TORONTO – The financial backer of wireless startup Mobilicity and its parent company have filed a lawsuit against Industry Canada in Ontario Superior Court of Justice seeking $1.2 billion.

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The claim by investment firm Quadrangle Group and Mobilicity parent firm Data & Audio Visual Enterprises Investments Inc. accused Industry Canada of breaking assurances such as allowing the transfer of wireless spectrum, which would have allowed Telus (TSX:T) to buy the struggling carrier now operating under creditor protection until Sept. 26.

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Telus (TSX:T) has twice tried to buy struggling Mobilicity, but both times the deal was rejected by Industry Canada, which has said it wouldn’t approve requests for the transfer of wireless spectrum that would affect competition.

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Mobilicity is in five urban markets – Ottawa, Toronto, Calgary, Edmonton and Vancouver – but has made little impact on Rogers (TSX:RCI.B), Telus or BCE’s Bell (TSX:BCE), which account for about 90 per cent of the Canada’s wireless subscribers.

Quadrangle says it has invested hundreds of millions of dollars in Mobilicity to compete with the big three carriers, built out Mobilicity’s network, created jobs and provided cellphone service to underserved Canadians.

The statement of claim also says that Industry Canada breached assurances that it would enforce foreign ownership rules, require the big carriers to provide roaming and access to cell towers at reasonable rates and terms, and prevent unfair and anti-competitive competitive practices.