By Elvira Pollina and Giuseppe Fonte

MILAN, Dec 9 (Reuters) - Italy's communications watchdog AGCOM has given its initial backing to the extension of existing 5G spectrum licenses, a move that would avoid a costly new auction, people familiar with the matter told Reuters.

At a meeting last week, AGCOM's board endorsed the renewal option, which emerged as the preferred choice among telecoms operators during a public consultation, the sources said, asking not to be named due to the sensitivity of the matter.

Italian telecom firms, squeezed by fierce price competition that has cut revenues by nearly a third since 2010, are lobbying for a free extension of licenses due to expire in 2029.

The companies spent 6.5 billion euros ($7.57 billion) in a 2018 auction marked by aggressive bidding.

The Italian government, which would also play a role in a possible renewal of the existing licences, is discussing the matter, a cabinet undersecretary said last month, though no formal legislative initiatives have yet been announced.

At last week's meeting AGCOM agreed to launch a second consultation in the first half of next year to set the technical and economic terms for an extension, the people said. 

The spectrum renewal would allow operators to redirect spending toward upgrading 5G networks, delivering faster speeds and enabling a broader range of business applications.

Under the plan laid out by the AGCOM, usage rights for 5G frequencies would be extended until Dec. 31, 2037.

Operators with larger spectrum holdings would need to provide wholesale access to rivals with less spectrum and to virtual network operators, the people said.

AGCOM declined to comment.

($1 = 0.8592 euros)

(Reporting by Elvira Pollina in Milan and Giuseppe Fonte in Rome, editing by Gavin Jones)