Australia's telecommunications giant Telstra has acquired Digicel's Pacific arm in a US$1.6 billion deal funded mostly by the Australian Government.

Australia's interest in the strategically important telecommunications network which covers the region has been the subject of discussion between the country's largest telecommunications company and its federal Government for much of the past year.

Digicel's South Pacific branch includes holdings in Papua New Guinea, Fiji, Samoa, Vanuatu, Tonga and Nauru, according to a statement by the company. That reach makes it the largest mobile operator in the region. 

The takeover - and Australian taxpayers' funding of it - has been widely viewed as a strategic play on Australia's part as a means of blocking a Chinese-owned company from acquiring the network and giving it a possible strategic advantage in the region. 

Rumours that the China Mobile Limited had been in talks with the mobile provider were previously denied but Digicel had said it had received a number of unsolicited approaches from entities interested in acquiring its Pacific division. 

Under the terms of the deal, Telstra has put just $US270 million towards the acquisition.

The balance - or some USD$1.33 billion - has been made up by the Australian government-owned Export Finance Australia entity. 

“Digicel enjoys a strong market position in the South Pacific region holding a strong No. 1 position in all markets other than Fiji where it is the No. 2,” the head of Telstra Andy Penn said in a statement that described the acquisition as "commercially attractive". 

In a statement co-signed by three Cabinet Ministers including the country's Foreign Minister, Marise Payne, Australia cast the deal as an acquisition designed to support the development of Australia's "Pacific family". 

"The acquisition [...] reflects the Government’s commitment, as part of its Pacific Step Up, to support the development of secure and reliable infrastructure in the region, which is critical to the Pacific region’s economic growth and development," the statement said. 

"It will help with the region’s COVID-19 recovery and will support resilience and stability. This is fundamentally in the interests of both Australia and our Pacific family."

Digicel was founded by Irish billionaire Denis O'Brien. In recent years Mr. O'Brien and the international telecommunications company he founded have been plagued by financial issues and billions of dollars in debt.

The sale of its Pacific branch will go a long way toward remedying those financial problems.

In a statement on Monday, Mr. O'Brien welcomed the deal.

“I am very pleased that today’s agreement with Telstra, our very near neighbour in the Pacific, will further enhance [Digicel Pacific's] infrastructure, data and call termination links with one of the largest and most reliable networks in Australia," he said. 

Shares in Telstra - formerly a Government-owned telecommunications company - rose by 2 per cent after the announcement was made.