In a report on the European telecommunications sector, Deutsche Bank has upgraded Vodafone to 'buy' from 'hold' but concludes that fundamentals continue to present a challenge for the sector.Analysts at the German bank explained that European telecoms are overvalued in historical terms due to increased news flow concerning merger and acquisition operations. They said that the three biggest risks for the sector are continuous macroeconomic pressure, regulation and growing competition.The report goes on to say that telecoms have reached an "irrational" price. It prefers Nordic groups and particularly Swisscom but continues to have a favourable recommendation for Vodafone, thanks to a potential sale in the United States, and Deutsche Telekom, also due to its exposure across the Atlantic.Vodafone's deal to buy German cable company Kabel Deutschland is seen as a potential catalyst for the sale of its stake in its US joint venture Verizon Wireless. Deutsche Bank believes it could speed up a resolution between Vodafone and Verizon."US wireless is getting tougher with T-Mobile enjoying accelerating momentum and Sprint recapitalised. Cable-backed WiFi is also growing rapidly," said Deutsche Bank analyst David Wright. "Our view is that a Verizon Wireless deal would be the best option to crystalise valuation and preserve liquidity as Vodafone continues its European turnaround."A negative evaluation was given to Belgian operators, which should be avoided according to Deutsche Bank. Additionally, the German bank lowered the price targets for Portugal Telecom and Telefonica to €4.30 and €10.80 per share respectively.Deutsche Bank provided the following ratings for several of the top telecoms:Telefonica: 'HOLD' rating and lowers price target to €10.80 from €11.50.Portugal Telecom: 'HOLD' rating and lowers price target to €4.30 from €4.70.Vodafone: 'BUY' rating with a price target of 217 pence.Swisscom: 'BUY' rating with a price target of 450 Swiss francs.Deutsche Telekom: 'BUY' rating with a price target of €11.05.Telefonica Deutschland: 'HOLD' rating with a price target of €7.00.MD