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Telecommunications Industry in Europe: Key Trends and Investment Opportunities in Q2 2026
European telecoms are entering a new phase of consolidation as regulatory attitudes shift, but slowing revenue growth means investors should remain selective.
European telecoms entered the second quarter of 2026 with improving sentiment and signs of regulatory change, but structural challenges continue to limit long-term upside. A potential wave of consolidation, easing competitive pressures in certain markets, and ongoing network investment are shaping the sector’s outlook.
Morningstar’s latest European Telecommunications Industry report finds that while several markets are becoming more rational, investors should remain selective as the sector now trades broadly in line with fair value.
How Have Telecom Stocks Performed?
European telecom stocks rallied sharply earlier this year, driven by improving regulatory sentiment and renewed interest in defensive sectors. However, many shares have since retreated from their March highs, bringing the sector back to fair value.
The average dividend yield across European telecoms has risen to 4.5% from 4.3% last quarter, though it remains below the 5% average seen a year ago. Investors should remain cautious about chasing exceptionally high yields, as dividend yields above 7% have historically proven difficult to sustain.
At present, opportunities are limited. Morningstar sees several telecom stocks trading in overvalued territory, with Deutsche Telekom standing out as one of the few names offering compelling upside.
Average Service Revenue Growth Was 0.5% in Q1 2026, Down From 2% in Q1 2024
Sources: Company filings, Morningstar.
Margins Remain Flat Thanks to Cost-Cutting Offsetting Revenue Pressure
Sources: Company filings, Morningstar.
For firms that only report EBITDA margin biannually (Orange and BT Group since the start of 2024), we assume that first-quarter and second-quarter margins are equal to the first half and third quarter, and the fourth quarter is equal to the second half. BT Consumer’s and Telecom Italia’s EBITDA margin is lower than that of its peers, given that they have no network ownership.
What are the Biggest Themes in European Telecoms?
France becomes the next test for telecom consolidation
The biggest development this quarter is the proposed breakup of SFR. Orange, Bouygues, and Iliad have signed a memorandum of understanding to collectively acquire SFR for EUR 20.35 billion, which would reshape France into a three-player telecom market.
The transaction is the first meaningful test of Europe's increasingly constructive regulatory environment. Because the deal is structured as an asset split, with no single operator gaining excessive market power, regulatory approval appears more achievable than previous consolidation attempts.
However, even if the deal proceeds, investors should not expect meaningful price increases. Mobile pricing remains under pressure, and it could take operators more than two years to recover average revenue per user to 2024 levels.
Revenue growth remains difficult
Across Europe's largest telecom markets, incumbents continue to rely on cost reductions to offset weak revenue growth. Average service revenue growth slowed to just 0.5% in the first quarter of 2026, down from 2% in early 2024.
Operators are focusing on:
- Reducing churn
- Raising prices selectively
- Migrating customers to higher-value fiber plans
- Expanding converged mobile and broadband offerings
Cost discipline has preserved margins, but the ability to cut expenses further is becoming increasingly limited. Sustainable growth will require genuine revenue expansion rather than continued efficiency gains.
Regional Trends in the Telecommunications Industry
Germany: Deutsche Telekom continues to outperform
Germany remains one of Europe's most rational telecom markets, and Deutsche Telekom continues to benefit.
The company added 184,000 postpaid subscribers in the first quarter of 2026 and is expected to finish the year with more than 50% mobile market share. Broadband performance has also remained resilient, with Deutsche Telekom maintaining approximately 48% market share.
The key risk remains Vodafone. So far, the company has avoided aggressive pricing tactics, which has allowed Deutsche Telekom to continue growing profitably.
Italy: Subscriber losses remain a challenge
Italy's market remains difficult, with Iliad and mobile virtual network operators continuing to gain share.
Telecom Italia and Vodafone Italia lost 107,000 and 147,000 mobile subscribers, respectively, in the first quarter. While both operators have implemented price increases and cost reductions, they continue to struggle with customer retention.
In broadband, resellers continue to gain share, putting additional pressure on incumbents.
Spain: Digi keeps winning
Digi remains the biggest share gainer in Spain, benefiting from its strong value proposition and expanding fiber network.
Morningstar expects Digi to continue gaining market share at a pace similar to 2025 and to surpass Vodafone in broadband market share during 2026.
Meanwhile, MasOrange remains squeezed between Telefónica's premium positioning and Digi's low-cost offering.
United Kingdom: Better news for Openreach
The UK mobile market remains relatively stable, supported by industry-wide price increases.
The bigger story is broadband. Financing conditions for alternative networks have deteriorated significantly since the start of the year, with several operators facing financial distress.
This development bodes well for Openreach. As competition from alternative networks weakens, Openreach's broadband line losses could gradually improve through 2026.
Netherlands and Sweden: Growth remains modest
The Dutch mobile market has now recorded four consecutive quarters of declines, while broadband remains the primary source of growth.
In Sweden, operators continue to rely on price increases and higher-value offerings to drive revenue growth. However, rising costs and competitive pressures suggest only modest growth opportunities ahead.
Top Telecom Stock Picks and Coverage
Despite the sector's broadly fair valuation, Morningstar still sees opportunities in select names.
Deutsche Telekom remains our top pick
Deutsche Telekom remains Morningstar's preferred telecom investment. The company combines exposure to two rational markets, Germany and the United States, with disciplined capital allocation and strong execution.
Shares have returned to 4-star territory and now offer approximately 40% upside to Morningstar's fair value estimate. The company also continues to deliver strong dividend growth, increasing its fiscal 2025 dividend by 11% to EUR 1.00 per share.
Bouygues remains attractive
Bouygues also remains in 4-star territory. Its improving outlook is supported by strong execution in its Equans business and the potential for increased cash generation from its telecom operations as the French market consolidates and capital expenditures moderate.
The Bottom Line
European telecoms are showing encouraging signs of improvement. Regulatory sentiment is becoming more constructive, competition is easing in certain markets, and consolidation is back on the agenda.
However, the sector's long-term structural challenges remain intact. Revenue growth is still difficult to achieve, and most stocks now trade close to fair value.
For investors and advisors, selectivity remains critical. Companies with disciplined capital allocation, resilient market positions, and sustainable dividend growth continue to offer the most attractive opportunities.
Morningstar covers a broad universe of European telecom equities. For current price-to-fair-value estimates, EV/EBITDA ratios, dividend yields, and one-year return data across the full coverage list, visit Morningstar’s Direct Advisory Suite. Here are the telecom equities symbols discussed in the full report.
