By Alastair Sharp and Euan Rocha
TORONTO, Oct 23 (Reuters) - Canadian telecom company Telus said on Wednesday it has agreed to buy 100 percent ofstruggling startup Public Mobile from private equity firmCartesian Capital and Thomvest Seed Capital, a Toronto-basedinvestment vehicle backed by Peter Thomson.
The terms of the deal were not disclosed.
The Canadian government said in a separate statement that ithas approved the transfer of Public's spectrum licenses toTelus, paving the way for the deal to proceed.
Ottawa has been eager to encourage more competition in thewireless sector, and has frowned on dominant carriers buyingmore attractive airwaves used by small companies.
The approval of the spectrum transfer indicates that theCanadian government remains open to allowing such deals inselect circumstances.
Unlike spectrum used by other new entrants such asMobilicity and Wind Mobile, the spectrum licenses owned byPublic were not part of the airwaves that were set aside for newentrants during a 2008 auction. Ottawa put a five-year ban onthe transfer of that set-aside spectrum, or bandwidth used forphone calls and data transmission.
Telus had previously sought to buy rival startup Mobilicity,but their initial C$380 million ($366 million) attempt wasrebuffed by the government. Mobilicity, which has since soughtcreditor protection, is now attempting to revive a deal.
Ottawa's approval of the Public-Telus spectrum transferindicates that the Canadian government remains open to allowingsuch deals in certain circumstances.
"This transaction does not materially change the spectrumconcentration of incumbents in this country and therefore willnot diminish competition in our wireless sector," IndustryMinister James Moore said in a statement.
The Public transaction is still subject to approval fromCanada's Competition Bureau.
"It doesn't necessarily change the landscape," said DvaiGhose, an analyst with Canaccord Genuity, noting that Ottawamade a point of saying restrictions on other airwaves stillapply. "Buying Public Mobile doesn't enhance Telus' intrinsicvalue that much, (but) it eliminates a competitor."
Public spent only about C$52 million ($50 million) to buythe so-called G block spectrum out of a total C$4.2 billionraised in the 2008 auction.
The G block was not set aside, but it was not bid on by thedominant carriers because at the time it was used nowhere elsein the world and therefore handset makers did not make devicesthat work on the frequency.
However, Canaccord's Ghose said he believed it could begrowing in popularity.
"A lot of people were naysayers about our spectrum and Ithink we took what was seen as the least valuable spectrum andin some ways have shown it was one of the more valuable piecesof spectrum because we could actually sell it when no one elsecan," Public's Chief Executive Alek Krstajic said in aninterview with Reuters.
The Canadian government will make additional airwavesavailable in January when it auctions 700 MHz spectrum, which isvalued for the ability to penetrate buildings and travel longdistances.
- Public Mobile