(Adds spike in stock prices, government comment on spectrum auction, background and details on telecom policy)
By Euan Rocha and Alastair Sharp
TORONTO, Sept 3 (Reuters) - Shares in Canada's big three wireless providers - BCE Inc, Rogers Communications Inc and Telus Corp - surged on Tuesday after Verizon Communications disclosed that it no longer plans a foray into Canada.
Verizon had been sniffing around a possible move into Canada for months. But shortly after clinching a mega $130 billion deal to buy Vodafone Group out of its U.S. wireless business on Monday, the U.S. telecom giant made clear it will not enter the Canadian market for now.
Canadian telecom shares were hammered in June on early reports that Verizon, which has more U.S. mobile subscribers than Canada has citizens, was looking at expanding north.
"Those Labour Day fireworks are probably champagne corks flying from the headquarters of Rogers, Telus and BCE," said National Bank analyst Adam Shine.
Shares in Rogers surged 8 percent in midday trading on the Toronto Stock Exchange, while those in Telus and BCE rose 7.7 percent and 4.2 percent, respectively, as analysts raised their price targets and ratings on the trio following the Verizon announcement.
National Bank's Shine himself lifted his price target on shares in Rogers to C$47.50 from C$44, in Telus to C$36 from C$33 and in BCE to C$45.50 from C$44.
Verizon's decision marks a lost opportunity for investors in Canadian telecom startups Mobilicity and its larger rival Wind Mobile, partly owned by European telecom giant Vimpelcom .
Verizon had considered using one or both companies as a springboard to enter Canada. It made an offer for Wind and was in talks with acquire Mobilicity, sources familiar with talks, said in June.
"We are more committed than ever to offering Canadians a true alternative to the Big Three telecoms. We don't need Verizon to have a competitive telecommunications market," Wind Mobile Chief Executive Anthony Lacavera said in an email.
Verizon's decision is also a blow for Canada's Conservative government, which has been trying to boost competition in the sector in the hope of lowering prices for consumers.
The government has said it would like to see a strong fourth player in every region in Canada and many saw Verizon as the leading contender for that slot.
Verizon's entry was also expected to drive up bids in an upcoming sale of valuable airwaves. Canada's big three are now unlikely to have any major competition in an auction process scheduled to begin on Sept. 17.
The Canadian government said on Tuesday that it will go ahead with the sale of wireless spectrum despite Verizon's lack of interest. Firms wishing to take part in the January 2014 auction have to register their interest this month.
"The result of the auction will be positive for Canadian consumers, regardless of the outcome, because the rules were designed with their interests up front," said a spokeswoman for Industry Minister James Moore.
The government has seven blocks of spectrum up for auction, but bidders most covet four blocks aligned with U.S. airwaves used by AT&T Inc and Verizon, given the number of devices designed for the much larger U.S. market.
As things stand, the three incumbents in Canada are only allowed to bid for one of the prime blocks, while new entrants are being allowed to bid for up to two of those blocks.
The government has previously indicated it will quash attempts by the trio to acquire control of airwaves owned or acquired by the smaller players.
Rogers, Telus and Bell had launched a massive lobbying and public relations campaigns in a bid to force the government to change the auction rules. The government has refused to budge, arguing that its policies are aimed at creating more competition in the sector and lowering prices for Canadians.
Josh Blair, Telus' chief corporate officer, said that the Verizon announcement does not mean that the big three are going to back down on their demands, as the rules still leave open a window for large foreign wireless players to gain an advantage.
"For Telus, this has never been about Verizon coming to Canada, or not. For us, it has always been about fair access to spectrum and that continues to be our pursuit. It is critically important to us," said Blair.
But Wind Mobile's Lacavera commended the government for sticking to its policy outline and not swaying in the face of pressure. (With additional reporting by Louise Egan and David Ljunggren in Ottawa; Editing by Jeffrey Hodgson and Marguerita Choy)