* Says will block any deal that leads to "undue concentration"
* Rules seen limiting biggest operators' ability to buy 2nd-hand airwaves
* Verizon likely to benefit as it eyes Canada entry
By Alastair Sharp
TORONTO, June 28 (Reuters) - The Canadian government will review all sales of wireless airwave licenses and reject any deals that would lead to undue concentration, it said on Friday in its latest move to weaken the dominance of the country's three big wireless carriers.
The new rules come after two of Canada's biggest telecom companies - Rogers Communications Inc and Telus Corp - tried to acquire spectrum owned by smaller operators.
By making it tougher for the dominant three - Rogers, Telus and BCE Inc's Bell - to buy additional airwaves, the rule changes could help clear the path for U.S.-based Verizon Communications Inc as it considers entering the Canadian market.
Ottawa has sought to break open the once-cozy Canadian telecom industry by keeping some spectrum out of the hands of the three biggest operators and making it easier for foreign companies to enter the market.
Canada's Conservative government has said it wants four viable wireless options for consumers in each region of the country.
The spectrum holdings of Rogers, BCE and Telus already dwarf those of newer, smaller entrants.
The government effectively blocked Telus' C$380 million ($362 million) bid for struggling wireless upstart Mobilicity earlier this month by rejecting the transfer of its spectrum licenses.
In January, Rogers struck a deal giving it an option to buy rival Shaw Communications' unused spectrum, a move that Ottawa signaled disapproval of in April.
Shaw executives said on Friday they were not yet exploring alternatives to the Rogers option deal, which they described as irrevocable. The deal has not yet been sent to Ottawa for approval.
Just last month, Rogers announced a similar option deal to buy Quebecor Inc's unused spectrum in the Toronto area.
Rogers said the new rules were in line with its expectations and it would provide whatever information the government needs for its review. Both Rogers and Telus urged the government to let them put unused spectrum to work.
Canaccord Genuity analyst Dvai Ghose said he expects the government will block both attempts by Rogers to buy more spectrum, given Ottawa's preference for it to go to a new entrant.
Mobilicity, Quebecor and Shaw all purchased the spectrum licenses in a 2008 auction in which the federal government set aside some airwaves for operators other than Rogers, Telus and BCE, which together control about 90 percent of the market.
The rules released on Friday are likely to get a close examination from Verizon. The company is in talks to acquire Mobilicity and has offered between $600 million and $800 million to buy another new entrant, Wind Mobile, sources familiar with the deals said on Wednesday.
Verizon's large holdings of U.S. spectrum would probably not work against it under the latest guidelines, which only apply to Canadian airwaves.
The policy would likely encourage Verizon and other outsiders to bid in an upcoming auction of much sought-after 700 megahertz airwaves, in which BCE, Telus and Rogers already face limits on how much spectrum they can buy.
The low-frequency spectrum is highly valued for its ability to penetrate buildings and travel long distances. It also lines up with two blocks of similar spectrum Verizon Wireless - a joint venture of Verizon and Britain's Vodafone Group Plc - is using in the United States to built a high speed network.
The prospect of Verizon entering the Canadian market sent shares of Rogers, Telus and BCE tumbling this week, prompting complaints from some executives.
"It is odd to say the least that a giant like Verizon would come into Canada and be given by the government the ability to buy twice as much spectrum as Bell, Rogers or Telus at a fraction of the price," BCE's head of regulatory affairs, Mirko Bibic, said on the BNN television channel, which BCE owns.
BCE repeated the sentiment in a statement sent to Reuters, calling it a "massive loophole" that a major international company could take advantage of rules intended for small Canadian startups.
Analysts have speculated Verizon's participation in the auction could add C$500 million to the combined amount Canada's big three ultimately pay for the airwaves they want.
The new rules announced on Friday, which also cover spectrum sharing, strategic alliances and joint ventures, will take into account existing spectrum used by a company in a particular region and at a particular frequency.
The Canadian government said that in simple cases, it could approve spectrum transfers within four weeks of the announcement of a deal. If a detailed review is required, the process may take another four months.