Telkom faces R1.5 billion claim

By Staff Writer for Telkom
Johannesburg, 04 Oct 2002

A dispute between Telkom and US systems company Telcordia seems to be turning against the operator and could see it pay out up to R1.5 billion in damages. This amounts to more than half the profit it posted in the last financial year, in which it made no provision for the risk as it considered losing the case improbable.

This week, Telcordia parent company Science Applications International Corporation, in a filing with the American Securities and Exchange Commission (SEC), said an arbitrator had partially found in its favour and would now consider awarding damages.

The companies turned to the International Chamber of Commerce for arbitration after a contract was acrimoniously cancelled. Telcordia was to implement the iCare/FlowThru workflow solution for Telkom as it geared up to provide better customer service. Telkom cancelled the contract, saying Telcordia would not be able to deliver what it had promised, a statement the company flatly denied.

Local company Safika Technologies was subcontracted to implement the system, but said the cancellation had not affected it. It is believed revenue due to Safika would have amounted to just under R100 million.

In its latest annual report, Telkom says its counter-claim amounts to around R5.7 billion. In the previous financial year it estimated the amount to be R2.6 billion.

Reuters reports that according to the SEC filing, the Telkom counter-claims have been dismissed and the arbitrator had found it in breach of contract as it refused to take delivery of a software release which it had found to comply to specifications.

The finding is described as a partial award. "The arbitrator indicated that Telcordia`s financial claims for debt, damages, extras and costs would be addressed in additional proceedings and that the parties should file written submissions on these issues," said Science Applications International.

Although the case has been dragging for some time, Telkom, in its latest annual report, said it did not consider the claim against it a contingent liability, as "it is not probable that an outflow of resources will be required".

Telkom would not yet comment on the issue, saying it is studying the legal situation. However, the arbitration may not be the last step in the battle. Telkom is believed to be pursuing a high court action in SA where it will argue that the dispute should be resolved under South African law.

The arbitration finding is likely to worry international investors as the government has committed to listing the company on the Johannesburg and New York stock exchanges before the end of the financial year. It yesterday launched an advertising campaign aimed at informing all South Africans of the listing as a prelude to offering shares to the previously disadvantaged segment of the population at significant discounts.

"We are confident there should be the kind of growth that should make shareholding in Telkom very attractive at this stage," said communications minister Ivy Matsepe-Casaburri at the launch.