UPDATE 1-EU's Reding resists attempt to dilute telco veto

(Adds EU presidency, background)

By Huw Jones

BRUSSELS, Sept 2 (Reuters) - The European Commission sought on Tuesday to stop attempts to water down its plans to hold a veto over national telecom regulators in the European Union, a key part of its attempt to boost competition in the sector.

EU Telecoms Commissioner Viviane Reding wants to open up further Europe's 300 billion euro ($435 billion) telecoms market with the aim to offer consumers a wider choice of faster and cheaper services.

She has proposed a package of measures on which the bloc's states and the European Parliament have the final say.

The assembly's Industry Committee has scrapped Reding's plan for a Commission veto over decisions taken by national telecom regulators and instead wants to give the last word to a planned new EU watchdog, the Body of European Regulators in Telecoms (BERT).

Under the proposed alteration, should the Commission disagree with a national regulator's proposal for boosting competition, it would have to have BERT's backing to alter it. Without that backing the proposal would stand.

Reding hit out at this move to dilute her plans.

"There must be power for the Commission to require the notifying national regulator to change its approach in such a case," Reding told the European Parliament on Tuesday.

"We cannot accept that having been through the whole lengthy ... review process, the notifying national regulator can just say 'Thank you very much for your point of view, but I prefer my approach' and simply do as if nothing has happened."

The EU assembly is due to take a first full vote on the package later this month and Reding's veto proposal can be restored before then. EU states hope to reach a political deal on the reform in November.

Reforms of EU rules often turn into a struggle between the Commission and member states over decision-making powers.

FUNCTIONAL SEPARATION

EU president France said Reding's veto proposal aroused strong opposition among member states and that parliament's committee vote was more in line with what governments wanted.

"Clearly it's progress compared with the original proposal on a subject that is extremely sensitive for the Council (of EU states), which is not minded to give so much power to the Commission," French junior minister, Luc Chatel, said.

Reding proposed a more powerful new pan-EU telecoms watchdog than BERT but has lost the battle as some EU states feel even parliament's solution is too radical.

"The Council is sensitive to these arguments but most EU states remain very reticent about the principle of creating a new EU body," Chatel said.

Reding won backing for a key provision known as functional separation to boost competition, despite opposition from big operators such as Deutsche Telekom (DTEGn.DE), Telefonica (TEF.MC) and France Telecom (FTE.PA) who say it would be a disincentive to investment and create legal uncertainty.

It involves separating the running of network and retail arms of an operator so that rival services have the same access as the parent to the network, for a fee. It has been introduced in Britain with BT (BT.L).

Parliament's industry committee backed functional separation though adding extra conditions before it can be imposed, a move Chatel said was in line with what EU states want. (Reporting by Huw Jones, Editing by Erica Billingham and Sharon Lindores)