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Aussie deal hangs on iffy long-distance China call

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A pedestrian walks past a Telstra logo adorning a phone booth in the central business district (CBD) of Sydney in Australia, February 13, 2018. Picture taken February 13, 2018.

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MELBOURNE, July 19 (Reuters Breakingviews) - The scary call to Telstra (TLS.AX) is coming from inside the house. The A$45 billion ($33 billion) Australian telecommunications operator on Monday confirmed media reports that it was in talks to buy Digicel Pacific businesses in Fiji, Papua New Guinea and other nearby islands in partnership with the government Down Under.

Financially speaking, the deal would be minor. Digicel Pacific generated about A$320 million of EBITDA in 2020, only about 4% of what analysts expect Telstra to earn in the year through June. And in any case, Australian taxpayers probably would pick up most of a potential A$2 billion tab.

The concern for shareholders should be the precedent. Canberra appears to be enlisting a private company solely to prevent Digicel Pacific from winding up under Beijing’s control following anonymous source-based reports of Chinese interest. There’s little obvious strategic value for Telstra; indeed boss Andrew Penn is supposed to be slimming down in a restructuring . Answering this call risks making the next one more alarming. (By Jeffrey Goldfarb)

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Editing by Pete Sweeney and Sharon Lam

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