* May reconsider if TV market concerns addressed

MEXICO CITY Feb 7 (Reuters) - Mexico's antitrust watchdog may yet allow a cell phone tie-up between the country's two largest TV broadcasters and let them compete with tycoon Carlos Slim if they pledge not to exploit the television advertising market, the regulator said on Tuesday.

The regulator, Cofeco, ruled last week that Televisa could not merge with cellphone company, Iusacell, that is controlled by TV mogul Ricardo Salinas, who owns the No. 2 broadcaster, TV Azteca.

Iusacell, which has about 4 percent of the Mexican phone market, could challenge Slim's dominance in the sector and his 70 percent share, if the deal is ultimately allowed.

But the tie-up proposed by the television titans would create a strong, natural incentive for them to fix advertising prices, Cofeco said.

"(This deal) would almost inevitably induce collusion between the companies," the regulator said.

And while Mexico would benefit from more competition in the cell phone market, the regulator said, "the benefits for one market cannot justify damaging competition in another."

But the statement on Tuesday also indicates that the regulator could allow the tie-up if concerns were addressed about the companies' joint advertising power on television.

"The companies can present commitments to resolve competition problems and, if resolved, the (regulator) could approve the merger, subject to rules," the statement read.

The regulator's willingness to reconsider the deal should send both companies back to the drawing board and present a revised plan in the next several weeks, said Carlos Ramirez, an analyst with the Eurasia Group.

"I think they knew that Cofeco was likely to reject its first proposal but that was their Plan A," he said. "Putting their own limits on the transaction is likely their Plan B."

The tie-up was rejected on a 3-2 vote by Cofeco so the companies only need to have one of the five commissioners change their vote in order to win approval.

Televisa has already injected $1.6 billion into Iusacell as part of the debt-to-stock conversion that the companies agreed to when they first announced the plan for 50/50 split of Iusacell in April.

• A Permanent Economic Emergency