BARCELONA Europe's top technology regulator called for more consistent telecom regulations to help create a true regional market for mobile and fixed services and boost investment in much-needed infrastructure.
European Union commissioner Neelie Kroes said the bloc's 27 member states needed to align their approach on mobile spectrum and fibre broadband, among other issues, or risk further weakening telecom operators' ability to invest in infrastructure and keep Europe competitive with the United States and Asia.
"We need a European telecoms market that is more coherent, more integrated, more efficient; with lower investor risks and higher investor rewards," said Kroes, according to a copy of the speech to be delivered at the Mobile World Congress trade show.
While U.S., Japanese, and South Korean telcos invest heavily in networks, Europe's players have been struggling to pay off debts as their ability to generate cash is hit by fierce competition and harsh regulation.
Europe has about 100 mobile operators to the United State's 6 and China's 3, leaving a fragmented market and wary investors.
As a result, Europe's telcos are building 4G and fibre broadband only slowly, leaving swathes of the region poorly covered and making the EU's target to reach 50 percent of the population with superfast broadband by 2020 look out of reach.
The situation has led many European telco executives to lobby the European Union for a more benign approach to mergers and acquisitions to reduce the number of operators, as well as softer regulation of mobile call termination fees and broadband.
Kroes said the Commission would be more aggressive in using the power given to it in the EU Treaty to pressure states to follow Brussels' guidance for the sector, especially on releasing more spectrum for mobile broadband.
The EU has authorised 1200 megahertz of spectrum for wireless broadband, but on average countries have only awarded 65 percent of it, she said.
Kroes' pro-investment message is likely to be welcomed by the bosses of Europe's big telcos such as Vodafone (VOD.L) and Telefonica (TEF.MC). But they will also have big questions when they meet with Kroes on Tuesday afternoon over how to translate the rhetoric into reality.
Among the most politically sensitive questions will be whether creating a true European telecom market would require having a single EU regulator instead of the current system of national authorities who implement guidance from Brussels.
Kroes has not publicly called for the creation of a single regulator. But conversations have begun in recent weeks among EU policy makers and telecom executives over the idea, according to two people familiar with the talks.
Countries like France, Germany and Britain could oppose ceding more power to Brussels, especially if it means losing control of spectrum auctions that bring billions into public coffers.
In France and the Netherlands, regulators used spectrum auctions to introduce fourth mobile operators to boost competition and lower consumer prices, and would be wary of losing the ability to shape markets.
Vodafone Chief Executive Vittorio Colao said the challenge would be finding consensus.
"I am in favour of more European integration not less; I'm in favour of single regulations and making it homogenous. But it's a big political topic, it's not a business topic."
Olaf Swantee, the head of Britain's biggest mobile operator EE FTE.PA (DTEGn.DE), questioned whether a single regulator was the right way.
"The theory to have one regulator might be OK but there's still risk - because you would have decisions that are not really appropriate for the UK being taken in Brussels," he said.
Talks on how to galvanise the European telecom sector after four straight years of revenue declines look set to continue.
The European Telecommunications Network Operators' Association, which represents 37 companies, is also working on proposals to submit to the EU in the coming months, its head Luigi Gambardella said in an interview.
It plans to ask the European Commission to allow more mergers within individual countries in exchange for backing Brussels' efforts to create a regional market, he said.
Such consolidation to reduce the number of mobile operators has been viewed with suspicion by antitrust regulators in Brussels over fears that it leads to higher prices.
Last year when Austria's smallest mobile player Hutchison 0013.HK sought to buy third-place Orange Austria, the deal ran into stiff opposition and only got approved after concessions including giving up spectrum and selling assets.
"We need to do our homework to prepare something to present a proposal on how to further integrate the European telecom market while creating value for the operator," said Gambardella.
"Fostering a so-called single market for telecoms in Europe would require that the Commission allows in-market consolidation as a first step to rationalise the fragmented mobile and fixed landscape in Europe."
(Editing by Helen Massy-Beresford)