Telecom operators hit out at a new European Union proposal that aims to spur investment in faster fiber optics networks by reducing profits generated on copper-based networks, saying it was wrongheaded and would actually stunt progress.

Executives from nearly a dozen companies, including France Telecom, Telefonica and Telecom Italia, came out against the proposal only minutes after EU Commissioner Neelie Kroes laid it out in a speech at an industry conference in Brussels on Monday.

Kroes said she would open a consultation period to debate whether to reduce the amount telecom operators charge rivals to rent their copper-based telecom networks. Under the new approach, which is still in its early stages and could still change, operators which present credible plans to invest in fiber networks could be exempt from the lower rental charges.

Kroes portrayed the idea as a way to break the logjam preventing operators from investing the hundreds of billions of euros needed to roll out ultra-fast broadband across Europe.

She argued that telecom operators are too comfortable -- and earning healthy profits -- with their old networks and have little interest to spend heavily to rip up streets to install fiber networks.

Calling the idea simply crazy, Telecom Italia CEO Franco Bernabe said this new regulation would serve only to handicap further the industry at a time when the it was already suffering from falling revenues and profits.

We need lower taxes, less regulation, a good operating environment, and more profits. Instead we are getting the opposite, he said on a panel at the conference.

I think we are in a Kafka-esque environment. I don't understand what people are thinking and what kind of world they are living in.

Henrek Poulsen, CEO of Denmark-based operator TDC, told Reuters that the proposal was wrongheaded: This will reduce profits in the industry so there will be less money to invest, he said.

FALLING BEHIND

Kroes' proposal reflects a growing concern among European regulators and some national leaders that the Continent is falling behind in building high-speed broadband as well as new mobile networks.

The EU is far from achieving the goals set out in its Digital Agenda that aims for all Europeans to have access to broadband and by 2020 at least 50 percent of European households should subscribe to Internet access above 100 Mbps.

The slowness of fiber build outs have some policymakers worried that the region is losing a source of economic growth and becoming less competitive compared with the U.S. and Asia.

Pierre Louette, general secretary for France Telecom, told Reuters that he was surprised that the EU was opening another consultation process, and said it brought unwelcome uncertainty to the industry.

Louette said that for its part, France Telecom was moving ahead with its plan to invest 2 billion euros in fiber networks by 2015 because it believed it was the best strategy for the company, and it did not need further prodding by regulators.

Louette added that France Telecom has already signed an accord with smaller rival Iliad to cooperate with building out fiber outside major French cities, and that it planned to sign a similar deal with Vivendi's SFR in the coming weeks.

Fiber investments are not falling behind in France, he said. More punitive and confiscatory regulation doesn't do anyone any good.

Investors are likely to be spooked by the EU's move given the regulators' track record of forcing lower call termination rates and roaming fees, two policy changes that while positive for consumers did dilute the profitability of the industry.

The proposal, vague as it is in its early stages, has the potential to do material damage to incumbent operators in principle, wrote analysts from investment bank Jeffries in a note. The threat was twofold, the analysts wrote, operators would either have to accept lower fees and therefore see broadband prices erode in their markets, or they would have to embark on costly fiber investments that were uncertain in terms of returns.

The EU move is likely to set up a lobbying battle between regulators and companies.

Vimplecom CEO Jo Lunder told Reuters that despite the gulf between the two sides, both agreed on the need for Europe to develop strong communications infrastructure to feed growth and innovation. I think we all agree on the long-term objective, we just need to agree on how to get there, he said.

(Additional reporting by Foo Yunchee. Editing by Jane Merriman)

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