UPDATE 1-Thai telecoms race for 3G heats up, shares hit

* Four bidders submit applications, but one fails

* Regulator to announce qualified bidders on Sept. 14

* Regulator expects foreign investors to join 2nd round

* Telecoms shares down, led by True Corp (Adds details, share price reaction, analyst comment)

By Manunphattr Dhanananphorn and Khettiya Jittapong

BANGKOK, Aug 30 (Reuters) - Thailand's telecoms regulator said on Monday it had rejected an application from one bidder to join an auction for third-generation mobile phone licences, leaving only the top three telecoms operators in the running.

With three bidders joining the auction, just two licences will be up for grabs in the first round and a third licence will be auctioned in a second round within 90 days, stoking speculation that major player True Corp Pcl TRUE.BK won't get a license in the first round.

The telecoms regulator plans to hold the 3G auction on Sept. 20-28, a crucial step in reforming the $4.7 billion sector that could pave for foreign players to grab a bigger slice of the industry and change the way companies pay fees to the government.

Leading Asian telecoms firms such as China Mobile Ltd (0941.HK) and South Korea's SK Telekom Co Ltd (017670.KS) have expressed interest.

"Four companies submitted applications today. After preliminary examination, three bidders have complete documents to join the auction," Natee Sukonrat, a member of the National Telecommunications Commission (NTC), told reporters.

The three are units of Advanced Info Service Pcl ADVA.BK, second-ranked Total Access Communication Pcl DTAC.BK (TACC.SI) and True Corp Pcl TRUE.BK. The fourth, Win Win NGV Co. Ltd, an assembler of natural gas vehicles, failed to submit sufficient financial documents, the regulator said.

Shares fell in the three companies joining the bid, led by a 2.7 percent drop in True. TAC lost 1.5 percent, while AIS edged down 0.5 percent in a rising market.

Thailand is among the last Asia countries to hold an auction for three licences on the new 2.1 GHz spectrum, which is expected to generate at least $1 billion for the state.

The NTC will announce names of qualified bidders on Sept. 14 and the auction will be held 12 times a day from Sept. 20 with a starting price of 12.8 billion baht ($408 million). ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For a Q&A on the sector, click [ID:nSGE6710AJ] For a factbox on the telecoms players, click [ID:nSGE6720IR] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

FOREIGN INVESTMENT?

AIS, 21 percent owned by Singapore Telecommunications Ltd (STEL.SI), sent its wholly-owned unit Advanced Wireless Network Co. Ltd. to join the auction.

Second-ranked TAC (TACC.SI), controlled by Norway's Telenor (TEL.OL), sent its unit DTAC Internet Service Co. Ltd, and True Corp, which owns True Move, the country's third-largest mobile operator, joined the bid via Real Move Co. Ltd.

Telecome group Samart Corp Pcl SAMA.BK, partly owned by Malaysia's Axiata (AXIA.KL), scraped its plan to bid for 3G licence, which sent its stock down 5 percent. [ID:nSGE67T06S]

The auction is seen opening up Thailand's telecoms market to foreign investors and accelerating merger and acquisition activity in the sector.

Natee said he expected global operators to join the bid in the second round, but industry analysts said Thailand's high mobile-phone penetration rate and low tariffs of 2-3 U.S. cents per minute for voice services could hold back foreign operators.

"It is difficult to imagine a greenfield 3G entrant in Thailand, where mobile penetration has already surpassed 100 percent," Nicole McCormick, analyst at technology consultancy Ovum, said in a recent report.

Foreign investors also face hurdles, including a requirement to form a joint venture with a Thai company under laws that limit foreign holdings in companies in the sector to 49 percent.

Some analysts say interested foreign investors could buy a stake in True, which has no foreign partners. True has said it would sell up to 25 perent of its mobile phone unit to a foreign partner after it receives a 3G licence.

3G should be a big boost to high-speed Internet in Thailand, where only 21 percent of its population of nearly 67 million people surf the Internet and just 2.7 percent go online with broadband connections, industry data show. (Additional Reporting by Pisit Changplayngam; Editing by Jason Szep)