | (2,583,474  | )
|Prepaid expenses and others                                                            |  |                            | 72,918      |  
|(Decrease) increase in:                                                                |  |                            |             |  
|Labor obligations:                                                                     |  |                            |             |  
|Contributions to trust fund                                                            |  |                            | (64,935     | )
|Payments to employees                                                                  |  |                            | (182,321    | )
|Accounts payable and accrued liabilities                                               |  |                            | (1,765,160  | )
|Taxes payable                                                                          |  |                            | (1,647,953  | )
|Deferred credits                                                                       |  |                            | 33,007      |  
|                                                                                       |  |                            |             |  
|Resources provided by operating activities                                             |  |                            | 51,238,589  |  
|                                                                                       |  |                            |             |  
|Financing activities                                                                   |  |                            |             |  
|New loans                                                                              |  |                            | 14,930,842  |  
|Repayment of loans                                                                     |  |                            | (10,750,844 | )
|Effect of exchange rate differences and variances in debt expressed in constant pesos  |  |                            | (3,134,933  | )
|Decrease in capital stock and retained earnings due to purchase of Companys own share |  |                            | (15,782,839 | )
|Cash dividends declared                                                                |  |                            | (8,820,074  | )
|                                                                                       |  |                            |             |  
|Resources used in financing activities                                                 |  |                            | (23,557,848 | )
|                                                                                       |  |                            |             |  
|Investing activities                                                                   |  |                            |             |  
|Plant, property and equipment                                                          |  |                            | (13,846,483 | )
|Inventories for operation of the telephone plant                                       |  |                            | 406,826     |  
|Other                                                                                  |  |                            | (239,005    | )
|                                                                                       |  |                            |             |  
|Resources used in investing activities                                                 |  |                            | (13,678,662 | )
|Net changes in operating assets and liabilities from discontinued operations           |  |                            | (20,070,079 | )
|                                                                                       |  |                            |             |  
|Net decrease in cash and cash equivalents                                              |  |                            | (6,068,000  | )
|Cash and cash equivalents at beginning of year                                         |  |                            | 10,765,752  |  
|                                                                                       |  |                            |             |  
|Cash and cash equivalents at end of year                                               |  | P.                         | 4,697,752   |  
|                                                                                       |  |                            |             |  

The accompanying notes are an integral part of this financial statement.



F-6



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)

1. Description of the Business and Significant Accounting Policies

I. Description of the Business

Teléfonos de México, S.A.B. de C.V. and its subsidiaries (collectively the Company or TELMEX)
provide telecommunications services, primarily in Mexico, including domestic and international long distance and local telephone services, data services, the interconnection of subscribers with cellular networks (calling party pays), as well as the
interconnection of domestic long distance carriers, cellular telephone companies and local service carriers networks with the TELMEX local network. TELMEX also obtains revenues from the sale of telephone equipment and personal
computers.

The amended Mexican government concession under which TELMEX operates was signed on August 10, 1990. The
concession runs through the year 2026, but it may be renewed for an additional period of fifteen years. Among other significant aspects, the concession stipulates the requirements to provide telephony services and establishes the basis for
regulating rates.

The rates to be charged for basic telephone services are subject to a cap determined by the Federal
Telecommunications Commission (COFETEL). During the last nine years, TELMEX management decided not to raise its rates for basic services.

TELMEX has concessions in Mexico to operate radio spectrum wave frequency bands to provide fixed wireless telephone services and to
operate radio spectrum wave frequency bands for point-to-point and point-to-multipoint microwave communications.

The foreign
subsidiary has licenses for use of point-to-point and point-to-multipoint links in the USA.

On January 13, 2010
América Móvil, S.A.B. de C.V. (América Móvil) announced that it will launch an exchange offer to the stockholders of Carso Global Telecom, S.A.B. de C.V. (Carso Global Telecom) (TELMEXs controlling stockholder),
pursuant to which the shares of Carso Global Telecom would be exchanged for shares issued by América Móvil. If Carso Global Telecoms stockholders tender all their shares, América Móvil would acquire indirectly 59.4%
of the outstanding shares of TELMEX and 60.7% of the outstanding shares of Telmex Internacional, S.A.B. de C.V. (Telmex Internacional). América Móvil also announced its intention to launch an offering for the exchange or purchase of
all of the Telmex Internacionals shares that are not already owned by Carso Global Telecom (39.3%).

On March 9,
2010, TELMEXs Audit Committee, Chief Executive Officer, General Counsel and Chief Financial Officer authorized the issuance of the accompanying consolidated financial statements and these notes as of December 31, 2009 and 2008, and for
each of the three years in the period ended December 31, 2009, and Management evaluated subsequent events through March 23, 2010.



F-7



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



At December 31, 2009, 2008 and 2007, TELMEXs equity interest in its principal
subsidiaries and affiliated companies is as follows:



|                                                |  |         |  |                                   |   |  |      |   |  |      |  
|----------------------------------------------- |  | ------- |  | --------------------------------- | - |  | ---- | - |  | ---- | -
|                                                |  |         |  | % equity interest at December 31, |  
|Company                                         |  | Country |  | 2009                              |   |  | 2008 |   |  | 2007 |  
|Subsidiaries:                                   |  |         |  |                                   |   |  |      |   |  |      |  
|Integración de Servicios TMX, S.A. de C.V.      |  | Mexico  |  | 100                               | % |  | 100  | % |  | 100  | %
|Alquiladora de Casas, S.A. de C.V.              |  | Mexico  |  | 100                               | % |  | 100  | % |  | 100  | %
|Cía. de Teléfonos y Bienes Raíces, S.A. de C.V. |  | Mexico  |  | 100                               | % |  | 100  | % |  | 100  | %
|Consorcio Red Uno, S.A. de C.V.                 |  | Mexico  |  | 100                               | % |  | 100  | % |  | 100  | %
|Teléfonos del Noroeste, S.A. de C.V.            |  | Mexico  |  | 100                               | % |  | 100  | % |  | 100  | %
|Uninet, S.A. de C.V.                            |  | Mexico  |  | 100                               | % |  | 100  | % |  | 100  | %
|Telmex USA, L.L.C.                              |  | U.S.A.  |  | 100                               | % |  | 100  | % |  | 100  | %
|                                                |  |         |  |                                  
|Affiliated companies:                           |  |         |  |                                   |   |  |      |   |  |      |  
|Grupo Telvista, S.A. de C.V.                    |  | Mexico  |  | 45                                | % |  | 45   | % |  | 45   | %
|2Wire, Inc.                                     |  | U.S.A.  |  | 13                                | % |  | 13   | % |  | 13   | %

II. Significant Accounting
Policies and Practices

The principal accounting policies and practices followed by the Company in the preparation of these
consolidated financial statements, in conformity with Mexican Financial Reporting Standards, are described below:



|a) | Consolidation and basis of translation of financial statements of foreign subsidiaries
|-- | --------------------------------------------------------------------------------------



|i) | Consolidation and equity method
|-- | -------------------------------

The consolidated financial statements include the accounts of Teléfonos de México, S.A.B. de C.V. and those of the
subsidiaries over which the Company exercises control. All the companies operate in the telecommunications sector or provide services to companies operating in this sector.

All intercompany balances and transactions have been eliminated in the consolidated financial statements. Noncontrolling interest refers
to certain subsidiaries in which the Company does not hold 100% of the shares.

Equity investments in affiliated companies
over which the Company exercises significant influence is accounted for using the equity method, which basically consists of recognizing TELMEXs proportional share in the net income or loss and the stockholders equity of the investee
(see Note 6).



F-8



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



The results of operations of the subsidiaries and affiliates were included in
TELMEXs financial statements as of the month following their acquisition.



|ii) | Translation of financial statements of foreign subsidiary and affiliate
|--- | -----------------------------------------------------------------------

Beginning January 1, 2008, the financial statements of the foreign subsidiary and affiliate are either consolidated or accounted for
based on the equity method, as the case may be, once the financial statements have been adjusted to conform to Mexican Financial Reporting Standards in the corresponding local currency, and are then translated to the reporting currency.

All the assets and liabilities of our foreign subsidiary and affiliate are translated to Mexican pesos at the prevailing exchange rate at
year-end. Stockholders equity accounts are translated at the prevailing exchange rate at the time capital contributions were made and earnings were generated. Revenues, costs and expenses are translated at the historical exchange rate.
Translation differences are recorded in stockholders equity in the line item Effect of translation of foreign entities under Accumulated other comprehensive income items.

Through December 31, 2007, the financial statements as reported by the foreign subsidiary were converted to conform to Mexican
Financial Reporting Standards, in the local currency, and subsequently re-expressed to constant pesos based on the inflation rate of the country in which the subsidiary operates. Under this method, all assets and liabilities were translated to
Mexican pesos at the prevailing exchange rate at year-end. Stockholders equity accounts were translated at the prevailing exchange rate at the time capital contributions were made and earnings were generated. Income statement amounts were
translated to Mexican pesos at the prevailing exchange rate at the end of the reporting period. Exchange differences and the monetary position effect resulting from intercompany monetary items were charged or credited to the consolidated statements
of income. Translation differences resulting from the conversion process were recorded in stockholders equity in the line item Effect of translation of foreign entities under Accumulated other comprehensive income
items.



|b) | Recognition of the effects of inflation on financial information
|-- | ----------------------------------------------------------------

Upon adoption of Mexican FRS B-10, Effects of Inflation, which became effective on January 1, 2008, the Company ceased to
recognize the effects of inflation in its financial information because it currently operates in a non-inflationary economic environment.

However, even though the economic environment in 2007 qualified as being non-inflationary, Mexican accounting Bulletin B-10, Accounting
Recognition of the Effects of Inflation on Financial Information, was still effective. Accordingly, the financial statements for the year ended December 31, 2007 are presented in Mexican pesos with purchasing power at December 31, 2007,
while the 2009 and 2008 financial statements are expressed in nominal pesos, except for those non-monetary items that included inflation effects through December 31, 2007. Subsequent additions are recognized at historical cost.



F-9



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



Capital stock, premium on sale of shares and retained earnings were re-expressed for
inflation through December 31, 2007 based on the Mexican National Consumer Price Index (NCPI).

Through December 31,
2007, the deficit from re-expression of stockholders equity consisted of the accumulated monetary position loss at the time the provisions of Bulletin B-10 were first applied, which was P. 13,924,729, and of the result from holding
non-monetary assets, which represents the difference between re-expression by the specific indexation method and re-expression based on the NCPI. At December 31, 2007, this item was included in stockholders equity under the
Accumulated other comprehensive income items caption. In conformity with Mexican FRS B-10, since it was not possible to identify the result from holding non-monetary assets with the items giving rise to them, the cumulative result from
holding non-monetary assets, together with the initial effect from the adoption of Bulletin B-10, which amounted to P. (79,419,845), net of deferred taxes, were reclassified from accumulated other comprehensive income items to retained earnings in
stockholders equity.

The net monetary position gain shown in the 2007 income statement represents the effect of
inflation on monetary assets and liabilities and is included as part of the caption Financing cost.

The statement
of changes in financial position for the year ended December 31, 2007 was prepared based on the financial statements expressed in constant Mexican pesos. The source and application of resources represent the differences between beginning and
ending financial statement balances in constant Mexican pesos. Monetary and foreign exchange gains and losses are considered as items requiring the use of resources.



|c) | Recognition of revenues
|-- | -----------------------

Revenues are recognized at the time services are provided. Local service revenues are related to new-line installation charges, monthly
service fees, measured usage charges based on the number of calls made, and other service charges to subscribers. Local service revenues also include measured usage charges for prepayment plans, based on the number of minutes.

Revenues from the sale of prepaid telephone service cards are recognized based on an estimate of the usage of time covered by the prepaid
card. Revenues from the sale of equipment are recorded when the product is delivered to the customer.

Revenues from domestic
and international long distance telephone services are determined on the basis of the duration of the calls and the type of service used, which are billed monthly based on the authorized rates. International long distance and interconnection service
revenues also include the revenues earned under agreements with foreign carriers for the use of the Companys facilities in interconnecting international calls. These services are regulated by agreements with these operators, in which the rates
to be paid are defined.

Data revenues include revenues from services related to data transmission through private and managed
networks and revenues from Internet access.



|d) | Use of estimates
|-- | ----------------

The
preparation of financial statements in conformity with Mexican Financial Reporting Standards requires the use of estimates and assumptions in certain areas. Actual results could differ from these estimates.



F-10



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



|e) | Cash and cash equivalents
|-- | -------------------------

Cash and cash equivalents are represented by time deposits and highly liquid investments in financial institutions with maturities of less
than 90 days at the date purchased. Such investments are stated at acquisition cost plus accrued interest, similar to market value.



|f) | Derivative financial instruments and hedging activities
|-- | -------------------------------------------------------

The Company is exposed to interest rate and foreign currency risks, which are mitigated through a controlled risk management program that
includes the use of derivative financial instruments. The Company uses primarily cross-currency swaps and when necessary uses foreign currency forwards to offset the short-term risk of exchange rate fluctuations. In order to reduce the risks due to
fluctuations in interest rates, the Company utilizes interest-rate swaps, through which it either pays or receives the difference between the net amount of either paying or receiving a fixed interest rate and the cash flow from receiving or paying a
floating interest rate, based on a notional amount denominated in Mexican pesos or U.S. dollars. Most of these derivative financial instruments qualify and have been designated as cash flow hedges.

The Company's policy includes: i) formal documentation of all hedging relationships between the hedging instrument and the hedged
position; ii) the objectives for risk management; and iii) the strategy for conducting hedging transactions. This process takes into account the relationship between the cash flow of the derivatives with the cash flows of the corresponding assets
and liabilities recognized in the balance sheet.

The effectiveness of the Companys derivatives used for hedging
purposes is evaluated prior to their designation as hedges, as well as during the hedging period, which is performed at least quarterly based on recognized statistical techniques. Whenever it is determined that a derivative is not highly effective
as a hedge or that the derivative ceases to be a highly effective hedge, the Company ceases to apply hedge accounting for the derivative on a prospective basis. During the years ended December 31, 2009, 2008 and 2007, there were no gains or
losses recognized due to changes in the accounting treatment for hedges.

Derivative financial instruments are recognized in
the balance sheet at their fair values, which are obtained from the financial institutions with which the Company has entered into the related agreements. The Companys policy is to verify such fair values against valuations provided by an
independent valuation agent contracted by the Company.

The effective portion of the cash flow hedges gain or loss is
recognized in Accumulated other comprehensive income items in stockholders equity, while the ineffective portion is recognized in current year earnings. Changes in the fair value of derivatives that do not qualify as hedges are
immediately recognized in earnings.

The change in fair value recognized in earnings related to derivatives that are accounted
for as hedges is presented in the same income statement caption as the gain or loss of the hedged item.



|g) | Allowance for doubtful accounts
|-- | -------------------------------

The allowance for doubtful accounts is determined based on the Companys experience, the aging of the balances and general economic
trends, as well as an evaluation of accounts receivable in litigation. The allowance for doubtful accounts basically covers the balances of accounts receivable greater than 90 days old.

The risk of uncollectibility of accounts receivable from related parties is evaluated annually based on an examination of each related
partys financial situation and the markets in which they operate.



F-11



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



|h) | Inventories
|-- | -----------

Inventories
for sale are valued at average cost, and through December 31, 2007 they were re-expressed based on inflation. The carrying value of inventories is not in excess of their net realizable value.

Inventories for the operation of the telephone plant are valued at average cost, and through December 31, 2007 were re-expressed on
the basis of specific indexes. The carrying value of inventories is similar to replacement value, which is not in excess of their market value.



|i) | Plant, property and equipment
|-- | -----------------------------

Through December 31, 1996, plant, property and equipment and construction in process were re-expressed based on the acquisition date
and cost, applying the factors derived from the specific indexes determined by the Company and validated by an independent appraiser.

Through December 31, 2007, plant, property and equipment and construction in progress acquired abroad were re-expressed based on the
rate of inflation of the respective country of origin and the prevailing exchange rate at the balance sheet date (specific indexation factors). Plant, property and equipment of domestic origin were re-expressed based on the NCPI.

Telephone plant and equipment are depreciated using the straight-line method based on the estimated useful lives of the related assets
(see Note 4 b).

The carrying value of plant, property, plant and equipment is reviewed whenever there are indicators of
impairment in the carrying value of such assets. Whenever an assets recovery value, which is the greater of the assets selling price and its value in use (the present value of future cash flows) is less than the assets net carrying
amount, the difference is recognized as an impairment loss.

For the years ended December 31, 2009, 2008 and 2007, there
were no indicators of impairment in the value of the Companys plant, property and equipment.

The Company has not
capitalized any financing costs since it has no significant qualifying assets with prolonged acquisition periods.



|j) | Leases
|-- | ------

When the risks
and benefits inherent to the ownership of the leased asset remain mostly with the lessor, they are classified as operating leases and rent expense is charged to results of operations when incurred.

Lease agreements are recognized as capital leases if (i) the ownership of the leased asset is transferred to the lessee upon
termination of the lease; (ii) the agreement includes an option to purchase the asset at a reduced price; (iii) the term of the lease is substantially the same as the remaining useful life of the leased asset; or (iv) the present
value of minimum lease payments is substantially the same as the market value of the leased asset, net of any future benefit or residual value.



F-12



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



|k) | Licenses
|-- | --------

TELMEX records
licenses at acquisition cost and, through December 31, 2007, re-expressed them based on the inflation rate of each country. The amortization period is based on the terms of the licenses, which range from 5 to 20 years.



|l) | Business acquisitions
|-- | ---------------------

Acquisitions of businesses are recorded using the purchase method. The acquisition of noncontrolling interest is considered a transaction
between entities under common control and any difference between the purchase price and the carrying value of net assets acquired is recognized as an equity transaction.



|m) | Accrued liabilities
|-- | -------------------

Accrued liabilities are recognized whenever (i) the Company has current obligations (legal or assumed) resulting from a past event,
(ii) when it is probable the obligation will give rise to a future cash disbursement for its settlement and (iii) the amount of the obligation can be reasonably estimated.

When the effect of the time value of money is significant, the amount of the liability is determined as the present value of the expected
future disbursements to settle the obligation. The discount rate applied is determined on a pre-tax basis and reflects current market conditions at the balance sheet date and, where appropriate, the risks specific to the liability. When discounting
is used, an increase in the liability is recognized as a finance expense.

Contingent liabilities are recognized only when it
is probable they will give rise to a future cash disbursement for their settlement. Also, commitments are only recognized when they will generate a loss.



|n) | Labor obligations
|-- | -----------------

The
cost of pension, seniority premium and termination benefits (severance) are recognized periodically during the years of service of personnel, based on actuarial computations made by independent actuaries using the projected unit-credit method
(see Note 10).

Actuarial (losses) gains are being amortized over a period of 12 years, which is the estimated
average remaining working lifetime of Company employees.

As of January 1, 2008, the Company adopted Mexican FRS D-3
Employee Benefits, which replaced Mexican accounting Bulletin D-3, Labor Obligations. As a result of the MFRS D-3 adoption, the transition liability for labor obligations and prior service costs at December 31, 2007 are being
amortized over a maximum period of 5 years. Prior to December 31, 2007, such amounts were being amortized over the estimated average remaining working lifetime of Company employees (12 years) (see Note 10).



|o) | Employee profit sharing
|-- | -----------------------

Current-year and deferred employee profit sharing expense is presented as an ordinary expense in the income statement.



F-13



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



Beginning January 1, 2008, in connection with the adoption of Mexican FRS D-3, the
Company recognizes deferred employee profit sharing using the asset and liability method. Under this method, deferred profit sharing is computed by applying the 10% rate to all temporary differences between the values of all assets and liabilities
for financial and tax reporting purposes. The Company periodically evaluates the possibility of recovering deferred employee profit sharing assets and, if necessary, creates a valuation allowance for those assets that do not have a high probability
of being realized (see Note 10).

Through December 31, 2007, deferred employee profit sharing was recognized only on
temporary differences in the reconciliation of current year net income to taxable income for employee profit sharing purposes and only when there was no indication that the related liability or asset would not be realized in the future.



|p) | Exchange differences
|-- | --------------------

Transactions in foreign currency are recorded at the prevailing exchange rate on the day of the related transactions. Foreign currency
denominated monetary assets and liabilities are valued at the prevailing exchange rate at the balance sheet date. Exchange differences from the transaction date to the time foreign currency denominated monetary assets and liabilities are settled, as
well as those arising from the translation of foreign currency denominated balances at the balance sheet date are charged or credited to results of operations.

See Note 11 for the Companys consolidated foreign currency position at the end of each year and the exchange rates used to
translate foreign currency denominated balances.



|q) | Comprehensive income
|-- | --------------------

Comprehensive income consists of current year net income, the effect of translation of the financial statements of foreign entities, the
changes in noncontrolling interest, the changes in the fair value of cash flow hedges, changes in the result from holding non-monetary assets and the effect of deferred taxes related to these items.



|r) | Taxes on profits
|-- | ----------------

Deferred taxes on profits are recognized using the asset and liability method. Under this method, deferred taxes on profits are recognized
on all differences between the financial reporting and tax bases of assets and liabilities, applying the enacted income tax rate effective as of the balance sheet date, or the enacted rate at the balance sheet date that will be in effect when the
deferred tax assets and liabilities are expected to be recovered or settled.

The Company periodically evaluates the
possibility of recovering deferred tax assets and, if necessary, creates a valuation allowance for those assets that do not have a high probability of being realized.



|s) | Statement of income presentation
|-- | --------------------------------

Costs and expenses shown in the Companys income statement are presented on a combined basis between their nature and function, in
accordance with industry practice since such classification allows for an appropriate evaluation of gross profit and operating margin.

The Operating income caption is shown in the income statement since it is an important indicator used for evaluating the
Company's operating results.



F-14



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



An analysis of the Other expenses, net caption for the years ended
December 31, 2009, 2008 and 2007 is as follows:



|                                 |  |      |           |   |      |    |            |      |  |    |            |  
|-------------------------------- |  | ---- | --------- | - | ---- | -- | ---------- | ---- |  | -- | ---------- | -
|                                 |  | 2009 |           |   | 2008 |    |            | 2007 | 
|Employee profit sharing, current |  | P.   | 2,217,482 |   |      | P. | 2,548,762  |      |  | P. | 2,867,019  |  
|Other income (Note 10)           |  |      | (867,802  | ) |      |    | (1,869,170 | )    |  |    | (2,822,658 | )
|                                 |  |      |           |   |      |    |            |      |  |    |            |  
|Other expenses, net              |  | P.   | 1,349,680 |   |      | P. | 679,592    |      |  | P. | 44,361     |  
|                                 |  |      |           |   |      |    |            |      |  |    |            |  

As a result of a ruling in favor of the Company related to the deductibility for income tax purposes of
employee profit sharing paid in 2004 and 2005, the Other income line shown above for 2007 includes a non-recurring gain of P.1,653,123.



|t) | Statement of cash flows
|-- | -----------------------

Effective January 1, 2008, Mexican FRS B-2 replaced Mexican accounting Bulletin B-12, Statement of Changes in Financial Position.
Accordingly, the statement of cash flows substituted the statement of changes in financial position. The main differences between both statements lie in the fact that the statement of cash flows shows the entitys cash inflows and outflows
during the period, while the statement of changes in financial position shows the changes in the entitys financial structure. Also, the statement of cash flows presents first income before taxes on profits, followed by cash flows from
operating activities, then cash flows from investing activities and finally cash flows from financing activities.

The
statement of cash flows for the years ended December 31, 2009 and 2008 were prepared using the indirect method. The statements of cash flows are not comparable to the statement of changes in financial position for the year ended
December 31, 2007.



|u) | Earnings per share
|-- | ------------------

Earnings per share are determined by dividing the controlling interest in net income by the weighted-average number of shares outstanding
during the year. In determining the weighted-average number of shares outstanding during the year, shares repurchased by the Company have been excluded.



|v) | Concentration of risk
|-- | ---------------------

The main risks associated with the Companys financial instruments are cash flow risk, liquidity risk, market risk and credit risk.
The Company performs sensitivity analyses to measure potential losses in its operating results based on a theoretical increase of 100 basis points in interest rates and a 10% change in exchange rates. The Board of Directors approves the risk
management policies that are proposed by the Companys management.

Credit risk represents the potential loss from the
failure of counterparties to completely comply with their contractual obligations. The Company is also exposed to market risks related to fluctuations in interest rates and exchange rates. In order to reduce the risks related to fluctuations in
interest rates and exchange rates, the Company uses derivative financial instruments as hedges against its debt obligations.



F-15



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



Financial instruments which potentially subject the Company to concentrations of credit
risk are cash and cash equivalents, trade accounts receivable, and debt and derivative financial instruments. The Companys policy is designed to not restrict its exposure to any one financial institution; therefore, the Companys
financial instruments are maintained in different financial institutions located in different geographical areas.

The credit
risk in accounts receivable is diversified, because the Company has a broad customer base that is geographically dispersed. The Company continuously evaluates the credit conditions of its customers and does not require collateral to guarantee
collection of its accounts receivable. In the event the collection of accounts receivable deteriorates significantly, the Companys results of operations could be adversely affected.



|w) | Segments
|-- | --------

Segment
information is presented based on information used by the Company in its decision-making processes (see Note 16).

Local and
long distance segment information varies to the one presented in the consolidated financial statements due to:



| |  |  | The information that was considered in its elaboration was only the one corresponding to the companies that are directly involved in rendering local
and long distance telephone services in Mexico.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Local service includes: revenues from basic rent, measured service, installation charges, equipment sales and interconnection.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | Long distance service includes: revenues from basic services of domestic and international long distance services; it does not include revenues from
rural and public telephony and data services.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The services being disclosed consider the corresponding attributes for interconnection, billing, collecting, co-location and leased lines.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Interconnection with cellular operators includes revenues from calling party pays.
| | - |  | ----------------------------------------------------------------------------------



F-16



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



|x) | Reclassifications
|-- | -----------------

Certain captions shown in the 2008 financial statements as originally issued have been reclassified for uniformity of presentation with
the 2009 financial statements.

An analysis is as follows:



|                                                |  |     |  |                           |  |                     |   |  |                   
|----------------------------------------------- |  | --- |  | ------------------------- |  | ------------------- | - |  | ------------------
|                                                |  |     |  | As originallyreported2008 |  | Reclassifications   |   |  | Asreclassified2008
|Assets                                          |  |     |  |                           |  |                     |   |  |                   
|Current assets:                                 |  |     |  |                           |  |                     |   |  |                   
|Prepaid expenses and others                     |  | (1) |  | P.    2,900,790           |  | P.          (61,088 | ) |  | P.    2,839,702   
|                                                |  |     |  |                          
|Deferred charges, net                           |  | (1) |  | 1,407,687                 |  | 61,088              |   |  | 1,468,775         
|                                                |  |     |  |                          
|Statement of income                             |  |     |  |                           |  |                     |   |  |                   
|Operating revenues:                             |  |     |  |                           |  |                     |   |  |                   
|Corporate networks                              |  | (2) |  | 12,219,402                |  | (12,219,402         | ) |  |                   
|Internet                                        |  | (2) |  | 13,168,270                |  | (13,168,270         | ) |  |                   
|Data                                            |  | (2) |  |                           |  | 25,387,672          |   |  | 25,387,672        
|                                                |  |     |  |                          
|Operating costs and expenses:                   |  |     |  |                           |  |                     |   |  |                   
|Cost of sales and services                      |  | (3) |  | 32,806,088                |  | (283,420            | ) |  | 32,522,668        
|Commercial, administrative and general expenses |  | (4) |  | 19,831,144                |  | 31,862              |   |  | 19,863,006        
|Interconnection                                 |  | (3) |  | 13,759,965                |  | 283,420             |   |  | 14,043,385        
|Depreciation and amortization                   |  | (4) |  | 17,965,069                |  | (31,862             | ) |  | 17,933,207        



|(1) | Reclassification of deferred charges.
|--- | -------------------------------------

|(2) | Reclassification to Data revenues.
|--- | ----------------------------------

|(3) | Reclassification of interconnection.
|--- | ------------------------------------

|(4) | Reclassification of administrative expenses.
|--- | --------------------------------------------



|y) | New accounting pronouncements
|-- | -----------------------------

i) Following is a discussion of the new accounting pronouncements issued by the Mexican Financial Reporting Standards Research and
Development Board (Consejo Mexicano para la Investigación y Desarrollo de Normas de Información Financiera, A.C. or CINIF) that became effective on January 1, 2009 and that affected TELMEXs accounting
policies:

Mexican FRS B-8,Consolidated and Combined Financial Statements

In November 2008, the CINIF issued Mexican FRS B-8, which became effective for fiscal years beginning on or after January 1, 2009.
Mexican FRS B-8 replaces Mexican accounting Bulletin B-8, Consolidated and Combined Financial Statements and the Valuation of Long-Term Equity Investments. Mexican FRS B-8 establishes the overall guidelines for preparing and presenting
consolidated or combined financial statements and transfers the guidance related to accounting for long-term equity investments to Mexican FRS C-7.

This standard establishes that to determine the existence of control, the Company must consider any potential voting rights held that
could be exercised or converted, regardless of managements intention and ability to exercise them.



F-17



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



Also, unlike Bulletin B-8, this standard requires the financial statements of the
consolidating entities to be prepared under the same Mexican FRS, eliminating the possibility to consolidate those entities that do not issue financial statements under Mexican FRS due to an obligation to present their financial statements under
specific accounting standards.

This standard includes guidelines for the accounting treatment of special purpose entities
and, upon adoption, abolishes the supplementary application of International Financial Reporting Standards SIC 12, ConsolidationSpecial Purpose Entities (SPEs). Mexican FRS B-8 establishes that special purpose entities over which the
Company exercises control must be consolidated.

Mexican FRS B-8 establishes that changes in equity interest that do not cause
loss of control must be recognized as transactions between stockholders; therefore, any difference between the book value of the equity investment sold or acquired and the value of the consideration paid must be recognized in stockholders
equity.

This standard also establishes that the recognition of push-down adjustments must not be recognized in the financial
statements of the subsidiary and provides no transitional guidance in this regard.

Mexican FRS C-7,Equity
Investments in Affiliates and Other Long-term Equity Investments

In November 2008, the CINIF issued Mexican FRS C-7,
which became effective for fiscal years beginning on or after January 1, 2009. The purpose of this standard is to establish guidelines for the accounting recognition of investments in affiliated companies, as well as for the recognition of any
other long-term equity investments through which the reporting entity does not have control, joint control or exercise significant influence.

Unlike Mexican accounting Bulletin B-8, this standard establishes that there is significant influence when 10% or more of the voting
shares in an entity that is listed on a stock exchange, or when it holds 25% or more of the voting shares in an entity not listed on a stock exchange. Mexican FRS C-7 also provides the guidelines for determining the existence of significant
influence in the case of SPEs.

In identifying the existence of significant influence, both Mexican FRS B-8 and this standard
require consideration of any potential voting rights held by the entity that might be exercised or converted, regardless of managements actual intention and financial capacity to exercise such rights.

Investments in an affiliated company or an equity interest in an SPE over which the reporting entity exercises significant influence must
be initially recognized at fair value, determined at the time of acquisition, and subsequently by applying the equity method of accounting. To apply the equity method, unlike Mexican accounting Bulletin B-8, the financial statements of the
affiliated company must be prepared in conformity with Mexican FRS.

This standard also establishes guidelines for the
recognition of losses incurred by affiliated companies, since Mexican accounting Bulletin B-8 did not address this issue.

This standard establishes that the investment in affiliated companies must be tested for impairment when indicators of impairment exist,
and modifies Mexican accounting Bulletin C-15, Impairment in the Value of Long-lived Assets, by establishing that the impairment of investments in affiliated companies must be presented as part of the caption Equity interest in income of
unconsolidated subsidiaries and affiliates.



F-18



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



Mexican FRS C-8,Intangible Assets

Mexican FRS C-8 was issued by the CINIF in December 2008 to replace Mexican accounting Bulletin C-8, Intangible Assets and became
effective for fiscal years beginning on or after January 1, 2009.

Unlike Mexican accounting Bulletin C-8, this standard
establishes that separability is not the only condition necessary to determine that an intangible asset is identifiable. Mexican FRS C-8 also provides additional guidance on the accounting recognition of intangible assets acquired through exchange
transactions and eliminates the presumption that the useful life of an intangible asset could not exceed twenty years. Furthermore, the standard adds the requirement of an accelerated amortization period as a condition for impairment and modifies
the definition of pre-operating costs.

Lastly, Mexican FRS C-8 establishes the accounting treatment for disposals of
intangible assets resulting from sale, abandonment or exchange.

The adoption of the new accounting standards mentioned above
did not have any impact on the Companys financial statements and did not result in a cumulative adjustment to retained earnings at adoption.

ii) The most important new accounting pronouncements that will become effective on January 1, 2010 or 2011, and that could affect
the Companys accounting policies, are as follows:

Mexican FRS C-1,Cash and Cash Equivalents

Mexican FRS C-1 was issued by the CINIF in November 2009 to replace Mexican accounting Bulletin C-1, Cash, and is effective for
fiscal years beginning on or after January 1, 2010. The purpose of this standard is to establish guidelines for the valuation, presentation and disclosure of items comprising the cash and cash equivalents caption in the statement of financial
position.

Mexican FRS C-1 establishes that restricted cash is to be presented in the cash and cash equivalents caption in the
statement of financial position (under the former standard it was shown separately) and substitutes the term short-term demand investments with the new term liquid demand investments, which, among other characteristics, must
be readily convertible to cash and have maturities of no more than three months.

Mexican FRS C-1 also defines the following
terms: acquisition costs, cash equivalents, restricted cash and cash equivalents, liquid demand investments, net realization value, nominal value and fair value.

Mexican FRS B-5,Financial Information by Segment

In November 2009, the CINIF issued Mexican FRS B-5, which will become effective for fiscal years beginning on or after January 1,
2011. Mexican FRS B-5 will replace Mexican accounting Bulletin B-5.

Mexican FRS B-5 establishes the criteria for identifying
the segments to be reported by an entity, as well as the standards for disclosing the financial information of such segments. The standard also contains the requirements applicable to the disclosure of certain information related to the entity as a
whole.



F-19



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



The principal changes compared to Mexican accounting Bulletin B-5 are as follows:

Information to be disclosedMexican FRS B-5 is management-focused, since the segment information disclosures it requires
refer to the information used by the entitys most-senior business decision makers. Mexican FRS B-5 also requires the disclosure of information related to entitys products, geographic zones, customers and suppliers.

Business risksIn identifying operating segments, this standard does not require the different areas of the business to be subject
to different risks.

Segments in the pre-operating stageUnder Mexican FRS B-5, the different areas of a business in its
pre-operating stage can be classified as operating segments.

Disclosure of financial resultsThis standard requires
disclosure of interest income and expense, as well as the other comprehensive financing items.

Disclosure of
liabilitiesMexican FRS B-5 requires disclosure of the liabilities included in the regular information for the operating segment that is habitually used by the entitys most-senior business decision makers.

The Company expects that these standards will not have a material impact on its financial statements.

2. Discontinued Operations

On December 21, 2007, the stockholders of TELMEX approved the split-up of the Companys subsidiaries with operations in Latin
American, as well as its Yellow Pages business. As a result of the split-up, Telmex Internacional was incorporated on December 26, 2007 and the outstanding shares of Controladora de Servicios de Telecomunicaciones, S.A. de C.V. (formerly the
sub-holding company of TELMEX) were transferred to it. The split-up was effective for legal, accounting and tax purposes as of December 26, 2007, on which date Telmex Internacional was legally incorporated as a separate Mexican company and from
which time the Company ceased to have control over the subsidiary mentioned above.

At the same stockholders meeting
held on December 21, 2007, it was determined that the entities would adjust their stockholders equity to recognize the treasury resources including cash and cash equivalents used in the purchase of the shares of TELMEX, until the date on
which the shares of Telmex Internacional commenced to trade separately.

The terms of the split-up established that neither
TELMEX nor Telmex Internacional would hold shares of the other. At the time of the split-up, each TELMEX stockholder became an owner of the same number and class of shares in Telmex Internacional that they held in TELMEX. Consequently, both
companies were then controlled by the same group of stockholders.

From the date on which Telmex Internacional was
incorporated until the date the shares of TELMEX and Telmex Internacional began to trade separately, TELMEX continued acquiring both its own shares and shares in Telmex Internacional.



F-20



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



The shares acquired by TELMEX in the name of Telmex Internacional amounted to
P.3,571,744, which in conformity with the resolutions adopted by the Board of Directors were transferred to Telmex Internacional as part of the split-up in cash and cash equivalents. Telmex Internacional then paid TELMEX for the value of the shares
that TELMEX acquired in the name of Telmex Internacional, and the related amounts and treasury shares of both companies were adjusted accordingly.

The relationship between TELMEX and Telmex Internacional is limited to: i) ordinary commercial relationships, such as those related to
international traffic termination services and the preparation and distribution of telephone directories; ii) agreements relating to the execution of the split-up; and iii) certain temporary agreements that will remain in force until Telmex
Internacional has developed its own administrative structure.

In these financial statements, all income and expenses of
Telmex Internacional are presented in the statement of income under the caption Income from discontinued operations, net of income tax. The amounts included in the 2007 financial statements prior to the split-up and their corresponding
notes were restructured to present only the revenues, costs and expenses of the continuing operations of TELMEX, excluding the amounts from the discontinued operations.

All the assets and liabilities of the split-up operations were transferred to Telmex Internacional at book value. The amount of
stockholders equity transferred to Telmex Internacional in the split-up represents the difference between the assets and liabilities that were transferred and was recognized as a reduction in the stockholders equity of TELMEX at the date
of the split-up.

A summary of the statement of income of the split-up operations for the twelve-month period ended
December 31, 2007 is as follows:

Statement of Income



|                                            |  |                            |            |  
|------------------------------------------- |  | -------------------------- | ---------- | -
|                                            |  | Year endedDecember 31,2007 |           
|Operating revenues                          |  | P.                         | 68,042,515 |  
|Operating costs and expenses                |  |                            | 57,545,898 |  
|                                            |  |                            |            |  
|Operating income                            |  |                            | 10,496,617 |  
|                                            | 
|Employee profit sharing                     |  |                            | 62,279     |  
|Other expenses, net                         |  |                            | 180,413    |  
|                                            | 
|Financing cost, net                         |  |                            | 297,876    |  
|Equity interest in net income of affiliates |  |                            | (689,075   | )
|                                            |  |                            |            |  
|Income before taxes on profits              |  |                            | 10,645,124 |  
|Provision for income tax                    |  |                            | 3,478,812  |  
|                                            |  |                            |            |  
|Net income                                  |  | P.                         | 7,166,312  |  
|                                            |  |                            |            |  
|                                            | 
|Distribution of net income:                 |  |                            |            |  
|Controlling interest                        |  | P.                         | 6,595,675  |  
|Noncontrolling interest                     |  |                            | 570,637    |  
|                                            |  |                            |            |  
|                                            |  | P.                         | 7,166,312  |  
|                                            |  |                            |            |  
|Earnings per share                          |  | P.                         | 0.34       |  
|                                            |  |                            |            |  



F-21



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



3. Accounts Receivable

An analysis of accounts receivable at December 31, 2009 and 2008 is as follows:



|                                |  |      |            |      |    |           
|------------------------------- |  | ---- | ---------- | ---- | -- | ----------
|                                |  | 2009 |            | 2008
|Customers                       |  | P.   | 19,112,062 |      | P. | 17,761,170
|Recoverable taxes               |  |      | 2,316,472  |      |    | 2,061,818 
|Related parties (Note 13)       |  |      | 894,535    |      |    | 975,362   
|Net settlement receivables      |  |      | 417,152    |      |    | 478,991   
|Other                           |  |      | 1,994,215  |      |    | 1,916,092 
|                                |  |      |            |      |    |           
|                                |  |      | 24,734,436 |      |    | 23,193,433
|Less:                           |  |      |            |      |    |           
|Allowance for doubtful accounts |  |      | 3,621,113  |      |    | 2,384,670 
|                                |  |      |            |      |    |           
|Total                           |  | P.   | 21,113,323 |      | P. | 20,808,763
|                                |  |      |            |      |    |           

An analysis of activity in the allowance for doubtful
accounts for the years ended December 31, 2009, 2008 and 2007 is as follows:



|                               |  |      |            |   |      |    |           |      |  |    |            |  
|------------------------------ |  | ---- | ---------- | - | ---- | -- | --------- | ---- |  | -- | ---------- | -
|                               |  | 2009 |            |   | 2008 |    |           | 2007 | 
|Beginning balance at January 1 |  | P.   | 2,384,670  |   |      | P. | 1,725,969 |      |  | P. | 1,808,773  |  
|Increase charged to expenses   |  |      | 2,437,296  |   |      |    | 1,551,988 |      |  |    | 1,349,248  |  
|Charges to allowance           |  |      | (1,200,853 | ) |      |    | (893,287  | )    |  |    | (1,373,875 | )
|Monetary effect                |  |      |            |   |      |    |           |      |  |    | (58,177    | )
|                               |  |      |            |   |      |    |           |      |  |    |            |  
|Ending balance at December 31  |  | P.   | 3,621,113  |   |      | P. | 2,384,670 |      |  | P. | 1,725,969  |  
|                               |  |      |            |   |      |    |           |      |  |    |            |  

4. Plant, Property and Equipment

a) An analysis of plant, property and equipment at December 31, 2009 and 2008 is as follows:



|                                                             |  |      |             |      |    |            
|------------------------------------------------------------ |  | ---- | ----------- | ---- | -- | -----------
|                                                             |  | 2009 |             | 2008
|Telephone plant and equipment                                |  | P.   | 315,548,924 |      | P. | 314,077,075
|Land and buildings                                           |  |      | 37,128,186  |      |    | 36,987,698 
|Computer equipment and other assets                          |  |      | 49,952,667  |      |    | 47,564,938 
|                                                             |  |      |             |      |    |            
|                                                             |  |      | 402,629,777 |      |    | 398,629,711
|Less:                                                        |  |      |             |      |    |            
|Accumulated depreciation                                     |  |      | 298,734,102 |      |    | 286,221,263
|                                                             |  |      |             |      |    |            
|Net                                                          |  |      | 103,895,675 |      |    | 112,408,448
|Construction in progress and advances to equipment suppliers |  |      | 409,074     |      |    | 456,929    
|                                                             |  |      |             |      |    |            
|Total                                                        |  | P.   | 104,304,749 |      | P. | 112,865,377
|                                                             |  |      |             |      |    |            

Construction in progress refers mainly to projects
related to telephone plant, which are scheduled to be completed and transferred to the plant mostly during the first half of 2010.

b) Depreciation of the telephone plant and equipment is calculated at annual rates ranging from 3.3% to 20.0%. The rest of the
Companys assets, excluding land, are depreciated at rates ranging from 10% to 33.3%. Depreciation charged to operating costs and expenses was P.17,828,006 in 2009, P.17,815,050 in 2008 and P.18,290,793 in 2007.



F-22



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



5. Licenses

An analysis of licenses cost and their amortization at December 31, 2009 and 2008 is as follows:



|                         |  |      |           |      |    |          
|------------------------ |  | ---- | --------- | ---- | -- | ---------
|                         |  | 2009 |           | 2008
|Investment               |  | P.   | 1,777,464 |      | P. | 1,763,296
|Less:                    |  |      |           |      |    |          
|Accumulated amortization |  |      | 859,123   |      |    | 738,269  
|                         |  |      |           |      |    |          
|Net                      |  | P.   | 918,341   |      | P. | 1,025,027
|                         |  |      |           |      |    |          

An analysis of the changes in 2009, 2008 and 2007 is
as follows:



|                         |  |                           |           |                                        |    |          |                            |  |    |          
|------------------------ |  | ------------------------- | --------- | -------------------------------------- | -- | -------- | -------------------------- |  | -- | ---------
|                         |  | Balance atJanuary 
1,2009 |           | Investment andamortization forthe year |    |          | Balance atDecember 31,2009
|Investment               |  | P.                        | 1,763,296 |                                        | P. | 14,168   |                            |  | P. | 1,777,464
|Accumulated amortization |  |                           | 738,269   |                                        |    | 120,854  |                            |  |    | 859,123  
|                         |  |                           |           |                                        |    |          |                            |  |    |          
|Net                      |  | P.                        | 1,025,027 |                                        | P. | (106,686 | )                          |  | P. | 918,341  
|                         |  |                           |           |                                        |    |          |                            |  |    |          



|                         |  |                          |           |                                        |    |                      |  |    |                            |   |  |    |          
|------------------------ |  | ------------------------ | --------- | -------------------------------------- | -- | -------------------- |  | -- | -------------------------- | - |  | -- | ---------
|                         |  | Balance atJanuary 1,2008 |           | Investment andamortizationfor the year |    | Effect oftranslation |  |    | Balance atDecember 31,2008
|Investment               |  | P.                       | 1,627,992 |                                        | P. | 135,271              |  | P. | 33                         |   |  | P. | 1,763,296
|Accumulated amortization |  |                          | 636,531   |                                        |    | 101,703              |  |    | 35                         |   |  |    | 738,269  
|                         |  |                          |           |                                        |    |                      |  |    |                            |   |  |    |          
|Net                      |  | P.                       | 991,461   |                                        | P. | 33,568               |  | P. | (2                         | ) |  | P. | 1,025,027
|                         |  |                          |           |                                        |    |                      |  |    |                            |   |  |    |          



|                         |  |                          |           |                                        |    |                      |  |    |                            |   |  |    |          
|------------------------ |  | ------------------------ | --------- | -------------------------------------- | -- | -------------------- |  | -- | -------------------------- | - |  | -- | ---------
|                         |  | Balance atJanuary 1,2007 |           | Investment andamortizationfor the year |    | Effect oftranslation |  |    | Balance atDecember 31,2007
|Investment               |  | P.                       | 1,534,141 |                                        | P. | 93,766               |  | P. | 85                         |   |  | P. | 1,627,992
|Accumulated amortization |  |                          | 544,970   |                                        |    | 91,446               |  |    | 115                        |   |  |    | 636,531  
|                         |  |                          |           |                                        |    |                      |  |    |                            |   |  |    |          
|Net                      |  | P.                       | 989,171   |                                        | P. | 2,320                |  | P. | (30                        | ) |  | P. | 991,461  
|                         |  |                          |           |                                        |    |                      |  |    |                            |   |  |    |          

The amortization expense of other deferred charges was
P.1,908, P.16,454 and P.43,046 for the years ended December 31 2009, 2008 and 2007, respectively.



F-23



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



6. Equity Investments

An analysis of equity investments in affiliates and other companies at December 31, 2009 and 2008, and a brief description of each,
is as follows:



|                             |  |               |  |             
|---------------------------- |  | ------------- |  | ------------
|                             |  | 2009          |  | 2008        
|Equity investments in:       |  |               |  |             
|Grupo Telvista, S.A. de C.V. |  | P.    907,973 |  | P.   726,342
|2Wire, Inc.                  |  | 301,035       |  | 276,000     
|Other affiliates             |  | 566,372       |  | 491,791     
|                             |  |               |  |             
|                             |  | P.  1,775,380 |  | P. 1,494,133
|                             |  |               |  |             

Investments in affiliates

Grupo Telvista

TELMEX holds 45% of the capital stock of Grupo Telvista, S.A. de C.V. (Grupo Telvista) which, through its subsidiaries, provides
telemarketing services in Mexico and the U.S.A. For the year ended December 31, 2009, TELMEXs equity interest in the net income of Grupo Telvista gave rise to a credit to results of operations of P.195,498 (P.154,795 in 2008 and P.57,474
in 2007) and a charge to stockholders equity of P.13,867 (credit of P.69,128 in 2008).

2Wire

TELMEX holds 13% of the capital stock of 2Wire, Inc. (2Wire), which is a broadband platform service provider for homes and businesses
located in the U.S.A. For the year ended December 31, 2009, TELMEXs equity interest in the results of 2Wire gave rise to a credit to results of operations of P.25,035 (charge of P.266,568 in 2008 and P.78,726 in 2007).

Other affiliates

For
the year ended December 31, 2009, equity interest in other affiliates represented a net credit to results of operations of P.34,147 (net credit of P.49,660 in 2008 and P.38,497 in 2007) and a charge to stockholders equity of P.4,427
(credits of P.37,718 in 2008 and P.1,703 in 2007).



F-24



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



7. Long-term Debt

Long-term debt consists of the following:



|                                                           |  |                                              |   |  |                |   |                         |              |  |      |             |      |    |            
|---------------------------------------------------------- |  | -------------------------------------------- | - |  | -------------- | - | ----------------------- | ------------ |  | ---- | ----------- | ---- | -- | -----------
|                                                           |  | Weighted-averageinterest rate atDecember 31, |   |  | Maturitiesfrom |   | Balance at December 31,
|                                                           |  | 2009                                         |   |  | 2008           |   |                         | 2010 through |  | 2009 |             | 2008
|Debt denominated in foreign currency:                      |  |                                              |   |  |                |   |                         |              |  |      |             |      |    |            
|Senior notes                                               |  | 5.2                                          | % |  | 5.1            | % |                         | 2019         |  | P.   | 29,361,181  |      | P. | 23,670,364 
|Bank loans                                                 |  | 0.7                                          | % |  | 1.8            | % |                         | 2018         |  |      | 40,074,814  |      |    | 61,013,202 
|Other                                                      |  | 2.0                                          | % |  | 2.0            | % |                         | 2022         |  |      | 238,353     |      |    | 271,881    
|                                                           |  |                                              |   |  |                |   |                         |              |  |      |             |      |    |            
|Total debt denominated in foreign currency                 |  |                                              |   |  |                |   |                         |              |  |      | 69,674,348  |      |    | 84,955,447 
|                                                           |  |                                              |   |  |                |   |                         |              |  |      |             |      |    |            
|Debt denominated in Mexican pesos:                         |  |                                              |   |  |                |   |                         |              |  |      |             |      |    |            
|Senior notes                                               |  | 8.8                                          | % |  | 8.8            | % |                         | 2016         |  |      | 4,500,000   |      |    | 4,500,000  
|Domestic senior notes                                      |  | 6.3                                          | % |  | 8.8            | % |                         | 2037         |  |      | 25,900,000  |      |    | 14,800,000 
|Bank loans                                                 |  | 4.8                                          | % |  | 8.6            | % |                         | 2010         |  |      | 2,800,000   |      |    | 2,800,000  
|                                                           |  |                                              |   |  |                |   |                         |              |  |      |             |      |    |            
|Total debt denominated in Mexican pesos                    |  |                                              |   |  |                |   |                         |              |  |      | 33,200,000  |      |    | 22,100,000 
|                                                           |  |                                              |   |  |                |   |                         |              |  |      |             |      |    |            
|Total debt                                                 |  |                                              |   |  |                |   |                         |              |  |      | 102,874,348 |      |    | 107,055,447
|Less short-term debt and current portion of long-term debt |  |                                              |   |  |                |   |                         |              |  |      | 19,768,894  |      |    | 22,883,092 
|                                                           |  |                                              |   |  |                |   |                         |              |  |      |             |      |    |            
|Long-term debt                                             |  |                                              |   |  |                |   |                         |              |  | P.   | 83,105,454  |      | P. | 84,172,355 
|                                                           |  |                                              |   |  |                |   |                         |              |  |      |             |      |    |            

The above-mentioned rates are subject to market
variances and do not include the effect of the Companys agreement to reimburse certain lenders for Mexican withholding taxes. The Companys weighted-average cost of debt at December 31, 2009 (including interest expense, interest rate
swaps, fees and withholding taxes, and excluding exchange rate variances) was approximately 5.9% (6.2% in 2008).

Short-term
debt and current portion of long-term debt consist of the following:



|                                   |  |                         |            |      |    |           
|---------------------------------- |  | ----------------------- | ---------- | ---- | -- | ----------
|                                   |  | Balance at December 31,
|                                   |  | 2009                    |            | 2008
|Short-term debt:                   |  |                         |            |      |    |           
|Domestic senior notes              |  |                         |            |      | P. | 2,500,000 
|                                   |  |                         |            |      |    |           
|Current portion of long-term debt: |  |                         |            |      |    |           
|Senior notes                       |  | P.                      | 12,405,765 |      |    |           
|Domestic senior notes              |  |                         |            |      |    | 400,000   
|Bank loans                         |  |                         | 7,363,129  |      |    | 19,983,092
|                                   |  |                         |            |      |    |           
|                                   |  |                         | 19,768,894 |      |    | 20,383,092
|                                   |  |                         |            |      |    |           
|Total                              |  | P.                      | 19,768,894 |      | P. | 22,883,092
|                                   |  |                         |            |      |    |           



F-25



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



Senior notes:

a) In November 2008, TELMEX repaid a bond of P.13,151,147 (U.S.$ 1,000 million, nominal amount) that was issued in November 2003 and
bore an annual interest of 4.5%, payable semiannually. For the year ended December 31, 2008, interest expense on the bond was P.442,078 (P.524,959 in 2007).

b) In the first quarter of 2005, TELMEX issued bonds in the amount of P.21,892,381 (U.S.$ 1,750 million) divided into two issuances of
P.11,870,243 and P.10,022,138 (U.S.$ 950 million and U.S.$ 800 million, respectively), the first matures in 2010 and bears an annual interest of 4.75%, and the second matures in 2015 and bears an annual interest of 5.5%. Interest is
payable semiannually. For the year ended December 31, 2009, interest expense on these bonds was P.1,274,163 (P.1,025,848 in 2008 and P.1,046,639 in 2007).

On January 27, 2010, TELMEX repaid the first issuance of the bonds issued in 2005 for P.12,294,140 (U.S.$950 million).

c) On January 26, 2006, TELMEX issued a bond denominated in Mexican pesos abroad in the amount of P.4,500,000 (nominal amount),
which matures in 2016 and bears an annual interest of 8.75%. For the year ended December 31, 2009, interest expense on the bond was P.407,708 (P.409,655 in 2008 and P.414,940 in 2007).

d) On November 12, 2009, TELMEX issued a bond in the amount of P.6,615,400 (U.S.$500 million, nominal amount), which matures in 2019
and bears an annual interest of 5.5%, payable semiannually. For the year ended December 31, 2009, interest expense on the bond was P.49,823.

Syndicated loan:

In 2004, the Company entered into a syndicated loan, which was restructured in 2005 and 2006 to improve the credit conditions and increase
the total loan amount to P.34,531,521 (U.S.$ 3,000 million), split into three tranches. The first tranche is for P.14,963,659 (U.S.$ 1,300 million) and has a three-year maturity. The second tranche is for P.11,510,507 (U.S.$ 1,000 million) and has a
five-year maturity. The third tranche is for P.8,057,355 (U.S.$ 700 million) with a seven-year maturity. In August 2009, TELMEX repaid the total amount of the first tranche, for which the original maturity was scheduled for October 2009. The balance
of these loans at December 31, 2009 is included under bank loans (debt denominated in foreign currency).

On
June 30, 2006, TELMEX entered into a syndicated loan agreement in the amount of P.5,986,554 (U.S.$ 500 million), split into two tranches in equal amounts of P.2,993,277 (U.S.$ 250 million), with maturities of four years and six years,
respectively.



F-26



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



Substantially all of the bank loans bear interest equal to the London Inter-Bank Offered
Rate (LIBOR) plus a specified margin. For the year ended December 31, 2009, interest expense on these loans was P.556,305 (P.1,425,514 in 2008 and P.2,341,463 in 2007).

Domestic senior notes (Certificados Bursátiles):

On December 19, 2007, TELMEX obtained authorization from the National Banking and Securities Commission (Comisión Nacional
Bancaria y de Valores or CNBV) for a program to issue long-term domestic senior notes in a total amount of P.10,000,000 (nominal amount). In April 2008, domestic senior notes in the amount of P.1,600,000 were issued. In July 2009, TELMEX
placed domestic senior notes in two issuances for a total amount of P.8,000,000.

On September 18, 2009, TELMEX obtained
authorization from the CNBV for a dual program to issue short and long-term domestic senior notes in a total amount of P.15,000,000 (nominal amount). In November 2009, TELMEX placed long-term domestic senior notes in two issuances for a total amount
of P.6,000,000.

Some domestic senior notes bear fixed-rate interest, while others bear interest equal to a specified margin
in respect of the Mexican interbank equilibrium interest rate (TIIE). For the year ended December 31, 2009, interest expense on long-term domestic senior notes was P.1,194,213 (P.1,004,242 in 2008 and P.1,011,961 in 2007).

Restrictions:

The above-mentioned debt is subject to certain restrictions with respect to maintaining certain financial ratios, as well as restrictions
on selling a significant portion of groups of assets, among others. At December 31, 2009, the Company was in compliance with all these requirements.

A portion of the debt is also subject to early maturity or repurchase at the option of the holders in the event of a change in control of
the Company, as so defined in each instrument. The definition of change in control varies from instrument to instrument; however, no change in control shall be considered to have occurred as long as Carso Global Telecom or its current stockholders
continue to hold the majority of the Companys voting shares.

Foreign currency debt:

An analysis of the foreign currency denominated debt at December 31, 2009 is as follows:



|             |  |                                |  |                                              |  |                           
|------------ |  | ------------------------------ |  | -------------------------------------------- |  | --------------------------
|             |  | Foreign currency(in thousands) |  | Exchange rate atDecember 31, 
2009(in units) |  | Equivalent inMexican pesos
|U.S. dollar  |  | 5,103,362                      |  | P.  13.0587                                  |  | P.  66,643,271            
|Japanese yen |  | 19,891,200                     |  | 0.1404                                       |  | 2,792,724                 
|Euro         |  | 12,722                         |  | 18.7353                                      |  | 238,353                   
|             |  |                                |  |                                              |  |                           
|Total        |  |                                |  |                                              |  | P.  69,674,348            
|             |  |                                |  |                                              |  |                           



F-27



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



Long-term debt maturities at December 31, 2009 are as follows:



|                    |  |               
|------------------- |  | --------------
|Years               |  | Amount        
|2011                |  | P.  18,857,154
|2012                |  | 12,343,560    
|2013                |  | 11,560,972    
|2014                |  | 8,164,639     
|2015 and thereafter |  | 32,179,129    
|                    |  |               
|Total               |  | P.  83,105,454
|                    |  |               

Hedges:

At December 31, 2009 and 2008, the financial instruments held by the Company are as follows:



|                               |  |               |        |                             |               |   |          |       |                             |  |            |  
|------------------------------ |  | ------------- | ------ | --------------------------- | ------------- | - | -------- | ----- | --------------------------- |  | ---------- | -
|                               |  | 2009          |        |                             | 2008          |  
|                               |  | Notional      |        | Fair valueasset (liability) |               |   | Notional |       | Fair valueasset (liability) | 
|Financial instrument           |  | (in millions) |        |                             | (in millions) |  
|Cross currency swaps           |  | U.S.$         | 4,178  |                             | P.  12,226    |   |          | U.S.$ | 5,451                       |  | P.  20,913 |  
|Forwards dollar-peso (Note 8)  |  | U.S.$         | 245    |                             | (120          | ) |          |       |                             |  |            |  
|Interest-rate swaps in pesos   |  | P.            | 23,752 |                             | (729          | ) |          | P.    | 23,752                      |  | (369       | )
|Interest-rate swaps in dollars |  |               |        |                             |               |   |          | U.S.$ | 100                         |  | (30        | )
|Cross currency coupon swaps    |  | U.S.$         | 50     |                             |               |   |          | U.S.$ | 350                         |  | (95        | )
|                               |  |               |        |                             |               |   |          |       |                             |  |            |  
|Total                          |  |               |        |                             | P.  11,377    |   |          |       |                             |  | P.  20,419 |  
|                               |  |               |        |                             |               |   |          |       |                             |  |            |  

To reduce the risks related to fluctuations in exchange rates and interest rates, the Company uses
derivative financial instruments as hedges associated with its debt. The derivative financial instruments principally used by the Company are as follows:

Cross currency swaps

At
December 31, 2009, the Company has cross currency swaps that hedge foreign currency denominated liabilities of P.54,557,723 (U.S.$4,178 million) (P.73,799,967 or U.S.$5,451 million in 2008). These cross currency swaps hedge the exchange
rate and interest rate risks associated with bonds that mature in 2010 and 2015 in the total amount of U.S.$1,495 million and bank loans that mature from 2010 to 2018 in the total amount of U.S.$2,683 million. These agreements allow TELMEX to
fix the parity of such debt at a weighted-average exchange rate of P.10.5892 per U.S. dollar, as well as establish a fixed interest rate of 7.52% for the bonds maturing in 2010 and 8.57% for the bonds maturing in 2015, and a floating rate equal
to the average 28-day TIIE, less a specified margin for the bank loans.

The change in the fair value of these cross currency
swaps recognized for the year ended December 31, 2009 was P.5,682,263 (P.16,281,874 in 2008 and P.93,087 in 2007).



F-28



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



Forwards dollar-peso

At December 31, 2009, the Company had short-term foreign currency forwards with a notional amount of P.3,199,382 (U.S.$245 million).
At December 31, 2008, the Company had no forward contracts outstanding. For the year ended December 31, 2009, the Company recognized a net charge of P.520,733 (charge of P.1,690,380 in 2008 and P.578,926 in 2007) as part of exchange (gain)
loss, net due to changes in the fair value of these forwards.

Interest-rate swaps

At December 31, 2009 and 2008, the Company had interest-rate swaps for an aggregate notional amount of P.23,752,125 to hedge the
floating rate risk of its debt in Mexican pesos, fixing such rate at an average of 8.19%. At December 31, 2009, the Company had no interest rate swaps in U.S. dollars. At December 31, 2008, the Company had interest rate swaps in U.S.
dollars for an aggregate notional amount of P.1,353,830 (U.S.$100 million), paying a fixed rate of 4.47% and receiving the three-month LIBOR rate, to cover U.S. dollar denominated debt with a floating interest rate that matured in October 2009.

At December 31, 2009, the Company had cross currency coupon swaps that cover interest payments of P.652,935 (U.S.$50
million) (P.4,738,405, or U.S.$350 million for 2008).

For the year ended December 31, 2009, the Company recognized
a net expense for these swaps in interest expense of P.2,056,839 (net expense of P.2,439,778 in 2008 and net credit of P.90,712 in 2007). Additionally, for the year ended December 31, 2007, the Company recognized an expense of P.267,047, due to
the replacement of interest rate swap contracts denominated in Mexican pesos.

The Companys derivative financial
instruments are acquired in over-the-counter markets, mostly from the same financial institutions with which it has contracted its debt.

Several of the Companys agreements under which it has negotiated its derivative financial instruments require margin calls when the
fair value of the derivatives exceeds the Companys existing credit lines of P.3,787,023 (U.S.$290 million). At December 31, 2009, 65% of the Companys outstanding derivatives correspond to these types of agreements; however, no
margin calls have been required at such date.



F-29



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



8. Accounts Payable and Accrued Liabilities

An analysis of accounts payable and accrued liabilities is as follows:



|                                                |  |              |            |      |    |           
|----------------------------------------------- |  | ------------ | ---------- | ---- | -- | ----------
|                                                |  | December 31,
|                                                |  | 2009         |            | 2008
|Suppliers                                       |  | P.           | 2,100,036  |      | P. | 4,285,331 
|Employee benefits                               |  |              | 2,804,324  |      |    | 3,012,967 
|Sundry creditors                                |  |              | 1,838,250  |      |    | 1,439,394 
|Related parties (Note 13)                       |  |              | 1,602,128  |      |    | 1,993,079 
|Vacation accrual                                |  |              | 1,284,578  |      |    | 1,287,747 
|Accrual for other contractual employee benefits |  |              | 1,230,645  |      |    | 1,310,570 
|Dividend pending payment                        |  |              | 1,106,119  |      |    | 899,541   
|Interest payable                                |  |              | 936,550    |      |    | 1,187,525 
|Derivative financial instruments (Note 7)       |  |              | 119,719    |      |    |           
|Other                                           |  |              | 1,181,839  |      |    | 501,952   
|                                                |  |              |            |      |    |           
|                                                |  | P.           | 14,204,188 |      | P. | 15,918,106
|                                                |  |              |            |      |    |           

The activity in the main accruals for the years ended
December 31, 2009, 2008 and 2007 is as follows:

Vacation accrual:



|                               |  |      |            |   |      |    |            |      |  |    |            |  
|------------------------------ |  | ---- | ---------- | - | ---- | -- | ---------- | ---- |  | -- | ---------- | -
|                               |  | 2009 |            |   | 2008 |    |            | 2007 | 
|Beginning balance at January 1 |  | P.   | 1,287,747  |   |      | P. | 1,256,783  |      |  | P. | 1,234,716  |  
|Increase charged to expenses   |  |      | 1,619,979  |   |      |    | 1,656,930  |      |  |    | 2,690,063  |  
|Payments                       |  |      | (1,623,148 | ) |      |    | (1,625,966 | )    |  |    | (2,621,810 | )
|Monetary effect                |  |      |            |   |      |    |            |      |  |    | (46,186    | )
|                               |  |      |            |   |      |    |            |      |  |    |            |  
|Ending balance at December 31  |  | P.   | 1,284,578  |   |      | P. | 1,287,747  |      |  | P. | 1,256,783  |  
|                               |  |      |            |   |      |    |            |      |  |    |            |  

Accrual for other contractual employee benefits:



|                               |  |      |            |   |      |    |            |      |  |    |            |  
|------------------------------ |  | ---- | ---------- | - | ---- | -- | ---------- | ---- |  | -- | ---------- | -
|                               |  | 2009 |            |   | 2008 |    |            | 2007 | 
|Beginning balance at January 1 |  | P.   | 1,310,570  |   |      | P. | 1,151,700  |      |  | P. | 1,131,334  |  
|Increase charged to expenses   |  |      | 3,725,372  |   |      |    | 3,588,400  |      |  |    | 3,434,180  |  
|Payments                       |  |      | (3,805,297 | ) |      |    | (3,429,530 | )    |  |    | (3,371,492 | )
|Monetary effect                |  |      |            |   |      |    |            |      |  |    | (42,322    | )
|                               |  |      |            |   |      |    |            |      |  |    |            |  
|Ending balance at December 31  |  | P.   | 1,230,645  |   |      | P. | 1,310,570  |      |  | P. | 1,151,700  |  
|                               |  |      |            |   |      |    |            |      |  |    |            |  



F-30



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



9. Deferred Credits

Deferred credits consist of the following at December 31, 2009 and 2008:



|                        |  |      |           |      |    |          
|----------------------- |  | ---- | --------- | ---- | -- | ---------
|                        |  | 2009 |           | 2008
|Short-term:             |  |      |           |      |    |          
|Advance billings        |  | P.   | 1,009,603 |      | P. | 1,044,877
|Advances from customers |  |      | 94,572    |      |    | 735,238  
|                        |  |      |           |      |    |          
|                        |  |      | 1,104,175 |      |    | 1,780,115
|Long-term:              |  |      |           |      |    |          
|Advance billings        |  |      | 466,696   |      |    | 411,106  
|                        |  |      |           |      |    |          
|Total                   |  | P.   | 1,570,871 |      | P. | 2,191,221
|                        |  |      |           |      |    |          

10. Labor Obligations



|a) | Pensions plans and seniority premiums
|-- | -------------------------------------

The majority of the Companys employees are covered under defined benefits pension plans and seniority premiums. Pension benefits and
seniority premiums are determined on the basis of compensation of employees in their final year of employment, their seniority, and their age at the time of retirement.

TELMEX has set up an irrevocable trust fund to finance these labor obligations and has adopted the policy of making annual contributions
to such fund, which are deductible for Mexican corporate income tax and employee profit sharing purposes. The most important information related to labor obligations is as follows:

Analysis of net periodic cost:



|                                                      |  |      |             |   |      |    |             |      |  |    |            |  
|----------------------------------------------------- |  | ---- | ----------- | - | ---- | -- | ----------- | ---- |  | -- | ---------- | -
|                                                      |  | 2009 |             |   | 2008 |    |             | 2007 | 
|Labor cost                                            |  | P.   | 4,431,755   |   |      | P. | 4,333,194   |      |  | P. | 3,672,437  |  
|Finance cost on defined benefit obligation            |  |      | 15,861,542  |   |      |    | 14,344,072  |      |  |    | 9,013,577  |  
|Projected return on plan assets                       |  |      | (17,524,795 | ) |      |    | (15,571,525 | )    |  |    | (9,585,397 | )
|Amortization of past services                         |  |      | 69,526      |   |      |    | 1,344,971   |      |  |    | 1,339,448  |  
|Amortization of variances in actuarial
assumptions(1) |  |      | 2,183,763   |   |      |    | 201,412     |      |  |    | 55,701     |  
|                                                      |  |      |             |   |      |    |             |      |  |    |            |  
|Net periodic cost                                     |  | P.   | 5,021,791   |   |      | P. | 4,652,124   |      |  | P. | 4,495,766  |  
|                                                      |  |      |             |   |      |    |             |      |  |    |            |  



|(1) | Includes P. 99,125 in 2008 for the amortization of the initial balance of the actuarial loss, which is presented in the statement of income under the caption
Other expenses, net, in conformity with Mexican FRS D-3.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-31



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



Analysis of the defined benefit obligation:



|                                                              |  |      |             |      |    |            
|------------------------------------------------------------- |  | ---- | ----------- | ---- | -- | -----------
|                                                              |  | 2009 |             | 2008
|Present value of labor obligations:                           |  |      |             |      |    |            
|Vested benefit obligation                                     |  | P.   | 105,002,007 |      | P. | 93,175,620 
|Non-vested benefit obligation and effect of salary projection |  |      | 92,330,826  |      |    | 83,007,215 
|                                                              |  |      |             |      |    |            
|Defined benefit obligation at end of year                     |  | P.   | 197,332,833 |      | P. | 176,182,835
|                                                              |  |      |             |      |    |            

Analysis of changes in the defined benefit obligation:



|                                                |  |      |             |   |      |    |             |  
|----------------------------------------------- |  | ---- | ----------- | - | ---- | -- | ----------- | -
|                                                |  | 2009 |             |   | 2008 |   
|Defined benefit obligation at beginning of year |  | P.   | 176,182,835 |   |      | P. | 159,484,041 |  
|Labor cost                                      |  |      | 4,431,755   |   |      |    | 4,333,194   |  
|Finance cost on defined benefit obligation      |  |      | 15,861,542  |   |      |    | 14,344,072  |  
|Actuarial loss                                  |  |      | 10,200,996  |   |      |    | 6,662,976   |  
|Benefits paid to employees                      |  |      | (215,298    | ) |      |    | (194,437    | )
|Payments from trust fund                        |  |      | (9,128,997  | ) |      |    | (8,447,011  | )
|                                                |  |      |             |   |      |    |             |  
|Defined benefit obligation at end of year       |  | P.   | 197,332,833 |   |      | P. | 176,182,835 |  
|                                                |  |      |             |   |      |    |             |  

Analysis of changes in plan assets:



|                                      |  |      |             |   |      |    |             |  
|------------------------------------- |  | ---- | ----------- | - | ---- | -- | ----------- | -
|                                      |  | 2009 |             |   | 2008 |   
|Established fund at beginning of year |  | P.   | 145,475,893 |   |      | P. | 156,979,097 |  
|Projected return on plan assets       |  |      | 17,524,795  |   |      |    | 15,571,525  |  
|Actuarial gain (loss)                 |  |      | 4,371,737   |   |      |    | (22,949,640 | )
|Contributions to trust fund           |  |      | 5,751,947   |   |      |    | 4,321,922   |  
|Payments from trust fund              |  |      | (9,128,997  | ) |      |    | (8,447,011  | )
|                                      |  |      |             |   |      |    |             |  
|Established fund at end of year       |  | P.   | 163,995,375 |   |      | P. | 145,475,893 |  
|                                      |  |      |             |   |      |    |             |  

Analysis of the net projected asset:



|                                                            |  |      |             |   |      |    |             |  
|----------------------------------------------------------- |  | ---- | ----------- | - | ---- | -- | ----------- | -
|                                                            |  | 2009 |             |   | 2008 |   
|Insufficiency of plan assets for defined benefit obligation |  | P.   | (33,337,458 | ) |      | P. | (30,706,942 | )
|Unamortized actuarial loss                                  |  |      | 49,515,770  |   |      |    | 45,870,274  |  
|Transition liability                                        |  |      | 121,815     |   |      |    | 156,536     |  
|Past service cost and changes to plan                       |  |      | 130,730     |   |      |    | 165,534     |  
|                                                            |  |      |             |   |      |    |             |  
|Net projected asset                                         |  | P.   | 16,430,857  |   |      | P. | 15,485,402  |  
|                                                            |  |      |             |   |      |    |             |  

In 2009, the net actuarial loss of P. 5,829,259 resulted from (i) the effect of a favorable actuarial
variance of P. 4,371,737 due to the behavior of the plan assets resulting from an increase in the value of investments in shares of companies and in fixed-yield investments due to variances in reference rates, and (ii) an actuarial loss of P.
10,200,996, attributable principally to the number of employees who retired was greater than the number estimated at the beginning of the year, and the salary and pension benefits of the retired employees were higher than estimated at the beginning
of the year.



F-32



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



In 2008, the actuarial loss of P. 29,612,616 resulted from (i) the effect of an
unfavorable actuarial variance of P. 22,949,640 due to the behavior of the plan assets resulting from a decrease in the value of investments in shares of companies and in fixed-yield investments due to variances in reference rates, and (ii) an
actuarial loss of P. 6,662,976, attributable principally to the number of employees who retired was greater than the number estimated at the beginning of the year, the Company updating its mortality table, and the mortality rate of retired employees
was less than the rate estimated at the beginning of the year.

At December 31, 2009, 2008 and 2007, the rates used in
the actuarial study are as follows:



|                               |  |                   |  |                   |  |               
|------------------------------ |  | ----------------- |  | ----------------- |  | --------------
|                               |  | 2009Nominalrates% |  | 2008Nominalrates% |  | 2007Realrates%
|Discount of labor obligations: |  |                   |  |                   |  |               
|Long-term average              |  | 9.20              |  | 9.20              |  | 5.51          
|Increase in salaries:          |  |                   |  |                   |  |               
|Long-term average              |  | 4.50              |  | 4.50              |  | 0.97          

Based on the
provisions of Mexican FRS D-3, as of January 1, 2008, the actual financial valuation rates were replaced with nominal rates. This change had no effect on the calculation of labor obligations, since these rates were consistent with the rates
used in the actuarial valuation at December 31, 2007 (i.e., the long-term inflation rate, discount rate and salary increase rate were the same as those selected for 2007).

At December 31, 2009 and 2008, 45.9% of plan assets were invested in fixed-yield securities and the remaining 54.1% in
variable-yield securities.



|b) | Termination benefits
|-- | --------------------

The
most important information related to the liability for termination benefits is as follows:

Analysis of net periodic cost:



|                                            |  |            |  |              |  |            
|------------------------------------------- |  | ---------- |  | ------------ |  | -----------
|                                            |  | 2009       |  | 2008         |  | 2007       
|Labor cost                                  |  | P.  12,630 |  | P.  15,188   |  | P.  13,371 
|Finance cost on defined benefit obligation  |  | 12,498     |  | 14,599       |  | 9,623      
|Amortization of variances in
assumptions(1) |  | (9,867)    |  | (87,699)     |  | (31,680)   
|                                            |  |            |  |              |  |            
|Net periodic cost (gain)                    |  | P.  15,261 |  | P.  (57,912) |  | P.  (8,686)
|                                            |  |            |  |              |  |            



|(1) | Includes P. 36,206 in 2008 for the amortization of the initial balance of the actuarial gain, which is presented in the statement of income under the caption
Other expenses, net, in conformity with Mexican FRS D-3.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-33



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



The activity in the termination pay liability is as follows:



|                             |  |             |   |  |             |  
|---------------------------- |  | ----------- | - |  | ----------- | -
|                             |  | 2009        |   |  | 2008        |  
|Balance at beginning of year |  | P.  147,634 |   |  | P.  208,406 |  
|Net periodic cost (gain)     |  | 15,261      |   |  | (57,912     | )
|Payments                     |  | (3,518      | ) |  | (2,860      | )
|                             |  |             |   |  |             |  
|Balance at end of year       |  | P.  159,377 |   |  | P.  147,634 |  
|                             |  |             |   |  |             |  



|c) | Employee profit sharing
|-- | -----------------------

TELMEX is obligated to pay profit sharing to its employees in Mexico, in addition to their contractual compensation and benefits. For the
years ended December 31, 2009 and 2008, employee profit sharing was based on 10% of the Companys taxable income, excluding certain inflation effects and the re-expression of depreciation expense.

The cumulative effect of deferred employee profit sharing at the beginning of 2008 resulting from the adoption of Mexican FRS D-3 was
P.5,820,412 and was charged to stockholders equity. The deferred employee profit sharing gave rise to a credit to stockholders equity for deferred income tax of P.1,630,277. Accordingly, the net effect of the adoption of Mexican FRS D-3
was a charge to stockholders equity of P.4,190,135. The 2007 financial statements remained unchanged by the new standard. For the year ended December 31, 2009, the deferred employee profit sharing provision represented a credit to results
of operations of P. 607,676 (P.1,400,171 in 2008), which was recognized in the statement of income under the caption Other expenses, net.

At December 31, 2009 and 2008, the Company recognized deferred employee profit sharing on the following temporary items:



|                                                    |  |      |            |   |      |    |            |  
|--------------------------------------------------- |  | ---- | ---------- | - | ---- | -- | ---------- | -
|                                                    |  | 2009 |            |   | 2008 |   
|Deferred employee profit sharing assets:            |  |      |            |   |      |    |            |  
|Allowance for bad debts and slow-moving inventories |  | P.   | 310,287    |   |      | P. | 210,874    |  
|Advance billings                                    |  |      | 147,750    |   |      |    | 184,219    |  
|Accrued liabilities                                 |  |      | 515,522    |   |      |    | 372,944    |  
|Exchange loss on debt                               |  |      | 347,123    |   |      |    | 409,247    |  
|                                                    |  |      |            |   |      |    |            |  
|                                                    |  |      | 1,320,682  |   |      |    | 1,177,284  |  
|                                                    |  |      |            |   |      |    |            |  
|Deferred employee profit sharing liabilities:       |  |      |            |   |      |    |            |  
|Fixed assets                                        |  |      | (3,437,606 | ) |      |    | (3,842,874 | )
|Inventories                                         |  |      | (4,881     | ) |      |    | (9,139     | )
|Licenses                                            |  |      | (44,852    | ) |      |    | (49,900    | )
|Labor obligations                                   |  |      | (1,609,552 | ) |      |    | (1,538,794 | )
|Prepaid expenses                                    |  |      | (86,043    | ) |      |    | (167,311   | )
|Derivative financial instruments                    |  |      | (91,884    | ) |      |    | (419,172   | )
|                                                    |  |      |            |   |      |    |            |  
|                                                    |  |      | (5,274,818 | ) |      |    | (6,027,190 | )
|                                                    |  |      |            |   |      |    |            |  
|Deferred employee profit sharing liability, net     |  | P.   | (3,954,136 | ) |      | P. | (4,849,906 | )
|                                                    |  |      |            |   |      |    |            |  



F-34



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



11. Foreign Currency Position

At December 31, 2009 and 2008, the Company had the following foreign currency denominated assets and liabilities:



|             |  |                              |  |                                  |  |        |  |                                 
|------------ |  | ---------------------------- |  | -------------------------------- |  | ------ |  | --------------------------------
|             |  | Foreign currency in millions
|             |  | 2009                         |  | Exchange rate atDecember 31,2009 |  | 2008   |  | Exchange rate atDecember 31,2008
|Assets:      |  |                              |  |                                  |  |        |  |                                 
|U.S. dollar  |  | 669                          |  | P.  13.06                        |  | 183    |  | P.  13.54                       
|Liabilities: |  |                              |  |                                  |  |        |  |                                 
|U.S. dollar  |  | 5,205                        |  | 13.06                            |  | 6,235  |  | 13.54                           
|Japanese yen |  | 19,891                       |  | 0.14                             |  | 19,891 |  | 0.15                            
|Euro         |  | 13                           |  | 18.74                            |  | 14     |  | 19.14                           

At March 23,
2010, the applicable exchange rates are as follows:



|                 |  |              
|---------------- |  | -------------
|Foreign currency |  | Exchange rate
|U.S. dollar      |  | P.  12.58    
|Japanese yen     |  | 0.14         
|Euro             |  | 17.02        

12. Commitments and Contingencies

Commitments

At December 31, 2009, TELMEX has non-cancelable commitments for the purchase of equipment of P.3,372,975 (P.4,520,320 in 2008), which
include P.977,637 (P.798,792 in 2008) for non-cancelable commitments with related parties. Payments made under the related purchase agreements aggregated to P.2,858,996 in 2009 (P.3,173,710 in 2008 and P.4,169,109 in 2007).

Contingencies

a) In
November 2005, COFETEL issued the guidelines for making changes to local service areas. In April 2006, Teléfonos de México, S.A.B. de C.V. contested the guidelines to modify local service areas via an administrative proceeding that was
discarded by the Communications Ministry, and at present it is being litigated before the Third Metropolitan Regional Federal Court of Justice for Tax and Administrative Matters.

In the interim, pursuant to the aforementioned guidelines COFETEL has ordered the consolidation of a package of 70 local service areas
and a package of 2 local service areas in March 2007, another package of 125 local service areas in September 2008 and finally the consolidation of 1 local service area in December 2008, each with its own schedule. Teléfonos de México,
S.A.B. de C.V. challenged COFETELs orders through applicable legal procedures.

In November 2009, a resolution of a
Federal Court nullified the consolidation of local service areas ordered by COFETEL.



F-35



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



If the guidelines resolution becomes effective, COFETEL may start again procedures to
consolidate local service areas.

If such consolidation is implemented, it may have an adverse impact on the Companys
long distance revenues.

The Company believes, based on the advice of external lawyers who are handling this matter, that
although the Companys arguments are well-founded, there is no certainty that Teléfonos de México, S.A.B. de C.V. will obtain favorable results.

b) Between November 2007 and February 2008, the Federal Commission of Economic Competition (COFECO) initiated seven inquiries to
determine whether Teléfonos de México, S.A.B. de C.V. has substantial control or engages in monopolistic practices in certain markets.

Preliminary resolutions in four of these inquiries have been issued, in which COFECO has determined that Teléfonos de
México, S.A.B. de C.V. has substantial control in the following markets: (i) termination of public switched traffic; (ii) origination of public switched traffic; (iii) local transit services; and (iv) leasing of lines or
circuits. Teléfonos de México, S.A.B. de C.V. expressed its disagreement with the proceedings, contested the preliminary resolutions and submitted evidence against them.

In the four inquiries indicated above, COFECO has already confirmed its resolutions, and Teléfonos de México, S.A.B. de
C.V. filed the corresponding recourses, which COFECO denied. Against these resolutions, Teléfonos de México, S.A.B. de C.V. filed for constitutional protection (amparo) which is still pending. If these resolutions prevail,
COFETEL could impose specific obligations on tariffs, quality of service and information in these markets.

In the three
remaining proceedings, COFECO is investigating to determine if Teléfonos de México, S.A.B. de C.V. engaged in monopolistic practices in the following markets: (i) broad-band Internet market for domestic residential customers;
(ii) fixed-network interconnection services markets; and (iii) inter-urban transport for switched long distance traffic services market. These proceedings are currently in the stage of requesting information.

Notwithstanding the fact that the arguments of Teléfonos de México, S.A.B. de C.V. are considered to be well founded, the
Companys external lawyers handling the above-mentioned cases consider that there is no certainty that the Company will obtain favorable results.

c) The Mexican Social Security Institute (IMSS) audited Teléfonos de México, S.A.B. de C.V. for the period from 1997 to
2001. As a result of the audit, IMSS determined that Teléfonos de México, S.A.B. de C.V. owed approximately P. 330,000 (historical amount) as of July 2, 2003 in past due obligations, fines, surcharges, re-expression for inflation
and interest. Teléfonos de México, S.A.B. de C.V. filed an appeal to nullify these findings and related assessment with the Federal Court of Justice for Tax and Administrative Matters. In accordance with Mexican law, by means of a
trust fund established with a banking institution, the Company guaranteed payment of the tax assessment in the amount of P. 568,869 through July 19, 2010. The regional metropolitan court declared the resolution to be null, but the
administrative authorities filed an appeal. In October 2009, Teléfonos de México, S.A.B. de C.V. obtained favorable results through a final resolution that nullifies the schedule of rate payments; therefore the Company commenced
proceedings to liquidate the trust fund that was guaranteeing the payment of this contingency, which was finalized on January 22, 2010, at which time the Company recognized the gain on settlement of this contingency.



F-36



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



On January 22, 2010, Teléfonos de México, S.A.B. de C.V. was entitled
to a refund equivalent to the amount set up as guaranteed payment.

Since tax credits did not take effect and Teléfonos
de México, S.A.B. de C.V. obtained reimbursement for the guaranteed payment, this matter was resolved and concluded with favorable results.

d) In accordance with Mexican law, Teléfonos de México, S.A.B. de C.V. shall be severally liable for all of the obligations
transferred to Telmex Internacional, S.A.B. de C.V. as a result of the split-up, for a three-year period, with respect to the terms of the split-up agreement approved by the stockholders of Teléfonos de México, S.A.B. de C.V. on
December 21, 2007. This responsibility, however, does not apply to obligations with those creditors who have given their express consent relieving Teléfonos de México, S.A.B. de C.V. from these liabilities and consenting to the
split-up.

e) On February 10, 2009, COFETEL published the Fundamental Technical Interconnection and Interoperability Plan
in the Official Gazette. Such plan could have a negative impact on Teléfonos de México, S.A.B. de C.V. and on the telecommunications sector in general, since it establishes additional obligations to concessionaries.

Teléfonos de México, S.A.B. de C.V. has filed for constitutional protection (amparo) against this plan,
providing all necessary arguments to demonstrate illegality and unconstitutionality of such plan.

Notwithstanding the fact
that the arguments of Teléfonos de México, S.A.B. de C.V. are considered to be well founded, the Companys external lawyers handling the above-mentioned cases consider that there is no certainty that the Company will obtain
favorable results.



F-37



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



13. Related Parties

a) An analysis of balances due from/to related parties at December 31, 2009 and 2008 is provided below. All the companies are
considered affiliates since TELMEXs primary stockholders are also either direct or indirect stockholders of the related parties:



|                                                                       |  |               |  |              
|---------------------------------------------------------------------- |  | ------------- |  | -------------
|                                                                       |  | December 31  
|                                                                       |  | 2009          |  | 2008         
|Accounts receivable:                                                   |  |               |  |              
|Alestra, S. de R.L. de C.V.                                            |  | P.  454,762   |  | P.  114,625  
|Sercotel, S.A. de C.V.                                                 |  | 193,316       |  | 262,732      
|AT&T Inc.                                                              |  | 87,885        |  | 218,718      
|Anuncios en Directorios, S.A. de C.V.                                  |  | 27,662        |  | 28,477       
|Controladora de Servicios de Telecomunicaciones, S. A. de C.V.         |  | 18,235        |  | 29,628       
|Sears Roebuck de México, S.A. de C.V.                                  |  | 14,231        |  | 27,893       
|Sanborn Hermanos, S.A.                                                 |  | 6,397         |  | 62,837       
|Banco Inbursa, S.A.                                                    |  | 4,256         |  | 89,267       
|Sección Amarilla USA, L.L.C.                                           |  | 54            |  | 20,768       
|Other                                                                  |  | 87,737        |  | 120,417      
|                                                                       |  |               |  |              
|                                                                       |  | P.  894,535   |  | P.  975,362  
|                                                                       |  |               |  |              
|Accounts payable:                                                      |  |               |  |              
|Radiomóvil Dipsa, S.A. de C.V.                                         |  | P.  1,027,048 |  | P.  1,000,739
|Inversora Bursátil, S.A.                                               |  | 127,472       |  | 121,383      
|Eidon Software, S.A. de C.V.                                           |  | 103,738       |  |              
|Microm, S.A. de C.V.                                                   |  | 65,349        |  | 119,631      
|Grupo Financiero Inbursa, S.A.B. de C.V.                               |  | 50,695        |  | 46,710       
|Conductores Mexicanos Eléctricos y de Telecomunicaciones, S.A. de C.V. |  | 34,161        |  | 6,538        
|PC Industrial, S. A. de C.V.                                           |  | 29,614        |  | 69,950       
|Carso Infraestructura y Construcción, S.A.B de C.V.                    |  | 25,459        |  | 208,559      
|Sinergía Soluciones Integrales de Energía, S.A. de C.V.                |  | 23,629        |  | 17,283       
|2Wire, Inc.                                                            |  |               |  | 190,266      
|Sigmatao Factory, S.A. de C.V.                                         |  |               |  | 27,002       
|Other                                                                  |  | 114,963       |  | 185,018      
|                                                                       |  |               |  |              
|                                                                       |  | P.  1,602,128 |  | P.  1,993,079
|                                                                       |  |               |  |              



F-38



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



b) For the years ended December 31, 2009, 2008 and 2007, the Company had the
following transactions with related parties:



|                                                                                                   |  |               |  |               |  |              
|-------------------------------------------------------------------------------------------------- |  | ------------- |  | ------------- |  | -------------
|                                                                                                   |  | 2009          |  | 2008          |  | 2007         
|Investment and expenses:                                                                           |  |               |  |               |  |              
|Construction services, purchase of materials,
inventories and fixed
assets(1)                      |  | P.  2,163,205 |  | P.  3,958,756 |  | P.  3,928,422
|Insurance premiums, fees for administrative and operating
services, security trading and
others(2) |  | 3,318,218     |  | 3,389,572     |  | 5,106,398    
|Calling Party Pays interconnection fees and other
telecommunication
services(3)                    |  | 7,944,362     |  | 9,959,288     |  | 12,976,239   
|Cost of termination of international
calls(6)                                                      |  | 715,780       |  | 685,100       |  | 612,594      
|Revenues:                                                                                          |  |               |  |               |  |              
|Sale of materials and other
services(4)                                                            |  | 1,879,051     |  | 2,091,927     |  | 1,540,633    
|Sale of long distance and other telecommunications
services(5)                                     |  | 5,727,833     |  | 6,211,439     |  | 5,844,988    
|Revenues from termination of international
calls(6)                                                |  | 1,074,419     |  | 2,428,631     |  | 1,920,392    



|(1) | Includes P.1,591,531 in 2009 (P.2,190,819 in 2008 and P.2,824,739 in 2007) for network construction services and purchase of construction materials from subsidiaries of
Grupo Carso, S.A.B. de C.V. (Carso Group), which is an entity under common control with Carso Global Telecom. Also includes P. 453,348 in 2009 (P.1,652,662 in 2008 and P.1,047,685 in 2007) for the purchase of equipment for broadband platform
services from 2Wire.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes P.571,338 in 2009 (P.563,331 in 2008 and P.1, 216,067 in 2007) for network maintenance services from subsidiaries of Carso Group; P.714,242 in 2009 (P. 632,970
in 2008 and P.847,605 in 2007) for software services received from subsidiaries of Telmex Internacional; P.327,500 in 2009 (P.805,703 in 2008 and P.1,450,330 in 2007) for the production and distribution of white pages telephone directories and
advertising in the yellow pages with subsidiaries of Telmex Internacional; P. 482,598 in 2009 (P.392,170 in 2008 and P.431,074 in 2007) for insurance premiums with Seguros Inbursa, S.A. (Seguros), which, in turn, places most of this amount in
reinsurance with third parties; P. 208,942 in 2009 (P. 222,963 in 2008 and P. 188,425 in 2007) for telemarketing services with Grupo Telvista; P. 40,602 in 2009 (P. 71,668 in 2008 and P. 93,162 in 2007) for security trading fees with Inversora
Bursátil, S.A. (Inversora); and P. 335,975 in 2009 (P. 243,999 in 2008 and P. 571,544 in 2007) for fees paid for administrative and operating services to AT&T Mexico, Inc. and Carso Global Telecom. Telmex Internacional, Seguros, Grupo
Telvista and Inversora are entities under common control with Carso Global Telecom. AT&T Inc. is a noncontrolling stockholder of the Company.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes P. 7,944,083 in 2009 (P. 9,959,018 in 2008 and P. 12,810,940 in 2007) for interconnection expenses under the Calling Party Pays program for
outgoing calls from fixed line telephones to cellular telephones paid to subsidiaries of América Móvil. América Móvil is an entity under common control with Carso Global Telecom.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-39



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



|(4) | Includes P.47,462 in 2009 (P.84,654 in 2008 and P.253,095 in 2007) for the sale of materials and other services rendered to subsidiaries of Carso Group; P.230,397 in
2009 (P.206,634 in 2008 and P.335,480 in 2007) for billing and collection services rendered to subsidiaries of Grupo Financiero Inbursa, S.A.B. de C.V. (Inbursa); P.301,440 in 2009 (P.753,600 in 2008) for the use and updating of the telephone
directory customer database, as well as P.373,648 in 2009 (P.411,956 in 2008 and P.363,529 in 2007) for billing, collection, administrative services and others rendered to subsidiaries of Telmex Internacional; and P.494,785 (P. 451,686 in 2008 and
P.439,660 in 2007) for property leases and other services rendered to subsidiaries of América Móvil. Inbursa is an entity under common control with Carso Global Telecom.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Includes P.4,397,574 in 2009 (P.5,072,839 in 2008 and P.4,662,247 in 2007) for revenues invoiced to a subsidiary of América Móvil for the rental of
private circuits and long distance services.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Includes costs and revenues with companies of AT&T Inc. and with subsidiaries of América Móvil and Telmex Internacional.
|--- | ------------------------------------------------------------------------------------------------------------------------



|c) | An analysis of employee benefits granted to the Companys key management or directors is as follows:
|-- | ----------------------------------------------------------------------------------------------------



|                                     |  |      |        |      |    |        |  |    |       
|------------------------------------ |  | ---- | ------ | ---- | -- | ------ |  | -- | ------
|                                     |  | 2009 |        | 2008 |    | 2007  
|Short- and long-term direct benefits |  | P.   | 51,371 |      | P. | 41,636 |  | P. | 46,375
|Post-retirement benefits             |  |      | 3,154  |      |    | 3,060  |  |    | 2,536 
|                                     |  |      |        |      |    |        |  |    |       
|Total                                |  | P.   | 54,525 |      | P. | 44,696 |  | P. | 48,911
|                                     |  |      |        |      |    |        |  |    |       



|14. | Stockholders Equity
|--- | --------------------

a) As described in Note 2, at an extraordinary stockholders meeting held on December 21, 2007, the stockholders of TELMEX
approved the split-up of the subsidiaries with operations in Latin America, as well as the Companys Yellow Pages business. After the split-up took effect and TELMEX made the contribution to Telmex Internacional, the capital stock of TELMEX was
represented by the same number of shares of the three series, with no change in the number of shares that represent its capital.

b) At December 31, 2009, capital stock is represented by 18,192 million shares issued and outstanding with no par value,
representing the Companys fixed capital (18,555 million in 2008). An analysis is as follows:



|                                                                            |  |      |           |      |    |          
|--------------------------------------------------------------------------- |  | ---- | --------- | ---- | -- | ---------
|                                                                            |  | 2009 |           | 2008
|8,115 million Series AA common shares                                     |  | P.   | 5,569,721 |      | P. | 5,569,721
|395 million Series A common shares (407 million in 2008)                  |  |      | 317,792   |      |    | 327,734  
|9,682 million Series L shares with limited voting rights (10,033 in 2008) |  |      | 3,132,787 |      |    | 3,241,177
|                                                                            |  |      |           |      |    |          
|Total                                                                       |  | P.   | 9,020,300 |      | P. | 9,138,632
|                                                                            |  |      |           |      |    |          



F-40



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



At December 31, 2009 and 2008, the historical value of the Companys capital
stock was P.78,545 and P.80,113, respectively.

An analysis of the changes in 2009, 2008 and 2007 is as follows:



|                                                      |  |                   |  |        |                |   |        |            |   |        |               |   |        |        |   |        |                |  
|----------------------------------------------------- |  | ----------------- |  | ------ | -------------- | - | ------ | ---------- | - | ------ | ------------- | - | ------ | ------ | - | ------ | -------------- | -
|                                                      |  | Capital stock (1) | 
|                                                      |  | Series AA       |  |        | Series A     |   |        | Series L |  
|                                                      |  | Number            |  | Amount |                |   | Number |            |   | Amount |               |   | Number |        |   | Amount |               
|Balance at December 31, 2006                          |  | 8,115             |  |        | P.  16,125,189 |   |        | 446        |   |        | P.  1,038,553 |   |        | 11,642 |   |        | P.  10,847,592 |  
|Cash purchase of Companys own shares                 |  |                   |  |        |                |   |        | (3         | ) |        | (6,423        | ) |        | (840   | ) |        | (773,787       | )
|Conversion of shares                                  |  |                   |  |        |                |   |        | (13        | ) |        | (30,395       | ) |        | 13     |   |        | 30,395         |  
|Reduction due to the split-up of Telmex Internacional |  |                   |  |        | (10,555,468    | ) |        |            |   |        | (655,799      | ) |        |        |   |        | (6,617,296     | )
|                                                      |  |                   |  |        |                |   |        |            |   |        |               |   |        |        |   |        |                |  
|Balance at December 31, 2007                          |  | 8,115             |  |        | 5,569,721      |   |        | 430        |   |        | 345,936       |   |        | 10,815 |   |        | 3,486,904      |  
|Cash purchase of Companys own shares                 |  |                   |  |        |                |   |        | (9         | ) |        | (6,934        | ) |        | (796   | ) |        | (256,995       | )
|Conversion of shares                                  |  |                   |  |        |                |   |        | (14        | ) |        | (11,268       | ) |        | 14     |   |        | 11,268         |  
|                                                      |  |                   |  |        |                |   |        |            |   |        |               |   |        |        |   |        |                |  
|Balance at December 31, 2008                          |  | 8,115             |  |        | 5,569,721      |   |        | 407        |   |        | 327,734       |   |        | 10,033 |   |        | 3,241,177      |  
|Cash purchase of Companys own shares                 |  |                   |  |        |                |   |        | (2         | ) |        | (1,551        | ) |        | (361   | ) |        | (116,781       | )
|Conversion of shares                                  |  |                   |  |        |                |   |        | (10        | ) |        | (8,391        | ) |        | 10     |   |        | 8,391          |  
|                                                      |  |                   |  |        |                |   |        |            |   |        |               |   |        |        |   |        |                |  
|Balance at December 31, 2009                          |  | 8,115             |  | P.     | 5,569,721      |   |        | 395        |   |        | P.    317,792 |   |        | 9,682  |   |        | P.  3,132,787  |  
|                                                      |  |                   |  |        |                |   |        |            |   |        |               |   |        |        |   |        |                |  



|(1) | Number of shares in millions
|--- | ----------------------------

The Companys capital stock must be represented by (i) no less than 20% of Series AA common shares, which may be
subscribed and acquired only by Mexican investors, and at all times must represent at least 51% of the common shares of total capital stock; (ii) Series A common shares, which may be freely subscribed, that must not exceed more than
19.6% of capital stock and no more than 49% of the common shares of total capital stock; (iii) both Series AA and A shares combined may not represent more than 51% of capital stock; and (iv) Series L
shares, which have limited voting rights and may be freely subscribed, in a percentage when combined with the Series A shares may not exceed 80% of capital stock.

Voting rights

Each
ordinary share of the Series AA and A entitles the holder to one vote at the general stockholders meetings. Each Series L share entitles the holder to one vote at all stockholders meetings in which
holders of Series L shares are authorized to vote. In accordance with the Eighth Clause of the Companys bylaws, holders of Series L shares only have the right to vote to designate two directors on the Board of Directors
and their corresponding alternate directors, and on the following matters:



| |  |  | The transformation of TELMEX from one type of entity to another;
| | - |  | ----------------------------------------------------------------



| |  |  | Any merger in which TELMEX is not the surviving entity or any merger with an entity whose principal corporate purposes are different from those of
TELMEX (when TELMEX is the surviving entity); and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Cancellation of the registration of the TELMEXs shares in the securities or special sections of the Mexican National Securities Registry and in
any foreign stock exchanges in which they are registered.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-41



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



In order for the resolutions adopted in extraordinary stockholders meetings
related to any of the matters on which the Series L shares are entitled to vote to be validated, the approval by a majority vote of the Series AA and Series A stockholders will be required.

Under Mexican law, the stockholders of any Series of shares are also entitled to vote as one class on any proposal that could adversely
affect the rights of the stockholders of that particular series and the Companys stockholders (including the Series L stockholders), which individually or collectively represent 20% or more of all capital stock could judicially
oppose any stockholders resolution with respect to those resolutions for which such stockholders have the right to vote. The determination of whether a matter requires the vote by the holders of Series L under such basis would
initially be made by the board of directors or by any other party that calls a stockholders meeting to decide on the resolution. A negative decision would be subject to judicial challenge by any affected stockholder, and a court would
ultimately determine the necessity for a class vote. There are no other procedures for determining whether a proposal requires a class vote, and Mexican law does not provide extensive guidance on the criteria to be applied in making such a
determination.

c) In 1994, the Company initiated a program to purchase its own shares. The cost of the repurchased shares, in
the amount that exceeds the portion of capital stock corresponding to the repurchased shares, is charged to retained earnings.

At a regular stockholders meeting held on March 3, 2009, the stockholders approved an increase of P.10,000,000 in the total
authorized nominal amount for the repurchase of the Companys own shares. The remaining amount was P.340,868, bringing the total maximum amount to be used for this purpose to P.10,340,868.

At a regular stockholders meeting held on April 27, 2007, the stockholders approved an increase of P. 15,000,000 (historical)
to the total authorized nominal amount for the repurchase of the Companys own shares. The remaining amount was P.8,046,597, bringing the total maximum amount to be used for this purpose to P. 23,046,597 (historical).

In 2009, the Company acquired 361.2 million Series L shares for P. 4,073,625 and 1.9 million Series A
shares for P.21,695.

In 2008, the Company acquired 796.7 million Series L shares for P. 12,764,130 and
8.6 million Series A shares for P.107,712.

In 2007, the Company acquired 839.9 million Series
L shares for P. 15,729,975 (historical cost of P. 15,423,889) and 2.8 million Series A shares for P. 52,864 (historical cost of P. 51,902).

At December 31, 2009, 2008 and 2007, the Company had 14,040 (13,998 Series L and 42 Series A), 13,677
(13,637 Series L and 40 Series A) and 12,872 (12,840 Series L and 32 Series A) million treasury shares, respectively.

d) In conformity with the Mexican Corporations Act, at least 5% of net income of the year must be appropriated to increase the legal
reserve. This practice must be continued each year until the legal reserve reaches at least 20% of capital stock.



F-42



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



e) At December 31, 2009, Accumulated other comprehensive income items
include P. 748,675 for the effect of the market valuation of swaps designated as cash flow hedges and P. 134,550 for the effect of translation of foreign entities, net of deferred taxes. At December 31, 2008, Accumulated other comprehensive
income items include P. 2,615,521 for the effect of the market valuation of swaps designated as cash flow hedges, net of deferred taxes, and P. 201,104 for the effect of translation of foreign entities.

f) At a regular meeting held on April 28, 2009, the stockholders agreed to declare a cash dividend of P. 0.46 per
outstanding share, to be paid in four installments of P. 0.1150 each in June, September and December 2009 and in March 2010. In March 2009, the Company paid the fourth installment of P. 0.10 per outstanding share, which was
authorized at the regular meeting held on April 25, 2008. At a regular meeting held on December 1, 2009, the stockholders agreed to declare an extraordinary cash dividend of P. 0.40 per outstanding share, to be paid in a single
payment beginning on December 17, 2009.

At a regular meeting held on April 25, 2008, the stockholders agreed
to declare a cash dividend of P. 0.40 per outstanding share, to be paid in four installments of P. 0.10 each in June, September and December 2008 and in March 2009. In March 2008, the Company paid the fourth installment of
P. 0.1125 per outstanding share, which was authorized at the regular meeting held on April 27, 2007.

At a regular
meeting held on April 27, 2007, the stockholders agreed to declare a cash dividend of P. 0.45 per outstanding share, to be paid in four installments of P. 0.1125 each in June, September and December 2007 and in March
2008. In March 2007, the Company paid the fourth installment of P. 0.1025 per outstanding share, which was authorized at the regular meeting held on April 27, 2006.

The cash dividends paid in 2009, 2008 and 2007 were P. 15,093,082, P. 7,609,477 and P. 8,630,024, respectively.

15. Income Tax and Flat-Rate Business Tax

a) Through December 31, 2009 the corporate income tax rate was 28%. Under the Mexican Tax Reform Law approved on December 7,
2009, the corporate income tax rate will be increased from 28% to 30% for the period from January 1, 2010 through December 31, 2012, and will be scaled back to 29% in 2013, and to 28% in 2014 and future years.

b) Beginning January 1, 2007, asset tax was payable at 1.25% of the average value of most assets. Asset tax for the year ended
December 31, 2007 was P. 1,838,181. Such amount was remitted through the crediting of income tax paid in such year. As of January 1, 2008, the Asset Tax Law was abolished.

c) On October 1, 2007, the Flat-Rate Business Tax (FRBT) Law was published and became effective as of January 1, 2008.

Beginning January 1, 2008, the FRBT is computed by applying the applicable rate to income determined on the basis of
cash flows, which is determined by deducting authorized deductions from all income collected from those activities that are subject to the tax. As established under the Law, certain FRBT credits also may be deducted from the FRBT payable. Under the
Laws transitory provisions, the FRBT rate is 16.5% in 2008, 17% in 2009 and 17.5% in 2010 and succeeding years.

When
the FRBT base is negative because deductions exceed taxable income, there is no FRBT payable. The amount of the negative base multiplied by the FRBT rate results in a FRBT credit, which may be applied against income tax for the same year or, if
applicable, against FRBT payable in the next ten years.



F-43



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



FRBT creditable concepts result mainly from the negative FRBT base to be amortized,
salary and social security contribution credits, and credits arising from the deduction of certain assets, such as inventories and fixed assets, during the transition period as of the date on which the FRBT became effective.

FRBT is payable only to the extent it exceeds income tax for the same period. To determine FRBT payable, income tax paid in a given
period is first subtracted from the FRBT of the same period.

For the years ended December 31, 2009 and 2008, the Company
had no FRBT payable and, based on its tax projections, estimates that it will not be subject to the payment of FRBT in subsequent years.

d) An analysis of the income tax provision is as follows:



|                        |  |      |            |   |      |    |            |      |  |    |           
|----------------------- |  | ---- | ---------- | - | ---- | -- | ---------- | ---- |  | -- | ----------
|                        |  | 2009 |            |   | 2008 |    |            | 2007
|Current year income tax |  | P.   | 9,560,860  |   |      | P. | 10,606,003 |      |  | P. | 10,411,963
|Deferred tax            |  |      | (1,075,338 | ) |      |    | (1,014,344 | )    |  |    | 1,206,747 
|                        |  |      |            |   |      |    |            |      |  |    |           
|Total                   |  | P.   | 8,485,522  |   |      | P. | 9,591,659  |      |  | P. | 11,618,710
|                        |  |      |            |   |      |    |            |      |  |    |           

A reconciliation of the statutory income tax rate to
the effective rate recognized for financial reporting purposes is as follows:



|                          |  |       |   |  |       |   |  |       |  
|------------------------- |  | ----- | - |  | ----- | - |  | ----- | -
|                          |  | 2009% |   |  | 2008% |   |  | 2007% |  
|Statutory income tax rate |  | 28.0  |   |  | 28.0  |   |  | 28.0  |  
|Depreciation              |  | (0.9  | ) |  | (3.9  | ) |  |       |  
|Social security benefits  |  | 1.2   |   |  | 1.1   |   |  | 1.1   |  
|Monetary gain             |  | 2.6   |   |  | 6.0   |   |  | 0.3   |  
|Tax benefits              |  | (0.2  | ) |  |       |   |  |       |  
|Other                     |  | (1.4  | ) |  | 1.0   |   |  | (0.7  | )
|                          |  |       |   |  |       |   |  |       |  
|Effective income tax rate |  | 29.3  |   |  | 32.2  |   |  | 28.7  |  
|                          |  |       |   |  |       |   |  |       |  

At December 31, 2009 and 2008, the Company recognized deferred income taxes on the following temporary
differences:



|                                                    |  |                   |   |  |                   |  
|--------------------------------------------------- |  | ----------------- | - |  | ----------------- | -
|                                                    |  | 2009              |   |  | 2008              |  
|Deferred tax assets:                                |  |                   |   |  |                   |  
|Allowance for bad debts and slow-moving inventories |  | P.        877,847 |   |  | P.        599,582 |  
|Tax loss carryforwards                              |  | 87,365            |   |  | 75,394            |  
|Advance billings                                    |  | 435,521           |   |  | 529,417           |  
|Accrued liabilities                                 |  | 1,492,471         |   |  | 1,084,274         |  
|Employee profit sharing                             |  | 1,728,654         |   |  | 2,071,573         |  
|                                                    |  |                   |   |  |                   |  
|                                                    |  | 4,621,858         |   |  | 4,360,240         |  
|                                                    |  |                   |   |  |                   |  
|Deferred tax liabilities:                           |  |                   |   |  |                   |  
|Fixed assets                                        |  | (14,357,100       | ) |  | (15,386,755       | )
|Inventories                                         |  | (13,667           | ) |  | (25,589           | )
|Licenses                                            |  | (118,903          | ) |  | (132,936          | )
|Labor obligations                                   |  | (4,566,155        | ) |  | (4,304,012        | )
|Prepaid expenses                                    |  | (300,552          | ) |  | (189,628          | )
|Derivative financial instruments                    |  | (272,538          | ) |  | (1,129,711        | )
|Effect of translation of foreign entities           |  | (53,001           | ) |  |                   |  
|                                                    |  |                   |   |  |                   |  
|                                                    |  | (19,681,916       | ) |  | (21,168,631       | )
|                                                    |  |                   |   |  |                   |  
|Deferred tax liability, net                         |  | P.  (15,060,058)  |   |  | P.  (16,808,391)  |  
|                                                    |  |                   |   |  |                   |  



F-44



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



e) At December 31, 2009, the balance of the re-expressed contributed capital
account (CUCA) and the net tax profit account (CUFIN) was P. 11,491,546 and P. 12,912,070, respectively. These amounts correspond to Teléfonos de México, S.A.B. de C.V. on an individual basis.

16. Segments

Subsequent
to the split-up described in Note 2, TELMEX primarily operates in two segments: local and long distance telephone service. The local telephone service segment corresponds principally to local fixed-line wired service, including interconnection
service. The long distance service segment includes domestic and international service. Other segments include long distance calls made from public and rural telephones, data services and other services. Additional information related to the
Companys operations is provided in Note 1. The following summary shows the most important segment information, which has been prepared on a consistent basis:



|                              |  |                                        |         |               |    |                |  |             |         |                    |    |          |  |            
|----------------------------- |  | -------------------------------------- | ------- | ------------- | -- | -------------- |  | ----------- | ------- | ------------------ | -- | -------- |  | -----------
|                              |  | (Amounts in millions of Mexican pesos)
|                              |  | Local service                          |         | Long distance |    | Other segments |  | Adjustments |         | Consolidated total
|December 31, 2009             |  |                                        |         |               |    |                |  |             |         |                    |    |          |  |            
|Revenues:                     |  |                                        |         |               |    |                |  |             |         |                    |    |          |  |            
|External revenues             |  | P.                                     | 65,158  |               | P. | 22,543         |  | P.          | 31,399  |                    |    |          |  | P.  119,100
|Intersegment revenues         |  |                                        | 11,722  |               |    |                |  |             | 929     |                    | P. | (12,651) |  |            
|Depreciation and amortization |  |                                        | 9,818   |               |    | 1,788          |  |             | 6,345   |                    |    |          |  | 17,951     
|Operating income              |  |                                        | 17,846  |               |    | 2,537          |  |             | 13,981  |                    |    |          |  | 34,364     
|Segment assets                |  |                                        | 260,597 |               |    | 35,094         |  |             | 108,995 |                    |    |          |  | 404,686    
|                              |  |                                        |         |               |   
|December 31, 2008             |  |                                        |         |               |    |                |  |             |         |                    |    |          |  |            
|Revenues:                     |  |                                        |         |               |    |                |  |             |         |                    |    |          |  |            
|External revenues             |  | P.                                     | 70,801  |               | P. | 27,454         |  | P.          | 25,850  |                    |    |          |  | P.  124,105
|Intersegment revenues         |  |                                        | 10,600  |               |    |                |  |             | 993     |                    | P. | (11,593) |  |            
|Depreciation and amortization |  |                                        | 11,260  |               |    | 2,211          |  |             | 4,462   |                    |    |          |  | 17,933     
|Operating income              |  |                                        | 19,552  |               |    | 6,169          |  |             | 14,022  |                    |    |          |  | 39,743     
|Segment assets                |  |                                        | 284,502 |               |    | 53,932         |  |             | 63,321  |                    |    |          |  | 401,755    
|                              |  |                                        |         |               |   
|December 31, 2007             |  |                                        |         |               |    |                |  |             |         |                    |    |          |  |            
|Revenues:                     |  |                                        |         |               |    |                |  |             |         |                    |    |          |  |            
|External revenues             |  | P.                                     | 76,151  |               | P. | 31,032         |  | P.          | 23,585  |                    |    |          |  | P.  130,768
|Intersegment revenues         |  |                                        | 10,438  |               |    |                |  |             | 1,096   |                    | P. | (11,534) |  |            
|Depreciation and amortization |  |                                        | 11,901  |               |    | 2,331          |  |             | 4,193   |                    |    |          |  | 18,425     
|Operating income              |  |                                        | 23,233  |               |    | 8,695          |  |             | 11,956  |                    |    |          |  | 43,884     
|Segment assets                |  |                                        | 283,463 |               |    | 53,766         |  |             | 54,852  |                    |    |          |  | 392,081    

Inter-segmental
transactions are reported based on terms offered to third parties. Employee profit sharing, other expenses, financing cost, equity interest in net income of affiliates and the income tax provision are not allocated to each segment, because they are
handled at the corporate level.

Segment assets include plant, property and equipment (excluding accumulated depreciation),
construction in progress and advances to equipment suppliers, and inventories for operation of the telephone plant.



F-45



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



17. Differences between Mexican FRS and U.S. GAAP

The Companys consolidated financial statements are prepared in accordance with Mexican Financial Reporting Standards (Mexican
FRS), which differ in certain respects from accounting principles generally accepted in the United States (U.S. GAAP).

As described in Note 1 II b, effective January 1, 2008, the Company ceased to recognize the effects of inflation on its financial
statements as required by Mexican FRS B-10. However, as required by such standard, the financial statement amounts that were previously reported remained unchanged, and the inflation adjustments previously recognized have been maintained in their
corresponding caption. This new standard requires that the re-expressed amounts of non-monetary assets as reported at December 31, 2007 become the carrying amounts for those assets effective January 1, 2008. The carrying amounts affected
the 2008 and 2009 net income and will also affect net income in future periods. For example, depreciation expense after the adoption of Mexican FRS B-10 is based on carrying amounts of fixed assets that include inflation adjustments recorded prior
to the adoption of Mexican FRS B-10.

The Mexican and U.S. GAAP amounts included in this Note, as they relate to the years
ended December 31, 2009 and 2008, are presented in the carrying amounts as required by Mexican FRS B-10, and the effects of inflation that were recorded prior to 2008 have not been reversed in the reconciliations to U.S. GAAP.

Through December 31, 2007, the consolidated financial statements prepared under Mexican FRS included the effect of inflation as
provided by Bulletin B-10, and, in the case of the discontinued operations, the effects of inflation were included as provided by Bulletin B-15.

The Mexican and U.S. GAAP amounts, included throughout Note 17 for the year ended December 31 2007, are presented in constant
Mexican pesos as of December 31, 2007. The reconciliation to U.S. GAAP for the year ended December 31, 2007, does not include the reversal of the adjustments to the financial statements for the effects of inflation required under Mexican
FRS (Bulletin B-10), because the application of Bulletin B-10 represented a comprehensive measure of the effects of price level changes in the Mexican economy as permitted by the SEC.

The principal differences between Mexican FRS and U.S. GAAP, as they relate to the Company, are described below together with an
explanation, where appropriate, of the method used to determine the adjustments that affect net income, stockholders equity and resources provided by operating and financing activities.



F-46



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



Cash flow information:

As described in Note 1, the Company adopted Mexican FRS B-2 Statement of cash flows on January 1, 2008. The cash flow
statements as prepared under Mexican FRS for the years ended December 31, 2009 and 2008, comply with IAS 7, Statement of Cash Flows, as issued by the International Accounting Standards Board, and thus, no reconciliation was needed.

As described in Note 1, for the year ended December 31, 2007 the financial statements under Mexican FRS, include the
presentation of the statement of changes in financial position as provided for under Bulletin B-12. The changes in the consolidated financial statement balances included in this statement constitute resources provided by and used in operating,
financing and investing activities stated in constant pesos (including monetary and foreign exchange gains and losses).

Statement of Financial Accounting Standards No. 95, Statement of Cash Flows(codified into ASC Topic 230, Statement of
Cash Flows) does not provide guidance with respect to inflation adjusted financial statements. For 2007, in accordance with Mexican FRS, the changes in current and long-term debt due to re-expression into constant pesos, including the effect of
exchange differences, is presented in the statement of changes in financial position in the financing activities section. Also, under U.S. GAAP non-cash investing activities are not reported in the statement of cash flows; whereas the statement of
changes in financial position prepared under Mexican FRS, non-cash transactions that affect the financial structure of an entity must be presented separately. In addition, cash flows related to discontinued operations are presented in various
categories whereas under Mexican FRS they are presented as a net item.



F-47



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



If the monetary gain and the exchange gain or loss related to the debt reported in the
year ended December 31, 2007, were treated as components of operating activities, summarized consolidated statement of cash flows derived from information prepared in accordance with U.S. GAAP would be as follows:



|                                                                                  |  |                            |             |  
|--------------------------------------------------------------------------------- |  | -------------------------- | ----------- | -
|                                                                                  |  | Year endedDecember 31,2007 |            
|Cash flows from operating activities:                                             |  |                            |             |  
|Net income under U.S.GAAP                                                         |  | P.                         | 35,833,144  |  
|Income from discontinued operations under U.S. GAAP                               |  |                            | 6,848,291   |  
|                                                                                  |  |                            |             |  
|Income from continuing operations under U.S. GAAP                                 |  |                            | 28,984,853  |  
|                                                                                  | 
|Adjustments to reconcile net income to net cash provided by operating
activities: |  |                            |             |  
|Depreciation                                                                      |  |                            | 19,759,421  |  
|Amortization                                                                      |  |                            | 134,492     |  
|Amortization of deferred charges and other                                        |  |                            | 949,862     |  
|Effect of exchange rate differences on debt                                       |  |                            | 234,465     |  
|Monetary gain, net                                                                |  |                            | (3,056,539  | )
|Deferred taxes                                                                    |  |                            | 956,606     |  
|Equity interest in net loss (income) of affiliates                                |  |                            | (17,245     | )
|Net periodic cost of labor obligations                                            |  |                            | 3,716,277   |  
|Marketable securities                                                             |  |                            | 2,151,503   |  
|Change in operating assets and liabilities                                        |  |                            | (4,920,703  | )
|                                                                                  |  |                            |             |  
|Total adjustments                                                                 |  |                            | 19,908,139  |  
|                                                                                  |  |                            |             |  
|Net cash provided by operating activities of continuing operations                |  |                            | 48,892,992  |  
|                                                                                  |  |                            |             |  
|                                                                                  | 
|Cash flows from investing activities:                                             |  |                            |             |  
|Investment in plant, property and equipment and inventories                       |  |                            | (13,439,657 | )
|Net cash contributed to split-up subsidiary                                       |  |                            | (14,077,287 | )
|Other investments                                                                 |  |                            | (239,005    | )
|                                                                                  |  |                            |             |  
|Net cash used in investing activities of continuing operations                    |  |                            | (27,755,949 | )
|                                                                                  |  |                            |             |  
|                                                                                  | 
|Cash flows from financing activities:                                             |  |                            |             |  
|New loans                                                                         |  |                            | 14,930,842  |  
|Repayment of loans                                                                |  |                            | (10,750,844 | )
|Repurchase of Companys own shares and cash dividends paid                        |  |                            | (24,602,913 | )
|                                                                                  |  |                            |             |  
|Net cash used in financing activities of continuing operations                    |  |                            | (20,422,915 | )
|                                                                                  |  |                            |             |  
|                                                                                  | 
|Effect of inflation accounting on cash and cash equivalents                       |  |                            | (789,336    | )
|                                                                                  | 
|Net changes in cash and cash equivalents of discontinued operations               |  |                            | (5,992,792  | )
|Net decrease in cash and cash equivalents                                         |  |                            | (6,068,000  | )
|Cash and cash equivalents at beginning of year                                    |  |                            | 10,765,752  |  
|                                                                                  |  |                            |             |  
|Cash and cash equivalents at end of year                                          |  | P.                         | 4,697,752   |  
|                                                                                  |  |                            |             |  
|                                                                                  | 
|Supplemental disclosure of cash flow information:                                 |  |                            |             |  
|Interest paid                                                                     |  | P.                         | 6,438,212   |  
|Income tax paid                                                                   |  |                            | 10,501,615  |  
|Employee profit sharing paid                                                      |  |                            | 2,954,488   |  

Cash flows from sales
of trading securities were P. 2,232,020 in 2007.

Noncash transactions related to investment in plant, property and equipment
for the years ended December 31, 2009, 2008 and 2007 were P. 801,187, P. 2,147,017 and P. 3,886,940, respectively.



F-48



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



Capitalized interest:

Under U.S. GAAP, interest on borrowings in foreign currencies or comprehensive cost of financing incurred during the construction period
must be considered as an additional cost of constructed assets to be capitalized in plant, property and equipment and depreciated over the lives of the related assets. The amount of the capitalized comprehensive cost of financing for U.S. GAAP
purposes was determined by applying the weighted-average rate of interest of financing.

Starting January 1, 2007,
although the Company adopted the policy of capitalizing the comprehensive result of financing on assets under construction, as a result of the adoption of Mexican FRS D-6, the Company did not capitalize any comprehensive result of financing since
the Company has not had any significant qualifying assets with prolonged acquisition periods. For the years 2009, 2008 and 2007, the Company did not capitalize any interest under U.S. GAAP. The reconciling items show the depreciation of capitalized
interest in prior years.

Valuation of inventories and plant, property and equipment:

As previously discussed in Note 1.II.i, through December 31, 2007, the re-expression of plant, property and equipment was based on
the rate of inflation in the respective country of origin. This method is not acceptable for U.S. GAAP purposes; consequently, the difference between this method and the re-expression of inventories and plant, property and equipment based on the
NCPI was taken to the U.S. GAAP reconciliations subsequently presented.

As a result of this comparison, inventories, plant,
property and equipment and stockholders' equity increased by P.1,331,167 (P.1,734,130 in 2008), and the depreciation expense for 2009 increased by P.402,963 (P.787,067 and P.1,127,069 in 2008 and 2007, respectively).

Deferred income tax and deferred employee profit sharing:

As mentioned in Note 1.II.r, under Mexican FRS, deferred income tax is determined on all differences in balance sheets accounts for
financial and tax reporting purposes, using the enacted income tax rate at the balance sheet date, which is basically in conformity with Statement of Financial Accounting Standards No. 109, (SFAS 109), Accounting for income taxes(codified into ASC Topic 740, Income taxes),except for the treatment of deferred taxes on the effect of translation of foreign entities.

The Company is required to pay employee profit sharing in accordance with Mexican labor law. Through December 31, 2007, deferred
employee profit sharing under U.S. GAAP had been determined following the guidelines of SFAS 109, because under Mexican FRS the deferred consequences of employee profit sharing were determined on temporary differences considered non-recurring with a
known turnaround time.

As described in Note 1.II.o, under Mexican FRS the Company began recognizing on January 1, 2008
deferred employee profit sharing, using the asset and liability method. Under this method, deferred employee profit sharing is computed by applying the 10% profit sharing rate to all differences between the values of all assets and liabilities for
financial and tax reporting purposes, which is basically in conformity with SFAS 109 (codified into ASC Topic 740, Income taxes).

The deferred tax adjustment included in the net income and stockholders equity reconciliations, also includes the effect of
deferred taxes on all U.S. GAAP adjustments reflected in the reconciliation between Mexican FRS and U.S. GAAP.



F-49



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



The differences in the recognition of deferred income tax and deferred employee profit
sharing (for purposes of this note, collectively referred to as deferred taxes) between Mexican FRS and U.S. GAAP for purposes of the income statement were as follows:



|     |  |    |          |  
|---- |  | -- | -------- | -
|2007 |  | P. | 250,141  |  
|2008 |  |    | (153,150 | )
|2009 |  |    | 198,339  |  

The yearly
changes in the accumulated amount for deferred taxes applied to equity as a result of the difference between the indexed cost and the specific indexation factor valuation of fixed assets and inventories, primarily for operation of the telephone
plant from 2007 through 2009 are the following:



|     |  |    |          |  
|---- |  | -- | -------- | -
|2007 |  | P. | 411,402  |  
|2008 |  |    | 320,831  |  
|2009 |  |    | (145,116 | )

In 2007, monetary
gain of P.15,064, respectively, on the deferred taxes balance related to the difference between the indexed cost and specific indexation cost valuation of fixed assets and inventories, primarily for operation of the telephone plant, were taken to
equity, as part of the change of the year.

The yearly changes in the accumulated amount for deferred taxes applied to equity
as a result of the Statement of Financial Accounting Standards No. 158 (SFAS 158), Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements no. 87, 88, 106 and
132(R) (codified into ASC Topic 715, CompensationRetirement Benefits), from 2007 through 2009 are the following:



|     |  |    |           
|---- |  | -- | ----------
|2007 |  | P. | 2,539,812 
|2008 |  |    | 10,174,718
|2009 |  |    | 1,193,289 

The
related accumulated amounts at December 31, 2009 and 2008 that increased equity were P.17,609,684 and P.16,416,395, respectively.



F-50



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



Significant components of deferred taxes under U.S. GAAP at December 31, 2009 and
2008 are as follows:



|                                                     |  |           |             |   |                       |    |            |       |  |    |             |   |  |                       |             |   |       |    |            |   |  |    |             |  
|---------------------------------------------------- |  | --------- | ----------- | - | --------------------- | -- | ---------- | ----- |  | -- | ----------- | - |  | --------------------- | ----------- | - | ----- | -- | ---------- | - |  | -- | ----------- | -
|                                                     |  | 2009      |             |   | 2008                  |   
|                                                     |  | Incometax |             |   | Employeeprofitsharing |    |            | Total |  |    | Incometax   |   |  | Employeeprofitsharing |             |   | Total |   
|Deferred assets:                                     |  |           |             |   |                       |    |            |       |  |    |             |   |  |                       |             |   |       |    |            |   |  |    |             |  
|Allowances for bad debts and slow-moving inventories |  | P.        | 877,847     |   |                       | P. | 310,287    |       |  | P. | 1,188,134   |   |  | P.                    | 599,582     |   |       | P. | 210,874    |   |  | P. | 810,456     |  
|Tax loss carryforwards                               |  |           | 87,365      |   |                       |    |            |       |  |    | 87,365      |   |  |                       | 75,394      |   |       |    |            |   |  |    | 75,394      |  
|Advance billings                                     |  |           | 435,521     |   |                       |    | 147,750    |       |  |    | 583,271     |   |  |                       | 529,417     |   |       |    | 184,219    |   |  |    | 713,636     |  
|Accrued liabilities                                  |  |           | 1,492,471   |   |                       |    | 515,522    |       |  |    | 2,007,993   |   |  |                       | 1,084,274   |   |       |    | 372,943    |   |  |    | 1,457,217   |  
|Employee profit sharing                              |  |           | 403,550     |   |                       |    |            |       |  |    | 403,550     |   |  |                       | 859,942     |   |       |    |            |   |  |    | 859,942     |  
|Pensions                                             |  |           | 9,370,573   |   |                       |    | 3,346,606  |       |  |    | 12,717,179  |   |  |                       | 8,631,195   |   |       |    | 3,082,545  |   |  |    | 11,713,740  |  
|Exchange loss on debt                                |  |           |             |   |                       |    | 347,123    |       |  |    | 347,123     |   |  |                       |             |   |       |    | 409,247    |   |  |    | 409,247     |  
|                                                     |  |           |             |   |                       |    |            |       |  |    |             |   |  |                       |             |   |       |    |            |   |  |    |             |  
|Total deferred tax assets                            |  |           | 12,667,327  |   |                       |    | 4,667,288  |       |  |    | 17,334,615  |   |  |                       | 11,779,804  |   |       |    | 4,259,828  |   |  |    | 16,039,632  |  
|                                                     |  |           |             |   |                       |    |            |       |  |    |             |   |  |                       |             |   |       |    |            |   |  |    |             |  
|Deferred liabilities:                                |  |           |             |   |                       |    |            |       |  |    |             |   |  |                       |             |   |       |    |            |   |  |    |             |  
|Fixed assets                                         |  |           | (14,746,460 | ) |                       |    | (3,574,360 | )     |  |    | (18,320,820 | ) |  |                       | (15,813,293 | ) |       |    | (4,028,230 | ) |  |    | (19,841,523 | )
|Inventories                                          |  |           | (13,667     | ) |                       |    | (4,881     | )     |  |    | (18,548     | ) |  |                       | (25,589     | ) |       |    | (9,139     | ) |  |    | (34,728     | )
|Capitalized interest or net financing cost           |  |           | (231,667    | ) |                       |    | (82,738    | )     |  |    | (314,405    | ) |  |                       | (304,437    | ) |       |    | (108,728   | ) |  |    | (413,165    | )
|Licenses                                             |  |           | (115,533    | ) |                       |    | (44,852    | )     |  |    | (160,385    | ) |  |                       | (132,937    | ) |       |    | (49,900    | ) |  |    | (182,837    | )
|Prepaid expenses                                     |  |           | (315,546    | ) |                       |    | (90,195    | )     |  |    | (405,741    | ) |  |                       | (189,629    | ) |       |    | (167,311   | ) |  |    | (356,940    | )
|Financial instruments                                |  |           | (272,538    | ) |                       |    | (91,884    | )     |  |    | (364,422    | ) |  |                       | (1,129,711  | ) |       |    | (419,172   | ) |  |    | (1,548,883  | )
|                                                     |  |           |             |   |                       |    |            |       |  |    |             |   |  |                       |             |   |       |    |            |   |  |    |             |  
|Total deferred tax liabilities                       |  |           | (15,695,411 | ) |                       |    | (3,888,910 | )     |  |    | (19,584,321 | ) |  |                       | (17,595,596 | ) |       |    | (4,782,480 | ) |  |    | (22,378,076 | )
|                                                     |  |           |             |   |                       |    |            |       |  |    |             |   |  |                       |             |   |       |    |            |   |  |    |             |  
|Net deferred (liabilities) assets                    |  | P.        | (3,028,084) |   |                       | P. | 778,378    |       |  | P. | (2,249,706) |   |  | P.                    | (5,815,792) |   |       | P. | (522,652)  |   |  | P. | (6,338,444) |  
|                                                     |  |           |             |   |                       |    |            |       |  |    |             |   |  |                       |             |   |       |    |            |   |  |    |             |  

For Mexican FRS purposes, as discussed in Note 15, the deferred income tax liabilities recognized for the
Mexican operations amounted to P.15,060,058 and P.16,808,391 at December 31, 2009 and 2008, respectively. Also as discussed in Note 10.c, for Mexican FRS purposes the deferred employee profit sharing liability recognized amounted to P.3,954,136
and P.4,849,906 at December 31, 2009 and 2008.

Under U.S. GAAP deferred tax assets and liabilities are classified as
current or noncurrent, based on the classification of the asset or liability that originated it. A deferred tax asset or liability that is not related to an asset or liability for financial reporting purposes, including deferred tax assets related
to carryforwards, is classified in accordance to its expected reversal date. For a particular tax-paying component and within a particular tax jurisdiction, (a) all current deferred tax assets and liabilities are offset and presented as a
single amount and (b) all noncurrent deferred tax assets and liabilities are offset and presented as a single amount. However, deferred tax assets and liabilities attributable to different tax-paying components of the enterprise or to different
tax jurisdictions are not offset.

Under Mexican FRS deferred tax assets and liabilities are classified as noncurrent and are
presented in one net amount in the balance sheet. The consolidated amounts of deferred taxes are not offset if they do not belong to the same taxable entity and to the same taxation authority.

Income taxes on unremitted foreign earnings

Under US GAAP, deferred tax consequences on unremitted foreign earnings that are considered to be
permanently invested are not recognized. Therefore, the Company has eliminated the deferred tax consequences on the effect of translation of its foreign operations in the reconciliation of stockholders equity between Mexican FRS and US GAAP.
In the event that the Company repatriated these earnings, incremental taxes may be incurred. The Company has determined that it is not practicable to determine the amount of these incremental taxes.



F-51



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



Employee benefit obligation:

In 2009, 2008 and 2007, pension and seniority premium plans expense under U.S. GAAP totaled P. 5,207,736, P. 3,812,903 and P. 3,724,963,
respectively. The components of these employee benefit obligations calculated in accordance with the provisions of Statement of Financial Accounting Standards No. 87 (SFAS No. 87), Employers' Accounting for Pensions(codified into ASC Topic 715, CompensationRetirement Benefits), consist of the following:



|                                                                              |  |              |             |   |      |    |             |      |  |    |            |  
|----------------------------------------------------------------------------- |  | ------------ | ----------- | - | ---- | -- | ----------- | ---- |  | -- | ---------- | -
|                                                                              |  | December 31, |            
|                                                                              |  | 2009         |             |   | 2008 |    |             | 2007 | 
|Labor cost                                                                    |  | P.           | 4,431,755   |   |      | P. | 4,333,194   |      |  | P. | 3,672,437  |  
|Financial cost on defined benefit obligation                                  |  |              | 15,861,542  |   |      |    | 14,344,072  |      |  |    | 9,013,577  |  
|Expected return on plan assets                                                |  |              | (17,524,795 | ) |      |    | (15,571,525 | )    |  |    | (9,585,397 | )
|Amortization of unrecognized net transition obligation and prior service cost |  |              | 34,766      |   |      |    | 624,355     |      |  |    | 624,346    |  
|Amortization of unrecognized losses                                           |  |              | 2,404,468   |   |      |    | 82,807      |      |  |    |            |  
|                                                                              |  |              |             |   |      |    |             |      |  |    |            |  
|Net periodic cost under U.S. GAAP                                             |  |              | 5,207,736   |   |      |    | 3,812,903   |      |  |    | 3,724,963  |  
|Net periodic cost under Mexican FRS                                           |  |              | 5,021,791   |   |      |    | 4,652,124   |      |  |    | 4,495,766  |  
|                                                                              |  |              |             |   |      |    |             |      |  |    |            |  
|Cost increase (reduction) under U.S. GAAP                                     |  | P.           | 185,945     |   |      | P. | (839,221)   |      |  | P. | (770,803)  |  
|                                                                              |  |              |             |   |      |    |             |      |  |    |            |  

The amounts reconciled in net income, represent the effect generated by the assumptions used during the
first application on the adoption of the pension and seniority premium accounting rules when they became effective for U.S. GAAP and Mexican FRS purposes, which were in different years.

In determining the various economic assumptions used in the computation, the Company estimates specific rates for each of the next 12
years and assumes a constant ultimate rate for each year thereafter. Each economic assumption is evaluated annually and revised as necessary. Assumptions used in the computation of the net cost under U.S. GAAP for each of the years presented in the
above table are equal to those used in the determination of employee benefit obligations disclosed in Note 10. The expected rates of annual return on plan assets used for the computation of the net cost under Mexican FRS and U.S. GAAP, for each of
the years presented in the above table were 12% (nominal), 10% (nominal) and 6.82% (real) for 2009, 2008 and 2007, respectively.



F-52



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



Plan assets:

The weighted average asset actual allocation of plan assets by asset category is as follows:



|                   |  |                                         |   |  |       |  
|------------------ |  | --------------------------------------- | - |  | ----- | -
|                   |  | Percentage ofplan assets
atDecember 31, |  
|                   |  | 2009                                    |   |  | 2008  |  
|Debt securities:   |  |                                         |   |  |       |  
|Mexican Government |  | 40.4                                    | % |  | 40.5  | %
|Mexican companies  |  | 5.5                                     | % |  | 5.4   | %
|Equity securities: |  |                                         |   |  |       |  
|Mexican companies  |  | 46.9                                    | % |  | 47.4  | %
|U.S. companies     |  | 5.8                                     | % |  | 5.9   | %
|Cash               |  | 1.4                                     | % |  | 0.8   | %
|                   |  |                                         |   |  |       |  
|Total              |  | 100.0                                   | % |  | 100.0 | %
|                   |  |                                         |   |  |       |  

The asset allocation of plan assets at December 31, 2009 and 2008 and the target allocation for 2010 by
asset category are as follows:



|                           |  |                      |   |  |      |   |  |      |  
|-------------------------- |  | -------------------- | - |  | ---- | - |  | ---- | -
|                           |  | Targetallocation2010 |   |  | 2009 |   |  | 2008 |  
|Fixed-income securities    |  | 40-50                | % |  | 45.9 | % |  | 45.9 | %
|Variable-income securities |  | 50-60                | % |  | 54.1 | % |  | 54.1 | %

The target
asset allocations reflect the Companys investment strategy of maximizing the rate of return on plan assets and the resulting funded status, within an appropriate level of risk.

As of December 31, 2009, securities held by the plan included 242.5 million shares of TELMEX (255.8 million shares in 2008) and
1,741.7 million shares of related parties (1,962.1 million shares in 2008), with a fair value of P.2,653,441 (P.3,671,083 in 2008) and P.66,182,240 (P.58,031,339 in 2008), respectively. In 2009, the plan purchased 20.8 million shares of
related parties (58.2 million shares in 2008) and sold 241.2 million shares of related parties (48.7 million shares in 2008). In June 2008, the plan received 330.0 million shares of Telmex Internacional as a result of the split-up. In
2009, the plan purchased 2.8 million shares of TELMEX (3.2 million shares in 2008) and sold 16.1 million shares of TELMEX (77.3 million shares in 2008). Dividends received by the plan in 2009 were P.925,224 (P.1,410,407 in 2008) from
TELMEX and related parties.

As of December 31, 2009, securities held by the plan also included P.943,080 (notional
amount) of TELMEX debt securities (P.351,363 in 2008) and P.2,296,338 (notional amount) of related parties debt securities (P.19,035,338 in 2008), with a fair value of P.943,049 (P.401,661 in 2008) and P.2,345,667 (P.19,117,287 in 2008),
respectively. In 2009, the plan purchased P.975,694,551 (P.772,189,159 in 2008) and sold P.992,728,118 (P.566,118,492 in 2008) of related parties debt securities, and purchased P.19,488,270 (P.28,385,642 in 2008) and sold P.18,963,254
(P.28,394,746 in 2008) of TELMEX debt securities. Interest income recognized by the plan in 2009 was P.16,559 (P.8,509 in 2008) on TELMEX securities and P. 44,877 (P.64,340 in 2008) on related parties securities.



F-53



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



The table below presents the fair value hierarchy of our plan assets as of
December 31, 2009.

There are three broad levels to the fair value hierarchy of inputs to fair value (Level 1 being the
highest priority and Level 3 being the lowest priority):



| |  |  | Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3: Unobservable inputs (e.g., a reporting entitys own data).
| | - |  | -------------------------------------------------------------------



|                          |  |         |             |         |  |         |  |       |    |            
|------------------------- |  | ------- | ----------- | ------- |  | ------- |  | ----- | -- | -----------
|                          |  | Level 1 |             | Level 2 |  | Level 3 |  | Total
|Debt securities:          |  |         |             |         |  |         |  |       |    |            
|Mexican Government        |  | P.      | 66,222,252  |         |  |         |  |       | P. | 66,222,252 
|Mexican companies         |  |         | 9,067,750   |         |  |         |  |       |    | 9,067,750  
|Equity securities:        |  |         |             |         |  |         |  |       |    |            
|Mexican companies         |  |         | 76,967,926  |         |  |         |  |       |    | 76,967,926 
|U.S. companies            |  |         | 9,433,782   |         |  |         |  |       |    | 9,433,782  
|Cash and cash equivalents |  |         | 2,303,665   |         |  |         |  |       |    | 2,303,665  
|                          |  |         |             |         |  |         |  |       |    |            
|Established fund          |  | P.      | 163,995,375 |         |  |         |  |       | P. | 163,995,375
|                          |  |         |             |         |  |         |  |       |    |            

Expected cash flows for the pension and seniority
premiums plans are as follows:



|                                      |  |    |            
|------------------------------------- |  | -- | -----------
|Expected contributions to trust fund: |  |   
|2010                                  |  | P. | 6,444,125  
|                                      |  |    |            
|Expected benefit payments:            |  |    |            
|2010                                  |  | P. | 8,564,987  
|2011                                  |  |    | 8,943,225  
|2012                                  |  |    | 9,482,631  
|2013                                  |  |    | 10,236,722 
|2014                                  |  |    | 10,913,578 
|2015-2019                             |  |    | 66,114,567 
|                                      |  |    |            
|Total                                 |  | P. | 114,255,710
|                                      |  |    |            



F-54



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



The investment policies of plan assets are the following:



| |  |  | Tax rules issued by the Ministry of Finance and Public Credit:
| | - |  | --------------------------------------------------------------

Asset investments of the pension fund must be made through an irrevocable trust set up with a financial credit institution authorized to
operate in Mexico.

To invest at least 30% of assets in Mexican government securities registered in the National Registry of
Securities and Intermediaries (Registro Nacional de Valores e Intermediarios) or in shares of investment funds in debt instruments (sociedades de inversión).

The remaining 70% (maximum) will be invested in securities approved by the National Banking and Securities Commission (CNBV).



| |  |  | Trading:
| | - |  | --------

The fund invests in securities approved by CNBV with high trading, liquidity and credit quality.



| |  |  | Plan assets structure:
| | - |  | ----------------------

Ensure that the composition of assets comprising the pension fund generates sufficient resources and liquidity to cover growth of pension
obligations.

The Companys policy that defines long-term interest rates to discount the obligations of the pension plan
is based on the historical returns of short-term interest rates for the last 20 years in Mexico. Before 1984, debt securities yielded negative interest rates in real terms and for that reason the Company decided not to go beyond twenty years of
historical interest rates, with the purpose to adopt the current Mexican monetary policy. As part of the policys criteria, interest rates used in the projection are those available at the beginning of the year.

The unrecognized net transition obligation under SFAS No. 87 (codified into ASC Topic 715,CompensationRetirement
Benefits) of P. 7,074 924 at January 1, 1997, was amortized over the average future working lifetime of the employee group, being 2008 the last year of the amortization period. The portion of the unrecognized net (loss) gain that exceeds
10% of the greater of defined benefit obligation or plan assets will also be recognized over 12 years.

In 1995, consistent
with the deferral of the unrecognized net (loss) gain, TELMEX included in income of such year an amount of P. 828,628 as monetary gain on the unfunded liability and deferred P. 4,362,666, which represented the difference between the amount credited
to income and the full monetary gain on the unfunded liability. For 1996, the Company did not defer the monetary gain for such year, as the rates used in the actuarial study were similar to actual inflation for 1996, and amortized P. 228,411 of the
monetary gain deferred in 1995. The monetary gain deferred in 1995 was being amortized over 12 years. In 2007 the Company amortized P. 375,845, on the monetary gain deferred in 1995.



F-55



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



SFAS 158 (codified into ASC Topic 715, CompensationRetirement Benefits)
requires (1) recognition on the balance sheet of an asset for a defined benefit plans overfunded status or a liability for a plans underfunded status, (2) measurement of a defined benefit plans assets and its obligations
that determine its funded status as of the end of the employers fiscal year, and (3) recognition of the changes in the funded status of a defined benefit postretirement plan as a component of other comprehensive income in the year the
changes occur.

The components of the plan funded status that are reflected in the consolidated statement of financial
position as of December 31, 2009 and 2008 are as follows:



|                           |  |      |              |      |    |             
|-------------------------- |  | ---- | ------------ | ---- | -- | ------------
|                           |  | 2009 |              | 2008
|Fair value of plan assets  |  | P.   | 163,995,375  |      | P. | 145,475,893 
|Defined benefit obligation |  |      | 197,332,833  |      |    | 176,182,835 
|                           |  |      |              |      |    |             
|Under funded status        |  | P.   | (33,337,458) |      | P. | (30,706,942)
|                           |  |      |              |      |    |             

Amounts recognized in other accumulated comprehensive
income consist of the following:



|                                                        |  |      |            |      |    |           
|------------------------------------------------------- |  | ---- | ---------- | ---- | -- | ----------
|                                                        |  | 2009 |            | 2008
|Unrecognized actuarial loss                             |  | P.   | 49,896,696 |      | P. | 46,471,902
|Unrecognized prior service cost and changes in the plan |  |      | 130,819    |      |    | 165,587   
|                                                        |  |      |            |      |    |           
|Total                                                   |  | P.   | 50,027,515 |      | P. | 46,637,489
|                                                        |  |      |            |      |    |           

Through December 31, 2007, for Mexican FRS
reporting purposes, labor obligations were accounted for under rules similar to SFAS 87, 88 and 112, (other than assumptions used during its first application) prior to its amendment by SFAS 158 (codified into ASC Topic 715,
CompensationRetirement Benefits), thereby constituting a difference with U.S. GAAP. Effective January 1, 2008, labor obligations are reported based on Mexican FRS D-3, Employee benefits, which requires the recognition on the
balance sheet of a net projected liability or a net projected asset (see Note 10), where unamortized items are included in the determination of the net projected liability or net projected asset whereas under U.S. GAAP unamortized items are
presented in accumulated other comprehensive income.

Effects of inflation accounting on U.S. GAAP adjustments:

Through December 31, 2007, to determine the net effect on the consolidated financial statements of recognizing the U.S. GAAP
adjustments described throughout this Note, it was also necessary to recognize the effects of inflation on such adjustments as described in Note 1 II.b. These effects were taken into consideration in the preparation of U.S. GAAP reconciliations of
net income and stockholders equity.

Effective January 1, 2008, and as a result of adopting Mexican FRS B-10,
Effects of inflation, the Company ceased recognizing the effects of inflation in its financial statements and considered the re-expressed amounts of all non-monetary items as its carrying basis as of January 1, 2008. The Company has not
reconciled the inflation adjustments still included in its non-monetary items, with one exception for the adjustments in the valuation of plant, property and equipment and depreciation expense, previously mentioned in this Note.



F-56



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



Penalties and interest:

Under Mexican FRS penalties and interest on tax settlements are presented as other income (expense), net; whereas under U.S. GAAP, such
gains are presented in interest income (expense). The Company does not have penalties or interest on tax settlements in 2009, 2008 and 2007.

Noncontrolling interest:

In conformity with Mexican FRS, noncontrolling interest is not added back in the Companys income statement, also it is included as a
component of stockholders equity and presented immediately after the caption total controlling interest of stockholders equity. Noncontrolling interest in net income is not eliminated from net income.

For U.S. GAAP purposes, beginning on January 1, 2009, amendments to ASC 810Consolidation(formerly FAS 160Non-controlling Interests in Consolidated Financial Statementsan amendment of ARB 51)state that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the
consolidated financial statements, and requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure on the face of the consolidated
statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontolling interest. These requirements must be applied prospectively as of the beginning of the fiscal year in which this statement is initially
applied, except for the presentation and disclosure requirements, which must be applied retrospectively for all periods presented.

Accounting for uncertainty in income taxes:

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of
FASB Statement No. 109 (FIN 48) as of January 1, 2007 (codified into ASC Topic 740, Income Taxes).

Telmex establishes reserves to remove some or all of the tax benefit of any of its tax positions at the time it determines that it
becomes uncertain based upon one of the following conditions: (1) the tax position is not more likely than not to be sustained, (2) the tax position is more likely than not to be sustained, but for a lesser amount,
or (3) the tax position is more likely than not to be sustained, but not in the financial period in which the tax position was originally taken.

For purposes of evaluating whether or not a tax position is uncertain, (1) the Company presumes the tax position will be examined by
the relevant taxing authority that has full knowledge of all relevant information, (2) the technical merits of a tax position are derived from authorities such as legislation and statutes, legislative intent, regulations, rulings and case law
and their applicability to the facts and circumstances of the tax position, and (3) each tax position is evaluated without consideration of the possibility of offset or aggregation with other tax positions taken.

A number of years may elapse before a particular uncertain tax position is audited and finally resolved or when a tax assessment is
raised. The number of years subject to tax assessments varies depending on the tax jurisdiction and is generally five years for the countries in which the Company principally operates. The tax benefit that has been previously reserved because of a
failure to meet the more likely than not recognition threshold would be recognized in our income tax expense in the first period when the uncertainty disappears under any one of the following conditions: (1) the tax position is
more likely than not to be sustained, (2) the tax position, amount, and/or timing is ultimately settled through negotiation or litigation, or (3) the statute of limitations for the relevant taxing authority to examine and
challenge the tax position has expired.



F-57



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



The adoption of FIN 48 (codified into ASC Topic 740, Income Taxes) did not have
any impact on the Companys financial statements and did not result in a cumulative adjustment to retained earnings at adoption. As of December 31, 2009 and 2008, there are no uncertain tax positions not more likely than not to be
sustained.

Fair value measurements:

On January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements
(SFAS 157) (codified into ASC Topic 820, Fair Value Measurement and Disclosures), which establishes a framework for measuring fair value providing a consistent definition of fair value that focuses on exit price and prioritizes,
within a measurement of fair value, the use of market based inputs over company specific inputs. ASC 820 expands the disclosure requirements and establishes a three-level hierarchy for fair value measurements on the observable inputs to the
valuation of an asset or liability at the measurement date. ASC 820 requires companies to consider their own nonperformance risk when measuring liabilities carried at fair value, including derivative instruments. ASC 820 was effective
on January 1, 2008 for all financial assets and liabilities and for non-financial assets and liabilities recognized or disclosed at fair value on a recurring basis (at least annually). For all other assets and liabilities, this statement was
effective on January 1, 2009. The adoption of ASC 820 in 2009 and 2008 did not have a material impact on the Companys consolidated financial statements.

Statement of Financial Accounting Standards No 159, The Fair Value Option for Financial Assets and Financial Liabilities
(SFAS 159), (codified into ASC Topic 825, Financial Instruments) allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on
an instrument by instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, ASC 825 specifies that the unrealized gains and losses for that instrument be reported in earnings
at each subsequent reporting date. ASC 825 was effective for TELMEX on January 1, 2008. The Company did not elect to adopt fair value option to any of its outstanding instruments; therefore, it did not have any impact on its consolidated
financial statements.

The Company is exposed to counterparty credit risk on all derivative financial instruments. Because the
amounts are recorded at fair value, the full amount of the Companys exposure is the carrying value of these instruments. Credit risk is monitored through established approval procedures, including setting concentration limits by counterparty.
The Company only enters into derivative transactions with well-established financial institutions; the Company believes such risk is minimal.

The following table provides a summary of significant assets and liabilities at December 31, 2009 and 2008 that are measured at fair
value on a recurring basis:



|                                 |  |                        |  |         |            |         |  |       |    |           
|-------------------------------- |  | ---------------------- |  | ------- | ---------- | ------- |  | ----- | -- | ----------
|                                 |  | Fair Value Measurement
|                                 |  | Level 1                |  | Level 2 |            | Level 3 |  | Total
|December 31, 2009                |  |                        |  |         |            |         |  |       |    |           
|Assets                           |  |                        |  |         |            |         |  |       |    |           
|Derivative financial instruments |  |                        |  | P.      | 11,496,359 |         |  |       | P. | 11,496,359
|Liabilities                      |  |                        |  |         |            |         |  |       |    |           
|Derivative financial instruments |  |                        |  |         | 119,719    |         |  |       |    | 119,719   
|                                 |  |                        |  |        
|December 31, 2008                |  |                        |  |         |            |         |  |       |    |           
|Assets                           |  |                        |  |         |            |         |  |       |    |           
|Derivative financial instruments |  |                        |  | P.      | 20,418,889 |         |  |       | P. | 20,418,889



F-58



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



Valuation Methods:

Derivatives: The fair value of derivative financial instruments is based on quoted market prices supported by confirmations from
the financial institutions with which the Company has entered into the related agreements. The Companys policy is to verify such fair values against valuations provided by an independent valuation agent contracted by the Company. This
valuation agent applying technical models uses the present value of expected cash flows based on observable market interest rate curves (cross currency mid swaps, IRS discount and Libor) commensurate with the term of each instrument. For currency
derivatives, the Companys approach is to use forward contract employing market observable inputs, such as spot currency rates and time value. Since the Company primarily uses observable inputs in its valuation of its derivative assets and
liabilities, they are considered Level 2.

In accordance with Statement of Financial Accounting Standards No. 107
(SFAS 107), Disclosures about fair value of financial instruments(codified into ASC Topic 825, Financial Instruments), under U.S. GAAP it is necessary to provide information about the fair value of certain financial
instruments for which it is practicable to estimate that value. The carrying amounts of cash and short-term investments, accounts receivable and accounts payable and accrued liabilities approximate fair values due to the short maturity of these
instruments.

The fair value of total debt is estimated using discounted cash flow analyses based on current borrowing rates
offered to the Company for debt of the same remaining maturities and the market value for the senior notes at December 31, 2009 and 2008. Since the Company primarily uses observable inputs in its valuation of its debt, they are considered
Level 2 and the Company uses quoted prices in active markets in its valuation of senior notes and domestic senior notes considered Level 1. As of December 31, 2009, the carrying value of total debt is P.102,874,348 (P.107,055,447 at
December 31, 2008) and the fair value is P.101,060,180 (P.100,987,999 at December 31, 2008).

Related parties

At December 31, 2009 and 2008, Recoverable taxes in Note 3 includes P. 1,123,429 and P. 686,877,
respectively, with Carso Global Telecom related with the tax consolidation, which correspond to the balance of monthly payments on account of the consolidated annual tax.

A summary of the most significant new pronouncements in U.S. GAAP that became effective in 2009 or after and may apply to the Company
is as follows:

Accounting Standards Codification

On July 1, 2009, FASB Accounting Standards Codification (ASC) became the sole source of authoritative GAAP recognized by the
Financial Accounting Standards Board (FASB) to be applied by nongovernmental entities for financial statements issued for interim and annual periods ending after September 15, 2009. ASC did not change GAAP, but rather combined the sources of
GAAP and the framework for selecting among those sources into a single source. Accordingly, the adoption of ASC had no impact on the Company ́s financial statements.



F-59



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



Amendments to ASC 855, Subsequent Events (formerly FAS 165, Subsequent Events)

In May 2009, the FASB issued guidance now codified as FASB ASC Topic 855, Subsequent Events ASC 855. This guidance establishes
general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The new guidance under ASC 855 is effective for interim or annual
periods ending after June 15, 2009. The adoption of ASC 855 had no impact on the Company ́s financial statements.

EITF
08-1 Revenue Arrangements with Multiple Deliverables (included in ASC 605-25, Multiple-Element Arrangements)

On
September 23, 2009, the FASB ratified Emerging Issues Task Force Issue No. 08-1, Revenue Arrangements with Multiple Deliverables (EITF 08-1). EITF 08-1 updates the current guidance pertaining to multiple-element revenue
arrangements included in ASC 605-25, which originated primarily from EITF 00-21, also titled Revenue Arrangements with Multiple Deliverables. EITF 08-1 will be effective for annual reporting periods beginning January 1, 2011 for
calendar-year entities. The Company is currently evaluating the impact of EITF 08-1 on its financial position, results of operations, cash flows, and disclosures.

Amendments to ASC 805, Business Combinations (formerly FASB Statement No. 141(R)):

In December 2007, the FASB issued Statement of Financial Accounting Standards (FAS) No. 141 (revised 2007), Business
Combinations(FAS 141(R)), now codified as FASB ASC Topic 805, Business Combinations, which replaces FAS No.141, Business CombinationFAS No.141. FAS 141(R) retains the underlying concepts of FAS 141 in that all
business combinations are still required to be accounted for at fair value under the acquisition method of accounting, but FAS 141(R) changed the method of applying the acquisition method in a number of significant aspects.

FAS 141(R) establishes principles and requirements for how the acquirer will recognize and measure the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest in the acquisition. Also, the statement determines the recognition and measurement of goodwill acquired in the business combination or a gain from a bargain purchase, and finally, determines the
disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination.

FAS 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning
of the first annual period subsequent to December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. FAS 141(R) amends FAS 109 such that adjustments made to valuation
allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of FAS 141(R) would also apply the provisions of FAS 141(R). The adoption of this new guidance did not have any impact
on the Companys financial position or results of operations.



F-60



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



Determination of the Useful Life of Intangible Assets (FSP FAS No. 142-3, codified into ASC
Topic 350 IntangiblesGoodwill and Other)

In April 2008, the FASB issued FASB Staff Position FAS No. 142-3,
Determination of the Useful Life of Intangible Assets (FSP FAS No. 142-3) codified into ASC Topic 350, IntangiblesGoodwill and Other. ASC 350 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets codified as ASC Topic 350.
ASC 350 also requires expanded disclosure related to the determination of intangible asset useful lives, effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years. The adoption of this new guidance did not have any impact on the Companys financial position or results of operations.

Amendments to ASC 810 Consolidation (formerly FAS 160 Non-controlling Interests in Consolidated Financial Statementsan amendment of ARB 51):

In December 2007, the FASB issued Statement of Financial Accounting Standards ("FAS") No. 160, Noncontrolling
Interests in Consolidated Financial Statements, an Amendment of ARB 51 (FAS 160)")codified into ASC Topic 810 Consolidation. ASC 810 amends ARB 51 to establish new standards that govern the accounting for and reporting of
(1) noncontrolling interest in partially owned consolidated subsidiaries and (2) the loss of control of subsidiaries. ASC 810 is effective on a prospective basis for all fiscal years, and interim periods within those fiscal years
beginning, on or after December 15, 2008, except for the presentation and disclosure requirements, which will be applied retrospectively. The adoption of this new guidance resulted in a retrospective adjustment of the Balance Sheet. Income
Statement and Stockholders Equity for the prior years, for presentation and disclosure purposes as follows:



|                         |  |                          |            |                  |    |         |                     |  |    |           
|------------------------ |  | ------------------------ | ---------- | ---------------- | -- | ------- | ------------------- |  | -- | ----------
|                         |  | As originally issued2008 |            | Reclassification |    |         | As reclassified2008
|Non-controlling interest |  | P.                       | 41,186     |                  | P. | (41,186 | )                   |  | P. |          
|Stockholders equity     |  |                          | 11,268,190 |                  |    | 41,186  |                     |  |    | 11,309,376
|Net income               |  |                          | 19,782,582 |                  |    | (25     | )                   |  |    | 19,782,557
|                         |  |                          |           
|                         |  | As originally issued2007 |            | Reclassification |    |         | As reclassified2007
|Net income               |  | P.                       | 35,375,221 |                  | P. | 457,923 |                     |  | P. | 35,833,144



F-61



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



FASB Statement No. 161 Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133 (codified under ASC Topic 815, Derivatives and Hedging):

On
March 19, 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133(FAS 161) which is now codified under FASB ASC Topic 815, Derivatives
and Hedging. ASC 815 requires enhanced disclosures for derivative instruments, including those used in hedging activities, to enable investors to better understand their effects on an entitys financial position, financial performance and
cash flows. It is effective for fiscal years and interim periods beginning after November 15, 2008. The adoption of this new guidance did not have any impact on the Companys financial position or results of operations.



F-62



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



Summary:

Net income and total stockholders equity, adjusted to take into account the material differences between Mexican FRS and U.S. GAAP,
excluding the U.S. GAAP difference related to the split-up of Telmex Internacional, are as follows:



|                                                                                                                               |  |                         |   |  |                             |   |  |                             |  
|------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------- | - |  | --------------------------- | - |  | --------------------------- | -
|                                                                                                                               |  | Year ended December 31, |  
|                                                                                                                               |  | 2009                    |   |  | 2008Retrospectivelyadjusted |   |  | 2007Retrospectivelyadjusted |  
|Income from continuing operations as reported under Mexican FRS                                                                |  | P.20,468,983            |   |  | P.20,176,911                |   |  | P.28,889,083                |  
|U.S. GAAP adjustments:                                                                                                         |  |                         |   |  |                             |   |  |                             |  
|Depreciation of capitalized interest                                                                                           |  | (259,894                | ) |  | (293,358                    | ) |  | (341,559                    | )
|Deferred income tax under U.S. GAAP included in this reconciliation                                                            |  | 132,084                 |   |  | (155,707                    | ) |  | (215,262                    | )
|Deferred employee profit sharing under U.S. GAAP included in this reconciliation                                               |  | 66,255                  |   |  | 2,557                       |   |  | (42,648                     | )
|Deferred employee profit sharing                                                                                               |  |                         |   |  |                             |   |  | 508,051                     |  
|Pension and seniority premium plan cost                                                                                        |  | (185,945                | ) |  | 839,221                     |   |  | 770,803                     |  
|Difference between the re-expression of depreciation expense based on specific indexation factors and on the basis of the NCPI |  | (402,963                | ) |  | (787,067                    | ) |  | (1,127,069                  | )
|Effects of inflation accounting on U.S. GAAP adjustments                                                                       |  |                         |   |  |                             |   |  | 543,454                     |  
|                                                                                                                               |  |                         |   |  |                             |   |  |                             |  
|Total U.S. GAAP adjustments in income from continuing operations                                                               |  | (650,463                | ) |  | (394,354                    | ) |  | 95,770                      |  
|                                                                                                                               |  |                         |   |  |                             |   |  |                             |  
|Income from continuing operations under U.S. GAAP                                                                              |  | 19,818,520              |   |  | 19,782,557                  |   |  | 28,984,853                  |  
|                                                                                                                               |  |                         |   |  |                             |   |  |                             |  
|                                                                                                                               |  |                         |  
|Income from discontinued operations as reported under Mexican FRS                                                              |  |                         |   |  |                             |   |  | 7,166,312                   |  
|Total U.S. GAAP adjustments in income from discontinued operations                                                             |  |                         |   |  |                             |   |  | (318,021                    | )
|                                                                                                                               |  |                         |   |  |                             |   |  |                             |  
|Income from discontinued operations under U.S. GAAP                                                                            |  |                         |   |  |                             |   |  | 6,848,291                   |  
|                                                                                                                               |  |                         |   |  |                             |   |  |                             |  
|                                                                                                                               |  |                         |  
|Net income under U.S. GAAP                                                                                                     |  | P.19,818,520            |   |  | P.19,782,557                |   |  | P.35,833,144                |  
|                                                                                                                               |  |                         |   |  |                             |   |  |                             |  



F-63



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



|                                                                                                                                       |  |                        |                |   |                             |   |               |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | -------------- | - | --------------------------- | - | ------------- | -
|                                                                                                                                       |  | Year ended December 31 |               
|                                                                                                                                       |  | 2009                   |                |   | 2008Retrospectivelyadjusted |  
|Total stockholders equity under Mexican FRS                                                                                           |  | P                      | .  38,320,773  |   |                             | P | .  39,371,099 |  
|U.S. GAAP adjustments, net of effects of inflation on monetary items:                                                                  |  |                        |                |   |                             |   |               |  
|Capitalized interest or net financing cost                                                                                             |  |                        | 12,783,898     |   |                             |   | 12,783,898    |  
|Accumulated depreciation of capitalized interest or net financing cost                                                                 |  |                        | (11,967,158    | ) |                             |   | (11,707,264   | )
|Deferred income tax on U.S.GAAP adjustments included in this reconciliation                                                            |  |                        | 12,461,438     |   |                             |   | 11,341,295    |  
|Deferred income tax on effect of translation of foreign entities                                                                       |  |                        | 53,001         |   |                             |   |               |  
|Deferred employee profit sharing on U.S. GAAP adjustments included in this reconciliation                                              |  |                        | 4,929,217      |   |                             |   | 4,512,616     |  
|Deferred taxes on the difference between the indexed cost and specific indexation factor valuation of fixed assets and
inventories     |  |                        | (679,173       | ) |                             |   | (534,057      | )
|Pension and seniority premium plan cost                                                                                                |  |                        | 259,203        |   |                             |   | 445,148       |  
|Difference between the re-expression of fixed assets and inventories based on specific indexation factors and on the basis of the
NCPI |  |                        | 1,331,167      |   |                             |   | 1,734,130     |  
|Labor obligations (SFAS 158)                                                                                                           |  |                        | (50,027,515    | ) |                             |   | (46,637,489   | )
|                                                                                                                                       |  |                        |                |   |                             |   |               |  
|Total U.S. GAAP adjustments, net                                                                                                       |  |                        | (30,855,922    | ) |                             |   | (28,061,723   | )
|                                                                                                                                       |  |                        |                |   |                             |   |               |  
|Total stockholders equity under U.S. GAAP                                                                                             |  | P                      | .    7,464,851 |   |                             | P | .  11,309,376 |  
|                                                                                                                                       |  |                        |                |   |                             |   |               |  



F-64



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



Condensed financial information under U.S. GAAP

The following table presents consolidated condensed income statements for the years ended December 31, 2009, 2008 and 2007, prepared
under U.S. GAAP, and including the differences and reclassifications as compared to Mexican FRS described in this Note, but excluding the U.S. GAAP difference related to the split-up of Telmex Internacional:



|                                                                        |  |      |             |   |                             |    |             |                             |  |    |             |  
|----------------------------------------------------------------------- |  | ---- | ----------- | - | --------------------------- | -- | ----------- | --------------------------- |  | -- | ----------- | -
|                                                                        |  | 2009 |             |   | 2008Retrospectivelyadjusted |    |             | 2007Retrospectivelyadjusted | 
|Operating revenues                                                      |  | P.   | 119,100,212 |   |                             | P. | 124,105,235 |                             |  | P. | 130,767,671 |  
|Operating costs and expenses                                            |  |      | 87,128,506  |   |                             |    | 85,749,504  |                             |  |    | 89,982,839  |  
|                                                                        |  |      |             |   |                             |    |             |                             |  |    |             |  
|Operating income                                                        |  |      | 31,971,706  |   |                             |    | 38,355,731  |                             |  |    | 40,784,832  |  
|Other income, net                                                       |  |      | 260,126     |   |                             |    | 468,999     |                             |  |    | 1,169,535   |  
|Financing cost                                                          |  |      | ( 4,314,554 | ) |                             |    | ( 9,232,694 | )                           |  |    | ( 2,805,910 | )
|Equity interest in net income (loss) of affiliates                      |  |      | 254,680     |   |                             |    | (62,113     | )                           |  |    | 17,245      |  
|                                                                        |  |      |             |   |                             |    |             |                             |  |    |             |  
|Income before income tax                                                |  |      | 28,171,958  |   |                             |    | 29,529,923  |                             |  |    | 39,165,702  |  
|Income tax                                                              |  |      | 8,353,438   |   |                             |    | 9,747,366   |                             |  |    | 10,180,849  |  
|                                                                        |  |      |             |   |                             |    |             |                             |  |    |             |  
|Income from continuing operations                                       |  |      | 19,818,520  |   |                             |    | 19,782,557  |                             |  |    | 28,984,853  |  
|Income from discontinued operations, net of income tax                  |  |      |             |   |                             |    |             |                             |  |    | 6,848,291   |  
|                                                                        |  |      |             |   |                             |    |             |                             |  |    |             |  
|Net income                                                              |  |      | 19,818,520  |   |                             |    | 19,782,557  |                             |  |    | 35,833,144  |  
|(Less) plus net income attributable to noncontrolling interest          |  |      | (294        | ) |                             |    | 25          |                             |  |    | (457,923    | )
|                                                                        |  |      |             |   |                             |    |             |                             |  |    |             |  
|Net income attributable to TELMEX                                       |  | P.   | 19,818,226  |   |                             | P. | 19,782,582  |                             |  | P. | 35,375,221  |  
|                                                                        |  |      |             |   |                             |    |             |                             |  |    |             |  
|Net income attributable to TELMEXs stockholders:                       |  |      |             |   |                             |    |             |                             |  |    |             |  
|Income from continuing operations                                       |  | P.   | 19,818,226  |   |                             | P. | 19,782,582  |                             |  | P. | 28,985,042  |  
|Discontinued operations, net of income tax                              |  |      |             |   |                             |    |             |                             |  |    | 6,390,179   |  
|                                                                        |  |      |             |   |                             |    |             |                             |  |    |             |  
|Net income                                                              |  | P.   | 19,818,226  |   |                             | P. | 19,782,582  |                             |  | P. | 35,375,221  |  
|                                                                        |  |      |             |   |                             |    |             |                             |  |    |             |  
|                                                                        |  |      |            
|Weighted average number of shares issued and outstanding (in millions): |  |      | 18,383      |   |                             |    | 18,906      |                             |  |    | 19,766      |  
|                                                                        |  |      |             |   |                             |    |             |                             |  |    |             |  
|Earnings per share (in pesos)                                           |  | P.   | 1.08        |   |                             | P. | 1.05        |                             |  | P. | 1.79        |  
|                                                                        |  |      |             |   |                             |    |             |                             |  |    |             |  
|Earnings per share (in pesos) from continuing operations                |  | P.   | 1.08        |   |                             | P. | 1.05        |                             |  | P. | 1.47        |  
|                                                                        |  |      |             |   |                             |    |             |                             |  |    |             |  
|Earnings per share under (in pesos) from discontinued operations        |  | P.   |             |   |                             | P. |             |                             |  | P. | 0.32        |  
|                                                                        |  |      |             |   |                             |    |             |                             |  |    |             |  



F-65



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



The following table presents consolidated condensed balance sheets at December 31,
2009 and 2008, prepared under U.S. GAAP, and including the differences and reclassifications as compared to Mexican FRS described in this note, but excluding the U.S. GAAP difference related to the split-up of Telmex Internacional:



|                                                      |  |      |             |                             |    |            
|----------------------------------------------------- |  | ---- | ----------- | --------------------------- | -- | -----------
|                                                      |  | 2009 |             | 2008Retrospectivelyadjusted
|Assets                                                |  |      |             |                             |    |            
|Current assets                                        |  | P.   | 55,216,593  |                             | P. | 54,762,036 
|Plant, property and equipment, net                    |  |      | 106,452,647 |                             |    | 115,676,141
|Equity investments                                    |  |      | 1,775,380   |                             |    | 1,494,133  
|Other non-current assets                              |  |      | 4,008,018   |                             |    | 5,101,124  
|                                                      |  |      |             |                             |    |            
|Total assets                                          |  | P.   | 167,452,638 |                             | P. | 177,033,434
|                                                      |  |      |             |                             |    |            
|Liabilities and stockholders equity                  |  |      |             |                             |    |            
|Short-term debt and current portion of long-term debt |  | P.   | 19,768,894  |                             | P. | 22,883,092 
|Other current liabilities                             |  |      | 17,519,989  |                             |    | 18,481,763 
|                                                      |  |      |             |                             |    |            
|Total current liabilities                             |  |      | 37,288,883  |                             |    | 41,364,855 
|Long-term debt                                        |  |      | 83,105,454  |                             |    | 84,172,355 
|Labor obligations                                     |  |      | 33,496,828  |                             |    | 30,854,569 
|Deferred taxes                                        |  |      | 5,629,926   |                             |    | 8,921,173  
|Deferred credits                                      |  |      | 466,696     |                             |    | 411,106    
|                                                      |  |      |             |                             |    |            
|Total liabilities                                     |  |      | 159,987,787 |                             |    | 165,724,058
|                                                      |  |      |             |                             |    |            
|Controlling interest                                  |  |      | 7,423,371   |                             |    | 11,268,190 
|Non controlling interest                              |  |      | 41,480      |                             |    | 41,186     
|                                                      |  |      |             |                             |    |            
|Total stockholders equity                            |  |      | 7,464,851   |                             |    | 11,309,376 
|                                                      |  |      |             |                             |    |            
|Total liabilities and stockholders equity            |  | P.   | 167,452,638 |                             | P. | 177,033,434
|                                                      |  |      |             |                             |    |            

Reclassifications under U.S. GAAP

In the consolidated condensed income statements, the Company reclassified a) P. 1,653,123 related to a ruling in favor of the
deductibility for income tax purposes of employee profit sharing paid in 2004 and 2005, from the Other income, net caption in 2007 to the Income Tax caption, b) the employee profit sharing from 2009, 2008 and 2007 for
P.1,543,551, P.1,146,034 and P.2,401,616, respectively, from the Other income, net caption to the Operating cost and expenses caption.

In the consolidated condensed balance sheets, the Company reclassified from 2009 and 2008, P.3,380,220 and P. 2,582,726, respectively,
from the long-term Deferred tax liability caption to the Other current assets caption.



F-66



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



Condensed financial information under U.S. GAAP

As stated in Note 2, the shares of Telmex Internacional were authorized and issued pursuant to the TELMEXs stockholders
meeting on December 21, 2007 approving the split-up. The establishment of Telmex Internacional became effective on December 26, 2007, following the recording of the stockholders' resolution before a Mexican public notary, the
registration in the Mexican Public Registry of Commerce and the publication in the Diario Oficial (Official Gazette); however the delivery of the share certificates occurred at the completion of the registration processes with the Mexican and
U.S. Stock Exchanges on June 10, 2008.

Until the date of the exchange and delivery of the share certificates,
the shares of Telmex Internacional traded together with the shares of TELMEX on the Mexican and U.S. Stock Exchanges. For Mexican FRS purposes the entities transferred to Telmex Internacional have been treated as discontinued
operations and distributed as of its effective date; however, since the share certificates of Telmex Internacional were not distributed to its stockholders as of December 31, 2007, the split-up entities could not be considered distributed to
its stockholders for U.S. GAAP purposes as of December 31, 2007. Therefore, under U.S. GAAP the split-up entities could be treated as distributed or discontinued operations until the shares were actually delivered to Telmex Internacionals
stockholders.

In order to comply with U.S. GAAP, condensed financial information under U.S. GAAP for the three years ended
December 31, 2009 is as follows:



|                                                               |  |                         |             |   |                             |    |             |                             |  |    |             |  
|-------------------------------------------------------------- |  | ----------------------- | ----------- | - | --------------------------- | -- | ----------- | --------------------------- |  | -- | ----------- | -
|                                                               |  | Year Ended December 31, |            
|                                                               |  | 2009                    |             |   | 2008Retrospectivelyadjusted |    |             | 2007Retrospectivelyadjusted | 
|Operating revenues                                             |  | P.                      | 119,100,212 |   |                             | P. | 124,105,235 |                             |  | P. | 130,767,671 |  
|Operating costs and expenses                                   |  |                         | 87,128,506  |   |                             |    | 85,749,504  |                             |  |    | 89,982,839  |  
|                                                               |  |                         |             |   |                             |    |             |                             |  |    |             |  
|Operating income                                               |  |                         | 31,971,706  |   |                             |    | 38,355,731  |                             |  |    | 40,784,832  |  
|Other income, net                                              |  |                         | 260,126     |   |                             |    | 468,999     |                             |  |    | 1,169,535   |  
|Financing cost                                                 |  |                         | (4,314,554  | ) |                             |    | (9,232,694  | )                           |  |    | (2,805,910  | )
|Equity interest in net income (loss) of affiliates             |  |                         | 254,680     |   |                             |    | (62,113     | )                           |  |    | 17,245      |  
|                                                               |  |                         |             |   |                             |    |             |                             |  |    |             |  
|Income before income tax                                       |  |                         | 28,171,958  |   |                             |    | 29,529,923  |                             |  |    | 39,165,702  |  
|Income tax                                                     |  |                         | 8,353,438   |   |                             |    | 9,747,366   |                             |  |    | 10,180,849  |  
|                                                               |  |                         |             |   |                             |    |             |                             |  |    |             |  
|Income from continuing operations                              |  |                         | 19,818,520  |   |                             |    | 19,782,557  |                             |  |    | 28,984,853  |  
|Income from discontinued operations,
net of income tax         |  |                         |             |   |                             |    | 2,172,831   |                             |  |    | 6,848,291   |  
|                                                               |  |                         |             |   |                             |    |             |                             |  |    |             |  
|Net income                                                     |  |                         | 19,818,520  |   |                             |    | 21,955,388  |                             |  |    | 35,833,144  |  
|(Less) plus net income attributable to noncontrolling interest |  |                         | (294        | ) |                             |    | 52,870      |                             |  |    | (457,923    | )
|                                                               |  |                         |             |   |                             |    |             |                             |  |    |             |  
|Net income attributable to TELMEX                              |  | P.                      | 19,818,226  |   |                             | P. | 22,008,258  |                             |  | P. | 35,375,221  |  
|                                                               |  |                         |             |   |                             |    |             |                             |  |    |             |  
|Net income attributable to TELMEXs stockholders:              |  |                         |             |   |                             |    |             |                             |  |    |             |  
|Income from continuing operations                              |  | P.                      | 19,818,226  |   |                             | P. | 19,782,582  |                             |  | P. | 28,985,042  |  
|Discontinued operations, net of income tax                     |  |                         |             |   |                             |    | 2,225,676   |                             |  |    | 6,390,179   |  
|                                                               |  |                         |             |   |                             |    |             |                             |  |    |             |  
|Net income                                                     |  | P.                      | 19,818,226  |   |                             | P. | 22,008,258  |                             |  | P. | 35,375,221  |  
|                                                               |  |                         |             |   |                             |    |             |                             |  |    |             |  



F-67



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



|                                                                        |  |      |        |      |    |        |  |    |       
|----------------------------------------------------------------------- |  | ---- | ------ | ---- | -- | ------ |  | -- | ------
|                                                                        |  | 2009 |        | 2008 |    | 2007  
|Weighted average number of shares issued and outstanding (in millions): |  |      | 18,383 |      |    | 18,906 |  |    | 19,766
|                                                                        |  |      |        |      |    |        |  |    |       
|Earnings per share (in pesos)                                           |  | P.   | 1.08   |      | P. | 1.16   |  | P. | 1.79  
|                                                                        |  |      |        |      |    |        |  |    |       
|Earnings per share (in pesos) from continuing operations                |  | P.   | 1.08   |      | P. | 1.05   |  | P. | 1.47  
|                                                                        |  |      |        |      |    |        |  |    |       
|Earnings per share (in pesos) from discontinued operations              |  | P.   |        |      | P. | 0.11   |  | P. | 0.32  
|                                                                        |  |      |        |      |    |        |  |    |       

Condensed financial information of cash flows from
continuing operations under U.S. GAAP is as follows:



|                                          |  |      |             |  
|----------------------------------------- |  | ---- | ----------- | -
|                                          |  | 2007 |            
|Net cash provided by operating activities |  | P.   | 48,892,992  |  
|Net cash used in investing activities     |  |      | (27,755,949 | )
|Net cash used in financing activities     |  |      | (20,422,915 | )

The adoption of FAS 160 in
2009, codified in ASC 810, resulted in a retrospective adjustment of the balance sheet as of December 31, 2008, income statement and stockholders equity for the prior years, for presentation and disclosures purposes as follows:



|                         |  |                          |             |                  |    |            |                     |  |    |            
|------------------------ |  | ------------------------ | ----------- | ---------------- | -- | ---------- | ------------------- |  | -- | -----------
|                         |  | As originally issued2008 |             | Reclassification |    |            | As reclassified2008
|Net income               |  | P.                       | 22,008,258  |                  | P. | (52,870    | )                   |  | P. | 21,955,388 
|                         |  |                          |            
|                         |  | As originally issued2007 |             | Reclassification |    |            | As reclassified2007
|Non-controlling interest |  | P.                       | 4,910,669   |                  | P. | (4,910,669 | )                   |  |    |            
|Stockholders equity     |  |                          | 117,503,920 |                  |    | 4,910,669  |                     |  | P. | 122,414,589
|Net income               |  |                          | 35,375,221  |                  |    | 457,923    |                     |  |    | 35,833,144 



F-68



---

##### Table of Contents

TELÉFONOS DE MÉXICO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 1 II.b)



|                                                                                                      |  |                                                 |             |  
|----------------------------------------------------------------------------------------------------- |  | ----------------------------------------------- | ----------- | -
|                                                                                                      |  | TotalStockholdersequityRetrospectivelyadjusted |            
|Balance at December 31, 2006                                                                          |  | P.                                              | 103,194,611 |  
|Appropriation of earnings approved at regular stockholders meeting held in April, 2007:              |  |                                                 |             |  
|Cash dividends declared at P.0.448 per share (P.0.440 historical)                                     |  |                                                 | (8,820,074  | )
|Cash dividend paid to noncontrolling interest in subsidiary                                           |  |                                                 | (122,703    | )
|Cash purchase of Companys own shares                                                                 |  |                                                 | (15,782,839 | )
|Gain on dilution of investment in split-up affiliate                                                  |  |                                                 | 1,123,819   |  
|Acquisition of noncontrolling interest                                                                |  |                                                 | (388,348    | )
|Comprehensive income:                                                                                 |  |                                                 |             |  
|Net income for the year                                                                               |  |                                                 | 35,833,144  |  
|Other comprehensive income:                                                                           |  |                                                 |             |  
|Deferred taxes allocated to equity, net of effect of inflation                                        |  |                                                 | (694,314    | )
|Changes in fair value of swaps, net of deferred taxes                                                 |  |                                                 | 457,566     |  
|Effect of translation of foreign entities, net                                                        |  |                                                 | 11,385,604  |  
|Effect of ASC 715, net of deferred taxes                                                              |  |                                                 | (3,771,877  | )
|                                                                                                      |  |                                                 |             |  
|Balance at December 31, 2007                                                                          |  |                                                 | 122,414,589 |  
|Appropriation of earnings approved at regular stockholders meeting held in April, 2008:              |  |                                                 |             |  
|Cash dividends declared at P.0.413 per share                                                          |  |                                                 | (7,774,143  | )
|Cash purchase of Companys own shares                                                                 |  |                                                 | (12,871,842 | )
|Comprehensive income:                                                                                 |  |                                                 |             |  
|Net income for the year                                                                               |  |                                                 | 21,955,388  |  
|Other comprehensive income:                                                                           |  |                                                 |             |  
|Deferred taxes allocated to equity                                                                    |  |                                                 | (11,347     | )
|Changes in fair value of swaps, net of deferred taxes                                                 |  |                                                 | 2,126,088   |  
|Effect of translation of foreign entities, net                                                        |  |                                                 | 2,050,829   |  
|Effect of ASC 715, net of deferred taxes                                                              |  |                                                 | (18,873,531 | )
|Decrease due to the split-up of Telmex Internacional                                                  |  |                                                 | (97,706,655 | )
|                                                                                                      |  |                                                 |             |  
|Balance at December 31, 2008                                                                          |  |                                                 | 11,309,376  |  
|Appropriation of earnings approved at regular stockholders meetings held in April and December 2009: |  |                                                 |             |  
|Cash dividends declared at P. 0.445 and P. 0.40 per share, respectively                               |  |                                                 | (15,447,559 | )
|Cash purchase of Companys own shares                                                                 |  |                                                 | (4,095,320  | )
|Excess of purchase price over book value of entities acquired from companies under common control     |  |                                                 | (43,030     | )
|Comprehensive income:                                                                                 |  |                                                 |             |  
|Net income for the year                                                                               |  |                                                 | 19,818,520  |  
|Other comprehensive income items:                                                                     |  |                                                 |             |  
|Changes in fair value of swaps, net of deferred taxes                                                 |  |                                                 | (1,866,847  | )
|Effect of translation of foreign entities, net                                                        |  |                                                 | (13,552     | )
|Effect of ASC 715, net of deferred taxes                                                              |  |                                                 | (2,196,737  | )
|                                                                                                      |  |                                                 |             |  
|Balance at December 31, 2009                                                                          |  | P.                                              | 7,464,851   |  
|                                                                                                      |  |                                                 |             |  



|                                  |  |                |  |               |  |               
|--------------------------------- |  | -------------- |  | ------------- |  | --------------
|                                  |  | 2009           |  | 2008          |  | 2007          
|Comprehensive income for the year |  | P.  15,741,384 |  | P.  7,247,427 |  | P.  43,210,123
|                                  |  |                |  |               |  |               



F-69



---

##### Table of Contents

SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized
the undersigned to sign this annual report on its behalf.

Dated: May 11, 2010



TELÉFONOS DE MÉXICO, S.A.B. DE
C.V.By:

/s/ Adolfo Cerezo PérezName: Adolfo Cerezo PérezTitle: Chief Financial Officer