NBN: Constitutional Mine Traps

There are several constitutional hurdles that the NBN may need to overcome before it can be a reality, writes Jai Martinkovits.

The Government announced on 7 April 2009 that it would establish a company to build and operate a new super-fast National Broadband Network (NBN). The new network will utilise Fibre-to-the-Premises (FTTP) technology, supplemented with next generation wireless and satellite technologies to deliver superfast broadband services.

A government owned company NBN Co was established on 9 April 2009 to roll-out and operate the network as a wholesale only company and provide access to the NBN to all retailers on an open and equivalent basis.

The Government says it will welcome private sector investment in the company, but their ownership restrictions would be introduced to protect the company’s wholesale-only status. It also announced its intention to sell down its interest in NBN Co within five years after the NBN is built and fully operational, consistent with market conditions and national and identity security considerations.

Telstra is warning that its $11 billion deal with Labor's National Broadband Network company threatens to unravel. (Mitchell Bingemann in The Australian, 9 October 2010). The report follows:

The telco says the deal will fall apart if it is forced to maintain its ageing copper network for people who refuse to connect to the fibre network.

Under the terms of the non-binding deal, Telstra will be paid to transfer its traffic on to the NBN and to gradually shut down its copper network as customers move to the new fibre network.

But fresh concerns over the sluggish NBN take-up rates in Tasmania, coupled with the disparate methods used by state governments to connect the new fibre cable to premises, could see large parts of Telstra's copper network maintained past its use-by date and in parallel with the new NBN.

Telstra chief executive David Thodey exposed the fragility of its agreement - a deal which industry experts say underpins the success of the ambitious NBN project - by describing the need to continue maintaining its network while servicing customers on the NBN as a value-destroying proposition.

"The commercial terms must be such that we are not left to maintain the copper in that period, otherwise the value is destroyed, so it's got to be done in commercial terms and that is why it's the government's prerogative to decide how to incent people to move across," Mr Thodey said.

Telstra spends $300 million a year in capital expenditure on its copper network and, according to analysts, as much as $1bn a year in operating costs to maintain its far-reaching asset. It's expected the vast majority of its customers will move to the NBN, but even if a fraction remain on the copper network, the costs to maintain it would continue to be high.

Under the terms of the $11bn deal, the government is supposed to relieve Telstra of its universal-service obligation to provide a fixed-line service to premises, but it is not clear if that provision will be extended to premises within the NBN's fibre footprint.

A spokeswoman for Communications Minister Stephen Conroy said no decision had yet been made in relation to switching off Telstra's copper or cable networks, but she said the NBN Co would not carry the burden of maintaining the copper network.

The NBN Co has eight years to connect 93 per cent of the nation, but a sluggish rate of activations in Tasmania - about 50 per cent - suggests this target will be difficult to achieve. This week, Tasmania announced it would introduce laws so homes and businesses would automatically be connected to the NBN unless they refused in writing.

NSW and Victoria have refused to follow Tasmania's legislative lead and adopt an opt-out system, which has prompted new fears that the first mainland sites could be subject to the same lowly take-up numbers.

If there are poor connection rates on the mainland, then it could become essential for Telstra to continue maintaining its copper network. The alternative would be to switch its fixed-line internet to a wireless service.

One matter hitherto undiscussed is that there may well be serious constitutional hurdles for the NBN. A High Court challenge would of course be highly dependent on the NBN scheme – a confusing mix of various pieces of legislation, parliamentary and subordinate, appropriations, agreements and understandings much of which we have no idea.

The recent exemption from scrutiny by the public works committee, the refusal to undertake an independent cost benefit analysis and the government’s general secretiveness about the NBN is keeping the public in the dark.

In most Western countries it is believed that governments are ill fitted to do this.

This makes this plan for massive government involvement similar to the failed 1947 bank nationalisation which brought down the Chifley government.

What is different was that bank nationalisation was attempted just by one piece of legislation. The NBN scheme is complicated, much of it unknown and one suspects that even at this stage, undecided.

In any event there are five areas which have been flagged as potential areas for challenge.

The Commonwealth will say that it is empowered to establish the NBN under section 51 of the Constitution which provides that:

51.The Parliament shall, subject to this Constitution, have power to make laws for the peace, order, and good government of the Commonwealth with respect to: (v.) Postal, telegraphic, telephonic, and other like services.

However this power is constrained in the several relevant respects.

Until we know what is being proposed it will be difficult to say where the problem areas are.

What is likely is that those sufficiently disadvantaged are likely to challenge the scheme.

1. Is the NBN scheme in breach of the constitutionally guaranteed freedom of trade?

Section 92 provides that trade, commerce, and intercourse among the States ... shall be absolutely free.

Professor David Flint says that the High Court has moved between holding that this is just about free trade to saying trade must be left without any restriction. The word ‘absolutely’ is thought to give added impetus to the view that is more than merely about a free trade area.”

“Bank Nationalisation floundered essentially for this reason. The High Court has for the past two decades moved back to the section being about free trade. How the NBN will be viewed aginst section 92 is yet to be seen, not only as a monopoly wholesaler but in other aspects e.g., the requirement that at least Tasmanians must opt out not to become a customer of the NBN,” he continued.

Professor George Williams says “that is a bit of a long bow, it would be an unlikely area for challenge unless it discriminated against a certain state.”

2. Is the NBN legislation in breach of the constitutional guarantee of freedom of intercourse?

Section 92 also says freedom of intercourse among the States shall be absolutely free.

Professor Flint asks whether an argument could be mounted that the NBN put limits on the freedom of other potential wholesalers and on the freedom of retailers.

3. Is each appropriation of money by Parliament to the NBN or, say Telstra, made in accordance with the Constitution?

To the extent that the operation of the NBN apparently depends on billions of dollars of appropriations by the Commonwealth to this company, the appropriations power is involved.

Section 81 provides that all revenues or moneys raised or received by the Executive Government of the Commonwealth shall form one Consolidated Revenue Fund, to be appropriated for the purposes of the Commonwealth in the manner and subject to the charges and liabilities imposed by this Constitution.

Professor Flint says “The High Court recently held in the Page case (Mr. Page was a publicly spirited law academic) that Parliament does not have the last word on what are ‘the purposes of the Commonwealth’”

Professor Flint also points out that “It is unlikely that the High Court would find the absence of any competent cost benefit analysis involves a breach of the power.”

“But is running a national broadband company with a wholesale monopoly a ‘purpose of the Commonwealth'? The Court may well decide it is not. Accordingly an appropriation is beyond power,” he added.

4. Has any appropriation of property for the NBN been made in accordance with the Constitution?

“To the extent that the activities of the NBN involve the Commonwealth compulsorily acquiring property, remember that this power can be exercised on two conditions under section 51(xxxi.)," says Professor Flint.

“They are that the acquisition be
• on “ just terms”, and,
• the acquisition can only be for a “purpose in respect of which the Parliament has power to make laws” he added.

This raises the question, is acquiring property for a corporation, one that is promised to be sold off, a proper exercise of this power?

Professor Flint and Professor Williams both agree that without the specific legislation it is impossible to speculate at this point, but identify this is an area of challenge if someone is disadvantaged.

5. The question arises whether in implementing the scheme as a whole and each of its parts the government or the Parliament is in breach of the freedom of political communication found in the Constitution.

Professor Flint points out this freedom is an indispensable incident of the system of representative government established in the Constitution.

“The High Court has pointed out its operation is not of course restricted to the election period,” he added.

He believes a challenge could be made that given the importance of electronic communications over the network, the vesting of a wholesale monopoly in any one body - especially one owned by the government - gives the potential for government to curtail that freedom.

He says that the argument would probably not be that government has actually curtailed that freedom. It would be that it was putting itself in a monopoly position which could allow it to do so.

He suggests that analogies could be made with the creation of a government monopoly of wholesale news services, or of the print media or of broadcasting which would be arguably in breach of the freedom.

Professor Flint says “a challenge could be made here to legislation and/or subordinate legislation or decisions of the government.”

Professor Williams is a little more sceptical, adding “the ability for exploitation is unlikely to carry much weight; an internet filter is more likely to raise this. Section 92 would also be relevant to this.”

It is not of course possible to say any challenge will or will not be successful, but it should not be assumed that the government can go ahead with the scheme without being challenged in the High Court on any of these and/or other grounds.

Professor Flint says it is a mistake to believe anyone can accurately predict what the High Court will do if such a major a case comes before them.

“The High Court is always full of surprises, from validating WorkChoices, finding the existence of native title across Australia, and that closing the rolls on the day the election writs are issued is unconstitutional. Every so often the Court will take a different trajectory on an issue, for example on section 92,” he says.

Jai Martinkovits is an IT graduate, specialising in e-Business and Business Informations Systems. He is Managing Director of a J.K. Managed Solutions, a Sydney based IT consulting firm. His website is http://jaimartinkovits.com.au/.