Pivotel Satellite Pty Limited v Optus Mobile Pty Limited

GENERAL DIVISION NSD 1468 of 2009

BETWEEN: PIVOTEL SATELLITE PTY LIMITED ACN 099 917 398

REASONS FOR JUDGMENT 1 This is an application for interlocutory relief by the applicant, Pivotel Satellite Pty Limited (Pivotel). The relief sought is that the respondents, Optus Mobile Pty Limited and Optus Networks Pty Limited (Optus), be restrained until further order of the Court from blocking its customers' access to Pivotel's telecommunications network and/or Pivtoel's Australian digital mobile telephone numbers.

FACTUAL CIRCUMSTANCES 2 The primary circumstances in which this matter comes before me today are disclosed in two affidavits. The first is an affidavit of Robert Sakker sworn 22 December 2009. Mr Sakker is the executive director and company secretary of Pivotel Group Pty Limited (Pivotel Group) and its wholly owned subsidiaries, which include the applicant, Pivotel. The second is an affidavit of Caitlin Murray sworn 23 December 2009. Ms Murray is a solicitor employed by the solicitors for Optus. Ms Murray has provided her affidavit largely on the basis of information from Lynette Rieper. Ms Rieper is the corporate counsel for Optus. 3 Insofar as relevant, the two affidavits disclose that Pivotel Group is a licensed telecommunications carrier under the Telecommunications Act 1997 (Cth) and is the nominated carrier for mobile satellite services provided in Australia using a particular satellite. Pivotel Group has held a carrier licence under s 56(1) of the Telecommunications Act since on or about 4 March 2003. 4 According to Mr Sakker there are five telecommunications carriers that operate public mobile telephone networks: Telstra, Optus, Hutchison (or 3), Vodafone Network Pty Limited (Vodafone) and Pivotel. Mr Sakker says that because Hutchison and Vodafone have now merged their businesses, effectively, there are four mobile telephone communication carriers in Australia. Pivotel apparently considers that its major competitors at a retail level in the Australian mobile satellite services market are Telstra and Optus. 5 Consistent with the provisions of the Telecommunications Act, Pivotel was allocated a range of digital mobile telephone numbers by the Australian Communications and Media Authority. The allocation of these numbers commenced in about 2004. 6 Mr Sakker explains that each of the carriers has a telecommunications switch used for interconnection with other carriers in each capital city of Australia. "Interconnection" is a link that allows traffic from one carrier to be passed to another carrier. Pivotel has a direct interconnection link for mobile telecommunications traffic with Vodafone, but no other carrier. Pivotel, accordingly, has contractual and other arrangements with Vodafone by which traffic to and from Pivotel numbers is transmitted by an originating carrier, be it Pivotel or another carrier, via Vodafone as the transit carrier. Vodafone itself then has arrangements with other Australian carriers pursuant to which it carries this traffic. 7 The evidence discloses that there is a separate set of proceedings in this Court between entities known as Mediatel Pty Limited (Mediatel) (and associated entities, referred to below as the Mediatel interests) and Optus. Those proceedings were commenced in March 2009. Mr Sakker has had involvement as an expert witness in those proceedings. 8 Documents from the Mediatel proceedings and other documents in respect of this interlocutory application show that from about August 2009 Optus began to block calls from Optus's customers to telephone numbers that Optus considered were associated with the Mediatel interests. Vodafone (being the transit carrier) considers that Optus is obliged to pay nine cents per minute to Vodafone for all traffic to the Pivotel network. Optus, however, considers that calls from its customers to Pivotel phone numbers are being used improperly to obtain access not to a genuine Pivotel handset but through an interactive voice recognition system to overseas destinations. This is referred to in the evidence as a "two stage dialling process". 9 Before 21 December 2009 Mr Sakker was aware that some 94 Pivotel numbers identified by Optus as being associated with the Mediatel interests had been blocked. However, according to Mr Sakker, on 21 December 2009 he first received notice that Optus had taken steps to block all of Optus's customers from making any calls to the Pivotel network. The result is that Pivotel customers could still make calls to Optus customers but Optus customers could not make calls to any Pivotel customers. 10 There seems to be no factual issue that Optus did in fact take steps on or about 20 December 2009 which had the consequence Mr Sakker identified. Optus's decision-making process in this regard is disclosed in Ms Murray's affidavit. Ms Murray records (consistent with Mr Sakker's evidence) that Optus does not have a direct interconnection with Pivotel; indeed, there is no contractual relationship between Optus and Pivotel. The relevant contractual relationships appear to be between Optus and its customers, as well as Optus and Vodafone, and Pivotel and its customers, as well as Pivotel and Vodafone. 11 According to Ms Murray since December 2008 Optus has withheld payments from Vodafone for calls to numbers that it considers to be "non-genuine traffic" numbers - that is numbers associated with the two stage dialling process referred to above. Ms Murray says that as at the date of her affidavit (23 December 2009) the total amount of payments which Optus has withheld from Vodafone in respect of such calls is some $6.1 million. Further, the dispute about any liability that Optus may have to Vodafone in relation to that amount and, presumably, other disputed liabilities incurred thereafter, is a part of the Mediatel proceedings. Ms Murray also records that Optus has formed a commercial view that it does not wish to carry traffic that does not ordinarily terminate on the handset of an end-user on the Pivotel network. While Optus disputes the claim by Vodafone for payment at the rate of nine cents per minute for this traffic, Optus also does not wish to become potentially liable to Vodafone for any future traffic which it considers to be non-genuine. 12 In para 30 of her affidavit Ms Murray identifies the process by which numbers were blocked by Optus, being those numbers which it considers to be non-genuine traffic. This process apparently increased in frequency and extent from about November 2009. Until the commencement of these proceedings, Optus received no complaint from Pivotel about the blocking of individual numbers. Ms Murray's affidavit records that she is informed by Ms Rieper that as of 20 December 2009, and given Optus's commercial decision about the traffic it did not wish to carry, Optus took steps to block all calls going from the Optus network to numbers associated with the Pivotel network. Optus did so having regard to the fact that, according to it, it could not find any other way to prevent "non-genuine" traffic. Further, Optus is concerned about its existing and potential future liability to Vodafone, which Optus disputes. Optus is also concerned about the potential effect of the dispute with Vodafone and Optus's ongoing commercial relationship with Vodafone which is very valuable and said to be worth many millions of dollars per year. This is in circumstances where, if the raw number of nine cents a minute is taken as a starting point, Ms Murray's affidavit (para 34) identifies a potential liability on the part of Optus to Vodafone ranging from $214,910 to $966,630 per month. 13 It is the blocking by Optus of all calls from its customers to all Pivotel mobile phone numbers that has prompted the application for interlocutory relief on an urgent basis today. Pivotel says that there is a serious question to be tried on a number of bases and that the balance of convenience weighs in its favour, including having regard to the fact that it is willing to proffer an undertaking as to damages in the usual form on behalf of not only Pivotel but also each and every subsidiary of Pivotel Group both individually and jointly.

Pivotel's questions 14 The first question arises from Pivotel's claim that Optus's conduct in blocking access (as identified above) constitutes anti-competitive conduct within the meaning of s 151AJ of the Trade Practices Act 1974 (Cth) and thus in breach of s 151AK of that Act. Optus is a carrier. Pivotel claims that there is sufficient evidence to be satisfied that, at least on a prima facie basis and assuming all other things remain the same at the final hearing, Optus has a substantial degree of power in two telecommunications markets, being the ordinary mobile phone market and the satellite market. This substantial degree of power is evidenced by Optus's capacity to prevent its customers from accessing Pivotel handsets. Pivotel claims that, on the evidence as it currently stands, Optus has used its market power to withhold or prevent the provision of a service. This use is sufficient for the purposes of s 151AJ to constitute the taking advantage of the power in the mobile telephone or any other market, and has had the relevant effect proscribed by the legislation (namely, a substantial lessening of competition). 15 On Pivotel's case (and as supported by its evidence) there is a national market for ordinary mobile telephony services and a national market for satellite mobile telephony services. The first market has four carriers. The second market has three carriers. These markets have high barriers to entry. Interconnection between all of the carriers, submits Pivotel, is critical to each market. The capacity to prevent interconnection, at least on a prima facie basis, is taking advantage of the power in the market, the effect of which, Pivotel contends, is to substantially lessen competition in both the mobile telephony and satellite markets. Pivotel says it is apparent that if an Optus customer cannot ring a Pivotel mobile or satellite telephone then Pivotel customers will be discouraged from using the Pivotel satellite mobile telephony services. Further, in terms of the market for ordinary mobile telephony services, Optus customers will be discouraged from using Optus's services. 16 Pivotel referred to the decision in Boral Besser Masonry Limited v Australian Competition and Consumer Commission (2003) 215 CLR 374; [2003] HCA 5 at [136] and [137] to support its submission that pricing is not the only aspect of market behaviour that manifests power. Other aspects, said Gleeson CJ and Callinan J, may include the capacity to withhold supply and the capacity to act without constraint. Pivotel submits that for the purposes of this interlocutory application it has shown sufficiently that this has occurred. 17 The second question arises from Pivotel's claim for breach of s 46 of the Trade Practices Act (the general misuse of market power provision). Pivotel acknowledges that s 46 requires it to establish that the use of the market power was for the proscribed purposes of either eliminating or substantially damaging a competitor or deterring or preventing a person from engaging in competitive conduct. Pivotel otherwise relies on alleged breaches of ss 51AB and 51AC of the Trade Practices Act, each of which, in relation to either the supply of goods or services to a person or the carrying out of business transactions as nominated, proscribes unconscionable conduct. Pivotel also invokes s 52 of the Trade Practices Act which proscribes misleading or deceptive conduct.

Optus's response and conclusions 18 Optus disputes the existence of a prima facie case against it. First, Optus makes a relatively formal submission that Pivotel is a member of a group of entities with a common holding company (Pivotel Group Pty Limited) in circumstances where it is not clear from the evidence which company has the telephone subscribers. Consequently, according to Optus even if Pivotel made out its causes of action it is not clear that the named applicant is the relevant entity which will suffer loss or damage. 19 It seems to me that this submission can be put to one side relatively easily, given Mr Sakker's evidence. It appears that at least one relevant applicant is the moving party in these proceedings. While it may be that there are other potential applicants, I do not need to resolve that issue now. Accordingly, I am not persuaded that this submission should be accepted. 20 Optus also contends that Pivotel has not identified any legal basis upon which it could be said that Optus must have Pivotel's business foisted upon it in circumstances where Optus has made a commercial decision that it does not wish to carry calls to Pivotel. As noted, there is no contractual relationship between Pivotel and Optus. According to Optus, Pivotel has not identified any regulatory provision, contractual entitlement or other legal basis which would require Optus to carry calls to the Pivotel network. 21 This submission, however, cannot be assessed separately from the potential causes of action upon which Pivotel has commenced these proceedings, being the provisions of the Trade Practices Act to which I have referred. 22 In terms of s 151AJ of the Trade Practices Act, Optus's primary submissions and my conclusions are as follows: (1) First, by reference to evidence of Lawrence Clarke in the Mediatel proceedings, Optus submits that the relevant market is not the mobile telephone market. According to Mr Clarke no mobile handset is required to utilise the services in issue. The services may be accessed from a fixed network service. Further, the service is a one-way, incoming-call only service. The difficulty with this proposition is that Mr Clarke's evidence addresses the Mediatel numbers. The evidence in the present case (as it currently stands) is sufficient to show that Pivotel has some 15,000 numbers allocated to it of which 8000 are satellite users. It is not possible to ascertain from the evidence what proportion of those numbers might be Mediatel numbers. Accordingly, there is evidence to support the submissions made on behalf of Pivotel that there are two relevant markets, the satellite mobile market and ordinary mobile market. (2) Secondly, Optus submits that there is no evidence which allows an inference to be drawn that Optus has taken advantage of any market power. Rather, the evidence shows that Optus would have acted in precisely the same way and on a genuine commercial basis even if it did not have the market power that it was alleged to have. Accordingly, on this submission, competitive conditions are entirely irrelevant. The reason Optus blocked access is because it made a business decision that it is commercially disadvantageous for it to allow access by its customers to the Pivotel network. The decision had nothing whatsoever to do with Optus's competitive position. This is supported by evidence from Ms Murray that Optus does not consider Pivotel to be its commercial competitor. Nevertheless, as Pivotel submitted, the requirement that there be a taking advantage of power in a market, according to Miller's Annotated Trade Practices Act. 30th ed. Thomson Reuters. Sydney (2009) at [1.151AJ.15], does not involve anything more than the use of the market power involved; predatory intent is not required (Queensland Wire Industries Proprietary Limited v Broken Hill Proprietary Company Limited (1989) 167 CLR 177). On this basis there is evidence capable of supporting an inference that there has been a taking advantage of market power as proscribed by the statute. There is also evidence capable of supporting a conclusion that Optus has a substantial degree of power in the two identified markets. Further, there is evidence capable of supporting a conclusion that the effect of Optus's actions, irrespective of its intention, has or is likely to have been a substantial lessening of competition. On this basis, I am satisfied that Pivotel has established that there is a serious question to be tried in respect of the alleged breach of s 151AJ of the Trade Practices Act. 23 I accept Optus's submission that it is more difficult from the evidence to draw any inference capable of supporting a potential contravention of s 46 of the Trade Practices Act (which requires proof of the proscribed purpose). On balance, I am not satisfied that the evidence has established a prima facie case in respect of a breach of s 46. Similarly, Pivotel's submissions about contraventions of ss 51AB and 51AC, relating to unconscionable conduct, as well as s 52, were by no means as persuasive as its submissions about the existence of a serious question to be tried in respect of s 151AJ. On the evidence, I am not satisfied that there is a serious question to be tried in relation to any of those statutory provisions. 24 However, as I have said, I am satisfied that Pivotel has established a serious question to be tried in respect of anti-competitive conduct proscribed by Pt XIB of the Trade Practices Act (the so-called "competition rule") regulating the telecommunications industry (specifically, ss 151CA, 151AJ and 151AK). Insofar as relevant, s 151CA(1) vests power in the Court to grant to any person an injunction in the event of any breach of the competition rule. More relevantly, s 151CA(3) provides that "[i]f, in the opinion of the Court it is desirable to do so, the Court may grant an interim injunction pending determination of an application under subsection (1)". I thus have power to grant the relief requested but must now consider where the balance of convenience lies.

Optus's submissions 25 Optus disputes where the balance of convenience lies, particularly insofar as the balance is affected by the adequacy of the proffered undertaking as to damages. Optus's submissions in relation to the more general aspects of the balance of convenience also take issue with Pivotel's case based on alleged safety concerns. These are said to arise from the inability of Optus customers to contact Pivotel customers including, for example, contact by various emergency services, there being some evidence that various government and other entities have contracts with both Optus and Pivotel. Optus points out that: - (i) calls can continue to be made to all emergency services, (ii) all outgoing calls can still be made by Pivotel customers, and (iii) all incoming calls can still be received by Pivotel customers other than calls from Optus customers. 26 Further, according to Optus, Pivotel has not adduced cogent evidence that anyone is likely to be disadvantaged. Optus relies also on the fact that its dispute with Vodafone is having a serious impact on its commercial relationship with Vodafone. That relationship is worth many millions of dollars a year. Optus notes that until the events of 20 December 2009, Pivotel made no complaint about Optus blocking individual numbers from August 2009 (albeit accepting that the numbers were blocked at a greater rate from about November 2009).

Conclusions 27 Although there is a commercial relationship between Pivotel and the Mediatel interests I am not able to draw any inference on the evidence (as Optus contends I should) that Pivotel has been involved in actions to avoid Optus's blocking conduct. As senior counsel for Pivotel submitted I do not know what proportion of Pivotel numbers has been allocated to the Mediatel interests but I do know that there are 8000 numbers associated with Pivotel satellite phones. I also am prepared to infer on the evidence that while Optus may be exposed to a liability to Vodafone of nine cents a minute on all Pivotel traffic, Optus itself accepts that it would not be providing a services to its customers for free. Accordingly, the actual level of Optus's exposure to Vodafone, while potentially significant, cannot be based on the rate of nine cents a minute. I also accept that the continuation of the blocking will or is likely to cause economic loss to Pivotel. Again, however, I cannot assess the exact nature of that loss. It also seems to me that the potential liability of Pivotel under any undertaking to persons other than Optus involves pure speculation. 28 More importantly than these matters and as Pivotel points out, Optus has been carrying the Pivotel traffic since 2005. The issue about blocking appears to have first arisen, albeit not to Pivotel's knowledge, in August 2009. Before the events of recent days Mr Sakker was aware of some 94 numbers that had been blocked. However, he first became aware of Optus's decision to block all of its customers from accessing the entire Pivotel network on 21 December 2009. There are serious public interest issues in respect of the interconnectivity of the mobile telephone network in Australia. Subject to dealing with the adequacy of the undertaking as to damages, these considerations make it difficult to accept that the balance of convenience is other than one which weighs heavily in favour of Pivotel. 29 Therefore, it seems to me that three factors are of critical importance. First, the traffic in issue has been on the Optus network since some time in 2005. Second, there are serious public interest issues about the interconnectivity of the whole mobile telephony network. By this, I mean the capacity of any person with a mobile phone in Australia to make and receive calls to and from any other number irrespective of the carrier to which that number is allocated. Third, Optus took the action resulting in the blocking of access from its customers to the entire Pivotel network on 20 December 2009 without, apparently, any forewarning or notice to Pivotel that such action was proposed. 30 I should also note that I do not accept Optus's submission that this is a clear case in which damages would be an adequate remedy for Pivotel. This seems to me not to reflect the reality of the situation where no Optus customer, at the moment, can access any Pivotel customer. I accept the evidence of Mr Sakker that the blocking impacts on not only Pivotel customers but also on Optus customers, as well as the overall domestic mobile and national fixed telephony markets for which damages would not be an adequate remedy. I also do not accept that Pivotel is somehow the author of its own misfortune. It is apparent from the evidence that Optus's commercial concern relates to the two stage dialling process. Optus's response of blocking access to the entire Pivotel network, without notice to Pivotel, could not be characterised as Pivotel being the author of its own misfortune. Nor do I accept that Pivotel has delayed in taking action. Mr Sakker's evidence is to the contrary and is sufficient to cause me to reject this allegation. 31 I come then to the undertaking as to damages. There have been forceful submissions put on behalf of Optus that the information available about the financial situation of Pivotel and the other members of Pivotel Group requires me to accept that there are insufficient assets to meet a very potential significant liability on Optus's part (that is, to Vodafone). The difficulty with this submission is that Pivotel has disclosed not only its financial position but the financial position of all of the members of Pivotel Group. I am satisfied on the evidence that Pivotel Group (each member of which is individually and jointly to give the required undertaking) is an ongoing business of substance which has a material excess of assets over liabilities including assets that would seem to be capable of realisation if need be. In these circumstances, having regard to the balance sheets in evidence and given the lack of information about the precise quantity of any exposure under the undertaking, I am satisfied that there are undertakings of genuine worth proffered.

FORM OF THE ORDER 32 There is also an issue about the form of the order sought. Although the order sought is framed in negative terms (namely, that Optus cease blocking numbers), Pivotel properly acknowledges that the consequence of any such order has a positive effect, namely, that Optus will be required to carry traffic when it has made a commercial decision that it does not wish to do so. The difficulty for Optus is that Pivotel has established a prima facie case in relation to a potential contravention of s 151AJ of the Trade Practices Act. This provides a proper basis for the making of an order, the effect of which will be to preserve the status quo. The status quo is that the disputed traffic has been carried by Optus on its network since about 2005. Mr Sakker has given evidence, unchallenged on this application, that mobile phone users in Australia generally have an expectation of being able to access all other numbers, be they mobile or fixed landline services. In these circumstances the fact that the granting of an order to Pivotel would have a positive effect does not seem to me to be a sufficient reason to deny interlocutory relief given that Pivotel has established a serious question to be tried and that the balance of convenience is in its favour. 33 I accept Pivotel's submission that it is unsatisfactory to attempt to carve out from the order any capacity for Optus to continue blocking numbers that Optus believes are Mediatel or similar numbers involving a two stage dialling process. I also accept that, in circumstances where it is proffering an undertaking as to damages, Pivotel should not be required as a price of interlocutory relief to provide to Optus a list of all Mediatel numbers, even assuming that it could do so having regard to the restrictions imposed on the disclosure of such information by s 276 of the Telecommunications Act. 34 There is one further issue which relates to the form of the order. It is whether there should be excluded from that order either all Mediatel numbers, the 94 numbers Mr Sakker knew had been blocked before 20 December 2009 or all numbers that Optus blocked on an individual basis before it blocked access to the entire Pivotel network on 20 December 2009. Pivotel's urgent application for relief today was prompted by the action which Optus took on 20 December 2009 to block access to the entire Pivotel network. The minimum relief required to preserve the status quo pending the final resolution of these proceedings is to frame an order that has the effect of reinstating the position as at the date immediately prior to 20 December 2009, that is, before Optus took the step of blocking access to the entire Pivotel network. It seems to me that it should be possible for an unambiguous order to be framed so to achieve this end.

CONCLUSION 35 Accordingly, for these reasons, I am satisfied there is a serious question to be tried on the basis identified. I am satisfied that the balance of convenience favours Pivotel. I am satisfied that damages would not be an adequate remedy in the circumstances. I am thus minded to make an injunction in an appropriate form, pending further order of the Court and on the basis of the giving of an appropriately worded undertaking as to damages. I request the parties confer immediately to that end. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.

Counsel for the Applicant: Mr F Kunç SC with Mr C N Bova

Counsel for the Respondents: Mr J Stoljar SC with Mr J A C Potts