Australia Buys Foreign Telco in Expensive Push to Keep China Out of Pacific Island Nations

Australia Buys Foreign Telco in Expensive Push to Keep China Out of Pacific Island Nations
Image: Rick Rycroft, AP

The Australian government is helping Telstra purchase Digicel Pacific, the largest telecommunications company in the Pacific, in a multi-billion deal made public Monday. And while Australian taxpayers are largely footing the bill, this deal is about more than money. It’s about making sure China doesn’t get a foothold in the communications infrastructure of Pacific island nations, at least that’s according to an Australian foreign policy expert.

The Australian government is contributing $US1.33 billion (around $1.78 billion) to the new $2.1 billion deal, while Telstra is contributing just $US270 million (around $360 million). Despite the incredibly lopsided financing, Telstra will hold all the equity.

Digicel Pacific is a subsidiary of Digicel, founded by Irish billionaire Denis O’Brien in 2001, which also has a huge presence in Caribbean island nations. Digicel Pacific operates in six countries in the South Pacific, including Fiji, Nauru, Papua New Guinea, Samoa, Tonga, and Vanuatu. The company is largely dependent on Huawei 4G infrastructure in the Pacific and hasn’t made a transition yet to 5G.

China Mobile had previously expressed interest in buying Digicel Pacific, leading to a big push from the Australian government to keep Chinese telecom companies out of the region, even if that won’t be admitted to just yet. A spokesperson for the Department of Foreign Affairs and Trade did not give comment to Gizmodo by press time, but denied to other news outlets that the deal had to do with countering China, telling the Sydney Morning Herald, “this isn’t about any one other country.”

But that’s not how experts on the region see it. In fact, the deal only makes sense if you approach it from the perspective of the New Cold War.

“Australian businesses have been in retreat in the Pacific,” Jonathan Pryke, director of the Pacific Islands Program at the Australian think tank the Lowy Institute, told Gizmodo on Monday. “But Australia is now stepping up its own engagement.”

“In a 5G world, financial services and infrastructure like power are all connected,” Prkye explained.

If China had control over telecom capabilities in the South Pacific, “it would give China access to information but also the ‘finger over the switch’ to disrupt these economies,” Prkye said.

Those same “finger over the switch” concerns have kept Chinese companies like Huawei from bidding on lucrative telecom infrastructure contracts in the U.S. In a potential worst-case scenario, U.S. policymakers don’t want to give Chinese companies the ability to turn the lights on and off — both figuratively and literally.

As the Sydney Morning Herald notes, China has spent billions in recent years on infrastructure projects in the South Pacific:

While Australia has long been the dominant provider of foreign aid in the region, Beijing has led the way in providing cheap loans to bankroll infrastructure projects. China was responsible for 37 per cent of all donor loans to the Pacific between 2011 and 2017, funding projects with a total value of about $US1.7 billion (around $2 billion).

But ask Pryke explains, the deal to buy Digicel Pacific is larger than any given foreign aid project financed by the Australians in any single year. And while the government certainly hopes to make some money on this deal, it’s worth so much more through the projection of economic and cultural power.

“If you want to understand the geostrategic implications, have a look at the second world war,” Pryke told Gizmodo.

The U.S. and its allies, including Australia, used islands in the South Pacific to ferry soldiers and supplies during World War II in the fight against Imperial Japan. These same 14 states and territories that make up the major South Pacific island nations would be just as instrumental in fighting any hypothetical battles against China and its allies if the New Cold War ever turned hot.

In the end, Pryke isn’t against the deal for Digicel Pacific, but he obviously has his reservations about what it means for the future if ordinary Australians are paying for all of this.

“I’m optimistic, but it’s not without risk for the Australian taxpayer” Pryke said.