Germany and the European Commission have reached a compromise in their politically sensitive dispute over German plans to exempt new high-speed internet networks from regulation.
The move could hamper government efforts to give Deutsche Telekom a regulatory exclusion for a network that the company plans to build over the next few years at a cost of ?3bn ($3.6bn).
Matthias Kurth, German telecoms regulator, on Wednesday told the European Commission that he planned to regulate parts of the VDSL network after Brussels threatened to veto the exemptions.
The Bonn-based regulator argued in October that VDSL, very high bit rate digital subscriber line, was a new product that should be free from regulation, as it was impossible to tell what services it might spawn.
But the move sparked criticism from the Commission and from Deutsche Telekom?s rivals, which feared Mr Kurth was trying to help the former monopoly.
The EU executive called on Mr Kurth to explain his plans after it argued that VDSL was not a new product and must be regulated under EU telecoms rules.
Its fears were heightened by the German promise to exclude the Deutsche Telekom network from regulation as well as exempting other VDSL systems. Deutsche Telekom is the only company with plans to invest in the network.
A spokesman for Viviane Reding, European telecoms commissioner, said: ?We insist that the development of the VDSL market in Germany follows the EU rules and that the dominant player will not be given a head start in a monopoly.?
Other EU countries had agreed to regulate their VDSL markets, the Commission added.
Under the compromise, Mr Kurth would regulate parts of the high-speed network if services mirrored those available on existing lines. Services such as web-based television would for now be exempt from scrutiny.
Germany?s ruling parties, the Christian Democrats and the Social Democrats, agreed in October to Deutsche Telekom?s request for a regulatory break for its investment, although the move was not agreed in law.
The company at the time warned of job cuts if its request was ignored.