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* State raises 3.8 bln euros, well above target
* Four winners, including new entrant Tele2
* KPN to cut dividend for 2012, 2013 to pay for licences
By Thomas Escritt and Sara Webb
AMSTERDAM, Dec 14 (Reuters) - The Dutch state raised much more than expected in its auction of fourth generation (4G) wireless frequencies, with prices so high market leader KPN said it would have to cut dividends to afford its licences.
The auction raised a much higher-than-expected 3.8 billion euros ($5 billion) and the result will lead to fierce competition in one of Europe's most lucrative mobile phone markets as the winners roll out faster, fourth-generation services which allow consumers to watch video and surf the Internet on the move.
The Dutch market is currently dominated by KPN, Vodafone and Deutsche Telekom, all three of which won licences, as did new entrant Tele2 of Sweden.
Two cable companies - Ziggo and UPC, owned by Liberty Global, which already have strong shares in broadband and pay-TV - said they made a joint bid but later pulled out of the auction later because the bidding went too high.
KPN, which is 28 percent owned by Mexican telecoms tycoon Carlos Slim, said the cost of the licences meant it would no longer be paying a final dividend for 2012 and would pay out only 0.03 euros per share for 2013, far lower than already revised dividend forecasts.
It had already cut its dividend forecast for this year to 0.35 euros from an initial planned payout of 0.90 euros. It has paid an interim dividend of 0.12 euros.
KPN had been planning a payout for 2013 of 'at least' 0.35 euros.
Traders and analysts have previously expressed concern about the ability of KPN to pay dividends given it has a debt to core profit ratio exceeding its own targets. KPN shares hit a 10-year low of 3.90 euros in November.
Eelco Blok, KPN's chief executive, later acknowledged on a conference call that KPN was paying a "considerable price" for the licence, but said that as the market leader, it could not afford to miss out on the auction. He also said it would produce a good return over its 17-year duration.
KPN, which expects to roll out its new 4G services from February, did retain its outlook for 2012 core profit, cashflow and capital expenditure.
It said it would draw on existing cash and its 2 billion euro revolving credit facility to finance the purchase. The dividend cut will save it 800 million euros.
Asked about the impact on debt and its financial health, Blok said investors would have to wait until the company reported fourth-quarter results on Feb 5.
The Dutch government had counted on raising about 480 million euros from the auction, and the better-than-expected result provides a welcome windfall at a time of austerity measures and budget cuts amounting to 46 billion euros by 2017.
The Netherlands set aside spectrum for new entrants at the Oct. 31 auction in a bid to boost choice and lower prices in a country with 19.6 million mobile phone subscriptions - more than one for every head of population.
The auction of 41 separate spectrum licences was the biggest in Dutch telecommunications history, the state telecoms agency said on Friday.
Swedish firm Tele2, which was already present on the Dutch market as a virtual operator, will now be able to build out its own network, the agency said in a statement.
"This will create more competition," it added.
Vodafone paid 1.38 billion euros for nine licences, KPN paid 1.351 billion euros for 15 separate licences, while Deutsche Telekom's T-Mobile spent 911 million euros on 15 licences. Tele2 made a bid of 161 million euros and won two licences.
Some of the spectrum licences will kick off next year and most will run for 17 years.
"The existing Dutch mobile market today still faces one of the highest price levels in Europe and slow innovation within mobile broadband," Guenther Vogelpoel, CEO of Tele2 Netherlands, said.