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TORONTO (Reuters) - Telus Corp (T.TO), one of Canada's biggest wireless telephone companies, on Thursday said it will pay C$380 million ($370 million) to acquire debt-laden Mobilicity, in a likely test of government efforts to open up a tight market to smaller players.
The deal, already backed by some Mobilicity debt holders, is subject to regulatory approval from a Canadian government that wants to help small operators enter a cellphone market dominated by three big players, one of them Telus.
"This is the only true alternative that was out there for us, and it is one that returns a fair bit of capital to all of the stakeholders," Mobilicity chief executive officer Stewart Lyons told Reuters in a phone interview. "Given the spot that we're in, I think this is the right deal for us and hopefully the government will approve it quickly."
Privately-held Mobilicity, whose formal name is Data & Audio-Visual Enterprises Holdings Inc, was one of three aggressive startup companies that used cut-rate pricing of unlimited talk-and-text plans to challenge the Big Three.
But the company, which bought up airwaves that Telus and rivals BCE Inc BCE.TO and Rogers Communications (RCIb.TO) were blocked from bidding on in a 2008 auction, has been losing money and building up debt.
Telus said the alternative was a likely Mobilicity bankruptcy, and that the asking price would be used to pay down the startup's debt.
The federal government said it will weigh Telus' bid for Mobilicity carefully. Under the rules of the 2008 auction, Telus cannot take ownership of Mobilicity's spectrum before February 2014.
Telus stock rose 1 percent to C$37.29 by mid morning. The shares are up more than 13 percent so far this year as Vancouver-based Telus notched up impressive growth in wireless and its newest TV product, and confirmed its healthy dividend outlook.
"Our government has taken significant action to promote competition in the wireless sector," Industry Minister Christian Paradis said. "The agreement between Telus and Mobilicity is subject to regulatory approvals. The government will take the time required to review the proposal carefully."
Another of the startups, Wind Mobile, may also be looking to sell itself. VimpelCom Ltd VIP.N, owner of Wind Mobile, says it would consider various options, including divestment.
Ottawa has since started auctioning more prime wireless spectrum as demand explodes for speedy streaming of video and other data-heavy applications on smartphones and tablets.
Mobilicity, which has 250,000 pre-paid customers, was expected to struggle to raise funds to compete in those auctions, where the rules are not as favorable to the startups. Telus overtook BCE as the second-largest wireless company by subscribers last quarter, with 7.7 million. Rogers, the market leader, has more than 9 million.
Ottawa is also looking at the rules on the sale of spectrum after established cable company Shaw Communications (SJRb.TO) was also allowed to buy set-aside spectrum but later decided not to build a wireless network. Shaw is seeking regulatory approval to sell the airwaves to Rogers.
($1 = 1.0177 Canadian dollars)
Additional reporting by Randall Palmer in Ottawa; Editing by Janet Guttsman, John Wallace and Chris Reese