Australia: Telstra Fails In Its Constitutional Challenge To Compulsory Access Laws

Originally published 6th March, 2008

Overview

The High Court today handed down its much anticipated judgment on Telstra's constitutional challenge to parts of the telecommunication specific access regime in the Trade Practices Act 1974 (Act). Telstra's challenge has failed.

Telstra commenced its action in January last year challenging the provisions of the Act which allow the Australian Competition and Consumer Commission (ACCC) to set prices for compulsory third party access to its copper wire network at what Telstra has argued are 'below cost'.

The Act gives the ACCC a power to designate certain telecommunications services as 'declared services'. Once a service is declared, the owner of that service is obliged to supply that service to any person or entity which seeks access. Under Part XIC of the Act, the ACCC is responsible for arbitrating disputes about access to particular declared services, including in relation to price.

Telstra's action rested on interpreting these provisions as affording the ACCC the power to compulsorily acquire 'property' other than 'on just terms', within the meaning of section 51 (xxxi) of the Australian Constitution. This, Telstra said, rendered the power invalid as it applied to certain declared services provided by Telstra using its copper wire network; Unbundled Local Loop services (ULLS) and Line Sharing services (LSS). According to Telstra, this is because the declaration of ULLS and LSS effectively requires Telstra to hand over its property, (namely, the 'last mile' of copper between the exchange and the consumer), so competitors can provide voice and data services.

The findings of the High Court

In a unanimous judgment, the High Court rejected Telstra's arguments, concluding that the legislative provisions for the exercise of access rights by other carriers "effect no acquisition of Telstra's property in the local loops":

There are three cardinal features of context and history that bear upon the constitutional issues which are raised. First, the PSTN which Telstra now owns (and of which the local loops form part) was originally a public asset owned and operated as a monopoly since Federation by the Commonwealth. Second, the successive steps of corporatisation and privatisation that have led to Telstra now owning the PSTN (and the local loops that are now in issue) were steps which were accompanied by measures which gave competitors of Telstra access to the use of the assets of that network. In particular... the step of vesting assets of the PSTN in Telstra, in 1992, was preceded by the enactment of the 1991 Telecommunications Act.

That context revealed a flaw with Telstra's approach that led the High Court to describe it as "synthetic and unreal because it proceeds from an unstated premise that Telstra has larger and more ample rights in respect of the PSTN than it has".

The High Court also considered the constitutional 'saving' provision (s152EB) which provides that the Commonwealth will top up any compensation payable if it is necessary to avoid an acquisition of property on just terms. The Court accepted that if (contrary to its conclusion) the Act provided for acquisition of property, then just terms are provided by the operation of that saving provision and the allegation of invalidity would have failed in any case. This has broader implications because the saving provision in this form is also an element of the generic access regime on Part IIIA of the Act (see s44ZZN).

Practical impact

Had Telstra's challenge been successful, it would have had far reaching consequences. A finding for Telstra would have created wide uncertainty as to the proper compensation of Telstra for its provision of services, potentially on a back-dated basis. Obviously, this would have had a significant impact upon other telecommunications service providers which have extensively used declared services in order to service their own customers.

Had the Court ruled that there was an acquisition, it is likely that Telstra would have sought to exercise its cause of action under 152EB to claim 'top up' payments from the Commonwealth. That prospect is avoided by the Court's approach.

The High Court's decision is final, no appeal is possible. This restores a degree of regulatory certainty for the entire telecommunications industry, although Telstra continues to be involved in other ongoing processes which are aimed at reducing the scope of regulation applying to it.

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