(Adds reaction from government)
By Alastair Sharp
TORONTO, Sept 5 (Reuters) - Quadrangle Group, a private equity backer of Mobilicity, has sued the Canadian government for C$1.2 billion ($1.1 billion), accusing it of reneging on pledges to help the small wireless provider compete against the country’s biggest phone companies.
New York-based Quadrangle filed a statement of claim in the Ontario Superior Court of Justice against Industry Canada on Friday, claiming negligence, misrepresentation, breach of contract and abuse of public office.
Quadrangle and fellow Mobilicity investor Data & Audio-Visual Enterprises Investments Inc said in the lawsuit that they had put hundreds of millions of dollars in the new, low-cost entrant to Canada’s wireless industry after the government body assured it of favorable terms that were subsequently breached.
The plaintiffs said Industry Canada had told Mobilicity founder John Bitove that it would prevent unfair competition from established operators and create market conditions allowing new challengers to compete effectively.
Mobilicity is under creditor protection, and its subscribers have drifted away because of the uncertainty.
A spokesman for Industry Minister James Moore declined to comment on the grounds that the matter was before the courts.
BCE Inc, Rogers Communications Inc, and Telus Corp dominate Canada’s wireless industry with a combined share of about 90 percent.
Mobilicity’s backers said Industry Canada had assured Bitove that the company could transfer any spectrum licenses it acquires to an established operator after five years.
But since then, Mobilicity has failed to consummate a sale of licenses to Telus due to government opposition to a further concentration of the wireless market in the hands of its biggest companies.
“While this lawsuit does not appear material for telco investors in itself, we wonder how the government expects to fulfill its four wireless player objective, given the experience of new entrants dealing with the government to date,” Canaccord Genuity analyst Dvai Ghose wrote in a note.
The case is Quadrangle Group LLC, QCP CW S.A.R.L., and Data & Audio-Visual Enterprises Investments Inc vs Her Majesty the Queen in right of Canada as represented by the Minister of Industry, in the Ontario Superior Court of Justice. The court file number is CV-14-511539.
1 U.S. dollar = 1.0876 Canadian dollar Additional reporting by Randall Palmer and David Ljunggren in Ottawa; Editing by Bernadette Baum, Jeffrey Hodgson, Lisa Von Ahn Editing by Leslie Adler