Telstra has lost up to $90 million on its deal with the Commonwealth to run Centrelink's phone lines, according to insiders, and there is no end to the pain in sight with at least two more years of the agreement left to run.
Insiders have told Fairfax that Telstra lost $30 million a year for the first two years of its $474 million phone hook-up with the giant Department of Human Services, with the losses expected to continue at a similar or greater rate for the foreseeable future.
But another source close to the contract said the internal criticism of the deal was "harsh" indicating the telecoms giant was willing to absorb losses at the front end of the contract period in order cement its hold on the government work.
Telstra has not responded to the claims, with repeated requests to its publicity department for comment going unanswered.
The reported red ink means the losers from the deal are piling up; callers to Centrelink phone lines, who have seen services grow worse since the deal was signed in 2012, taxpayers who have seen little value from the outsourcing and Telstra's army of shareholders who have not been told of the losses.
The five-year contract, which has two, one-year extension clauses, will eventually see Telstra manage all telephone, data and call centre services for DHS across one network and platform.
The single-carrier model consolidates 20 existing contracts and is expected to save money and simplify services between the department's agencies.
But the Telstra technology and know-how have yet to make a difference at the coalface of the nation's welfare system, with Human Services' telephone customer service performance savaged in May by an Auditor-General's report.
Both the department and Telstra were bullish in June 2012 when the telco beat rivals Optus, Dimension Data and NEC to win what was at the time one of the Commonwealth's biggest IT contracts.
The brief was to connect DHS's three agencies Medicare, Centrelink and Child Support and provide mobile voice, broadband and support services for over several thousand staff across more than 855 sites.
Telstra promised a "good return" for the business while the department promised a better customer service experience from its call centres.
But sources say pre-contract scoping work was poor by Telstra and underestimated the effort and human resources needed to deliver on its commitments.
It is also understood that there has been significant "scope creep" since the deal was done and that Verint WFM software had to be removed and replaced by Genesys WFM technology with Telstra footing the hefty bill.
One insider said the deal "leaking of millions of dollars" was a "known secret" in the telco and among its contractors.
"Telstra was losing so much money on the deal they were reporting the DHS deal separately to other sales so as not to skew the figures," the source said.
Another technician who has worked close to the contract acknowledged there had been criticism of the scoping but that it was harsh, given the size and complexity of the undertaking.
The second source indicated that Telstra might be playing a longer game, willing to absorb losses in the first years of the contract to develop the relationship with DHS and unchallenged position as the dominant player in the government telephony sector.