Telstra's 20-year USO deal savaged by auditor

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Telstra's 20-year USO deal savaged by auditor

May be impossible to end it early.

An explosive audit has questioned the value for money and “net public benefit” of a 20-year contract handed to Telstra for the provision of standard telephony services to Australians.

The Australian National Audit Office (ANAO) raised serious questions about the Telstra Universal Service Obligation Performance Agreement - or TUSOPA - which was created in 2012 under Labor.

The TUSOPA incorporates the universal service obligation (USO) that Telstra has had for decades, which makes them responsible for providing a reasonable basic telephony service to all Australians.

Under the agreement - which was struck in part to gain Telstra’s buy-in to the then-new national broadband network project - Telstra receives a $297 million payment each year.

The contract is already considered contentious and there are already calls to end it prematurely once the NBN rollout is finalised in 2020, though such a move could be difficult and costly.

The auditor found that the contract “lacks a mechanism which would enable the government to effectively manage the financial risks should it wish to end the contract before the scheduled 20-year term”.

But ANAO’s assessment of the contract is likely to create renewed calls for the USO - and the umbrella TUSOPA agreement - to be rethought.

The auditor found “key aspects of the TUSOPA [that] do not reflect value for money principles”.

“In particular, the contract’s term of 20 years with a fixed annual fee based on 2009–10 costs does not reflect the demonstrated decline in demand for standard telephone and payphone services over the relevant period,” it said in a report published by the government just prior to the long weekend. (pdf)

ANAO further said that TUSOPA’s current overseer - the Department of Communications - “has not utilised … flexibility mechanisms within the contract which have the potential to reduce the annual payment amounts”.

No one was “verifying the accuracy of the underlying performance data provided by Telstra”, making it difficult to determine “whether contract services are achieving the stated policy objective”, the auditor said.

Worse, the ANAO found that “while the TUSOPA has played a role in facilitating the involvement of Telstra in the rollout of the NBN, there is a lack of clear evidence that a net public benefit has been realised as a direct result of the introduction of the TUSOPA”.

The government welcomed the scathing report, which it claimed highlighted Labor failures when agreeing to the contract.

But ANAO is also scathing of the current government for not doing enough to fix the issues.

“The Department has not actively managed the contract towards achieving value for money,” the auditor said.

“Since assuming responsibility for the TUSOPA in 2015, the Department has established a payment process and contract management plan, however this plan is silent on the utilisation of mechanisms in the contract which provide near–term opportunities for the Department to explore the achievement of value for money.

“There is also no evidence that the Department has sought to utilise the flexibility mechanisms in the contract which are available to achieve cost savings or to review the scope of services.”

The government said in a statement it would take into account the USO examinations by both ANAO and the Productivity Commission to determine appropriate policy actions and “reforms”.

However, the government said that it “will not make changes to the current contract and USO arrangements until it has identified an acceptable alternative way to deliver voice services”.

That is unlikely to please vocal critics of the USO, such as Vodafone, who called on the government to act "following yet another damning USO report".

"The Universal Service Obligation is an outrageous anti-competitive subsidy to Telstra, and has to go. A light is finally being shone on this murky backroom deal," Vodafone's chief strategy officer Dan Lloyd said in a statement.

"The ANAO report also reveals that the government holds in its hands the power to bring an end to this situation."

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