UPDATE 2-EU scraps Deutsche Telekom, Orange, Telefonica investigation

* European Commission says no proof firms shut out rivals

* Case underlines tension between telcos, web firms (Adds Orange comment, details)

BRUSSELS, Oct 3 (Reuters) - Deutsche Telekom, Orange SA and Telefonica did not squeeze out Internet rivals, EU antitrust regulators said, in a case emblematic of the tussle between web companies and telecoms operators.

The European Commission said on Friday it had closed a 14-month investigation, which started with dawn raids triggered by a U.S. competitor, as it had found no proof of wrongdoing.

The Commission took action following concerns raised by U.S.-based Cogent Communications. It did not name the companies investigated, but the firms themselves confirmed the dawn raids.

“The Commission found no evidence of behaviour aimed at foreclosing transit services from the market or at providing an unfair advantage to the telecoms operators’ own proprietary content services,” the EU executive said in a statement.

But it said it would continue to monitor the sector closely.

Orange welcomed the EU decision: “The European Commission is the third competition authority to have audited our Internet interconnection agreements without finding any discriminatory or anti-competitive practices.”

Cogent Chief Executive Dave Schaeffer told Reuters last year the three operators had refused to upgrade the capacity of the interconnections, resulting in poor quality services for Cogent customers. He said the aim was to get Cogent to pay more.

French and German competition regulators have already rejected Cogent’s complaint on similar issues.

The EU is now seeking to strike a balance between allowing telecoms operators to strike lucrative deals with bandwidth-hungry content providers such as Google and Netflix , while ensuring smaller rivals can also get easy Internet access. (Additional reporting by Leila Abboud in Paris; Editing by Pravin Char)