(Recasts with details on buyer Accelero, impact on Canadian telecom landscape)

By Alastair Sharp and Euan Rocha

TORONTO, May 24 (Reuters) - Manitoba Telecom Services Inc

MBT.TO will sell its Allstream fiber optic network to a company controlled by telecom tycoon Naguib Sawiris for C$520 million ($502.8 million), a deal that signals the Egyptian billionaire is still keen on the Canadian market.

Under an agreement announced on Friday, Accelero Capital Holdings, which was founded by Sawiris and is stacked with executives from telecom companies he owns or is invested in, gets MTS's Allstream network, which serves 50,000 business customers.

In a previous foray into Canada, Sawiris's Orascom Telecom

ORTE.CA was the main financial backer of upstart Wind Mobile, which launched a wireless service in 2009 that aggressively challenged the pricing plans of the three dominant telecom players in Canada: BCE Inc's BCE.TO Bell, Rogers Communications Inc RCIb.TO and Telus Corp T.TO .

"This investment reflects Accelero's long-term commitment to the Canadian telecommunications market, and our belief in the opportunity that exists to provide capital to enhance the competitive landscape in Canada," Sawiris said of the MTS deal in a statement.

The deal, the value of which includes debt assumed by the buyer, leaves MTS as a "pure-play" telecom company with operations limited to its home province of Manitoba. It gives Sawiris's company a broad infrastructure asset that could also complement the wireless operation.

Orascom was bought for $6 billion by Russia-focused VimpelCom Ltd VIP.N in 2010. VimpelCom has since suggested it may divest Wind Mobile ahead of a pending Canadian government auction of valuable wireless spectrum.

Canada's Globe and Mail newspaper reported in March that VimpelCom had hired UBS to arrange a sale of Wind Mobile, and that Accelero and outgoing Wind CEO Anthony Lacavera had secured financing to make a joint bid.

Canada's small wireless providers have struggled to make inroads against the big three incumbents, forcing some to look for new backers or ownership. Telus announced a deal this month to buy struggling new entrant Mobilicity for C$380 million.

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Winnipeg-based MTS said last year it had begun a wide-ranging strategic review of its Allstream business that could result in the sale of the unit.

"This transaction makes MTS a stronger, more focused and more valuable company," Chief Executive Pierre Blouin said in a statement. "MTS goes forward as a pure-play telecom with a strong consumer franchise and significant free cash flow to support our dividend."

Investors welcomed the deal, sending the stock up more than 5 percent to C$33.81.

The deal will provide MTS with sufficient capital to invest in wireless spectrum and to continue bringing fiber-to-the-home, 4G LTE wireless technology and other products to communities in Manitoba, while also paying down on pension commitments, the company said.

After closing costs, MTS said it expects to realize net proceeds of about C$405 million.

BMO Capital Markets was Accelero's financial adviser and Torys LLP served as legal counsel. CIBC World Markets and Morgan Stanley acted as financial advisers for MTS.

The deal is expected to close in the second half of the year.

($1=$1.03 Canadian)

(Editing by Jeffrey Hodgson; and Peter Galloway)

((euan.rocha@thomsonreuters.com)(+1 416 941 8185)(Reuters Messaging: euan.rocha.reuters.com@reuters.net))

Keywords: MTS ACCELERO/