UPDATE 2-Spain to remove advertising from state TV

* Draft plan approved to eliminate ads from state TV

* Private firms, telecos will compensate via revenue tax

* Telecos assn threaten possible legal action

* TL5 up 7.02 pct at 7.93 euros, A3TV up 9.11 pct at 5.51

(Adds telecos assocation comment, analyst, background)

By Judy MacInnes

MADRID, May 8 (Reuters) - The Spanish government approved a plan to end advertising on state TV channels La Primera and La Dos, boosting private TV shares on Friday on hopes it will bring them more revenue.

Shares in Telecinco TL5.MC and Antena 3 A3TV.MC have been rallying on hopes that their advertising take will rise once state TV is no longer touting for the same business, yet some analysts doubt this will be the case.

“The French experience, with little apparent uplift to the private broadcasters and much of the state channel advertising revenue being lost to digital channels, price deflation or saved by advertisers, would suggest a note of caution in Spain,” UBS analysts said in a note after the plan was approved.

But the media stocks held on to gains over the afternoon seesion, with TL5 closing up 7.02 percent at 7.93 euros and A3TV up 9.11 percent at 5.51 euros.

“We have taken a decisive step towards consolidating the system of financing state radio and television by eliminating advertising revenues definitively,” Deputy Prime Minister Maria Teresa Fernandez de la Vega said after a cabinet meeting.

No details were provided on when advertising could be removed from La Primera and La Dos but press reports have suggested Sept.1.

Up to now, the state TV’s annual budget was 1.1 billion euros, of which 500 million come from advertising revenue and the rest is made up of government subsidies.

In order to compensate the state channels for loss of revenues, the private TV companies will be hit with a tax on their revenues of 3 percent while telecom companies such as Telefonica TEF.MC face a lower rate of 0.9 percent.

On Thursday, Telecinco’s general manager Massimo Musolino said the government’s funding proposal for state TV would be broken down with 45 percent coming from direct subsidies and 20 percent coming from fees charged to media and telecoms firms for use of the broadcasting spectrum. [ID:nL71004727]

Spain’s telecos and IT sector association described the draft plan as “disproportionate”, threatening possible legal action.

“The association will defend the interests of the sector while the new law is being processed through parliament and we do not rule out legal action if we deem it necessary,” ASIMELEC said in a statement on Friday.

Spanish telecos tax burden is already much higher than that of most of their European peers, and a further levy could put the competitiveness of the sector at risk, ASIMELEC said. (Reporting by Judy MacInnes; additional reporting by Elizabeth O’Leary; )