The Limits of Telstra's Powers?
Ian Johnston
ijohnsto@pcug.org.au
Fri, 21 Mar 1997 01:11:47 GMT
Dear Linkers
I have recently subscribed to Link. The following is somewhat longer
than most postings I have seen - it includes much background
information.
2. I have pondered the question of the limits of Telstra's powers
while in Commonwealth ownership. In particular, does Telstra have the
powers to carry on some of its businesses or activities? (These are
legal questions and I have no legal qualifications.)
3. I'm hoping that someone on Link may be able to shed some light on
these questions (see paras 10+), or point me in a direction for
further research. But I'd first like to discuss another related
question raised in an earlier email, and invite comment.
>----------
>From: Bernard Robertson-Dunn[SMTP:brd@netinfo.com.au]
>Sent: Tuesday, 4 March 1997 18:43
>To: link@charlotte.anu.edu.au
>Subject: Re: Senator Alstons' Position Paper
>I suspect that Telstra and their masters do not understand what
>business they are really in. IMHO, they are in the business of providing
>a national communications infrastructure where the user decides what
>goes over it.
WHAT BUSINESS IS TELSTRA REALLY IN?_
4. Some background: Before the creation of the legal entity, Telstra
Corporation Limited (the successor of Telecom and OTC), Telecom's
"principal" function was to supply telecommunications services within
Australia. (Telecommunications service means a service for carrying
communications by means of guided or unguided electromagnetic energy
or both (see Endnote 1).) These services were supplied through
Telecom's (now Telstra's) national telecommunications infrastructure.
5. Since around 1988 Telecom/Telstra has increasingly diversified
into down-stream businesses, particularly content related businesses.
At that time there were reservations about its diversification
activities. In the context of the Telecom reforms of the late 1980s,
comprehensive accountability provisions in the Australian
Telecommunications Corporation Act 1989 (now repealed):
(a) defined Telecom's principal, subsidiary and incidental functions
(see Endnote 1);
(b) required it to submit corporate plans and variations to the
Minister;
(c) required the Telecom Board to keep the Minister informed of the
operations of Telecom and its subsidiaries; and
(d) provided for prior Ministerial notification of proposed
significant changes in business activities.
6. Following the creation of Telstra in the early 1990s,
non-legislative accountability mechanisms were put in place, but they
were not fully effective.
7. There were ongoing reservations about Telstra's diversification
activities and the timeliness of notification of these activities to
Ministers, particularly diversification into businesses that created
significant risk exposures, obligations and liabilities for the
Commonwealth (as sole shareholder of Telstra).
8. Comprehensive accountability provisions have now been re-enacted
in the Telstra (Dilution of Public Ownership) Act 1996. These
provisions should ensure that Telstra's masters do know and understand
what businesses Telstra is really in (well ahead of other
shareholders). Following the sale of one-third of the Commonwealth's
shares in Telstra, Ministers should be fully informed, and in a more
timely manner, of businesses in which Telstra _proposes_ to become
involved.
9. However, apart from informing Ministers, it is not clear what
other purpose(s) will be served by requiring prior notification of
Telstra's business proposals. If a Minister did not want Telstra to
proceed with a proposal he/she may, after consultation with the
Telstra Board, give a direction in the public interest under the
Telstra Corporation Act 1991. But when Telstra is a publicly listed
company the exercise of this power of direction seems unlikely.
(Historically, the power of direction has been treated as a "last
resort" power.) Any direction (by a majority government shareholder)
may not be in the best interests of _all_ shareholders.
WHAT ARE THE LIMITS OF TELSTRA'S POWERS?
10. I have long thought that some of Telecom's/Telstra's businesses
or activities may fall outside the scope of its "functions", derived
from the Australian Constitution and, therefore, might be held to be
"unconstitutional". I understand that whether or not a particular
business is "unconstitutional" is ultimately a matter for the High
Court to determine.
11. I cannot be specific about which businesses or activities might
be fall outside the scope of its functions, but note that the
Australian Telecommunications Corporations Act (now repealed) provided
some guidance. Businesses or activities which are "incidental" to its
other functions seem more likely to challenge.
12. Some points which seem relevant:
(a) The Act included provisions which differentiated and, in a sense,
defined Telecom's various functions - principal, subsidiary and
incidental (S.14, 15 & 16 - see Endnote 1).
(b) The Act also provided that Telecom had power to do all things
necessary or convenient to be done for, or in connection with, the
performance of its "functions" (S.17. (1)).
(c) I understand that these functions (principal, subsidiary and
incidental) derive from the Commonwealth's powers to make laws with
respect to trading and financial corporations (paragraph 51(xx) of the
Australian Constitution) and with respect to "postal telegraphic and
other like services" (paragraph 51(v) of the Australian Constitution).
(d) S.14, S.15 and S.16 (principal, subsidiary and incidental
functions) were no doubt drafted with a knowledge of:
(i) limits of the powers of the Parliament under the Constitution to
make laws in respect of Telecom; and
(ii) a possibility of legal challenges to Telecom carrying on
incidental businesses or activities; and
(iii) a possibility that particular Telecom businesses or activities
could be "unconstitutional".
(e) The Act provided that the "functions" of Telecom include the
carrying on, within or outside of Australia, of any business that is
capable of being conveniently carried on by the use of resources that
are not immediately required in carrying out Telecom's principal or
subsidiary function (Incidental Function, see Endnote 1).
(f) The Telstra (Dilution of Public Ownership) Act 1996 includes
provisions intended to ensure that the Act's proposed new Part 2 -
Commonwealth ownership of Telstra - is supported by the Commonwealths
powers to make laws with respect to trading and financial corporations
and "postal telegraphic and other like services" (see Endnote 2).
13. In summary, it seems to me that there are limits to Telstra
powers to conduct some businesses or activities that are "incidental"
to its main functions.
14. In view of the above, and noting that Telstra is now a company
with its own constitution, I would appreciate receiving any comments,
views or advice (publicly or privately) on:
(a) any of the above matters;
(b) any businesses of Telstra which might be regarded as "incidental"
to its other functions (I intend to develop a list of Telstra's
"incidental" businesses and activities);
(c) the limits of Telstra's powers while in Commonwealth ownership
(notwithstanding its memorandum and articles of association); and
(d) any directions for further research and/or location of any
research material (eg any court cases challenging to Telstra's
powers).
Ian Johnston
ijohnsto@pcug.org.au
CANBERRA, AUSTRALIA
06 258 3409
ENDNOTE 1:
The Australian Telecommunications Corporation Act 1989 (now repealed)
specified Telecom's functions as follows:
Functions - the principal function
S14. The principal function of Telecom is to supply
telecommunications services within Australia.
("Telecommunications service" means a service for carrying
communications by means of guided or unguided electromagnetic energy
or both. (Definition in ATC Act and Telecommunications Act 1991))
Functions - subsidiary functions
S15. A subsidiary function of Telecom is to carry on, outside
Australia, any business or activity relating to telecommunications.
Functions - incidental business and activities
S16(1) The functions of Telecom include the carrying on, within
Australia, of any business or activity that is incidental to:
(a) the supplying of telecommunications services under S14; or
(b) the carrying on of any business activity under S15.
S16(2) Without limiting subsection (1), the functions of Telecom
include the carrying on, within or outside of Australia, of any
business that is capable of being conveniently carried on:
(a) by the use of resources that are not immediately required in
carrying out Telecom's principal or subsidiary function; or
(b) in the course of: (i) the supplying of telecommunications
services under S14; or (ii) the carrying on of any business activity
under S15.
S18. Telecom has the power, for and in connection with the performance
of functions:
(a) to supply value added services;
(b) to publish telephone directories and to supply directory
information services;
(c) to supply, install and maintain customer premises equipment and
customer lines;
etc.
ENDNOTE 2:
The Telstra (Dilution of Public Ownership) Act 1996, in Part 2 -
Commonwealth ownership of Telstra, includes the following:
8BC Provision to attract the corporations power and the
communications power.
This Part does not apply to Telstra unless Telstra:
(a) is a corporation to which paragraph 51(xx) of the Constitution
applies; or
(b) carries on a business that consists of or includes the supply of
a telecommunications service (within the meaning of the
Telecommunications Act 1991).
The Explanatory Memorandum to the Bill states:
New section 8BC - Provision to attract the corporations power and the
communications power
New section 8BC is intended to ensure that proposed new Part 2 is
supported by the Commonwealths powers to make laws with respect to
trading and financial corporations (paragraph 51(xx) of the Australian
Constitution) and with respect to "postal telegraphic and other like
services" (paragraph 51(v) of the Australian Constitution).
Ian Johnston ijohnsto@pcug.org.au
CANBERRA A.C.T. AUSTRALIA