Deutsche Telekom is the fortunate beneficiary of a new German law protecting it from competition for new broadband services. But the European Union isn’t about to let the law stand without a fight. Recently, it launched a legal challenge against Germany’s new law as discriminating against competitors. The upcoming legal battle will benefit no one, least of all European consumers.

The EU has given Germany until next week to respond to its complaint. The German government will not satisfy the EU, and the dispute will go to the European Court of Justice. That court, a creation of the EU, might be expected to side with the EU. But the ultimate outcome of litigation involving the regulatory responsibilities of different governments is difficult to predict other than it will take years to reach final resolution.

Exactly 10 years ago and a continent away, a different large federal government became involved in eerily similar litigation against a smaller regional government. That litigation, AT&T v. Iowa Utilities Board, led to a seemingly unending series of other cases involving the Federal Communications Commission, usually allied with competitive carriers, against incumbent carriers and state governments. The legal issues were of two forms: Which level of government had lawful authority to make regulatory decisions; and even where it had legal authority, did FCC rules comply with federal laws?

These two questions are likely to be at the core of the litigation between the EU and Germany. They arise not just for telecommunications regulation, but for all areas of jurisdictional disputes between the EU and it many member states. Who has the power to tax, regulate land use, regulate product labeling, and regulate labor laws are only some of the unsettled legal issues within the EU.

In America, the resolution of these legal issues just for telecommunications was painful. The FCC often lost in court, and to complicate matters, the FCC partly shifted its allegiances to the incumbent carriers in 2001. When governments, whether in America or Europe, lose in court on regulatory issues the predictable foundation of law itself crumbles. Many rational investors flee. The American telecommunications industry has never fully recovered from the uncertainty spawned by a decade of litigation involving regulatory agencies.

Countless tens of billions of dollars of investment lay fallow in America as a result of ever-changing telecommunications rules and litigation. What was legal one year was not the next. Few investors have the stomach for legal chaos. Today, Germany and the EU stand on the precipice of repeating litigation similar to that which left American industry weakened.

The telecommunications situation in Germany is not pretty. The German government stills owns 32% of Deutsche Telekom, the incumbent telephone company that was once entirely government owned. Although profitable in 2005, Deutsche Telekom recently announced losses of more than 500,000 customers and more than $1 billion for the fourth quarter of 2006.

To retain customers and to return to profitability, Deutsche Telekom must take several steps including rationalizing its overly large work force and offering more attractive broadband services. The new CEO, Rene Obermann, has such plans, but implementation is difficult. A company based in Europe with a quarter-million workers cannot easily retire tens of thousands of employees and reassign even more workers to more productive activities. Last week, 13,000 union members protested at Deutsche Telekom headquarters in Bonn against the proposed changes.

Equally daunting are Deutsche Telekom’s plans to invest billions of dollars to upgrade its network to support faster broadband services. Deutsche Telekom was pleased when the German government announced a new law to protect this investment from legal requirements to share access to telecommunications facilities with competitors. The competitors, and now the EU, have cried foul.

The EU challenge to German regulation may, at first blush, appear to benefit competitive firms challenging Deutsche Telekom. But longer term, it is not clear that litigation against governments is a reliable foundation to resolve regulatory differences. Just ask the former WorldCom chief executive, Bernie Ebbers, or the CEOs of dozens of other failed competitive carriers in the United States.

A former FCC commissioner, Mr. Furchtgott-Roth is president of Furchtgott-Roth Economic Enterprises. He can be reached at hfr@furchtgott-roth.com.