FEDERAL COURT OF AUSTRALIA

Telstra Corporation Limited v State of Queensland [2013] FCA 1327

THE COURT ORDERS THAT:

1.    Telstra Corporation Limited (“Telstra”) make discovery by 4 February 2014 of documents described as those documents directly related to payments due to Telstra in respect of each item of telecommunications infrastructure co-located with Telstra infrastructure on each lease of land from the State of Queensland described as Category 15 leases for the purposes of the Land Regulation 2009 (Qld) made pursuant to the provisions of the Land Act 1994 (Qld).

2.    The applicant/cross-respondent in the principal proceeding (“Telstra”) pay the costs of the State of Queensland of and incidental to the amended interlocutory application.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    These proceedings are concerned with an amended interlocutory application by which the respondent, the State of Queensland (the “State”), seeks an order that the applicant, Telstra Corporation Limited (“Telstra”) provide written answers to particular interrogatories or in the alternative that Telstra give discovery of documents described as the Category 6 documents as set out in the State’s Amended Discovery Plan.

2    The Category 6 documents are described in this way:

Category 6.    Co-location payments

6.1    For each lease of State land in category 15 of the Land Regulation held by Telstra between and including 1 July 2010 and 30 June 2012, the annual payment due to Telstra for each item of telecommunications infrastructure co-located on the lease.

3    The question of whether these documents are directly relevant to the issues in the principal proceeding and whether it is appropriate to order Telstra to answer the identified interrogatories, is to be determined by first examining the issues in controversy to which the answers or the documents would be directly relevant and ask whether orders ought to be made having regard to the guiding principles.

4    As to the guiding principles, I apply the principles identified in Alliance Craton Explorer Pty Ltd v Quasar Resources Pty Ltd [2012] FCA 290 at [26] to [34]; Power Infrastructure Pty Ltd v Downer EDI Engineering Power Pty Ltd (No 4) [2012] FCA 143 at [14]; Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Limited [2010] FCA 230 at [91] to [101]; Austral Ships Pty Ltd v Incat Australia Pty Ltd (No 3) (2010) 272 ALR 177 at [7].

5    In the principal proceeding, Telstra frames its claims in this way by its Further Amended Statement of Claim.

6    Telstra is a carrier under the Telecommunications Act 1997 (Cth). It maintains and operates facilities in Queensland for providing telecommunications services to the public.

7    The Land Act 1994 (Qld) (the “Act”) operates in relation to State land so as to authorise the State to issue leases (over unallocated Crown land), licences and permits by reference to “categories” into which a lease might be allocated for the purposes of rent assessment. The categories are prescribed under Regulations made under the Act. Under the Act, the rent for a lease will either be a prescribed (or fixed) amount for all leases in the “Prescribed Category” as determined by the Regulations or an amount calculated by multiplying a rental valuation determined under the relevant Regulation by a rate prescribed by that Regulation. These two methods are described as the fixed rental method and the valuation rental method. The Act provides that the valuation-based rental must not be less than the minimum rent set by the relevant Regulation. The Act also provides that a Regulation might prescribe the rent for a particular lease which would then be a set rent (ss 182(1), 183(1), 183(4)(a) and 183A(2)).

8    On 3 December 2009, the Land Regulation 2009 (Qld) (the “2009 Regulation”) commenced and it has been amended from time to time.

9    The Act and the 2009 Regulation provide for rental periods for leases based on annual financial years, adjustments to rental, the payment of rent on or before 1 September following the end of the relevant financial year and penalty interest payable upon outstanding rent.

10    At all relevant times, the field of “Prescribed Categories” of leases has included a category for leases that may be used for, or are being used for a business, commercial or industrial purpose or leases that are held by a government leasing entity, and the use of the lease is essential for conducting the lessee’s core business. These leases are described as Business and Government Leases.

11    The Prescribed Categories also included leases of land in particular areas that may be used for, or are being used for, the provision of relay or transmission or telephonic, television, radio or other electronic communication services for certain activities. These leases are described as Communications Leases.

12    At 30 June 2011 and then at 30 June 2012, the 2009 Regulation set rent for each of these prescribed categories of leases. For Business and Government Leases, the Regulation prescribed a valuation rent methodology based on the average value of the leased land multiplied by a rate (6% in both financial years) subject to a minimum rental amount in each year. As to communication leases over land in a rural area for a non-community service activity, a fixed rent applied, and as at 30 June 2011, for example, the fixed rent is pleaded as $10,000. As to Communication Leases over land in an urban area for a non-community service activity, a fixed rent applied, and as at 30 June 2011, for example, the fixed rent is pleaded as $15,000. These categories of leases are described by reference to category numbers. Business and Government Leases are described as Category 13 leases. Communications Leases over land in a rural area are described as Category 15.4 leases and Communications Leases over land in an urban area are described as Category 15.5 leases.

13    A Communications Lease in either of the categories descriptive of Communications Leases over rural area land or urban area land is described as a Commercial Communications Lease.

14    At all relevant times, each category of Communication Lease was held by Telstra, other carriers and persons who were not carriers or who were not using the leased land in their capacity as a carrier (non-carriers) and, similarly, at all relevant times Commercial Communication Leases were held by Telstra, other carriers and non-carriers.

15    At all relevant times, Telstra held more than 50% of the Commercial Leases issued by the State and more than 65% of the Commercial Communications Leases issued by the State.

16    Telstra pleads that all Prescribed Categories of leases had prescribed valuation rent calculated by reference to the Land Valuation Act 2010 (Qld) subject to minimum rental except in the case of Communications Leases which had fixed rent (and also Category 14.1 leases which had fixed rent).

17    Clause 44(1)(a) of Schedule 3 of the Telecommunications Act provides that a law of a State has no effect to the extent to which the law discriminates, or would have the effect (whether a direct or indirect effect) of discriminating against a particular carrier, against a particular class of carriers or against carriers generally.

18    As to the Regulations, see in particular, Part 4, Div 1, Regs 27, 30, 33, 36 to 38 and 38A of the 2009 Regulation.

19    Telstra contends that the 2009 Regulation established, or purported to establish, a different methodology for assessing rent payable for Communications Leases, including Commercial Communications Leases (and Telstra leases), than for Business and Government Leases, and a different methodology for assessing rent payable for Commercial Communications Leases (including the Telstra leases) than for other Communications Leases.

20    Telstra pleads that the rent assessable for each Commercial Communications Lease was, and remains, higher than it would have been if each such lease had had its rent assessed using a methodology equivalent to that applicable to a Business and Government Lease.

21    Moreover, the rent assessable for each such lease is said to be higher “on a per hectare basis” than the rent payable for each of the leases known as “Set Rent Leases”.

22    Telstra pleads that it follows from all of this that the 2009 Regulation:

(d)    discriminated, or had the effect (whether direct or indirect) of discriminating, against Telstra, against a particular class of Carriers being Telstra and other Commercial Carriers, or against Carriers generally; and

(e)    was inconsistent with [the Telecommunications Act] cl 44(1)(a) of sch 3; and

(f)    by reason of s 109 of the Constitution, were and remain invalid to that extent.

23    A range of things follow in the pleading which are not necessary to address for present purposes.

24    The immediately odd thing about the pleading (although not relevant for present purposes and, no doubt, there is an obvious answer) is that non-carriers are said by the pleading to hold Communications Leases and Commercial Communications Leases yet non-carriers, holding these categories of leases, are also required to pay the same prescribed rent set for such leases, as carriers pay. The pleaded rental structure seems to treat all lessees for such leases on the same non-discriminatory terms notwithstanding a difference in treatment as compared with other entirely different categories of leases such as Business and Government Leases.

25    In any event, the State by its Amended Defence says these things.

26    The State admits that the 2009 Regulation established a “different methodology” for assessing rent payable for Communications Leases (including Commercial Communications Leases and the Telstra leases) than for Business and Government Leases, and that the rent assessable for each Commercial Communications Lease (including the Telstra leases) was “higher”, on a “per hectare basis” than the rent payable for each of the “Set Rent Leases”.

27    The State says that the different methodology, given effect by the 2009 Regulation, “was a consequence of [which may mean “due to”] the higher market value of commercial leases held by carriers for commercial communications purposes” [emphasis added] and the “market” for this purpose is the “market … for leases of privately owned land”.

28    The State says that this market is one which takes into account the circumstance that the holder of a Commercial Communications Lease may derive payments by reason of the Code of Access to Telecommunications Transmission Towers, Sites of Towers and Underground Facilities (the “Telecommunications Access Code”).

29    The State further says that in assessing the effect of the 2009 Regulation on the rent payable by carriers, it is necessary to account for any payments (co-location payments) made to such a lessee carrier by reason of other carriers locating telecommunications infrastructure on the lessee carrier’s land.

30    The State also contends that leases of State land held by Telstra for communications purposes cannot be relevantly compared for present purposes with leases held by other carriers due, put simply, to the distorting effect of Telstra’s large market share of the leases held by carriers and other differential factors. One of those factors is said to be that Telstra receives more revenue by way of co-location payments than other carriers. The State contends by its amended pleading that at September 2012, Telstra had 439 Communications Leases in Category 15.4 (rural) and 38 leases in Category 15.5 (urban); Optus Mobile had 23 and 26 respectively; Vodafone had 3 and 17 respectively; and Hutchinson 3G had nil and 16 respectively.

31    The State also says that no relevant comparison can be made between leases of State land to carriers for communications purposes and Business and Government Leases (Category 13 leases) due, put simply, to the entirely different character of the use involved and also the number of such leases granted, at least as at approximately the end of 2012.

32    Finally, the State contends that if relevant comparisons can be made between the Communications Leases held by Telstra (and also carriers other than Telstra), and Business and Government Leases (and also Set Rent Leases), then any difference in the rent assessments applicable to the different categories of leases “is one which is the consequence of relevant appropriate and permissible distinctions [emphasis added] being the higher market value of leases held by carriers for communications purposes, than that for Business and Government Leases and Set Rent Leases (putting to one side the effect of the 2009 Regulation)”.

33    The State does not admit that the rent assessable for each Commercial Communications Lease (including Telstra’s leases) was higher than it would have been if each such lease had had its rent assessed using a methodology equivalent to a Business and Government Lease.

34    Further, it follows for the State that the 2009 Regulation does not discriminate or have the direct or indirect effect of discriminating against Telstra or other commercial carriers or against carriers generally. The State contends that there is no inconsistency between the relevant provisions of the 2009 Regulation and the relevant provisions of the Telecommunications Act, and no inconsistency arises for the purposes of s 109 of the Constitution.

35    It follows that there are essentially two central propositions made by the State in answer to Telstra’s contentions.

36    The first is concerned with the notion that commercial leases granted to carriers for commercial communications purposes have a “higher market value” measured by reference to an identifiable market for carrier leases of privately owned land, as compared with the value of leases granted for Business and Government purposes, and in making that assessment of higher market value, the market takes account of access revenue derived by the carrier lessee by reason of the Telecommunications Access Code.

37    The State says that this contended differentiation in value, as just described, has given rise to the adoption by the 2009 Regulation of a different methodology for assessing the rent payable for the grant of Communications Leases (and Commercial Communications Leases) as compared with the methodology selected by the 2009 Regulation for determining the rent for leases for Business and Government purposes. The State pleads (at para 13 of the Amended Defence) that an integer of this conception is that any difference (if there be any) arising out of the application of the different methodologies for rent assessment to the different categories of leases in issue in the proceedings, is a function of the 2009 Regulation taking into account the reasonable, appropriate and permissible distinction that a higher market value subsists (measured in the market way described) in leases granted to carriers for commercial communications purposes than leases granted for Business and Government purposes.

38    The second central contention is that in assessing whether the 2009 Regulation discriminates or would have the direct or indirect effect of discriminating against Telstra, or against a class of carriers, or against carriers generally, in determining the rent payable by Telstra or other carriers for leases held from the State for commercial communications purposes, it is necessary to bring to account any payments made to a carrier lessee as a result of other carriers co-locating infrastructure on the lessee carrier’s land.

39    Both of these two central contentions are in controversy with a greater or lesser degree of emphasis.

40    As to the first contention, Telstra says that it cannot say whether the contended differentiation as framed by the State by its pleading has force, as expert evidence will be necessary on the question. Nevertheless, Telstra says that even if the point of distinction is well placed, the differential rental treatment of carriers under the 2009 Regulation is neither reasonable nor appropriate nor permissible.

41    As to the second contention, Telstra in effect says, that as a matter of construction of the 2009 Regulation and the Act (and thus as a matter of law) co-location payments are not required to be taken into account or ought not be taken into account in determining whether the 2009 Regulation discriminates or would have the direct or indirect effect of discriminating against Telstra or against a class of carriers or carriers generally. Telstra says that the 2009 Regulation does not suggest that payments received by lessees of State land for business and government purposes, received from their sub-lessees is to be brought to account in assessing the revenue methodology for Business and Government Leases and nor does the 2009 Regulation suggest that co-location revenues derived by carriers ought to be brought to account. Nevertheless, these contentions simply give content to Telstra’s contentions about the question of law.

42    I am satisfied that having regard to the way in which the issues have been framed, as I have described them, the information sought by the interrogatories, and the documents relating to the co-location revenues derived by Telstra are directly relevant to the questions in issue in the controversy.

43    Telstra relies upon an affidavit sworn by Mr Robert Joice. Mr Joice is the General Manager, Site Acquisition, within Telstra’s “Operations business unit”. Mr Joice explains in his affidavit the complexities and difficulties associated with Telstra isolating information or documents about the extent of Telstra’s co-location revenues relevantly related to leases of State land and the costs associated with those revenues.

44    The interrogatories proposed by the State ask questions about payments and costs. Mr Joice says that it will be difficult and expensive to obtain information about payments and costs because Telstra maintains “multiple systems” which will need to be reviewed in order to collate and verify relevant information. In the case of both payments and costs, property data maintained by Telstra’s contracted property managing agent, Jones Lang Lasalle, would need to be reviewed by the “Data Integrity team” employed by Telstra which reports to Mr Joice. This data would then need to be collated with records from Telstra Wholesale to identify relevant sites for which Telstra has leases and to which there are access arrangements. Mr Joice says that once those sites are identified, employees from the “billing team” would need to review four years of billing records to confirm the charges made (to co-locating carriers). This information is maintained by Telstra by reference to the “customer” to whom invoices would be sent and not by sites. Mr Joice says that the charge billed to the customer would then need to be verified against payment details to account for possible billing queries or disputes. Mr Joice says that further analysis would then be required to draw the information together. Mr Joice says that he has not determined which individual would conduct the “final stage of data analysis and audit it for accuracy”.

45    Mr Joice says that Telstra estimates (which must mean Mr Joice and his team) that it would take approximately eight weeks to collate and verify payment and billing information sufficient to respond to the interrogatories.

46    Mr Joice says that it could possibly take longer than that, depending upon the demands placed upon the individuals involved having regard to their regular duties.

47    Mr Joice says that it will be even more difficult and expensive to obtain the costs information.

48    Mr Joice says that the costs of providing access are “indefinite” and would arguably include “the cost of initial scoping and network design, consulting fees, finance, legal, build cost, site maintenance, property management and the cost of administering access”. Mr Joice says that Telstra is not certain what records would need to be considered in order to provide the State with the costs information or whether adequate records of it exist.

49    Mr Joice says that he holds reasonable doubts that Telstra has records adequate to address the interrogatories without undertaking analysis to form conclusions on how Telstra assesses “costs”. The construction costs for every site is different and has regard to “soil plasticity, the necessity to construct roads, electricity supply and transmission, the cyclone rating of the pole or tower and the remoteness of the site”.

50    Mr Joice says that having regard to these considerations, he is not in a position to estimate how long it would take Telstra to collate and verify costs information sufficient to respond to the interrogatories.

51    As to the sites, Mr Joice says that he is informed by Mr Carbery who is a member of the “Site Acquisition team” which Mr Joice manages, that of the approximately 550 leases of State land in Queensland that Telstra holds, approximately 61 of those sites has Cellular Mobile Telephone Service (“CMTS”) infrastructure installed at those sites and only 16 of those sites are being accessed by other carriers. At 11 of those sites, Telstra is sharing a structure owned by others. At 417 of those sites, Telstra has Radio Tower (“RT”) infrastructure installed and only 10 of those sites are being accessed by other carriers.

52    It seems that Telstra is involved in 26 sites where other carriers are accessing Telstra infrastructure. The most popular form of infrastructure to which other carriers seek access is the CMTS infrastructure for mobile telephony. Typically, access to the land is required for the installation of a third party’s equipment onto the existing Telstra infrastructure installations. Other carriers seek access for the purposes of both installing and maintaining telecommunications equipment to be used by the carrier securing access.

53    Mr Joice says that he understands that it is common practice for a co-locating entity to secure a separate and independent lease with the Crown for installing that carrier’s “on-ground” equipment.

54    The Category 6 documents sought by the State are described at [2] of these reasons. They are confined to documents relating to each lease of State land in Category 15 to Telstra between 1 July 2010 and 30 June 2012 concerning annual payments due to Telstra, for each item of telecommunications infrastructure co-located on that lease. Having regard to Mr Joice’s affidavit, that would seem to be 16 CMTS sites and 10 RT sites.

55    Telstra, in resisting the application says that, in any event, there is no utility in making orders for the delivery and answering of interrogatories seeking information about these sites, or the production of documents in relation to these sites because, first, the number of relevant sites is so small and, second, the State seems disinterested in seeking broader information from the field of private market sites, with the result that information produced by answering the interrogatories or giving discovery of the documents would ultimately be of no assistance in answering the question of the effect of the 2009 Regulation.

56    I do not propose to make orders giving leave to the State to administer interrogatories.

57    I do, however, propose to order that Telstra give discovery of the documents. The documents are directly relevant to the issues in the proceeding. Ultimately, it may well be that co-location revenues are not to be taken into account, as a matter of law, in determining whether the 2009 Regulation is discriminatory or has the effect contemplated by the statutory formulation. However, that question is very much alive and the documents go directly to it. It might also ultimately be shown that the co-location revenues derived by Telstra do not assist in the determination of the questions in issue, even if they are to be taken into account. Nevertheless, the documents ought to be produced in the proceeding having regard to the way in which the issues have been framed by the pleadings. The documents are also required to enable the expert valuer to form views about matters in controversy.

58    As to the complexity and the difficulties, I am quite sure that there are a range of enquiries which would need to be made to isolate the scope of the co-location revenues and the field of costs associated with the derivation of those revenues.

59    However, as I said in the course of the oral argument and as Mr Wood for Telstra seemed to accept, if, for example, the Chief Executive Officer of Telstra, Mr David Thodey, telephoned Mr Joice early on a Monday morning and told him that Mr Thodey would be having a meeting with the Queensland government on the following Friday afternoon, and it would be important for Mr Thodey to know the co-location revenues derived by Telstra from sites leased from the State of Queensland in the period 1 July 2010 to 30 June 2012, it is almost inconceivable that Mr Joice would respond by telling Mr Thodey that it would take eight weeks or more for Telstra to gather together the information sought, having regard to the range of team or group interactions that would be necessary.

60    I accept that it may take a little more time to identify the costs, being the truly relevant costs associated with the derivation of the co-location revenue as opposed to every conceivable cost of installing Telstra’s own infrastructure facilities on the relevant leases, for its own purposes.

61    Accordingly, I order that Telstra give discovery of the relevant documents by 4 February 2014.

Associate:

Dated:    6 December 2013