Feds block telecom deal with Telus

Ottawa is blocking a $380-million deal to sell struggling wireless upstart Mobilicity to incumbent Telus Corp. and says it will continue to prohibit spectrum transfers that would limit competition in the Canadian wireless market.

Industry Minister Christian Paradis said the government would use all tools at its disposal to ensure there are at least four wireless competitors in every region of Canada.

Telus and Mobilicity had sought an exception to a federal policy that prevents a transfer of spectrum from new, small carriers to the large incumbents for at least five years after the licences were issued.

But Paradis' strong language suggests Telus would still have a high bar to clear to obtain permission for the purchase of Mobilicity's spectrum even after February 2014, when the initial limitation expires.

Telus has warned that Mobilicity won't be able to survive without financial help and that a deal with the Vancouver-based company would ensure Mobilicity customers continue to receive service without interruption.

"To say Mobilicity will be bankrupt, I think it is not a foregone conclusion,"Paradis responded at a press conference Tuesday morning.

In 2008, when the government last opened up new spectrum for wireless operators, it set aside a portion for new entrants in an effort to establish competition for the so-called big three -- Bell (TSX:BCE), Rogers (TSX:RCI.B) and Telus (TSX:T).

While the policy attracted several new players, most of the independent carriers -- operating the Wind, Mobilicity and Public Mobile networks -- have struggled to make money and are currently up for sale.

Videotron, part of Quebecor (TSX:QBR.B), has been more successful in the Quebec market but Calgary-based Shaw Communications (TSX:SJR.B) decided against using the spectrum it bought to start up a new wireless business.

Paradis refused to acknowledge that the government's policy objective failed, saying that since 2008, consumers have seen the average price for wireless services decline by 18 per cent.

"We will not allow this progress to be lost or undermined," he said. "I will not hesitate to use any and every tool at my disposal to support greater competition in the market."

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