France will raise at least 2.5 billion euros ($3.6 billion) auctioning next-generation wireless frequencies used to deliver data for apps on tablet computers and smartphones, a lucrative and fast-growing market.

Industry minister Eric Besson said on Monday the auction of fourth-generation spectrum was designed to ensure high-quality national coverage, maximize the value of government assets, and favor competition -- 18 blocks will be sold in September.

Telecoms regulator ARCEP announced the auction terms.

France must not sell its frequencies at cut-price levels, Besson said. The government had previously said it wanted to raise a minimum 2 billion euros.

France Telecom, Vivendi's SFR, Bouygues, and new player Iliad now have three months to prepare for a high-stakes game of poker.

They all declined to comment on the proposals.

The auction of fourth-generation mobile spectrum will structure the competitive landscape of Europe's third-largest telecom market for years to come.

France also set for the first time a requirement that operators start building 4G wireless networks in underserved rural areas at the same time as they cover big cities. Operators have tended to focus investment on lucrative urban areas where networks are cheaper to deploy.

To force their hand, the government created a priority zone for 4G coverage, which covers 18 percent of the French population and 80 percent of the country's land area. It will also require operators to cover 90 percent of the population in each of the 96 departments of mainland France within 12 years.

The battle for spectrum is crucial for operators trying to keep up with booming data traffic as consumers use more smartphones and tablet computers.

An operator with more spectrum can offer customers a better service and therefore command higher prices.

France Telecom's rivals SFR, Bouygues, and Iliad had lobbied for caps on how much spectrum any one group can buy to stop the former state-owned monopoly winning most of the 4G frequencies.

The government set a cap that will still allow deep-pocketed bidders to buy half the spectrum in the most valuable band, known as the 800 megahertz.

A Paris-based analyst said the prices seemed very expensive, adding France was seeking higher prices than Germany did in its auction last year.

The two companies that find themselves with a knife at their throats are Bouygues and Iliad, he said. But for France Telecom and SFR this is pretty good news since they can eliminate their competition because the prices are so high.

(Editing by Dan Lalor)

($1 = 0.7038 euro)

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