Australian taxpayers will spend almost $2 billion so Telstra can purchase debt-laden Pacific telco operator Digicel, a strategic deal aimed squarely at preventing the company falling into Chinese hands.

After more than a year of negotiations, the Australian government is handing Telstra a package worth around A$1.78 billion (US$1.33 billion) to buy Digicel from Irish billionaire Denis O’Brien.

Telstra will own 100 per cent of the new entity, which has operations in Papua New Guinea, Nauru, Samoa, Vanuatu, Tonga and Fiji.

The big winner is Telstra CEO Andy Penn, who has bolstered his relationship with the government and cut a deal with minimal risk to his shareholders.