The European Commission will sketch out a blueprint for a single telecoms market in coming months, forcing governments to decide how much power they could surrender to Brussels regulators to make it function.
Wrapping up a two-day summit on Friday, EU leaders asked the European Commission for a plan by October, including "concrete measures to establish the single market in information and communications technology as early as possible".
The move kicks off months of drafting by the European Commission of new proposals on mobile spectrum, price regulation and mergers in a sensitive industry that is an economic backbone for EU countries trying to climb out of recession.
For governments resisting handing more power to Brussels, such as Britain's, the process could be painful and slow.
Britain's Conservative Party, which leads a coalition government, wants to repatriate some powers from the EU and has promised a referendum on EU membership if it wins the next general election in 2015.
Recent stand-offs between national governments and EU institutions over planned reforms of financial supervision show such pan-EU efforts require lengthy negotiation.
For now, the Commission is treading carefully on how much authority Brussels should have over telecoms companies.
"We should not discuss some ideal institutional structure in advance of building consensus on the specific areas where we need to make a difference," a Commission source told Reuters.
The aim, said the source, was not "central planning" but more convergence.
A diplomat from an EU member state said the regulatory overhaul being overseen by European telecoms commissioner Neelie Kroes would focus on creating a set of rules that leaves little wiggle room for governments to interpret them in their own way.
"The single regulator would be a natural consequence of such a plan," the diplomat added.
Big companies believe one regulatory voice in Europe would help them fulfil their goal of merging across markets and investing in faster, next-generation broadband.
Telecom companies in the United States, Japan and South Korea have been spending heavily on networks, but similar efforts in Europe have been held back by four straight years of revenue decline.
Big companies that want more mergers have backed Kroes in the hope of helping the European industry out its slump.
Some, such as Vodafone and France Telecom, want her to go further and plan for a single telecoms regulator, a suggestion many firms had previously opposed.
"The unification of the market would not only benefit a sector which employs 1.2 million people, but also positively impact the economy as a whole," the telecoms industry lobby group ETNO said in a statement.
The GSMA, which represents 800 mobile operators globally, said it welcomed a true single market because it would help the EU compete with the United States which "over the past decade delivered substantially higher levels of investment".
France Telecom-Orange also welcomed moves to a single market, saying it would deliver 'a clear and predictable' regulatory space.
Kroes said on Friday she sympathised with operators wanting to expand their businesses that were held back by a patchwork of regulation in 27 different EU markets.
"It means they don't get the advantages of organising their operations to serve an EU-wide market, and can't reach the size and scale needed to invest," she said in a blog post.
She has been dropping clues in recent speeches on proposals for mobile spectrum, price regulation and mergers, foreshadowing the sector overhaul. The proposals will be released in June and will go to a summit of EU leaders in October.
(Reporting by Claire Davenport; Additional reporting by Leila Abboud and Francesco Guarascio; Editing by Tom Pfeiffer)