UPDATE 1-Europe needs consistent telco regulation -Kroes

Tue Feb 26, 2013 1:00pm EST

* Europe falling behind U.S., Asia in fixed, mobile

* Spectrum, broadband rules need more harmony-Kroes

* Debate over a single telco regulator begins

* CEOs intrigued by idea, fear political barriers

By Leila Abboud and Kate Holton

BARCELONA, Feb 26 (Reuters) - 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 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 six and China's three, leaving a fragmented market and wary investors. Policymakers in Brussels, including Kroes, envisage one day having four to five strong pan-European operators to spur investment.

Today, 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.

This has led many European telcos to lobby the European Union for a more benign approach to mergers and acquisitions and softer regulation of mobile call termination fees and broadband.

Kroes said the Commission would be more aggressive in pressuring 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 in Barcelona is likely to be welcomed by big telcos like Vodafone and Telefonica and is a change from last year when the two sides traded barbs over who was at fault for slow network investment.

But CEOs still have questions, raised in a meeting with Kroes on Tuesday, over how to turn the rhetoric into reality.

POLITICALLY SENSITIVE

Among the most politically sensitive questions is whether a truly European telecom market would need a single EU regulator instead of national authorities implementing Brussels' guidance.

Kroes has not publicly called for a single regulator, but in a media briefing she said the idea was "a very interesting and efficient" way to create a single telecoms market.

Conversations have begun in recent weeks among EU policy makers, member states, and telecom executives over the idea, according to three people familiar with the talks.

Countries like France, Germany and Britain may oppose ceding more power to Brussels, especially if it means losing control of spectrum auctions that bring billions to 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.

Asked whether the EU could one day sell spectrum instead of governments, Kroes smiled and said: "Why not?." As a first step, she added that such auctions should be more coordinated and not have big price differences between countries. Seventeen out of the 27 member states do not yet have operational 4G networks.

As the debate begins, CEOs were intrigued by the idea of forging a unified market for telecom services in Europe, and did not reject talk of a single regulator out of hand.

Vodafone Chief Executive Vittorio Colao said the challenge would be finding consensus over sharing power.

"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."

Vimpelcom CEO Jo Lunder said there were pros and cons to looking at Europe as one market. "I think we need to process this a little bit internally and talk to the commissioner and understand her views and arguments."

Olaf Swantee, the head of Britain's biggest mobile operator EE , sounded a more cautious note: "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.

"I think a single regulator is not a solution to problem regulators in certain markets."

After Tuesday's meeting, Kroes said the CEOs agreed to back the single-market effort and would next start discussions with "their heads of states and national regulators."

GALVANISING THE SECTOR

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 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.

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