Investing.com -- Bernstein downgraded Deutsche Telekom to “market-perform” from “outperform” and cut its price target to €28.10 from €37, citing uncertainty around a possible merger with T-Mobile US, intensifying competition in German fixed-line broadband and a neutral view on T-Mobile US from its U.S. team.

The brokerage said a potential outright combination with T-Mobile US would give Deutsche Telekom full exposure to the U.S. operator’s growth prospects, but questioned whether the transaction would generate sufficient industrial synergies to justify the deal.

Bernstein estimated that a takeover involving a 20% premium for T-Mobile US minority shareholders would dilute Deutsche Telekom shareholders by about 11%. It also flagged potential flow-back pressure, as former T-Mobile US shareholders would own about 42% of the combined company following such a transaction.

The possible deal adds to existing concerns around Deutsche Telekom’s German business, where competition from alternative fibre operators is weighing on broadband customer numbers. Bernstein said the company’s German broadband revenue growth had slowed to 1.7% year-on-year in the first half of 2026, from 4.5% in the second half of 2023.

The brokerage said alternative network operators were becoming more aggressive in competing for customers and network utilisation, increasing pressure on Deutsche Telekom’s fixed-line business.

Bernstein’s U.S. team rates T-Mobile US “market-perform” with a $220 price target. It cited questions over the sustainability of the company’s long-term growth, the capital intensity required for fibre expansion and its exposure to fixed-wireless access.

The brokerage also sees fixed-wireless access as a potential area of vulnerability for T-Mobile US as low-earth-orbit satellite operators expand their broadband offerings.

Deutsche Telekom’s stake in T-Mobile US represents about 64% of Deutsche Telekom’s market capitalization, making the U.S. asset a key driver of the German company’s valuation, Bernstein said.

For BT, Bernstein retained its “outperform” rating and raised its price target to 235 pence from 230 pence, naming the British telecom operator its top pick among European telecom stocks.

Bernstein said BT was moving from a period of structural decline towards stabilisation and cash-flow growth, supported by a simpler portfolio and improving trends at Openreach. Line losses at Openreach appear to be plateauing as competition from alternative fibre networks eases, it said.

BT is also approaching the end of its major fibre investment cycle, Bernstein said, which should allow cash flow to improve as capital expenditure normalises. The brokerage sees the combination of stabilising broadband trends and lower investment requirements as key to the company’s cash-flow outlook.

Elsewhere in the sector, Bernstein downgraded Tele2 to “market-perform” from “outperform,” citing valuation, and set a price target of 166 Swedish krona.

Bernstein remains cautious on European telecom stocks overall, retaining “underperform” ratings on Telia and Elisa.

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