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UPDATE 1-Israeli telecom group Bezeq issues 2017 profit warning

(Adds details, share reaction, Bezeq/analyst comment)

JERUSALEM, March 21 (Reuters) - Bezeq Israel Telecom on Wednesday cut its profit estimate for 2017, blaming a lower valuation for its satellite TV business.

The profit warning was another setback for Israel's largest telecoms group, coming two days after the company announced CEO Stella Handler, who is under police investigation, will resign on July 1 after five years in the post.

Bezeq said it expects 2017 net profit of about 1.2 billion shekels ($345 million), down from a prior estimate of 1.4 billion and around 2016's level.

It also reduced its 2017 EBITDA (earnings before interest, tax, depreciation and amortization) forecast to 3.8 billion shekels from 4.0 billion and raised its estimate for free cash flow to 2.1 billion shekels from 2.0 billion.

Bezeq is set to issue fourth-quarter results on March 29.

An external audit found that the value of satellite television business YES was lower than the company's books, Bezeq said in a statement to the Tel Aviv Stock Exchange.

"It appears, mainly due to continuing worsening competition in the multi-channel television sector, that there has been a decrease in the value of the business of (YES) as compared with the book value in the company's accounts to a value of 1.35 billion shekels," Bezeq said.

YES had a third-quarter loss of 123 million shekels, while revenues fell 6.5 percent.

The company, which for more than a decade had mainly competed with cable company HOT, began to face stiffer competition in 2015 with smaller rivals offering far cheaper internet-based TV services with narrower offerings.

YES's subscriber base has fallen below 600,000 from a peak of 637,000 in 2015 and it recently sharply reduced prices in response to the growing competition.

Handler was arrested last month in connection with an investigation into allegations that included fraud, bribery and securities offenses. She was released from police custody but a court ordered her to stay away from Bezeq for 30 days.

Bezeq's controlling shareholder and former chairman Shaul Elovitch and a number of other officials connected to Bezeq were also arrested. They all deny any wrongdoing.

Bezeq's shares were down 3.4 percent in Tel Aviv on Wednesday afternoon. They have slid more than 30 percent over the past year, prompting minority shareholders to demand a change in the board's composition.

Barclays analyst Tavy Rosner said shareholders are focused on Bezeq's forthcoming shareholder meeting, expected in late April or early May, when a new board will be appointed.

"We expect the volatility in the shares to continue until investors are confident that a new and independent board will be set," Rosner wrote in a client note.

($1 = 3.4762 shekels) (Editing by Susan Fenton)