Thursday, March 06, 2008

Telstra's Big Loss

The High Court today gave its decision in Telstra's case challenging the validity of the telecommunications access regime.

It wasn't just a loss for Telstra though, it was really a big loss. The court ultimately had to decide whether the cutting over of local loops to competitors for the purpose of providing ULLS and LSS services was an acquisition of property, and if so whether the so-called "historic shipwrecks" provisions of the Act were sufficient to preserve the validity of the access regime.

Telstra lost on the very first limb, the acquisition of property. But they lost not on the technicality that was argued in the case of whether Telstra did or did not still have the ability to use the copper. They lost on the grounds that their property right to the copper had always been encumbered by the legislative framework, that when they acquired the PSTN it as acquired under a legislative regime that included the requirement to provide access. The Court didn't further dwell on the fact that any other asset invested in since the vesting was equally covered by the provisions of the act.

In an earlier post I said "Those who are resorting to property rights arguments might find out they have less than they ever imagined." This is certainly what has now happened to Telstra. There are some futher interesting questions about what the management and Board have been representing to shareholders in terms of the assets they own, and their probably could be some "good faith" defence. I know the Commonwealth was always very careful as vendor to state that in the sale process it was not changing any element of policy.

As a side benefit, the Court also ruled that had their been an acquisition, the historic shipwrecks provisions would have been sufficient to save the regime, though Telstra could still mount a challenge that the compensation wasn't just in the Federal Court. But that route is now eliminated.

This is a deceptively big decision, one that I think many corporations will have wished Telstra hadn't ever brought. It will certainly lify a veil of uncertainty over the scope of the legislative arrangements for telecommunications and could even further embolden Government.

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