UPDATE 2-Canada to reserve spectrum for new wireless firms

(Adds Telus response, quotes, context)

TORONTO, Nov 28 (Reuters) - Canada hopes to spur competition in the country’s wireless services market when it holds a spectrum auction next year by setting aside a chunk of airwaves exclusively for new competitors, Industry Minister Jim Prentice said on Wednesday.

Of the 105 megahertz (MHz) of spectrum to be auctioned off in late May 2008, 40 MHz will be set aside for new entrants to bid on, Prentice announced at a press conference in Toronto.

“This is an opportunity to encourage new market entry,” he said. “It is an opportunity to encourage service providers to offer better products, better service and lower prices.”

The news is a blow for Canada's three wireless market leaders -- Telus Corp T.TO, Rogers Communications Inc RCIb.TO and BCE Inc's BCE.TO Bell Canada -- which had argued that setting aside spectrum space for new competitors amounted to an unfair subsidy.

“Today’s announcement will not please some players in the industry, but let us not forget that they already control the vast majority of spectrum for mobile services on the market in Canada,” Prentice said.

The government said Bell, Rogers and Telus continue to dominate the market with 94 percent of subscribers and 95 percent of the revenues, citing regulatory reports.

The incumbent companies and potential newcomers alike will be able to bid on the remaining 65 MHz not being set aside for new competitors.

The amount being set aside is less than 14 percent of the total mobile spectrum that will be in use after the auction, the government said.

Prentice added that there is enough space being set aside for new entrants that a fourth national wireless player could emerge. Alternatively, a number of new regional wireless firms could be created.

Michael Hennessy, Telus’s vice-president of wireless, broadband and content policy, said the company was “deeply disappointed” by the government’s announcement.

“It’s particularly frustrating for a company like Telus, that spent C$10 billion ($10.2 billion) to become national, to now be told that means nothing,” he said.

Spectrum essentially refers to the airwaves over which wireless services are delivered. The rules set out on Wednesday also state that new entrants will be able to roam on established carriers’ networks and share the incumbents’ antenna towers at commercial rates.

Printing and media group Quebecor Inc QBRa.TOQBRb.TO, Manitoba Telecom Services MBT.TO and cable operator Shaw Communications Inc SJRb.TO have been named as potential new entrants into the wireless market.

Quebecor has said openly it wants to build a network in the province of Quebec. Shaw, meanwhile, indicated in late October it has no current plans to enter wireless.

MTS said earlier this month that, while it sees value in creating a fourth national wireless company, it will not decide whether to go ahead until it sees the auction rules.

MTS added it has held talks with potential financial and strategic backers who could contribute “significant” capital and expertise to such a venture.

$1=$0.98 Canadian Reporting by Wojtek Dabrowski; Editing by Rob Wilson