The councils have won a Federal Court appeal against the telecommunication giant’s quest to install 1800 new phone booths with large digital billboards across the country.

Melbourne, Sydney and Brisbane city councils opposed the plan, labelling it a cash grab that would clutter already-crowded pavements

A Federal Court judge sided with the telco giant in March, but said it still had to get council permission to use the billboards for advertising anything other than standard phone services.

Melbourne and Brisbane city councils appealed this decision and two-out-of-three judges on Friday ruled in their favour.

Justices Michael O’Bryan and Jacqueline Gleeson said the original judge had erred in labelling the proposed booths “low-impact” facilities.

Telstra had argued this was the case because it hadn’t yet been approved to use them for commercial advertising.

Justice O’Bryan found this line of reasoning to be paradoxical.

“It is passing strange that Telstra has applied to the Melbourne City Council for planning permission to display commercial advertisements on its proposed new payphone cabinets while asserting that the new payphone cabinets are low-impact facilities which, relevantly, are required to be facilities that will not be used for commercial advertising,” he said in findings echoed by Justice Gleeson.

Telstra must pay the two councils’ legal costs.