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The European Commission came out against breaking up former monopolies under its latest raft of regulatory proposals, saying it preferred a “structural split” between companies’ networks and services divisions to help promote competition in the sector.

Viviane Reding, the EU telecoms commissioner, had caused consternation among Europe’s largest operators after she hinted that an AT&T-style fragmentation could be an option.

In her long-awaited green paper on the telecoms industry, Ms Reding suggested that companies could instead opt for a structural separation of the two activities such as that adopted by BT Group in the UK which has different business centres for networks and services.

Asked at a press conference whether she would adopt the strategy similar to that which led to the split up of AT&T in the US in 1984, she said: “It’s not the way we do it in Europe”.

However, Deutsche Telekom was quick to deny the need for any separation between its core operations saying that it did not recognise the competition problems that Ms Reding claimed would be resolved by a division.

Ms Reding also proposed setting up a Europe-wide super-regulator for the industry and phasing out “ex ante” regulation in at least six of the existing 18 telecoms market segments, including those for national and international calls, but called for more effective regulation in the remaining markets.

“For those markets where competition is not yet effective (such as the crucial broadband supply market), the Commission wants EU rules applied more effectively, so as to step up competition throughout the single market,” the Commission said in a statement.

“We welcome the Commission’s move to deregulate where competition is robust but rules must be consistent across markets including roaming,” said a spokesman from Vodafone.

However, a plan to treat SMS text messaging as a separate market for the purposes of regulation drew criticism.

“EU plans to widen the remit of regulation to include text messaging are set to increase the regulatory burden on operators, who are already threatened by reduced returns in the high-margin mobile roaming market. Given slowing mobile growth in Europe, operators may look to offset new regulation in the mobile sphere by increasing certain call prices or reducing handset subsidies,“ said Richard Ireland, telecoms analyst at Ernst & Young.

Mr Young also questioned the proposal of a super-regulator. “Such a move would doubtless upset national regulators, some of whom have questioned recent EU proposals such as a cap on retail mobile roaming prices,” he said.

Ms Reding also argued for setting up a European spectrum agency to oversee the management of the radio spectrum and signalled that the incumbent operators could not expect “regulatory holidays”.

She is set to meet with Deutsche Telekom next week to discuss proposals for a German law that will allow the company a regulatory holiday for five years because of the costs of building out its broadband infrastructure.

Deutsche Telekom did not comment on regulatory holidays but it rejected the need for dividing network and services operations, on the grounds of competition.

In her wide-ranging proposals on radio spectrum, Ms Reding looked set to
realise restrictions on spectrum trading, saying she favoured assigning spectrum “according to the principles of market demand”. She also said she wanted to set up a pan-European spectrum agency in a bid to bring rules in line across the EU bloc.

Vodafone was largely supportive of the freeing up spectrum markets, but queried the need for a spectrum body.

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