Mexico's government presented on Monday a major reform bill that aims to loosen billionaire Carlos Slim's hold on the telecommunications market and curb top broadcaster Televisa's rule of the airwaves.

The long-awaited reform could shake up Mexico's stagnant telecom market by allowing increased foreign ownership of media and phone companies in Mexico and give regulators the power to force incumbent players to sell assets.

"We must encourage competition," said President Enrique Pena Nieto at an event presenting the plan. "As a result of this reform, companies will be able to grow, but they will have to do so through innovation and investment, by improving their tariffs and raising the quality of their service."

Pena Nieto's administration, which took office in December, negotiated the bill with a small group of representatives from the top two opposition parties, which forged a political accord with the president in December called the Pact for Mexico.

The bill may face a tough road in Congress, where no party holds a majority.

Mexico's telecommunications market is dominated by Slim, the world's richest man. He controls 70 percent of Mexico's mobile market and 80 percent of its fixed phone lines.

Televisa , controlled by tycoon Emilio Azcarraga, has about 60 percent of the broadcast market.

The reform aims to declare any company with a 50 percent or greater market share dominant, deputy communications minister Jose Ignacio Peralta told Reuters.

A dominant player may be subject to sanctions including possible forced asset disposals, according to the bill.

The reform also will increase competition in the television market, by auctioning rights to run two new television channels, a process that will not be open to the two most powerful broadcasters Televisa and TV Azteca.

The bill aims to introduce a new telecoms regulator, the Federal Institute of Telecommunications (IFT) and specialized courts for settling competition disputes.

Mexico's peso strengthened to its highest point in 18 months early on Monday with traders saying the currency had benefited from optimism on the country's reform drive.

The country's benchmark IPC stock index slipped 0.65 percent, dragged down by America Movil and Televisa, which fell 2.94 percent and 0.92 percent respectively.

A spokesman for Slim declined to comment on the reform before it was presented. Televisa said in a statement that it welcomed the proposal.

POLITICAL FIGHT

Opposition lawmakers have expressed concerns that the final draft may not be as radical as long-time advocates of reform have been demanding.

Hector Garcia, a congressman in Pena Nieto's Institutional Revolutionary Party (PRI), said he expected the bill to pass the lower house of Congress by the end of next week and be approved in the Senate by the time the current session ends on April 30.

"We're certain it'll be voted on in the Senate this period," he said. "The Pact for Mexico stipulates this timeframe."

While the outline of the bill presented on Monday prompted investors to dump shares in the large incumbents, America Movil and Televisa, smaller companies benefited from the announcement.

Shares of Mexican phone companies Maxcom and Axtel , which has waded deep into debt to compete with Slim's fixed line giant Telmex, gained more than 6 percent respectively on Monday. Shares in cable company Megacable rose 2 percent while TV Azteca shares also climbed 0.22 percent.

"It's obvious the reform will benefit the companies with the least market share," said Jorge Nevid, head of trading at brokerage Accival in Mexico City.

The government has yet to publish all details of the reform, but it is clear increased competition will affect the largest player, Nevid added. He noted nervous investors were selling America Movil shares in the morning before the announcement.

Purely in terms of revenue, America Movil could be much harder hit by the reform than Televisa.

Slim's companies had 67 percent of the 414 billion pesos ($32.99 billion) in total revenue from Mexican phone and television companies in 2012, while Televisa's cable companies had just 8.5 percent, according to data from market research group The Competitive Intelligence Unit.

($1 = 12.5475 Mexican pesos)

(Reporting by Michael O'Boyle and Dave Graham; Additional reporting by Elinor Comlay, Alexandra Alper, Lizbeth Diaz and Noe Torres; Editing by Lisa Von Ahn, Andrew Hay, Tim Dobbyn and Steve Orlofsky)