The $18.5 million fine imposed on Telstra by the Federal Court
for breaching the Trade Practices Act and Telecommunications Act
should put all business on notice to get their internal compliance
systems in order, and serves as a warning that the ACCC will seek
– and courts will impose – higher levels of
fines for breaches.
In Australian Competition and Consumer Commission v Telstra
Corporation Limited  FCA 790 (28 July 2010) Telstra
admitted to multiple breaches of its standard access obligations
(imposed by the Telecommunications Act and its carrier licence) to
permit interconnection between its facilities and those of
telecommunications companies seeking access to its networks.
It also admitted to making misleading representations about its
facilities' capacity to accommodate the access seekers.
What did each side think was a fair fine?
The ACCC sought $40 million in fines for these breaches, while
Telstra argued for a fine of $3-5 million.
How was the fine calculated?
Justice Middleton in the Federal Court assessed the fine at
$26.5 million, which dropped to $18.5 million after a 30 percent
discount was applied.
He took a range of factors into account in calculating the final
fine, including, in Telstra's favour:
There was no proof of a deliberate decision to engage in
anti-competitive conduct. The ACCC had tried to show Telstra's
decisions were motivated by an anti-competitive intent; it pointed
to some robust public comment by Telstra executives on the wisdom
of access arrangements and this litigation. The judge said these
might point to lack of remorse, but not an intention to break the
The various failures in communication, training, and management
had been addressed by Telstra.
Telstra had co-operated, accepted responsibility for the
breaches, and admitted liability in court.
The ACCC could not prove that Telstra's actions had caused
any actual loss to the access seekers.
Telstra has not engaged in similar conduct relating to its
obligations under Pt 3 of Sch 1 of the Telecommunications Act, or
previously breached Pts IV, XIB or XIC of the Trade Practices
The refusals to grant access are about 0.5 percent of all the
access requests received at that time.
On the other hand:
Telstra had shown no remorse for its actions, or that it
appreciated the seriousness of its actions.
The whole purpose of the legislation is to protect consumers or
the end users of telecommunication services, and general and
specific deterrence is needed for this protection.
The failure to implement policies which could have provided
access if implemented is not an excuse or mitigating factor that
has significant weight. Telstra is a large company and had many
years to get its systems in order. It took no steps to develop a
culture of compliance with its access obligations under the Trade
Practices Act and the Telecommunications Act.
Although the breaches took place in seven exchanges (out of the
500 across the nation) they were repeated and took place over a
After balancing all the relevant factors, Justice Middleton set
a sliding scale for the breaches:
$750,000 for where access was not provided for three months or
$1,000,000.00 for where access was not provided for three
months to one year; and
$1,500,000.00 for where access was not provided for more than
Lessons from this case
The first, and crucial, lesson is that the failure to create a
culture of compliance, and keep it strong, led to these breaches.
Even though they were a tiny percentage of the access requests
dealt with by Telstra, they were enough to trigger an investigation
and a hefty fine.
Secondly, the ACCC is clearly monitoring public statements and
will use them in court - so be careful that your statements
accurately set out your position. Although the court did not accept
Telstra's statements proved any intent, it did consider them as
proof of a lack of remorse. While it's tempting to vent to a
friendly journalist, you should not give a false impression of your
business' true position.
A well-drafted escrow agreement can form an important component of the risk mitigation strategies used in information technology contracts.
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