A government audit has savaged Telstra’s 20-year USO deal.

The Australian National Audit Office (ANAO) review has seriously questioned  Telstra’s Universal Service Obligation Performance Agreement - or TUSOPA - created in 2012 under Labor.

The TUSOPA incorporates the decades-old universal service obligation (USO), which make the company responsible for providing reasonable basic phone access to all Australians.

The current agreement sees Telstra receive about $297 million each year.

The audit office says 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”.

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 new report (available here in pdf form)

The ANAO says the federal agency in charge of the TUSOPA – the Department of Communications - “has not utilised … flexibility mechanisms within the contract which have the potential to reduce the annual payment amounts”.

The agreement was set up in part to encourage Telstra to buy-in to the then-new national broadband network project. 

But the department has not been “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.

“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 ANAO found.

The government says the report shows Labor’s failures when agreeing to the contract.

But ANAO also slammed 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 says it is looking at appropriate policy actions and “reforms”, but it “will not make changes to the current contract and USO arrangements until it has identified an acceptable alternative way to deliver voice services”.

Vodafone say the government must 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 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.”