* Uncertainty over Austrian frequency auction costs
* Bids due for Serbian SBB on Thursday-source
* T.Austria seeking to dominate central, eastern Europe
By Georgina Prodhan, Angelika Gruber and Arno Schuetze
VIENNA/FRANKFURT, Oct 9 (Reuters) - Telekom Austria is set to pull out of the bidding for Serbian cable operator SBB due to uncertainty over how much it will have to pay for new frequencies on its home turf, a source close to the matter said.
Results of an Austrian frequency auction likely to cost Telekom Austria hundreds of millions of euros are expected only next week, two industry sources said, but binding bids for SBB are due on Thursday, according to a financial source.
Telekom Austria wants to buy SBB, valued by analysts at 860 million to 1 billion euros ($1.17-1.36 billion), as part of a plan to become the dominant telecoms operator in central and eastern Europe.
Austria's biggest carrier was expected to carry out a capital increase to help finance the acquisition, but would struggle to raise enough for the auction on top should this cost much more than the roughly 400 million euros analysts expect.
"As it looks at the moment, there won't be a bid," said the source close to the matter.
Majority owner Mid Europa Partners plans to sell SBB, in which the European Bank for Reconstruction and Development also owns a stake.
One financial source close to the matter said private equity groups such as Providence, Cinven, KKR and Altice Finco were expected to hand in bids for SBB.
Telekom Austria, SBB, KKR and Cinven declined comment, while Providence and Altice Finco were not immediately available.
In the first phase of Austria's spectrum auction - now in its fifth week - total bids topped 2 billion euros, according to Reuters calculations and confirmed by a source close to the process.
Sealed bids are now being submitted, two industry sources said, and the final price is likely to come down as the winners will pay sums approximately equal to the second-best bids for each block of spectrum.
The other Austrian carriers, Deutsche Telekom's T-Mobile and Hutchison Whampoa's H3G, are expected to continue participating in the auction but none is allowed to talk about it to eliminate any suspicion of collusion.
The Austrian regulator wants to raise at least 526 million euros by auctioning frequencies that operators need in order to maintain or gain market share by building next-generation networks with greater speeds and capacity.
The regulator declined comment on Wednesday.
Should Telekom Austria increase its share capital to finance the auction costs, Carlos Slim's America Movil, which owns 23 percent of Telekom Austria, is expected to take part to at least maintain its stake.
The Austrian state holding company, Telekom Austria's biggest shareholder with 28 percent, has said it does not want its stake to be diluted.
Telekom Austria's market value is 2.8 billion euros. It has said maintaining its BBB (stable) credit rating is its top priority, effectively limiting its financing options to a capital hike.