* Reform will lead to a new pan-EU supervisory body
* Price cuts seen from increased competition
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By Jeremy Smith
BRUSSELS, March 31 The European Union's main institutions have struck a draft deal on the main elements of a package to reform EU telecom rules to increase competition and cut prices for customers, the EU executive said on Tuesday.
"We have a draft deal that was concluded at a very late hour last night," European Commission spokesman Martin Selmayr said.
The reform sets up a new pan-EU supervisory body, beefs up consumer rights and allows regulators to split up integrated telecoms companies as a last resort to boost competition, a step Germany and its largest domestic operator is unhappy with.
"At the moment we are still cautious with regard to statements since the draft deal is ready for the vote but has not yet been approved," Deutsche Telekom said.
"In general, however, network unbundling is the medicine for a disease Germany does not have," the operator said.
The reform also aims to make it harder for a national regulator to shield a local operator from competition.
Britain's former state-owned operator, BT (BT.L), has already been split up into its constituent parts to boost competition in a move EU Telecoms Commissioner Viviane Reding, who authored the reform, sees as a model for others to follow.
"We are pleased that significant progress has been made and that momentum is behind securing a final agreement by the summer. This paves the way for improved regulation across Europe which will benefit the UK's consumers and businesses," UK telecoms regulator Ofcom said in a statement.
The draft deal will now be forwarded for ratification to the EU's executive Commission and the council of EU member states, Selmayr said. The European Parliament was expected to vote on the final deal, with probable compromise amendments, in May.
"The most controversial issue, why it took so long ... was something that is perhaps not at the centre of the telecom package ... this is an amendment about the Internet, freedom of access to the Internet and freedom of expression," he said.
Representatives of the EU Parliament, EU Commission and EU Council plan to hold a further 'trilogue' meeting on Thursday to negotiate a smaller package within the main reform deal, discussing privacy and universal service.
ECTA, a lobby representing smaller, new telecoms entrants, said the reform would give regulators extra powers and enforcement tools against dominant firms.
"This is a very positive step. The UK experience has shown that functional separation can be positive for investment, for consumers and create clarity for the entire industry and we hope that this experience can be repeated elsewhere," ECTA said. (Additional reporting by Nicola Leske in Frankfurt; editing by Erica Billingham and Simon Jessop)