By Claire Davenport and Leila Abboud
BRUSSELS/PARIS (Reuters) - European regulators backed away from forcing big telecom operators to charge smaller rivals less for renting space on their networks, changing tack in their efforts to spur the buildout of fiber broadband.
The European Commission had argued that the only way to get telcos to pick up the pace of building faster fiber networks was to make renting old copper lines less lucrative.
The idea triggered months of public sniping between regulators and major telecoms, with Telecom Italia CEO Francesco Bernabe calling the proposal "simply crazy".
Large European telecom companies on Thursday welcomed the rethink while representatives of roughly 100 alternative Internet providers complained that the change meant customers would continue to be overcharged.
Network tenants like Fastweb and Iliad say rents are too high while the copper wire owners say they need the cash from rents to invest in fiber infrastructure.
Governments and EU officials are growing increasingly concerned that the region's economy could fall behind Asia and the United States through a lack of broadband connectivity.
"In 2012 alone, 35 million Chinese households will be connected to very fast broadband," said Neelie Kroes, an EU Commission vice-president in charge of the Digital Agenda.
"We need to do much better to change that."
At the end of 2011, the EU had just one quarter of Japan's 20 million fiber customers in 2010 even though Japan's population is under a quarter of the EU's 500 million citizens.
In the past, Kroes said fiber buildout in the EU required 270 billion euros in investments.
Under the new proposals, companies like Telecom Italia and Telefonica will not have to lower the fees they charge for using their legacy copper networks.
In addition, the rents on new fiber broadband networks will not be subject to regulation as long as regulators say there is enough competition in the market.
The EU Commission also pledged to keep this approach in place until at least 2020, responding to calls by big operators for regulatory certainty ahead of costly network buildouts.
"The evidence shows that lowering copper prices (from 9 euro a month) will not induce greater investment in very fast broadband," Kroes said at a press briefing on Thursday.
The commission will continue to work up recommendations on copper line pricing and, before year-end, will publish guidelines to ensure changes do not bury competitors.
Telecom analysts say the Commission largely made the right choices but that in some markets new fiber infrastructure would be slow to arrive as a result.
Bernstein Research said though the decision reduces the risks that players like Deutsche Telekom could face from lower fees, "we do not think it will lead to any major fiber builds, and instead will improve the returns on incremental build."
British Telecom (BT), France Telecom and Telefonica will all benefit from a more stable outlook, wrote Bernstein's Robin Bienenstock in a note.
"The business case for fiber is tough and most companies are unwilling to make this long term investment, so the regulatory certainty being proposed is encouraging," said BT in a statement.
The ECTA, a trade association for smaller telcos, said the regulators' change of heart meant "incumbents will ... be allowed to continue overcharging consumers and starving competitors on existing networks.
"The EU already lags behind other regions of the world when it comes to super fast broadband...and these measures will set us further back."
The debate over how the EU could encourage broadband investment first flared in October 2011, when Kroes said incumbent operators were too comfortable -- and earning healthy profits -- with their old networks and had little interest in spending heavily on faster fiber networks.
She floated a proposal of gradually reducing the fees operators could charge for access to spur investments.
The commission spent months meeting with investors, companies, and consulting regulators in member states to study the impact of such a plan.
(Reporting by Robert-Jan Bartunek, Kate Holton; Editing by David Cowell)