Oceania | Economy | Security | Oceania

With Strong State Backing, Australian Telco Purchases Pacific Network Digicel

The deal is designed to head off the network’s rumored purchase by a state-owned Chinese firm.

With Strong State Backing, Australian Telco Purchases Pacific Network Digicel

A Digicel advertisement in Samoa.

Credit: Flickr/Marques Stewart

The Australian telecoms firm Telstra announced today that it has agreed to purchase the Pacific telecommunications carrier Digicel Group with hefty backing from the Australian government, in order to prevent its rumored purchase by a Chinese state-run company.

The company’s CEO Andrew Penn described the deal as a “unique and very attractive commercial opportunity for Telstra to boost our presence in the region.” And no wonder: according to Reuters, Telstra will contribute just $270 million to the $1.6 billion purchase price, with the Australian government putting up the remaining $1.33 billion,

The Jamaica-based Digicel, which is owned by the Irish billionaire Denis O’Brien, is the biggest mobile phone carrier in the Pacific Islands, and employs some 1,700 people across Papua New Guinea, Fiji, Samoa, Vanuatu, and Tahiti.

It is no secret that the Australian government has been concerned about reports, which first surfaced in May 2020, that China’s state-owned China Mobile Ltd. was interested in purchasing the company’s Pacific unit, at a reported price of $900 million. Despite Digicel’s subsequent claim that there was “no basis whatsoever” for the report, it stoked Canberra’s latent concerns about Beijing’s growing economic encroachment in the Pacific, a region that Canberra has long viewed as its own sphere of influence.

Viewing Digicel as a strategic asset, the government in late 2020 approached Telstra, a former state telecom company that was privatized between 1997 and 2011, to examine the possibility of acquiring Digicel’s Pacific unit. The Sydney Morning Herald reported that the government made an initial offer to Telstra in July of this year, under which the telecoms firm would contribute between $200 and $300 million for Digicel’s assets.

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As evident from the final arrangement announced today, Telstra required that the government take on a significantly greater portion of the risk before agreeing to the Digicel deal. “We previously said that if Telstra were to proceed with a transaction it would be with financial and strategic risk management support from the Government,” Penn told the Sydney Morning Herald.

“We also said that in addition to a government funding and support package, any investment would also have to be within certain financial parameters with Telstra’s equity investment being the minor portion of the overall transaction. I am pleased that we have been able to achieve both of those outcomes.”

The government’s commitment to the purchase reflects Australia’s increasing efforts to match and counter China’s growing economic presence in Pacific. Under its Pacific Step Up policy, announced in 2016, it has pledged infrastructure investments in Pacific island nations and poured COVID-19 vaccines into the region. It has also deepened cooperation with the Quad security grouping, which also includes the United States, India, and Japan, and the recently formed AUKUS security pact with the U.S. and United Kingdom.

In a joint statement today that pointedly did not mention China, Foreign Minister Marise Payne, Trade Minister Dan Tehan, and Pacific Minister Zed Seselja said that Telstra’s acquisition sent “an important signal about the company’s potential and about wider business confidence in the future of the Pacific region.”

“The acquisition also reflects the Government’s commitment, as part of its Pacific Step Up, to support the development of secure and reliable infrastructure in the region, which is critical to the Pacific region’s economic growth and development,” it stated

In a broader sense, the deal is the latest sign of the way that the threat posed by China’s growing economic, political, and military power has prompted Western nations to jettison neoliberal orthodoxies and contemplate a much greater degree of state intervention in their economies.

“Digicel is the primary player in the Pacific and Australia sees it as a strategic asset that they can’t allow to fall into the hands of China,” Jonathan Pryke of Sydney’s Lowy Institute told the BBC. “They are keen to get Australian business back into the Pacific and they’ve come to the realization that they are going to have to underwrite.”

However, if Telstra was reluctant to invest without the government bearing the major portion of the risk, it does beg the question of how profitable an acquisition Digicel will end up being. Over the long term, the Australian taxpayer could end up bearing a heavy financial burden to keep China out of the telecoms networks of the Pacific.