Australia moves to block China buying Pacific telco due to security fears

Australia reportedly began to look into a deal to purchase Digicel following allegations that Chinese-owned firms had expressed interest.
Australia reportedly began to look into a deal to purchase Digicel following allegations that Chinese-owned firms had expressed interest.PHOTO: REUTERS

SYDNEY - Australia is stepping up its effort to counter Chinese influence in the South Pacific, proposing a hefty investment to ensure the largest telecommunications firm in the region, Digicel Pacific, is not acquired by a Chinese firm.

The federal government has reportedly backed a A$2 billion (S$2 billion) bid by the Australian telecommunications giant Telstra to purchase the Pacific arm of Digicel Group from its current owner, Mr Denis O'Brien, an Irish billionaire. Canberra would reportedly provide a generous loan worth about A$1.5 billion to support the deal.

In recent years, Australia has launched a diplomatic effort to bolster relations with its Pacific neighbours amid concerns about China's growing influence in the region. China has been expanding ties and loans across the South Pacific, which have raised fears in Canberra that the small island nations in the region could fall into a debt trap and become politically indebted to Beijing.

Australia reportedly began to look into a deal to purchase Digicel following allegations that the Chinese-owned firms, China Mobile and ZTE, had expressed interest. Digicel is the dominant telecommunications operator in the South Pacific. It reportedly has 91 per cent of the phone and broadband market in Papua New Guinea, 65 per cent of the market in Vanuatu, 69 per cent in Samoa, 58 per cent in Tonga, 32 per cent in Fiji, and 100 per cent in the small nation of Nauru.

Australian intelligence agencies apparently believe that a Chinese firm gaining an interest in Digicel poses a security threat, potentially enabling Beijing to access local financial data and communications. Canberra has reportedly discussed its proposed deal to acquire Digicel with Washington.

An unnamed Australian official warned earlier this year that a Chinese firm's ownership of Digicel would enable China to spy on Australia's island neighbours and could undermine attempts to combat Beijing's reach into the Pacific.

"If China ends up buying it, they will hear and see everything," the official said, according to The Australian Financial Review.

"You can have all the foreign aid and build all the bridges you want in the Pacific, but if China has the telecommunications network, it's game over."

An analyst at the Australian Strategic Policy Institute, Mr Michael Shoebridge, a former senior defence official, said he believed Australia should not allow a Chinese state-owned firm to control crucial telecommunications assets in the nearby South Pacific.

"It would create vulnerabilities far larger than the clear vulnerabilities from cyber hacking," he told The Sydney Morning Herald.

Canberra has increasingly been worried about Chinese access to telecommunications infrastructure.

In 2018, Australia became the first country in the world to ban Chinese firm Huawei from participating in the roll-out of its 5G network. It also helped to fund an undersea cable network that connects Australia to the Solomon Islands and Papua New Guinea to block Huawei from developing the project.

Analysts said Australia's proposed Digicel deal would help to prevent Chinese access to Pacific infrastructure but would also demonstrate that Australian businesses were ready to invest in their Pacific neighbours. In recent years, major Australian businesses, including leading banks, have reduced their presence in the Pacific, raising concerns in Canberra that its ties with the region could suffer.

Two Pacific analysts at the Lowy Institute, Mr Jonathan Pryke and Mr Shane McLeod, said Australian businesses had retreated from the Pacific even though "Chinese businesses and state-owned enterprises are at the forefront of China's growing presence".

"The underwriting of the purchase of Digicel can hit two birds with one stone," they wrote in The Australian Financial Review. "It can stave off a China monopoly, while showing the Australian government's willingness to put significant money on the table … to get 'blue chip' Australian businesses back into the region."

Several analysts, though, questioned if Chinese firms were genuinely interested in buying Digicel, suggesting that it may be playing up Chinese interest to encourage Canberra to make a bid.

Telstra's chairman, Mr John Mullen, reportedly told a conference last week the firm will not make any investment that does not benefit its shareholders. "That said, can you help your sovereign government... particularly if you're a critical infrastructure provider?" he added. "Well of course you can."