* Wind's main backer opts not to fund its participation in auction
* Canada's biggest 3 telecom firms set to benefit
* Move will hurt govt efforts to boost competition
TORONTO, Jan 13 (Reuters) - Globalive's Wind Mobile has withdrawn from a major Canadian auction of wireless spectrum, dealing a blow to government efforts to spur competition and boosting the prospects of the three big players that dominate the country's telecom sector.
Wind, a recent entrant to the Canadian market, on Monday said it quit the auction due to start the next day after its main backer, Europe' Vimpelcom Ltd, decided not to fund its participation.
The move all but assures that the country's biggest telecommunications providers, BCE Inc's Bell, Rogers Communications Inc and Telus Corp - will take the lion's share of the prized spectrum at a lower price than they might have otherwise expected to pay.
The 700 MHz spectrum is particularly prized for its ability to carry a signal over long distances and to penetrate thick walls, making it useful for both urban and rural deployment.
Canada's Conservative government had hoped the auction would support its broader strategy of having four strong mobile phone service providers in every region of the country, fighting for consumers and lowering prices in the process.
Instead, it faces the prospect of strengthened incumbents and a much lower take from an auction it wanted to boost its coffers heading into next year's federal election.
Canaccord Genuity analyst Dvai Ghose said proceeds from the auction would likely fall below his initial C$2.5 billion ($2.3 billion) forecast, with one of the four prime blocks of spectrum now lacking an obvious buyer in Ontario and Western Canada.
"This clearly puts a question mark around the government's stance," said Ryan Bushell, a portfolio manager at Leon Frazer, which owns shares in all three of the Canadian majors.
"This leaves the government between a rock and a hard place, so I'm not quite sure what they will do. As an investor it makes me a bit nervous because desperate times call for desperate measures," he said, suggesting further federal regulation was possible.
As part of a "pro-consumer" strategy aimed at winning votes ahead of the next election, Ottawa has recently forced the shortening of cellphone contracts and introduced more forceful rules on the sharing of cellular towers.
A spokesman for the industry minister declined to comment directly on Wind's decision to withdraw, but said the additional airwaves would help Canadians regardless of who owned them.
"The outcome of the auction will be positive for consumers because high-quality spectrum will soon be available across Canada, providing Canadians with dependable, high-speed wireless services on the latest technologies," James Moore's press secretary Jake Enwright said in a statement.
NEW ENTRANTS STRUGGLE
The withdrawal puts Wind, which has 650,000 customers mostly in the provinces of Ontario, Alberta and British Columbia, in a difficult spot as operators gobble up the airwaves needed to support booming demand for mobile data such as video streaming.
While Wind is Canada's fourth-largest operator, it trails far behind the top three. The widening gap in its airwave assets exacerbates the challenges it faces as it will be unable to upgrade to the latest networks.
"In order to continue offering real choice for Canadian consumers and businesses long term, Wind needs more wireless spectrum which is the real estate of our business, so it is very unfortunate Wind is unable to participate," Globalive Chief Executive Officer Anthony Lacavera said in a statement.
Globalive is owned by Vimpelcom and Lacavera. The CEO maintains voting control after the federal government blocked Vimpelcom's request to take control of the company.
The Conservatives sought to usher in more wireless competition via a previous auction in 2008 in which some airwaves were set aside for new entrants.
While prices have since fallen, new entrants such as Wind have failed to win much share away from the biggest players.
One of the startups from that auction, Public Mobile, has since been bought by Telus.
Another, Mobilicity, is under creditor protection as it seeks a buyer. Ottawa has twice blocked Telus from acquiring it, and Wind is the only other company that has publicly expressed an interest.