UPDATE 1-Israeli regulator blocks Golan network sharing deal with rival

(Recasts with government blocking Golan-Hot deal)

JERUSALEM, July 12 (Reuters) - Israel’s government has blocked a network sharing deal between two telecom groups that on Tuesday had sparked a 900 million shekel ($232 million) lawsuit from the country’s largest mobile phone operator, Cellcom.

The deal between Golan Telecom and cable provider Hot announced last month prompted Cellcom, which had been negotiating its own arrangement with Golan, to take legal action against its smaller rival.

Israel’s Communications Ministry told Hot that it could not pursue its agreement with Golan because its license did not allow the company to host other operators, a ministry spokesman said. He added that the timing of the decision was not in any way connected to the Cellcom lawsuit.

Golan, owned by two French businessmen, was one of a several new operators that launched in 2012 as part of a government plan to open the cellular market to new competition. Offering rock-bottom prices that its competitors have struggled to meet, it has taken about 10 percent of Israel’s mobile market.

It has been paying a fee to Cellcom and piggy-backing off its infrastructure, while the government, looking to keep as many players in the game, wants to ensure that it builds its own network.

Last November Cellcom tried to buy Golan for $300 million, but in April regulators blocked the purchase, arguing that such a deal ran contrary to its efforts to open up the market.

Despite that setback, Cellcom has since said the parties were still negotiating a deal, subject to regulatory approval, that would allow Golan to continue to use Cellcom’s networks.

But in a surprise move last month, Golan began negotiating a 10-year deal with cable company Hot, which is owned by French cable firm Altice and also has a fixed-line and internet network.

Cellcom quickly demanded Golan drop the deal with Hot or pay 900 million shekels in compensation. It was not clear whether Cellcom would pursue the lawsuit following the Communications Ministry ruling.

Golan was not commenting on the matter, a spokesman said.

Cellcom separately said on Tuesday it was entering a network sharing and hosting agreement with Xfone, a new operator that has yet to enter the cellular market. The Xfone agreement will have no impact on the company’s dealings with Golan, Cellcom said. ($1 = 3.8723 shekels) (Editing by David Clarke and Louise Heavens)