Fiber's Future: Why EU Telecoms Are a Regulatory Tightrope Walk

The European telecom sector is at a crossroads. As the EU debates regulatory reforms to its fixed network rules, the path forward could either accelerate the rollout of fiber broadband—or hand monopolistic incumbents a lifeline to stifle competition. For investors, the stakes are high: companies committed to open-access models and aggressive fiber deployment stand to thrive, while those lobbying for lax rules risk regulatory backlash and diminished investment appeal. With valuations depressed amid policy uncertainty, now is the time to capitalize on undervalued stocks poised to benefit from the EU's gigabit ambitions.

The Regulatory Tightrope: Fiber's Double-Edged Sword

The EU's 2025 proposals highlight a stark divide. On one side, the Gigabit Infrastructure Act (GIA) aims to lower fiber deployment costs by mandating shared infrastructure use and simplifying permitting. This is a win for firms like 1&1 Drillisch (ETR: ONE) and Deutsche Telekom (ETR: DTE), which have already invested billions in fiber-to-the-home (FTTH) networks. The GIA's emphasis on “build once, use many times” policies aligns with their strategies, reducing the financial burden of laying redundant cables.

On the flip side, proposals to relax access rules—opposed by an alliance including Vodafone (LON: VOD), Iliad (EPA: ILD), and 1&1—threaten to tip the scales in favor of monopolistic operators. If enacted, these reforms could allow dominant players like Deutsche Telekom to block rivals' access to critical infrastructure, stifling competition and slowing fiber expansion. The irony? The EU's Digital Compass targets call for 100% gigabit coverage by 2030—a goal that requires more competition, not less.

The Companies to Watch: Agility vs. Entrenchment

The battle isn't just about regulations—it's about which firms will lead Europe's digital transformation.

The Agile Open-Access Advocates: Vodafone & Iliad

• Vodafone: Despite its size, Vodafone has embraced open-access models, partnering with smaller players to expand fiber networks. Its recent acquisition of Three UK underscores its focus on spectrum synergies and fixed-mobile convergence. With a forward P/E of 12.4x (vs. sector average 14.9x), its shares offer a discount for its pro-competition stance.

• Iliad: France's fastest-growing telecom, Iliad (EPA: ILD), is a disruptor par excellence. Its low-cost, high-speed fiber offerings have eaten into Orange's dominance. With a P/E of 16.5x—priced for growth but still reasonable—it's a pure play on aggressive infrastructure investment.

The Incumbents: Deutsche Telekom & 1&1

• Deutsche Telekom: A paradox. While it's a fiber leader (69% of Germany's fixed broadband), its dominance in markets like Greece (97%) and Croatia (59%) makes it a key beneficiary of regulatory relaxation. Yet its lobbying for weaker access rules risks regulatory pushback. Its stock trades at 10.2x P/E, a discount reflecting this risk. Investors should avoid unless reforms are watered down.

• 1&1 Drillisch: A laggard turned convert. Once focused on legacy copper, 1&1 now spends €2 billion annually on fiber. Its shares trade at 11.8x P/E, offering value if its rollout meets targets.

Why Now? Valuations Signal Opportunity

The sector's undervaluation is clear. The MSCI Eurozone Telecom Index trades at 14.9x 2025 earnings, near its long-term average but at a multi-year low relative to U.S. peers. This discount reflects fears of regulatory uncertainty and macroeconomic headwinds (e.g., a strong euro). However, the EU's €5.8 billion Connecting Europe Broadband Fund and the Gigabit Recommendation's emphasis on open-access remedies suggest tailwinds for firms that back competition.

Investment Thesis: Play Open-Access, Avoid Incumbent Entrenchment

• Buy Vodafone: Its discounted valuation and commitment to open-access models make it a safe haven. The stock has underperformed peers but could rebound if regulators reject monopolistic reforms.
• Hold Iliad: Its growth trajectory is intact, but valuation leaves little room for error. Monitor its Q3 fiber rollout metrics.
• Avoid Deutsche Telekom: Its lobbying risks alienating regulators. A “wait-and-see” stance is prudent until policy clarity emerges.
• Consider 1&1: Its fiber spend is a gamble, but success here could deliver outsized rewards.

The Regulatory Clock is Ticking

The European Commission's final ruling on the Digital Networks Act (DNA)—expected by year-end—will be pivotal. If it sides with open-access advocates, Vodafone and Iliad's shares could surge. A pro-incumbent outcome would trigger a rotation into Deutsche Telekom—but only if investors are willing to bet on monopolistic profits over competition. For now, the former is the safer bet.

The EU's fiber future hinges on one question: Will regulators prioritize a gigabit society, or let monopolies hoard infrastructure? For investors, the answer is clear: back the disruptors, not the incumbents. The time to act is now—before the regulatory dust settles and valuations catch up.