By Alastair Sharp and Euan Rocha
TORONTO, Oct 16 (Reuters) - Lack of clarity around Ottawa's telecommunications policy has jeopardized foreign investment in Canada and cast doubt over the future of Wind, the largest new player in the Canadian wireless market, said Egyptian telecom magnate Naguib Sawiris on Wednesday.
Sawiris bankrolled the start-up of new telecom player Wind Mobile in 2008, but he lost his ties with the company after his controlling stake in Orascom was sold to European telecoms firm Vimpelcom Ltd in 2011.
He retained an interest in investing in the Canadian telecom sector until earlier this month, when the Canadian government blocked his bid to buy Manitoba Telecom Services Inc's Allstream fiber optic network, citing unspecified national security concerns.
"Canada is behaving like a third-world country. It is not behaving like a Western developed economy," Sawiris said in an interview with Reuters on Wednesday.
Sawiris, whose investment firm Accelero Capital Holdings had offered C$520 million ($500 million) for the Allstream unit, said he was livid about the Allstream ruling and he vowed not to invest any further funds in Canada.
A spokeswoman for the Canadian government, responding to the comments, said Canada "is open to foreign investment in all sectors of the economy, but not at the expense of the security of Canadians."
Investors have become much more wary about Canada's foreign investment rules after Ottawa blocked a handful of high-profile deals, including the 2010 attempt by BHP Billiton to acquire fertilizer giant Potash Corp. Last year, Ottawa allowed a Chinese firm to buy domestic energy company Nexen, but made clear it would block further investments in oil sands by foreign state-owned enterprises.
Sawiris said he now plans to redirect his investment focus toward other markets, including Italy where he has invested heavily in the past. He plans to invest as much as $1 billion in a range of industries in Egypt over the next 18 months.
"We are looking at other markets. We will look in Italy, we will look everywhere, but I will definitely not be wasting any more time on Canada," he said. "I will not waste another minute, or another penny on Canada."
Sawiris said he believes the lack of certainty around who can pour money into the Canadian telecom sector puts Wind at risk of going "belly up."
Asked about the health of the company, a spokesman for Wind said by email: "We can't comment on Mr. Sawiris' statement as it is his personal opinion and he is no longer connected to Wind Mobile Canada."
Sawiris' scathing remarks come just as Canada has launched a crucial auction of airwaves, which has failed to draw interest from any major foreign telecoms.
Sawiris said Ottawa's opaque policy has scared away many investors. He also argued that Wind would be hamstrung in the 700 megahertz spectrum auction and would struggle to survive in the long term.
A Wind spokesman downplayed these concerns saying, "The decision to participate in the 700MHz auction will be decided by the current shareholders of Wind Canada -- Vimpelcom and AAL."
AAL is the holding company of Wind CEO Anthony Lacavera, who holds a majority of voting shares but a minority stake in Wind. A spokesman for Vimpelcom declined to comment.
Canada's Conservative government initially cheered for the success of Wind. But Ottawa dragged its feet on approving a change-of-control request from Vimpelcom, whose top investor is Moscow-based Altimo, controlled by billionaire Mikhail Fridman.
Vimpelcom, which has hired UBS to assess a possible sale of Wind. In June it withdrew its request for a change in control that would have given it voting power equal to its equity stake, when it appeared that U.S. telecom giant Verizon Communications Inc was keen to strike a deal and acquire Wind.
However, Verizon's interest has cooled, and while Wind is bidding in the spectrum auction it is unclear the extent to which Vimpelcom and its other backers will be willing to fund its bids - given doubts around whether they can eventually sell the business and who may be allowed to acquire it.
Wind is the fourth-largest telecoms player in Canada, but both it and other new entrants have struggled to turn a profit. Last month, Mobilicity, one of the smallest players in Canada, filed for creditor protection.
Ottawa has loosened foreign ownership rules in the sector and startups appear keen to sell out to larger players. But Ottawa's ruling on Allstream appears to show that only a small pool of foreign bidders may be allowed to invest in the sector.
The government has also indicated it does not want the big domestic players, BCE Inc, Telus Corp and Rogers Communications Inc, to acquire the startups. In June, Canada rejected the transfer of Mobilicity's wireless spectrum licenses to Telus, stating that it would not approve deals that led to undue spectrum concentration.
"Canada's not serious about having foreign direct investment and they are not serious about opening their telecom market," Sawiris said. "It's a waste of time, and investors like us we don't have time to pay lawyers and accounting firms and do due diligence and block our capital for six, eight months."