A confidential deal between rowing telcos Vodafone and Telecom has ended the legal battle but Telecom says it has landed some big punches in the PR fight.

Telecom chief executive Paul Reynolds said the action by Vodafone had been good publicity for the launch of his company's new mobile network.

"It's been a phenomenal PR week for Telecom. We can't believe our luck."

A day after facing off in court, Vodafone and Telecom reached a settlement which saw Vodafone drop its legal action and Telecom agree to remedy the source of interference from its network.

The deal was announced just hours before High Court judge Justice Geoffrey Venning was due to make a legal ruling on Vodafone's application for an injunction on Telecom's new mobile network.

Reynolds said he was delighted with the settlement.

He said in the past 48 hours Vodafone had outlined the issues and engineers from both companies were working side-by-side to fix the problems.

"It should never have gone to court - it's a piece of nonsense," said Reynolds.

He said sorting the dispute out between them was the right way to do business in telecommunications.

"Mobile networks work together all over the world - sometimes three and four players - there's always interference. Radio engineers have to sort out interference issues," said Reynolds.

It was the extent of the interference which was at the heart of the dispute.

Vodafone claimed "spurious" interference was seriously damaging its business, costing the company its reputation at the same time its rival was in the midst of a massive advertising campaign.

Vodafone chief executive Russell Stanners said the company's action had nothing to do with the imminent launch of Telecom's XT Network.

"It's to do with the fact that clearly in the last three months we saw some significant increases in call-quality issues and dropped calls," said Stanners.

"Both parties could have benefited from a conversation on this months ago - it didn't happen," said Stanners. "But be very clear, Telecom are installing filters to address an issue, more than they agreed before we took action."

Under a confidential deal Telecom has agreed to increase the number of filters attached to its transmitters.

The filters work to diminish interference but also reduce the network coverage area. Some cellsites require one or more filters, others none.

Reynolds said the company would not filter all its sites but only those where there was a reasonable chance of Vodafone experiencing interference issues.

Reynolds said he had become aware of the exact location of the affected sites only in the past 48 hours.

"There are some issues that should have been sorted out ages ago that have been bought to the table late."

Telecom's network has been live for inbound roaming and testing since November.

Under yesterday's agreement with Vodafone, Telecom can sign customers up to the XT Network but they will not be able to use it until the end of May.

Overseas mobile users, mainly from Telstra's identical NextG network, will still be able to roam on the XT Network.

Lawyers for Vodafone said in court on Wednesday that 530 sites were affected by interference issues.

Reynolds said the company had about 1000 sites in New Zealand and it planned to filter "hundreds" of sites.

"We've already got a thousand filters installed and we're extending that bit."

The filters already in place include those placed at the request of NZ Communications, the mobile operator due to throw the switch on its own network later this year.

"What we were never going to do was filter every site in New Zealand - piece of nonsense," said Reynolds.

A Telecom spokesperson would not reveal the cost of the work required before launch other than to say it was not significant in the face of the more than $500 million spent on the network build.

Stanners stood behind Vodafone's decision to take the issue to court.

"Sometimes this approach is one you need to take," he said.

Telecom shares closed at $2.82 - up more than 20 per cent on its all-time low of $2.20 in November.

The company will report its third-quarter financial results today.

THE DEAL
TELECOM
* Must extend its programme of installing filters on transmitters in order to reduce interference with Vodafone's network.
* Can sign customers to its XT Network from next Wednesday but must delay launch until the end of May when interference issues are remedied.
* Reynolds: "This is the best thing that could have happened to Telecom."

VODAFONE
* Will drop legal action.
* Stanners: "We're very pleased with the outcome.