Telstra chasing $100 million from the NBN

According to a claim logged in the New South Wales Supreme Court on Tuesday the telecommunications heavyweight is suing the government-backed NBN Co for between $100 million and $200 million in lost rent. As the Australian Financial Review reports, the suit was triggered by a “legal oversight” in the $11.2 billion contract for the use of Telstra’s (ASX: TLS) network of underground pits and ducts.

The contract between the two parties was originally signed in 2011 after numerous legal teams scoured over the contract in the two years prior. Telstra believes payments should have started in 2011 when the agreement was made, but the NBN Co believes it was not required to start until shareholders approved the deal in 2012.

The difference in a year could mean that if Telstra wins, the NBN Co will be liable for up to $200 million since it “directly affects when the consumer price index (CPI) adjustments should begin.”

Previously, both sides pleaded their cases to Federal Court judge Kevin Lindgren, who found in favour of the NBN Co by saying, “I have come to the conclusion that NBN Co is correct… Telstra’s arguments are akin to the tail wagging the dog.”

However Telstra rejected the ruling and spokeswoman, Nicole McKechnie, said “We have commenced legal proceedings with NBN Co over when CPI adjustments should start to apply under the NBN Definitive Agreements. We have one take on the contract and NBN Co has another.”

Currently the NBN Co is undergoing a 60-day operational review and the Coalition is set to go back to the drawing board with Telstra to renegotiate the contract it had with the Labor party. Under the previous governments $37.4 billion deal, Telstra’s copper cabling was to be replaced with a complete fibre optic network, but the Coalition’s deal will require it to buy and use the copper cable to connect to houses.

Ms McKechnie said settling the dispute would “help provide greater certainty and as such may assist future policy discussions” but shareholders need not worry about the dispute because its impact is “not material from a market perspective.”

Foolish takeaway

Telstra shareholders have enjoyed 18 months of good returns and the industry in which it operates is growing rapidly. However a saturated mobile market means Telstra will rely on retention of its customers rather than growth and use its existing revenue base to push into other markets, both domestically and overseas. Telstra remains a great core stock for long-term investors.

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Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the companies mentioned. 

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