UPDATE 1-Netanyahu tightens grip on Israel's communications sector

* Premier seen to be wanting to control industry regulation (Adds interim appointment of Communications Ministry head)

By Steven Scheer and Tova Cohen

JERUSALEM/TEL AVIV, May 20 (Reuters) - Concerns about Israel's commitment to competition in the telecoms sector have grown after Prime Minister Benjamin Netanyahu dismissed the director-general of communications and took over the ministry himself.

Netanyahu made himself communications minister when he formed a new government this month, indicating he wanted to take control of regulating the industry.

On Sunday, he fired director-general Avi Berger, who had proposed breaking up the dominance of former state operator Bezeq by requiring it to lease its infrastructure to competitors - a move expected to lower charges for Internet, phone and digital TV services.

Berger was appointed by previous communications minister Gilad Erdan, the No. 2 in Netanyahu's Likud party, who is now at odds with the prime minister over Berger's departure. That raises the risks of a political battle that Netanyahu, with a one-seat majority in parliament, can ill afford.

"The rapid and sharp dismissal raises a lot of questions," said Ilanit Sherf, an analyst at Psagot brokerage, referring to Berger, who was fired by Netanyahu in a phone call on Sunday.

The prime minister named Mymon Shmila, a senior official at the Communications Ministry, as interim director-general on Wednesday and is expected to appoint a permanent replacement soon.

"A communications ministry without a director-general, or with an incapable director-general, could delay processes ... and the potential for competition," Sherf said.

Berger and Erdan, who was not given a ministerial post in the new rightist coalition, had accused Bezeq, Israel's largest telecoms group, of dragging its feet on reforms in an effort to protect its profits.

Critics of the prime minister have suggested Netanyahu's installation as communications minister and Berger's firing are an effort to more closely monitor Israel's media sector, which Netanyahu has said in the past is overly critical of him.

As minister, Netanyahu will have to decide the fate of Israel's Channel 10 TV, which has financial problems, and will oversee the broadcasting authority, which is facing liquidation ahead of the creation of a new body.

While Israel has made strides in opening up the mobile market to competition, bringing prices down sharply, the delivery of Internet and digital services remains restricted, with Bezeq and cable company HOT controlling the last mile.

Analysts believe Berger's exit will reduce pressure on Bezeq to open up to competition. A spokesman for Bezeq said the company was not involved in internal Communications Ministry issues.

"The removal of Berger could be seen as a signal that Netanyahu is seeking a less confrontational stance vis-à-vis Bezeq," said Citi analyst Michael Klahr.

Netanyahu has given no reason for firing Berger, but in response to criticism he said reforms to open up the fixed-line and Internet sectors would continue. He did not elaborate.

In a sign of further infighting to come, Erdan has said he will submit a new bill to parliament requiring Bezeq to sell off its content and services, leaving it as an infrastructure firm.

While passage of such a bill is unlikely, Netanyahu controls only 61 of the 120 seats in parliament, so it is possible.

Left-leaning Israeli newspaper Haaretz said in an editorial it was time for an independent communications authority to be established outside the scope of politics.

"What democracy needs now is for the coalition parties to remove the communications market from Netanyahu's hands by disbanding the superfluous Communications Ministry and transferring its powers to an independent authority," Haaretz said. (Editing by Janet Lawrence and Susan Fenton)