When reports first emerged last year that China Mobile – the country’s largest state-owned telecoms company – was keen to buy Digicel, the biggest mobile carrier in the Pacific islands, the move was seen as being of serious security concern to Australia.

Analysts say it not only fuelled Canberra’s worries that the Pacific nations were growing more dependent on China and moving away from their historical Western partners, but also raised the fear that if Digicel were owned by a firm so closely linked to Beijing, the Chinese government would have the ability to spy on Australia’s neighbours.

“There’s a real risk of telecoms company espionage here,” said Robert Potter, who has advised the Australian, Canadian and American governments on cybersecurity. “There’s the risk of people’s conversations becoming a component of state policy. China, effectively, would be able to access everyone’s conversations.”

Digicel, founded in 2001 by Irish businessman Denis O’Brien, is the No 1 carrier in Papua New Guinea, the Solomon Islands, Vanuatu, Tonga and Samoa, which are among the 22 nations and territories dotted across an expanse of ocean that encompasses critical lines of transport and communication.

While many of these Pacific nations have long been aligned with the United States and its allies, including Australia, China has in recent years forged closer ties with the region by pushing its diplomatic and financial clout.

Digicel confirmed last week that it had “received unsolicited approaches from a number of parties in respect of its Pacific operations”, but said it would not comment further as the discussions were private.

It was first assumed that any deal between a Chinese company and Digicel would be spearheaded by Huawei Technologies Co, but it has since been widely reported that China Mobile is firming up as the most realistic buyer, despite it never having publicly acknowledged its interest.

The Australian Financial Review (AFR) reported earlier this month that Digicel representatives had told private equity firms that Chinese entities had expressed interest in buying the company’s Pacific arm. China Mobile representatives did not respond to an interview request.

Another wrinkle that has emerged is Australia’s apparent willingness to finance a potential buyer for the company, which is some US$6.7 billion in debt and has a reported asking price of around US$900 million. The AFR has also reported that Canberra was under pressure to support Western private bidders for the firm, to deter China from buying it and having the ability to “hear and see everything”.

The Sydney Morning Herald later reported that the Australian government was considering providing loan or loan guarantees to potential buyers through the nation’s credit agency, Export Finance Australia. The agency did not respond to This Week in Asia’s request for an interview. 

This kind of intervention from Canberra is not new. In 2018, it agreed to majority fund the A$137 million (US$105.6 million) construction of high-speed internet cables from Sydney to the Solomon Islands and Papua New Guinea, ousting a competing offer from Chinese firm Huawei. While Huawei maintains it is not engaged in spying through its equipment, Canberra feared Australia’s broadband network could be compromised.

But cybersecurity analyst Potter said he did not believe that Australia buying Digicel would mitigate the national security risks, noting that China could simply apply to the Pacific countries’ national telecommunications regulators for a licence the very next day.

“The technology is pretty old school and would need to be replaced, so if Australia buys [Digicel] it could end up having to sell off a lot of old technology and would potentially be stuck with debt,” said Potter, who runs Internet 2.0, a cybersecurity firm in Canberra. “China could just start afresh. There’s nothing stopping a rival making a market entry.”

Jian Zhang, an associate professor at UNSW Canberra at the Australian Defence Force Academy, said there was also the possibility that Digicel itself was “playing the China card” and “exaggerating Chinese interest” to force Australia into a bidding war for the company – though he added that Chinese interest in the company fit a pattern.

“I wouldn’t be surprised if China was interested in buying or investing in Digicel,” he said. “Providing a telecommunications service is part of China’s growing interest in developing an economic and strategic presence in the South Pacific. It’s definitely part of China’s Belt and Road Initiative.” Zhang said. 

Canberra’s attempt to block Beijing from buying Digicel was part of a larger game of “whack-a-mole” as China’s influence in the region grew. 

“The South Pacific region is of critical importance to Australia’s national security, and so they are always worried about the growing influence of China in the region. They’re concerned that China will dilute Australia’s role in the region,” he said.

“More specifically, in the telecommunications sector, Australia is concerned that if China bought Digicel and became the largest market provider, there’s a likelihood that China can have access to sensitive information of all these countries of critical importance to Australia.”

While Digicel is expected to sell its Pacific assets as a whole, Canberra’s security concerns are mostly focused on Papua New Guinea (PNG), given its proximity to and close relations with Australia. Digicel has a 92 per cent share of the PNG market, where it offers internet as well as news and pay television services.

Adding weight to Australia’s concerns about a potential Chinese foothold there is a 65-page report on Beijing’s efforts to spy on PNG. Commissioned by the country’s National Cyber Security Centre – which is funded by the Australian Department of Foreign Affairs and Trade – and provided to Canberra last year, the report noted that deliberately lax security settings at a Huawei-built data centre in PNG exposed secret government files to theft.

Despite Australia’s protests against China’s involvement in PNG, local officials appear more willing to enter into agreements with Beijing. Earlier this week, after receiving a delegation of Australian officials who tried to dissuade him from allowing a Chinese fishery to be built in PNG’s Western Province, governor Taboi Awi Yoto said Australia wanted the “status quo” of poverty in the region to remain.

Amanda Watson, a research fellow at the Department of Pacific Affairs at the Australian National University, said PNG had always served as a geographic security buffer between Australia and mainland Asian states, but even with government incentives offered to Australian businesses to buy Digicel, a buyer might not materialise.

“I’ve heard the rumours that an Australian consortium might want to buy Digicel Pacific, but I’ve been wondering which group of companies that could be because there’s not a huge amount of experience among Australian companies in the Pacific. It is rather a unique and sometimes difficult place to operate in,” said Watson, who has been conducting research on telecommunications in the region for more than a decade.

“There are all sorts of challenges of working and operating in these places and so I do wonder how many Australian companies have relevant experience to be able to do that. I can’t stop thinking why Australian companies would want to invest in such a difficult environment.”

Watson said regardless of who bought Digicel, the needs of the PNG people should remain paramount.

“If Digicel was to fold, there’d be a whole lot of people in PNG who would literally have no mobile phone access, no landline access, no newspapers deliveries and so on,” she said.