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Telus offers $380M for small rival Mobilicity

Telus announced a plan Thursday to buy upstart wireless company Mobility for $380 million, a deal which it said needs quick regulatory approval because the small carrier can’t make it financially on its own.

The telecommunication company’s offer is subject to conditions including approval by the federal Competition Bureau, Industry Canada, and Mobilicity’s debtholders.

“Given Mobilicity’s financial situation, we’re asking for and expecting an expedited review,” Telus chief marketing officer David Fuller said from Vancouver.

Mobilicity, which as been losing millions, had been looking for a buyer or debt restructuring.

“Their financial situation puts a different spin on when they need to make a decision and when they need to give approval,” Fuller said of the various government approvals needed for the deal to go ahead.

However, Industry Minister Christian Paradis didn’t seem in any hurry to sign off on the deal.

“The government will take the time required to review the proposal carefully,” Paradis said in a statement on Thursday.

Fuller said the majority of Mobilicity’s debtholders support the acquisition by Telus (TSX:T.) If its goes ahead, Telus will keep Mobilicity’s 250,000 cellphone customers and its 150 employees and pay off the company’s debt.

At issue, though, is Mobilicity’s spectrum licence which doesn’t expire until winter 2014.

Mobilicity was part of a new wave of small wireless companies launched after the last wireless spectrum auction in Canada to challenge Telus, Rogers (TSX:RCI.B) and Bell (TSX:BCE).

Fuller said since it’s not financially sustainable for Mobilicity to keep operating on its own until its spectrum licence expires, Telus is asking that it be allowed to buy Mobilicity before the five-year expiry period.

Mobilicity’s spectrum, radio waves over which its cellphone network operates, was purchased in a special, set-aside auction for new wireless carriers in 2008 to create more competition. Industry Canada has said set aside spectrum cannot be sold to established carriers for five years.

Telecom analyst Iain Grant said he believes Mobilicity’s spectrum licence would be revoked.

“So what Telus would be buying is the customers and the operation,” said Grant, managing director of SeaBoard Group.

“We’re all watching Ottawa now,” he said. “Industry Canada has tried to stimulate competition in Canada. It has proved to be too little too late. Going forward, we would look to Industry Canada to take a much firmer stand.”

Fuller said if the deal is approved that Telus could operate Mobilicity as a stand alone brand or absorb it. Telus operates Koodo as a separate brand.

Telus also said while it doesn’t need Mobilicity’s spectrum, it’s valuable to own due to the growing number of smartphone users.

“It’s not essential to Telus, but with data growth on smartphones that we’re experiencing and the industry at large is experiencing, additional spectrum is absolutely always valuable,” Fuller said.

Mobilicity president Stewart Lyons said his company approached Telus about the deal.

“I am confident Telus will look after our employees and our customers, mitigating any disruption to their service, while offering the best outcome for all stakeholders,” Lyons said.

Formerly known as Data & Audio-Visual Enterprises Wireless Inc., Mobilicity offers wireless services in Toronto, Ottawa, Calgary, Edmonton and Vancouver.

The other two new wireless players also face uncertain futures.

Dutch owner VimpelCom has put Wind Mobile up for sale, opening up the possibility that a bigger company could swoop in and pick it up and it has been reported that Public Mobile has hired an investment banker to find a buyer.