Acquisition of the Digicel Pacific operations by Telstra – the largest Australian telecom – in exchange for $1.6bn, may be much more relevant from a strategic standpoint than a business one for the parties involved.

Digicel Pacific counts on 2.5m subscriptions and $431m in annual revenue, which makes it one of the largest operators in the Pacific islands, specially in the rising Papua New Guinea. It already has in place an extensive infrastructure, in Islands where the terrain makes it difficult for rivals to develop new infrastructure.

While Telstra expects minimal financial return from this deal, it has also taken a very low risk in the operation, since the Australian government has funded over 80% of the acquisition. In return, the telecom aims to improve its institutional relationships with the government ahead of the country telecom infrastructure push.

Telstra benefited once before from the government implication in telecom infrastructure, as the ban on Huawei 5G equipment in 2019 negatively impacted its rivals, which were already using the Chinese telecom equipment in their networks.

By backing this deal, the Australian government advances in its strategy to keep its relevance in the Pacific, amid the recent push from China to pick up its influence over governments in the region.

Digicel Pacific acquisition thwarted China’s plans for Pacific telecom monopoly

Recently formed financial ties between Australia’s neighbouring Islands and the Chinese government, caused telecom espionage worries in the largest country in Oceania. Reports early in the year of China Mobile interest in the potential acquisition of Digicel Pacific, seemed to confirm those worries.

Australia has historically considered the Pacific Islands as trusted partners with shared interests. However, some of the most relevant governments in the region seem to be shifting away from the “aid-donor” relationship with Australia, and towards economic development partnerships with China.

Influence over the Pacific Islands increasingly relevant amid US-China trade war

Besides the strive for regional relevance by Australia, its role as the US ally that is closest geographically to China, puts it in a key position to influence the US-China trade dispute. In fact, the largest country in Oceania has its own trade scuffle with the second largest economy in the world.

Being that the Pacific Ocean is the only geographical barrier separating both economic giants, establishing geopolitical power over this region is getting increasingly important as tensions continue to build. In fact, the US and Australia have agreed to upgrade the Manus Island base and make it a joint military base.

With most Pacific governments keen on being left out of any potential geopolitical battle between the US and China, the proactive defensive approach by Australia to limit China’s influence over the region could be a deterrent for countries to get in business with China.