The decision by Telstra to acquire the South Pacific assets of the telecommunications company Digicel with substantial Australian Government funding is welcome – but will also be challenging.
The purchase price of around $US 1.6 billion will be funded by Telstra injecting $US270 million, with the balance being financed by Export Finance Australia, a wholly owned Australian Government agency.
While that may minimise Telstra's exposure, it does indicate that at last the Australian Government is getting serious about enhancing our engagement in our immediate region – and especially Papua New Guinea.
Time will tell but this may well be the most significant step the Australian Government, and Australian business, have taken to rebuild our regional presence, and begin the long process of challenging China's continued growth in key areas including telecommunications.
The news is especially welcome given last week's extraordinary "virtual" meeting between China's Foreign Minister and the Foreign Ministers of the South Pacific nations that recognise China and not Taiwan. They included Papua New Guinea, Fiji, Solomon Islands, Vanuatu and Tonga which along with Samoa (which did not participate) can be identified as our most strategically important neighbours.
Telstra has been actively encouraged by the Australian Government to acquire Digicel's South Pacific operations. As one who has been critical of Australia's performance in our immediate region I am happy to applaud this step as a very significant and timely one!
In Papua New Guinea our most strategically important neighbour Digicel is the dominant player. It is also the major sponsor of PNG's national sport, rugby league, of which Telstra is the major sponsor in Australia. The sponsorship synergies are obvious.
Digicel has a smaller footprint in other key islands nations, but the potential for growth is obvious.
I would hope Telstra embarks on a significant infrastructure and services upgrading of the Digicel mobile network especially in Papua New Guinea where the terrain often makes reliable mobile and internet connections difficult.
But it is re-assuring to know that Telstra has clearly done due diligence on the acquisition and will be aware of some of the challenges ahead.
It will be well worth watching just how China responds, or doesn't respond. The acquisition will require regulatory approval in all countries. That will be especially important in Papua New Guinea where national elections due to be held in mid-2022.
I am of the view China was not interested in acquiring Digicel because it believes its existing profile, principally through Huawei, can be enhanced without acquiring Digicel.
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