(Adds industry and analyst comments, market background, details on the auction)
TORONTO, July 7 (Reuters) - The Canadian government said on Monday it will auction more wireless spectrum early next year, with more than half the airwaves set aside for newer players that have struggled to win business from the country's three dominant telecom companies.
The Conservative government hopes the auction of the high-frequency spectrum, known as AWS-3, will encourage investors to pour money into some of these smaller players, which include Wind Mobile and Mobilicity. This would help them better compete against the big three: BCE Inc's Bell, Rogers Communications Inc, and Telus Corp.
Wind, Mobilicity and others entered Canada's wireless market after a 2008 auction of very similar airwaves that were also set aside for the purpose of stoking competition.
But they have struggled to make inroads. Mobilicity is looking for a buyer while under creditor protection. Wind is barely breaking even, with backer Vimpelcom Ltd writing off its investment in the company.
Analysts and investors said the new auction could encourage investors to inject capital into a fourth national operator via the purchase of Wind or Mobilicity, or both, and perhaps bundling other available spectrum.
There is speculation that regional operator Quebecor Inc could play that role, while it's possible an international operator could step in, or a financial investor. Last year, sources said U.S. operator Verizon Communications had considered a move into Canada, and decided against it.
Quebecor, Vimpelcom and Verizon declined to comment. Quebecor's new chief executive said last month the company would consider buying small players to become a national wireless carrier.
FREEDOM TO ROAM VITAL
Shares in Rogers and Telus fell more than 1 percent on Monday. BCE also slipped, while Quebecor rose. But some investors and analysts expressed skepticism about how much the policy move would change the telecom landscape.
"Quebecor needs to have roaming figured out. Then it needs to buy subscribers via buying Wind, Mobilicity or both," said Ryan Bushell, a portfolio manager at Leon Frazer, which owns shares in all of Canada's big three telecoms. "Then it needs to build out its network with LTE (long-term evolution) technology and then needs to attract subscribers. And that's all not going to happen overnight."
Iain Grant, managing director of telecom consultancy Seaboard Group, said that more important than the auction for small operators is to be guaranteed reasonable access to the networks of the established operators to enable more extensive domestic roaming for their customers.
Of the 50 megahertz of spectrum being made available in each region of the country, a single block of 30 megahertz will be set aside for purchase by small players in regions where they already operate, the government said.
Quebecor's Videotron currently offers wireless service in Quebec and recently bought spectrum in other provinces.
The AWS-3 auction results will be known before an auction of 2,500 MHz frequencies scheduled for April 2015, the government said.
The same frequencies are being auctioned off in the United States later this year and will likely raise $10 billion. The huge size of the U.S. market should encourage handset makers to quickly develop compatible devices. (With additional reporting by Ashutosh Pandey in Bangalore; Editing by Jeffrey Hodgson and Peter Galloway)