TORONTO (Reuters) - Wireless telecom company Mobilicity, one of the smallest players in the Canadian market, said it won creditor protection from an Ontario court on Monday as it seeks regulatory approval for a transaction that would allow it to keep operating.
Mobilicity said the tentative transaction is currently being reviewed by the federal government, but declined to identify the possible buyer. It said in July it was talking to several interested parties.
A source told Reuters in June that Verizon Communications Inc was in talks with Mobilicity, although Verizon has since said it is not interested in the Canadian telecoms market.
Major operator Telus Corp had a bid for the company blocked earlier that month by the federal government, which is eager to see four wireless competitors in each region, but one analyst suggested after the announcement that Telus could make a fresh offer. Telus declined to comment.
Mobilicity said its customers would not notice any change in wireless service while it is in protection and that its dealer network remains open for business.
"This step was taken today to give us the time to create stability in the company, to stop the clock as it were, and allow the company to restructure its affairs as this review takes place," Stewart Lyons, Mobilicity's chief operating officer, told Reuters in a phone interview.
Mobilicity was one of several new entrants to Canada's wireless industry that bought spectrum in a 2008 auction. They have since helped to lower average wireless bills but struggled to dent the dominance of three major carriers: BCE Inc's Bell, Rogers Communications Inc and Telus.
Mobilicity did not apply to take part in another auction of valuable airwaves due to start in January. Its biggest debt holder, private equity firm Catalyst Capital Group Inc, and its founder and executive chairman, John Bitove, have applied separately.
The Ontario Superior Court of Justice, which granted the protection under the Companies' Creditors Arrangement Act, also approved debtor-in-possession financing from some of Mobilicity's noteholders to a maximum amount of C$30 million ($29.2 million).
Lyons and chief restructuring officer Bill Aziz said Catalyst was not among the debtors providing the additional funding, which should keep Mobilicity operating to spring of 2014.
The order provides an initial stay on all claims against Mobilicity - legally known as Data & Audio-Visual Enterprises Holdings Inc - for 30 days and requires suppliers to continue dealing with the company, Aziz said.
Earlier this year, the federal government effectively blocked a C$380 million deal for Telus to buy Mobilicity by saying Telus could not take over Mobilicity's wireless spectrum licenses.
Telus has since taken the government to court to challenge its restrictions on the sale of spectrum licenses, arguing that when Mobilicity bought the airwaves it was on the understanding it could sell them to the established operators after five years.
Canaccord Genuity analyst Dvai Ghose said he believes Telus is the prospective buyer again, and that a second rejection could open Ottawa up to legal action from Mobilicity debtors.
He said it was unlikely that private equity would be willing to finance the purchase of spectrum, expansion of networks and technology upgrades necessary for Mobilicity or other small entrants to better compete with established players.
One of the other new entrants from the 2008 auction, Wind Mobile, has also been the subject of takeover speculation but will be bidding in the next auction. Another of the upstarts, Public Mobile, was recently acquired by private equity firms but will not seek more airwaves in the auction due to start in January.
Editing by Peter Galloway and Phil Berlowitz