Canadian telecom upstart Globalive wants to buy rival Mobilicity but no deal is imminent or indeed likely until the government clarifies rules on foreign ownership and airwave allocation, according to a source with knowledge of the situation.

Mobilicity, which raised C$215 million ($209 million) in debt financing in April, is also considering the possibility of an initial public offering, the source said.

I do think a deal will happen, but we are months away, said the source, who declined to be identified because the talks are private.

The two companies, along with Public Mobile and established cable operator Quebecor, bought wireless spectrum in a 2008 government auction in which airwaves were set aside for new entrants to try to bolster competition.

The three new entrants have pressured bigger, more established players Rogers Communications, BCE Inc's Bell Canada and Telus - which together control 95 percent of the wireless market - by offering lower prices that appeal to the budget-conscious.

Globalive has long said it wants its Wind Mobile service to be Canada's fourth national wireless carrier. A Globalive spokeswoman declined to comment.

Mobilicity's president, Stewart Lyons, declined to comment on talk of a sale but said the company has only ever hired investment bankers for the purpose of raising capital.

The federal government has yet to decide whether it will loosen foreign ownership restrictions in the telecom sector or again set aside airwaves in an auction for highly-coveted 700 megahertz spectrum.

Decisions on both issues will likely provide the clarity needed for a deal to proceed, the source said.  Globalive won a court appeal in June allowing it to stay in business after a regulator had determined that Egypt's Orascom Telecom - which has since been bought by Vimpelcom - had too much influence.