Telus takes Bell contract dispute to cabinet

* Telecom regulator twice rejected Telus appeals

* Telus hopes to claim back monies paid to Bell

* Bell says premium reasonable to cover service gap

By Alastair Sharp

TORONTO, Aug 25 (Reuters) - Canadian telecom operator Telus (T.TO) will take its dispute with Bell Canada over a defense contract to federal cabinet after a regulator twice rejected its appeals over transition costs, a Telus executive said on Wednesday.

Telus won a C$213 million 5-year contract to supply communications services to Canada's Department of National Defence in 2007. Bell, which is owned by BCE Inc (BCE.TO), previously supplied those services.

The two have since wrestled over what Telus calls "exit tariffs" Bell has charged its competitor during a transition period.

The national telecom regulator, the Canadian Radio-television and Telecommunications Commission (CRTC), ruled in Bell's favor in February 2009. The CRTC affirmed its decision earlier this month.

None of the parties involved has disclosed the amounts in dispute.

Telus suggested Bell doubled and in some cases tripled the costs it charged under its contract.

"The government, and Telus by implication, are being charged super-normal rates for these overholding services," said Ted Woodhead, a Telus vice-president for regulatory affairs.

"The only rational impact this will have, other than lining Bell's pockets with windfall profits, is it will put a chill on the competitive market in enterprise services," he said.

Bell disagrees, saying the premium it charged was fair as it had to redeploy its resources for what amounted to a short-term contract that would not have been necessary if Telus had been ready to take on the job.

"There was a need. It was quite clear services would not continue uninterrupted," said Bell spokesman Mark Langton. "The price is an issue layered on top of that," he said, adding the dispute should not be considered by cabinet, which rules on matters of policy.

"This is not a policy issue. It's a contract issue - it's a supply and services issue," he said.

The service handover was due to be completed by December 2008, though the DND would require Bell's alarm services for up to three years, the CRTC said.

Telus' Woodhead said the bulk of the contract had now been switched, covering private lines, digital network access and high-speed digital services, including to remote military bases in Canada and all overseas posts. It will finalize conversion of alarm services within weeks, he said, without disclosing how much Telus has paid Bell.

The federal cabinet will have the option to back or reject the CRTC's decision. If it rejects the ruling it could impose its own or send the case back to the regulator with guidance.

Woodhead said he expected a decision by the end of March.

Prime Minister Stephen Harper's government have disagreed with the CRTC in the recent past, including overturning a ruling that Globalive had run afoul of foreign ownership restrictions. It launched Wind Mobile in December 2009. [ID:nN11139633]

(Editing by Frank McGurty)