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28 Jul 2010

Telstra fine for breaching competition laws has lessons for all

The $18.5 million fine imposed on Telstra by the Federal Court for breaching the Trade Practices Act and Telecommunications Act should put all business on notice to get their internal compliance systems in order, and serves as a warning that the ACCC will seek – and courts will impose – higher levels of fines for breaches.

In Australian Competition and Consumer Commission v Telstra Corporation Limited [2010] FCA 790 (28 July 2010) Telstra admitted to multiple breaches of its standard access obligations (imposed by the Telecommunications Act and its carrier licence) to permit interconnection between its facilities and those of telecommunications companies seeking access to its networks.

It also admitted to making misleading representations about its facilities' capacity to accommodate the access seekers.

What did each side think was a fair fine?

The ACCC sought $40 million in fines for these breaches, while Telstra argued for a fine of $3-5 million.

How was the fine calculated?

Justice Middleton in the Federal Court assessed the fine at $26.5 million, which dropped to $18.5 million after a 30 percent discount was applied.

He took a range of factors into account in calculating the final fine, including, in Telstra's favour:

  • There was no proof of a deliberate decision to engage in anti-competitive conduct. The ACCC had tried to show Telstra's decisions were motivated by an anti-competitive intent; it pointed to some robust public comment by Telstra executives on the wisdom of access arrangements and this litigation. The judge said these might point to lack of remorse, but not an intention to break the law.
  • The various failures in communication, training, and management had been addressed by Telstra.
  • Telstra had co-operated, accepted responsibility for the breaches, and admitted liability in court.
  • The ACCC could not prove that Telstra's actions had caused any actual loss to the access seekers.
  • Telstra has not engaged in similar conduct relating to its obligations under Pt 3 of Sch 1 of the Telecommunications Act, or previously breached Pts IV, XIB or XIC of the Trade Practices Act.
  • The refusals to grant access are about 0.5 percent of all the access requests received at that time.

On the other hand:

  • Telstra had shown no remorse for its actions, or that it appreciated the seriousness of its actions.
  • The whole purpose of the legislation is to protect consumers or the end users of telecommunication services, and general and specific deterrence is needed for this protection.
  • The failure to implement policies which could have provided access if implemented is not an excuse or mitigating factor that has significant weight. Telstra is a large company and had many years to get its systems in order. It took no steps to develop a culture of compliance with its access obligations under the Trade Practices Act and the Telecommunications Act.
  • Although the breaches took place in seven exchanges (out of the 500 across the nation) they were repeated and took place over a two-year period.

After balancing all the relevant factors, Justice Middleton set a sliding scale for the breaches:

  • $750,000 for where access was not provided for three months or less;
  • $1,000,000.00 for where access was not provided for three months to one year; and
  • $1,500,000.00 for where access was not provided for more than one year.
Lessons from this case

The first, and crucial, lesson is that the failure to create a culture of compliance, and keep it strong, led to these breaches. Even though they were a tiny percentage of the access requests dealt with by Telstra, they were enough to trigger an investigation and a hefty fine.

Secondly, the ACCC is clearly monitoring public statements and will use them in court - so be careful that your statements accurately set out your position. Although the court did not accept Telstra's statements proved any intent, it did consider them as proof of a lack of remorse. While it's tempting to vent to a friendly journalist, you should not give a false impression of your business' true position.

Thirdly, the ACCC is clearly looking to pursue these sorts of cases, and seek higher fines too. Graeme Samuel has already said in response to the Telstra decision that "The ACCC will continue to vigorously pursue high penalties against corporations that break the law".

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.