Telus 2005 Annual Report Download - page 21

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20
Level 3 Communications Inc.
By consensus of the interested parties, the Genuity Agreement was terminated as of the closing
of the sale of the Debtors’ assets to Level 3, and TELUS and Genuity ended their further rights
and obligations with respect to each other under the Genuity Agreement. Effective as of June 25,
2003, the Genuity Agreement was reinstated, with certain modifications, between TELUS and
Level 3. Level 3 was, in large measure, substituted as the contracting party in place of Genuity.
Such modified agreement between TELUS and Level 3 (the “Level 3 Agreement”), among other
things, designates Level 3 as the first preferred supplier to TELUS over Verizon on IP Services
(as defined in the Level 3 Agreement) and Verizon as the first preferred supplier to TELUS over
Level 3 on the remaining Telecommunications Services, provides for continued rights to certain
pre-existing Genuity software and other intellectual property, and sets out joint marketing and
non-compete provisions. The Level 3 Agreement terminated on June 30, 2005.
TELUS had negotiated wholesale agreements with Verizon and Level 3 including agreements to
route traffic onto Verizon’s and Level 3’s U.S. and international network.
Directory Business
In 2001, TELUS sold its directory advertising services business to Verizon Information Services
– Canada Inc. (“VIS”), a subsidiary of Verizon. At the same time, various TELUS subsidiaries
and VIS entered into a series of commercial arrangements whereby VIS acquired the exclusive
right to publish TELUS directories and provide on-line directories on TELUS portals, in Canada
and within 40 miles of the Canada-U.S. border, for an initial term of 30 years with certain
renewal rights thereafter, and TELUS agreed not to compete with this business for the terms of
the agreement.
On November 9, 2004, Verizon announced that it had completed a transaction to sell VIS to
Advertising Directory Solutions Holdings Inc. (“ADSHI”), an affiliate of Bain Capital. On
May 25, 2005, the Yellow Pages Group announced that it, through Yellow Pages Income Fund
had completed the purchase of ADSHI from an affiliate of Bain Capital.
LEGAL PROCEEDINGS
On May 8, 1998, an action was commenced against BC TEL (now TCI) by certain holders of the
$117.75 million principal amount of First Mortgage Bonds, 11.35 per cent Series AL (the
“Bonds”) which were redeemed by BC TEL on December 30, 1997. The action alleged that the
Bonds were improperly redeemed and claimed damages as a result thereof. TCI successfully
defended the action, which was dismissed by the Ontario Superior Court of Justice in January
2003. On June 8, 2005, the Ontario Court of Appeal overturned the lower court decision and
ruled that the redemption of the Bonds breached the terms of the First Mortgage Bonds. The
Court of Appeal referred the matter back to the lower court for an assessment of damages. On
January 26, 2006, the Supreme Court of Canada denied TCI’s leave to appeal the decision of the
Court of Appeal. TELUS accrued an estimate of damages, which was included in financing