* Sector returning to growth thanks to improving regulation
* Upside remains on valuation; some defensive characteristics
* Our key incumbent picks are Orange, DT, TI and KPN; of the altnets, we prefer NOS, DRI, Iliad and Numericable-SFR
Stock picking: focus on incumbents; be selective with altnets
Our key incumbent ideas are Orange (return to growth, consolidation upside), Deutsche Telekom (domestic and US momentum), Telecom Italia (consolidation upside, target price cut to EUR1.25 from EUR1.35, mostly as a result of FX) and KPN (EBITDA back to growth) – all rated Buy. With respect to the altnets, we see upside in Drillisch and NOS, but also Iliad and Numericable-SFR on the back of consolidation prospects – all rated Buy.