* Reform aims to reduce dominance of America Movil, Televisa
* Bill threatens telecoms giants with forced asset sales
* Bill also proposes new telecoms regulator
* President has support of opposition parties
* America Movil and Televisa shares fall
By Michael O'Boyle and Dave Graham
MEXICO CITY, March 11 Mexico's government has threatened the country's telecommunications giants with forced asset sales, unveiling a plan to loosen billionaire Carlos Slim's hold on the telephone market and curb broadcaster Televisa's dominance of the airwaves.
The long-awaited bill seeks to shake up the telecoms sector by allowing increased foreign ownership of media and phone companies, and giving regulators the power to make players controlling more than 50 percent of the market sell assets.
"The purpose of these measures is to free up the sector's potential, and do it as quickly as possible," President Enrique Pena Nieto said as he presented the plan on Monday.
Flanked by the leaders of Mexico's main political parties, Pena Nieto said the reform would allow companies to grow, but added they would have to do so with innovation and investment, by improving prices and the quality of their service.
Previous governments have failed to curb the power of Mexico's telecoms and media tycoons, and fostering more competition in the industry is seen as a crucial yardstick of the new government's ability to unlock the economy's potential.
Pena Nieto's government, which took office in December, negotiated the reform bill with leaders from the main opposition parties after the two forged an accord with the president in December called the Pact for Mexico.
However, the planned reform may still face a tough road in Congress, where Pena Nieto lacks a majority.
Slim, the world's richest man, dominates Mexico's telecommunications market, controlling about 70 percent of its mobile market and 80 percent of its fixed phone lines.
Televisa, controlled by tycoon Emilio Azcarraga, has about 60 percent of the broadcast market.
The bill stipulates that any company with a market share exceeding 50 percent will be deemed dominant.
A dominant player may be subject to sanctions including possible forced asset disposals, the proposal said. It also seeks to curb the ability of companies to suspend legal rulings against them while they appeal decisions.
Limits on foreign ownership of fixed-line assets would be eliminated under the bill. It also envisages allowing foreign investors to take up to 49 percent ownership of TV or radio broadcasters, pending a review by a foreign investment commission.
Analysts have said Spain's Telefonica SA could move to buy up phone companies Maxcom and Axtel , once foreign ownership limits are removed.
In the television market, the bill aims to increase competition by auctioning rights to run two new television channels, a process that will not be open to the two most powerful broadcasters, Televisa and TV Azteca.
It could also open the door for Slim to the television market, which he has been kept out of so far, but it is unclear whether he will be able to take part in the new auction.
Javier Oliva, a political scientist at the National Autonomous University of Mexico, said with the leaders of the three main parties backing the bill, it would be much tougher for telecom industry lawyers to neuter the reform.
The bill proposed introducing a new telecoms regulator, the Federal Institute of Telecommunications (IFT), along with specialized courts for settling competition disputes.
Mexico's peso strengthened to its highest point in 18 months early on Monday with traders saying the currency had benefited from optimism about the country's reform drive.
Pena Nieto has pledged to ramp up economic growth to six percent a year, from about four percent in 2012 and has said that a shake-up of state oil firm Pemex, broadening the tax base and increasing competition will be key.
Asked how much telecoms reform could help Mexico's economy, Finance Minister Luis Videgaray said some analysts estimated the bill could add up to 1 percentage point to annual growth.
The benchmark IPC stock index slipped 0.7 percent, dragged down by a fall of more than 3 percent for Slim's America Movil and nearly a 1 percent drop for Televisa.
America Movil welcomed the reform bill in a statement, noting that the lifting of limits on foreign investment would help bring in the additional capital it said the sector needed.
Televisa's chief executive, Azcarraga, said on his Twitter account that Mexico was entering a period of great challenges and opportunities. "Welcome competition," he said.
The bill also aims to underline Pena Nieto's commitment to reducing the divide between rich and poor Mexicans. Around half the population lives in poverty, while much of the country's economic power is concentrated in the hands of a few families.
Some worry that Congress could water down the plan, but lawmakers in Pena Nieto's centrist Institutional Revolutionary Party (PRI) are confident the bill will succeed.
PRI congressman Hector Garcia said he expected it to pass the lower house of Congress by the end of next week and get Senate approval by the end of the current session on April 30.
"We're certain it'll be voted on in the Senate this period," he said. "The Pact for Mexico stipulates this timeframe."
Garcia said he believed the planned reform would be signed into law no later than September of this year. A secondary law will be needed to implement the changes foreseen by the bill.
While the outline of the bill presented on Monday prompted investors to dump shares in the large incumbents, America Movil and Televisa, smaller companies benefited from the announcement.
Shares of Maxcom and Axtel, which has waded deep into debt to compete with Slim's fixed line giant Telmex, gained about 7 percent apiece. Shares in cable firm Megacable rose 2 percent while TV Azteca shares were nearly flat.
"It's obvious the reform will benefit the companies with the least market share," said Jorge Nevid, head of trading at brokerage Accival in Mexico City.
In terms of revenue, America Movil could be much harder hit by the reform than Televisa.
Slim's companies had 67 percent of the 414 billion pesos ($33 billion) in total revenue from Mexican phone and television companies in 2012, while Televisa's cable companies had just 8.5 percent, according to data from market research group The Competitive Intelligence Unit.