* Reforms aim to spur network investment, healthier market
* Parliament goes further than original proposals
* Consumer, internet groups win on roaming, net neutrality
* Telecoms say package would weaken EU competitiveness (Recasts, adds industry, consumer comment)
By Foo Yun Chee
BRUSSELS, April 3 (Reuters) - The European Parliament voted to end mobile phone roaming fees by 2016 and barred telecoms operators from prioritising some Internet traffic over others, moves that will cheer Europe's consumers and frustrate industry seeking new forms of revenue.
In a session in Brussels, lawmakers backed telecom reform legislation that will phase out roaming fees across the 28-country European Union by December 2015, bolster consumer protections on mobile and broadband contracts and seek to make the sale of mobile licences more uniform across Europe.
The aim of the reform is to foster a so-called "single market" for telecom services across the region, while spurring big operators like France's Orange and Britain's Vodafone to invest more in networks.
"This vote is the EU delivering for citizens," said Neelie Kroes, the European commissioner for digital affairs.
"This is what the EU is all about - getting rid of barriers to make life easier and less expensive. We should know what we are buying, we should not be ripped off, and we should have the opportunity to change our mind."
The package could still change after getting Parliament's backing because it must be approved by the Council of the European Union, which includes representative of each member state. The Council is expected to make a decision in October.
Telecom operators are not likely to give up the fight, especially over the parliament's measures on maintaining "net neutrality", the principle that all Internet traffic should be treated equally, regardless of the source or content.
Operators will be "barred from blocking or slowing down selected services for economic or other reasons," said a statement from the Parliament, citing the example of telecom groups banning free calling service Skype. Nor can telecom operators discriminate in handling data on their networks.
The decision could limit the ability of network operators to provide quicker Internet access to bandwidth-hungry content providers such as Google or Netflix in exchange for a fee. Such agreements are becoming more common in the United States.
Operators are fighting for a share of the profits from video streaming and music downloads to offset declining revenues in their traditional phone services. European telecom operators' sales are forecast to fall for the fifth year in 2014.
The industry says charging for different services and speeds would help fund network upgrades. But Internet activists say that goes against the spirit of an open Internet and would lead to the creation of a two-speed system.
"Net neutrality is as close as it gets to being the issue of our times for the Internet," said Guillermo Beltra of BEUC, a European consumer association.
"We are reassured to see members of Parliament say equitable internet provision must be realised."
Both the net neutrality and roaming steps are part of Kroes's plans to overhaul Europe's telecoms sector to make it more competitive with United States and Asia.
But they also come just two months before EU elections, when more than 300 million Europeans will vote for candidates to the European Parliament.
Putting an end to mobile roaming - and the phone-bill shock that affects those who use their phones abroad - has been a banner issue for legislators over the past three years, leading to tense exchanges with the powerful telecoms industry.
Sector analysts estimate telecoms revenues could fall around five percent without roaming fees, although the Commission argues that since more consumers will use their mobiles as a result, some of the impact will be offset.
Lobbying group ETNO, whose members include Deutsche Telekom , Telefonica and Telecom Italia, said the parliamentary vote was a step in the wrong direction.
"Today's vote risks derailing the original objectives of the Connected Continent Regulation, namely a strong European digital industry igniting growth and jobs creation," ETNO head Luigi Gambardella said.
Robin Bienenstock, an analyst at Bernstein Research, said the Parliament package was negative for telecoms companies, but that it remained to be seen how the final law would turn out.
"Investors are taking this as bad news, that Brussels is unpredictable and anti-telco," she said.
The European telecom index was down 0.4 percent at 13:20, worse than markets in Britain, Germany and France that were slightly higher. (Additional reporting by Leila Abboud and Kate Holton; Writing by Leila Abboud; Editing by Luke Baker and Tom Heneghan)