Upgrading Deutsche Telekom to Narrow Moat and Exemplary Capital Allocation; FVE to EUR 23

We relaunch coverage of Deutsche Telekom, upgrading its moat rating to narrow from none. The main reason for the update is our upgrade of T-Mobile US to narrow moat after the acquisition of Sprint (Deutsche Telekom owns around 50% of T-Mobile US). The merger with Sprint has consolidated the U.S. wireless market from four to three mobile network operators, or MNOs, allowing T-Mobile to almost double in size. We believe this should be positive for pricing going forward, as it is in the interest of the main three carriers (Verizon, AT&T, and T-Mobile) to maintain price stability. Larger scale has also brought significant network and personnel synergies to T-Mobile US, something we see as structurally positive for margins going forward. The integration of Sprint has been successful so far, with most of the uncertainty already behind it. Our moat trend rating remains at stable. We are increasing our fair value estimate to EUR 23 from EUR 17 after updating our forecasts and accounting for the moat upgrade.