The European Commission proposed on Tuesday giving national telecom regulators major new powers to split business and network arms of dominant operators in a shake-up of European telecoms rules.
"From today onwards, a single market without borders for Europe's telecoms operators and consumers is no longer only a dream," European Commission President Jose Manuel Barroso said in a statement presenting the proposals.
The controversial proposals would allow national regulators to split the network and retail arms of dominant operators. It would also allow Brussels to override national regulators' decisions and create an EU telecoms watchdog.
Former monopolies strongly oppose the plan, which countries such as Germany and Spain look set to resist. And the plan must be agreed by EU governments and parliaments to become law.
The European Commission says the measures are needed to increase competition in sectors such as broadband and to create a single EU telecoms market.
"Operators in a dominant position will have to get some warm clothes ready as from now on telecom regulation will have teeth in Europe," European Commission Telecom spokesman Martin Selmayr said. "The reform will make sure that dominant operators such as Deutsche Telekom will have to open up to competition."
Under this so-called functional separation, regulators could force a split, with no divesture of assets, as a last resort in case of persistent competition problems, after checking the impact on investments in networks and getting the green light from the EU executive.
The crux of the debate is whether this power to split up operators would raise or hurt investment in new networks such as optic fibre.
"It certainly is going to result in fewer investments for new or alternative networks," said Michael Bartholomew, director of the European Telecommunications Network Operators' Association ETNO that represents incumbents such as Deutsche Telekom and Spain's Telefonica.
"It disincentivises investments by adding uncertainty," Bartholomew told Reuters, saying former monopolies would be reluctant to invest if they had to fully open their new networks to others.
But new entrants reject this argument and back the Commission, saying its plans are needed to ensure fair competition.
"It's very good news for competition and for investments in high speed broadband," said Ilsa Godlovitch of the European Competitive Telecommunications Association ECTA.
More Power to National Regulators
Her group represents new operators such as Neuf Cegetel of France and Virgin Media, which compete with former monopolies.
National regulators are happy to be given more powers, but do not want the EU executive to be allowed to overrule their decisions and say they do not need an EU watchdog.
The European Commission says the new rules could be applied by the end of 2009. Analysts expect EU states such as Germany, France and Spain to water them down.
"There is scope for the final version to be quite a lot different," said John Davies, at Dresdner Kleinwort.
The EU executive will also propose that radio frequencies, used by the telecoms, broadcasting, aircraft and defence industries, should be opened to all businesses to boost what it estimates is a 250 billion-euro ($364.9 billion) market.
The European Commission plans to reduce a list of telecoms markets kept under close scrutiny from 18 to seven. Analysts say it will have little impact on these markets.