Telstra is in talks to purchase Asia-based telecommunications provider Pacnet which owns a more than 46,000 kilometres undersea cable network and could be worth more than $1 billion.
Australia's largest telecommunications provider confirmed the talks on Wednesday on the Australian Securities Exchange.
"Telstra confirms that it is in discussions with the owners of Pacnet around a potential transaction to acquire the company," Telstra company secretary Damien Coleman said in a statement to the ASX.
"There is no certainty that any transaction will take place as a result of these discussions."
Pacnet owners include Ashmore Investment Management, Spinnaker Capital and Clearwater Capital Partners. Bloomberg reported the owners are working with Credit Suisse on a potential $US1 billion ($1.2 billion) sale, including debt.
Along with its undersea network and 110 access points globally, Pacnet said it is the first and only foreign company licensed to provide IPVPN (internet protocol virtual private network) services and data centre network services in China.
Over the last 12 months, Telstra has more than doubled the amount of resources it has in Asia searching for potential investments.
""You have to be prepared to invest in a lot of resources on the ground," chief financial officer Andy Penn told The Australian Financial Review and Macquarie Bank Future Forum in October.
"We've doubled our corporate development resources over the last 12 months within the region."
With up to $5.1 billion in cash sitting in its war chest, Telstra has been busily forming partnerships in Asia, as well as other regions, in an effort to expand the company beyond its traditional voice and internet businesses in Australia.
Deutsche Bank analyst James Freeman said that while the possible acquisition of Pacnet does support Telstra's Asia ambitions, he was surprised about the size and nature of the potential deal.
"Telstra management previously flagging that Asia was predominantly an organic story, given price and ownership restrictions, with bolt-in opportunities mainly around service and software oriented businesses in NAS (network application services) and mobile," Mr Freeman said.
"The move into infrastructure assets would likely reduce the return profile of the Asian expansion and consume a significant amount of excess cash that previously may be earmarked for capital management. As such, investors looking for material levels of capital management in the form of higher dividends or share buyback may be disappointed."
It is not the first time that Pacnet has caught the eye of other telco operators in the region.
In 2012, Indonesia's largest telecommunications provider Telkom Indonesia looked at picking up Pacnet for up to $US1 billion, but later cancelled its plans.
In August, Telstra signed a jointed venture with Telkom Indonesia to sell a range of services in the region.
