The federal government has announced it will move away from its $100 million Universal Service Obligation with Telstra in 2020 in favour of a market-based agreement focusing on voice and broadband services.

The Universal Service Obligation (USO) is a long-standing contract between the government and Telstra to ensure that all Australians have access to a landline or payphone. But with technological change and the rollout of the National Broadband Network (NBN), several government reports have found that the USO is now obsolete.

A Productivity Commission inquiry into the telecommunications USO found that the existing contract is “anachronistic and costly” and should be “replaced by a new framework to reflect changing policy, market and technological realities”.

The government has now formally responded to this report, saying it will be working to develop a new Universal Service Guarantee (USG) that will ensure that all Australians have access to voice and broadband services, regardless of where they live in the country.

The government will begin the work to develop the new USG now but will continue with the existing USO until the NBN has been fully rolled out in 2020.

Communications minister Mitch Fifield said the new USG will also need to meet four key requirements before a change is made:

1. that broadband services are available to all Australian premises on request;

2. voice services are available to all Australian premises on request;

3. any proposed new service delivery arrangements are more cost effective than the existing USO contract; and

4. a new consumer safeguards framework is in place following a review and consultation process.

“The government is taking a ‘belt and braces’ approach to protecting telecommunications accessibility for people in regional Australia,” Fifield said. “The government is putting new, stronger safeguards in place before making any changes to existing safeguards while the NBN is rolled out.”

The new USG will ensure that all Australians have access to voice and broadband services delivered on a commercial basis. This will be delivered firstly by NBN Co through the Statutory Infrastructure Provider framework, which is currently before Parliament, and with targeted government measures where necessary.

The government has said it will consider the future of its $100 million contribution to Telstra as part of the current USO when the switch takes place.

The announcement was welcomed by the Australian Communications Consumer Action Network, with the consumer body saying it will be working with the government to ensure the USG doesn’t result in higher bills or worse quality technology.

“All consumers need access to reliable and affordable voice and internet services,” ACCAN CEO Teresa Corbin said.

“Guarantees underpinning access to vital voice and internet services are fundamentally important for areas where the market is not delivering adequately. We look forward to working with the government on this in 2018 and beyond.”

In its response to the Productivity Commission’s report, the government said that the NBN rollout will render the USG outdated.

“Changing consumer preferences and the rapid evolution of technology means that the mechanisms used to deliver these services are increasingly outdated,” the government said.

“The vast majority of mobile coverage provides both voice and mobile broadband connectivity, exceeding the requirements of the existing USO and largely duplicating fixed line and fixed wireless networks.”

The new USG will still ensure access to payphones or equivalent technologies in areas with no mobile coverage or in remote Australia, the government said. It will also be working with Telstra to find where it would be appropriate to reduce the number of existing payphones that it is obligated to provide under the USO.

The USO runs until 2032 and is worth about $297 million annually for Telstra, with $100 million coming from the government and the rest from an industry levy.

The Australian National Audit Office also recently criticised the agreement, saying it did not represent value for money and that it “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 government is yet to explain the details of how it plans to end the USO with Telstra earlier than scheduled.

In a statement, Telstra said it was “open” to working with the government on the new USG, but claimed there are more than 600,000 premises where it is not commercially viable to deliver communication services.

“Through the reform process, protecting the interests of these customers will be at the forefront of Telstra’s considerations,” a Telstra spokesperson said.

“We believe that it is critically important that everyone has access to essential telephone services, and this is a significant obligation.”