Optus Communications Pty Ltd v Telstra Corp Ltd

EX TEMPORE REASONS FOR JUDGMENT 1 I have before me a notice of motion filed on behalf of the respondent on 8 December 1998. The motion seeks orders that certain paragraphs of the further amended statement of claim, dated 12 November 1998, be struck out pursuant to Order 11 rule 16 and an order that the claim for relief, based on certain paragraphs of that statement of claim, be stayed or dismissed pursuant to Order 10 rule 2. As a result of hearing submissions from counsel for both parties, I have intimated the views which I have formed concerning certain of the paragraphs in question. As a result of my indicating those views, counsel for the applicants proposes to prepare a minute of a second further amended statement of claim, taking account of the submissions which have been made on behalf of the respondent and the views which I expressed. 2 I have given directions for the service of a minute of the proposed pleading and given directions for the respondent to indicate whether any further complaints are to be made in respect of the proposed amended pleading. There is, however, one matter of some substance which has been the subject of submissions on the hearing of the motion, relating to those paragraphs of the current statement of claim concerning access to the broad band network. The respondent sought to have those paragraphs struck out and sought summary dismissal of the prayers for relief based on those paragraphs. 3 The claim made in paragraphs 127-167 of the statement of claim may be summarised as follows: (i) In about April 1994, Telstra commenced to construct a suburban broadband cable telecommunications network. (ii) The terms and conditions, including terms and conditions as to price, upon which Telstra offered carriage services to all service providers who are holders of subscription television licences, were set out in a tariff published by Telstra ("the Telstra Visionstream Tariff"). (iii) The terms and conditions, including terms and conditions as to price, upon which Telstra offered to provide access to the Telstra Visionstream Network to subscribers for pay TV services, were set out in the Telstra Visionstream Tariff. (iv) Optus Networks is only able to supply local telephone services using the Optus Vision Network in competition with Telstra or at all, or alternatively profitably, or alternatively economically and efficiently, if the Optus Vision Network is also used to supply other services, including pay TV services. (v) In about November 1994, consequent upon the announcement of the Optus Vision Network, Telstra withdrew the Telstra Visionstream Tariff and terminated distribution agreements it had entered into with service providers under the Telstra Visionstream Tariff. (vi) In about November 1994, an arrangement was entered into between News Corporation Limited and Telstra ("the Foxtel Arrangement") which provided for the construction of a suburban broadband cable telecommunications network in Sydney, Melbourne, Brisbane and Adelaide ("the Telstra Broadband Network") for the purpose of supplying customers with: (a) pay TV services; and (b) high speed interactive telecommunication services. (vii) The terms and conditions, including the terms and conditions as to price, offered by Telstra to Foxtel for the supply of pay TV services using the Telstra Broadband Network, were significantly less favourable to Telstra than the terms and conditions upon which Telstra offered the use of the Telstra Visionstream Network to service providers and to subscribers pursuant to the Telstra Visionstream Tariff. (viii) Foxtel is the only supplier of pay TV services entitled to provide such services using the Telstra Broadband Network. (ix) The Telstra Broadband Network is installed in substantially those areas where the Optus Vision Broadband Network is installed. (x) Pay TV carriage services are supplied by Telstra to Foxtel at a price which is less than Telstra's long-run incremental costs of supplying such services. (xi) The construction of the Telstra Broadband Network in substantially those areas where the Optus Vision Broadband Network is installed has the effect, and is intended by Telstra to have the effect, of reducing the market penetration of Optus Vision in the pay TV services market and of Optus networks in the local call market, PSTS market and long-distance market. (xii) The supply of pay TV carriage services by Telstra to Foxtel at a price which is less than Telstra's long-run incremental cost of supplying such services has the effect, and is intended by Telstra to have the effect, that the costs incurred by Optus Vision in acquiring pay TV carriage services are necessarily higher than the costs incurred by Foxtel in acquiring such services. (xiii) Telstra earns and has at all material times earned monopoly rents from the PSTS services it supplies using its public Switched On telephone network (such monopoly rents being the amount by which the revenue earned by Telstra in supplying such services exceeds the amount of the revenue it would earn if such services were supplied in a competitive market). (xiv) Telstra has a substantial degree of power in: (a) the PSTS market, and (b) the local call market. (xv) Telstra has used and continues to use the monopoly rents to: (a) supply pay TV services exclusively to Foxtel at substantially below the cost of those services to Telstra; (b) supply pay TV services exclusively to Foxtel on terms and conditions more favourable than the terms and conditions Telstra was prepared to offer all service providers pursuant to the Telstra Visionstream Tariff; (c) construct the Telstra Broadband Network in substantially those areas where the Optus Vision Network has been constructed, and (d) undertake to News that Telstra Broadband Network would pass 4 million homes within three years. (xvi) By reason of the matters referred to above, Telstra has taken advantage of its power in the local call market and the PSTS market for the purposes set out in paragraph (xvii) and in contravention of section 46 of the Trade Practices Act 1974 (Cth). (xvii) Telstra has engaged in the conduct referred to in paragraph (xv) for the purpose of: (a) substantially damaging Optus Networks or Optus Communications in the network market or the PSTS market or the local call market or the long distance market and Optus Vision in the pay TV carriage market or the pay TV services market; (b) preventing Optus Network and/or Optus Communications from entering the network market and/or the local call market and/or the PSTS market and Optus Vision from entering the pay TV carriage market or the pay TV services market; and/or (c) deterring or preventing Optus Networks and/or Optus Communications from engaging in competitive conduct in the local call market, the PSTS market, the network market and the long distance market or, alternatively, Optus Vision from entering the pay TV carriage market or the pay TV services market. (xviii) Optus Communications, Optus Networks and Optus Vision have each suffered loss of damage by that conduct. 4 The thrust of the allegation made in those assertions is that there has been a contravention of section 46 of the Trade Practices Act. That section relevantly provides as follows: "(1) A corporation that has a substantial degree of power in a market shall not take advantage of that power for the purpose of: (a) eliminating or substantially damaging a competitor of the corporation. (b) preventing the entry of a person into that or any other market, or (c) deterring or preventing a person from engaging in competitive conduct in that or any other market." 5 Telstra complains that the assertions which I have summarised do not disclose a reasonable cause of action on the part of the Optus companies and that, accordingly, I should strike out those paragraphs and the prayer for relief based on them pursuant to Order 11 rule 16 and Order 20 rule 2. The basis of Telstra's complaint is that there is no adequate link pleaded between the alleged market power on the part of Telstra in the PSTS market and the local call market on the one hand and the conduct in giving preferable treatment to Foxtel on the other. Counsel for the Optus companies has eschewed any opportunity to amend the pleading to allege, for example, that the monopoly rents were derived with the intention or for the purpose of using them as alleged in the pleading. Nor is there any intention to allege that the deriving of the monopoly rents themselves was in some way a contravention of the Trade Practices Act such that use of them might in some way taint subsequent conduct. 6 The Optus companies put the matter solely on the basis that the moneys, comprising the monopoly rents referred to above, are being used to fund the conduct of Telstra in supplying pay TV services to Foxtel at below cost and on terms and conditions more favourable than Telstra was prepared to offer under the Visionstream Tariff. 7 Telstra says, in effect, that the mere allegation of the use of a resource which has not been obtained in contravention of the Act cannot, as a matter of law, constitute "taking advantage of power in a market" notwithstanding that the resource was derived by reason of the exercise of that power in the market. The Optus companies, on the other hand, say that that is precisely the allegation intended to be made by the assertions which I have summarised above. That involves a question as to the meaning of the expression, "take advantage of" used in section 46. 8 I indicated in the course of argument that I had some reservations as to whether the mere use of a resource derived from the exercise of market power was taking advantage of the power within the meaning of section 46. However, I am not satisfied that the contentions to be advanced on behalf of the Optus companies are unarguable such that I should be satisfied that their case on that basis could never succeed. Both parties were content to accept the formulation of principle by French J in Natwest Australia Bank Limited v Boral Gerrard Strapping Systems Pty Limited (1992) 111 ALR 631 at 637: "It is […] an essential element of a cause of action based upon section 46 that the alleged contravener is said to have used its market power. The conduct must either by necessary implication from its very nature or by reference to other pleaded facts and circumstances constitute a use of that power. It is not sufficient to show that a corporation with market power has engaged in conduct for the purpose of preventing entry of another person into a market or deterring or preventing a person from engaging in competitive conduct in that or any other market. ……………………………… There must be a causal connection between the conduct alleged and the market power pleaded such that it can be said that the contract is a use of that power." 9 On one view, Telstra is in the same position as any other wealthy entity. That is to say, it has funds which it has derived lawfully which it is using for the purpose, so the allegation goes, of substantially damaging the Optus companies; preventing the Optus companies from entering markets or deterring or preventing the Optus companies from engaging in competitive conduct. That of itself is not conduct which is proscribed by section 46. It is the taking advantage of market power for that purpose which is proscribed. As French J observed at 637: "If a corporation with a substantial market power were to engage an arsonist to burn down its competitors factory and thus deter or prevent its competitor from engaging in competitive activity, it would not thereby contravene section 46." 10 Telstra's contention, as I understand it, is that absent any contravention of section 46 in the obtaining of the resource, namely the moneys comprising the monopoly rents, there is no sufficient link between market power on the one hand and the conduct complained of on the other. Notwithstanding, as I have said, that I am inclined to accept that that may well be the case the analogy of predatory pricing by price cutting suggests that there may be some substance in the argument advanced by the Optus companies. 11 In Victorian Egg Marketing Board v Parkwood Eggs Pty Ltd (1978) 20 ALR 129, Bowen CJ was concerned with the operation of section 46. The Victorian Egg Board was said to be taking advantage of its power in relation to the Victorian egg market by engaging in price cutting activities in the Australian Capital Territory. The Egg Board had a surplus of eggs which it had acquired through monopoly legislation in Victoria. 12 The Court considered that the manner in which the Egg Board acquired ownership of eggs produced in Victoria was an important element in its control of the Victorian market. The Court said at 138: "There may be other elements of that control which enable it to enter the Australian Capital Territory market in the manner the evidence suggests it has. Certainly it regulates price, it is not required to maximise profit and it may be that it can control demand. I consider that sufficient has been shown, at least at the interlocutory stage, to justify a conclusion that the Board intended to take advantage of its power which it has by virtue of its control of the Victorian market. It was argued that the Board could not contravene section 46(1) unless the act of taking advantage was done in or in relation to the Victorian market. In my view, however, all that section 46(1) requires is that there be a taking advantage of a power. The power in question is one in relation to a market which the corporation is in a position substantially to control. Properly construed the subsection does not contain a further requirement that whatever it is that constitutes a "taking advantage" has also to be done in relation to the same market. As " taking advantage of the power" is proscribed if its purpose is to damage competitors, prospective entrants or competitive behaviour, inter alia in another market, I do not consider that the words in relation to that market should qualify the words "take advantage of". They are rather part of the phrase, "power in relation to that market that it has" and merely describe the power which is derived from being in a position substantially to control the market." 13 Certainly Sir Nigel Bowen was concerned with a different question from that which is before me. However, it does appear to have been accepted, perhaps without argument, that the fact that the Egg Board had a resource, namely a supply of eggs, which it had obtained by reason of its power in a different market was nevertheless taking advantage of that power when engaging in price cutting in the Australian Capital Territory. There is some analogy between the resource of eggs available to the Egg Board on the one hand and the fund available to Telstra on the other derived from its conduct as a supplier of telephone services on the other hand. 14 In other words, it seems to me that there is at least an argument available to the Optus companies that the Full Court in the Victorian Egg Board Case was prepared to accept that there was a taking advantage of a market simply by making use of a resource which had been derived by reason of having market power in that market. In the circumstances, I am not persuaded that the case is such that I should summarily dismiss the action insofar as it is based on the assertions which I have summarised above. 15 It may be that it would be an appropriate course for this question, which if it can be properly formulated, to be dealt with by an order under Order 29. That is to say it may be appropriate that the question of law be decided separately from other issues and before determination of most other issues in the proceedings. There would also be a possibility, if that course were adopted, that the issue could be referred to a Full Court. Alternatively, if I decided the matter under Order 29 it may be appropriate to grant leave to appeal to the Full Court before embarking on what could well be a fairly lengthy factual hearing. 16 There is not presently before me any formal motion to deal with the question on the basis that I have just indicated. If there were, it would be necessary for it to be supported by some evidence as to the consequences a determination of such a noteworthy question. That is to say, I would expect to have some evidence as to the extent of the evidentiary inquiry and interlocutory steps that would be necessary for final determination of the issues raised by paragraphs 127 to 167 before I could consider whether it was appropriate to make an order under Order 29. 17 In the circumstances, I will simply stand the motion over part heard to enable the parties to formulate the amendments and any further complaints in relation to the proposed amendments. If need be, I shall resolve any disputes as to those matters at an appropriate time. On 3 March 1999 when several other motions for discovery and the like have been fixed for hearing, I will give directions for the final resolution of any questions arising under the notice of motion which I have heard today. 18 In the circumstances I reserve the costs of the motion to date.