* France to split 4th 3G licence in three
* One tranche of licence reserved for new operator
* Shares in existing operators fall
(Adds quotes from likely candidate Iliad, detail)
By Sophie Louet and Matt Gil
PARIS, Jan 12 France has decided to break a planned fourth 3G mobile telecoms licence into three lots of 5 megahertz, with one reserved for a new operator, Prime Minister Francois Fillon said on Monday.
He added that the new frequencies would be allotted before the summer. A government official said the tender would be launched in February.
France has three 3G licences, operated by France Telecom's FTE.PA market-leading Orange, Vivendi's (VIV.PA) second-placed SFR and Bouygues Telecom (BOUY.PA). Shares in the owners of all three fell on Monday after the announcement they would face a new rival.
Iliad (ILD.PA), France's number two operator of triple-play Internet services, would bid for the tranche of French UMTS spectrum reserved for a new entrant if the price was suitable, Chief Executive Maxime Lombardini said.
"We feel we are the right ones to be the fourth operator that France needs," Lombardini told Reuters in a telephone interview.
Iliad has said for two years it wanted to be the fourth licence holder, so "it would not make much sense if we were not a candidate", he said.
"Now we have to wait and see the financial conditions to be able to confirm officially that we will be a candidate, but naturally we are very interested and very engaged in the matter," he added.
STATUS QUO THREATENED
France Telecom shares closed down 3.2 percent at 19.65 euros on Monday, and Vivendi's fell 4.2 percent to 21.47 euros. Bouygues, owner of the smallest player, Bouygues Telecom, fell 7 percent.
All three fared worse than the DJ Stoxx European Telecoms index .SXKP, which was down 1.36 percent.
"Bouygues, Vivendi and France Telecom neglected the possibility of a new entrant on the market," said an analyst in the sector who preferred to remain anonymous.
"Bouygues is the hardest hit, as it is the smallest operator and thus more exposed to the arrival of a new competitor."
Iliad shares closed down 1.62 percent at 64.47 euros.
Dexia analyst Rob Goyens said Iliad was the "best placed" to clinch the licence.
Iliad was the sole bidder for the last auction for a full, 15-megahertz fourth UMTS licence in France in 2007, buts its bid was rejected on technical grounds, as it had offered to pay the 619 million euro ($829.6 million) fee in instalments.
Lombardini declined to comment on whether he would be prepared to pay around a third of the original sum for a third of the spectrum and would not say if Iliad would again propose paying in instalments.
A NATIONAL SERVICE FOR 1 BILLION EUROS
Lombardini said with a single 5 megahertz tranche of spectrum and an investment of 1 billion euros he could have a national network up and running within 18 months of signing the licence, based on "industry estimates".
"And nothing prevents me from being a candidate for another tranche of 5 megahertz in competition with the existing operators", Lombardini said, adding that Iliad would "probably not" bid for three tranches.
Asked what strategy Iliad would have as France's fourth operator, Lombardini said: "We made a promise to bring French mobile phone bills down sharply ... That is a promise i am able to renew." ($1=.7461 Euro) (Additional reporting by Sophie Louet, editing by Will Waterman)