Telefonica's net profit tumbled 21.1 percent from the same period a year earlier to €1.09 billion ($1.45 billion) — slightly better than market expectations — in the three months to September 30.
Overall sales dropped 9.5 percent to €14.06 billion in the same period, it said in a statement.
But Telefonica reported a 2.1-percent increase in "organic" revenue, a measure of the underlying sales performance which excludes one-off items such as company disposals and also strips out hyperinflationary accounting in Venezuela.
"On the operating front there are clear signs of recovery," executive chairman Cesar Alierta said.
"Organic revenue year-on-year growth accelerated again in the quarter to the highest level for the last 12 quarters. This revenue improvement is underpinned by the increase of high-value customers."
However, the group had been hurt by currency volatility, he added.
Telefonica said a strong acceleration in sales in Latin America, notably in Brazil, and improving trends in Europe, including stabilizing sales in Spain, helped to boost organic growth in revenue.
The group said it had cut net debt to 46.1 billion euros in September, a reduction of €9.9 billion from a year earlier.
Deals announced in the third quarter that have yet to take effect would cut the debt level further to €45 billion, it said.
Telefonica said this week it had agreed to sell a 65.9-percent stake in its Czech unit to Czech financial group PPF for €2.47 billion as part of the drive to slash debt.