Mobilicity's backer sues Industry Canada over losses

A U.S.-based backer of Mobilicity is suing Industry Canada for blocking the sale of struggling wireless startup and not establishing an environment where it could thrive.

Mobilicity is currently under bankruptcy protection, but Industry Canada has twice blocked the transfer of its wireless spectrum to Telus, saying it would reduce competition in the wireless industry.

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Investment firm Quadrangle Group saysMobilicity parent firm Data &Audio Visual Enterprises Investments Inc. had assurances from Industry Canada that they would be able to transfer spectrum when they invested millions in Mobilicity.

Quadrangle has filed a lawsuit with Ontario Superior Court of Justice seeking $1.2 billion in damages.

Quadrangle says in thefiling that its backing helped Mobilicity build its network and create thousands of jobs, but they ended up losing their investment.

Industry Canada breached its assurances that it would enforce foreign ownership rules, require incumbent carriers to provide roaming and access to cell towers at reasonable rates and terms, prevent unfair and anti-competitive competitive practices and allow spectrum to be transferred, the filing said.

In the statement of claim filed Thursday, Quadrangle alleges that in late 2006, Industry Canada pursued a meeting in late 2006 with John Bitove, a Canadian businessman known for his development of Sirius XM Canada, and encouraged him to help invest in a new wireless company.

"The Industry Canada representative ... assured Mr. Bitove that if he has his partners invested in a new company, purchased spectrum and built out a new network, it would prevent unfair competition from the incumbents and create market conditions in which new entrants could establish themselves and compete effectively," the company said in the filing.

Part of the understanding, the claim says, was that Industry Canada assured Bitove that his investment would not be lost because the spectrum licences could be sold to one of the country's biggest wireless carriers after five years.

Bitove has put about $44 million into the business through his company Data & Audio-Visual Enterprises Investments Inc.Quadrangle gave $217 million of equity and another $95 million through a debt financing, the court documents say.

The CRTCbanned the telcos from imposing higher rates on the small companies in a decision at the end of July. That means smaller wireless players can roam using the big telcos networks at a the same cost the telcosimpose on their own customers.

In addition, a revision to the Telecommunications Act imposes a formula establishing a cap on ratesfor data and voice.

Teluswas successful in buying small startup Public Mobile, but has shut the network down saying its technology was outdated.