The Telstra Corporation Ltd (ASX: TLS) share price is going to be under the spotlight today after the telco responded to media speculation.
Telstra is the largest telco operator in Australia with a market leading position in mobile and home broadband.
Telstra interested in Digicel Pacific
The telco has responded to media reporting by Nine Entertainment Co Holdings Ltd (ASX: NEC).
It confirmed it has been in discussions about a potential transaction to acquire the telecommunications company, Digicel Pacific in the South Pacific region in partnership with the Australian Government.
Telstra said that the discussions are incomplete and there is no certainty that a transaction will proceed.
The company said it was initially approached by the Australian Government to provide technical advice about Digicel Pacific which is a commercially attractive asset and critical to telecommunications in the region. If Telstra were to proceed with a transaction it would be with financial and strategic risk management support from the Government.
In addition to a significant Government funding and support package, any investment would also have to be within certain financial parameters with Telstra’s equity investment being the minor portion of the overall transaction.
What is Digicel Pacific?
Digicel Pacific was founded in 2006 by Denis O’Brien. It is a leading provider of communications services across PNG, Fiji, Nauru, Samoa, Tonga and Vanuatu.
The company has an important market position in the South Pacific region. It generates EBITDA (EBITDA explained) of US$235 million in the 2020 calendar year. This business has a “strong margin” according to Telstra, as well as an extensive network coverage.
Telstra said it will keep the market updated as appropriate.
My thoughts
This seems like an attractive business for Telstra to get involved in because of the strong margin, good market position and an improvement of geographic earnings diversification. The T22 strategy will hopefully help return the company to profit.
I’d be happy if this went ahead, if I were a shareholder. However, the Telstra share price doesn’t strike me as overly attractive at the moment with limited visibility about how much 5G can help earnings. Replacing NBN home connections with wireless 5G could help margins.
