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* EU leaders to ask for telecoms blueprint
* Governments concerned about lack of broadband investment
* Diplomats say step will begin months of talks
* Talks still seen as exploratory
By Claire Davenport and Harro Ten Wolde
BRUSSELS/FRANKFURT, March 14 (Reuters) - Europeangovernments on Friday will give a cautious welcome to proposalsfor a single European telecommunications market as they begin asector overhaul that could hand more power to Brusselsregulators.
EU leaders will ask the European Commission to draw up aplan by October, including "concrete measures to establish thesingle market in telecommunications as early as possible,"according to a draft text seen by Reuters and expected to beapproved at a summit on Friday.
Neelie Kroes, the commissioner overseeing digital andtelecoms policy, has been quietly working in recent months onproposals covering mobile spectrum, price regulation and mergers- a substantial overhaul of Europe's telecoms sector.
Big telecoms companies such as Vodafone and FranceTelecom are backing her efforts in the hope they willhelp the industry out of a deep slump.
Telecoms companies in the United States, Japan and SouthKorea have been investing heavily in networks, but those inEurope have been struggling to pay down debt and turn a profitunder fierce competition and regulation.
Draft conclusions drawn up for Friday's meeting show theleaders of the 27 EU member states will acknowledge the expectedreform plan but stop short of explicitly supporting it.
Many questions remain, especially whether countries willwant 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 whatthose are," the diplomat said.
A source at a large telecoms operator said several companieswere lobbying for more consistent, pan-European regulationinstead of the current system whereby Brussels sets guidelinesthat states often implement differently.
The industry also wants more freedom for mergers to reducethe number of operators and improve profits after four straightyears of revenue decline.
"All the large European telecom operators have talked totheir governments and made their case for a single Europeansupervisor," said the source, who spoke on condition ofanonymity because of the sensitivity of the discussions.
It was unclear whether Kroes would propose such a unifiedregulator in her plans, the source added.
WHAT IS A SINGLE MARKET?
The idea of a single market in Europe for telecoms servicesmeans different things to different actors. Some executives andKroes herself have voiced hope that the region would eventuallyhave four or five large operators serving customers acrossborders - similar to the U.S. and Chinese markets - resulting inhealthier, more profitable companies able to invest in networks.
Others use the term for having a single regulator to setrules on everything from mobile spectrum to roaming fees, sooperators do not have to deal with 27 sets of rules.
Political considerations could make both ideas difficult toachieve. Some countries may want to keep control over a keyindustry, especially lucrative mobile spectrum auctions thatbring billions to state coffers. And competition regulators arewary of mergers that would reduce the number of operators andpossibly lead to higher consumer bills.
Among the most politically sensitive questions is whether atruly European telecom market would need a single EU regulator.
Some companies, such as Vodafone and France Telecom, havesaid they would welcome a single EU regulator, something thatmany operators opposed in the past.
Kroes has not made a public call for a single regulator, butat a media briefing called it "interesting and efficient." Shealso said the Commission would pursue states who do not followEU rules, especially on freeing spectrum for mobile broadband.
A source at a large telecoms company said EU CompetitionCommissioner Joaquin Almunia might back a single regulator buthas spoken out against mergers as a cure-all for the sector.
Some in the industry say the differences between the twocommissioners would not be insurmountable.
"It is our impression that Kroes and Almunia seem near eachother, but that is something they have to figure out," said asource at a large telecoms operator. "(And in some countries)the interests of the governments and the telecom operators arebroadly in line."
