What happened? *As per FT reports this morning, Telefonica''s new CEO is considering investments in data centers and cybersecurity services to persuade European regulators to approve telecom mergers, aiming to lead consolidation in the continent. Summary of the key points in the article below: * Regulatory Advocacy: The company hopes that specific investments in digital infrastructure will convince the European Commission that fewer, larger telecoms operators can enhance the bloc''s technological resilience. * Consolidation Push: Telefonica, under chair Marc Murtra, is advocating for the reduction of four-player markets to three operators, a move recently permitted in the UK with Vodafone''s merger with Three. * Potential Acquisition: Telefonica is considering acquiring the remaining 50% of Virgin Media O2 from Liberty Global, valuing the business at GBP31.4 billion. * Geopolitical Context: The EU''s economic concerns and increased focus on cybersecurity, particularly in light of dependencies on the US and threats from China and Russia, provide an opportunity for Telefonica to push for more lenient competition regulation and invest in local cybersecurity alternatives. BNPP Exane View: *''What will TEF buy?'' has been one of the key questions from investors over the past few months - we have written on the potential scenarios here with more detail on a VMO2 takeover here. *In short, we (and most investors) remain sceptical on TEF''s ability to create value through a tech-focused MandA strategy. Whilst this may make sense from a strategic perspective for the Spanish govt/ EC looking to avoid smaller tech assets falling into the hands of US/ Asian tech giants (and we expect STC would also be supportive given their previous relationship with TelefonicaTech), there is little evidence of telcos differentiating/ adding value in this space. *The thrust of the article however is that these investments could be used as a precursor to securing a more supportive...