Telstra reaches for the Pacific in rumoured Digicel deal

Technology

According to the Australian media, national operator Telstra is in talks to purchase Digicel’s telco operations in the South Pacific, which include Papua New Guinea, Fiji, Nauru, Samoa, Tonga, and Vanuatu. 
The bid, which is rumoured to be worth around A$2 billion, will be supported both financially and in terms of strategic risk management by the Australian government, after they approached Telstra for technical advice regarding Digicel Pacific…

According to the Australian media, national operator Telstra is in talks to purchase Digicel’s telco operations in the South Pacific, which include Papua New Guinea, Fiji, Nauru, Samoa, Tonga, and Vanuatu. 

The bid, which is rumoured to be worth around A$2 billion, will be supported both financially and in terms of strategic risk management by the Australian government, after they approached Telstra for technical advice regarding Digicel Pacific. Telstra described any equity investment it would make as “a minor portion of the overall transaction”, suggesting that the government will pay most of the bill.

For Digicel Group, which has been languishing under the weight of around $5.4 billion gross debt, such a transaction would be a major boost, allowing them to focus on their remaining 26 markets in the markets in the Caribbean, Central America and Asia Pacific regions.

No deal has been finalised just yet, however, with Telstra was quick to point out that discussions are still in the early stages.

“The discussions are incomplete and there is no certainty that a transaction will proceed,” said Telstra, responding to the media reports.

The decision from the government to support such an investment is not too surprising. Sources suggest that much of the motivation surrounds the topic of national security in the wake of Chinese communications firms’ expansionism. China Mobile, for example, has also been rumoured to be in talks with Digicel, though these discussions remain unconfirmed.

Notably, this is not the first time that the Australian government has teamed up with Telstra in an effort to circumvent China’s geopolitical influence on the surrounding waters and thus the nation’s cyber security. Back in 2018, the government provided A$137 to co-fund the construction of submarine cables and a cyber security centre for the Solomon Islands, largely driven by the desire to block China’s Huawei from winning the contract.

But while any deal with Digicel for their Pacific operations will hardly break the bank for Telstra, especially if the government provides the lion’s share of the funding, it shows a disconcerting trend of the nation’s largest operator becoming a vehicle through which the government addresses geopolitical concerns.

The move would also run contrary to Telstra’s professed efforts to simplify their operations in the coming years, with the acquisition requiring them to enter relations with multiple governments across the island nations. 

As part of their broader simplification strategy, late last month Telstra sold 49% in its tower company InfraCo Towers to the Australian sovereign wealth fund, Future Fund, raising A$2.8 billion.

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