UPDATE 2-Manitoba Tel urges looser telecom ownership rules

* Ownership limits should be lifted, Manitoba Tel CEO says

* Says Canada needs "free and open" telecom competition

* Manitoba Tel stock up C$0.03 at C$33.13 (Adds details, background)

By Wojtek Dabrowski

TORONTO, June 16 (Reuters) - Ownership restrictions that prevent foreign players from buying or holding majority stakes in Canadian telecom companies are stifling competition and should be changed, the chief executive of Manitoba Telecom Services (MBT.TO) said on Tuesday.

"These investment restrictions in telecom are over 20 years old. It's about time we take a fresh look at this legislation," CEO Pierre Blouin told an industry conference in Toronto.

He added Canada needs "free and open" telecom competition, a sentiment often repeated by proponents of lifting caps on the amount of control and ownership foreign investors can have over Canadian communications companies.

His comments came almost exactly a year after an expert panel commissioned by the government recommended that foreigners should be allowed to set up a new telecom business in Canada or buy an existing one as long as it had no more than 10 percent market share.

Canada's telecom landscape is currently dominated by three main players: BCE Inc (BCE.TO), Telus Corp (T.TO) and Rogers Communications (RCIb.TO). Canadians have long complained that service fees for mobile phones and other telecom services are too high because the market is ruled by the Big Three.

A spectrum auction last year, which led to a number of newcomers securing wireless licenses, could spur more competition. However, none of the startups have rolled out their services so far.

In an interview on Tuesday, Blouin said that preserving foreign ownership rules keeps foreign capital out of Canada and suggested that this hampers the ability of smaller telecom groups such as Manitoba Telecom to compete.

"As we want to perform and grow more and more nationally, having arrangements and access to foreign capital would be something pretty interesting for us," Blouin said in an interview.

Manitoba Telecom's stock was up 3 Canadian cents at C$33.13 on the Toronto Stock Exchange at midday on Tuesday.

Canada's minority Conservative government is seen by many observers as unlikely to move on looser telecom ownership rules, even though it has described telecom competition as vital to the economy. The issue isn't a new one. Majority governments have come and gone in Canada without the rules being altered.

Foreign telecom companies have attempted to push into Canada's wireless market in the past. At the start of the decade, a group of U.S. companies held stakes in Canadian telecom providers in the hopes that restrictions would be lifted.

However, as the curbs remained and domestic companies consolidated, the U.S. companies pulled away.