INTERVIEW-UPDATE 1-Dish Mexico aims for 1 million customers

* 1 mln clients seen in first year of operation

* Cheap prices pressuring rivals

* Internet, video and phone services on the radar (Adds details, quote, background, bylines)

MEXICO CITY, Aug 20 - Dish Mexico, a fledgling pay TV operator that has forced rivals like Televisa to cut prices, expects to double its clients by year-end as it awaits a government decision that may let it expand into the Internet and phone markets.

Around half a year since its debut, Dish Mexico -- a venture between MVS Comunicaciones and set-top provider EchoStar -- has more than 500,000 customers, driven by its 149 peso ($12) basic package.

"We are going to reach 1 million clients by year-end ... We want national coverage by December," company head Ernesto Vargas told Reuters in an interview at his Mexico City headquarters on Thursday.

Dish Mexico is likely to become a thorn in the side of leading Mexican media company Televisa, which is not accustomed to strong competition, analysts say.

Dish Mexico sells its packages in the retail stores of dominant fixed-line telephone operator Telmex, which has been prevented by the government from operating its own television services.

It offers prime channels like Sony, Fox, MTV and Disney and has prompted bigger competitors, including Televisa's cable and satellite units, to rethink their marketing strategies, including adding packages targeting Mexicans with low incomes.

Vargas said those new products were "without a doubt" a clear response to Dish Mexico's arrival.

Televisa's cable unit Cablevision, which has been in the market for several years and is the main cable operator in Mexico City, ended June with over 600,000 customers while Televisa's satellite company, Sky, reported 1.8 million customers.

Both companies have cut prices this year in what analysts have said is a clear response to Dish Mexico's surprisingly fast growth.

"We continue to believe that Televisa will suffer from Dish's advance, both in its organic growth and its ARPUs (average revenue per user)," said BBVA analyst Andres Coello in a recent report.

Televisa has two other cable operators, with a combined client base of over 1 million outside the capital.

Key to Dish Mexico's future is a pending government decision on whether the company can use wireless licenses granted years ago to other MVS sister companies that would allow it to offer mobile and fixed phone and Internet services.

"We would like the government to define the status of the frequencies so we can have a national wireless network, what (the industry) calls 4G: voice, video, data and mobile phone," said Vargas, a member of one of Mexico's wealthiest families, which also owns radio stations.

Mexico's government plans to launch new tenders this year for the use of wireless frequencies as well as two strands of a fiber optic network.

"They have promised us that before the new tenders are launched ... (a decision) will be made," Vargas said.

He said the company could invest up to $700 million to upgrade its network to include phone and Internet services.