VODAFONE is locked in a court battle for compensation from the company managing its network when customers complained en masse about drop-outs, poor reception and capacity problems.
Vodafone Hutchison Australian expects to make a loss this financial year after revenues declined and it had to fast-track a $1 billion infrastructure upgrade and cut prices to retain and attract customers.
Nokia Siemens Networks Australia lodged an application with the Federal Court of NSW on November 4 asking for court intervention after Vodafone withdrew $8 million from a performance bond on November 3. It demanded Nokia Siemens deposit another $8 million in the bond, according to court documents.
The companies were mediating whether Nokia Siemens would pay any money when Vodafone withdrew the $8 million, Nokia Siemens alleges.
Justice David Yates ordered Nokia Siemens not be required to replenish the performance bond and Vodafone be required to keep at least $10 million in its bank account until the matter is heard on December 7.
Vodafone and Nokia Siemens signed a seven-year network managed services agreement on April 30, 2010, about eight months before angry customers set up the ''vodafail'' website.
Nokia Siemens has also alleged Vodafone engaged in misleading, deceptive and unconscionable conduct by withdrawing a bond the subject of mediation, ''in circumstances in which there was no entitlement to demand payment by reason of the want of any liability'', and by requesting more money.
Both companies declined to comment, but a Vodafone spokesman said it was ''a procedural matter … regarding the interpretation of a contract in relation to service credits''.
He said the bond was ''standard practice in a contract of this magnitude and nature'' and had been established at the start of their agreement. Industry lawyers told BusinessDay performance bonds were uncommon in service agreements.
At the time, the agreement was described as ''a unique, full-scope managed transformation'' of the Vodafone network that would integrate Hutchison's 3 network after the companies merged in mid-2009. On February 22, 2011, the chief executive, Nigel Dews, apologised to customers and admitted Vodafone had let them down. He also announced that Huawei, a competitor to Nokia Siemens, was given a contract to replace almost 6000 mobile base stations around the country and install 2200 new base stations. Vodafone did not say what had happened to the seven-year deal with Nokia Siemens.
Vodafone has upgraded some 3000 mobile base stations this year and last week said call drop-out rates were below 0.5 per cent in cities.
The court documents reveal the parties have been in mediation for some time, but have not reached any agreement about liability.
Network problems snowballed into thousands of customer service complaints from people who could not get through to help lines or who wanted to change carriers but were locked into long-term contracts.
Vodafone has also been threatened with a class action by 20,000 customers, but which has failed to materialise, and a Vodafone dealer is seeking $6 million damages for a decline in business due to network problems.
And the industry ombudsman charged Vodafone $6.5 million worth of complaint fees in 2010-11, up from $4.3 million the previous financial year. Revenues from Vodafone's 7.2 million customers were down 3 per cent at $1 billion in the six months ending June 30, and operating margins declined 6.6 per cent.
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