France mulls VAT hikes on telecom services-source

* Brussels opposed to lower value-added tax on telecoms

* Telecom operators say higher VAT will lead to price rises

PARIS, Aug 24 (Reuters) - France is considering raising value-added tax (VAT) on “triple play” bundles of TV, phone and broadband under pressure from European regulators who see the current lower rate as running foul of competition rules.

VAT could increase to 19.6 percent, a source from the French finance ministry confirmed on Tuesday. The current scheme taxes half the bundle, considered the TV portion, at a lower 5.5 percent rate.

The move comes after Brussels notified France on March 18 that its system was not in keeping with the region’s rules on state aid and VAT.

Since then, telecom operators like France Telecom FTE.PAFTE.PA, Iliad ILD.PA, Bouygues Telecom BOUY.PA and Vivendi's SFR VIV.PA have voiced their opposition. Some signalled that they would be forced to raise prices charged to consumers as a result.

All four companies declined to comment on Tuesday.

“The finance ministry is considering adapting the system to respond to the requests of the European regulators, as they relate to the complaint filed by the European Commission on March 18,” the source, who is close to Finance Minister Christine Lagarde, said.

A decision could be made in the 2011 budget but no decisions have been made yet on how the tax would be reformed, the person said.

French brokerage Oddo estimates that if the VAT were to change, it would hit Iliad the hardest because it gains more than rivals in sales and operating profit from the lower rate.

If the portion of the triple play bundle taxed at the higher 19.6 percent rate were to increase to 60-70 percent from the current 50 percent, then it would shave 2.5-5 percent off Iliad’s earnings before interest, tax, depreciation and amortisation in 2011, according to Oddo.

Conversely the impact on France Telecom, Vivendi and Bouygues would be around 1 percent.

Oddo estimates that French operators save some 200 million euros ($252 million) a year because of the lower VAT rate. ($1=.7930 Euro) (Reporting by Marie Mawad and Leila Abboud; Editing by Jon Loades-Carter)