Telstra is considering taking over the Pacific operations of a communications service provider in partnership with the Australian government, which would block China from buying the assets.
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The telco confirmed its discussions with Digicel Pacific on Monday.
Telstra said it was initially approached by the Australian government to provide technical advice in relation to the company.
Digicel Pacific is critical to delivering telecommunications throughout the region.
Telstra said its discussions were incomplete and there was no certainty a transaction would proceed.
"If Telstra were to proceed with a transaction it would be with financial and strategic risk management support from the government," the company said.
"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."
Digicel Pacific generated net earnings of $318 million in the 2020 calendar year, delivering strong margins and extensive network coverage.
The national security committee of federal cabinet has reportedly considered the potential implications of the company being sold to a Chinese entity.
Security experts fear the mobile phone networks could be used to spy on Australia's nearest neighbours, access sensitive data and disrupt activities.
However, concerns have also been raised the company could be using the China threat to extract money from Australian taxpayers.
Digitel Pacific was founded by Irish entrepreneur Denis O'Brien in 2006 and is a leading telecommunications provider in Papua New Guinea, Fiji, Nauru, Samoa, Tonga and Vanuatu.
Australian Associated Press
