By Alastair Sharp and Euan Rocha
TORONTO, Oct 23 (Reuters) - Canadian telecom company Telus said on Wednesday it has agreed to buy 100 percent of struggling startup Public Mobile from private equity firm Cartesian Capital and Thomvest Seed Capital, a Toronto-based investment vehicle backed by Peter Thomson.
The terms of the deal were not disclosed.
The Canadian government said in a separate statement that it has approved the transfer of Public's spectrum licenses to Telus, paving the way for the deal to proceed.
Ottawa has been eager to encourage more competition in the wireless sector, and has frowned on dominant carriers buying more attractive airwaves used by small companies.
The approval of the spectrum transfer indicates that the Canadian government remains open to allowing such deals in select circumstances.
Unlike spectrum used by other new entrants such as Mobilicity and Wind Mobile, the spectrum licenses owned by Public were not part of the airwaves that were set aside for new entrants during a 2008 auction. Ottawa put a five-year ban on the transfer of that set-aside spectrum, or bandwidth used for phone calls and data transmission.
Telus had previously sought to buy rival startup Mobilicity, but their initial C$380 million ($366 million) attempt was rebuffed by the government. Mobilicity, which has since sought creditor protection, is now attempting to revive a deal.
Ottawa's approval of the Public-Telus spectrum transfer indicates that the Canadian government remains open to allowing such deals in certain circumstances.
"This transaction does not materially change the spectrum concentration of incumbents in this country and therefore will not diminish competition in our wireless sector," Industry Minister James Moore said in a statement.
The Public transaction is still subject to approval from Canada's Competition Bureau.
"It doesn't necessarily change the landscape," said Dvai Ghose, an analyst with Canaccord Genuity, noting that Ottawa made a point of saying restrictions on other airwaves still apply. "Buying Public Mobile doesn't enhance Telus' intrinsic value that much, (but) it eliminates a competitor."
Public spent only about C$52 million ($50 million) to buy the so-called G block spectrum out of a total C$4.2 billion raised in the 2008 auction.
The G block was not set aside, but it was not bid on by the dominant carriers because at the time it was used nowhere else in the world and therefore handset makers did not make devices that work on the frequency.
However, Canaccord's Ghose said he believed it could be growing in popularity.
"A lot of people were naysayers about our spectrum and I think we took what was seen as the least valuable spectrum and in some ways have shown it was one of the more valuable pieces of spectrum because we could actually sell it when no one else can," Public's Chief Executive Alek Krstajic said in an interview with Reuters.
The Canadian government will make additional airwaves available in January when it auctions 700 MHz spectrum, which is valued for the ability to penetrate buildings and travel long distances.