By Ben Dummett And Rita Trichur 

TORONTO--A Canadian court has dismissed Telus Corp.'s high-profile legal challenge against the Canadian government's wireless policies, delivering a final blow to the phone company's struggle to acquire Mobilicity, a wireless start-up.

Telus has tried to buy Mobilicity a number of times since 2013 to gain access to the smaller carrier's wireless spectrum to meet growing demand on its mobile network. But the Canadian government has blocked the Telus takeover attempts, concerned the deal would diminish competition by driving up consumers' wireless bills.

In July 2013, Telus asked Canada's Federal Court for a judicial review challenging new government rules that indefinitely prevent incumbent carriers, like itself, from purchasing start-ups.

Originally, the government had indicated wireless spectrum acquired by small carriers in a 2008 auction could be acquired by incumbent phones companies after five years.

But in 2013, the government introduced new rules that effectively prevented these types of transactions on an indefinite basis. Telus argued this about-face by Canada's Industry minister unfairly disrupted the country's wireless sector and Telus' plan to acquire new spectrum.

"The most that can be said is that Telus made a business gamble and lost, " according to the court decision. "It is not the minister's fault."

A Telus spokesman had no immediate comment.

The government welcomed the decision. "We have always been clear in our policies that we would not approve spectrum transfer requests that decrease competition in the wireless sector," a government spokesman said. He added the government doesn't publicly comment on private business transactions but said "the court ruling speaks for itself."

Telus earlier this year has lost a high-profile legal challenge against the Canadian government over wireless policies.

In January, the Federal Court dismissed a separate request by Telus to conduct a judicial review of Ottawa's decision to limit the amount of so-called prime spectrum that major carriers were allowed to buy in a landmark spectrum auction that took place earlier this year. Canada's so-called Big Three carriers include Telus, Rogers Communications Inc. and BCE Inc.

The industry has been at loggerheads with the Conservative government over competition policies for the wireless sector ever since Verizon Communications Inc. explored the potential to enter the Canadian market in 2013.

Industry observers have said the government was keen for Verizon to buy a Canadian start-up so that the market would have a fourth strong competitor.

Although Verizon ultimately decided against Canadian expansion, the overhang of the Canadian industry's very public spat with the government continues unabated and risks becoming an issue in the run up to next year's federal election.

Ottawa has said it is committed to ensuring that there are at least four carriers in every regional market of Canada so that competition will result in lower prices for consumers.

Incumbent carriers such as Telus, however, have alleged that Ottawa misled the sector by indefinitely extending what was originally supposed to be a five-year ban on major carriers buying spectrum owned by struggling start-ups like Mobilicity.

Write to Ben Dummett at ben.dummett@wsj.com and Rita Trichur at rita.trichur@wsj.com

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