Spain's government said Friday it had approved a plan to tax private TV stations and telecommunications companies to compensate for phasing out advertising at public station TVE.

The new law will levy a 0.9% tax on the gross revenue of telecommunications operators and a 3% tax on the gross revenue of private television stations, Spanish Deputy Prime Minister Maria Teresa Fernandez de la Vega said in a meeting with journalists.

Spain's free-to-air TV broadcasters, Gestevision Telecinco (TL5.MC), Antena 3 de Television (A3TV.MC), Promotora de Informaciones SA's (PRS.MC) Cuatro and La Sexta have come under pressure as more channels compete for a shrinking amount of TV advertising as a recession in Spain takes hold.

De la Vega said the changes at TVE would guarantee the channel's independence and free up a larger part of the advertising pie for private channels.

Espirito Santo analyst Sandra Sousa said the move would likely be good for Spain's private TV channels, but the country's diminishing advertising market could limit the impact of the changes.

"Advertisers won't necessarily increase what they spend with the private channels just because they can't advertise on public TV anymore either," she adedd.

Local telecommunications lobby Redtel lashed out against the move, and said it would fight the new tax in court both in Spain and in a European Union court in Brussels.

"The measure is unjust, disproportionate and illegal," Redtel said in a statement.

Telefonica SA (TEF), Vodafone PLC (VOD) and France Telecom SA (FTE) are the company's biggest telecom operators and will likely be most severely affected by the tax.

Redtel said that between the fee they already pay to use radio spectrum and the new tax, telecom companies could end up paying 50% of TVE's budget, or EUR600 million annually.

The new legal changes still need parliamentary approval, although analysts say they are likely to be approved. A TVE labor union with access to the plan said earlier this week TVE would drop advertising as of September.

-By Jason Sinclair, Dow Jones Newswires; 34 913958127; jason.sinclair@dowjones.com