Bankinter | The European Commission will today approve the Digital Networks Act (DNA), a regulation that will facilitate consolidation processes in the European market. The new legislation will repeal and replace the European Electronic Communications Code (EEC), historically designed to protect competition in the sector, generally to the detriment of competitiveness. It no longer prioritises the defence of end-user interests and takes an approach geared towards resilience, the creation of a broader and more industrial single market with greater competitive scale to encourage investment in telecommunications infrastructure. It will urge regulators to apply less intrusive measures in merger operations and to explicitly assess investment incentives and network resilience, rather than just the immediate impact on retail competition. The law also gives priority to supply chains by incorporating restrictions or bans on high-risk suppliers such as ZTE or Huawei.
Analysis team’s view: The new regulations will ease the conditions imposed on acquisitions and mergers, favouring a process of consolidation in the sector in Europe. In Spain, this could mean a reduction from four to three major operators with the acquisition of Vodafone Spain by Telefónica or Digi. Vodafone Spain was acquired by the British fund Zegona in May 2024 for €5 billion with the intention of selling the company before 2034. The suitability of the transaction will depend on the price to be paid and the synergies obtained.
Zegona currently values its stake in Vodafone Spain, according to the report sent to the London Stock Exchange, at €14.7 billion (€11.1 billion in capital and €3.6 billion in debt). A transaction of this magnitude would require a capital increase by Telefónica.
Its new CEO has stated on several occasions his intention for Telefónica to actively participate in the sector consolidation process, for which he would have the support of its main shareholders, Sepi, OTC Group and Caixa, which together account for 30% of the capital. This possibility is one of the reasons behind our Sell recommendation, as it introduces uncertainty and the risk of dilution and/or a further dividend cut. With net equity of €22.088 billion as of September 2025 and net financial debt excluding leases of €28.233 billion (NFD/EBITDA of 2.9x), the effort to absorb Vodafone Spain would be significant for Telefónica. And the effort would have to be mainly in capital because, with a BBB- rating, a significant increase in debt could lead to a downgrade. Vodafone Spain had revenues of €3.629 billion and EBITDA of €1.249 billion in the fiscal year ending in March 2025. This would mean that Zegona’s valuation would imply an EV/EBITDA multiple of 11.8x for Vodafone Spain vs. 4.5x for Telefónica, which would be dilutive for the latter.
