One.Tel Ltd v Australian Communications Authority

THE REGULATIONS 8 It will be necessary later to refer to the language of the Regulations, but for immediate purposes, the salient features of the relevant provisions of the Regulations may be summarised as follows: · The source of a participating carrier's eligible revenue for a financial year is its gross sales revenue earned from an activity in the telecommunications industry (which includes carrying on business as a carrier) for the financial year (reg 8(1)). · This sales revenue is worked out using the steps in Sch 1 (reg 9). · The steps in Sch 1 to identify sales revenue differ, depending on whether or not the participating carrier's sales revenue is included in the audited annual consolidated financial statements of an ultimate Australian parent entity: q If the carrier's revenue is included in the audited annual consolidated financial statements of an ultimate Australian parent entity, the carrier identifies the amount described as sales revenue in those statements (Step 1, A). q If the carrier's revenue (if any) is not included in those statements, the carrier identifies the amount that is described as sales revenue (Step 1, B). · The carrier then deducts from the sales revenue any amount that is earned from an activity outside the telecommunications industry (Step 2). · The carrier next adds any amount of telecommunications sales revenue that (a) has not been identified under Step 1; and (b) would reasonably be described as its telecommunications sales revenue (Step 3). · The result is the carrier's gross telecommunications sales revenue for the financial year (Step 5). · After a carrier has worked out its net telecommunication sales revenue, it must work out its eligible revenue (reg 33(1)). To do this, the carrier may (a) deduct amounts from its net telecommunications sales revenue; and (b) attribute eligible revenue where it is being worked out on a group basis (reg 33(2)). · A carrier's eligible revenue for a financial year is worked out using the following steps in Sch 3 (reg 34): q The carrier adds up all of the amounts mentioned in Part 6 that it wishes to deduct from its net telecommunications sales revenue (Step 1). q The carrier then deducts the total from its net telecommunications sales revenue (Step 2). q If the revenue has been worked out on a group basis, the carrier next identifies the amount of eligible revenue that is its own revenue (Step 3). (Emphasis added). q The result is the carrier's eligible revenue for the financial year (Step 4). · If two or more participating carriers have the same ultimate Australian parent entity, and the entity's audited annual consolidated financial statements include the carrier's sales revenue, each carrier may make all of the calculations required in its own right. However, such carriers may make those calculations on a group basis, identifying and accounting for revenue and deductions as a whole in accordance with the Regulations (reg 7). THE PRIMARY JUDGE'S REASONS 9 His Honour noted (at par 5) that the issues were: · whether, on the proper construction of the Regulations, sales revenue of the One.Tel group from telecommunications industry activities is brought to account as GSM's eligible revenue for the year ended 30 June 1999; and, if so · whether such a provision is valid. 10 The primary Judge further noted that in its return to the ACA, GSM showed gross telecommunications sales revenue as $325m; net revenue as $81m; and eligible revenue as about $37m; but in its purported application of Step 3 of Sch 3, GSM identified "the amount of eligible revenue that [was] its own revenue" as nil; but that the ACA had indicated its intention to assess GSM's eligible revenue for the relevant financial year as $37,387,000 (par 25). (a) Validity 11 Addressing first the issue of the validity of the Regulations, his Honour said (par 27): "27. ACA contends that the Regulations, on their proper construction, provide for telecommunications revenue of all companies within a group of companies to be attributed to a carrier within the group. The group telecommunications revenue for the financial year is taken to be the eligible revenue of the participating carrier for that year. If that is the effect of the Regulations, One.Tel contends that the Regulations are invalid, as it is implicit in the legislative scheme dealing with universal service arrangements that eligible revenue will be worked out between carriers on a consistent basis, and that it will relate to revenue attributable to those carriers in their capacity as carriers: ie there must be a rational connection between amounts which are taken to be eligible revenue, and the use or permitted use of a carrier's network. On the ACA's construction of the Regulations, there is included within the compass of eligible revenue, amounts which have been earned completely independently of the participating carrier. The amounts are included simply because they form part of the telecommunications sales revenue of the group of companies of which the participating carrier forms part." 12 In explaining the principles to be applied, the primary Judge noted (par 29) that the ambit of regulation-making power is subject to several limitations, viz. that it not be exercised arbitrarily, capriciously or unreasonably; or in a manner disproportionate to the attainment of the objects for which it is conferred. But the fundamental question is whether the delegated legislation is within the scope of what the Parliament intended (par 35). 13 Turning to the application of these principles, his Honour reasoned as follows: · An element of the universal service regime is that losses which result from supplying services in the course of fulfilling the universal service obligation (USO) are to be shared among carriers (s 138(c)). To attain that end, the legislature has adopted a scheme of sharing the losses of universal carriers in a financial year among all of the persons who were carriers in that year in proportion to "eligible revenue", a concept created by the Act which is not confined to revenue in fact received by a participating carrier. The concept is, or is analogous to, a "statutory fiction". Its purpose is to assist in the effectuation of the legislative policy. The language of s 147 in describing eligible revenue as the amount that, under the Regulations is taken to be (his Honour's emphasis) eligible income, is intended to confer an extremely wide discretion (par 36). · The explanatory memorandum for the Bill which became the Act explained the intended meaning of cl 142 (which became s 147): "Clause 142 gives the Government wide discretion in defining what constitutes 'eligible revenue'. Because eligible revenue is the amount 'taken' to be eligible revenue, it is not restricted to revenue received by a participating carrier. It may include any amounts, including revenue received by persons other than the carrier. Amongst other things, this wide-ranging approach has been taken to avoid disputes as to what can and cannot be treated as eligible revenue and to provide a means of addressing tactics to avoid levy, for example by minimising eligible revenue by engaging in transfer pricing. Should participating carriers seek to minimise levy by diverting revenue to related service provider operations, such revenue will be able to be included under the regulations. Similarly, revenue paid to an infrastructure owner, rather than a participating carrier that is a nominated carrier in relation to the infrastructure, could be included in 'eligible revenue'.

It is envisaged that eligible revenue may, for example, include - but need not be limited to - revenue from charges for services such as connection, line rental, calls, leased lines and providing access to carriers and service providers." (His Honour's emphasis) · "Calls" can be provided and charged for both by a carrier and a carriage service provider (par 37). · The regulation impact statement attached to the explanatory statement issued in relation to the Regulations stated: "... because 'eligible revenue' is being used to determine USO contributions which are a tax, there is incentive for carriers to minimise their revenue and thus their contributions. To discourage and, if necessary, address this problem, the starting point for defining eligible revenue will be the consolidated annual financial statements of the ultimate reporting entity into which the carrier is consolidated. This means all relevant revenue will be captured from the start. From this amount, inappropriate revenue will be able to be deducted. This approach will also ensure reliable and comprehensive audit trails are maintained." · The legislative scheme is that USO losses are to borne by carriers in the proportion which a carrier's eligible revenue bears to the total revenue for all carriers. The Regulations provide for a determination of eligible revenue, which "has the practical effect that USO losses are shared among participating carriers" (par 40). If (as is the case), the concept of "eligible revenue" is not confined to revenue derived from, or related to, carrying on business as a carrier, then it follows that revenue derived by others might permissibly be included within a carrier's eligible revenue, even if the revenue is not derived from, or related to, the conduct of the carrier's business as a carrier (par 45). · The legislature has chosen to leave it to the government to give content to a statutory fiction, and thus to provide the reference point by which the legislative end of sharing USO losses is to be accomplished. The permissible means for the achievement of that end are not confined by particular implications within the statutory scheme, but by the general limitation that the regulation-making is confined to the making of regulations which fulfil the statutory objective (par 46). · The (appellants') submission that the touchstone of validity of a regulation made for the purposes of s 147 is rejected. It is "incorrectly focused, and fails to pay sufficient regard to the fact that 'eligible revenue' is a statutory fiction, rather than a label applied to revenue which has some particular factual connection with a carrier". Rather, the touchstone of validity is that the regulation must give content to the concept of eligible revenue "such that it operates as a reference point by which USO losses are allocated between carriers on a consistent basis and which cannot be condemned as irrational, absurd or ridiculous, or so devoid of any plausible justification that no reasonable body of persons could have concluded that it was within the legislative contemplation that USO losses might be shared between carriers in that way" (par 47). · There is a real and substantial nexus between the exercise of the regulation-making power, and the achievement of the purpose for which that power was concurred because of the prescription of a methodology for working out a participating carrier's eligible revenue, a purpose expressly acknowledged in the terms of reg 5. Accordingly, there is a real and substantial connection between the content of the Regulations and their intended purpose. It follows that the Regulations are valid unless they are manifestly unreasonable or lacked reasonable proportionality (par 49). · Bearing in mind in particular that the regulatory scheme was adopted after consultation with the industry, it cannot be said that the Regulations are "unreasonable" in the sense of being so oppressive and capricious that no reasonable mind could justify apportioning USO losses between carriers in proportion to the carrier's telecommunications revenue; or, where the carrier is a member of a group, in proportion to the telecommunications revenue of all of the companies in that group (par 49). · This regulation-making is not directly expressed in purposive terms, so that notions of proportionality are not of much, if any, assistance here, where the primary question is whether the Regulations fulfil the statutory objective of the prescription of a benchmark by reference to which USO losses are to be shared among carriers (par 50). · The (appellants') submission that, in practice, the Regulations produce an arbitrary result here because the whole of the revenue is brought to account merely because GSM was part of the group and despite the fact that GSM had no network, is rejected. It is the legislature which imposed responsibility for USO losses on participating carriers, and it is the Act (s 146), rather than the Regulations, which confers the status of a participating carrier on a person who was a carrier at any time during the financial year (par 51).

(b) Construction 14 His Honour then turned to consider the following submission by the appellants on the meaning of the relevant provisions of the Regulations. The word "group", the submission went, has its ordinary meaning of referring to any number of related companies, and the expression "worked out on a group basis" refers to the calculations required by the Regulations whenever the starting point is the audited annual consolidated financial statements of the participating carrier's ultimate Australian parent entity. On this construction, Step 3 of Sch 3 allows a participating carrier, in every such case, to identify from the total result under eligible revenue of the group, that part which is the participating carrier's own eligible revenue (par 54). 15 The primary Judge rejected the submission for the following reasons: · There would be no purpose in commencing the Steps with consolidated revenue figures if, at the conclusion of the process, revenue other than that of the participating carrier is to be excluded from the calculation (par 55). · Part 3 and Div 3 of Pt 6 of the Regulations contain specific provisions as to accounting for revenue "on a group basis", which are only applicable where two or more participating carriers have the same ultimate Australian parent entity. That is inconsistent with the proposition that revenue is worked out on a group basis whenever the starting point is audited annual consolidated financial statements of the ultimate Australian parent entity, even if only one participating carrier is involved (par 55). · The effect of Div 3 of Pt 6 (reg 40) is that once eligible revenue is worked out on a group basis, where there are two or more participating carriers, that eligible revenue can be apportioned between those carriers. The sum of the eligible revenue of those carriers will equal the telecommunications revenue of the group. On the (appellants') construction, if there is only one participating carrier, then the telecommunications income of the group companies (except to the extent to which it is income of the participating carrier) will not be included in eligible revenue of any participating carrier (par 55). · All of the above tends against the (appellants') construction. On this approach, when Step 3 in Sch 3 refers to eligible revenue that is "its own" revenue, the reference is to "its own eligible revenue" as referred to in reg 40(1)(a) (par 56). · Where a company is a member of a group, Pt 4 and Sch 1 mandate the use of group sales figures as the starting point for the calculation of eligible revenue of the participating carrier. The consequence is that the eligible revenue of the participating carrier which is a member of a group will be the amount of the total income of the group from telecommunication sources. Part 3, and Div 3 of Pt 6, are intended as an amelioration of the regulatory regime where there are two or more members of the group which are participating carriers: they can allocate the eligible income between them. It would be inconsistent with such a regime, if the group had only one participating carrier, to allow something less than the eligible income of the group to be attributed to that carrier (par 57). · On the (appellants') construction, the Regulations would not contain any anti-avoidance provisions in relation to group companies, although it is in this situation that income-splitting and diversion are most likely to occur (par 64).

THE GROUNDS OF THE APPEAL 16 The appellants now contend that the reasoning at first instance erred in the following respects: · In finding that the Regulations were not invalid. · In finding that the concept of eligible revenue within the meaning of the Act may embrace revenue derived by the carrier as well as revenue derived by others who do not carry on business as a carrier. · In not holding that the Regulations are valid only to the extent that they provide a reasonable means of, or a rational basis for, attributing revenue to a participating carrier in its capacity as a carrier within the meaning of the Act. · In finding that, in respect of the Regulations, there is a real and substantial nexus between the exercise of the regulation-making power and the purpose under s 147 of the Act for which the power was conferred. · In finding that the purported exercise of the power to make the Regulations was not disproportionate to the objects of s 147 of the Act. · In finding that application of the Regulations does not lead to a result that is arbitrary, capricious or unreasonable. · In finding that, pursuant to the Regulations, a carrier is only entitled to work out its eligible revenue on a group basis when there are two or more carriers within the group of companies of which the carrier is a member. · In finding that, pursuant to the Regulations, GSM was not entitled to work out its eligible revenue on a group basis. · In finding that GSM could not apply Step 3 of Sch 3 of the Regulations to identify the amount of eligible revenue that was its own revenue. · In finding that the eligible revenue of GSM for the financial year ended 30 June 1999 was not nil.

CONCLUSIONS ON THE APPEAL 17 It will be convenient to address the question of construction first.

(a) Construction 18 It will be recalled that the question is whether, on the proper construction of the Regulations, sales revenue of the One.Tel group from activities within the telecommunications industry is required to be brought to account for the purpose of calculating the "eligible revenue" of GSM for the year ended 30 June 1999. 19 It is common ground that, in the relevant year, GSM was a "participating carrier" within the meaning of the Regulations. 20 The Regulations are structured by division into the following Parts: Part 1 (regs 1 - 3) - "Preliminary". Part 2 (regs 4 - 5) - "What is Eligible Revenue". Part 3 (regs 6 - 7) - "Accounting Arrangements". Part 4 (regs 8 - 20) - "How to work out Gross Telecommunications Sales Revenue". Part 5 (regs 21 - 32) - "How to work out Net Telecommunications Sales Revenue". Part 6 (regs 33 - 40 ) - "How to work out Eligible Revenue" Part 7 (immaterial). Part 8 (immaterial). 21 The purpose of "eligible revenue" is explained in reg 5 in these terms: "Purpose of eligible revenue 5. (1) The universal service regime is supported by a universal service levy imposed on all participating carriers. (2) The universal service levy is worked out using a number of factors, including a participating carrier's eligible revenue. (3) The participating carrier's eligible revenue is also used in working out the amount of levy that the carrier is required to pay to support the National Relay Service mentioned in Part 7A of the Act. (4) Under section 147 of the Act, the eligible revenue of a participating carrier for a financial year is the amount that, under the regulations, is taken to be the participating carrier's eligible revenue for the financial year. (5) These Regulations explain how to work out a participating carrier's eligible revenue for a financial year." 22 The purpose of Part 4 and the working out of gross telecommunications sales revenue are explained in regs 8 and 9 as follows: "Purpose 8. (1) Under these Regulations, the source of a participating carrier's eligible revenue for a financial year is its gross telecommunications sales revenue for the financial year. (2) This Part explains how to work out gross telecommunications sales revenue. … Gross telecommunications sales revenue 9. A participating carrier's gross telecommunications sales revenue for a financial year is worked out using the steps in Schedule 1." 23 Schedule 1 is, relevantly, as follows: "SCHEDULE 1 STEPS FOR WORKING OUT A PARTICIPATING CARRIER'S GROSS TELECOMMUNICATIONS SALES REVENUE STEP 1 The participating carrier identifies sales revenue as follows: A. If the participating carrier's financial year ends on 30 June, and its revenue is included in the audited annual consolidated financial statements of an ultimate Australian parent entity, the carrier identifies the amount that: (a) is described as sales revenue for the financial year in the entity's annual consolidated financial statements; or (b) … Note For a carrier that is not a public body (see Act, s 52), the description of sale revenue should be based on audited statements for the financial year, prepared using information and accounting methods that comply with Corporations Law accounting standards. The participating carrier must give the ACA a return of its eligible revenue within 90 days after the end of the financial year (see Act, s 191). However, the audited statements may not be completed within the 90 days." (It is common ground that Step 1A is to be read as if the words "if any" had been inserted after the words "its revenue", so that it would read as follows: "If the participating carrier's financial year ends on 30 June, and its revenue, if any, is included ….") "STEP 2 The participating carrier deducts from the sales revenue any amount that is earned from an activity outside the telecommunications industry. … STEP 3 The participating carrier adds any amount of telecommunications sales revenue that: (a) has not been identified under step 1; and (b) would reasonably be described as its telecommunications sales revenue for the financial year. STEP 4 The participating carrier adds any amount that: (a) has not been identified under steps 1 and 3; and (b) is to be treated as part of its gross telecommunications sales revenue for the financial year under Part 4. STEP 5 The result is the participating carrier's gross telecommunications sales revenue for the financial year." 24 The purpose of part 6 is explained in reg 33 as follows: "Purpose 33. (1) After a participating carrier has worked out its net telecommunications sales revenue for a financial year, it must work out its eligible revenue. (2) To do this, the participating carrier may: (a) deduct amounts from its net telecommunications sales revenue; and (b) attribute eligible revenue where it is being worked out on a group basis. (Emphasis added) Note A participating carrier is not required to deduct an amount from its net telecommunications sales revenue. (3) This Part explains: (a) how to work out amounts that may be deducted from the net telecommunications sales revenue; and (b) how eligible revenue is to be attributed where it is being worked out on a group basis." (Emphasis added) 25 (There is no definition in Part 6, or in the Regulations general dictionary (reg 3) of "worked out on a group basis". However, in Part 3, which is not applicable here, but applies if two or more participating carriers have the same ultimate Australian parent company, it is provided in reg 7 as follows: "Participating carriers with the same ultimate Australian parent entity 7. (1) Each carrier may make all of the calculations required by these Regulations in its own right, identifying and accounting for its own revenue and deductions in accordance with these Regulations. (2) However, carriers with the same ultimate Australian parent entity may make all of the calculations required by these Regulations on a group basis, identifying and accounting for revenue and deductions as a whole in accordance with these Regulations. Note Although carriers would be able to make calculations on a group basis, the final stage of the eligible revenue process requires carriers to identify their revenue on an individual basis: see regulation 39.") 26 Reverting to Part 6, "eligible revenue" is dealt with by reg 34 as follows: "Eligible revenue 34. A participating carrier's eligible revenue for a financial year is worked out using the steps in Schedule 3." 27 Schedule 3 is in these terms: "SCHEDULE 3 STEPS FOR WORKING OUT A PARTICIPATING CARRIER'S ELIGIBLE REVENUE STEP 1 The participating carrier adds up all of the amounts mentioned in Part 6 that it wishes to deduct from its net telecommunications sales revenue. STEP 2 The participating carrier deducts the total from its net telecommunications sales revenue. STEP 3 If the revenue has been worked out on a group basis, the carrier identifies the amount of eligible revenue that is its own revenue. (Emphasis added) STEP 4 The result is the participating carrier's eligible revenue for the financial year." 28 Given the language of these provisions, the point of construction for decision is essentially one of impression, but in my opinion the primary Judge was correct in his analysis of the meaning of the relevant Regulations. 29 The critical provision, in my view, is Step 1A of Schedule 1 in literally prescribing that, in the events which happened here (that is, where GSM's revenue, if any, is included in the audited annual consolidated financial statements of an ultimate Australian parent entity), the carrier identifies the amount that is described as sales revenue for the financial year in the entity's annual consolidated financial statements. In my opinion, the meaning of this provision is clear and is squarely applicable here in working out GSM's gross telecommunications sales revenue. There is nothing absurd, irrational, capricious or arbitrary in such a provision. No basis, in logic or experience, exists for reading the provision down or making it subject to an implied limitation or exclusion in the case of circumstances such as the present. 30 The question remains whether, in working out eligible revenue, the provisions of Step 3 of Schedule 3 applied here, that is, had GSM's revenue been "worked out on a group basis". But, as has been seen, this composite phrase is used in the Regulations in one context only, that is, where two or more carriers are members of the same group. Regulations 6(1)(a) and 39(1)(a) specifically restrict the process of attribution of revenue to such a case. Again, there is no reason, of logic or experience, why such a limiting provision should not be read literally and receive its ordinary meaning. I can see nothing capricious, irrational or arbitrary in permitting a process of attribution to situations where, as a matter of accounting, it may be convenient or necessary, given the circumstance that more than one carrier is involved. But where there is only one carrier, the problem, or question, cannot arise. I can see no basis for picking up the attribution process from its context and seeking to apply it in any entirely different, and inappropriate context. In my view, Step 3 had no application here. 31 I would dismiss the appeal on the construction issue. (b) Validity 32 Again, I agree with his Honour's conclusion that the Regulations, construed as I would, are valid, essentially for the reasons given by the primary Judge. 33 The power to make regulations is conferred, in the usual way, by s 594(1) of the Act as follows: "The Governor-General may make regulations prescribing matters: (a) required or permitted by this Act to be prescribed; or (b) necessary or convenient to be prescribed for carrying out or giving effect to this Act." 34 As has been seen, s 147 provides that the "eligible revenue" of a carrier "is the amount that, under the regulations, is taken to be the eligible revenue of the carrier …". 35 This, as his Honour pointed out, is not purposive; rather, it is prescriptive or explanatory. For that reason, as the primary Judge noted, it is difficult to view the Regulations as giving effect to any particular object, in the sense of a policy or philosophy. I have already expressed the view that there is nothing in the relevant Regulations which, by focussing upon the parent entity's sales revenue may be said to be illogical, irrational or capricious. On the contrary, as the explanatory memoranda explained, there are sound practical reasons why the net should be widened, especially where, as here, the parties involved are members of the same corporate group and deal with each other on a footing that is not at arm's length. 36 It is true that the consolidated accounts must be audited and that information and accounting methods must comply with Corporations Law accounting standards. But, whilst this should ensure that the consolidated accounts reflect a true and full view of the group's results, the fact remains that the members of the group will not be dealing with each other on an arm's length basis in the ordinary course of trade. In that climate, it is not unreasonable to anticipate the possibility of income diversion or the like. 37 It is also true that, as a matter of philosophy or policy, the makers of the Regulations could, consistently with the provisions of the statute, have reasonably chosen different criteria for working out the components of eligible revenue. They chose to start by reference to the accounts' statement of gross telecommunications sales revenue. They could, quite reasonably, have limited the starting point to, say, the accounts' statement of the gross sales revenue from the provision of services by a carriage services provider. This would also be consistent with the Act, but it does not follow that the broader base chosen is inconsistent with the Act. On the contrary, s 147 is silent on the point. In my opinion, it should not be read so as to preclude the making of a regulation providing for working out eligible revenue by reference to gross telecommunications sales revenue. 38 As has been said, the Regulations are not purposive in the sense of having an aim to give effect to a particular philosophy or policy. Rather the Act intended that they do something quite specific, that is, explain how "eligible revenue" is to be ascertained, no more and no less. Section 147 had no broader agenda than this in its contemplation. 39 I would dismiss this aspect of the appeal also.

ORDERS 40 I propose that the appeal be dismissed with costs. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beaumont.

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT HILL J: INTRODUCTION 41 The first appellant, One.Tel Limited ("One.Tel") has, since its incorporation in 1985, carried on the business of supplying to the public telecommunications services using networks owned by licensed telecommunication carriers. It is the ultimate parent company of a number of companies, which may be called the One.Tel Group, including the second appellant One.Tel GSM 1800 Pty Limited ("GSM"). 42 One-Tel is a "carriage service provider" within the meaning of the Telecommunications Act 1997 (Cth) ("the Act"). GSM was on 25 March 1999 granted a "carrier licence" under s 56 of the Act. It was declared the nominated carrier for a global systems mobile telephone network ("the GSM network") then in the course of development. The network did not, however, become operational in any part of Australia until May 2000. Until that time it did not generate any business income. 43 A dispute arose between the appellants and the respondent, the Australian Communications Authority ("the Authority") as to the method of calculating the eligible revenue of GSM for the financial year ended 30 June 1999 pursuant to the Telecommunications Universal Service Obligation (Eligible Revenue) Regulations 1998 ("the Regulations"), being regulations made under the Act. Eligible revenue is an essential element in determining the levy which may be payable under the Telecommunications (Universal Service Levy) Act 1997 ("the Levy Act") by a "participating carrier" in relation to a year, that being a person who is the holder of a carrier licence under the Act. GSM was a participating carrier in respect of the year ended 30 June 1999. The appellants were of the view that the eligible revenue was to be calculated only by reference to the revenue derived by GSM, there being none, there was, so it was said, no eligible revenue and thus no levy payable. The respondent, on the other hand took the view that the eligible revenue of GSM was to be calculated by reference, inter alia, to the sales revenue from activities of the companies in the One.Tel group within the telecommunications industry, although no part of that revenue related to the use or proposed use of the GSM network. On the respondent's view a substantial levy would be payable. 44 Where an assessment of the levy issues, such assessment is subject to objection and appeal provisions somewhat similar to those operating in the area of income tax. A privative clause then operates to treat the assessment as conclusive except in those objection and appeal proceedings (see s 206 of the Act) thus, effectively, precluding the Court from determining issues relating to the computation of the levy outside the appeal procedures provided for in the Act. 45 Before any assessment issued under the Act, however, the appellants applied to the Court for a declaration that the Regulations were invalid. Alternatively, the appellants sought a declaration that on the proper construction of the Regulations the eligible revenue of GSM excluded the revenue of other companies in the One.Tel Group. The appellants claimed that the respondent had indicated an intention to proceed to make an assessment of the eligible revenue of GSM for the financial year ended 30 June 1999 with the consequence that a levy would be payable by GSM in the order of $500,000. Although we were told from the bar table that an assessment has, since the commencement of the proceedings, issued, no attempt was made to tender that assessment and thus take advantage of the privative clause found in s 206 of the Act.

THE JUDGMENT APPEALED FROM 46 The learned primary Judge noted that the proceedings raised two issues. The first, one of construction, was whether the sales revenue of the One.Tel group from activities within the telecommunications industry was required to be brought to account for the purpose of calculating the eligible revenue of GSM for the year ended 30 June 1999. The second, was the question of the validity of the Regulations if the Regulations had the consequences which the respondent said they did. 47 His Honour resolved both issues in favour of the respondent. His Honour noted that the Regulations were confusing but was of the view that the factors pointing in the direction of the view espoused by the respondent were more powerful than the factors pointing in the opposite direction. In his Honour's view the Regulations were also valid. They were neither arbitrary, capricious or unreasonable, nor were they such as not to be a real exercise of the regulation-making power. There was a sufficient connection between the likely practical operation of the Regulations and the achievement of the purpose of the regulation-making power. It is from this decision that the appellants appeal.

The Construction issue 48 Both before the learned primary Judge and before us, the parties sought to consider the issue of the validity of the Regulations antecedent to the question of the proper construction of the Regulations, and on the assumption that the outcome of the construction question would lead to the conclusion that sales revenue of the One.Tel group of companies from activities within the telecommunications industry were required to be brought to account for the purpose of calculating the eligible revenue of GSM. 49 With respect to this approach, so to do is illogical. The issue of validity, as argued by the parties, can only arise if the construction question is answered unfavourably to GSM. It is for this reason that I consider first the question of construction which arises. 50 The starting point of the discussion is ss 6-8 of the Levy Act which impose upon participating carriers a levy where the carrier has a "levy debit balance". The calculation of the levy debit balance is to proceed in accordance with ss 196 and 197 of Part 7 of the Act. For present purposes it suffices to say that the levy depends upon calculating the participating carrier's eligible revenue. That expression is defined in s 147 of the Act as follows: "For the purposes of this Part, the eligible revenue of a participating carrier for a financial year is the amount that, under the regulations, is taken to be the eligible revenue of the carrier for the financial year." 51 The relevant regulations are the Telecommunications Universal Service Obligation (Eligible Revenue) Regulations 1998. The Regulations under the heading "Purpose of eligible revenue" (cl 5(5)) expressly state that they: "explain how to work out a participating carrier's eligible revenue for a financial year." 52 Part 3 of the Regulations under the Heading "Accounting Arrangements" is expressed to apply only where there are two or more participating carriers which have the same ultimate Australian parent entity and the accounts of that entity include the sales revenue of these carriers. The Part, while inapplicable to the facts of the present case, has some relevance to the construction question and accordingly it is necessary to summarise its provisions. Where the Part applies each carrier is permitted to make the calculations required "in its own right, identifying and accounting for its own revenue and deductions in accordance with these Regulations" or "on a group basis", identifying and accounting for revenue and deductions as a whole in accordance with these Regulations" (emphasis added) (see Regulation 7). A note to that regulation states, however: "Although carriers would be able to make calculations on a group basis, the final stage of the eligible revenue process requires carriers to identify their revenue on an individual basis: see regulation 39." 53 Part 5 of the Regulations is directed at how to work out the "gross telecommunications sales revenue",that being as Regulation 8(1) observes, "the source of a participating carrier's eligible revenue for a financial year ...". By force of Regulation 9 that is to be worked out using the steps in Schedule 1. Schedule 1 contains five steps. The first, Step 1A, which applies where, inter alia, the participating carrier's revenue "is included in the audited annual consolidated financial statements of an ultimate Australian parent entity ..." requires the identification of "sales revenue" for the financial year as appearing in the consolidated financial statements. It suffices for present purposes to say that "sales revenue" is in effect revenue from telecommunications sales and may be subject to various adjustments with which the Regulations deal, for example the deduction of amounts earned from an activity outside the telecommunications industry. 54 Where the participating carrier is not a member of a group so that Step 1A does not apply to it, the sales revenue is calculated by reference to the sales revenue for the financial year as appearing in its own annual financial statements. 55 It is common ground between the parties that, although GSM did not have in the financial year any revenue which was in fact included in the audited annual consolidated financial statements of One.Tel, its ultimate Australian parent entity, Part A of Schedule 1 should be read as if the words "if any" were inserted before the words "is included in the audited annual consolidated financial statements of an ultimate Australian parent entity" and as such Part A of Schedule 1 is applicable as the starting point of the calculation. 56 It may be noted that Steps three and four of Schedule 1 require an addition of amounts not otherwise already counted that can reasonably be described as "its telecommunications sales revenue" or "part of its gross telecommunications sales revenue". 57 Next there is to be calculated what the Regulations describe as "net telecommunications sales revenue". This calculation proceeds in accordance with Schedule 2. It may involve deducting from the gross telecommunications sales revenue derived by the application of Schedule 1 amounts earned, for example, from an act carried out outside Australia where there are participating carrier activities in the telecommunications industry outside Australia. The detail of these deductions is not presently relevant. 58 Finally, eligible revenueis to be calculated. Thus, Regulation 33(2) requires that the carrier: "(a) deduct amounts from its net telecommunications sales revenue; and (b) attribute eligible revenue where it is being worked out on a group basis" (emphasis added). 59 Part 6 of the Regulations then proceeds to explain both what may be deducted and how the eligible revenueis to be attributed "where it is being worked out on a group basis" (emphasis added). The Part directs the reader to the steps in Schedule 3 which are to be used to calculate the participating carrier's eligible revenue for a financial year. It is the third of these steps which gives rise to the controversy between the parties. Schedule 3 reads as follows: "STEP 1 The participating carrier adds up all of the amounts mentioned in Part 6 that it wishes to deduct from its net telecommunications sales revenue. STEP 2 The participating carrier deducts the total from its net telecommunications sales revenue. STEP 3 If the revenue has been worked out on a group basis, the carrier identifies the amount of eligible revenue that is its own revenue. STEP 4 The result is the participating carrier's eligible revenue for the financial year." 60 Finally reference may be made to Division 3 of Part 6. This Division, like Part 3, applies only where the consolidated accounts include the sales revenue of two or more participating carriers. It applies, in accordance with Regulation 39(b), where a carrier is working out its eligible revenue as a member of a group. 61 Regulation 40 deals then with what the heading to the regulation refers to as "[a]ttribution of group revenue". The regulation contemplates that "[a]fter working out the eligible revenue on a group basis, each participating carrier" is to state the amount which is its own eligible revenue, that is to say, the figure that has been derived on a group basis is apportioned between the participating carriers in the group. 62 It is at the heart of the case for GSM that Step 3 of Schedule 3 applies to it. Its argument is deceptively simple. It is required, so it says, to work out its net telecommunications sales revenue "on a group basis". This is because Step 1A of Schedule 1 applies to it because its revenue is included in the audited annual consolidated financial statements of an ultimate parent entity, that is, One.Tel. Were it not part of the One.Tel Group it would work out its sales revenue on an individual basis in accordance with Step 1B. So, it is submitted it is required by Step 3 of Schedule 3 to identify the amount of eligible revenuein the consolidated accounts that is "its own revenue". Since in the relevant year it had no revenue at all, the end result of the calculation is that it had no eligible revenuefor the financial year and was thus not required to pay any levy. 63 For the Authority, it is submitted, GSM's revenue is not worked out "on a group basis" as those words are to be properly construed in the context of the Regulations. Rather, it is submitted, Step 3 will only have application to a case to which Part 3 and Division 3 of Part 6 apply, namely where there are two or more participating carriers in a group with the same ultimate Australian parent entity, so that it is necessary and appropriate to divide the group net revenue among the two or more participating carriers. It is only on this basis that a carrier is permitted to identify "the amount of eligible revenue that is its own revenue". 64 It is not in dispute that regulations, like the enactments under which they are made, are to be construed both by reference to the context in which they appear (the word "context" being used in the widest sense of that term) and by reference to the legislation under which they are enacted. Subject to any specific indication to the contrary regulations (or, at the least, regulations dealing with a common topic, for often regulations may deal with quite diverse subject matters) are to be read as a whole and in a way which promotes their purpose: CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384; Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (1981) 147 CLR 297. A construction which produces absurdity by reference to the "context" will, obviously, be rejected. The present Regulations form, together with Part 7 of the Act pursuant to which they were proclaimed, a coherent code for the assessment of the levy dealt with in Part 7. Without the Regulations calculation of the levy would be, if not impossible, at the least attendant with great uncertainty. 65 In my opinion the interpretation preferred by the learned primary Judge, being that advanced by the Authority, is the correct interpretation. That this is so follows from a combination of matters. 66 First, there is the requirement in the case of every group company that the starting point of the calculation will be the group revenue in the audited group accounts. While the audited consolidated group accounts may be a convenient starting point where the system of corporations law no longer requires preparation of individual audited subsidiary accounts, there is a more compelling reason in the present context for the group accounts to be taken as a starting point. The purpose of the calculation is ultimately to arrive at the net telecommunications revenue. Where the carrier is not a member of a group of companies all telecommunications revenue will be found in the carrier's own accounts. However, where the carrier is part of a group of companies it would be possible to hive off telecommunications revenue to related companies. Transfer pricing among group companies could reduce the quantum of the revenue. The possibility of avoidance, if regard is had only to the accounts of revenue and outgoings of the carrier without regard to the accounts of other group members, makes adoption of the group accounts and the disregard of intergroup transactions on consolidation the most sensible starting point. 67 Secondly, given the obvious policy reasons for commencing with the group accounts, it would be somewhat perverse and tending to absurdity to require that the process then conclude by excluding from the calculation everything other than the individual revenue of the carrier, thereby allowing both transfer pricing and the hiving off of revenue earning activities within the telecommunications industry to related companies in the group. If this is what the Executive intended when formulating the Regulations there would be no purpose at all in starting with the group accounts. The calculation would be restricted in the case of all companies to the revenue of that company without regard to the group. 68 Thirdly, if the GSM submission be correct the treatment in Part 3 of the Regulations or Division 3 of Part 6, particularly Regulation 40, would produce a strange result. What Regulation 40 in particular achieves is to take the eligible revenue calculated by reference to the group and then attribute that group revenue among the participating carriers who are members of the group. So, while group revenue attributable to the telecommunications industry would be wholly allocated to the participating carriers ensuring that the levy would take into account, but only once, the whole group telecommunications revenue, where there was only one participating carrier in the group, the group telecommunications revenue would be immaterial and in the result the levy payable by that one carrier would be calculated only be reference to that carrier's telecommunication revenue. It would seem a more likely policy that where there was one carrier in a group the whole group telecommunications revenue would be taken into account for the purpose of the levy, but where there was more than one, the whole group telecommunications revenue would be taken into account but divided among each carrier. 69 Textual support for the Authority's submission is to be found in the use of the expression "on a group basis", as used in Schedule 3. That expression is to be found only in three other places in the Regulations. First it appears in Part 3 concerned with the case of 2 or more participating carriers having the same ultimate Australian parent. Secondly it appears in Part 6, Division 1, which speaks of attributing eligible revenue where that is being worked out on a group basis. While Division 1 is not solely concerned with the case of 2 or more participating carriers with the same ultimate Australian parent, it is clear when one comes to Division 3 of the same Part, which is limited to the case of two or more participating carriers, that the attribution of which Division 1 speaks is the attribution worked out in accordance with Regulation 40. That is to say, in Part 6, Division 3, the third occasion on which the expression is used it is in the context of the case where there are two or more carriers in a group and their eligible revenue is worked out as the member of a group. 70 When one comes to Schedule 3, Step 3, the better view seems to me to be that the expression "on a group basis" refers back to the circumstances in which the same expression is used in Part 3 and Part 6, and not to the totality of situations where the commencing point of a calculation of sales revenue is a consolidated financial statement prepared for an ultimate Australian parent entity. On this basis, Step 3 has no application to GSM since it is not one of two or more participating carriers who are members of the One.Tel Group. 71 To the extent that assistance in the interpretation of the Regulations can be obtained from the Explanatory Memorandum which accompanies the Act authorising the Regulations and enacting the whole system of universal service obligation and the levy to pay for it, reference to the comments made in the Memorandum and relating to Clause 142 dealing with "eligible revenue" confirm the view I take. The Memorandum says, inter alia: "… Because eligible revenue is the amount 'taken' to be eligible revenue it is not restricted to revenue received by a participating carrier. It may include any amounts, including revenue received by persons other than the carrier. Amongst other things, this wide-ranging approach has been taken to avoid disputes as to what can and cannot be treated as eligible revenue and to provide a means of addressing tactics to avoid levy, for example by minimising eligible revenue by engaging in transfer pricing. Should participating carriers seek to minimise levy by diverting revenue to related service provider operations, such revenue will be able to be included under the regulations. Similarly, revenue paid to an infrastructure owner, rather than a participating carrier that is a nominated carrier in relation to the infrastructure, could be included in 'eligible revenue'."

Are the Regulations Valid? 72 There was no dispute between the parties as to the relevant tests to be applied. Nor is there any dispute as to the way these tests were stated by the learned primary Judge. The tests may shortly be stated in a formulation which substantially follows that adopted by the learned primary Judge (with whose reasons, with respect, I agree) as follows: 1. Regulations will not be valid where they attempt to widen the purpose of the Act, to add new and different means of carrying them out or depart from or vary the plan which the legislature has adopted to attain its end: Shanahan v Scott (1957) 96 CLR 245 at 250. 2. It follows that a regulation which is inconsistent with the legislation purporting to authorise it will be invalid. 3. The ambit of the regulation-making power is to be ascertained from the character of the statute and the nature of the provisions it contains. It will be relevant whether the legislation deals only with general principles, leaving the details to be dealt with in the Regulations, where the regulation-making power may then have a wide ambit: Morton v Union-Steamship Co of New Zealand Limited (1951) 83 CLR 402 at 410. 4. The regulation-making power must not be exercised in a manner which is arbitrary, capricious or unreasonable (that is, such that no reasonable mind could justify it): Qui v Minister for Immigration & Multicultural Affairs (1994) 55 FCR 439 at 446. 5. The power must not be exercised in a manner which is disproportionate to the attainment of the objects for which it is conferred. Where reasonable proportionality is lacking there will be no real exercise of the power: South Australia v Tanner (1988-9) 166 CLR 161 at 168. The cases distinguish between those where the regulation-making power is purposive and those where it is not. In the former case the substantive operation of the regulations must be capable of being reasonably considered to be appropriate and adapted to achieve the purpose prescribed by the legislation pursuant to which the regulation is made. That is to say, there must be a reasonable proportionality between the object or purpose and the means adopted to achieve or procure it: Minister of State for Resources v Dover Fisheries Pty Ltd (1993) 43 FCR 565 at 584. In the latter case, there must be a real and substantial (perhaps direct) connection between the regulations and the subject matter of the grant of power: Dover Fisheries at 584-5. 73 As Emmett J (whose judgment in draft form I have had the opportunity to read) points out, the object of Part 7 concerns the provision of access, on an equitable basis, of standard telephone services, pay phones and prescribed carriage services: s 138(a). At the heart of them is what s 149 of the Act refers to as the "universal service obligation", that is that each of these kinds of services be available to be supplied to all people in Australia. Given the remoteness of some areas of Australia, it is obvious that the provision of some of these services could only be made at a commercial loss. So, it is an object of Part 7 that: "the losses that result from supplying loss-making services in the course of fulfilling the universal service obligation should be shared among carriers." 74 The present levy is a means of carrying out that purpose. The levy is to be paid into a Universal Service Reserve (s 212) and distributed in accordance with s 213 of the Act. 75 As has been already noted, the Act in s 147 leaves to the Regulations the content of "eligible revenue". 76 The Regulations stipulate, as has also been noted, that eligible revenueis to be worked out by reference to the gross telecommunications sales revenue for the financial year, that is to say the sales revenue from an activity in the telecommunications industry. Section 7 of the Act defines "telecommunications industry" in very wide terms. For example, it includes manufacturing or importing customer equipment or customer cabling as well as supplying goods or services for use in connection with the supply of a listed carriage service. 77 Notwithstanding what may be said to the contrary it does not seem to be unreasonable, arbitrary or capricious that the levy payable by a company not a member of a group should be calculated not just by reference to income from the particular carrier service it may provide, but generally from its operations in the telecommunications industry as defined. The person paying the levy must be a carrier before the levy is payable at all. If that is right then it seems likewise not unreasonable in the case of a carrier who is a member of a group, that the levy it pays take into account revenue from the telecommunications industry earned by the group. Were that not so the potential for avoidance would be enormous. The fact that the Act has left it to the Regulations to give content to the meaning of eligible expenditure is relevant in reaching that conclusion. 78 In my view there is a clear real and substantial nexus between the exercise of the regulation-making power and the purpose for which that power was exercised, ascertained by reference to the Act itself. Nor, if the regulation-making power is to be treated as "purposive" do I think that there is any lack of proportionality. Indeed, the operation of the Regulations is reasonably capable of being considered to be appropriate and adapted to achieve the legislative purpose. Carriers who are licensed to provide the relevant services have the ability to make profits in the telecommunications industry, in the defined sense. To calculate the levy payable by reference to the revenue a carrier earns from activities in the industry (as defined) hardly lacks proportionality. The same is true where the carrier is a member of a group of companies. To the extent that the regulation-making power is not treated as purposive no different answer follows. There is, in my opinion, a real and substantial connection between the Regulations and the subject matter of the regulation-making power. 79 The present is a case, in my opinion, where the Court must take care not to conclude against validity merely because there are other ways in which the regulation-making power might be exercised which might be thought better in a policy sense. Expediency is not the test. The real issue is whether the making of the Regulations is a real exercise of the regulation-making power. In my opinion it is and accordingly in my view the Regulations are valid. 80 I would accordingly dismiss the appeal with costs. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hill.

EMMETT J 81 Division 6 of Part 7 of the Telecommunications Act 1997 (Cth) ("the Act") sets out a scheme under which losses that result from supplying services in the course of fulfilling "the universal service obligation" referred to in the Act are shared among "carriers" within the meaning of the Act. The scheme entails the respondent, the Australian Communications Authority ("ACA"), making assessments for each financial year in respect of each "participating carrier" in relation to that financial year. An assessment must set out the participating carrier's "levy debit" for the financial year, which is recoverable as a debt due to the Commonwealth. The levy debit is determined by reference to a participating carrier's "eligible revenue" for the relevant financial year. 82 Section 147 of the Act provides that, for the purposes of Part 7, the "eligible revenue" of a participating carrier for a financial year is: "The amount that, under the Regulations, is taken to be the eligible revenue of the carrier for the financial year." The Telecommunications Universal Service Obligation (Eligible Revenue) Regulations 1998 (Cth) ("the Regulations") were promulgated in order to explain how to work out a participating carrier's eligible revenue for a financial year. 83 The second appellant, One.Tel GSM 1800 Pty Limited ("GSM"), is a wholly owned subsidiary of the first appellant, One.Tel Limited ("One.Tel"). GSM was a participating carrier in respect of the year ended 30 June 1999. Accordingly, GSM was liable to be assessed under Division 6 of Part 7 of the Act. 84 GSM and One.Tel commenced proceedings in the Court seeking: · a declaration that the Regulations are invalid; · a declaration concerning the proper construction of a provision in the Regulations; · an injunction restraining ACA from issuing any assessment to GSM which includes as eligible revenue of GSM any revenue of any other companies in the One.Tel group.

A judge of the Court made orders dismissing the application. From those orders, GSM and One.Tel have appealed to the Full Court. The appeal raises two questions: · The proper construction of the Regulations; and · The validity of the Regulations

The Universal Service Regime 85 Part 7 of the Act establishes what is described as a "universal service regime". The main object of the universal service regime is to ensure that all people in Australia, wherever they reside or carry on business, should have reasonable access, on an equitable basis, to: (a) standard telephone services; (b) payphones; (c) prescribed carriage services. 86 The key elements of the universal service regime are as follows: (a) the specification of the "universal service obligation"; (b) the declaration of universal service providers; (c) the carrying out of universal service plans; (d) the regulation of universal service charges; (e) the assessment, collection, recovery and distribution of the levy imposed by the Telecommunications (Universal Service Levy) Act 1997 (Cth) ("the Levy Act"). 87 Under s 149 of the Act, the "universal service obligation" is the obligation to ensure that standard telephone services, payphones and prescribed carriage services are reasonably accessible to all people in Australia on an equitable basis, wherever they reside or carry on business. To the extent necessary to achieve that obligation, it is part of the universal service obligation: · to supply standard telephone services to people in Australia on request; and · to supply, install and maintain payphones in Australia; and · to supply prescribed carriage services to people in Australia on request. 88 Under s 150 of the Act, the Minister may make a written declaration stating that a specified carrier is the national universal service provider or a regional universal service provider for a specified area. Such a carrier is referred to as a "universal service provider". Under s 151(5) a universal service provider for an area must take all reasonable steps to fulfil the universal service obligation, so far as the obligation relates to that area. 89 One of the objects of Part 7 of the Act is to give effect to the principle that the losses that result from supplying loss making services in the course of fulfilling the universal service obligation should be shared among carriers: s 138(c). Thus, under Division 6, if a universal service provider incurs a loss from supplying services to certain areas in the course of fulfilling the universal service obligation, the provider may be entitled to a payment, referred to as "levy credit" to recoup those losses. A levy credit is funded out of the proceeds of the levy imposed on "carriers" by the Levy Act. The ACA is required to make an annual assessment of levies and levy credits. 90 Under s 146(1) of the Act, any person who was a "carrier" at any time during a financial year is a "participating carrier" in relation to that year. A "carrier" is a person who is the holder of a "carrier licence" under the Act. Section 191 requires that after the end of a financial year, each participating carrier must give the ACA a written return of the carrier's eligible revenue for that financial year. Under s 193(1) the ACA must make a written assessment for each financial year. The assessment must set out for each participating carrier in relation to that financial year: · the carrier's eligible revenue for the financial year; · the carrier's levy debit under s 196. Under s 203, "levy" assessed under s 193 becomes due and payable on the twenty-eighth day after the ACA gives a copy of the assessment to the participating carrier. Such levy may be recovered in a court of competent jurisdiction as a debt due to the Commonwealth under s 204. "Levy" is defined in the Act as the levy imposed by the Levy Act. The reference to "levy" in s 203 must be a reference to the levy debit that is to be assessed under s 193. 91 Section 196(1) of the Act provides a formula for determining a participating carrier's levy debit for a financial year. Under the formula, a participating carrier's levy debit for a financial year is a proportion of the "total net universal service costs" for the financial year of all the universal service providers in relation to the financial year. Under s 196(2)(b) the relevant proportion is the proportion that a participating carrier's revenue for the financial year bears to the total eligible revenue for the financial year of all the participating carriers in relation to the financial year. Thus, the levy debit for a particular carrier for a financial year depends upon the eligible revenue of that carrier for that financial year. The Regulations explain how to work out a participating carrier's eligible revenue for a financial year.

The Relevant Purpose of the Act 92 The issue of the validity of the Regulations turns on the scope of s 147 of the Act. Section 147 provides as follows: "For the purposes of [Part 7], the eligible revenue of a participating carrier for a financial year is the amount that, under the Regulations, is taken to be the eligible revenue of the carrier for the financial year." Section 594(1) provides that the Governor-General may make regulations prescribing matters: "(a) required or permitted by this Act to be prescribed; or (b) necessary or convenient to be prescribed for carrying out or giving effect to this Act." 93 The Regulations were made in pursuance of s 594 in order to give content to the term "eligible revenue" in s 147. Regulations 5(4) and 5(5) provide as follows: "(4) Under section 147 of the Act, the eligible revenue of a participating carrier for a financial year is the amount that, under the Regulations, is taken to be the participating carrier's eligible revenue for the financial year. (5) These Regulations explain how to work out a participating carrier's eligible revenue for a financial year." 94 Thus the purpose or object of the Regulations is to fix an amount that is to be taken to be the eligible revenue of a participating carrier for a financial year, thereby giving content to s 147. Section 147 is contained in Part 7 of the Act. Under s 138, the objects of Part 7 are to give effect to the following policy principles: "(a) all people in Australia, wherever they reside or carry on business, should have reasonable access, on an equitable basis, to: (i) standard telephone services; and (ii) payphones; and

(iii) prescribed carriage services; (b) the universal service obligation described in section 149 should be fulfilled as efficiently and economically as practicable; (c) the losses that result from supplying loss-making services in the course of fulfilling the universal service obligation should be shared among carriers; (d) information on the basis of which, and the methods by which, those losses and those carriers' respective shares in those losses are to be determined should be open to scrutiny by:

to the greatest extent possible without undue damage to a carrier's interests being caused by the disclosure of confidential commercial information." Object (c) is of particular significance in the present context. 95 The objects of Part 7 must also be considered in the light of the main and other objects of the Act as a whole. Under s 3(1) the main object of the Act, when read together with provisions of the Trade Practices Act 1974, is to provide a regulatory framework that promotes: "(a) the long-term interests of end-users of carriage services or of services provided by means of carriage services; and

(b) the efficiency and international competitiveness of the Australian telecommunications industry." Section 3(2) of the Act also sets out other objects including the following: "(a) to ensure that standard telephone services, payphones and other carriage services of social importance are:

(i) reasonably accessible to all people in Australia on an equitable basis, wherever they reside or carry on business; and

(ii) are supplied as efficiently and economically as practicable; and

(iii) are supplied at performance standards that reasonably meet the social, industrial and commercial needs of the Australian community;" The object in s 3(2)(a) is closely related to the objects in s 138(c). While other objects are specified in s 3(2), no attempt has been made by the ACA to support the Regulations by reference to those objects.

The Telecommunications Industry 96 The term "telecommunications industry" forms the basis, under the Regulations, for determining revenue that is to be taken into account in working out eligible revenue. The term is defined in s 7 of the Act to include "an industry that involves" certain activities. Several distinct activities are described. Thus, carrying on business as a carrier and carrying on business as a carriage service provider are described as separate and apparently distinct activities. The Act draws a regulatory distinction between "carriers" on the one hand and "service providers" on the other. 97 Part 3 of the Act is headed "Carriers". Under section 42, which is in Part 3, the owner of a network unit must not use the unit to supply carriage services to the public unless: (a) the owner holds a carrier licence; or (b) a nominated carrier declaration is in force in relation to the network unit; (c) an exemption applies for the network unit.

A "carrier licence" is a licence granted under s 56. Section 56 is within Part 3. 98 Network units are described in Part 2. There are four types of network unit: (a) a single line link connecting distinct places in Australia; (b) multiple line links connecting distinct places in Australia; (c) designated radio communications facility; (d) a facility specified in the ministerial determination.

Under Division 4 of Part 3, the ACA may declare a carrier to be the nominated carrier in relation to one or more specified network units. 99 Part 4 of the Act is headed "Service Providers". Under Part 4, a service provider is either a "carriage service provider" or a "content service provider". A carriage service provider is a person who supplies or proposes to supply certain carriage services. A carriage service is: "a service for carrying communications by means of guided and/or unguided electromagnetic energy." 100 The basic definition of a carriage service provider is to be found in s 87(1) which provides: "For the purposes of this Act, if a person supplies, or proposes to supply, a listed carriage service to the public using:

(a) a network unit owned by one or more carriers; or

(b) a network unit in relation to which a nominated carrier declaration is in force;

the person is a carriage service provider." 101 Under s 97 if a person uses or proposes to use a listed carriage service to supply a content service to the public, the person is a content service provider. The term "content service" is defined in s 15 as: (a) a broadcasting service; (b) an on line information service; (c) an on line entertainment service; (d) any other on line service; (e) a service of a kind specified in a determination made by the Minister.

102 In section 16 the term "listed carriage service" is given in terms of a carriage service between two points, one of which is in Australia.

The Scheme of the Regulations 103 The Regulations state that the source of a participating carrier's eligible revenue is to be its "gross telecommunications sales revenue" for the financial year. Under Regulation 9, that amount is to be worked out using the steps in Schedule 1 of the Regulations. Under Step 1 in Schedule 1, the participating carrier must first identify "sales revenue". The way in which that is done depends on whether the participating carrier's financial year ends on 30 June and whether its revenue is included in "the audited annual consolidated financial statements of an ultimate Australian parent entity". Relevantly for present purposes, if a participating carrier's financial year ends on 30 June and its revenue, if any, is included in such financial statements, a carrier is to identify the amount that is described as "sales revenue" in those financial statements. 104 Under Step 2, the participating carrier must then deduct from the sales revenue so identified any amount that is earned from an activity outside the telecommunications industry. The term "telecommunications industry" is defined in s 7 as including an industry that involves: "(a) carrying on business as a carrier; or

(b) carrying on business as a carriage service provider; or

(c) supplying goods or services for use in connection with the supply of a listed carriage service; or

(d) supplying a content service using a listed carriage service; or

(e) manufacturing or importing customer equipment or customer cabling; or

(f) installing, maintaining, operating or providing access to:

used to supply a listed carriage service." 105 Steps 3 and 4 of Schedule 1 require the addition of other amounts. Those steps might be fairly described as anti-avoidance provisions. The result, under Step 5, is the participating carrier's "gross telecommunications sales revenue". The result appears to be intended to be the gross revenue derived by the parent entity from activities in the telecommunications industry. 106 Under Regulation 21, after a participating carrier has worked out its gross telecommunications sales revenue, it may be able to deduct certain amounts in accordance with the steps in Schedule 2. Under Steps 1 and 2 in Schedule 2 the following amounts may be deducted from the amount of gross telecommunications sales revenue: · amounts earned from any act carried out outside Australia as part of the carrier's activities outside Australia - Regulation 23; · acts done solely for the supply of a carriage service originating and terminating outside Australia - Regulation 24; · amounts earned from selling customer equipment - Regulation 25; · amounts earned for the content of a content service - Regulation 27; · amounts earned from the use of an exempt base station - Regulation 28; · amounts of a kind declared by the ACA - Regulation 30. The result of that deduction is the participating carrier's "net telecommunications sales revenue". 107 Thus, in effect, the net telecommunications sales revenue is to be revenue derived by all companies in the group of an ultimate Australian parent entity from activities in Australia in the telecommunications industry, other than: · supplying a contents service; · selling customer equipment; · use of an exempt base station.

108 Under Regulation 33(1), after a participating carrier has worked out its net telecommunications sales revenue for a financial year, it must then work out its eligible revenue. Under Regulation 33(2) to do that, the participating carrier may: (a) deduct from its net telecommunications sales revenue amounts described as "inter carrier input payments". Examples of such input payments would be a payment for interconnection or a payment for a carriage or other service bought on a wholesale basis; (b) attribute eligible revenue "where it is being worked out on a group basis".

Part 6 explains how to work out amounts that may be deducted and how eligible revenue is to be attributed "where it is being worked out on a group basis". Thus, Regulations 35 to 38 deal with input payments and regulations 39 and 40 deal with attribution of group revenue. 109 Regulation 34 provides that the eligible revenue for a financial year is to be worked out using the steps in Schedule 3. Steps 1 and 2 in Schedule 3 require the deduction of the total of the inter-carrier input payments that are to be deducted. Step 3 in Schedule 3 is as follows: "If the revenue has been worked out on a group basis, the carrier identifies the amount of eligible revenue that is its own revenue." The result is the participating carrier's "eligible revenue" for the financial year. One of the questions raised in the appeal turns on the meaning of Step 3. There is no definition in the Regulations of the expression "on a group basis" as used in Regulation 33 and in Step 3 of Schedule 3. However, other provisions of the Regulations, while not directly relevant to the situation of GSM and One.Tel, may have a bearing on the question. 110 Part 3 of the Regulations, which contains Regulations 6 and 7, is entitled "ACCOUNTING ARRANGEMENTS". Under Regulation 6, Part 3 only applies if two or more participating carriers have the same ultimate Australian parent entity. Part 6 is entitled "HOW TO WORK OUT ELIGIBLE REVENUE". Division 3, which contains Regulations 39 and 40, is entitled "Participating carriers with the same ultimate Australian parent entity". Division 3 only applies if the audited annual consolidated financial statements of an ultimate Australian parent entity include the sales revenue of two or more participating carriers for which the entity is the parent entity. Thus, both Part 3 and Division 3 of Part 6 are applicable only where two or more participating carriers have the same ultimate Australian parent entity. Accordingly, neither Part 3 nor Division 3 of Part 6 applies in the present circumstances. Nevertheless, they may throw some light on the way in which Step 3 of Schedule 3 is to be read in its application to GSM and One.Tel. 111 Regulation 7(1) provides that, where two or more participating carriers have the same ultimate Australian parent entity, each carrier may make all of the calculations required by the Regulations in its own right, identifying and accounting for its own revenue and deductions. However, under Regulation 7(2) carriers with the same ultimate Australian parent entity may make all of the calculations "on a group basis", identifying and accounting for revenue and for deductions as a whole. Regulation 7 contains a note as following: "Although carriers would be able to make calculations on a group basis, the final stage of the eligible revenue process requires carriers to identify their revenue on an individual basis: see regulation 39." 112 Regulation 39 provides as follows: "39. (1) This Division applies if:

(a) the audited annual consolidated financial statements of an ultimate Australian parent entity include the sales revenue of 2 or more participating carriers for which the entity is the parent entity; and

(b) a carrier is working out its eligible revenue as the member of a group. (2) This Division explains how eligible revenue is attributed to individual carriers when it is being worked out by the carrier as a member of a group." 113 Regulation 40 then provides that when eligible revenue is being worked out by a carrier "as a member of a group", each participating carrier must, after working out its eligible revenue "on a group basis", state: "(a) how much of the eligible revenue is its own eligible revenue; and

(b) how much of the eligible revenue is the eligible revenue of the other participating carrier or carriers for which the entity is the parent entity; and

(c) how it worked out the amounts." Thus Part 6 of the regulations permits two or more carriers within the same group to apportion eligible revenue of the whole group between or among those participating carriers.

CONSTRUCTION of step 3 114 The declaration sought by GSM and One.Tel as to the construction of the Regulation is as follows: "Alternatively, a declaration that on the proper construction of Step 3 of Schedule 3 to the Telecommunications Universal Service Obligation (Eligible Revenue) Regulations 1998:

(a) The eligible revenue of the second applicant excludes the revenue of other companies in the One.Tel Group; and

(b) The eligible revenue of the second applicant for the financial year ended 30 June 1999 was nil." 115 One.Tel is a "carriage service provider" within the meaning of the Act. In that capacity, it derived revenue in the telecommunications industry in relation to the year ended 30 June 1999, the year in question in the present proceeding. 116 During that year, on 25 March 1999, GSM was granted a carrier licence under s 56 of the Act and, thereby, became a carrier within the meaning of the Act in relation to the year in question. However, GSM had no revenue of its own during that year. On the other hand, the net telecommunications sales revenue of One.Tel determined under the Regulations was $81,288,000. If Step 3 of Schedule 3 applies in the present circumstances, GSM would not have any liability under the Levy Act. On the other hand, if Step 3 of Schedule 3 does not apply, GSM would have a liability under the Levy Act of approximately $500,000.00. 117 The terms of Schedule 3, and Regulation 34, which makes it applicable, do not in terms say that Step 3 is applicable only in the circumstances that attract Part 3 and Division 3 of Part 6. GSM contends that, since under Step 1 of Schedule 1, GSM would be required, because its revenue is included in the financial statements of One.Tel, to identify the amount that is described as the sales revenue in One.Tel's consolidated financial statements, the revenue of GSM is worked out on a group basis. Accordingly, so it contends, it is entitled under Step 3 of Schedule 3 to identify the amount of eligible revenue that is its own revenue. Since it had no revenue, its eligible revenue would be nil. 118 If the construction contended for by GSM is correct, wherever Regulation 39(1)(a) was applicable, it would follow that revenue had been worked out on a group basis. That is to say, according to GSM's contention, wherever a carrier is a subsidiary of an Australian parent entity, it would be required to work out revenue on a group basis. 119 If GSM's construction were accepted, the expressions "make… calculations… on a group basis" in Regulation 7(2) and "worked out on a group basis" in Step 3 of Schedule 3 would refer to different concepts. In other words, the expression "on a group basis" would have different meanings in different parts of the Regulations. However, Regulations 7(1) and 7(2) proceed on the assumption that where there are two carriers, each of whom has the same ultimate Australian parent entity, such carriers may make calculations otherwise than "on a group basis". If GSM's construction were accepted, Regulation 39(1)(a) would be otiose in saying that Division 3 applies if consolidated financial statements of a parent entity include the sales revenue of 2 or more participating carriers for which the entity is the parent entity. If a carrier is working out its eligible revenue as the member of a group, it must have a parent entity and the consolidated financial statements of that parent entity must include any of the carrier's revenue. 120 Further, where there are two or more participating carriers with the same ultimate Australian parent entity, and the option contemplated by Regulation 7(1) is adopted, each carrier, by the operation of Step 1 of Schedule 1, would be required to start by identifying the amount that is described as sales revenue in the parent entity's consolidated financial statements. In that case, neither of the carriers would be making calculations on a group basis. Step 3 of Schedule 3 would not be applicable and the consequence would be that both carriers would be assessed on the basis of the sales revenue shown in the parent entity's consolidated financial statements. 121 It is unlikely, therefore, that the option in Regulation 7(1) would ever be adopted. On the other hand, if the option in Regulation 7(2) is adopted, and the revenue is worked out on a group basis, each carrier would be entitled to identify the amount of eligible revenue that is its own revenue. The effect would be to exclude revenue earned from activities in the telecommunications industry by members of the group except revenue of the carriers. Where Regulation 7 did not apply at all and the carrier was not entitled to rely on Step 3 of Schedule 3, a single carrier would be required to bring to account the whole of the revenue shown in the consolidated financial statements. 122 If Step 3 of Schedule 3 were looked at alone and independently of the balance of the Regulations and other references to "group basis" in regulations 7, 33 and 40, it could be read as being applicable to the circumstances of GSM. Thus, the reference to "the revenue" in Step 3 of Schedule 3 must be taken to be a reference to "net telecommunications sales revenue" as referred to in Step 3 of Schedule 2 and Step 1 of Schedule 3. Accordingly, because of the operation of Step 1 of Schedule 1, wherever a participating carrier is a member of a group, its "revenue" will be worked out by reference to the total revenue of all members of a group. Therefore, Step 3 would authorise the carrier to identify the amount of eligible revenue "that is its own revenue". Under Step 4 the result of that identification would be the carrier's "eligible revenue". 123 If Step 3 of Schedule 3 were to be looked at alone in that way there would be an anomalous contrast between two positions. Where a carrier also carries on activities in the telecommunications industry other than the activities of a carrier, the whole of its net telecommunications sales revenue, including revenue from non-carrier activities, would be eligible revenue of that carrier. On the other hand, where a carrier is a subsidiary, which carries on only activities as a carrier, the carrier would be entitled to limit its revenue, by the operation of Step 3, to its own revenue, which, by definition, would not include revenue from non carrier activities. 124 Thus, by the simple expedient of forming a subsidiary to become a carrier within the meaning of the Act that carried on no other activities, it would be possible to exclude from the determination of eligible revenue all sales revenue earned from activities inside the telecommunications industry other than the carrier activities actually engaged in by a carrier. On the other hand, a participant in the telecommunications industry that is both a carrier and engages in other activities, would be required to calculate eligible revenue by reference to all revenue earned from all activities in the telecommunications industry. 125 The ACA contends that Step 3 of Schedule 3 is applicable only when Regulations 7, 39 and 40 are applicable. The anomalous consequence referred to above would not follow if Step 3 of Schedule 3 were to be so construed. Step 3 would then apply only where the option provided for under Regulation 7(2) was adopted. If the option provided for under Regulation 7(1) were applicable, Step 3 of Schedule 3 would not be applicable. 126 The effect of Regulation 40 is that once eligible revenue is worked out on a group basis, where there are two or more participating carriers, that eligible revenue can be apportioned between the participating carriers. The sum of the eligible revenue of the participating carriers will equal the telecommunications revenue of the group. The effect of applying Step 3 of Schedule 3 is that each carrier identifies the amount of eligible revenue "that is its own revenue". Thus, the eligible revenue that is to be apportioned is the revenue of the group. 127 That was the conclusion of the primary judge. His Honour correctly construed the provisions of the Regulations. Step 3 of Schedule 3 applies only in the circumstances where Division 3 of Part 6 is applicable. That is to say, eligible revenue is to be taken to be worked out on a group basis only where Regulation 39(1)(a) is satisfied. Thus, Step 3 is applicable only if the audited annual financial statements of an ultimate Australian parent entity include the sales revenue, if any, of 2 or more participating carriers for which the entity is the parent entity. That is not the case in the present circumstances. Accordingly, the declaration sought by GSM and One.Tel as to the construction of the Regulations was correctly refused by the primary judge.

validity of the regulations 128 The effect of the Regulations is that the amount that is to be taken to be the eligible revenue of a participating carrier is to be calculated by reference to revenue derived by all companies in the group of an ultimate Australian parent entity from activities in Australia in the telecommunications industry. Under Regulation 21 and Schedule 2, the amount of some of that revenue is to be deducted before determining eligible revenue of all companies in the group. In the result, eligible revenue will include revenue derived from: · carrying on business as a carrier; · carrying on business as a carriage service provider.

GSM contends that, in so providing, the Regulations go beyond what is reasonably convenient in order to achieve the purpose for which the Regulations were authorised by the Act. 129 The objects of the Act are important in that they inform of the proper construction of the Act generally and s 147 in particular - see IC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408. The validity of the Regulations must be considered against the objects of the Act and the objects and purpose of the Regulations in achieving the objects of the Act. The power to make regulations under s 594 of the Act by reference to s 147 must be purposive. Accordingly, the power must be interpreted as being so confined that it cannot be exercised in a manner that is disproportionate to the attainment of the purpose for which it is conferred - Minister for Resources v Dover Fisheries Pty Ltd (1993) 43 FCR 565 at 582-584. That purpose, as presently relevant, is to achieve a sharing among carriers of losses that result from the supply of certain services. 130 The only purpose for determining eligible revenue of a participating carrier is to enable certain losses that result from fulfilling the universal service obligation to be shared among all participating carriers. That sharing is to occur on a year by year basis, in the sense that it is the losses that result from supplying loss making services in a given year that are to be shared among participating carriers for that year on the basis of the eligible revenues of each participating carrier for that year. 131 The Act draws a clear distinction between carriers on the one hand and service providers (whether carriage service providers or content service providers) on the other hand. Of necessity, carriers must be involved in the fulfilment of the universal service obligation. Carriers might be expected to benefit from the fulfilment of the universal service obligation. The focus of Part 7, however, is on the sharing of losses of one or more carriers among all carriers. It is not directed to the achievement of a sharing among participants in the telecommunications industry, such as service providers, that are not carriers. 132 The effect of the Regulations, on their proper construction as outlined above, is that amounts are brought within the eligible revenue of a carrier that have been derived completely independently of the activities of that carrier as a carrier, albeit that they must be activities in the telecommunications industry. Amounts of such revenue are included simply because they form part of the revenue derived from activities in the telecommunications industry of members of a group of companies of which a participating carrier happens to be a member. 133 The Regulations permit the deduction, from the revenue of a group, of the revenue derived from activity as a content provider. Significantly, however, they do not permit the deduction of revenue from activity as a carriage service provider. A carrier who engages in the supply of carriage services or is a member of a group, one of the members of which engages in the supply of carriage services, may, therefore, be at a disadvantage when compared with a carrier who does not supply such services and is not member of a group a member of which supplies such services. 134 The essential prerequisite for being a carriage service provider is that the provider provides certain carriage services to the public using a network unit. Under s 42, such a network unit must be owned by a carrier or there must be a nominated carrier in relation to the network unit, since it is being used to provide carriage services to the public. Clearly, however, there is no necessary connection between a carriage service provider on the one hand and a carrier on the other. No doubt, as a matter of commercial common sense, carriers and carriage service providers might be closely linked. It may be convenient for a carriage service provider to be a carrier, that is to say, be the holder of a carrier licence. But it is not necessary that such a relationship exist. 135 The relationship between carrier and carriage service provider may be summarised as follows: · a person may be a carrier without being a carriage service provider; · a person may be a carriage service provider without being a carrier; · a person will not be a carriage service provider unless the person uses a network unit:

• owned by one or more carriers; OR
• in relation to which a nominated carrier declaration is in force.

The universal service obligation includes the supply of carriage services. Both standard telephone services and prescribed carriage services are categories of carriage service. Thus, the object of Part 7 includes the sharing of the costs of providing carriage services. While there is no necessity for a carrier to be a carriage service provider or for a carriage service provider to be a carrier, there can be no carriage service provider unless there is a carrier in relation to the service. It must be assumed that a carrier will charge a carriage service provider for the use of the network unit owned by the carrier or in respect of which the carrier is a nominated carrier. 136 Under s 594 (1) (b), the regulations must be necessary or convenient for giving effect to the Act. Requiring contribution from a carrier on the basis of all of its activities is capable of serving the ends of Part 7. Given the nexus between a carrier and a carriage service provider, the requirements of s594 are therefore satisfied. Accordingly, I consider that the Regulations are validly made.

CONCLUSION 137 I would dismiss the appeal with costs.

I certify that the preceding fifty-seven (57) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate: Dated: 16 February 2001 Counsel for the First & Second Appellants: S Gageler SC and P G Bolster

Solicitor for the First & Second Appellants: Gilbert & Tobin

Counsel for the Respondent: A Robertson SC and J Griffiths

Solicitor for the Respondent: Australian Government Solicitor

Date of Hearing: 23 November 2000

Date of Judgment: 16 February 2001