TEF delivered in line financials and better Spanish net adds at 2Q results. But VirginO2 trends remain challenging, and we see more downside risk in Germany where competition is intense, and we are yet to see the full impact of 1and1 MVNO losses. TEF continues to work on its strategic review, due to complete by year end, and today''s call suggests that there is a lot on the agenda (potential market consolidation efforts, tech investments, fixing the balance sheet). As detailed in our report Big plans - but who will pay for them? all these options need cash. Whilst we believe that the market could be supportive of a rights issues/ equity issuance to fund in-market consolidation deals (1and1/UTDI in Germany being the obvious example), regulatory approval remains uncertain, and we are more sceptical on other tech/ cybersecurity investments. We also still see downside risk to cons EBITDAaL/FCF estimates in the near term and remain UP rated. What did we learn from results? Whilst ''strategic review'' topics were the focus for the conference call, operational highlights today came from Spain (where TEF is delivering better net add growth but weaker ARPU trends, likely a sign of mix shift in the base), and the UK where VMO2 net adds remain weak. Has the investment case changed? Not yet - but strategic review will be important TEF mgmt. (and the Spanish/ Saudi governments who are significant indirect investors) have ambitious plans for the company. Today''s call suggested a ''quid pro quo'' - if regulators allow in- market telco consolidation and higher returns, the tech investment they crave will be forthcoming. That may be a persuasive argument - but telcos have tried and failed in this area before - and without structural change, the outlook for TEF''s core telco operations is challenging. Changes to estimates - increasing TP to EUR3.40 (from EUR3.20), reiterate Underperform We modestly raise our Spanish/German numbers and valuation, Brazil on an underlying...