'Cannibalise' ruling upsets TelstraClear

Last updated 05:00 09/10/2010

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TelstraClear may appeal a High Court ruling that allows Kordia to upgrade a fibre-optic network jointly owned by the two firms.

The ruling could cut the cost of broadband by paving the way for the state-owned enterprise to compete against TelstraClear to connect internet providers and other large commercial customers in dozens of cities and towns.

One source said Kordia could "cannibalise" TelstraClear's backhaul network. Tens of millions of dollars are believed to potentially be at stake. TelstraClear spokeswoman Diane Robinson said the company was considering its options and would make a decision on an appeal in due course.

TelstraClear owns more than 6000 kilometres of fibre, making it the country's second-largest fibre provider after Telecom, which owns more than 25,000km of cable. Kordia has a quarter share of an undisclosed portion of TelstraClear's network under a deal struck in 1993.

The companies originally agreed not to compete against one another for customers. That changed in 2000, but Kordia has since been constrained from connecting customers because of a lack of capacity on the network, only a small amount of which is "lit".

The High Court upheld an arbitrator's ruling that TelstraClear could not prevent Kordia from upgrading the network. The upgrade, thought to involve "lighting" more fibre, would provide Kordia with excess capacity that it could sell in competition to TelstraClear.

TelstraClear had argued that under their 1993 agreement the two companies needed to mutually agree on any network upgrade, and Kordia had given up any right to act unilaterally when it sold TelstraClear its own independently owned unused fibres in 2000.

Justice Tim Brewer said TelstraClear had an arguable point and said the dispute had "real commercial significance" to the companies, involving "very substantial amounts" of money, but noted the companies had agreed to deal with any dispute through arbitration.

Kordia chief executive Geoff Hunt said an upgrade would allow Kordia to get a similar cost base for capacity as TelstraClear.

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- BusinessDay

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