Deutsche Telekom, Germany's incumbent phone operator, suffered a fresh blow on Monday when the European commission ordered it to open its new 3.3 billion euro (US$4.2 billion) high-speed broadband network to cheaper rivals immediately.
Deutsche Telekom has recently installed its new broadband service in several German cities but argued that the scale of its investment meant it should be exempt from competition for three years.
The regulator's decision is the latest in a series of setbacks for the German firm, which issued a profit warning 10 days ago after losing 1 million subscribers in six months.
Kai-Uwe Ricke, its chief executive, is reported to be under pressure from investors not to have his contract extended next year or to step down.
Telekom has seen its market eroded by competition with rivals now demanding the right to offer broadband services to private customers, who will no longer be obliged to buy a Telekom phone line for broadband.
Following complaints from Telekom's rivals such as Arcor, which is majority-owned by the UK's Vodafone, the European commission said the German operator should be forced to open up its "last mile" or "local loop" to competitors.
The commission endorsed plans by Germany's telecoms regulator, Bundesnetzagentur, to open up all of Telekom's broadband network and urged it to speed up plans to allow rivals to offer services such as video conferencing.
Viviane Reding, IT and media commissioner, made it plain that the changes apply to Telekom's new VDSL or high-speed network, which is 60 times faster than traditional ones. The German incumbent has been demanding a three-year "regulatory holiday" or freedom from competition to recoup the cost of its new network.
Reding also signaled that she would start legal action against Germany for infringing EU rules if the Bundestag exempts Telekom from competition.
The group claims it is offering a new product and should not be forced to allow competitors to use it, but an aide to Reding said: "Adding a faster engine to a car doesn't make it an airplane."
Reding's aim is to accelerate broadband penetration in Germany, which, at 12.5 percent of households, is just at the EU average and faltering, while it is twice as high in the Netherlands and Finland.
The commission also wants to reduce Telekom's dominance: It has a 60 percent broadband market share compared with BT's 25 percent in the UK.
Reding also wants to cut prices in Germany, especially in rural areas, as these can be three times higher than more liberalized markets such as the UK. She wants to open the market to "triple play" offers of voice, Internet and TV.
Telekom said Reding's demands "represent a classic case of over-regulation" and insisted other incumbent (ex-monopoly) operators in EU countries enjoyed a greater broadband market share.