FEDERAL COURT OF AUSTRALIA

Telstra Corporation Limited v Australian Competition and Consumer Commission [2017] FCA 316

ORDERS

THE COURT ORDERS THAT:

1.    The applicant’s Application for Judicial Review be dismissed.

2.    The applicant pay the first respondent’s costs of and incidental to that Application.

3.    The question of whether any further orders for costs should be made be reserved for further consideration.

4.    In the event that any one or more of the second to sixth respondents seeks an order for costs against the applicant, by 4 April 2017, such respondent or respondents file and serve a Written Submission of no more than three (3) pages in support of such application for costs.

5.    By 6 April 2017, the applicant file and serve any Submission which it is advised to make but limited to three (3) pages in answer to any Submission or Submissions filed pursuant to Order 4 above.

6.    Thereafter, the question of whether any further order for costs should be made be decided on the papers.

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

REASONS FOR JUDGMENT

FOSTER J:

1    In 2013, 2014 and 2015, the Australian Competition and Consumer Commission (ACCC) conducted a public inquiry under Pt 25 of the Telecommunications Act 1997 (Cth) (Telco Act) into final access determinations (FADs) for seven declared fixed line telecommunication services. All of those services were then being supplied by Telstra Corporation Limited (Telstra) on its copper Public Switched Telephone Network (PSTN) and Digital Subscriber Line (DSL) network.

2    On 7 October 2015, the ACCC made FADs in respect of those seven fixed line services (FADs Nos 2 to 8 of 2015). I shall refer to those FADs in these Reasons for Judgment as the relevant FADs. The relevant FADs apply for the regulatory period from 1 November 2015 to 30 June 2019. Those FADs specified the terms and conditions of access to the seven services in question (the relevant declared services) including the price for access.

3    On 9 October 2015, the ACCC published its reasons for making the relevant FADs. Those reasons are contained in a document styled: “Public inquiry into final access determinations for fixed line services: Final Decision”. I shall refer to that statement of reasons as the ACCC’s reasons. The FAD instruments in respect of the relevant FADs are set out in Appendix E: FAD instruments within the ACCC’s reasons.

4    Telstra is dissatisfied with the terms of the relevant FADs.

5    On 5 November 2015, Telstra filed an Application for Judicial Review of all of the relevant FADs. Telstra relies upon s 5 of the Administrative Decisions (Judicial Review) Act 1977 (Cth) (ADJR Act) and s 39B of the Judiciary Act 1903 (Cth). In particular, Telstra relies variously upon ss 5(1)(c), 5(1)(d), 5(1)(e), 5(1)(f), 5(2)(b) and 5(2)(g) of the ADJR Act.

6    Telstra seeks orders quashing or setting aside all of the relevant FADs. Alternatively, it seeks a declaration that all of the relevant FADs are void and of no effect and/or were made unlawfully.

7    The ACCC is the first respondent in this proceeding. The second to sixth respondents are all providers of telecommunications services in Australia. They are, in order, Optus Networks Pty Limited (Optus), TPG Telecom Limited (TPG), Macquarie Telecom Pty Limited, Telcoinabox Operations Pty Limited and Symbio Wholesale Pty Limited. Each of the second to sixth respondents was an active participant in the ACCC’s public inquiry. Each of them was added as a party to Telstra’s judicial review proceeding because of their involvement in that public inquiry and because of their obvious interest in the outcome of the present proceeding.

Overview of the Relevant Statutory Provisions

8    In Telstra Corporation Ltd v Australian Competition Tribunal (2009) 175 FCR 201 (Telstra 2009), the Full Court explained the relationship between Pts XIB, XIC and IV of the Trade Practices Act 1974 (Cth) (Trade Practices Act) and, in particular, the correct interpretation of s 152AB of that Act. The Trade Practices Act was renamed the Competition and Consumer Act 2010 (Cth) (CCA) with effect from 1 January 2011. Section 152AB has remained in the same form since 2005. Thus, the observations of the Full Court in Telstra 2009 continue to be of importance and binding upon single judges of this Court.

9    At 205–207 [5]–[14], the Full Court said:

The telecommunications industry is regulated by Parts XIB, XIC and IV of the TPA. The regulator is the eighth respondent, the Australian Competition and Consumer Commission (ACCC).

The Telecommunications Act 1997 (Cth) (Telco Act) recognises a carriage service provider to be a person who supplies or proposes to supply a listed carriage service to the public using a network unit owned by one or more carriers or a network unit in relation to which a nominated carrier declaration is in force. A carrier is also recognised in the Telco Act as being the holder of a carrier licence under s 56 of the Telco Act.

Overview of the legislation

Division 2 of Part XIB of the TPA defines the circumstances in which a carrier or a carriage service provider is said to engage in anti-competitive conduct for the purposes of that Part.

Part XIC provides for a regime for access to telecommunications networks and services whereby the ACCC may declare carriage services and related services to be declared services. Carriers and carriage service providers who provide declared services are required to comply with standard access obligations (SAOs) in relation to those services. The purpose of SAOs is to facilitate the provision of access to declared services by service providers in order that service providers can provide carriage services and/or content services.

Where carriage services and related services are declared to be declared services, the carriers and carriage service providers must agree with access seekers on the terms and conditions on which the carriers and carriage service providers are required to comply with the SAOs. If agreement cannot be reached between the parties, but the carrier or carriage service provider has given an access undertaking, the terms and conditions are as set out in the access undertaking. If neither an agreement can be reached nor an undertaking given, the terms and conditions are determined by the ACCC which acts for that purpose as an arbitrator.

The detail of the legislation

The object of the Part is provided for in s 152AB. Section 152AB(1) identifies the single object for which the Part is designed:

(1)    The object of this Part is to promote the long-term interests of end-users of carriage services or of services provided by means of carriage services.

Whilst the Part is designed for the purpose of achieving that one object, the Act provides for three separate objectives to attain that single object. Section 152AB(2) provides:

(2)    For the purposes of this Part, in determining whether a particular thing promotes the long-term interests of end-users of either of the following services (the listed services):

(a)    carriage services;

(b)    services supplied by means of carriage services;

regard must be had to the extent to which the thing is likely to result in the achievement of the following objectives:

(c)    the objective of promoting competition in markets for listed services;

(d)    the objective of achieving any-to-any connectivity in relation to carriage services that involve communication between end-users;

(e)    the objective of encouraging the economically efficient use of, and the economically efficient investment in:

(i)     the infrastructure by which listed services are supplied; and

(ii)     any other infrastructure by which listed services are, or are likely to become, capable of being supplied.

Section 152AB(3) provides:

(3)    Subsection (2) is intended to limit the matters to which regard may be had.

It follows therefore that the single object of promoting the long-term interests of end-users of carriage services or of services provided by means of carriage services (LTIE) will be attained by reference to the three objectives in paragraphs (c), (d) and (e) of subsection (2), and by reference to no other objectives: s 152AB(3).

Further subsections in s 152AB give guidance as to how the three objectives in paragraphs (c), (d) and (e) of s 152AB(2) are to be determined:

(4)    In determining the extent to which a particular thing is likely to result in the achievement of the objective referred to in paragraph (2)(c), regard must be had to the extent to which the thing will remove obstacles to end-users of listed services gaining access to listed services.

(5)    Subsection (4) does not, by implication, limit the matters to which regard may be had.

(6)    In determining the extent to which a particular thing is likely to result in the achievement of the objective referred to in paragraph (2)(e), regard must be had to the following matters:

(a)    whether it is, or is likely to become, technically feasible for the services to be supplied and charged for, having regard to:

(i)    the technology that is in use, available or likely to become available; and

(ii)    whether the costs that would be involved in supplying, and charging for, the services are reasonable or likely to become reasonable; and

(iii)    the effects, or likely effects, that supplying, and charging for, the services would have on the operation or performance of telecommunications networks;

(b)    the legitimate commercial interests of the supplier or suppliers of the services, including the ability of the supplier or suppliers to exploit economies of sale and scope;

(c)    the incentives for investment in:

(i)    the infrastructure by which the services are supplied; and

(ii)    any other infrastructure by which the services are, or are likely to become, capable of being supplied.

(7)    Subsection (6) does not, by implication, limit the matters to which regard may be had.

(7A)    For the purposes of paragraph 6(c), in determining incentives for investment, regard must be had to the risks involved in making the investment.

(7B)    Subsection (7A) does not, by implication, limit the matters to which regard may be had.

(8)    For the purposes of this section, the objective of any-to-any connectivity is achieved if, and only if, each end-user who is supplied with a carriage service that involves communication between end-users is able to communicate, by means of that service, with each other end-user who is supplied with the same service or a similar service, whether or not the end-users are connected to the same telecommunications network.

The objective of promoting competition therefore will be determined by reference to the matters in s 152AB(4) and any other relevant matters: s 152AB(5). The objective of encouraging economically efficient use of and investment in infrastructure will be determined by reference to the matters in ss 152AB(6) and 152AB(7A) and by reference to any other relevant matters: s 152AB(7). The objective of achieving any-to-any connectivity will be addressed by reference to the inquiry in s 152AB(8).

10    I shall adopt the same abbreviations in these Reasons as the Full Court adopted in the above passages in Telstra 2009. These are: the Telco Act (as to which, see also [1] above), SAOs and the LTIE.

11    Section 152AB is a critical provision. It specifies the overarching significance of the LTIE as the sole object of Pt XIC. It also contains, by way of explanation of that sole object, three important objectives, namely those specified in s 152AB(2)(c) to (e). Those objectives are then explained further in subsections (4) to (8) of s 152AB. As the relevant regulator under Pt XIC of the CCA, the ACCC is obliged to keep these considerations in the forefront of its thinking and ultimately of its decision-making when making decisions under Pt XIC.

12    All of the telecommunications services which were the subject of the relevant FADs were declared services under Pt XIC of the CCA at the time when the ACCC commenced its public inquiry. Each of those services had been declared under s 152AL(3) of the CCA.

13    A declaration under s 152AL must specify an expiry date (s 152ALA(1)) within five years of the declaration (s 152ALA(2)).

14    Division 4 of Pt XIC governs the making of access determinations relating to access to a declared service (see, in particular, s 152BC).

15    Section 152BCA of the CCA provides that certain particular matters must be taken into account by the ACCC in making an access determination under Pt XIC of the CCA. That section is in the following terms:

152BCA Matters that the Commission must take into account

(1)    The Commission must take the following matters into account in making an access determination:

(a)    whether the determination will promote the long term interests of end users of carriage services or of services supplied by means of carriage services;

(b)    the legitimate business interests of a carrier or carriage service provider who supplies, or is capable of supplying, the declared service, and the carrier’s or provider’s investment in facilities used to supply the declared service;

(c)    the interests of all persons who have rights to use the declared service;

(d)    the direct costs of providing access to the declared service;

(e)    the value to a person of extensions, or enhancement of capability, whose cost is borne by someone else;

(f)    the operational and technical requirements necessary for the safe and reliable operation of a carriage service, a telecommunications network or a facility;

(g)    the economically efficient operation of a carriage service, a telecommunications network or a facility.

(2)    If a carrier or carriage service provider who supplies, or is capable of supplying, the declared service supplies one or more other eligible services, then, in making an access determination that is applicable to the carrier or provider, as the case may be, the Commission may take into account:

(a)    the characteristics of those other eligible services; and

(b)    the costs associated with those other eligible services; and

(c)    the revenues associated with those other eligible services; and

(d)    the demand for those other eligible services.

(3)    The Commission may take into account any other matters that it thinks are relevant.

(4)    This section does not apply to an interim access determination.

(5)    In this section:

eligible service has the same meaning as in section 152AL.

16    Section 152BCH provides:

152BCH Access determination to be made after public inquiry

(1)    The Commission must not make an access determination unless:

(a)    the Commission has held a public inquiry under Part 25 of the Telecommunications Act 1997 about a proposal to make the determination; and

(b)    the Commission has prepared a report about the inquiry under section 505 of the Telecommunications Act 1997; and

(c)    the report was published during the 180 day period ending when the determination was made.

(2)    Subsection (1) does not apply to an interim access determination.

(3)    Subsection (1) has effect subject to section 152BCI.

Section 152BCI is not presently relevant.

17    There is no power in the Australian Competition Tribunal to review a decision of the ACCC under s 152AL or under s 152BC. Judicial review of such a decision is the only option for a party who wishes to challenge such a decision.

18    Division 3 of Pt X1C also provides for SAOs. Section 152AR provides for the SAOs which will be imposed upon a carrier or carriage service provider (other than an NBN corporation) who supplies declared services within the meaning of Pt XIC of the CCA. Section 152AR(2) provides that, if a carrier or carriage service provider supplies declared services, the carrier or provider is an access provider and the declared services are active declared services. In those circumstances, an access provider must comply with s 152AR(3) which provides as follows:

Supply of active declared service to service provider

(3)    An access provider must, if requested to do so by a service provider:

(a)    supply an active declared service to the service provider in order that the service provider can provide carriage services and/or content services; and

(b)    take all reasonable steps to ensure that the technical and operational quality of the active declared service supplied to the service provider is equivalent to that which the access provider provides to itself; and

(c)    take all reasonable steps to ensure that the service provider receives, in relation to the active declared service supplied to the service provider, fault detection, handling and rectification of a technical and operational quality and timing that is equivalent to that which the access provider provides to itself.

19    There are exceptions and exemptions from the SAOs. It is not necessary for present purposes to discuss those exceptions and exemptions.

20    As explained in the ACCC’s reasons, the ACCC made FADs for six declared fixed line services provided by Telstra in July 2011 and made a further FAD for the wholesale ADSL service provided by Telstra in May 2013. All seven FADs were due to expire on 30 June 2014.

21    On 18 June 2014, the ACCC extended under s 152BCF(10) of the CCA, the expiry date of the 2011 and 2013 FADs to the day immediately before the day on which the access determinations for the next regulatory period came into force.

22    The ACCC had commenced to hold its public inquiry under Pt 25 of the Telco Act shortly before it invoked s 152BCF(10) of the CCA to extend the expiry date of the previous regulatory determinations.

23    The 2011 and 2013 declarations included within them provisions that were said to be fixed principles provisions within the meaning of s 152BCD of the CCA. That section is in the following terms:

152BCD Fixed principles provisions

(1)    An access determination may include a provision that is specified in the determination to be a fixed principles provision.

(2)    If a fixed principles provision is included in an access determination, the determination must provide that a specified date is the nominal termination date for the fixed principles provision. The nominal termination date may be later than the expiry date for the determination.

(3)    If:

(a)    an access determination (the replacement access determination) is expressed to replace a previous access determination; and

(b)    the previous access determination included a fixed principles provision; and

(c)    the nominal termination date for the fixed principles provision is later than the day on which the replacement access determination comes into force;

then:

(d)    the replacement access determination must include a provision in the same terms as the fixed principles provision; and

(e)    the provision must be specified in the replacement access determination to be a fixed principles provision; and

(f)    the nominal termination date for the fixed principles provision so included in the replacement access determination must be the same as, or later than, the nominal termination date for the fixed principles provision included in the previous access determination; and

(g)    if the previous access determination provided that the previous access determination must not be varied so as to alter or remove the fixed principles provision—the replacement access determination must provide that the replacement access determination must not be varied so as to alter or remove the fixed principles provision; and

(h)    if the previous access determination provided that the previous access determination must not be varied so as to alter or remove the fixed principles provision except in such circumstances as are specified in the previous access determination:

(i)    the replacement access determination must provide that the replacement access determination must not be varied so as to alter or remove the fixed principles provision except in such circumstances as are specified in the replacement access determination; and

(ii)    those circumstances must be the same as the circumstances specified in the previous access determination.

(4)    If:

(a)    a fixed principles provision is included in an access determination; and

(b)    the access determination ceases to be in force before the nominal termination date for the fixed principles provision;

the fixed principles provision ceases to be in force when the access determination ceases to be in force.

Note:    Even though a fixed principles provision ceases to be in force when the access determination ceases to be in force, subsection (3) requires that a replacement access determination include a provision in the same terms as the fixed principles provision.

(5)    If a fixed principles provision is included in an access determination, the access determination must:

(a)    provide that the access determination must not be varied so as to alter or remove the fixed principles provision; or

(b)    provide that the access determination must not be varied so as to alter or remove the fixed principles provision except in such circumstances as are specified in the access determination.

The Public Inquiry Process

24    In the ACCC’s reasons, at pars 1.2 and 1.3 (pp 2–3), the ACCC set out a brief description of the public inquiry process up to August 2015 and the structure of its reasons. At those paragraphs, the ACCC said:

1.2    Public inquiry process to date

On 11 June 2014, the ACCC gave a notice to Telstra for the disclosure of information that has been provided under the BBM RKR. The ACCC also published a statement of reasons to accompany the notice.

On 24 July 2014, the ACCC published its primary price terms discussion paper for the FAD inquiry. The ACCC also published a supplementary report providing additional information on Telstra’s cost allocation proposal which compared Telstra’s proposed cost allocation approach to the approach taken in the previous fixed line FADs.

The ACCC conducted a technical workshop on 28 August 2014 which provided access seekers the opportunity to seek further information regarding the FLSM, Telstra’s cost allocation proposal and its BBM RKR response.

On 22 October 2014, the ACCC released its position statement on how it intended to account for the arrangements between Telstra and NBN Co in determining primary prices in the FAD inquiry, in advance of a more comprehensive draft decision. The Telstra-NBN Co arrangements are set out in the Definitive Agreements executed in June 2011 and renegotiated in December 2014. Matters covered in the Definitive Agreements include the migration of customers to the NBN and NBN Co’s acquisition and use of Telstra’s infrastructure.

The ACCC engaged WIK-Consultant to report on the prudency and efficiency of Telstra’s operating expenditure and capital expenditure forecasts submitted on 3 October 2014. A public version of the consultant’s report was published on the ACCC website with the draft decision.

On 11 March 2015, the ACCC released its draft decision on the primary price terms for the declared fixed line services. Along with the ACCC’s draft decision on the uniform price decrease of 0.7 per cent, the ACCC set out its draft decision on the supplementary price terms for IIC charges and the scope of the application of the SAOs.

After the release of the draft decision, the ACCC engaged Analysys Mason to undertake further assessment and verification of Telstra’s proposed cost allocation model. A public version of the consultant’s report was published on the ACCC website with the further draft decision.

On 29 June 2015, the ACCC released its further draft decision to address issues outstanding from its March 2015 draft decision on primary price terms. The ACCC’s further draft decision was for a one-off 9.6 per cent decrease in the primary prices of the declared fixed line services, for the period commencing on 1 November 2015 and finishing on 30 June 2019. The most significant factors which contributed to the change in the estimated price movement in the further draft decision included: adjustments to ensure that access seekers would not incur higher charges as a result of the loss of economies of scale due to the NBN; revisions to Telstra’s forecast operating expenditure; and updates to reflect changes to the CPI forecast and the risk free rate used in the estimation of the weighted average cost of capital (WACC).

On 14 August 2015 the ACCC released a targeted consultation paper on a proposal for an alternative approach to setting the charge for the AGVC/VLAN component of the wholesale ADSL service.

1.3    Structure of report

This final decision report on primary price terms for the declared fixed line services is structured as follows:

Part A (Chapters 2–13) sets out the ACCC’s final decision on the primary price terms for the declared fixed line services and the ACCC’s reasons for reaching its decision.

Part B (Chapters 14–15) sets out the ACCC’s final decision on the supplementary price terms for connection/disconnection charges and IIC charges.

Part C (Chapters 16–17) sets out the ACCC’s final decision on exemptions – including CBD exemptions and carrier specific exemptions.

Part D (Chapter 18) sets out the ACCC’s final decision on the non-price terms and conditions applicable to the fixed line services FADs.

Appendix A sets out the relevant legislative framework for making FADs.

Appendix B provides a description of the declared fixed line services.

Appendix C provides a summary of the submissions received by the ACCC to date to this inquiry on primary price terms.

Appendix D sets out the fixed principles provision in the FADs.

Appendix E provides the FAD instruments

The Declared Services

25    The relevant declared services provided by Telstra are the:

    Unconditioned local loop servers (ULLS);

    Line sharing service (LSS);

    Wholesale line rental service (WLR);

    Local carriage service (LCS);

    Fixed originating access service (FOAS);

    Fixed terminating access service (FTAS); and

    Wholesale ADSL.

26    The ACCC provided a description of each of those declared services at Appendix B to its reasons. Appendix B is in the following terms:

B    Appendix B: Description of the declared fixed line services

The following are service descriptions to the seven declared fixed line services. Declaration to ULLS, LSS, WLR, LCS, FOAS and FTAS took effect on 1 August 2014 and expires on 31 July 2019 [ACCC, Public Inquiry into the fixed line services declarations, Final Report, April 2014, pp 66-79]. Declaration to wholesale ADSL took effect on 14 February 2012 and expires on 13 February 2017 [ACCC, Declaration under section 152AL(3) of the Competition and Consumer Act 2010, Wholesale ADSL service declaration].

More information on service declarations are available from the ACCC’s website www.accc.gov.au.

B.1    Unconditioned local loop service

The unconditioned local loop service is the use of unconditioned communications wire between the boundary of a telecommunications network at an end-user’s premises and a point on a telecommunications network that is a potential point of interconnection located at or associated with a customer access module and located on the end-user side of the customer access module.

B.2    Line sharing service

The line sharing service is the use of the non-voiceband frequency spectrum of unconditioned communications wire (over which wire an underlying voiceband PSTN service is operating) between the boundary of a telecommunications network at an end-user’s premises and a point on a telecommunications network that is a potential point of interconnection located at, or associated with, a customer access module and located on the end-user side of the customer access module.

B.3    Wholesale line rental

The wholesale line rental service is a line rental telephone service which allows an end-user to connect to a carrier or carriage service provider’s public switched telephone network, and provides the end-user with:

(a)    an ability to make and receive any 3.1khz bandwidth calls (subject to any conditions that might apply to particular types of calls), including, but not limited to, local calls, national and international long distance calls; and

(b)    a telephone number

however, the wholesale line rental service does not include services where the connectivity between the end-user and the carrier or carriage service provider’s network is provided in whole or in part by means of a Layer 2 bitstream service that is supplied by an NBN corporation.

B.4    Local carriage service

The local carriage service is a service for the carriage of telephone calls from customer equipment at an end-user’s premises to separately located customer equipment of an end-user in the same standard zone, however, the local carriage service does not include services where the connectivity between the end-user and the carrier or carriage service provider’s network is provided in whole or in part by means of a Layer 2 bitstream service that is supplied by an NBN corporation.

B.5    Fixed originating access service

(The fixed originating access service is) an access service for the carriage of telephone calls (i.e. voice, data over the voice band) to a Point of Interconnect (POI) from end-customers assigned numbers from the geographic number ranges of the Australian Numbering Plan and directly connected to the access provider’s network.

For the avoidance of doubt, the service also includes a service for the carriage of telephone calls from customer equipment at an end-user’s premises to a POI, or potential POI, located at or associated with a local switch (being the switch closest to the end-user making the telephone call) and located on the outgoing trunk side of the switch.

B.6    Fixed terminating access service

(The fixed terminating access service) is an access service for the carriage of telephone calls (i.e. voice, data over the voice band) from a POI to end-customer assigned numbers from the geographic number ranges of the Australian Numbering Plan and directly connected to the access provider’s network.

For the avoidance of doubt, the service also includes a service for the carriage of telephone calls from a POI, or potential POI, located at or associated with a local switch and located on the incoming trunk side of the switch to customer equipment at an end-user’s premises.

B.7    Wholesale asymmetric digital subscriber line

The wholesale asymmetric digital subscriber line service is an internet-grade, best efforts point to point service for the carriage of communications in digital form between a point of interconnection and an end-user network boundary that [ACCC, Declaration of the wholesale ADSL service, Final decision, February 2012, p 60]:

(a)    is supplied by means of Asymmetric Digital Subscriber Line (ADSL) technology over a twisted metallic pair that runs from the end-user network boundary to the nearest upstream exchange or remote integrated multiplexer or customer multiplexer; and

(b)    uses a static layer 2 tunnelling protocol (L2TP) over a transport layer to aggregate communications to the point of interconnection.

27    In Telstra 2009, at 213–216 [40]–[59], the Full Court explained some of the relevant expressions and technology. In particular, the Full Court addressed the PSTN, the LSS, the LCS, the ULLS and the WLR.

28    It is not necessary in these Reasons to delve into the detail of the observations made by the Full Court in the passages to which I have referred. However, those observations remain pertinent and provide a more detailed exposition of the attributes of the particular services which they addressed.

The Essence of the ACCC’s Reasons

29    In 2011, when making its determinations to declare the relevant declared services, the ACCC adopted the building-block model (BBM) pricing framework. The ACCC explained at that time why it adopted that model.

30    In 2015, the ACCC again adopted that model when making the relevant FADs. It implemented the BBM pricing methodology through the fixed line services model (FLSM) which had been developed for the purposes of the previous determinations.

31    The ACCC updated each of the inputs into the FLSM for the purposes of its 2015 determinations.

32    In its reasons, the ACCC noted that it had considered a number of complex pricing issues, the most significant of which was the unique circumstances of the roll out of the National Broadband Network (NBN) and its impact on Telstra’s fixed line assets. These circumstances related to the arrangements Telstra had entered into regarding the migration of services from its network to the NBN, the sale and leasing of certain assets of its fixed line network to NBN Co Limited (NBN Co) and changes in the NBN plan and timing that had occurred since the inquiry began.

33    In June 2011, various agreements called “the Definitive Agreements” that facilitated the rollout of the NBN were entered into between Telstra, NBN Co and the Commonwealth. I shall refer to these agreements as DAs. The June 2011 DAs were renegotiated in December 2014 in order to give effect to the transfer of ownership of Telstra’s copper network to NBN Co. As submitted by Optus in the present proceeding, it is common ground among all of the parties to this proceeding that the rollout of the NBN will result in the migration of end users from Telstra’s fixed line network to the NBN which, in turn, will decrease the demand for fixed line services currently provided by Telstra.

34    As submitted by Optus, the central issue to be resolved in the present proceeding is whether or not the ACCC fell into reviewable error in the manner in which it made adjustments to the prices for the relevant declared fixed line services in order to take into account the rollout of the NBN.

35    All of the respondent parties in the present proceeding reminded the Court that the present proceeding is not a merits review of the ACCC’s FADs and that Telstra is not entitled to seek a merits review of those FADs. All of the respondents argued that the current challenge mounted by Telstra constituted an impermissible merits review of the relevant FADs and should be rejected on that ground.

36    The ACCC’s final decision was for a one-off 9.4% decrease in the primary prices of the declared fixed line services. That decrease was applied across the board to all seven services.

37    The ACCC stated in its reasons that the final decision on prices which it had made reflected its estimation of the prudent and efficient costs that should be recovered by Telstra for provision of its fixed line services and its (the ACCC’s) view that access seekers should not incur higher charges as a result of costs associated with Telstra’s arrangements with NBN Co. These costs include expenditures that relate to the provision of services to NBN Co by Telstra and the costs associated with asset redundancy and under-utilisation that is due to the migration of services off Telstra’s customer access network onto the NBN. In reaching this decision, the ACCC considered the commercial arrangements that Telstra had entered into with NBN Co (the DAs), including the lease and transfer of assets, the migration of services and the receipt of infrastructure and migration payments. The ACCC considered that users of the fixed line network had not caused the asset redundancy and under-utilisation resulting from the NBN migration. The ACCC considered that it would be contrary to the long term interests of end users for costs to be allocated to users of the fixed line network who did not cause those costs to be incurred when Telstra had been provided with the opportunity to be compensated for those costs and when Telstra was receiving ongoing revenues that represent an avenue for their recovery.

38    In its reasons, the ACCC said that its treatment of the effects of declining demand due to NBN migration was distinguished from the treatment of declining demand for other reasons, such as the substitution of mobile services for fixed line services by consumers. It said that the distinction in the case of NBN migration is that Telstra has another avenue through which it can recover costs when the assets of its network are no longer available for use after migration to the NBN. This is different from the decline in demand due to changes in technology and consumer preferences. In these latter circumstances, there is no alternative avenue to compensate for the loss of fixed line revenue and assets continue to be available for use to provide fixed line services.

39    As far as the allocation of costs was concerned, the ACCC decided in its final decision to implement a fully allocated cost framework for determining the prices of fixed line services.

40    The ACCC concluded that Telstra’s base year operating expenditure; its forecast operating expenditure; its non-NBN related propex; its choice and application of productivity and cost indices; its forecast fault rate; and its consideration of the capex-opex trade-off were all prudent and efficient. Nonetheless, the ACCC concluded in its final decision that Telstra’s NBN-related propex was not prudent and efficient and was therefore excluded from its allowable operating expenditures.

41    In its reasons, the ACCC also reached a final decision on the prudent and efficient level of capital expenditure to be used to roll forward the regulatory asset base (RAB) in the FLSM used to determine prices. The final decision maintained the position adopted in the draft decision and the further draft decision to exclude from all forecasts any NBN-related capital expenditure on the basis that this expenditure was incremental to the NBN and should be recovered from the NBN and its users and not from other users of the fixed line network. The ACCC’s final decision was that Telstra’s forecast capital expenditures, excluding NBN-related capital expenditure, were prudent and efficient.

42    The ACCC addressed the need to account for the impacts of the NBN. At xiii–xiv of the Executive Summary located at the beginning of the ACCC’s reasons, the ACCC said:

Capital Expenditure

The ACCC has also reached a final decision on the prudent and efficient level of capital expenditure to be used to roll forward the regulatory asset base (RAB) in the fixed line services model (FLSM) used to determine prices. The final decision maintains the draft and further draft decision to exclude from forecasts any NBN-related capital expenditure on the basis that this expenditure is incremental to the NBN and should be recovered from the NBN and its users (and not other users of the fixed line network). The ACCC’s final decision is that the forecast capital expenditures, excluding NBN-related capital expenditure, are prudent and efficient. The final decision on capital expenditure is based on the update of Telstra’s capital expenditure forecast model for the most recent forecasts of NBN rollout plans released by NBN Co in August 2015.

The further information and greater transparency provided by Telstra on its capital expenditure forecasts in response to the draft decision assisted the ACCC to reach a decision to accept Telstra’s proposed forecasting methodology and capital expenditure forecasts (determined on the basis of the updated NBN rollout information). The ACCC also undertook a crosscheck of Telstra’s capital expenditure forecasts by generating its own alternative forecasts. This supports a view that Telstra's capital expenditure forecasts are prudent and efficient (chapter 5).

Accounting for the impacts of the NBN

The NBN affects the operation of Telstra’s fixed line network and the costs Telstra incurs in a number of ways. The ACCC’s final decision is to remove all costs that it has identified as caused by NBN migration from regulated revenues and charges. As noted above, the ACCC has disallowed operating expenditures and capital expenditures that are incremental to the NBN.

More significantly, the NBN is replacing Telstra’s fixed line network as the infrastructure used to provide fixed line telecommunications services in Australia, with this transition facilitated by commercial arrangements between Telstra and NBN Co.

Under these arrangements, Telstra will: migrate its customer base to the NBN; sell and lease certain infrastructure to NBN Co; and receive corresponding payments for doing so. Further, Telstra has undertaken to only provide fixed line services over the NBN where the NBN is deployed.

The ACCC is confirming in its final decision the positions set out in its position statement of October 2014 and for which implementation was set out in the March 2015 draft decision and June 2015 further draft decision. These are as follows:

•    Assets that are leased by NBN Co will be dealt with through the CAF. The most significant of the assets that NBN Co will lease from Telstra is access to the duct and pipe network. As the NBN rollout progresses, the share of the costs of the ducts and pipes asset class allocated to NBN will increase and the share allocated to fixed line services will decrease.

•    Assets that are sold to NBN Co will be removed from the fixed line services RAB using the regulatory values established within the FLSM. These assets include the copper tails where FTTN is deployed (that is, the copper between the nodes and customer premises).

•    Assets that are made redundant by the rollout will also be removed from the RAB using regulatory values. These assets include, among others, copper in Telstra’s customer access network (CAN) (other than copper tails in FTTN areas) and certain PSTN switching assets.

•    Assets that become under-utilised as services migrate to the NBN, and which consequently exhibit loss of economies of scale, will have cost allocation adjustments applied to prevent access seekers incurring increased unit costs that are caused by NBN migration. The costs associated with this loss of economies of scale are not caused by users of the fixed line network. Further, the ACCC considers that Telstra has been provided with an opportunity to ensure that it was compensated for such costs under the DAs. Further, Telstra is receiving ongoing replacement revenues which represent an avenue for the recovery of these costs. Accordingly, the ACCC’s final decision is that the costs associated with the loss of economies of scale that will occur as a result of NBN migration should not be reflected in regulated revenues or charges. To determine the adjustment to remove the effect of the loss of economies of scale, the ACCC has estimated the unit costs to supply declared services if NBN-induced under- utilisation were not to occur (chapter 10).

Uniform price change

The final decision is to set regulated charges on the basis of the uniform change in all prices that enables Telstra to recover the costs that the ACCC has allocated to the declared services.

This approach maintains the relativities between the regulated charges established in the 2011 and 2013 FADs rather than estimating each charge on the basis of service specific revenues and demand. In reaching its decision to apply a uniform price change, the ACCC has balanced the benefits of stability in relative prices with the potential short-term efficiency losses from prices diverging from their underlying costs in order to produce an outcome in the LTIE.

The ACCC considers that its final decision on prices will not disrupt the transition of services to the NBN. Rather, the ACCC considers that its decision will promote efficiency and competition during the transition and is in the LTIE.

The ACCC decided not to adopt its proposal for a larger price reduction for the AGVC/VLAN service and a lesser uniform change for the remaining regulated charges on the basis that it did not have stakeholder support. Also, the ACCC has not made any changes to the geographic price structures for ULLS, Wholesale ADSL or FOAS and FTAS (chapter 13).

Incorporating latest information on the NBN plan and rollout schedule

In August 2015, NBN Co released its 2016 Corporate Plan which included new information regarding the NBN, in particular, changes to the relative coverage of the technologies making up the MTM and in the rollout schedule. This is the first substantive update of the NBN plan since NBN Co released its Strategic Review in December 2013.

The ACCC considers that its final decision should be based on the most up-to-date information regarding the NBN rollout available to it. Therefore, the ACCC has made its final decision on demand and expenditure forecasts that have been updated with this latest information. It has done this using the forecast model Telstra submitted to the inquiry for the purpose of readily updating forecasts in the event of better information on the NBN rollout. The ACCC has reviewed the performance of Telstra’s forecast model with the updated NBN information incorporated and is satisfied that it appropriately adjusts demand and expenditure forecasts in a manner consistent with the forecasting methodologies and assumptions submitted to the inquiry by Telstra and accepted by the ACCC for the purposes of making its final decision.

The 2016 Corporate Plan has forecast that the rollout will proceed more slowly for the first three years of the regulatory period compared with the previous forecasts used by Telstra. This is due to a delayed launch of the HFC component of the MTM compared with earlier forecasts and means that the number of services remaining on Telstra’s fixed line network is generally higher than previously forecast while expenditures do not rise proportionally due to the lack of responsiveness of a significant proportion of operating expenditures to the NBN rollout. Telstra has explained that this lack of responsiveness is due to an inability to rationalise the network and reduce overheads until the migration of services to the NBN is completed. The delayed rollout means these costs are retained within the fixed line services cost base, and shared across a larger number of services for longer than was previously considered in the draft and further draft decisions (chapters 4, 5 and 8).

43    The ACCC incorporated the latest information on the NBN plan and rollout schedule in its reasons. It also accepted Telstra’s demand forecast for fixed line services.

44    The ACCC maintained the weighted average cost of capital (WACC) framework set out in its draft decision with the exception of the methodology for estimating the debt risk premium and its adoption of an updated real vanilla WACC of 3.42% (6% nominal). These conclusions compared with the nominal WACC of 8.54% that applied at the time of the 2011 FADs and was a significant factor in prices being lower in its final decisions.

45    In the Executive Summary appearing at the beginning of the ACCC’s reasons, the ACCC also explained its methodology in respect of debt risk premium; inflation; and changes in the uniform price to be allowed to Telstra between the further draft decision and the final decision. It also addressed the terms of the access determination, supplementary charges and the scope of the SAOs and non-price terms and conditions.

46    In its reasons, the ACCC noted that the fixed principles provisions included in the 2011 fixed line services FADs and updated for the 2013 wholesale ADSL FAD remained in effect until 30 June 2021. Those principles were included in the ACCC’s reasons at Appendix D.

47    Having otherwise determined the inputs that were to be included within the FLSM, the ACCC proceeded to devise and apply the three adjustments with which Telstra now takes issue. The first of these (the disposals adjustment) was applied as part of the process of the RAB roll forward. The second of these adjustments (the allocation adjustment) was incorporated into the FLSM after the RAB was rolled forward and after tax and opex allowances and a return on capital were determined and after demand forecasts for each service were included in order to generate an initial allocation of costs. This adjustment only had effect where units were higher owing to NBN-induced under-utilisation. The third adjustment (the asset lives adjustment) was implemented after affording to Telstra a reasonable opportunity to justify the asset lives information which it had supplied to the ACCC.

48    At par 10.4.6.1 of the ACCC’s reasons (pp 151–152), the ACCC said:

10.4.6.1    Adjustments in the FLSM

The ACCC has maintained its adjustments in the FLSM to give effect to its decision to remove assets sold to NBN Co from the RAB. The ACCC has treated a proportion of the RAB value of the copper cables asset class as an asset disposal in each year, with that proportion being based on the expected rate of the NBN rollout. The ACCC has also maintained the adjustments within Telstra’s allocation framework to reflect NBN Co’s leasing of ducts, exchange rack space and dark fibre links. The adjustments are made to the ‘ducts and pipes’, ‘other communications plant and equipment’, and ‘inter-exchange cables’ assets classes, respectively.

Further, the ACCC has maintained its adjustments in the FLSM to give effect to its decision to remove the costs associated with NBN-induced asset redundancy and under-utilisation from regulated revenues. Under these adjustments:

•    A proportion of the regulatory value of assets made redundant by NBN migration is treated as an asset disposal in the roll-forward of the RAB. This proportion is determined based on the expected rate of the NBN rollout [The disposals adjustment applies to the following asset classes: CA02 Copper cables, CA03 Other cables, CA04 Pair gain systems, CA05 CAN radio bearer equipment, CA06 Other CAN assets, and CO01 Switching equipment - Local (proportion of costs relating to assets whose costs are SIO-driven)].

•    For assets that become progressively under-utilised as a result of NBN migration, adjustments are made to cost allocation factors to ensure that the costs associated with this under-utilisation are not allocated to fixed line services [The cost allocation adjustment applied to all other asset classes, and the proportion of local switching costs relating to assets whose costs are traffic-driven].

These adjustments to cost allocation factors are intended to give effect to the ACCC’s final decision that the costs associated with NBN-induced under-utilisation should not be allocated to fixed line services. The adjustments are based on what Analysys Mason refers to in its report as an ‘incremental costing’ approach, whereby the cost of spare capacity within an asset is measured as the difference between the total cost of the assets with spare capacity and the cost of the assets if there were no spare capacity [Analysys Mason, Assessment and verification of inputs into Telstra’s Cost Allocation Framework, June 2015, p. 17].

The adjustments in the FLSM involve the following steps:

•    Step 1: Estimate unit costs for each relevant asset class that would result if NBN- induced under-utilisation did not occur. These unit costs are estimated by replacing FLSM expenditure and demand inputs with ones that do not account for the impact of the NBN. For demand, Telstra’s ex-NBN demand forecasts are used. For capital expenditure, Telstra’s forecast model is used to estimate a pre-NBN level that is applied throughout the forecast period (this is discussed further below). For operating expenditure, the impacts of the NBN rollout are removed from the forecast model. In addition, adjustments are made to cost allocations to remove NBN impacts.

•    Step 2: Calculate the proportionate difference between, firstly, unit costs calculated by the FLSM (using final decision inputs and (pre-scale adjustment) cost allocation factors and, secondly, the unit costs estimated under Step 1. This difference represents the per asset class cost of NBN-induced excess capacity as a proportion of total unit costs.

•    Step 3: Scale down allocation factors for each relevant asset class by the proportionate cost of excess capacity calculated under Step 2. That is, multiply allocation factors by 1 minus the proportionate difference in unit costs arising from NBN-induced excess capacity.

As noted in the further draft decision, the intended effect of these adjustments is that unit costs for each asset class do not rise as a result of under-utilisation caused by NBN migration.

49    TPG submitted (correctly) that the most significant driver of the ACCC’s adoption of the first two NBN-related adjustments referred to above was that they were necessary to promote the LTIE because:

(a)    In the absence of those adjustments, the risks of distortionary impacts on access seekers’ incentives were great;

(b)    Users of fixed line services should not be required to pay for assets they do not use;

(c)    For access prices to reflect costs that are greater than those which are efficient would inhibit access seekers’ ability to compete with Telstra in the downstream fixed line market; and

(d)    As a corollary of the last point, the largest supplier of retail fixed line services is Telstra, which does not pay regulated prices. Therefore, any change in the prices of declared services would not have any direct effect on the migration of Telstra’s retail customers to the NBN. Given the evidence of increased competition amongst retail service providers for a market share of customers migrated to the NBN, other retail service providers who have actively attempted to defer migrating their customers to the NBN so as to maintain increased margins on the provision of legacy services would risk having those customers move to the NBN with another provider.

50    These observations are found in the ACCC’s reasons at pp 9, 10 and 145.

51    As TPG also submitted (correctly), all of the factors which I have set out at [49] above went primarily to the promotion of competition in markets for listed services, including by removing obstacles to end users gaining access to those services. TPG went on to submit that it may be inferred that the ACCC gave greater weight to the objective of promoting competition than to the other considerations to which the ACCC also had regard, such as encouraging Telstra’s investment in so much of its network as still operated before (and while) it is progressively replaced by the NBN.

52    TPG also submitted (correctly) that the ACCC undertook a multifaceted and complex analysis of the numerous ways in which the mandatory considerations provided for under s 152AB and s 152BCA(1) could and should be taken into account. It then criticised Telstra for cherry picking the NBN adjustments as its point of attack and, in so doing, ignoring the interlacing or interconnection of the many factors taken into account by the ACCC. These observations accurately describe the task undertaken by the ACCC and stand as a timely reminder of the importance of considering the ACCC’s reasons as a whole, in the context in which they were published.

The Issues

53    Telstra amended its Originating Application for Judicial Review on 29 February 2016. In that Amended Application, Telstra specified ten grounds as grounds which it contended justified the relief which it seeks. Each of the ten grounds is supported by detailed particulars. Those particulars formed the basis of Telstra’s arguments before me. The final particular provided by Telstra in respect of each of the grounds identified the particular provisions of the ADJR Act upon which Telstra relied in respect of each such ground and the basis (if any) for invoking the Court’s s 39B jurisdiction.

54    The ten grounds relied upon by Telstra were expressed by it in its Amended Application in the following terms:

1.    In making the Determinations, the ACCC failed to take into account a relevant consideration it was bound to take into account, and made an error of law, in determining that the quantum and sufficiency of payments received by Telstra from arrangements with NBN Co were not a relevant consideration and failing to consider whether Telstra would recover its costs of providing access to the Fixed Line Services.

2.    In making the Determinations, the ACCC found that it would be contrary to the interests of access seekers to pay access prices that reflect costs which Telstra had an opportunity to recover through the DAs and sought to ensure that costs which Telstra had an opportunity to recover through the DAs were not allocated to Fixed Line Services (and thereby reflected in the Primary Prices for those services) and in so doing made an error of law by misconstruing and misapplying criteria which the ACCC was obliged to take into account under s 152BCA of the CCA.

3.    In making the Determinations, the ACCC failed to take into account a relevant consideration it was bound to take into account, and made an error of law, in determining that “costs” associated with the loss of economies of scale should not be reflected in the Primary Prices for the Fixed Line Services.

4.    In making the Determinations, the ACCC failed to take into account a relevant consideration it was bound to take into account in finding, and/or had no reasonable or rational basis for the making of the finding, that Telstra had an opportunity to ensure that it would receive consideration from NBN Co through the DAs for increased costs of supplying access to third parties due to loss of economies of scale.

5.    The ACCC did not have jurisdiction to make the Determinations and/or the Determinations were not authorized by s 152BC of the CCA in pursuance of which they were purported to be made in that they are inconsistent with the cost allocation factors prescribed by cl 6.14 of the Fixed Principles (referred to in particular (ii) below) as a “fixed principles provision” for the purposes of s 152BCD of the CCA.

6.    The ACCC did not have jurisdiction to make the Determinations    and/or the Determinations were not authorized by s 152BC of the CCA in pursuance of which they were purported to be made in that they are inconsistent with the roll-forward mechanism prescribed by cl 6.7 of the Fixed Principles as a “fixed principles provision” for the purposes of s 152BCD of the CCA.

7.    Further or in the alternative to Ground 5 above, in making the Determinations the ACCC failed to take into account a relevant consideration it was bound to take into account and made an error of law in purporting to consider and apply cl 6.14 of the Fixed Principles as a “fixed principles provision” for the purposes of s 152BCD of the CCA.

8.    Further or in the alternative to Ground 6 above, in making the Determinations the ACCC failed to take into account a relevant consideration it was bound to take into account and made an error of law in purporting to consider and apply cl 6.7 of the Fixed Principles as a “fixed principles provision” for the purposes of s 152BCD of the CCA.

9.    In making the Determinations, the ACCC failed to take into account a relevant consideration it was bound to take into account in determining, and/or had no reasonable or rational basis in determining, the quantum of “costs” in excess of what would be expected if NBN-induced under-utilisation did not occur.

10.    In making the Determinations, the ACCC failed to take into account a relevant consideration it was bound to take into account in determining, and/or had no reasonable or rational basis for its determination of, asset lives for the purposes of the Primary Prices for the Fixed Line Services.

The Applicable Judicial Review Principles

55    In its Written Submissions, Telstra submitted that one of the bases upon which it relied to overturn the relevant FADs was that the ACCC had failed to consider certain mandatory relevant considerations when coming to determine those FADs. These are the matters set out in s 152AB(2) and s 152BCA(1). In the former section, the expression used to capture the notion that the subject matter constitutes a mandatory relevant consideration is “… regard must be had to …” whereas, in the latter section, the ACCC is told that it “… must take the [listed] matters into account in making an access determination …”.

56    Telstra submitted that the imposition of mandatory relevant considerations on a decision making process by the use of such expressions requires a decision maker to have regard to the mandatory relevant consideration or matter so as to give it fundamental weight and to treat it as an essential element in the decision making process. In support of that general proposition, Telstra referred to R v Hunt; Ex parte Sean Investments Pty Ltd (1979) 180 CLR 322 (Sean Investments) and a number of other cases (R v Toohey; Ex parte Meneling Station Pty Ltd (1982) 158 CLR 327; Parramatta City Council v Hale (1982) 47 LGRA 319; Tickner v Chapman (1995) 57 FCR 451 (Tickner); and Tobacco Institute of Australia Ltd v National Health and Medical Research Council (1991) 71 FCR 265).

57    Telstra also submitted that, where a statute prescribes a mandatory relevant consideration to be taken into account or to which regard must be had in the making of an administrative decision, there must be a demonstrated engagement by the decision maker with that consideration by way of an active intellectual process (Tickner and Lafu v Minister for Immigration and Citizenship (2009) 112 ALD 1; [2009] FCAFC 140).

58    In its Written Submissions, Optus recognised that the current proceeding primarily concerns the regard which the ACCC had to the mandatory relevant considerations which I have identified at [11]–[15] above in making the relevant FADs. Optus submitted that Telstra bears the onus of establishing that one or more of those mandatory relevant statutory considerations was not taken into account by the ACCC (Minister for Immigration and Citizenship v SZGUR (2011) 241 CLR 594 at 616 [67]).

59    Telstra also argued that the ACCC’s decision making which led to the FADs was unreasonable. It also bore the onus of establishing that matter.

60    Telstra did not allege that the ACCC took into account one or more irrelevant considerations. There is no claim that the course of decision making followed by the ACCC caused it to have regard to some matter that was extraneous to the exercise of its power to make an access determination. As Optus submitted, had any ground of relief been framed in that way, it would have encountered (among other answers) the explicit statutory authority in s 152BCA(3), which provides that the ACCC may take into account any other matters that it thinks are relevant. A broad power to consider and assess all aspects of what it considered to be relevant to the access regime was conferred upon the ACCC by that subsection.

61    Optus submitted that Telstra’s submissions in respect of the two broad principles upon which it relied expressed the relevant principles too broadly. Optus preferred to anchor its submissions in relation to the two relevant principles in the judgment of the Full Court in Minister for Immigration and Citizenship v Khadgi (2010) 190 FCR 248 (Khadgi). Optus undertook a detailed analysis of the Full Court’s reasoning in Khadgi in support of more nuanced submissions directed to the two main principles in question in the present case. Optus also submitted (correctly) that Khadgi has been expressly endorsed and applied in VV v District Court of New South Wales [2013] NSWCA 469; SZRLO v Minister for Immigration and Citizenship [2013] FCA 825; Chief Commissioner of Police v McCann [2015] VSCA 362; Dalian Steelforce Hi-Tech Co Ltd v Minister for Home Affairs (2015) 243 FCR 190; and COT15 v Minister for Immigration and Border Protection (No 1) (2015) 236 FCR 148.

62    In Khadgi, the decision maker was required to have regard to a list of prescribed circumstances set out in reg 2.41 of the Migration Regulations 1994 (Cth). The Full Court said (at 270 [57]) that the consideration of those prescribed circumstances by the decision maker constituted a jurisdictional prerequisite to the exercise of the ministerial discretion to cancel a visa under s 109 of the Migration Act 1958 (Cth). The Full Court also said, referring to the second of the fundamental principles relied upon by Telstra in the present proceeding, that, in order to comply with that prerequisite, the decision maker must engage in what has been described as an active intellectual process in which each of the prescribed circumstances receives his or her genuine consideration. In support of this latter proposition, the Full Court referred to Tickner at 462 and also to Minister for Immigration and Multicultural Affairs v Jia Legeng (2001) 205 CLR 507 at 540 [105]. The Full Court then went on to explain the two principles to which the Court had made reference at 270 [57] in the following terms (at 270–274 [58]–[71]):

In the absence of any statutory or contextual indication of the weight to be given to factors to which a decision-maker must have regard, it is generally for him or her to determine the appropriate weight to be given to them: Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 at 41 (per Mason J). The failure to give any weight to a factor to which a decision-maker is bound to have regard in circumstances where that factor is of great importance in the particular case may support an inference that the decision-maker did not have regard to that factor at all.

Similarly, a decision-maker does not take into account a consideration that he or she must take into account if he or she simply dismisses it as irrelevant. On the other hand, it does not follow that a decision-maker who genuinely considers a factor only to dismiss it as having no application or significance in the circumstances of the particular case will have committed an error. A decision-maker is entitled to be brief in his or her consideration of a matter which has little or no practical relevance to the circumstances of a particular case. A court would not necessarily infer from the failure of a decision-maker to expressly refer to such a matter in its reasons for decision that the matter had been overlooked. But if it is apparent that the particular matter has been given cursory consideration only so that it may simply be cast aside, despite its apparent relevance, then it may be inferred that the matter has not in fact been taken into account in arriving at the relevant decision: Elias v Commissioner of Taxation (2002) 123 FCR 499 at [62] (per Hely J). Whether that inference should be drawn will depend on the circumstances of the particular case.

In some cases it may be apparent that amongst the factors to which a decision-maker is bound to have regard, there is one factor (or perhaps more than one) which is critical or fundamental to the making of the decision in question. This was true of the particular matter referred to by Mason J in R v Toohey; Ex Parte Meneling Station Pty Ltd (1982) 158 CLR 327 at 338. As his Honour’s reasons in R v Hunt; Ex Parte Sean Investments Pty Ltd (1979) 180 CLR 322 at 329 show, the relevant statutory provisions may make clear that a particular factor is “a fundamental matter for consideration”. But the converse is also true. The relevant statutory provisions may show that a particular matter to which a decision-maker must have regard is not fundamental to the decision-making process in the sense discussed by his Honour: see, for example, Singh v Minister for Immigration and Multicultural Affairs (2001) 109 FCR 152 at [57] (per Sackville J).

We respectfully agree with Sackville J in Singh where his Honour pointed out that the expression “have regard to” is capable of different meanings depending on its context. As his Honour said at [54]:

…. a statutory obligation to have regard to specified matters when making an administrative decision may require the decision-maker to take the matters into account and “give weight to them as a fundamental element in making his [or her] determination”: R v Hunt; Ex parte Sean Investments Pty Ltd (1979) 180 CLR 322 at 329 per Mason J. Indeed, this is the meaning that was given to the predecessor of s 501(6)(c) of the Migration Act (relating to the character test): Minister for Immigration and Ethnic Affairs v Baker (1997) 73 FCR 187 at 194. But the phrase “have regard to” can simply mean to give consideration to something (Shorter Oxford English Dictionary). In this sense a direction to a decision-maker to have regard to certain factors may require him or her merely to consider them, rather than treat them as fundamental elements in the decision-making process.

In our opinion, the prescribed circumstances to which the Minister must have regard in the present case are of the latter kind. There are 10 different criteria that are prescribed by reg 2.41 for the purposes of s 109(1)(c) of the Act. It is hard to see why a decision-maker should be required to treat each and every one of them as fundamental for the purposes of s 109. Although the Minister must have regard to each and every one of the prescribed circumstances, not all of them will be central or fundamental to every case in which the Minister is called upon to make a decision under s 109(1) of the Act.

In Lafu v Minister for Immigration and Citizenship (2009) 112 ALD 1, at [47]–[54], the Full Court held:

(a)    In circumstances where a decision-maker is required to have regard to several specified or prescribed mandatory considerations, he or she must genuinely have regard to each and every one of those considerations and must engage actively and intellectually with each and every one of those considerations by thinking about each of them and by determining how and to what extent (if at all) each of those criteria might feed into the deliberative process and the ultimate decision; and

(b)    The reasons for decision published by a decision-maker who is obliged to have regard to mandatory considerations should show such an active intellectual engagement with all mandatory criteria although such reasons are:

… meant to inform and [are] not to be scrutinised by over-zealous judicial review by seeking to discern whether some inadequacy may be gleaned from the way in which the reasons are expressed [see Minister for Immigration and Ethnic Affairs v Liang (1996) 185 CLR 259 at 272].

In WAEE v Minister for Immigration and Multicultural and Indigenous Affairs (2003) 75 ALD 630, at [46], the Full Court held that:

(a)    It is not necessary for an administrative decision-maker such as the Tribunal to refer in its written reasons to every piece of evidence and every contention made by an applicant;

(b)    It may be that some evidence is irrelevant to the criteria and some contentions misconceived; and

(c)    The reasons of a tribunal such as the Tribunal in the present case should not be scrutinised “with an eye keenly attuned to error” nor is it necessary to provide reasons of a kind that might be expected of a court of law.

At [47] of its reasons in WAEE, the Full Court said:

47.    The inference that the tribunal has failed to consider an issue may be drawn from its failure to expressly deal with that issue in its reasons. But that is an inference not too readily to be drawn where the reasons are otherwise comprehensive and the issue has at least been identified at some point. It may be that it is unnecessary to make a finding on a particular matter because it is subsumed in findings of greater generality or because there is a factual premise upon which a contention rests which has been rejected. Where however there is an issue raised by the evidence advanced on behalf of an applicant and contentions made by the applicant and that issue, if resolved one way, would be dispositive of the tribunal’s review of the delegate’s decision, a failure to deal with it in the published reasons may raise a strong inference that it has been overlooked.

Zhong is not authority for any contrary propositions. In Zhong, Lander J held that, in the circumstances of that case, s 107 of the Act had never been engaged. His Honour then held that, if he were wrong in his primary conclusion and if s 107 had been engaged so that the delegate had been entitled to give the notice which was given, the notice failed to comply with s 107 in that it did not particularise the alleged non-compliance. At [81] and [82] of his reasons, his Honour said:

81    If I am wrong about s 107 never being engaged and the delegate was entitled to give the notice which was given, the notice in my opinion failed to comply with s107 in that it did not particularise the possible non-compliance. Because particulars of the non-compliance were not given, it meant that the appellant could not give a written response to the notice disputing there was non-compliance and showing there was compliance as provided for in s 107(1)(b). The giving of a notice which complies with s 107 of the Act is a statutory precondition to the exercise of the Minister's or delegate’s power to cancel the visa: cf Tien v Minister for Immigration and Multicultural Affairs (1998) 89 FCR 80; Zhou v Minister for Immigration and Multicultural and Indigenous Affairs (2004) 139 FCR 60.

82    In my opinion, for that second reason, the notice given did not comply with s 107. In my opinion, the decision to cancel the visa must be quashed.

Having decided the matter on the bases described at [66] above, Lander J went on to provide yet a further reason why the decision in that case could not stand. His Honour held, probably by way of obiter, that the Tribunal had not given specific consideration to the mandatory criterion specified in reg 2.41(k). Whilst it is true that, in considering this point, his Honour said, at [84]–[86] of his reasons:

84    The federal magistrate found that one of the reasons for rejecting the appellant’s arguments was that the positive factors were outweighed by the “extremely adverse findings that the Tribunal has made above regarding the provision of false and misleading evidence and fraudulent documentation”.

85    It might be thought that the federal magistrate was thereby excusing the Tribunal from its statutory obligation to enquire into the question of the appellant’s contribution to the community. Whilst the Tribunal was entitled to make the adverse findings that it made in relation to the appellant’s conduct, that did not relieve it of its obligation to comply with the injunctions under s 109(1)(c) and reg 2.41(k) to specifically enquire into any contribution made by a holder to the community.

86    A reading of the Tribunal’s reasons shows that it did not make that enquiry. It was not excused from doing so for the reason given by the federal magistrate. The Tribunal thereby failed to exercise its jurisdiction.

His Honour did not intend to suggest in these passages that the Tribunal had an obligation which was different from that which was mandated by s 109(1)(c). The use by his Honour of the expression “specifically enquire into” in respect of the relevant criterion was not intended to recast the decision-maker’s statutory obligation. What the decision-maker is required to do is to “have regard to” the relevant criterion. In the present context, the expression “have regard to” imposes upon the Minister the obligation to engage with the criteria laid down in reg 2.41 in the manner described by us at [57]–[62] above.

There are ten criteria specified in reg 2.41. The list of factors set out in reg 2.41 is not an exhaustive statement of the factors that the Minister might properly consider to be relevant in any given case. That list contains all of the mandatory criteria and, therefore, constitutes a comprehensive statement of those considerations which must be taken into account. There is nothing in the language of reg 2.41, the terms of s 109 or the context in which reg 2.41 is to be applied which requires that the Minister should give any particular weight to any one factor or group of factors nor is there any indication in any of those materials that one or more factors are to be accorded primacy. The weight to be given to any one factor or group of factors is entirely a matter for the Minister and will vary from case to case. Further, in any given case, facts and matters which might properly be raised under one subparagraph of the regulation may also be quite properly raised under other subparagraphs of the regulation.

It is not essential for the Tribunal, when conducting a review of a delegate’s decision to cancel a visa under s 109(1) of the Act, to compartmentalise its reasons and to set out those reasons by reference to each criterion specified in reg 2.41. That may be a convenient and appropriate method for the Tribunal to adopt in many cases but it is not the only way for the Tribunal to demonstrate that it has had regard to all of the mandatory criteria specified in reg 2.41.

Of course, as the Full Court said in Lafu at [50], the Court is entitled to look closely at the structure of the Tribunal’s reasons in order to assess whether it truly has had regard to all mandatory criteria. If, for example, the Tribunal chooses to list each of the reg 2.41 criteria and to make observations and findings in respect of each of those criteria in turn as part of a discrete section of its reasons, the Court which undertakes judicial review of those reasons may be driven to conclude that all of the Tribunal’s reasons concerning the reg 2.41 factors are contained in that section of the Tribunal’s reasons. But that will not necessarily be so. Each case must be looked at and evaluated according to its own particular circumstances.

The question of whether or not a decision-maker has had regard to all mandatory criteria is a question of fact. That question will usually have to be determined by the Court undertaking a close analysis of the decision-maker’s reasons without the benefit of other evidence, for example, from the decision-maker. As the Full Court said in SZDXZ v Minister for Immigration and Citizenship [2008] FCAFC 109 at [25]:

… However, the appellants are obliged to do more than point to material capable of supporting an inference that the Tribunal did not consider the Police letter. It is necessary for the appellants to demonstrate that, having regard to all of the evidence and other material before the Court, it would be appropriate to draw that inference; that is, the appellants must demonstrate, on the balance of probabilities, that the Tribunal did not consider the Police letter.

63    Optus submitted that, in the present case, there is no indication in the relevant legislative provisions as to whether any one or more of the mandatory relevant considerations in question was to be accorded primacy or central or fundamental importance. Optus submitted that the position in Sean Investments was quite different. As the Full Court observed in Khadgi, in Sean Investments there was only one consideration to be taken into account so that it was not surprising that the High Court held that the decision maker had to give weight to that consideration as a fundamental element in the decision making process.

64    In Telstra 2009, the Full Court said that no individual objective in the subparagraphs of s 152AB(2) had primacy.

65    Optus went on to submit that, in the present case, there was not one focal point only nor was there any fixed weighting to be given to any particular consideration. Nonetheless, as Optus also submitted, the relevant decision maker must always bear in mind the object of Pt XIC, being the promotion of the LTIE of carriage services or of services by means of carriage services (s 152AB(1)).

66    Optus ultimately submitted that the ACCC’s reasoning in its reasons amply demonstrates that consideration of the mandatory relevant considerations specified in s 152AB and s 152BCA of the CCA and the object of the LTIE in determining the BBM methodology and in its application to the assessment of the regulatory costs impact of the NBN rollout was, in fact, a central element in the ACCC’s deliberative process.

67    The second relevant principle relied upon by Telstra was that based upon the remarks of Black CJ in Tickner.

68    In Khadgi at 270 [59], the Full Court held that a decision maker may give genuine consideration to a factor consistently with deciding that that factor has no application or significance in the circumstances of the particular case. Such an approach is quite different from simply dismissing a factor as irrelevant or casting it aside without according to it appropriate consideration. The Full Court in Khadgi also emphasised that a decision maker is entitled to be brief in his or her consideration of a particular matter which has little or no practical relevance to the circumstances of the particular case (at 270–271 [60]).

69    Optus submitted that many of Telstra’s complaints amount to nothing more than that the ACCC did not apply a number of considerations in the way that Telstra submitted that those considerations should be applied. Such a complaint amounts to seeking merits review and does not raise reviewable error.

70    Finally, Optus submitted that the ACCC was not obliged to provide reasons of a kind that might be expected of a court of law nor should the Court now approach judicial review with an “eye keenly attuned to error” (WAEE v Minister for Immigration and Multicultural and Indigenous Affairs (2003) 236 FCR 593 at 604 [46]).

71    I think the submissions which I have summarised at [58]–[70] above made by Optus and the other principles to which I have referred based upon Khadgi are correct and I propose to apply them in the present case.

Discussion and Consideration

72    I propose now to address each of the ten grounds raised by Telstra in turn or, as appropriate, in groups. I note that each of the parties provided a detailed Written Submission in support of that party’s stance in relation to Telstra’s claims and that all of the parties, except the ACCC, addressed oral submissions to the Court. The ACCC relied on its Written Submissions.

Grounds 1, 2 and 3: Sufficiency of cost recovery not taken into account (Ground 1); Prices should not reflect costs which Telstra had an opportunity to recover (Ground 2); and Exclusion of costs associated with the loss of economies of scale (Ground 3)

73    For ease of reference, I repeat the terms of grounds 1, 2 and 3 (as to which, see [54] above):

1.    In making the Determinations, the ACCC failed to take into account a relevant consideration it was bound to take into account, and made an error of law, in determining that the quantum and sufficiency of payments received by Telstra from arrangements with NBN Co were not a relevant consideration and failing to consider whether Telstra would recover its costs of providing access to the Fixed Line Services.

2.    In making the Determinations, the ACCC found that it would be contrary to the interests of access seekers to pay access prices that reflect costs which Telstra had an opportunity to recover through the DAs and sought to ensure that costs which Telstra had an opportunity to recover through the DAs were not allocated to Fixed Line Services (and thereby reflected in the Primary Prices for those services) and in so doing made an error of law by misconstruing and misapplying criteria which the ACCC was obliged to take into account under s 152BCA of the CCA.

3.    In making the Determinations, the ACCC failed to take into account a relevant consideration it was bound to take into account, and made an error of law, in determining that “costs” associated with the loss of economies of scale should not be reflected in the Primary Prices for the Fixed Line Services.

74    By grounds 1 and 3, Telstra claims that the relevant FADs should be set aside as infected by jurisdictional error at general law and were an improper exercise of the power to make an access determination reposed in the ACCC because the ACCC failed to take certain relevant considerations into account in the exercise of the power (s 5(1)(e) and s 5(2)(b) of the ADJR Act) and also because the making of the relevant FADs involved an error of law (s 5(1)(f) of the ADJR Act).

75    By ground 2, Telstra claims that the relevant FADs should be set aside as infected by jurisdictional error at general law and also because the making of the relevant FADs involved an error of law (s 5(1)(f) of the ADJR Act).

76    Grounds 1 and 2 relate to the NBN adjustments made by the ACCC. The ACCC made those adjustments in order to remove the costs associated with NBN-induced lost economies of scale from regulated revenues. However, although the ACCC took into account the existence of the DAs and the fact that Telstra had had an opportunity to recover compensation through the DAs for the impact of the NBN on its fixed line assets, it did not consider or evaluate the quantum of the payments received by Telstra under the DAs. Telstra emphasised that it had not been demonstrated that there were any relevant replacement revenues and that the existence of a mere opportunity to secure replacement revenues was not enough. At pp 140–141 of the ACCC’s reasons, at par 10.4.3, under the heading Quantum of the payments, the ACCC said:

The ACCC considers that Telstra’s submissions about the sufficiency or otherwise of the DA payments do not impact upon the ACCC’s decision to remove the costs associated with NBN-induced lost economies of scale from regulated revenues. Rather, the ACCC has considered the existence of the DA payments and their purpose.

In its submission Telstra reiterated its argument that Telstra was not fully compensated for the impact of the NBN through the DAs. Telstra submitted that it anticipated that the DA payments it would receive would not be sufficient to compensate for the loss of value caused by the government’s NBN policy [Telstra, Response to ACCC further draft decision, July 2015, pp. 24-25].

The ACCC reiterates its position established in the October 2014 position statement and repeated in the March draft decision and further draft decision [ACCC October 2014 Position Statement, p. 10; ACCC March 2015 Draft Decision, p. 136; ACCC June 2015 Further Draft Decision, p. 73]. That is, in accounting for the Telstra-NBN Co arrangements in determining prices for the declared services, the ACCC has not considered the quantum of the payments received by Telstra, but rather has had regard to the Telstra-NBN Co arrangements and to the regulatory value of affected assets. Telstra is receiving migration payments specifically in respect of the disconnection of customers from its fixed line network. Under the DAs, Telstra has undertaken to only provide fixed line services over the NBN where it is deployed. Therefore, Telstra will be receiving payment in return for the permanent loss of wholesale and retail customers on its fixed line network [ACCC, Further draft decision, June 2015, p. 72].

In any event, an assessment of the sufficiency of the payments based on comparisons with Telstra’s projections of the revenue it would have received as a vertically integrated monopoly infrastructure owner would not be a relevant consideration to the ACCC, and accordingly, the ACCC would give little weight to any assertions of the inadequacy of the payments made on this basis. iiNet reached a similar conclusion in its submission, which stated that it may be the case that DA payments do not completely compensate Telstra for the loss of its incumbent status; however this is irrelevant to the determination of prices for the declared services because it is not the role of access pricing to ensure that Telstra is fully compensated for the loss of incumbent status as a result of the NBN [iiNet, Public inquiry into final access determinations for fixed line services —primary price terms, Further Draft Decision – Outstanding Issues, July 2015, p. 9].

The ACCC notes iiNet’s submission that, given the migration payments Telstra is receiving under the DAs, if the ACCC were to allocate the costs associated with NBN-induced loss of economies of scale to access seekers, there would be double recovery by Telstra [ibid]. While the ACCC has not considered the quantum of the payments in reaching its final decision, the ACCC agrees that, without adjustments to remove the costs associated with NBN-induced asset redundancy and under-utilisation, there would be a degree of double recovery by Telstra. That is, given that the DA payments provide a source of the revenue that would have been generated by the fixed line network in the absence of the NBN—and given that some of this revenue would be from regulated charges calculated to recover the efficient costs of providing declared services—without adjustment, regulated revenues in the next regulatory period would include some of these costs.

The ACCC also notes the cross submissions (summarised in section 10.3.1 above) by access seekers in response to the Department’s submission to the further draft decision. These submissions expressed concern that the Department is proposing that access prices not be lowered—and therefore, as submitted by the CCC, allow Telstra to over-recover—to keep prices stable in the transition to the NBN. The ACCC acknowledges that the smooth transition to the NBN is a factor that is relevant to the ACCC’s decision. However, as discussed in section 10.4.4 below, the ACCC does not consider that this decision will adversely impact this transition.

Finally, the ACCC notes the Department’s submission which stated that ‘[f]or the ACCC to say that the costs should have been recovered through the DA process indicates that the costs are not recovered’ and this would not be in the LTIE [Department of Communications, Submission to ACCC Further Draft Decision, July 2015, p. 5]. To clarify, in its further draft decision the ACCC stated the following:

While not entering into the merits of Telstra’s arguments regarding the sufficiency or otherwise of the payments it receives under its arrangements with NBN, the ACCC considers that such arguments are not relevant to its draft decision to make adjustments to remove the costs associated with NBN- induced lost economies of scale from regulated revenues…

The ACCC considers that Telstra has been provided with an opportunity to ensure that it would receive consideration through the Definitive Agreements for the impact of the NBN on its fixed line assets [ACCC, Further draft decision, June 2015, p. 73].

The further draft decision stated the ACCC’s view that Telstra has been provided with an opportunity to be compensated for the impact of the NBN. The ACCC did not discuss the sufficiency or otherwise of the payments Telstra receives under the DAs, and therefore did not imply that there will be under-recovery.

77    Telstra pointed to the contents of a staff paper and then submitted that the ACCC had no basis for gainsaying Telstra’s contention that it had not been fully compensated by the DAs for the impact of the NBN on its fixed assets network. It went on to argue that the ACCC had treated a proper assessment of the sufficiency of the payments received by Telstra under the DAs as an irrelevant consideration and that this was an error of law and a jurisdictional error. Telstra submitted that recovery of costs (including the extent of recovery) was fundamental to a number of the criteria which the ACCC was bound to consider. It argued that proof of the existence of a mere opportunity to fill the gap in revenues could never have been enough. Telstra went on to argue that the ACCC would need to be satisfied that the postulated revenues completely fill the gap. It could not have been so satisfied here.

78    Telstra submitted that the Australian Competition Tribunal (Tribunal) has endorsed an approach which accepts as an important premise the proposition that efficient investment by an access provider in the infrastructure necessary to supply telecommunications services will be achieved when the firm is just able to recover the costs of such an investment including a normal return on its investment (see Re Telstra Corporation Ltd (No 3) (2007) 242 ALR 482 at 519–521 [159]–[164]).

79    Telstra then contended that, by treating the recovery of the disallowed costs as irrelevant, the ACCC had disabled itself from considering and did not consider the objective specified in s 152AB(2)(e).

80    Alternatively, Telstra argued that, even if the ACCC had taken into account the LTIE and objective (2)(e) in s 152AB, it misinterpreted the statutory criteria.

81    Telstra also attacked the ACCC’s approach upon the basis that it failed to pay due regard or any regard to Telstra’s legitimate business interests (as to which, see s 152BCA(1)(b)). It relied upon the same arguments as it had deployed in relation to s 152AB(2)(e).

82    Telstra also submitted that the ACCC had failed to take into account Telstra’s direct costs of providing access to the relevant declared services (as to which, see s 152BCA(2)(d) of the CCA), the operational and technical requirements necessary for the safe and reliable operation of a carriage service, a telecommunications network or a facility (as to which, see  152BCA(2)(f) of the CCA) and the economically efficient operation of the PSTN (as to which, see s 152BCA(2)(g)).

83    The above submissions were directed to both grounds 1 and 2.

84    Telstra addressed an additional submission to ground 2. It said that the disallowed costs originally formed part of the efficient costs necessary to supply the relevant declared services but had been carved out from those costs and disallowed. Telstra’s simple point was: It is not contrary to the interests of access seekers to pay for the efficient costs of supply and that fundamental proposition is not altered merely because an access provider may have had an opportunity to recoup some of those costs from another source.

85    In the paragraphs which follow immediately, I record in summary form the submissions made by Telstra in support of ground 3.

86    At p 134 of its reasons, at par 10.4, the ACCC determined that the costs associated with the loss of economies of scale that will occur as a result of NBN migration should not be reflected in regulated revenues or charges. The ACCC chose to apply the allocation adjustment and the disposals adjustment in order to give effect to this proposition.

87    Telstra repeated the submission which it made in respect of grounds 1 and 2 by observing that the costs removed by these two adjustments were costs which had been originally found to be the efficient costs that Telstra would need to incur in order to maintain the safe and reliable operation of the fixed line network and the ongoing supply of declared services. Telstra went on to submit that the obvious consequence of making these adjustments was that the resultant prices allow recovery on the part of Telstra of something less than the efficient costs of providing access to those services.

88    Telstra made the point that the ACCC’s approach to this aspect of the matter stands in contrast to the detailed assessment which it made against the s 152BCA factors when considering the fully allocated cost approach before adjustments to reflect NBN-induced under-utilisation were applied.

89    Telstra made a number of submissions directed to explaining the way in which economic incentives generally are to be taken into account in determinations of the kind under consideration here. It submitted that a network owner may have an economic incentive to invest to provide capacity to meet demand but only if it can be confident that it will still recover its costs in the event that there is some future decline in demand. If it does not have that confidence, it will have no such incentive and the demand will simply not be fully met. Telstra submitted that it has been accepted on numerous occasions by the Tribunal that the concept of economic efficiency as used in Pt XIC involves, and requires, consideration of, the concepts of allocative, productive and dynamic efficiency. In this regard, so it submitted, allocative efficiency will be best promoted when the price of a service reflects its underlying cost.

90    Telstra submitted that, contrary to the above principles, the effect of the allocation adjustment and the disposals adjustment was to remove a substantial portion of the efficient costs of supply from those costs that were recoverable through the access charges. It submitted that this result has obvious and critical significance in relation to any consideration of the economic incentives objective embodied in s 152AB(2)(e).

91    Telstra submitted that, by implementing the allocation adjustment and the disposals adjustment, the ACCC penalised Telstra for the loss of the economies of scale lost as a result of the rollout of the NBN.

92    Telstra also complained that the allocation adjustment was applied in a selective manner by the ACCC.

93    The upshot of these submissions is that, given that the ACCC’s position was that Telstra should bear any increase in unit costs that arise as a consequence of its loss of economies of scale due to migration to the NBN, it was incumbent upon the ACCC to address the implications of such an outcome by explicitly considering the criteria in s 152AB(6)(b) of the CCA. Telstra submitted that the contents of Ch 2 of the ACCC’s reasons simply do not demonstrate that the ACCC undertook appropriate intellectual engagement with the subject matter of s 152AB(6)(b) nor indeed with the subject matter of s 152AB(6)(c).

94    Telstra then made a number of submissions directed, in this context, to the failure on the part of the ACCC to take into account Telstra’s legitimate business interests, the direct costs of providing the relevant declared services and the criteria specified in s 152BCA(1)(f) and s 152BCA(1)(g), in more or less the same fashion as it had done in respect of grounds 1 and 2.

95    The ACCC and each of the other respondents responded to Telstra’s arguments in support of grounds 1, 2 and 3 with detailed submissions.

96    The ACCC accepted that it had ultimately concluded that, having formed the view that Telstra had had an opportunity to be compensated in relation to the decline in demand associated with the NBN rollout, pursuant to its contractual arrangements with NBN Co, it was not obliged to consider the quantum and sufficiency of those arrangements in order to discharge its obligation to consider the matters in s 152BCA(1) of the CCA nor, for that matter, was it obliged to do so in order to consider the criteria set out in s 152AB(2)(c), (d) and (e).

97    The ACCC submitted that s 152BCA(1) of the CCA prescribes a number of factors that the ACCC must take into account in making an access determination in addition to any other matters that the ACCC considers are relevant. These criteria tend in different directions. The ACCC then submitted that the number and variety of factors which a statute requires a decision maker to take into account necessarily affects the weight that any one factor must be given in the deliberative process (Telstra Corporation Ltd v Australian Competition and Consumer Commission (2008) 176 FCR 153 at 182 [108] (Telstra 2008)). The ACCC submitted that none of the factors specified in s 152BCA(1) is entitled to a fixed weighting (Telstra 2008 at 182–183 [110] and [112]).

98    The ACCC went on to submit that the same goes for consideration of the three objectives set out in s 152AB(2) of the CCA.

99    The ACCC submitted that, in its reasons, it did not accept that the ongoing users of Telstra’s fixed line services should bear all of the costs associated with those services in the particular circumstances of the NBN rollout. The ACCC directed its attention to all of the relevant factors and decided that the approach that it would adopt to account for the NBN rollout was to make the adjustments which it ultimately made.

100    The ACCC drew the Court’s attention to a discussion paper dated July 2014 in which it had observed that Telstra was likely to experience a decline in demand for its fixed line services over the forthcoming regulatory period. In that paper, the ACCC noted that the key drivers of that decline were likely to be the loss of fixed line market share through increased competition by access seekers; substitution away from fixed line services towards mobile and other technology; and migration to the NBN. The decline in demand the subject of these observations raised a question, at the level of principle, about the extent to which the impacts of declining demand should be borne by Telstra or access seekers and whether different sources of declining demand should be accounted for differently.

101    Early in the decision making process, the ACCC considered that the issue of declining demand should be separated into treatment of the impacts of migration to the NBN and the approach to other sources of declining demand for fixed line services. In particular, the ACCC considered that it was appropriate that all users of the fixed line network should bear the impacts of total declining demand due to the evolution of the market for fixed line services, commensurate with their relative use of the network. However, the same did not follow in respect of the impacts of the migration to the NBN.

102    The ACCC submitted that it had taken careful note of the fact that Telstra had entered into the DAs. The key elements of the DAs were summarised by the ACCC in its Further Draft Decision of June 2015 as follows:

(a)    Customers would be migrated from Telstra’s fixed line network as the NBN is rolled out.

(b)    NBN Co would lease certain infrastructure from Telstra, for which it would make ongoing infrastructure payments.

(c)    Telstra would transfer certain assets to NBN Co.

(d)    Telstra would only provide fixed line services over the NBN where the NBN is deployed (meaning that fixed line services could not make use of NBN-induced excess capacity on Telstra’s network).

(e)    NBN would pay Telstra a one off migration payment for each end user disconnected from its copper network when they are migrated to the NBN in areas covered by NBN’s fixed line network.

(f)    NBN would also pay Telstra a one off payment for each lead-in conduit (that is, the pipe leading in to a customer premise that houses the lead in copper cable) that is transferred to NBN as customers are migrated to the NBN.

103    The ACCC formed the view that, as a result of these arrangements, certain of Telstra’s fixed line assets would become redundant during the regulatory period, as the NBN migration continued. It formed the view that a significant amount of excess capacity would also accumulate in Telstra’s fixed line assets which would increase the unit costs of providing fixed line services. The ACCC also formed the view that Telstra was required to keep certain fixed line assets in service during the NBN migration so as to provide fixed line services to remaining fixed line customers. However, it did not consider that the asset redundancy or the excess capacity in the fixed line network was properly attributable to those customers.

104    The ACCC drew a distinction between the total costs of providing access to remaining users and the costs associated with the excess capacity that arises as a result of the migration of customers to the NBN under the Telstra-NBN arrangements. In respect of the latter, Telstra had, in the view of the ACCC, been given an opportunity to ensure that it would receive consideration for the costs associated with that excess capacity. Accordingly, the ACCC considered that it was inappropriate to attribute those costs to remaining users. These matters were referred to and discussed at par 10.4.1 of the ACCC’s reasons (pp 135–136 of those reasons).

105    The ACCC emphasised that Telstra had provided documents to it during the course of its public inquiry which suggested that, in Telstra’s view, it would receive full replacement revenue under the DAs for its lost revenue as a result of the migration of customers to the NBN. These documents are referred to and discussed at par 10.4.3 of the ACCC’s reasons (pp 138–141 of those reasons).

106    The ACCC recognised in its submissions to the Court that Telstra had backed away somewhat from the true import of the documents to which I have just referred during the course of the public inquiry. However, as noted by the ACCC in its submissions to the Court, it preferred the account that Telstra had given to the markets of the overall context of the DAs. Its preference for that account was well open to the ACCC as the relevant regulator.

107    In light of its findings, the ACCC made a number of adjustments to the FLSM, using the regulatory value of assets and costs within the FLSM as opposed to the actual quantum of payments under the DAs.

108    At par 2.6 of its reasons (pp 9–11 of those reasons), the ACCC said:

The ACCC considers that the LTIE is promoted by its adjustments to account for the impacts of the NBN in the determination of prices for the declared fixed line services [The objective of any-to-any connectivity is not relevant to the ACCC’s approach to accounting for the impacts of the NBN as it does not affect connectivity between telecommunications networks].

In the absence of these adjustments, the ACCC does not consider that the LTIE would be promoted. The ACCC considers that the risks of distortionary impacts on access seekers’ incentives are great. This would adversely impact economically efficient investment in and economically efficient use of the infrastructure necessary to provide fixed line services [Paragraph 152AB(2)(d)], as well as adversely impacting the promotion of competition in the fixed line market [Paragraph 152AB(2)(c)]. This is discussed further below.

Access prices that allow for the recovery of efficient costs—and do not include scope for monopoly profits—will facilitate access to the infrastructure services required by access seekers to provide a range of communications services to end-users.

As discussed in chapter 10, the ACCC has accounted for the impacts of the NBN with the following adjustments in the FLSM:

•    NBN Co’s acquisition of Telstra’s copper assets is accounted for by treating a proportion of the RAB value of the copper cables asset class as a disposal each year.

•    NBN-induced asset redundancy is accounted for by treating a proportion of the RAB value of relevant assets as a disposal each year.

•    NBN Co’s leasing of assets is reflected in the cost allocation framework by including the NBN as an explicit user of relevant FLSM asset classes.

•    NBN-induced asset under-utilisation is accounted for by adjusting allocation factors for relevant FLSM asset classes.

The treatment of sold and redundant assets as disposals for the purposes of rolling forward the RAB will ensure that access prices allow for the recovery of only efficient costs. This is because it will mean that any assets no longer used to provide fixed line services as a result of migration to the NBN are not included in the RAB, and that the costs associated with these assets are not reflected in access prices. These adjustments will therefore ensure that Telstra will not recover costs through regulated prices that are not efficiently incurred in providing regulated fixed line services. The adjustments will ensure that the regulated revenue requirement allows for the recovery of efficient costs and a normal commercial return on efficient investment, which is in Telstra’s legitimate business interests [Paragraph 152BCA(1)(b)]. This approach will encourage the economically efficient use of and economically efficient investment in infrastructure and it will promote competition in the markets for listed services.

Adjustments to cost allocation factors to reflect NBN Co’s leasing of Telstra’s fixed line assets ensure that an appropriate share of the aggregate revenue requirement is allocated to the declared fixed line services. Cost allocation factors are intended to reflect each service’s share of the total efficient costs incurred in providing fixed line services. As such, they represent the share of the regulated revenue requirement recoverable from each declared fixed line service. It is necessary to reflect NBN Co’s usage of Telstra’s fixed line assets in the calculation of cost allocation factors so that these shares do not allow for a disproportionate share of total efficient costs to be allocated to, and between, regulated services. These adjustments will encourage the economically efficient use of and economically efficient investment in infrastructure and will promote competition in the markets for listed services [Paragraphs 152AB(2)(c) and (d)].

The ACCC considers that it would not be in the LTIE for users of fixed line services to pay for assets they do not use. The treatment of sold and redundant assets as disposals, and the adjustment of cost allocation factors to reflect NBN Co’s leasing of assets, ensure that access prices allow for the recovery of only the efficient costs of supplying the declared fixed line services. The ACCC considers that it would be contrary to the interests of access seekers for access prices to reflect costs that are greater than what is efficient, as this would inhibit their ability to compete with Telstra in the downstream fixed line market. This approach will ensure that access seekers do not pay for assets they do not use [Paragraph 152BCA(1)(c)].

The treatment of sold and redundant assets as disposals will ensure that any costs that are not direct costs of providing access to the declared services are not included in regulated revenues and charges [Paragraph 152BCA(1)(d)]. Further, adjusting allocation factors to reflect NBN Co’s usage of Telstra’s fixed line assets ensures that costs are appropriately allocated to and between the declared services. These adjustments will, in turn, ensure that allocation factors allocate an appropriate share of both direct and indirect costs to the relevant declared services.

The treatment of sold and redundant assets as disposals, and the adjustment of cost allocation factors to reflect NBN Co’s leasing of assets, contribute to ensuring that access prices allow for the recovery of only the efficient costs of supplying the declared fixed line services. This will contribute to allowing Telstra to recover the costs of necessary maintenance expenditures and network asset replacement costs required to ensure that the declared fixed line services are provided in a safe and reliable manner [Paragraph 152BCA(1)(f)]. This will also contribute to providing Telstra with an incentive to operate the fixed line network in an economically efficient manner [Paragraph 152BCA(1)(g)]. The ACCC has taken into account the costs and demand associated with other eligible services supplied using Telstra’s fixed line network in determining its approach to account for the impacts of the NBN [Subsection 152BCA(2)]. In particular, adjusting cost allocation factors to reflect NBN Co’s leasing of assets ensures that an appropriate share of costs are allocated to and between the declared services. These adjustments ensure that only those costs incurred in providing the declared fixed line services are allocated to those services. The costs associated with providing other services are therefore excluded from the regulated revenue requirement.

Adjustments to cost allocation factors to account for NBN-induced asset under-utilisation ensure that the costs attributed to the resulting excess capacity are not allocated to remaining users of the fixed line network. This will mean that access seekers will not pay, in addition to their own use of the network, for the progressive under-utilisation of the network that will occur as a consequence of NBN migration. Given the significant amount of excess capacity that will accumulate in Telstra’s fixed line assets throughout the regulatory period, without these adjustments access seekers would be required to bear the associated costs which they have neither caused nor are able to put to future use. Ultimately, not making the adjustment would lead to a distortion of access seekers’ incentives to efficiently acquire and use Telstra’s declared fixed line services, and to efficiently invest in the complementary infrastructure necessary to effectively compete in the downstream fixed line market. This would be contrary to the LTIE. The ACCC also considers that it would be contrary to the interests of access seekers to pay access prices that reflect costs which Telstra had an opportunity to recover through the DAs, and that it would be contrary to the interests of access seekers to pay access prices that reflect costs that Telstra has already recovered through DA payments [Paragraph 152BCA(1)(c)].

The prices calculated as a result of these adjustments will allow Telstra to recover the efficient costs of providing access to the declared services net of the costs attributed to NBN-induced loss of economies of scale. As discussed in section 10.4.2, the ACCC considers that Telstra has been provided with an opportunity to ensure that it was compensated for such costs through the DAs. Further, the ACCC considers that the payments Telstra is receiving under the DAs represent replacement revenues which provide an avenue for the recovery of such costs. While the ACCC has not had regard to the quantum of these payments in making the adjustments, it is clear that Telstra will be in receipt of a significant amount of compensation for the permanent loss of its fixed line customer base to the NBN. It cannot be known whether or not these payments precisely offset the quantum of the costs the ACCC has attributed to NBN- induced loss of economies of scale. In any case, the ACCC is of the view that Telstra has been provided with an opportunity for compensation under the DAs.

On balance, the ACCC considers that Telstra’s incentives for efficient investment are unlikely to be affected as a result of these adjustments. This is supported by the evidence presented in section 10.4.3 which indicates that Telstra is of the view that it will not be made worse off by either the rollout of the NBN or the adjustments foreshadowed in the ACCC’s further draft decision.

As noted in section 10.4.3, iiNet submitted in response to the further draft decision that, given the migration payments Telstra is receiving under the DAs, if the ACCC were to allocate the costs associated with NBN-induced loss of economies of scale to access seekers, there would be double recovery by Telstra. The ACCC agrees that, without adjustments to remove the costs attributed to NBN-induced under-utilisation from regulated revenues, there would be a degree of double recovery by Telstra. The ACCC considers that it would be beyond Telstra’s legitimate business interests to recover costs through regulated charges in respect of which it has been provided with an opportunity to recover through the DAs. Further, the ACCC considers that it would be beyond Telstra’s legitimate business interests to recover costs through regulated charges that have already been recovered through DA payments.

The regulated revenue requirement calculated as a result of the NBN-induced under-utilisation adjustments includes a share of the direct costs of providing access to the declared services. The ACCC does not consider that the requirement to take into account the direct costs of providing access to the declared services mandates that all costs should be recovered through regulated charges. The costs associated with NBN-induced loss of economies of scale that have been removed from regulated revenues, for which Telstra had an opportunity to be compensated under the DAs, and in respect of which Telstra has been provided with an avenue for recovery, include the remaining share of the direct costs of providing access.

The regulated revenue requirement calculated as a result of the NBN-induced under-utilisation adjustments includes a share of the costs of necessary maintenance expenditures and network asset replacement costs required to ensure that the declared fixed line services are provided in a safe and reliable manner. The costs associated with NBN-induced loss of economies of scale that have been removed from regulated revenues, for which Telstra had an opportunity to be compensated under the DAs, and in respect of which Telstra has been provided with an avenue for recovery, include the remaining share of the costs of necessary maintenance expenditures and network asset replacement costs required to ensure that the declared fixed line services are provided in a safe and reliable manner [Paragraph 152BCA(1)(f)].

109    The ACCC made these adjustments with the mandatory considerations in s 152AB and s 152BCA(1) of the CAA squarely in mind. This is perfectly plain from the terms of par 2.6 of the ACCC’s reasons.

110    The ACCC submitted that a loss of value caused by the implementation of government policy is not equivalent to the costs associated with the loss of economies of scale relevant to regulated assets, consequent upon the migration of customers to the NBN. The ACCC submitted that the language of the relevant criteria in s 152AB and s 152BCA(1) did not support the proposition that an access determination is intended to present an avenue for full cost recovery in respect of the consequential costs or losses that a service provider may incur (see Telstra Corporation Ltd v Australian Competition and Consumer Commission (2008) 171 FCR 414 at 200 [110] and at 236 [307] per Lindgren J).

111    The ACCC submitted that the contents of a staff paper, without more, could not be attributed to the true decision makers viz the Commissioners themselves.

112    As to ground 3, the ACCC submitted that the concern on its part which had prompted it to make the adjustments in question was that, by reason of the opportunity it had to negotiate with NBN Co which culminated in the DAs, Telstra had had an additional and unregulated source of revenue by which it could recover costs associated with the NBN rollout, including the increased unit costs associated with the decrease in demand flowing from the rollout. The ACCC submitted that, in the absence of any allocation adjustment, the purpose of which was to recognise and accommodate the opportunity that Telstra had to recoup those costs and the DA payments, the objectives of encouraging the efficient use of and investment in infrastructure and promoting competition would not be achieved, with a consequential adverse impact on the promotion of the LTIE.

113    The ACCC argued that the adjustments which it made gave effect to its decision that users of the fixed line network should not, in all the circumstances, bear the costs associated (inter alia) with NBN-induced loss of economies of scale.

114    Optus submitted that Telstra had not, and could not, make good the proposition that the ACCC was bound to take into account the quantum and sufficiency of payments received by Telstra from arrangements with NBN Co under the DAs. Optus argued that no such requirement was specified anywhere in Pt XIC of the CCA.

115    Optus then addressed the proposition advanced by Telstra that the ACCC was bound to consider the quantum and sufficiency of payments because it was bound, according to Telstra, to consider the recovery of costs, such a notion (according to Telstra) being fundamental to the statutory criteria that the ACCC was, in fact, bound to consider.

116    Optus argued that the quantum and sufficiency of the payments to be made to Telstra by NBN Co under the DAs did not constitute relevant considerations for the ACCC in making its access determination because an assessment of the sufficiency of the payments would have had to have been based upon comparisons with Telstra’s projections of the revenue it would have received as a vertically integrated monopoly infrastructure owner. The ACCC considered that it was not the role of the access pricing inquiry with which it was engaged to ensure that Telstra was fully compensated for the loss of incumbent status (see p 140 of the ACCC’s reasons). According to Optus, Telstra had not shown that the ACCC was bound to do otherwise.

117    Both Optus and TPG provided detailed references to the ACCC’s reasons in order to justify the ultimate proposition that the ACCC did engage appropriately with all of the criteria which it was bound to take into account when making its access determination. In particular, TPG attached a schedule of references to its Written Submissions which provided ample support for the proposition that the ACCC had engaged appropriately with the requisite criteria. It is not necessary to set out the detail of the references recorded in that schedule in relation to grounds 1 to 3. It is sufficient to note that the following submission made on behalf of TPG (which I accept) was made good by those references. That submission was:

Telstra’s assertion that the [ACCC] did not have regard to various of the mandatory considerations in ss 152BCA and 152AB cannot be sustained when one peruses the many passages in [the ACCC’s reasons] in which precisely that was done, as well as in earlier draft reports and submissions to which reference is made in [the ACCC’s reasons].

118    TPG submitted that the Court should also bear in mind that the adjustments which the ACCC made as a result of the rollout of the NBN were made against the background of a much larger decision to maintain the BBM together with a cost allocation framework which fully allocated costs (subject only to the NBN allocation and scaling adjustment). As TPG noted, Telstra has not complained that its ability to exploit economies of scale and scope was not taken into account in setting that overall pricing framework: Its complaint is only that, insofar as particular adjustments were made to reduce its ability to recover increased unit costs, those reductions did not promote its ability to exploit economies of scale and scope.

119    As TPG went on to submit, the point of having regard to these matters was not to make the decision which will best promote Telstra’s ability to exploit its economies of scale and scope. Contrary to Telstra’s evident assumption, that is not what the statute requires the ACCC to do. The point was that, since that ability had already been reduced, the adverse impact of that reduction by way of increased unit costs should not be passed on to access seekers and end users. TPG went on to submit that the resultant recovery of Telstra’s direct costs, net of the NBN-induced unit cost increases, was appropriately matched to the weight which the ACCC decided to attach to Telstra’s legitimate commercial interests, including its ability to exploit economies of scale, as well as to the weight to be attached to all other relevant matters.

120    TPG also submitted (as did Optus) that there was nothing in s 152AB or s 152BCA that necessitated an outcome of the ACCC’s decision that Telstra must be permitted fully to recover its costs of supplying the relevant declared services (plus a margin) from access seekers. TPG made the point that Telstra’s contention in that regard conflates the proper interpretation of the relevant considerations with previous instances of the application of those criteria. This position, according to TPG, is not altered by various pronouncements of factual or policy nature.

121    TPG also submitted that Telstra’s submissions ignored the accepted circumstance that some of the criteria which the ACCC was bound to take into account were connected with others. In addition, TPG emphasised that Telstra’s approach involved an excessively close parsing of selected passages of the ACCC’s reasons, divorced from their overall context.

122    Finally, TPG made the point that it is not incumbent upon the ACCC to consider each of the relevant mandatory considerations separately, one by one, in respect of each individual issue or factual finding.

123    The remaining respondents made similar submissions in respect of grounds 1 to 3.

124    In my judgment, the submissions made on behalf of the ACCC and the other respondents are correct and I accept them.

125    I would add the following observations.

126    In section 2 of the ACCC’s reasons, the ACCC set out its approach to pricing the fixed line services. At par 2.1 (pp 5–6), it summarised the legislative requirements. It did so accurately.

127    At pars 2.2 to 2.5 (pp 6–8 of the ACCC’s reasons), it provided more detail of the approach which it ultimately took. That material leads into par 2.6 which I have set out in full at [108] above.

128    In the middle of p 6 of the ACCC’s reasons, it observed that the BBM pricing methodology estimates prices that are based on efficiently incurred costs and enables the access provider to recover those efficiently incurred costs including a commercial return on its investment. It then went on to explain how these features promote competition.

129    At pp 8 and 9 of the ACCC’s reasons, the ACCC addressed the LTIE and the criterion embodied in s 152AB(2)(e).

130    In par 2.6, on p 10, the ACCC noted that not making the NBN-related adjustments would lead to a distortion of access seekers’ incentives to efficiently acquire and use Telstra’s declared fixed line services and to efficiently invest in the complementary infrastructure necessary effectively to compete in the downstream fixed line market. The ACCC said that this would be contrary to the LTIE.

131    In Ch 10 of the ACCC’s reasons, in which the ACCC dealt in detail with the impacts of the NBN, at p 125, the ACCC set out the following key points:

•    The circumstances in which the ACCC makes this final decision are unique. The NBN is replacing Telstra’s fixed line network as the infrastructure used to provide fixed line telecommunications services in Australia, with this transition facilitated by commercial arrangements between Telstra and NBN Co known as the Definitive Agreements (DAs).

•    Under these arrangements, Telstra will migrate its customer base to the NBN and will sell and lease certain infrastructure to NBN Co, and will receive corresponding payments for doing so. Further, Telstra has undertaken to only provide fixed line services over the NBN where the NBN is deployed.

•    NBN migration will cause a loss of economies of scale in the operation of Telstra’s fixed line network until it is decommissioned. The costs associated with this loss of economies of scale are not caused by users of the fixed line network.

•    Having had regard to the LTIE and the other matters in section 152BCA(1) of the CCA, the ACCC’s final decision is to account for the Telstra-NBN arrangements using the regulatory values approach. As part of this approach, the ACCC has maintained its draft decision to treat assets sold to NBN Co as asset disposals and removed them from the RAB at their regulatory value. To the extent that, under its leasing arrangements with Telstra, NBN Co uses fixed line assets that are also used to provide declared services, this is accounted for in the cost allocation framework of the FLSM.

•    Further, having had regard to the LTIE and the other matters in section 152BCA(1) of the CCA, the ACCC’s final decision is that the costs associated with the loss of economies of scale that will occur as a result of NBN migration should not be reflected in regulated revenues or charges. The ACCC considers that such costs should not be borne by users of the fixed line network yet to be migrated to the NBN. These users have not caused these costs, and Telstra has been provided with an opportunity to ensure that it was compensated for such costs under the DAs. Further, Telstra is receiving ongoing replacement revenues which represent an avenue for the recovery of these costs.

•    To give effect to this final decision in the FLSM, the ACCC has made the following adjustments: assets that are sold to NBN Co and made redundant by NBN migration are treated as asset disposals in the roll forward of the RAB; Telstra’s approach to reflecting NBN Co’s use of fixed line assets in its cost allocation framework is maintained (with the exception of the adjustments discussed in chapter 11); and adjustments are made to allocation factors for assets that are under-utilised as a result of NBN migration.

•    The ACCC, in making this final decision, has applied the fixed principles having regard to the matters in subsection 152BCA(1) of the CCA, including Telstra’s legitimate business interests and the overarching objective of the LTIE. The ACCC’s allocation of costs ensures that those costs which Telstra had an opportunity to recover (and for which Telstra has been provided with an avenue of recovery) through the DAs are not allocated to remaining users of the fixed line network.

132    The above references to the passages in the ACCC’s reasons disclose that, on a fair reading of those reasons, the ACCC had regard to the mandatory criteria specified in s 152AB and s 152BCA of the CCA.

133    Telstra’s challenges to the relevant FADs based upon grounds 1, 2 and 3 must be rejected.

Ground 4: The finding that Telstra had an opportunity to ensure that it would receive consideration from NBN Co

134    By this ground, Telstra alleges that the ACCC failed to take into account a relevant consideration it was bound to take into account in finding, and/or had no reasonable or rational basis for the making of the finding, that Telstra had an opportunity to ensure that it would receive consideration from NBN Co through the DAs for increased unit costs of supplying access to third parties due to loss of economies of scale.

135    This ground is a slight reformulation of the fundamental attack embodied in grounds 1, 2 and 3.

136    In support of its attack based upon the lack of rationality or reasonableness in the finding made by the ACCC, Telstra relied upon Minister for Immigration and Citizenship v Li (2013) 249 CLR 332 (Li).

137    In support of this ground, Telstra referred to a statement made at p 136 (at par 10.4.2) of the ACCC’s reasons to the following effect:

Telstra has been provided with an opportunity to ensure that it would receive consideration through the DAs for the impact of the NBN on its fixed line assets, including the costs associated with NBN-induced loss of economies of scale.

138    Telstra submitted that that remark must be taken as meaning that, if Telstra had sought such consideration, it would have received it. It then submitted that there was no reasonable basis for such a finding and that it was irrational.

139    Telstra then proceeded to analyse a number of source materials, including staff papers, in order to justify its ultimate proposition in support of ground 4.

140    In its challenge based upon ground 4, Telstra relies upon s 5(1)(e) and s 5(2)(g) of the ADJR Act (improper exercise of power), s 5(1)(e) and s 5(2)(b) of the same Act (failing to take account of a relevant consideration) and s 5(1)(f) (error of law). It also relies upon the general law.

141    The ACCC answered these submissions by noting that the question of whether Telstra had an opportunity to recover costs associated with NBN-induced loss of economies of scale was, according to Telstra, irrelevant and that, in Telstra’s view, what mattered was whether it had in fact recovered those costs.

142    Telstra also submitted that, in any event, it did not have such an opportunity and was not, in fact, able to achieve an outcome that fully compensated it for all the impacts of the NBN rollout.

143    The ACCC submitted that, in adjusting the regulated revenue to which the cost allocation factors would apply, so as to remove the costs associated with the NBN-induced under-utilisation, the ACCC relied upon the fact that Telstra had been given an opportunity to receive consideration through the DAs for the impact of the NBN on its fixed line assets. At p 127 and p 137 of the ACCC’s reasons, the ACCC found that:

(a)    Telstra had to have been aware that NBN migration would cause asset redundancy and under-utilisation, leading to increased unit costs; and

(b)    Telstra possessed significant bargaining power in its negotiations with NBN Co and the government, in circumstances where, absent its co-operation, NBN Co would have been required to bypass the fixed line network and unnecessarily duplicate costly infrastructure. That NBN Co was relying on Telstra’s co-operation was, in the ACCC’s view, evident from NBN Co’s Initial Corporate Plan.

144    In submissions made to the ACCC during the inquiry, Telstra took issue with the ACCC’s assessment of the bargaining power that its economies of scale presented to NBN Co and, by extension, the sufficiency of the opportunity that it had. The ACCC acknowledged these matters in its final decision but did not consider that they impacted upon Telstra’s bargaining power so significantly as to mean that it could not have used the opportunity that it was given, in negotiating the DAs, to secure payments which would provide compensation for the loss of economies of scale that would flow from the NBN rollout. The ACCC also took into account the evidence given by officers of Telstra that its negotiations with NBN Co did not lead to full compensation for all of the impacts of the NBN rollout. However, that material did not impact upon the respective positions of Telstra and the access seekers in terms of the costs associated with increased under-utilisation of Telstra’s fixed line assets during the regulatory period.

145    The ACCC said that the critical matter for it was how to allocate those costs, in circumstances where Telstra had had an opportunity to recover them.

146    The ACCC then emphasised the submissions that it had made in respect of grounds 1 and 2 to the effect that its conclusion that it should not fall on the remaining users of the fixed line network to bear the costs associated with increased under-utilisation, was the product of a process of reasoning that was both evident and intelligible. It was nowhere near in the line of country under discussion in Li.

147    Although formulated in terms of unreasonableness, so the ACCC submitted, Telstra’s submissions were, in substance, a “no evidence” ground. In the present case, there was clearly some basis for the inferences that the ACCC drew about the existence of an opportunity, on the part of Telstra, to negotiate an outcome with NBN Co and that should be the end of the matter.

148    The ACCC also submitted that ground 4 was nothing more than an attempt on the part of Telstra to secure merits review of the relevant FADs.

149    Optus focussed its submissions on the correct interpretation of Li and then made the following submissions (at pars 115–116 of its Written Submissions):

The relevance for the ACCC’s reasoning in finding that Telstra had such an opportunity was that it demonstrated that access seekers and end-users were not responsible for the NBN-induced loss of economies of scale. That is, the provision of declared fixed line services did not cause NBN-induced loss of economies of scale. It was for this reason that the ACCC determined that access seekers and end-users should not be held liable for the costs and that therefore those costs should not be recovered from regulated revenue. The ACCC was explicit that its decision about a cost allocation framework was that consumers should bear the costs of the declining market due to consumer choices that resulted in higher unit costs for Telstra. “Allocation of a share of these costs through regulated charges ensures that access seekers bear a share of the costs that are due to consumer choice” (p 7 of the ACCC’s reasons). NBN-induced loss of economies of scale were not of that nature as demonstrated by the fact of Telstra negotiating the DAs with NBN Co. The opportunity that represented to Telstra indicated to the ACCC—and was a factual basis for its decision—that consumers and access seekers should not be held responsible for the NBN migration.

This reasoning process was not arbitrary, vague and fanciful. Telstra’s submissions do not acknowledge the reasoned basis because they instead focus on a particular characterisation that they have chosen to give the words the ACCC used at p 136 of the ACCC’s reasons. The ACCC’s approach was not without an intelligible foundation. The reason was the ACCC’s assessment that the facts showed that the negotiations with NBN Co provided an opportunity to Telstra for revenue recovery. “In arriving at this conclusion, the ACCC has not formed a view as to whether Telstra achieved an outcome in its negotiations that fully compensated it for all of the impacts of the NBN”.

150    TPG submitted that, by ground 4, Telstra was complaining about the same general proposition which was the object of its attack under grounds 1 to 3, namely, that increased unit costs attributable to the NBN migration should not be passed on to access seekers and end users because of the existence of the DAs and the payments which Telstra is receiving under them. TPG said that the attack on that proposition as being unreasonable or devoid of supporting evidence is answered by appreciating the relationship between that general proposition and the consideration of the matters stipulated by s 152AB and s 152BCA as was demonstrated by submissions in relation to grounds 1 to 3. TPG said that, once that reasoning process is understood, it is plain that the ACCC’s decision was reasoned from a foundation on relevant evidence.

151    TPG submitted that Telstra’s arguments ignored critical features of the DAs and their significant value to Telstra.

152    The first of these was Telstra’s promise not to use its network to compete with NBN Co in areas where the NBN is deployed. The second was the evidence emanating from Telstra itself to the effect that the DAs provided replacement revenues. The third key feature Telstra ignored is the feature that the NBN cost centre within Telstra was actually a real, existing feature of Telstra’s own expenditure forecast model.

153    Once these matters are recognised, so TPG submitted, it is clear enough that the ACCC had some basis in the evidence as to the nature and value of the consideration Telstra was receiving from NBN Co and what Telstra was doing with it. That is sufficient to dispose of ground 4, so TPG submitted.

154    TPG submitted that the central question which confronted the ACCC was this: In circumstances where Telstra’s network was being progressively decommissioned and replaced by the NBN, what terms of an access determination should be adopted, having regard to the criteria in s 152BCA and the objects set forth in s 152AB? The ACCC was not preoccupied with the narrower question with which Telstra was apparently preoccupied, namely, whether and how Telstra should receive full indemnification for all of the efficient costs it claims it incurs in operating its network.

155    TPG submitted that the ACCC’s role under Pt XIC of the CCA is to manage the economic incentives involved in access to telecommunications networks in such a way as to strike a balance among the mandatory considerations which, as has been recognised many times in the authorities, will invariably be in tension with one another. The economic incentive that the ACCC is obliged to manage will alter the behaviour of service providers in the sector and thereby affect the long term interests of end users, for better or for worse.

156    In circumstances where one network is being progressively replaced by another independently owned network, the ACCC will naturally wish to consider how to promote competition on the remaining parts of the old network while also promoting competition in connection with a new network. This was, as the ACCC said, an unprecedented situation. These circumstances required the ACCC to tease out the consequences, within the orthodox framework of the BBM, of a unique, complex and sensitive commercial and political compact, in a negotiation of which the ACCC had not participated.

157    TPG submitted that, whatever the precise terms of the arrangements between Telstra and NBN Co were, Telstra had been handsomely rewarded for agreeing not to compete with NBN Co in areas where the NBN was being rolled out.

158    TPG observed that the ACCC’s approach was to quantify the NBN-related unit cost increases by developing a projection of Telstra’s capex and demand levels based upon the corresponding data before the advent of the NBN and of opex by simply removing the impacts of the NBN rollout from the forecast. That approach was conformable with the requirement for the ACCC to have regard to the direct costs to Telstra of providing the service. TPG made the point that, both in terms of the statutory framework and as a matter of ordinary commercial practice, no analysis of the consideration payable under the DAs could have substituted for the analysis of costs the ACCC did undertake. Actual recovery was beside the point.

159    TPG submitted that the ACCC had formed the view that, since Telstra’s network was being progressively replaced by the NBN pursuant to arrangements between Telstra and NBN Co by which Telstra’s network would not operate in competition with the NBN within the NBN footprint, the LTIE were promoted by ensuring that access seekers had the ability and incentive to continue competing with Telstra in providing services over the remaining part of Telstra’s network and thereby to compete for customer migration opportunities as the NBN was rolled out. This was a perfectly rational explanation for the approach which the ACCC took.

160    In my judgment, Telstra’s arguments in support of ground 4 fall to the ground when proper consideration is given to the reasoning underpinning the way in which the ACCC treated Telstra’s opportunity to negotiate arrangements with NBN Co.

161    The submissions made on behalf of the respondents to which I have referred above are correct and I accept them. For those reasons, I reject ground 4.

Grounds 5 to 8: Inconsistency in the ACCC’s application of the fixed principles

162    Telstra raises a number of grounds of review directed to the ultimate proposition that the ACCC failed to consider pars 6.7 and 6.14 of the fixed principles or, alternatively, made findings or decisions which were inconsistent with those principles. The inconsistencies are said to arise from the application of the allocation adjustment and the disposals adjustment. Telstra relies upon ss 5(1)(c), 5(1)(d), 5(1)(e), 5(1)(f) and 5(2)(b) of the ADJR Act and the general law.

163    Fixed principle 6.7 provides for the roll-forward mechanism to be applied to the RAB. Fixed principle 6.14 sets out the cost allocation factors to be applied in determining the relevant FADs.

164    Telstra submitted that the relevant FADs must be consistent with fixed principles 6.7 and 6.14 and that, in the circumstances of the present case, the ACCC made determinations that were inconsistent with those fixed principles. In the alternative, Telstra also submitted that the ACCC simply paid no regard to fixed principles 6.7 and 6.14 when determining the relevant FADs.

165    The inclusion of fixed principles in an access determination is permitted by s 152BCD(1) of the CCA.

166    In the present case, the fixed principles provisions incorporated in the relevant FADs were expressly stated to remain in force until 30 June 2021.

167    Telstra submitted that, while the current fixed principles were in force, the ACCC was bound to observe them and was not free to depart from them in any way. The ACCC submitted that it would be taking the concept of “fixed” when used in the expression “fixed principles” too far to construe fixed principle provisions in an access determination as locking the ACCC into the same outcome in every case. The ACCC submitted that the mandatory relevant considerations set out in s 152AB and s 152BCA of the CCA must take precedence over the operation of any particular fixed principles. A similar submission was made on behalf of Optus. Optus also submitted that there was no requirement that the substance of the relevant FADs must be consistent with the two fixed principles relied upon by Telstra. There was nothing in Pt XIC imposing such a requirement.

168    TPG also took issue with the proposition that Pt XIC required that the provisions of an access determination must be consistent with relevant fixed principles. TPG submitted that, where Pt XIC of the CCA does stipulate a criterion of inconsistency between different instruments or provisions, it does so explicitly. It supported that proposition by reference to a number of provisions within Pt XIC that addressed the question of inconsistency. It then submitted that there was nothing in Pt XIC that imposed any requirement in respect of inconsistency with respect to the fixed principles.

169    TPG submitted that all that Pt XIC requires is that fixed principles provisions must be included in a further access determination which is expressed to replace a previous access determination which had included such fixed principles.

170    Similar submissions were made on behalf of the remaining respondents.

171    For the reasons submitted by the ACCC and the other respondents, I am of the opinion that there is no requirement in Pt XIC that provisions of an access determination which are inconsistent with one or more fixed principles within the same access determination are necessarily invalid.

172    Telstra also submitted that the ACCC was required to have regard to the fixed principles as relevant considerations when making the relevant FADs. Whether this be correct or not, it is plain that the ACCC did give consideration to the fixed principles when finalising its determinations. It also did so in the context of considering the other relevant mandatory considerations specified in s 152AB and s 152BCA.

173    Finally, in my view, there was no inconsistency between the requirements of pars 6.7 and 6.14 of the fixed principles and the NBN adjustments ultimately made by the ACCC.

174    The ACCC did not adopt the fixed principles with a view to stipulating how the NBN impact would be accounted for.

175    The ACCC applied a single adjustment factor to fully allocated costs for each asset class for each year of the regulatory period so as to remove, from the regulated costs, those costs which were associated with the excess capacity caused by the NBN-induced under-utilisation. That adjustment was applied in a uniform manner so that the relativities between service allocations were unaffected. The result of the adjustment was that direct costs which could not, in the ACCC’s opinion, properly be attributed to the service to which they related, were not so attributed.

176    This approach was expressly directed to ensuring that Telstra did not recover costs from access seekers in respect of which it had been provided with an avenue of recovery through the negotiation of the DAs.

177    As submitted by the ACCC, the cost allocations upon which it finally settled sought to reflect the causal relationships between supplying services and incurring costs, taking into account its findings that the costs associated with the NBN-induced loss of economies of scale should already have formed part of the DA payments and should not be allocated.

178    TPG reminded the Court that, when the fixed principles provisions were first adopted in the 2011 FADs, the ACCC was aware of the need to accommodate the uncertainty surrounding the future impact of the NBN. At that time, the ACCC repeatedly stated that the impact of the NBN was too uncertain to be taken into account then but that, in the next regulatory period, it would take into account the impacts of the NBN rollout in determining the inputs to the FLSM.

179    As far as the disposals adjustment is concerned, all that the ACCC did was to adopt Telstra’s own expert’s definition of “disposal” and applied it to the circumstances with which it was confronted. Telstra’s promise not to compete within the NBN footprint plainly neutralised its fixed assets network to the extent required to honour that promise. It was an obvious and appropriate next step for the ACCC to take to regard the effects of such a promise as a disposal.

180    TPG also submitted that, when considering the content of pars 6.7 and 6.14 of the fixed principles, the Court should have regard to par 6.15 of those principles. Paragraph 6.15 stipulated that the application of the fixed principles was “subject to assessment, calculation, implementation and/or application, as relevant by the ACCC”. In other words, so TPG submitted, it was intended from their inception that the fixed principles might need to be applied flexibly. Paragraph 6.2 of the fixed principles also permitted the alteration or removal of those principles if the ACCC was satisfied that there was a manifest or material error in them; or if they were based on information which was false or misleading in material respects; or if some amendment or adjustment was necessary or desirable in order to avoid an unintended consequence. Paragraph 6.2 also supported the notion that the fixed principles were flexible and not immutable.

181    Once again, the submissions of the respondents are correct and I accept them. Telstra’s attack based upon propositions connected with the fixed principles 6.7 and 6.14 must be rejected. Its attack amounts to no more than merits review.

Ground 9: Selective application of allocation adjustment

182    Telstra submitted that the ACCC’s implementation of the allocation adjustment was selective and the explanation which it gave in the ACCC’s reasons was incomplete. It relies upon ss 5(1)(e), 5(1)(f), 5(2)(b) and 5(2)(g) of the ADJR Act and the general law.

183    This complaint amounts to nothing more than a disagreement, on the facts, between Telstra and the ACCC as to the methodology employed by Telstra to adjust the FLSM to give effect to its decision that the costs associated with the NBN-induced loss of economies of scale should not be reflected in access prices.

184    The methodology that the ACCC employed involved calculating the difference between the unit costs that arise from applying Telstra’s expenditure and demand forecasts (called the “real world” unit costs) and an estimate of unit costs that would arise if NBN-induced under-utilisation did not occur. The percentage difference between those costs represented the unit cost of NBN-induced excess capacity as a proportion of the real world unit costs.

185    The intended effect of the adjustments that were actually made was that unit costs for each asset class did not rise as a result of the under-utilisation caused by NBN migration.

186    These matters were discussed in detail in the ACCC’s reasons at par 10.46 (pp 151–158). The ACCC’s decision had an evident and intelligible justification as explained in those paragraphs of its reasons.

187    Telstra’s attempt to demonstrate flaws in the ACCC’s methodology fails to come to grips with the circumstance that the principal reason for the difference between the uniform price change generated under the “without NBN” hypothetical and the price change actually applied in the relevant FDAs is the existence of cost savings brought about by the NBN. These cost savings do not reflect a loss of economies of scale and no adjustment was made in respect of them. Accordingly, they would be present in the cost allocation adjustments in any event and would, therefore, be reflected in the prices.

188    Telstra’s disagreement with the ACCC’s methodology is not a sufficient basis upon which successfully to impugn the relevant FADs.

189    TPG submitted that Telstra’s submissions with respect to ground 9 are simply an attempt to divorce the way in which the allocation adjustment is applied within the FLSM from the reasons why the allocation adjustment was adopted in the first place.

190    TPG submitted that Telstra was apparently arguing that, irrespective of the fact that the purpose of the adjustment is only to prevent access seekers and end users from bearing the increased unit cost resulting from NBN migration, it is somehow arbitrary or capricious in its application because it does not also ensure that Telstra gets the benefit of any costs savings which result from the NBN migration.

191    TPG submitted that the alleged selectivity in the application of the ACCC’s decision does not in fact exist. It said that the allocation adjustment, by its nature, could only ever target unit cost increases. The ACCC never intended to give Telstra the benefit of NBN-induced cost savings. That position was adopted for all of the reasons previously articulated in respect of the fundamental underpinnings of the ACCC’s decision. Such a decision was open to the ACCC and cannot be challenged in the current judicial review proceedings.

192    TPG went on to submit that Telstra’s submissions in respect of ground 9 are just a continuation of its submissions in respect of grounds 1 to 4 and should suffer the same fate.

193    Once again, I accept the submissions of the respondents. Ground 9 must be rejected.

Ground 10: The asset lives adjustment

194    By ground 10, Telstra argues that the ACCC’s determination of the asset lives of various assets for the purposes of the relevant FADs was irrational and the product of a failure to take into account relevant considerations. In substance, the ACCC decided to use longer asset lives than those proposed by Telstra. Telstra supported its challenge to this decision made by the ACCC by again entering into a detailed discussion as to its preferred methodology. It relies upon ss 5(1)(e), 5(1)(f), 5(2)(b) and 5(2)(g) of the ADJR Act and the general law.

195    In its submissions to the Court, the ACCC explained the way in which asset lives are deployed in the FLSM. It said that asset lives are used to determine the depreciation allowance that is included in the revenue requirement in any given year. Each asset class has its own asset life, over the course of which the capital expenditure for that asset class will be depreciated. The depreciation allowance for an asset class is determined by dividing the regulatory value of an asset class, in each year of the regulatory period, by the remaining life of the asset (that is, the total asset life minus the number of years since the capital expenditure was incurred).

196    In its reasons, the ACCC noted that Telstra had not specified which asset lives were impacted by NBN considerations beyond the copper cables asset class nor had it provided an adequate explanation as to why asset lives in general should be changed. For these reasons, the ACCC did not accept the majority of Telstra’s proposed asset lives, although it did make some changes where Telstra provided information that was broadly consistent with the information upon which the original asset lives had been determined. These matters are discussed at pp 117–118 of the ACCC’s reasons.

197    In deciding not to accept Telstra’s proposed asset life for the copper cables asset class, the ACCC stated that the NBN should not be a consideration in the determination of asset lives. It took this view because its final decision was that the costs associated with NBN-induced loss of economies of scale (which included unrecovered depreciation) should not be reflected in regulated revenues.

198    Consistent with that decision, the ACCC did not consider it appropriate to revise the asset life of that asset class on that basis.

199    The ACCC submitted that, because the mere fact that it did not, at p 117 of its reasons, do more than cross-refer to the decision which it had made as to who should bear the costs associated with an NBN-induced asset redundancy, and under-utilisation, did not ground an inference that it had failed to consider the statutory considerations in declining to adopt the truncated asset lives for which Telstra contended. It was not necessary for the ACCC to refer separately on every occasion to every relevant criterion.

200    As Optus submitted, the ACCC did have regard to the asset lives provided to it by Telstra. However, for the reasons explained by the ACCC in its submissions to the Court, it was not satisfied with the submissions made to it by Telstra in this respect.

201    TPG submitted that ground 10 was just another attempt by Telstra to attack the disposals adjustment. It submitted that the shared purpose of the disposals adjustment and the asset lives adopted by the ACCC was to prevent recovery by Telstra of such increased unit costs as are attributable to the NBN migration and is thereby caught up with the compensatory revenue Telstra receives from NBN Co. Telstra contended that, having adopted the asset disposals adjustment, the ACCC should have then shortened the relevant asset lives to correspond to the time frames in which those assets would be made redundant. Had the ACCC done this, it would have effectively allowed Telstra to recover the full value of those assets on an accelerated basis, thereby depriving the asset disposals adjustment of its true effect.

202    TPG submitted that none of this meant that the ACCC did not take account of the reality of the NBN rollout and the effect that this would have on useful lives of copper cables and other fixed line assets.

203    TPG reminded the Court in the context of ground 10 that Telstra appeared to be treating Telstra’s ability to recover its efficient costs as one of the considerations which the ACCC was bound to take into account when making the relevant FADs. TPG repeated its earlier submission that this was a fallacy.

204    Ground 10 should be rejected for the reasons advanced by the respondents.

Conclusions

205    All of Telstra’s grounds of review address the same essential issue and seek, in different ways, to achieve the same result. The key issue which all of those grounds address is that part of the ACCC’s decision which removed from the calculation of the allowable revenue under the BBM such of the increased unit costs of supplying the declared services as resulted from NBN-induced under-utilisation or redundancy of assets. It was open to the ACCC to excise these particular costs from the calculation of revenue under the BBM and Telstra has failed to show that the ACCC committed any reviewable error in the course which it took. At best, the grounds of review advanced by Telstra rise no higher than impermissible review of the merits of the ACCC’s decision and impermissible attacks on methodologies employed by the ACCC which were plainly open to it.

206    I propose to dismiss Telstra’s Application for Judicial Review. Telstra should pay the ACCC’s costs of and incidental to that Application. I will hear Telstra and the other respondents on the question of whether Telstra should also pay the costs of the other respondents.

207    There will be orders accordingly.

Associate:

Dated:    28 March 2017

SCHEDULE OF PARTIES