Fighting a difficult battle against Spanish price deflation Telefonica management are trying to do a lot of the right things - asset disposals, reduced exposure to HispAm and taking the lead with ''more for more'' price increases in the home market. But the headwinds in Spain are more structural (5x players, low cost to build FTTH, high legacy prices), and thus far competitors do not seem to have gotten the message on price and brand rationality. That was evidenced again this quarter with TEF losing more convergent subs and seeing accelerated ARPU declines - a direct result of the shift to the O2 brand. B2B revenues look to be improving post-COVID and TEF surprised to the upside on EBITDA (both in Spain and for the group), but there is little here to change our fundamental view on the outlook. What do we know today that we didn''t know yesterday? Weaker Spanish trends were to be expected following the recent portability data (which is also negative for April), and TEF confirmed that they are on track to complete the O2/VMED merger and Telxius sale in 2Q21. During the conference call management indicated their support for further FTTH expansions in the UK which will likely add pressure to BT (-). Has the investment thesis changed? No As laid out in our recent report How Lowi can you go?, we expect the Spanish market to remain highly competitive for some time with 50% of subscribers polled in our recent STAMP 2021 survey looking to switch to cheaper sub-brands, which typically come at a 20-30% price discount. We still expect leverage to remain a concern for investors even after the Telxius asset sale which will leave TEF at c. 3.7x ND/EBITDA on a fully adjusted basis (note that the O2UK JV will deconsolidate the business and reduce absolute debt, but not reported leverage). TEF trades at an 8% equity FCF yield but just a 3.6% unlevered yield, and is still unattractive in our view. Changes to estimates We modestly increase FCF estimates in...