* Deal approved, but with conditions
* TV auctions to play key role in future of tie-up
* Grupo Salinas calls conditions harsh and hard to meet
* Televisa evaluating Cofeco's decision
By Cyntia Barrera
MEXICO CITY, June 14 (Reuters) - Mexico imposed a host of conditions on broadcaster Televisa's bid to buy half of cell phone company Iusacell that one of the partners said were difficult to meet - a potential setback in their challenge to tycoon Carlos Slim's telecoms empire.
After fighting for 14 months, Televisa, the world's biggest producer of Spanish-language shows, got a nominal green light for its $1.6 billion bid by clearing up some regulator concerns about possible fixing of advertising prices.
But in a surprise development, the deal will now also hinge on the success of a government auction of new TV frequencies that could potentially threaten the lead of Televisa and TV Azteca, a sister company of Iusacell.
Mexico's federal competition commission, Cofeco also said the firms would face fines of up to 10 percent of annual revenue if they fail to meet conditions.
"From a first glance at the conditions I can say they are extremely harsh, costly and difficult to meet," Luis Nino de Rivera, spokesman for Iusacell's parent Grupo Salinas, told Reuters.
The group plans to ask the regulator to clarify some points, he added. "The Cofeco document consists of 600 pages, has an extraordinary level of detail and while we do not fully understand what they imply we won't be able to evaluate the real impact these conditions have."
Amid concerns that the tie-up could lead to a further concentration of content in telecoms and media industry, other conditions affect advertising and TV pay packages.
Televisa said it will consider whether to accept the conditions on the proposed merger.
Cofeco president Eduardo Perez Motta said the companies have five working days to decide whether to agree to the deal with the conditions, or otherwise dissolve the deal.
TV AUCTION
Mexico plans to auction frequencies that could create at least one additional television network in Mexico.
"If after 24 months the auction of a third television network has not been made successfully, it will automatically trigger a mechanism to dissolve the partnership between Televisa and Grupo Salinas in Iusacell," Cofeco said in a statement.
It did not elaborate on what it would consider a successful outcome. One source close to Cofeco's decision, who requested anonymity, said it could mean that bidders must refrain from filing any legal challenges to the process.
Imposing a time frame on the auction - estimated to take 18 months - is also meant to discourage a possible landslide of legal appeals that could end up delaying the process for months or years.
Grupo Salinas, a unit of Iusacell, is owned by Ricardo Salinas Pliego, one of Mexico's richest investors, who is well-known for vigorously contesting regulators, government agencies and rivals in courtrooms when he feels his businesses are threatened.
Industry watchers say Salinas effectively derailed Televisa's bid to team with NII Holdings' Nextel two years ago after some of his group's companies filed a barrage of more than 70 court appeals.
BUMPY ROAD
Televisa, the country's top television company, in April 2011 bid for Iusacell, a company with less than 5 percent of the mobile phone market in Mexico. Slim's America Movil controls close to 70 percent of the cell phone market and around 80 percent of the country's landline market.
In January, Cofeco blocked the tie-up in a 3-to-2 vote, arguing the deal would create an incentive for the pair to fix advertising prices in a host of media ranging from television commercials to content downloaded on smartphones.
But Televisa and Grupo Salinas have made proposals that address those concerns, Cofeco said.
Under the new conditions, Televisa and TV Azteca will also have to refrain from forcing would-be TV advertisers to become Iusacell customers.
Another condition is that Televisa and Iusacell must offer all cable and satellite TV customers a new pay TV package that includes all four of Televisa's free public channels, Televisa said. Televisa currently charges cable operators a fee to receive the free channels.
Additionally, Televisa must offer the sale of advertising time to participants in the Mexican telecommunications industry, meaning it may once again have to sell advertising time to businesses owned by rival Slim.
Analysts were divided over the potential effectiveness of the conditions imposed by Cofeco.
To Ernesto Piedras, head of telecom consultancy Competitive Intelligence Unit, the conditions sounded reasonable.
"This is heading towards important changes in the telecoms market by 2015 where we could have (America Movil's) Telcel with a 50 percent stake in the mobile market," the analyst said.
But to others, the outlook is less rosy.
"Conditions are not sufficient. I think this concentration should not have been accepted. We are witnessing the emergence of a content monopoly," said Jorge Fernando Negrete, head of telecom think tank Mediatelecom in Mexico City.
Televisa shares ended 2 percent higher at 56.15 pesos ($4.04) on Thursday.
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