Software firm's failure could hurt XT - Telecom

Telecom would not be able to introduce new pricing plans for cellphones on its XT network if it loses control of software code created by failed company Aldous, lawyer Sally Fitzgerald told the High Court.

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Neither would it be able to update the types of handsets available for XT, or fix bugs and faults.

Aldous' software was central to the decommissioning of Telecom's old CDMA network, due to be shutdown on July 31, Ms Fitzgerald said.

The Telecom lawyer also said Aldous had failed to comply with an escrow agreement to provide a third-party with copies of software updates, thereby falling into breach of its contract.

Telecom is trying to migrate as many CDMA customers as possible to XT before the shutdown (Vodafone and 2degrees have also been circling with offers to lure the hold-outs in their direction).

Ms Fitzgerald said the CDMA network would "cease to exist" if Telecom lost control of Auckland-based Aldous, which is around $10.5 million in debt and has been put up for sale by its receiver.

Telecom spokesman Mike Burgess, who confirmed the lawyer's comments for NBR ONLINE, added:

"To be clear on the decommissioning point, an issue [only] arises with migrating customers if there is a fault with the code. We remain on track for the July 31 closure."

In February, Telecom said 639,000 if its 2 million mobile customers remained on the old CDMA network.

After a June 13 mobile briefing was cancelled, a spokeswoman refused to tell NBR how many were still using CDMA. 

Justice Mary Peters has reserved her decision.

June 26: Telecom has applied for a High Court injunction to stop the sale of Aldous, the software company which created its point-of-sale and retail phone provisioning software.

Auckland-based Aldous went into receivership on April 13, owing at least $8.76 million to secured creditors, $1.6 million to unsecured creditors, $318,000 to IRD and $353,000 wages to owed to 16 staff (14 in Auckland and two in Melbourne).

Receiver Stephen Lawrence, of PKF Corporate Recovery & Insolvency, told NBR ONLINE a tender process saw eight potential buyers emerge for Aldous, whose major clients were Telecom, Telecom division Gen-i and Telstra. However, there were no offers on the table.

A sale could not proceed until the ownership of Aldous’ intellectual property was resolved.

Telecom spokesman Mike Burgess told NBR the the software code in displute "forms an application that is used at point of sale with our retail partners. It allows our retail stores to interact with the Telecom provisioning systems so that customers can purchase and connect mobile phones."

Mr Lawrence emphasised that Telecom's claim was only over a part of Aldous' intellectual property.

Telecom's Mr Burgess said his company was seeking to “maintain the status quo” – in its view, that it owns the intellectual property rights to the software it commissioned from Aldous. 

His company wanted to "ensure intellectual property that Telecom owns is not put out of Telecom’s control" though the sale of Aldous until the question of who owned the intellectual property could be resolved.

In the balance
Justice Mary Peters reserved her decision.

Mr Lawrence said an important principle of intellectual property ownership was at stake. He expected the court to take some time to reach a decision.

Path to collapse
The first receiver's report does not place a value on Aldous’ intellectual property.

It does note that the receivers understand the amount owed to secured creditors is “significantly higher” than the $8.76 million tallied so far. Mr Lawrence said today that the amount was still unknown.

Additionally, Aldous is owed $1.2 million by one of its directors, Morris Hodges, the report says.

Mr Hodges has disputed the claim.

Mr Lawrence said Aldous continued to service Telecom for a time after going into receivership, but has now ceased trading.

The immediate cause of Aldous' collapse was the failure of a negotiations with British Telecom, which the company's major backer, British investor Jurek Piasecki, had hoped would become a major client . With the collapse of the deal, Mr Piasecki decided not to put any more funds into the company.

Aldous' website lists a number of clients, including Telecom, Telstra and US carrier Verizon. It also says Aldous had - or had - a number of un-named European and Asia-Pacific telco customers. 

However, Mr Lawrence described Telecom as Aldous' "major client."