The federal government said its decision on Tuesday to block a proposed deal to sell struggling upstart company Mobilicity to Telus Corp. for $380 million sends a "clear signal" to the wireless industry that Ottawa will not tolerate any arrangements resulting in an unfair marketplace.

Industry Minister Christian Paradis said Ottawa will remain steadfast in its policy to reject any sale of spectrums – radio waves over which cellphone networks operate – that were set aside for new players in 2008 in an attempt to increase competition.

Under the current rules through which Mobilicity and other upstart wireless carriers came into existence, new companies are barred from selling their spectrum until at least 2014.

But those rules were challenged last month when Telus announced its bid to take over the financially troubled Mobilicity.

"We had to send a clear signal to the market that if there are any proposals resulting in undue concentration of spectrum…it will not be approved." Paradis told CTV’s Power Play on Tuesday

Ottawa's decision comes a day after the Canadian Radio-television and Telecommunications Commission (CRTC) unveiled a new wireless code which aims to protect consumers. The code puts a cap on roaming and data charges and puts an end to three year contracts.

"We have a consumer approach," Paradis said of the government’s decision to kill the Telus-Mobilicity deal.

Mobility chief executive Steward Lyons said he is reviewing the minister’s announcement and will be speaking with Telus and other stakeholders. "(We) will have more to say in due course," he told The Canadian Press.

The deal, which had already been approved by debtholders last month, would have resulted in uninterrupted service for Mobilicity’s 250,000 cellphone customers. Also, the upstart’s 150 employees would have been able to keep their jobs and Telus would have paid off the company's debt.

"(Mobilicity) now face considerable uncertainty due to the pressing financial challenges facing the company," Telus said in statement on Tuesday in reaction to the news.

NDP critic Glenn Thibeault said the government is creating a potential mess, saying that if Mobilicity goes out of business, "consumers will be left holding the bag."

But Paradis said Tuesday's decision is not a "foregone conclusion."

"This market is very, very active," he said. "We will see what happens now."

Ottawa has long sought to increase competition in the wireless sector, which has been dominated by Rogers, Telus and Bell – which owns CTV. And while the sale of additional spectrum set aside for new entrants in 2008 allowed a number of new companies to enter the market, many of them are now struggling.

Wind Mobile, with its 600,000 customers and no-service contract, has been put on the market by Dutch owner VimpelCom. And it’s been reported that Public Mobile has hired an investment banker to find a buyer.

According to University of Ottawa law professor Michael Geist, who specializes in e-commerce, the government needs to do more if it wants to inject more competition in the marketplace.

"The government needs to do more than simply buy time by enforcing the five year spectrum set-aside rule," he wrote in his blog Tuesday. "There are a host of other possibilities, including fully opening the market to telecom and broadcast distributors, tough rules on domestic roaming and tower sharing, a full set-aside in the forthcoming spectrum auction, or a regulated wholesale market to create a strong class of MVNO (mobile virtue network operator) competitors."

Paradis, however, is not convinced the government's strategy of limiting transfers for set-aside spectrum is failing, pointing to the fact that the average price for wireless service has dropped by 18 per cent since 2008.

"We will not allow this progress to be lost or undermined," he told The Canadian Press. "I will not hesitate to use any and every tool at my disposal to support greater competition in the market."

Building on that momentum, Paradis said he will postpone the next sale of 700 megahertz of spectrum – originally scheduled for November – to Jan. 14. When the auction is held, Ottawa will limit the amount of spectrum big players can purchase.

Paradis also said the government will also use all its tools to ensure there is a minimum of at least four wireless carriers in every region of Canada.

"We believe there is enough room in the market for that," he said.

With files from The Canadian Press