Optus Communications Pty Ltd v Telstra Corporation Ltd

[1998] FCA 1702

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 731  of  1997

BETWEEN:	OPTUS COMMUNICATIONS PTY LTD First Applicant
OPTUS NETWORKS PTY LIMITED Second Applicant
OPTUS VISION PTY LIMITED Third Applicant
AND:	TELSTRA CORPORATION LIMITED Respondent

JUDGE:	EMMETT J
DATE:	12 NOVEMBER 1998
PLACE:	SYDNEY

EX TEMPORE REASONS FOR JUDGMENT

HIS HONOUR:   Several complaints have been made about the amended statement of claim filed on 26 June 1998.  Substantial requests for particulars have been made and answered in the months that have passed since the amended statement of claim was filed. That correspondence culminated in a draft further amended statement of claim which did not materially change the pleading but incorporated substantial additional material by way of particulars.  That material was derived from the exchange of correspondence to which I have just referred.

I have now heard further argument concerning a section of the amended statement of claim commencing with paragraph 127 and ending with paragraph 167.  The principal complaint concerns the alleged failure to explain in the pleading the connection between the exercise of alleged market power on the one hand and the conduct specifically complained of.  In order to explain the issue it is necessary to consider the thrust of the allegation.  I shall summarise the allegations made in paragraphs 127 and following:

1. In about April 1994, Telstra commenced to construct a suburban broadband cable telecommunications network which was designed to provide carriage by broadband cable of pay TV services.  The proposed network was to be available for the carriage of pay TV services broadcast by any service provider which was the holder of a subscription television broadcasting licence and which was party to a distribution agreement with Telstra. 

2. In about September 1994, Optus Communications announced its intention to establish a joint venture which would construct a suburban broadband cable telecommunication network (“the Optus Vision Network”) in Sydney, Melbourne, Brisbane and Adelaide for the purposes of supplying customers with local telephone services, high speed interactive telecommunication services and pay TV services.

3. Optus Networks is only able to supply local telephone services using the proposed Optus Vision Network in competition with Telstra if the Optus Vision Network was also used to supply other services including pay TV services. 

4. Following Optus' announcement, Telstra terminated distribution agreements which it had entered into with service providers in connection with its proposed broadband network, and in November 1994 an arrangement was entered into between News Corporation  Limited (“News”) and Telstra to provide for the construction of a suburban broadband cable communications network in Sydney, Melbourne, Brisbane and Adelaide for the purpose of supplying customers with pay TV services and high speed interactive telecommunication services.

5. Also in November 1994, Telstra and News agreed to form a partnership for the purpose of supplying Pay TV services and which was to be granted the exclusive right to use the Telstra broadband network to supply Pay TV services to members of the public.  The terms and conditions on which Telstra was to supply Foxtel pay TV services using the Telstra broadband were significantly less favourable to Telstra than the terms and conditions upon which Telstra had previously offered to service providers and to subscribers.

6. Telstra planned to install its broadband network substantially in those areas where Optus Vision had installed the Optus Vision Network.

7. Foxtel is the only supplier of pay TV services entitled to provide such services using the Telstra broadband network.

8. Telstra makes payments to Foxtel in connection with subscribers to whom Foxtel supplies TV services.

9. The Telstra broadband network is installed in substantially those areas where the Optus vision broadband network is installed.  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.

10. The costs incurred by Optus in acquiring pay TV carriage services are higher than those costs incurred by Foxtel in acquiring such services.

11. Optus would only be able to supply local telephone services using the Optus Vision Network, in competition with Telstra, if the Optus Vision Network is also used to supply other services including pay TV services. 

12. Telstra has a substantial degree of power in various markets identified as the PSTS market the local call market, the long distance market, the domestic long distance market and the international long distance market.

The allegations which I have summarised above constitute prefatory averments to a number of allegations which are then set out in the pleading.  Paragraphs 160, 161, 162 and 163 provide that, by reason of Telstra's power in the Telstra network market, the network market, the local call market and/or the PSTS market:

(a)Telstra was in a position to and did provide pay TV carriage services exclusively to Foxtel at substantially below the cost of those services to Telstra;

(b)Telstra was in a position to and did provide pay TV carriage services exclusively to Foxtel on terms and conditions more favourable than the terms and conditions Telstra was prepared to offer to all services providers pursuant to the Telstra Visionstream Tariff;

(c)Telstra was in a position to and did construct the Telstra broadband network in substantially those areas where the Optus Vision Network had been constructed;

(d)Telstra was in a position to and did undertake to News that the Telstra broadband network would pass 4 million homes within three years.

The pleading then alleges in paragraph 164 as follows:

Were it not for:

(a)      The intention of Optus Networks to compete with Telstra in the supply of local call services …; and

(b)Telstra's substantial degree of power in the Telstra network market, the networks market, the local call market and the PSTS market, or any of them,

it would not have been economically rational for Telstra to engage in the conduct referred to [above] and/or Telstra would not have been able to engage in that conduct and/or Telstra would not have engaged in that conduct.

It is then alleged in paragraph 165 as follows:

By reason of the matters stated [above] Telstra has taken advantage of its power in the Telstra network market and/or the network market and/or the local call market and/or the PSTS market for the purpose or purposes set out in paragraph 166, and in contravention of s 46 of the Trade Practices Act.

The purpose alleged in paragraph 166 is as follows:

(a)substantially damaging Optus Networks and/or Optus Communications in the network market and/or the PSTS market and/or the local call market and/or the long distance market and Optus Vision in the pay TV carriage market and 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 and, or alternatively Optus Vision from entering the pay TV carriage market or the pay TV services market.

Finally there is an allegation that by reason of that conduct Optus has suffered loss and damage.  The pleading elsewhere identifies the various markets which are referred to.  The thrust of the complaint by Telstra concerns the allegation that the conduct referred to in paragraphs 160 to 163, to which I have referred, was by reason of Telstra’s power in those markets.

I am not satisfied that the pleading as it stands adequately indicates how it is that, by reason of Telstra’s power in those markets, Telstra was in a position to do the things which it is alleged to have done.  The general thrust of Optus’ allegations is clear enough.  It seems to be as follows.  In order for Optus to compete in the local telephony market it is necessary for Optus to use its broadband cable to supply other services.  That allegation is made in paragraph 158.   However, by reason of the conduct complained of, Foxtel has a competitive advantage over Optus in providing pay TV services to prospective customers because it receives the use of Telstra’s cable on uncommercial terms.   Because Optus is unable to provide TV services on terms which are competitive with Foxtel, Optus is unable to obtain customers which it would otherwise obtain if it and Foxtel were competing on equal ground.  The reason why Optus is being deprived of that competitive advantage is the economically irrational conduct of Telstra in providing assistance to Foxtel on uncommercial terms.

What appears to me to be a hiatus in that pleading is an explanation as to how it is that Telstra was in a position to do what it is doing by reason of its power.  Senior counsel for Optus formulated a proposition which seems to me to go to the heart of the Optus case.  That proposition is that deployment of financial resources derived from a position of substantial power in a market in order to protect or insulate from competition in that market is a use of market power or a taking advantage of market power within the meaning of section 46.  As I understand the matter, that is the essence of the case which Optus seeks to establish but that allegation is not adequately spelt out.

In those circumstances, I consider that the pleading is defective and accordingly certain parts of it should be struck out.  However, I would give leave to Optus to file a further amended statement of claim incorporating such additional material as is necessary to spell out in clear terms the case as so formulated.

I certify that this and the preceding five (5) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate:

Dated:             12 November 1998

Counsel for the Applicant:	RV Gyles QC DM Yates SC AJ Payne
Solicitor for the Applicant:	Gilbert & Tobin
Counsel for the Respondent:	AC Archibald QC NJ O’Bryan
Solicitor for the Respondent:	Mallesons Stephen Jaques
Date of Hearing:	12 November 1998
Date of Judgment:	12 November 1998