In an attempt to increase competition in the Canadian wireless industry, the federal government will lift the restrictions foreign companies now face if they want to buy small carriers.

Industry Minister Christian Paradis said Wednesday the government will change the Telecommunications Act to allow a Canadian based wireless carrier with less than 10 per cent market share to be completely owned by a foreign company. Current rules mandate that telecom carriers have to be Canadian controlled and limit foreign direct and indirect ownership to 46.5 per cent.

At the same time Paradis announced rules for the auction of spectrum in the 700 MHz band, which will be held in the first half of 2013.

The new foreign investment rules are aimed at helping new carriers that bought spectrum during the last auction in 2008, including Wind Mobile -- virtually entirely funded by Amsterdam-based Vimpelcom -- Mobilicity and Public Mobile. These two carriers are supported by U.S. private equity investors.

"We had new entrants that came in in 2008," Paradis said in announcing the government's ownership and auction policies, that resulted in more competition and lower wireless prices. "Now we want to sustain competition."

However, it isn't clear whether giant international wireless companies like AT&T, Germany's Deutsche Telecom and others will want to get into the Canadian market, which is dominated by BCE Inc's Bell Canada, Rogers Communications and Telus Communications. The big three hold roughly 90 per cent of the wireless market.

They are unhappy Ottawa will allow expanded foreign ownership for small carriers and not them.

Executives of Wind Mobile and Mobilicity are divided on the government's new policies. Both welcomed news that the foreign ownership restrictions will be lifted, but were hoping for the hotly-desired 700 MHz auction Ottawa would either set aside spectrum for small carriers, as it did in 2008, or deny the big three incumbents from bidding on it at all.

Instead Paradis said the incumbents will have a cap on the amount of frequencies they can buy in this auction and one for spectrum in the 2.5 GHz band in 2014. One of four blocks of spectrum in each of 14 geographies across the country will be reserved for bidding by small carriers.

Some industry analyst called this a fair compromise. Amit Kaminer of the Montreal-based SeaBoard Group acknowledged that the small carriers lost in the auction rules, but said they gained in foreign investment and could gain even more when Industry Canada reviews the roaming and antenna sharing regulations that so far have stymied the new carriers.

Mobilicity president Stewart Lyons was pleased with the direction the government is going in. "We've already been approached by investors, we have some offers on the table," he said Wednesday. "So we're going to be a player in this auction, we'll be a force. We'll bid, and we'll bid aggressively."

But Wind chairman and CEO Anthony Lacavera said the auction rules will force some of the new carriers to merge to survive. "I'm very unhappy to have them create a spectrum auction policy that doesn't permit new entrants to acquire sufficient bandwidth to compete robustly long term [with incubents] with LTE," he said.

"It greatly restricts, if not fatally cripples, competition."