Vodafone faces reseller suit over network

Queensland-based telecommunications retailer Oxygen is seeking over half a million dollars in compensation from Vodafone because of the business it lost due to the carrier's highly publicised network problems that began in 2010.

(Gavel image by walknboston, CC2.0)

Oxygen and its director, Sterling Cincotta, are seeking $581,000 in damages from Vodafone and its distribution partner Wireless Anywhere Business (WAB) for misrepresenting the number of people that Vodafone had been signing up, as well as its level of network service and coverage.

According to court documents sighted by ZDNet Australia, Oxygen entered into an exclusive agreement with Vodafone to sell mobile services in Varsity Lakes, Queensland, in 2008, as a "virtual dealership". By 2009, the company expanded to four sales staff and a larger office. When Vodafone merged with 3 Mobile in 2009, Oxygen alleged that Vodafone and WAB had said that the merger would not affect the Vodafone network, and that the company was "strengthening the Vodafone 3G network" by adding more sites and increasing data speeds.

Cincotta alleged that by the end of 2009, he was receiving complaints from customers about the quality of smartphones operating on the Vodafone network, as well as complaints about the network itself.

"Smartphones connected through the Vodafone network were subject to call dropouts, poor coverage, failed voice-mail service, poor-quality recording and being unable to send or receive SMS messages," he said.

Vodafone allegedly told Cincotta at the time that the company would spend $500 million on network improvements, but, by July 2010, the company was telling Cincotta that these improvements had been pushed back to October 2010, and 640 new sites would be built between May and December 2010.

Despite the various claims of improvement, Cincotta said that no changes were made to the Vodafone network, and that Oxygen's business suffered as a result. Oxygen claims that it lost business, and had to divert resources to servicing dissatisfied customers.

"The result of such a decline was that Oxygen could not meet its debts as and when they fell due," he said.

In November 2010, the landlord of Oxygen's rented premises changed the locks, which effectively ended Oxygen's business.

Had it known that Vodafone would not invest in its network, Oxygen has stated that it would not have entered the exclusive agreement, and likely would have gone to Optus instead.

"There was no reasonable basis to represent that the Vodafone network would become the 'superior' carrier in Queensland, in that it could not compete with the others in the market and did not provide as extensive coverage as others in the market ... in particular, Optus and Telstra."

Oxygen has alleged that Vodafone and WAB would have had information about the planned expenditure on improvements at the time of the deal negotiation with Oxygen, as well as "data indicative of extremely high levels of dropouts across Queensland and occurring on the Vodafone network generally".

Oxygen is claiming that Vodafone and WAB's actions represented misleading or deceptive conduct under the Trade Practices Act. It is seeking $581,000 in compensation for loss of income and owing debt.

The case had its first directions hearing this morning in front of Justice Steven Rares. The counsel representing Oxygen said that the company would make another claim for damages, but that this would be "somewhat more modest" than the $581,000 already being sought.

In a statement, Vodafone vowed to defend the claims made by Oxygen.

"Vodafone will defend this claim from Oxygen Mobile, a former dealer with a relatively low level of activity for the past two years. Vodafone cannot provide any further commentary, since the complaint raised by Oxygen Mobile will need to be resolved through the courts," the company said.

The Oxygen case is one of three similar reseller cases recently brought against Vodafone by law firm Neville and Hourn Legal. The firm is representing Top Stuff 4 Business and Besyl in cases launched late last year, and the firm has reportedly said that it has up to seven resellers to represent in cases against Vodafone.

Since the company's network issues reached boiling point in 2011, a number of resellers have been threatening to sue Vodafone, which has lost over half a million customers last year alone, and posted close to a half million-dollar loss for the 2011 calendar year.

Vodafone has committed to investing $1 billion in an overhaul of network technology with Chinese network vendor Huawei. That upgrade is set to be completed later this year. The company has also entered an agreement with rival Optus that will see the companies share base stations and backhaul.

Yesterday, Vodafone announced that it would not re-sign its long-running sponsorship deals with Cricket Australia and V8 SuperCars, instead focusing on improving its network and customer service.

Updated at 4.27pm, 8 July 2012: added comment from Vodafone and information about other cases