Telkom's dispute with Telcordia

Issued by Telkom
Johannesburg, 23 Feb 2007

Following yesterday's Constitutional Court decision not to grant Telkom leave to appeal in its protracted legal dispute with Telcordia, an arbitration process will proceed later in the year, most likely in the third quarter of 2007.

By then, provisioning for any liability in the Telcordia issue would have been considered in terms of the International Financial Reporting standards.

In fact, Telkom has consistently disclosed its protracted dispute with Telcordia as a contingent liability since 2004 in its financial reports.

Telkom's dispute with Telcordia Technologies arose in 2001 and a partial ruling - on the merits only - was issued by the arbitrator in favour of Telcordia a year later. This constituted a liability to the company and Telkom provisioned a total amount of $44 million (R356 million) at the time.

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. However, Telkom has consistently disclosed this dispute as a contingent liability in its financial reports since 2004 as Telcordia still had the right to appeal.

In November last year, the Supreme Court of Appeal upheld Telcordia's appeal, resulting in Telkom's application to appeal to the Constitutional Court.

In view of the Constitutional Court's decision yesterday, Telkom will therefore have to consider a provision in this regard for the March 2007 financial statements depending on the requirements of the International Financial Reporting Standards which prescribes that the liability needs to be probable and measurable.

Kindly attribute all comment to: Kaushik Patel, Telkom's Chief Financial Officer.

Telkom

Telkom SA Limited is Africa's largest integrated communications company. Telkom provides public switched communication services in South Africa and offers fixed-line voice and data services. Telkom participates in the South African mobile communications market through its 50% shareholding in Vodacom, the largest mobile communications network operator in South Africa based on total estimated customers. Telkom's infrastructure is composed of terrestrial, undersea and satellite communications and pathways, broadband circuits and connections that enable voice, data and video communication services.

Telkom has approximately 4.7 million telephone access lines in service as of March 2006. Telkom had consolidated operating revenue of R47.6 billion for the year ended 31 March 2006. Telkom's subsidiaries include Telkom Directory Services (Pty) Ltd which provides complete yellow and white pages directory services as well as electronic services, and Swiftnet (Pty) Ltd. Swifnet trades under the name of FastNet Wireless Service and provides synchronous wireless access on Telkom's X25 network, Saponet-P, to its customers.

Telkom strongly believes in corporate social investment and has a dedicated wing, the Telkom Foundation, which focuses in investing and developing previously disadvantaged South African communities. The foundation spend R50.2 million in the year ended 31 March 2006 on projects relating to ICT planning and infrastructure roll-out; education and training; and, empowerment of women, children and people with disabilities.

Telkom has always viewed South Africa's effective transformation as imperative for its sustainable long-term growth. Empowerment and the transformation of the economy are central to Telkom's BEE strategy. During the year ended March 31, 2006, 67 % of Telkom's procurement spend was on BEE companies. In addition, Telkom trained 18 black SMMEs and a total of 1 181 suppliers at an estimated cost of R7.1 million.

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