Australian telecommunications firm Telstra will buy Digicel Pacific for $1.6 billion (€1.4 billion), in a government-supported move reportedly aimed at shutting out China-backed players from acquiring the regionally dominant company.

Telstra announced it had received $1.3b in funding from Canberra to buy the south Pacific's leading mobile and internet provider from current owner and founder Denis O'Brien

Digicel Pacific operates in Papua New Guinea, Vanuatu, Fiji, Tonga, Samoa and Nauru.

Australia's government said the deal reflected its "Pacific Step-Up" commitment to support the development of secure and reliable infrastructure in the region.

"This is fundamentally in the interests of both Australia and our Pacific family," a foreign and trade ministries joint statement said.

Canberra announced its renewed Pacific engagement strategy in 2018 as a political counterweight to China in the region, which has seen Australia offer greater financial aid to its developing neighbours.

The Australian Financial Review reported Canberra backed the Digicel acquisition amid concerns the strategically important asset could fall under Beijing's control if a Chinese state-owned firm bought it.

Telstra, which will contribute $270 million of equity toward the purchase price, said the deal presents a "unique commercial opportunity".

"The financial arrangements make it very attractive for Telstra and it strengthens our relationships with the Australian government and the Pacific region," CEO Andrew Penn said.

The purchase is expected to be completed within six months.

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In a statement, Digicel Group Holdings Limited said the deal includes a three-year US$250m earn-out.

Mr O'Brien said the announcement is "a tremendous testament" to staff in the Digicel Group.

He said Digicel Pacific "has helped democratise mobile communications and transform local economies and societies" in the south Pacific since it was founded in 2006.

"From a Digicel perspective, today marks a very successful realisation of a strategic investment following our entry in the South Pacific in 2006," Mr O'Brien added.