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   By Taos Turner

BUENOS AIRES--Argentina's government has canceled long-delayed plans to auction wireless spectrum to private-sector investors and instead will give it to a state firm, a top government official said Wednesday.

The federal communications company Arsat will seek joint venture partners to develop its own wireless network to bring more competition and lower rates to the mobile phone industry, Planning Minister Julio De Vido said at a press conference.

"We're going to define how we'll move forward with the use of these frequencies and their profitability will be given to all Argentines through Arsat," Mr. De Vido said.

Arsat will get 20% of Argentina's available 3G spectrum.

Mr. De Vido didn't take questions from reporters and it wasn't clear how the government would come up with the billions of dollars Arsat will need to build its mobile network.

Argentine President Cristina Kirchner has greatly expanded the state's role in the economy since she took office in 2007.

Ms. Kirchner shocked investors earlier this year when she seized a controlling stake in Argentina's biggest oil company, YPF SA (YPF, YPFD.BA), from Spain's Repsol SA (REPYY, REP.MC).

Now telecommunications appears to be the next sector that will see an increased government presence.

Argentina boasts one of the highest rates of mobile-phone ownership in the world, with about 55 million wireless subscribers in a country of almost 41 million people.

The canceled spectrum auction is a blow to Argentina's four incumbent wireless carriers--Telecom Argentina SA (TEO, TECO2.BA) and subsidiaries of Mexico's America Movil SAB de CV (AMX, AMOV, AMX.MX), Spain's Telefonica SA (TEF, TEF.MC) and U.S.-based NII Holdings Inc. (NIHD)--that submitted bids.

Carriers have called on the government to free up more spectrum so they can meet the growing demand for bandwidth-intensive data services.

The government called off the auction due to anti-trust concerns and because none of the companies that submitted bids met the minimum requirements, Mr. De Vido said.

Spokesmen for the companies declined to comment or weren't immediately available to do so.

Telecommunications analyst Enrique Carrier said the government's decision is especially bad news for NII Holdings' Nextel Argentina unit, which had been hoping to buy spectrum as part of a broader plan to update its technology.

Mr. De Vido also indicated the government would take another look at the complex shareholder structure that links Telefonica to Telecom Argentina.

Telefonica holds an indirect stake in Telecom Argentina as a result of a convoluted transaction that saw the Spanish firm obtain an interest in Telecom Italia SpA (TI, TIT.MI) in 2007.

The Argentine government at one time opposed that transaction on the grounds that the Telefonica and Telecom Argentina tie-up had created a virtual monopoly. Argentina's anti-trust agency approved the arrangement in 2010 when Telefonica agreed to give Argentine minority investors sweeping powers in Telecom Argentina.

"In the case of Telecom and Telefonica we are going to continue working to resolve the issue of an installed monopoly [situation]. We are going to be prudent, but very firm in making decisions and setting a time frame to resolve these issues," Mr. De Vido said.

Mr. Carrier said the minister's comments on the relationship between Telecom and Telefonica raise a red flag.

"We could be at the door of another conflict. They're refloating a problem that appeared to be solved, so we'll have to see how things develop," he said.

The Kirchner administration appears to have big plans for Arsat, a company whose budgeted revenue this year totals just 430 million Argentine pesos ($92 million).

The company is already committed to a number of ambitious and very expensive projects, including the launch of a satellite next year and the deployment of a 58,000 kilometer nationwide fiber-optic network.

Mr. De Vido demanded that wireless carriers invest more to improve service quality because consumers often complain about poor service and a total lack of coverage in many areas.

Earlier this year, the government fined Telefonica's local subsidiary about ARS185 million for a massive service outage in April.

Arsat will work with cooperatives and smaller companies in the capital of Buenos Aires and the provinces, Mr. De Vido said.

Write to Taos Turner at taos.turner@dowjones.com

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