Telkom-Telcordia hearings imminent

By Damaria Senne for Telkom
Johannesburg, 29 Jan 2008

The arbitration process to determine how much Telkom should pay US-based Telcordia for breach of contract is imminent, with the hearings set to take place in the first half of the year.

According to Telkom, full hearings will take place in SA on 28 April and 23 May, while further arguments will be heard in London on 9 June and 20 June.

Media reports previously indicated Telkom's liability could range between R1 billion and R2 billion. However, local analysts say the settlement may be substantially less than that.

Telkom refused to comment on the hearings, stating any new information it wished to communicate on the matter was in its six-month interim results for the period ended 30 September 2007.

The report shows the fixed-line operator set aside R441 million for supplier dispute liability. This is a drop from the R527 million that was set aside as at March 2007.

The provision decreased due to the fact that the company made provisional payments to Telcordia, Telkom says in its September 2007 interim report. There were also exchange rate movements that warranted the decrease, it says.

Corporate governance matters

Telkom previously stated it provided for the costs of damages based on management's best estimate, as costs will have a material effect on its financial results.

The company also previously noted it consistently disclosed, in its financial reports, its protracted dispute with Telcordia as a contingent liability since 2004.

"This status changed from a liability to a contingent liability in 2002, following Telkom's successful appeal of the matter in the Pretoria High Court," said former CFO Kaushik Patel.

Who's in breach?

Telkom's dispute with Telcordia Technologies arose in 2001 when the fixed-line operator accused Telcordia of breach of contract. Telkom alleged Telcordia was not keeping to agreed upon specifications in the supply of an integrated customer assurance and activation system.

Telcordia counter-sued, asking for a settlement of $130 million (R910 million) plus interest of 15.50% per year. The company later amended its claim to $172 million (R1.204 billion) at the same annual interest rate.

Last February, the Constitutional Court ruled Telkom must pay Telcordia damages based on the US firm's claims.