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By Claire Davenport and Harro Ten Wolde
BRUSSELS/FRANKFURT (Reuters) - European governments on Friday will give a cautious welcome to proposals for a single European telecommunications market as they begin a sector overhaul that could hand more power to Brussels regulators.
EU leaders will ask the European Commission to draw up a plan by October, including "concrete measures to establish the single market in telecommunications as early as possible," according to a draft text seen by Reuters and expected to be approved at a summit on Friday.
Neelie Kroes, the commissioner overseeing digital and telecoms policy, has been quietly working in recent months on proposals covering mobile spectrum, price regulation and mergers - a substantial overhaul of Europe's telecoms sector.
Big telecoms companies such as Vodafone and France Telecom are backing her efforts in the hope they will help the industry out of a deep slump.
Telecoms companies in the United States, Japan and South Korea have been investing heavily in networks, but those in Europe have been struggling to pay down debt and turn a profit under fierce competition and regulation.
Draft conclusions drawn up for Friday's meeting show the leaders of the 27 EU member states will acknowledge the expected reform plan but stop short of explicitly supporting it.
Many questions remain, especially whether countries will want to cede more power over a critical industry to Brussels.
"Discussions can begin in earnest from now until October," an EU diplomat said ahead of Friday's discussions.
"She is pushing for new instruments, but we don't know what those are," the diplomat said.
A source at a large telecoms operator said several companies were lobbying for more consistent, pan-European regulation instead of the current system whereby Brussels sets guidelines that states often implement differently.
The industry also wants more freedom for mergers to reduce the number of operators and improve profits after four straight years of revenue decline.
"All the large European telecom operators have talked to their governments and made their case for a single European supervisor," said the source, who spoke on condition of anonymity because of the sensitivity of the discussions.
It was unclear whether Kroes would propose such a unified regulator in her plans, the source added.
WHAT IS A SINGLE MARKET?
The idea of a single market in Europe for telecoms services means different things to different actors. Some executives and Kroes herself have voiced hope that the region would eventually have four or five large operators serving customers across borders - similar to the U.S. and Chinese markets - resulting in healthier, more profitable companies able to invest in networks.
Others use the term for having a single regulator to set rules on everything from mobile spectrum to roaming fees, so operators do not have to deal with 27 sets of rules.
Political considerations could make both ideas difficult to achieve. Some countries may want to keep control over a key industry, especially lucrative mobile spectrum auctions that bring billions to state coffers. And competition regulators are wary of mergers that would reduce the number of operators and possibly lead to higher consumer bills.
Among the most politically sensitive questions is whether a truly European telecom market would need a single EU regulator.
Some companies, such as Vodafone and France Telecom, have said they would welcome a single EU regulator, something that many operators opposed in the past.
Kroes has not made a public call for a single regulator, but at a media briefing called it "interesting and efficient." She also said the Commission would pursue states who do not follow EU rules, especially on freeing spectrum for mobile broadband.
A source at a large telecoms company said EU Competition Commissioner Joaquin Almunia might back a single regulator but has spoken out against mergers as a cure-all for the sector.
Some in the industry say the differences between the two commissioners would not be insurmountable.
"It is our impression that Kroes and Almunia seem near each other, but that is something they have to figure out," said a source at a large telecoms operator. "(And in some countries) the interests of the governments and the telecom operators are broadly in line."
(Additional reporting and writing by Leila Abboud; Editing by Steve Orlofsky)