Ottawa announced it will hold an auction of the wireless spectrum in May 2008, which could mean more competition and lower cellphone rates for Canadians next year.

Industry Minister Jim Prentice told a press conference in Toronto on Wednesday that about 105 megahertz of spectrum will be sold to bidders. Forty megahertz will be set aside for newcomers to the industry.

"The introduction of new service providers will help to make Canada's wireless market more dynamic, more competitive, and more innovative so as to meet the needs of Canadians," Prentice said.

Prentice said that Canadians are currently paying more for wireless service than other countries. Industry insiders say that's one reason there are fewer wireless users relative to the United States.

Companies who hold less than 10 per cent of revenues in Canada's wireless market will be allowed to bid for the 40 megahertz that will be set aside.

An Ottawa-based consumer group said cellphone users could be the big winners following next spring's auction. The Public Interest Advocacy Centre wrote in a media release that "the government has realized the public has an interest" in the issue beyond filling treasury coffers with fees collected from the auction.

The industry is currently dominated by three big players in Canada: Rogers Communication, Bell Mobility, and Telus. During a consultative process, larger companies came out against setting aside space in the wireless spectrum for smaller companies. Telus officials didn't mince words after Prentice's announcement, calling it "deeply disappointing news."

Telus executive vice-president Janet Yale said, "We thought this was a government that believed in market forces, that believed in not trying to create special concessions to help new entrants, and at the end of the day we believe this is not in the best interest of consumers or telecom industry overall.

Telus was all for the set-aside option this summer when it was bidding for BCE Inc., but it reverted to its original position of being against set-asides after it lost the bid. Rogers also criticized the announcement.

Prentice told CTV Newsnet's Mike Duffy Live that larger telecommunications companies in Canada benefited from set-asides during similar auctions in the 1980s and 1990s.

"But let us not forget that they already control the vast majority of spectrum for mobile services on the market in Canada. These same players will be able to bid for 65 of the 105 megahertz being put up for auction to augment their already substantial holdings."

Industry analysts say that the amount of spectrum made available is significant.

"More users require more spectrum and the new internet services, of course, will require broader spectrum," Iain Grant told CTV Newsnet immediately after Prentice's announcement.

Prentice also announced that the government will mandate cellphone tower sharing. This will force companies to allow other companies to use their towers at commercially negotiated rates.

"I think as a Canadian who doesn't necessarily want to see a forest of towers outside my house, I really appreciate it if we can have some sharing of existing resources," said Grant, who is managing director of the Montreal-based telecom consultancy The Seaboard Group.

Grant noted that Canadians will likely not see prices drop for about a year.

Prentice told Mike Duffy Live that he is not sure how much money the auction could raise.

With files from The Canadian Press.