* Govt says spectrum is worth at least $645 mln
* Telstra already has 50 pct of low band spectrum (Adds value of spectrum)
By Byron Kaye
SYDNEY, Dec 14 (Reuters) - The Australian government said it will shut Telstra Corp Ltd , the country's dominant telecoms firm, out of a government auction of mobile phone airspace worth at least A$860 million ($645 million) in a bid to stoke competition.
The government will call for applications to buy the spectrum - freed up since television stations went digital in the past few years - in January 2017, Communications Minister Mitch Fifield said in a statement.
He said the Australian Competition and Consumer Commission has recommended excluding Telstra as it holds more than 50 percent of available low band spectrum and that gaining more 700 MHz spectrum would increase its dominance of mobile markets.
The exclusion would allow Singapore Telecommunications Ltd's Optus and Vodafone Hutchison Australia, a venture owned by Vodafone Group Plc and CK Hutchison Holdings Ltd to bid and improve their ability to compete, it said.
It also said Australia's TPG Telecom Ltd, which doesn't yet have a full 4G network, could bid as a new entrant would promote competition and fundamentally change the structure of the market.
A Telstra spokesman said the company was disappointed and the restrictions would likely to reduce the amount of money raised for taxpayers.
The rules "may also mean the spectrum isn't used as efficiently as possible," he said in an email.
A spokeswoman for Fifield said if all the spectrum was sold at the minimum price, the auction would raise A$857.7 million.
Telstra shares showed little reaction to the news, closing 1.2 percent higher to slightly outperform the broader market on Wednesday. ($1 = 1.3365 Australian dollars) ($1 = $1.0000) (Additional reporting by Tom Westbrook; Editing by Edwina Gibbs)