UPDATE 2-France Telecom slams EU plans to boost regulators

(Adds more quotes, comment by new entrants)

By Ingrid Melander

BRUSSELS, Nov 6 (Reuters) - France Telecom (FTE.PA) said on Tuesday that European Commission plans to give telecom regulators the power to separate the service and network arms of operators would harm incentives to invest in new services.

"There is a real risk for next-generation networks," Jacques Champeaux, director of regulatory affairs at France Telecom, told a news conference in Brussels.

EU Telecoms Commissioner Viviane Reding says her plans to give such power to regulators is needed to add to competition in sensitive sectors such as broadband. It would be a functional separation with no divestiture of assets.

Reding is backed by new entrants on the telecoms market.

But Champeaux, speaking a week ahead of the publication of European Commission proposals to review EU telecom rules, said such steps would discourage operators from investing in new generation networks such as optic fibres.

"It really goes in the wrong direction," he said. "The new regulation should not aim to solve the problems of the past ... but to create better options for better growth in the new networks."

Reding also wants to create a pan-European regulator. "This sends a rather bad message," Champeaux said, adding that France Telecom believed the EU should concentrate on reducing regulation, not on creating an agency charged with regulating.

Champeaux said France Telecom overall had "mixed feelings" about the Nov. 13 proposals, as it welcomed plans to take wholesale markets out of special regulatory scrutiny as well as plans to make the access to radio spectrum more flexible.

"For us it is a bit strange, because it may seem like the European Commission does not fully believe in full competition," he said.

EU states and the European Parliament have the final say on the reforms.

The European Telecoms Operators' Association (ETNO), which represents incumbents such as France Telecom, Deutsche Telekom (DTEGn.DE) and Telefonica (TEF.MC), said last month that lost investment due to intense access regulation with the new EU plans could exceed 10 billion euros ($14.46 billion).

New entrants on the telecoms markets back Reding's proposal to give regulators more powers, saying they are needed to ensure fair competition. They would, however, want the EU to keep more markets under close scrutiny.

The European Competitive Telecommunications Association (ECTA), which represents new operators such as Neuf Cegetel NEUF.PA of France and Virgin Media VEMD.O, published a study on Tuesday in which it said regulation stiumlates investments. "There is a direct and positive correlation between investment levels and the effective implementation of pro-competition regulation," Richard Cadman, the author of the report, said in a statement. (Editing by Louise Ireland)