June 23, 2016 / 6:45 AM / a year ago

Australia's Telstra buys into mining technology sector

A man and power lines are reflected in a Telstra poster adorning a public telephone in Sydney, Australia, in this August 13, 2015 file photo.David Gray/File Photo

SYDNEY (Reuters) - Australia's largest telecoms group Telstra Corp Ltd has taken a bet on the resource industry's appetite for cash-saving technology from drones to wireless production-tracking, snapping up a specialist firm to set up a dedicated mining services unit.

In what could be one of the boldest bets yet for a major player outside the mining sector, Telstra said it would acquire wireless technology company CBO Telecommunications Pty Ltd for an undisclosed sum, using it to form the basis of its new mining technology arm.

It has also hired the former chief automation researcher at mining giant Rio Tinto Ltd, Eric Nettleton, as well as the former head of technology and innovation at South Africa-listed Anglo American Platinum Ltd, Jeannette McGill.

Slumping commodity prices have pushed miners to consider new ways to cut spending and improve productivity, laying the groundwork to move beyond just larger trucks and better machines to being the first industry to embrace remote online connectivity between physical elements, a concept referred to as the "internet of things".

"Telstra has taken a global leading position here, since most of the traditional telcos are way behind," said Paul Budde, telecommunications researcher at Paul Budde Communication Pty Ltd, adding the deal was the first by a telco in the mining sector.

Having Australia's seventh-largest company investing in resources automation will likely spur new interest in the sector from other telcos, Budde added.

"This downturn has created a once in a lifetime shift, where miners are looking to technology innovation," Telstra's head of global industries David Keenan said in a statement on Thursday.

The unit initially plans to sell products and services for mine communication that use high-speed wireless internet to improve productivity.

DIVERSIFYING

The formerly state-owned company, which dominates the mobile telephone and broadband industries in its home country of 24 million people, has been exploring new industries to build revenue as more households drop fixed line telephone services.

In 2014, it boosted its Asian presence by buying undersea cable company Pacnet Ltd. It has also sought to tap into Australia's growing demand for online content viewing by selling streaming media players to its customers, as well as setting up online healthcare and cloud computing units.

Still, the move into mining technology may have unnerved some investors, with Telstra shares down 1 percent on Thursday, compared to a slight rise in the broader Australian market.

"Anything that's got the word 'mining' in it people have bad feelings about, but it's not a mining investment, it's a business venture that leverages their existing technology," said Morningstar analyst Brian Han.

"They have a big earnings hole to fill in this company and this is one of myriad areas that they want to get into in order to eventually plug it."

Reporting by Byron Kaye; Editing by Joseph Radford and Clara Ferreira-Marques

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