Telstra uses Government money to buy PNG telco

Telstra has used Federal Government money to fund a portion of its purchase of south pacific telco Digicel Pacific after fears the business would be acquired by a Chinese company.

In a move reminiscent of the government intervention in the construction of the NBN, the Coalition Government had such concerns over potential Chinese ownership of telecommunications infrastructure that it was willing to chip in more than three-quarters of the total purchase price to keep the company out of Chinese hands.

The telco confirmed to shareholders that it had agreed to buy the Digicel Pacific for $2.3 billion, while only putting up $390 million itself. The remaining $1.88 billion will be funded by the Federal Government yet Telstra will own 100 percent of the company.

The office of Communications Minister Paul Fletcher reffered CRN to the Australian Depdepartment of Foreign Affairs and Trade, which did not respond to request for comment.

The sale is expected to be completed in the next three months.

Digicel Pacific was founded in 2006 and became a dominant provider of communications services across PNG, Fiji, Nauru, Samoa, Tonga and Vanuatu. In its statement to the ASX, Telstra said the company had approximately 2.5 million subscribers and 1700 employees generating US$431 million in service revenue for the financial year ended 31 March.

Telstra boss Andrew Penn said in a statement that the telco was initially approached by the Morrison Government to provide technical advice in relation to Digicel Pacific and subsequently considered acquiring the business with financial and strategic risk management support from the Government.

Penn said the partnership represented an important milestone in the company’s relationship with the Australian Government.

“Digicel Pacific is a commercially attractive asset and critical to telecommunications in the region. The Australian Government is strongly committed to supporting quality private sector investment infrastructure in the Pacific region,” he said.

“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.

“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.”

Telstra first confirmed the reports that it was in talks to buy Digicel Pacific in July this year after reports of discussions began to circulate.

At the time ITnews noted that the buyout offer had regional security overtones, with the federal government reportedly concerned that the asset could be bought by Chinese interests if an Australian offer is not forthcoming.

A similar situation arose in 2018 when Australia offered to fund subsea internet cables in the region, again to stop Chinese companies from funding the projects.

The majority of Digicel Pacific’s revenue is generated in PNG. Telstra said it was the number one player in all markets except Fiji and aproximately 76 per cent of its revenue generated from its mobile business, which is largely prepaid, and the balance from business solutions, TV and broadband services.

Digicel Pacific currently services 1,500 small to medium business enterprises, 250 large enterprises and 200 corporates in PNG.