UPDATE 1-Verizon makes bid for Wind to get Canada market foothold
* Initial offer for Wind in $600 mln-$800 mln range -source
* Startups have struggled to compete with dominant players
* Upcoming 700 MHz auction key to market as data booms
TORONTO, June 26 (Reuters) - Verizon Communications Inc has offered to buy Canadian telecommunications startup Wind Mobile and is also in talks with rival startup Mobilicity as it makes proposals that could create a viable competitor to the three wireless operators that now dominate the Canadian market.
One source familiar with the matter said Verizon presented a tentative offer of $600 million to $800 million for Wind Mobile last week, with final pricing depending on its due diligence.
The U.S. telecom giant has also approached rival startup Mobilicity and may be interested in acquiring that struggling wireless player as well, a second source said.
Stocks of Canada's three big telecoms players tumbled on the Toronto Stock Exchange as the market digested what could be a game-changing development in what has been a cozy domestic market.
Telus Corp fell 7.8 percent to C$30.75, Rogers Communications lost 9 percent to C$41.77, and BCE Inc was down 4.1 percent at C$41.54.
Mobilicity, Wind and Public Mobile, the three startups that emerged from a 2008 government auction of spectrum, entered the market with cheap talk-and-text plans that pressured the existing players. But they struggled to compete, and Mobilicity debtholders are set to vote on a recapitalization plan early next week.
Activity in the sector has stepped up since the government lifted curbs on the foreign ownership of new entrants last year, and a number of players are now jockeying to strike deals ahead of a second big auction, of coveted 700 mHz spectrum, which requires fewer towers than higher-frequency airwaves.
Sources familiar with the situation say that all three of the juniors have attracted offers from the Canadian incumbents.
But the government wants to boost competition, and Ottawa has made it clear that it does not want the startups to go to existing players. Earlier this month, it quashed Telus's bid for Mobilicity by blocking the transfer of Mobilicity's spectrum licenses to Telus.
A bid from Verizon would likely be far more tempting to Ottawa, given that it would create a player able to boost competition across the country.
Verizon declined comment. Last week, however, Chief Financial Officer Fran Shammo confirmed publicly that Verizon was interested in entering the Canadian market.
A Wind spokeswoman and a Mobilicity spokesman both declined to comment.
Any new entrants will want to clarify their ownership before Sept. 17, the deadline to apply for the 700 megahertz spectrum auction, which is due to start on Jan. 14.
The rules of that auction preclude talks between bidding parties after an initial expression of interest.
There are seven blocks available in the auction, but bidders will likely covet four that are aligned with the spectrum bought by AT&T and Verizon in the United States.
The government has said BCE, Telus and Rogers can only obtain one of these prime blocks each, leaving new entrants and regional cable operators such as Quebecor Inc and Shaw Communications to compete for the fourth.
Verizon is already using 700 MHz airwaves in the United States to build a network capable of handling use of heavy data such as streaming video. Acquiring the same spectrum in Canada would let Verizon buy high-end devices at a discount.
Ottawa aims to raise a minimum of C$900 million in the 700 MHz auction, but the sale is expected to rake in far more than that as carriers jostle for the bandwidth upon which their networks depend.
The 2008 auction of spectrum in the 1700 MHz range brought in more than C$4 billion for the government.
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