BRUSSELS - The European Commission proposed on Tuesday giving national telecoms regulators major new powers to split dominant operators in a shake-up of European telecoms rules immediately opposed by Germany and incumbents.

The EU executive also wants to be allowed to override national regulators' decisions and to create an EU telecoms watchdog. It says the controversial measures are needed to boost competition in broadband and wireless services.

"The changes the Commission is presenting today in the telecoms rules is bound to revolutionize the European telecoms sector," EU Telecoms Commissioner Viviane Reding told a news conference.

"This reform will reinforce our industry as world leader in telecoms...it will increase competition, leading to more innovation and investments, and it will help European citizens to get the most out of modern communication systems," she said.

Under "functional separation," regulators could force a split of the network and retail arms of operators, with no divesture of assets, in the event of persistent competition problems, and after checking the impact on investments in networks and getting the green light from the EU executive.

The plan must be agreed by EU governments and parliaments to become law and analysts expect it to run into strong opposition.

"Reticence is warranted," the German Economy ministry said in a statement.

Former monopolies slammed the proposal on Tuesday, saying it would discourage operators from investing in new networks such as optic fiber.

FEWER INVESTMENTS?

"The proposals of the commission will hinder investments of billions... Investment in fixed lines would make no more sense," Deutsche Telekom <DTEGN.DE> said.

The European Telecommunications Network Operators' Association ETNO that represents dominant companies such as France Telecom <FTE.PA> and Spain's Telefonica <TEF.MC> also opposed the plan.

Reding and new entrants on the telecoms markets rejected the argument: "It's very good news for competition and for investments in high speed broadband," said Ilsa Godlovitch of the European Competitive Telecommunications Association ECTA.

Her group represents new operators such as Neuf Cegetel of France and Virgin Media, which compete with former monopolies.

National regulators are happy to be given more powers, but do not want the EU executive to be allowed to overrule their decisions and insist that they do not need an EU watchdog.

The European Commission says the new rules could be applied by the end of 2009. Analysts expect EU states such as Germany, France and Spain to water them down.

"There is scope for the final version to be quite a lot different," said John Davies, at Dresdner Kleinwort.

The EU executive also proposed that radio frequencies, used by the telecoms, broadcasting, aircraft and defense industries, should be opened to all businesses to boost what it estimates is a 250 billion-euro ($364.9 billion) market.

The European Commission plans to reduce a list of telecoms markets kept under close scrutiny from 18 to seven. Analysts say it will have little impact on these markets.