What happened? *Bloomberg reports this morning that Telefonica is planning to cut the dividend at next week''s CMD (November 4th), but that ''the company isn''t focused on any major deals at the moment'' and ''doesn''t plan any share offering for now'' *The article notes that TEF''s dividend yield will fall from 6.6% in 2025/26 (30c/ share) to 4.8%/5.2% in 2025/26 (implying 21c/share and 23c/share respectively - i.e. a 30%/23% cut to the FY25/26 dividends *It is unclear at this stage what the reports imply for the upcoming FY25 dividend payments (15c to be paid in December ''25, 15c to be paid in June ''26. *The reasons given for cutting the dividend are to reduce leverage and ''free cash for investments''. The article notes that focus areas at the CMD will be investment in networks, cybersecurity and defence, and ''new services''. TEF will also discuss cost-cutting plans and network-sharing deals. *The article also notes that ''future deals could potentially be funded fully or partially through capital increases'', even if this doesn''t come at the CMD next week BNPP Exane View: *We do not believe these plans go far enough, either to fix TEF''s balance sheet or provide capacity for future deals. The market may initially be relieved by the lower-than-expect divi cut and no capital raise - but we expect shares to move lower from here if next week''s event fails to answer the overarching questions on TEF''s capital structure *In our recent report Ready to push the reset button? we argued that a significant capital raise (EUR 10 bn), and 50% dividend cut would be needed to bring Telefonica''s adjusted leverage down from ~4x to ~3x. This would still leave TEF at the high end of telco peers, and the leverage adjustments we make include hybrids, employee commitments, and TEF''s proportionate share of VMO2 debt. *On our rough maths this morning, if the dividend cut is lower (~30%) and no capital raise is announced, TEF''s leverage would still be at ~3.2x by the end of the...