UPDATE 1-S.Africa fines Telkom $55 mln for "bullying"

* Fine of R449 mln vs R3.5 bln originally sought

* Regulator says Telkom impeded competition (Recasts, adds analyst comment)

JOHANNESBURG Aug 7 (Reuters) - South Africa on Tuesday slapped fixed-line operator Telkom with a lighter-than-expected fine of 449 million rand ($55 million) for using its dominant market position to "bully" potential competitors.

The result is likely to be seen as a victory for Telkom. South Africa's competition watchdog, which first lodged the complaint in 2004, originally sought a fine of 3.5 billion rand, which the struggling company has said would be "catastrophic" and jeopardise its business.

The Competition Tribunal, which rules on anti-trust complaints, said Telkom exploited its position as South Africa's dominant player in telecoms to block competition from other network service providers.

"Telkom impeded the growth of its competitors and retarded innovation in the market place," the Tribunal said, adding that "Telkom bullied its downstream competitors into line".

Shares of Telkom, which were down more than 3 percent before the release of the judgement, pared losses after and were down 1.1 percent at 17.85 rand at 0843 GMT.

"Telkom had to be fined something to make it politically equitable and for the Competition Tribunal not to be seen as unfair," said Dobek Pater, a telecoms analyst at consultancy Africa Analysis.

"It's probably an optimal way out for all parties."

Stung by declining fixed-line usage and an expensive, failed attempt at expansion into Nigeria, Telkom has been struggling to craft a convincing turnaround plan.

South Korea's KT Corp last year offered to buy 20 percent of Telkom in a deal that was eventually scuppered by South Africa's government after KT cut back its offer price.

The government has also said companies trying to maximise profits could overlook the millions of poor lacking services. Rolling out broadband services is one of the ruling African National Congress' stated goals.

The government is currently debating making Telkom a fully state-owned company once again.

South Africa's government currently owns just under 40 percent of Telkom, while the state-run Public Investment Corporation holds just short of 11 percent. (Reporting by Helen Nyambura-Mwaura and Tiisetso Motsoeneng, writing by David Dolan; Editing by Ed Stoddard)