Australia invests with Telstra in US$1.6b Digicel Pacific telco deal

Australian telco Telstra has partnered with the Australian government in a US$1.6-billion deal to buy the South Pacific operations of Digicel, in a deal that would prevent a key part of the region’s telecommunications infrastructure falling into Chinese hands.

Telstra, the nation’s largest telco, said in a statement it would contribute US$270 million to the deal and hold 100 per cent of the equity in Digicel Pacific Limited, DPL.

The terms of the sale were agreed on and would be completed within six months, Telstra CEO Andrew Penn said.

“Digicel Pacific is a commercially attractive asset and critical to telecommunications in the region,” said Penn.

Digicel Group said in a statement that the deal would value DPL at up to US$1.85 billion, and is expected to close in the first quarter of 2022.

Digicel is owned by Irish businessman Denis O’Brien, is incorporated in Bermuda and headquartered in Jamaica. It operates in 33 markets in developing countries around the world and is the leading mobile phone carrier in Papua New Guinea, Tahiti, Tonga, Nauru, Samoa and Vanuatu. It is the second-biggest carrier in Fiji after Vodafone.

Australia’s Trade and Investment Minister Dan Tehan said in a statement that the partnership with Telstra, once a state-owned monopoly, was “consistent with Australia’s long-standing commitment to growing quality investment in regional infrastructure”.

The deal also reflected Australia’s commitment to support the development of secure and reliable infrastructure in the region, which is critical to the region’s economic growth and development, Tehan said.

The United States and some other governments have sought to minimise involvement of Chinese telecoms equipment makers in upgrades of communications networks, citing security concerns. Added to that, trade and other relations between Australia and China have been strained over a range of issues in the past several years.

Australia signalled it was competing head-on with China on telecommunications in the Pacific when it paid for a US$130-million fibre-optic submarine telecommunications cable linking Sydney to Papua New Guinea and the Solomon Islands, which started operating last year. The cable resulted in the Solomons government ripping up a contract with China’s Huawei to run a cable to Sydney.

Jonathan Pryke, Pacific Islands programme director at the Sydney-based Lowy Institute international policy think tank, said Australia’s main concern about Chinese ownership of Digicel was how heavily Pacific economies would come to rely on 5G telecommunications networks.

“Utilities are going to rely on 5G networks to operate, and if Digicel were to fall into a Chinese state-owned enterprise’s hands – and Digicel, while not a monopoly, does have a very dominant market share – it would give China the power to be a significant disruptor in these economies in time of geopolitical tension,” Pryke said.

“If China and Australia are really having it out, China could flick the switch in Papua New Guinea and cause all sorts of mayhem and distract Australia’s attention,” he added, referring to Australia’s nearest neighbour.

The deal comes against a backdrop of China investing heavily in the Pacific in the last 15 years, largely through the private sector. Australian businesses have retreated from the region because it is considered too complicated, risky, and not profitable enough.

“Australia is really eager to get Australian businesses back into the region,” Pryke said. “We can’t command and control them like China can, we have to incentivise them. This is one really big incentive.”

AP