** M&A is driving telecom operators' outperformance, but 'full fibre' benefits could be just as important, Exane BNP Paribas says

** Investors hope that more mergers within markets will boost the sector, but uncertain regulatory support makes the brokerage cautious about their real impact

** Smaller fibre companies (altnets - alternative network providers) are shifting from building to filling networks, cutting prices to attract customers and causing big telecoms to lose market share, which is expected to pressure sector revenues for years despite some altnets facing financial stress, the broker points out

** On a positive note, it sees moving from copper to fibre networks to unlock meaningful cost and capex savings for large, established telecom companies, potentially leading to a 6 percentage point improvement in operating free cash flow (OpFCF) margins by 2030

** Exane upgrades Tele2 TEL2b.ST and Swisscom SCMN.S to "outperform" from "neutral"

** It sees Orange ORAN.PA, KPN KPN.AS, and Swisscom as good ways to invest in the fibre rollout trend, and expects Telenor TEL.OL, Telia TELIA.ST, and Tele2 to benefit from cost savings and stable prices

** It raises Germany's United Internet UTDI.DE to "neutral from "underperform"

** The broker downgrades Britain's BT BT.L to "underperform" from "neutral", as the company's Openreach national network is losing customers to altnets in a no longer growing UK broadband market, and amid worsening pricing trends

(Reporting by Marta Frackowiak)

((marta.frackowiak@thomsonreuters.com))