* Regulators block Televisa-Iusacell deal
* Rejection cements Slim's market dominance
* Televisa says already put $1.6 billion into Iusacell
By Cyntia Barrera and Patrick Rucker
MEXICO CITY, Feb 1 Mexican regulators have blocked broadcaster Televisa's $1.6 billion bid for a 50 percent stake of cellphone company Iusacell, cementing tycoon Carlos Slim's dominance of Mexico's mobile market.
Televisa and Iusacell had hoped to combine forces to challenge Slim in the cellphone market, which has made him one of the world's richest men.
The 72-year-old Slim's control of roughly 80 percent of Mexico's cell and fixed-line phones has sparked criticism of monopolistic practices and claims that his companies abuse their power.
But Televisa and Iusacell said on Wednesday their tie-up had been rejected by Mexico's competition watchdog, which has yet to publicly announce its decision or the reasons behind it.
The two companies are themselves owned by two of Mexico's richest men, who have a near duopoly in the television market, and critics said the deal could boost competition for phone services at the expense of broadcasting.
Emilio Azcarraga's Televisa is the world's biggest producer of Spanish-language television content and fellow mogul Ricardo Salinas owns Mexico's second broadcaster, TV Azteca, as well as Iusacell.
Officials from Mexico's Federal Competition Commission, or Cofeco, served notice of its decision on Wednesday, braving a scuffle with Iusacell security guards, and sources briefed on the ruling told Reuters the board was split over the deal.
"They rejected it 3-2, categorically," a source from one of the companies said.
Iusacell vowed to challenge the decision, which it said did nothing to improve competition in Latin America's second-biggest economy. Televisa, which said it had already invested the $1.6 billion in Iusacell, hinted it would do the same.
"This decision taken by Cofeco damages the potential for competition in a key sector for Mexico's development, one in which Cofeco has already declared a company to be a dominant participant," Televisa said in a statement.
Cofeco's five-member board ruled on the deal more than a week ago but said then it would not announce the result until both parties had been informed.
Mexico has 90 million mobile users, 68 million of whom are customers of Slim's America Movil and its commercial brand Telcel.
The Organisation for Economic Co-operation and Development this week slammed the lack of competition in Mexico's telecom market, and said the Televisa-Iusacell deal would add a potentially strong competitor to the sector.
The OECD estimates Mexicans have been overcharged $13.4 billion a year for phone and Internet services in recent years, a claim that Slim denies.
SLIM NOT WORRIED
Slim said on Tuesday that he was not bothered by new rivals, but said all players should be able to compete in all fields - a dig at the government's refusal to grant his Telmex a television license.
"We are not afraid of competing with anybody. What we want is for them to invest, for them not to piggyback on our investment," he told reporters at a rare news conference.
Telecommunications consultant Fernando Negrete said the regulators' decision was the right one.
"This would have been an inequitable concentration in the sector and would have been dangerous ... even for democracy, from the perspective of concentration of content, lack of cultural diversity," said Negrete, director general of Mediatelecom Policy & Law.
Televisa's bid for a company with a subscriber base of just 4 million underplays the complexity of the deal in a country where industries from bread-making to cement are dominated by oligopolies and family dynasties.
A tie-up between the Salinas and Azcarraga empires had fanned concerns that the pair could also fix advertising prices for anyone trying to sell products or services through their channels.
Televisa also owns broadband backbone Bestel, soccer teams and a massive stadium in Mexico City, a publishing house, Latin America's biggest magazine distribution network, cable television companies and a direct-to-home satellite operation.
Salinas' empire includes retailer Elektra, cell phone company Unefon, U.S. Spanish-language network Azteca America, motorbike and scooter-maker Italika, a bank, an insurer and a pension fund.
Televisa said it had completed its $1.6 billion investment in Iusacell as of the fourth quarter. A tiny portion was paid in cash and the rest was debt, convertible into Iusacell stock in or before December 2015.
"Iusacell has already started to invest that money to fund its business plan, expand infrastructure and grow its client base," Televisa said. It did not say what would happen to the funds now, but Iusacell director of compliance Eduardo Ruiz Vega said none of the debt had yet been converted into equity.
"This is a small impasse, but Iusacell is still operating," he told Reuters.
Year-to-date, Televisa shares had lost nearly 13 percent but they recovered 2.9 percent on Wednesday before the announcement.
Over the same period, TV Azteca shares traded mostly sideways and are down 0.56 percent since the beginning of the year. America Movil shares closed up 1.1 percent on Wednesday.