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Mobilicity has 250,000 customers.Kevin Van Paassen/The Globe and Mail

Cash-strapped wireless provider Mobilicity won court protection from creditors and new financing, in an attempt to stay alive long enough to sell itself to Telus Corp.

The Vaughan, Ont.-based company, which becomes the first struggling new entrant carrier to be granted protection under the Companies' Creditors Arrangement Act, declined to identify its potential buyer. Sources have told The Globe and Mail that Mobilicity and Telus are in talks to rekindle a sale that the federal government publicly killed in early June before it introduced new rules on spectrum transfers between wireless carriers.

Mobilicity executives said the CCAA order, granted by the Ontario Superior Court, gives the company badly needed time and money from some of the company's existing noteholders "to advance and complete a going-concern transaction" that is before Industry Canada for approval. It is unclear when a deal would come to fruition. Both Mobilicity and Telus declined to comment Monday on whether they had renewed takeover talks.

Securing government approval for a sale, however, is far from certain. Telus's original $380-million agreement to buy Mobilicity sparked controversy because of a federal prohibition preventing big carriers from buying new entrant spectrum assets until 2014.

Earlier this year, the companies had asked the government to waive that rule and allow for an immediate transfer, given the depth of Mobilicity's financial problems.

Although a new deal has yet to be finalized between the companies, it is expected to be structured in a way that complies with Ottawa's concerns about new-entrant spectrum falling into the hands of incumbent carriers prior to the expiration of a federal ban on such deals. In Mobilicity's case, the standstill agreement expires in February of 2014.

One scenario under consideration, according to sources, is to give Telus a "put" right to exercise a spectrum transfer at a later date. It is unclear whether Telus would be willing to maintain its previous $380-million price tag for Mobilicity's spectrum.

"We filed for creditor protection today. Effectively, it was to stop the clock as we assess a transaction that is before Industry Canada," Mobilicity president and chief operating officer Stewart Lyons said in a telephone interview. "We needed to freeze things and take stock of where we are and restructure the company, and hopefully work with the federal Department of Industry to get this transaction done as quickly as possible."

Mr. Lyons declined to comment on his company's potential buyer, saying only that: "We're looking forward to working with them to get a speedy solution here because we had to hold things at this point."

Mobilicity, formally known as Data & Audio-Visual Enterprises Holdings Inc., launched service in 2010 after paying $243.1-million for its advanced wireless spectrum (AWS) licences during the last spectrum auction in 2008. As of earlier this year, it had 250,000 customers, according to court filings.

The company's fate, however, has been unclear ever since it was revealed last week that it did not register to bid in an upcoming auction of wireless licences for the 700 megahertz frequency, and interest from other potential suitors, such as Verizon Communications Inc. and Birch Hill Equity Partners Management Inc., fizzled over the summer.

For his part, chief restructuring officer William Aziz stressed it was business as usual for Mobilicity's wireless customers. "Stability is a key message for us," he said.

Also Monday, the court approved debtor-in-possession financing from some of Mobilicity's existing noteholders. The DIP, as it is also known, will provide the carrier with up to $30-million in cash in a bid to keep it operational until spring 2014.

All of Mobilicity's existing debtholders, with the exception of private-equity firm Catalyst Capital Group Inc., contributed to the DIP financing, according to a source.

"Under CCAA, it will now be impossible to prevent Catalyst from voting its full holdings," a Catalyst spokesperson said. "Any and all plans will require our approval. Catalyst remains committed to enforcing all its rights, and welcome the opportunity to do so now with the support of the court."

Ernst & Young Inc., meanwhile, was appointed to serve as monitor by the court to assist in the process.

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