Telstra wins $200 million legal battle with NBN Co

Summary:Telstra today won a legal battle against NBN Co in the NSW Supreme Court, with the national broadband company set to pay the telco an extra AU$200 million unless it successfully appeals the ruling.

NBN Co will have to pay Telstra an extra AU$200 million following a ruling by Justice Robert Calder McDougall of The Supreme Court of New South Wales today, which favoured the telco's interpretation of an AU$11 billion deal with NBN Co.

It took NBN Co and Telstra two years of negotiations to strike the initial AU$11 billion deal in 2011, which saw the national broadband builder have access to the ducts, exchange rack spaces, dark fibre links, and lead-in conduits of the country's largest telco.

However, the two companies disagreed with the implementation start date of consumer price index (CPI) adjustments applying to the price Telstra was to charge NBN Co to access its infrastructure in the broadband rollout.

NBN Co had argued that the CPI should not have kicked in until 2013, because the structural separation undertaking that Telstra was required to submit to the Australian Competition and Consumer Commission (ACCC), outlining how the company will separate its wholesale and retail arms, was not accepted until March 2012.

"The impact to us over the term of the agreement is significant, but not material from a market perspective," a Telstra spokesperson said, when the court case was launched in October last year.

The difference in value of the twelve month period in question, according to both companies, equates to AU$200 million over the life of the contract.

The CPI is refreshed each year, and Telstra had argued that it should apply for payments from 1 January 2012, since the contract with NBN Co was signed in 2011.

Today, Justice McDougall ruled in favour of Telstra after three days of hearings, saying that the outcome of the case hinged upon the agreed start date of CPI adjustments.

In his ruling, Justice McDougall said:

"The parties agreed that the real question for decision is whether, on the proper construction of the terms of the Implementation Deed and the Services Agreement and in the events that have happened, CPI adjustments to the charges payable by NBN Co for infrastructure services provided by Telstra under the Services Agreement applied from 1 January 2012 or from 1 January 2013.

"The real question for decision...should be answered '1 January 2012'. Thus, Telstra is entitled to declaratory relief and to a money judgment for the amount underpaid, together with interest. As at present advised, I see no reason why it should not have, as well, an order for its costs," he said.

Both parties agree the difference of the contract's interpretation is worth AU$200 million over the life of the 35-year contract. 

While Telstra has welcomed the decision, saying that it "upholds our interpretation of the agreement," a company spokesperson for NBN Co has indicated that it may consider lodging an appeal.

"NBN Co has until 14 August to lodge an appeal, and is considering its options," the spokesperson said.

The two companies had been in the process of renegotiating the contract, which was expected to be completed by this year, but it is now expected to miss the deadline.

NBN Co's use of existing Telstra infrastucture is necesary under the coalition's preferred mixed technology approach to the NBN rollout, which sees the bradband company employ Telstra's existing copper wires and other infrastructure to connect premises to its fibre backhaul network.

Topics: NBN, Australia, Telstra

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Leon covers enterprise technology and start-ups from ZDNet's Sydney newsroom.

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