The move could pave the way for a revolution in the way radio spectrum is allocated in the Union.
The main ideas in the review being formally adopted Tuesday by the European Commission have been known for some time and have split the telecoms industry down the middle: incumbent operators are generally hostile to the changes while their competitors are broadly supportive.
Efforts to open markets that used to be dominated by one national phone monopoly in each country began in earnest in 1998. A raft of laws has been passed since then, designed to remove obstacles to competition and to bring down barriers between countries.
But they don't go far enough, European Telecoms Commissioner Viviane Reding is expected to say Tuesday as she unveils her long-awaited telecoms review.
Many former public monopolies continue to dominate crucial growing markets, such as broadband Internet access, through the control they exert over their telecoms infrastructure.
Reding wants to be able to threaten these incumbents with forced functional separation of their services and network operations if they fail to allow rivals fair access to their grids.
Incumbents argue that functional separation will have unintended negative effects. "Although its aim is to promote competition, the mandatory functional separation remedy may result in recreating a de facto monopoly and discourage risky investments in new access networks," said ETNO, the European telecoms trade body most of whose members are former public monopolies.
Companies trying to compete with the incumbents argue that functional separation is essential for competition.
"The Commission’s decision regarding functional separation is a particularly critical one. Seventeen countries in Europe are lagging in broadband provision because they have little or no unbundling of the incumbent network. Europe could today have been a worldwide broadband leader if regulators had had the opportunity to use functional separation to support open markets," said ECTA, the European Competitive Telecommunications Association in a statement Monday.
An equally controversial measure in the review is expected to address the problem caused when different countries interpret E.U.-wide telecoms laws differently. Reding wants to create an E.U.-wide telecoms authority with oversight of the 27 national telecoms regulators, to ensure that they follow the same rules. Critics both in the industry and among the national regulators argue that the creation of a new E.U. telecoms agency will just create more unnecessary bureaucracy.
Reallocating radio spectrum could have the biggest impact on consumers of all the ideas in the review, according to telecoms analysts. In the years to come, more radio spectrum will become available as a result of the switch off of analog TV and the move to digital TV. Reding wants to regulate radio spectrum in order to ensure widespread availability of wireless Internet services.
Reding is expected to propose a market-based approach to accessing spectrum, allowing companies to decide how it should be used, and lowering the barriers for access rights by making spectrum trading possible. She will also introduce the concept of "service neutrality," under which any frequency can be used by any service, including new services such as mobile television.
But more spectrum is also needed to launch new broadcasting services such as high-definition television, which requires greater bandwidth than digital terrestrial television.
Matthew Howett, an analyst with Ovum in London, said reorganising radio spectrum could have a dramatic effect on consumers, allowing them, for example to use Internet-enabled 3G phones (third generation) on the 900 megahertz frequency used by GSM (Global System for Mobile Communications) phones.
Reding has already encountered some resistance to her review from within the Commission. The competition department was opposed to functional separation and the plan for a new E.U. telecoms agency. However, they appear to have toned down their opposition in recent weeks.
Broad support for Reding's plans is expected from her colleagues in the Commission Tuesday. However, when the formal proposal is sent to the Union's two lawmaking bodies, the European Parliament and the Council of national government ministers, it is expected to be the subject of fierce debate. The outcome may be quite different from what Reding wants, especially if incumbent operators get the upper hand in the lobbying war that is just getting started.