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* Regulator sees significant benefits for Telecom
* Investors cautious as spin-off seen taking time tocomplete
* Shares up 3.8 percent, outperform sector
By Alberto Sisto
ROME, July 9 (Reuters) - Telecom Italia's plan tospin off its domestic phone lines won plaudits on Tuesday fromthe telecommunications regulator, who said the move was bold andinnovative and could earn the former monopoly regulatorybenefits.
"The broader and deeper the separation, the more significantthe regulatory dividend," Angelo Marcello Cardani, president ofregulator AGCOM, said in his annual speech before parliament inRome.
The board of Italy's biggest phone company approved in May aplan to hive off its fixed-line access assets into a newcompany, a move that could free up resources to cut its morethan 28 billion euros ($36 billion) of debt.
Splitting off the fixed lines would give all telecomoperators equal access to the network - a European Unionrequirement - radically changing the Italian market.
Italy's biggest phone group by market share wants lighterregulation on the spin-off plan so it can compete in thedomestic market on a level playing field.
Telecom Italia has to abide by stricter rules than rivalsVodafone, Fastweb and Vimpelcom's Windbecause it owns the fixed-line network, and all its newcommercial offers still need AGCOM approval.
Telecom Italia Chairman Franco Bernabe said on Tuesday thegroup was not asking for favours from the regulator, adding hewas confident the spin-off would benefit the country, consumersand competition.
RMJ fund manager Alessandro Frigerio welcomed Tuesday'scomments by the regulator but warned that the spin-off wouldtake time to complete because the issue was complex andpolitically sensitive.
Bernabe has previously said he aimed for a deal with AGCOMby early 2014. A source close to the situationhas said the separation could take up to 18 months to complete.
Telecom Italia's access network, estimated to be worthbetween 12 billion and 15 billion euros, links millions ofusers, from private citizens to government agencies, banks andbusinesses.
Earlier in June Telecom Italia ended talks with HutchisonWhampoa on a possible tie-up, preferring to focus onthe spin-off, which could pave the way for a sale of a stake inthe network firm to state-backed fund Cassa Depositi e Prestiti.
Shares in Telecom Italia rose 3.8 percent to 0.54 euros at1424 GMT, outperforming a 0.2 percent gain in the Europeantelecoms index. The stock was close to a 16 year lowreached in mid-June.
