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Mobilicity announced late Monday that Telus had exercised an option to terminate its agreement to acquire the upstart carrier.Michelle Siu/The Globe and Mail

Telus Corp. is walking away from its acquisition agreement with struggling upstart carrier Mobilicity less than a week after Industry Minister Christian Paradis refused to approve the $380-million deal.

Mobilicity, which is legally known as Data & Audio-Visual Enterprises Holdings Inc., announced late Monday that Telus had exercised an option to terminate the sale agreement.

Although Mr. Paradis announced last Tuesday that Ottawa would reject the deal, it remained unclear whether his announcement negated the exclusivity period that Telus had with Mobilicity or its ability to extend it beyond the June 10 deadline should it have chosen to provide bridge funding to the financially strapped carrier.

With the Telus deal now dead, Mobilicity plans to pursue a previously announced recapitalization plan to fix up its balance sheet. Its bond holders will vote on the plan on June 25.

"The company will continue to provide updates as warranted. Mobilicity continues to deliver an affordable wireless experience to its customers," the company said in a statement.

Mobilicity did not provide specifics about its proposed recapitalization plan on Monday. A spokeswoman could not be immediately reached for comment on what the plan would entail or whether it would involve new or existing lenders.

The carrier, however, has long said that should its sale agreement fall through, a recapitalization would be its Plan B.

Telus's agreement to buy Mobilicity was seen as controversial because of a federal prohibition that prevents large carriers from buying new entrant spectrum assets until 2014. The carriers had asked the government to waive that rule and allow for an immediate transfer given Mobilicity's financial problems – a request that raised the ire of consumer advocates who warned of the potential of diminished competition in the wireless sector.

In Mobilicity's case, that ban expires in February. Telus declined comment on whether it plans to make a second bid for Mobilicity at that time.

"On Tuesday, the Minister announced that he was not going to approve the application to transfer Mobilicity's spectrum licences to Telus. He also indicated that going forward, proposed spectrum transfers that result in undue spectrum concentration – and therefore diminish competition – will not be permitted," Industry Canada said in an e-mailed statement on Friday in response to a query about Telus's ability to extend its exclusivity period with Mobilicity.

"Our government will use any and every tool at its disposal to encourage competition in the Canadian wireless market and protect Canadian consumers."

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