Telefonica Is Executing Well on Key Points; Spanish CNMC Further Deregulates Fiber Market

Aside from the good financial performance, with revenue and EBITDA up 3.6% and 1.6% organically, we believe there were several points of good news during no-moat Telefonica’s third quarter. First, the Spanish competition authority CNMC confirmed in October its intention to further deregulate the fiber market, which means Telefonica will not be required to provide wholesale access to its fiber network in 70% of the country. Although Telefonica still has to facilitate infrastructure access to Vodafone and Orange to deploy their networks, we believe this will result in long-term stability for Telefonica’s fiber and convergent customer bases, something much needed given the fiercely competitive Spanish mobile market. Telefonica’s position in Spain is unmatched, with the best fiber-to-the-home (FTHH) network, coupled with proprietary content and football rights, which results in a 65% higher convergent ARPU compared with Orange. We are maintaining our EUR 4.90 fair value estimate, which represents a 30% upside.