In an era of mobile phone saturation, Telstra's move to build and upgrade 80 payphones in Melbourne's CBD may seem baffling.

But, according to Melbourne City Council, the company's payphone expansion has nothing to do with connecting the public and everything to do with generating advertising revenue worth a small fortune.

Through a legal loophole, Telstra is able to build payphones where it desires without council approval, and attach lucrative digital billboards that can earn the company as much as $8000 a week.

The City of Melbourne is considering taking legal action against Telstra for their use of a legal loophole to build and upgrade payphones across the CBD.

With 40 locations already converted and an additional 80 planned, the deal could be worth nearly $50 million annually in Melbourne alone.