Something significant is happening in Australia’s telecommunications market, but the individual developments risk obscuring a much bigger transformation.
Singtel is considering bringing a minority Australian investor into Optus. TPG Telecom has sold much of its fixed infrastructure to Vocus and entered into regional mobile network sharing with Optus. Telstra remains financially strong, but operates in a mature market where significant revenue growth is increasingly difficult.
Meanwhile, telecommunications consolidation is accelerating internationally. Across Europe and Asia, operators are merging, sharing networks and recycling assets to improve returns and achieve greater scale.
These developments are usually discussed as telecommunications stories. They are better understood as investment stories.
Capital is moving across a much broader digital infrastructure market, increasingly towards data centres, cloud computing and artificial intelligence.
Follow the capital
Singtel provides an interesting example.
It would be wrong to suggest that Singtel is considering selling part of Optus specifically to finance AI or data-centre investments. But its broader strategy is revealing.
The group is optimising mature businesses, recycling capital and investing in growth areas including digital infrastructure, data centres and AI-related services.
The question facing Singtel — and many other international telecommunications groups — is therefore straightforward: if capital can be released from mature telecommunications assets, where can it produce the strongest future return?
Increasingly, the answer may not be another telecommunications network.
Telecoms used to sit at the centre
Having been involved in telecommunications for more than 40 years, I see this as one of the most fundamental changes in the industry’s position.
Twenty years ago telecommunications sat at the centre of digitalisation. Broadband, mobile, fibre and internet access were the essential growth infrastructure. Telcos controlled the networks connecting businesses and consumers to the emerging digital economy.
Those networks remain indispensable.
But telecommunications is increasingly becoming the transport layer underneath something much larger.
Networks connect data centres; data centres support cloud platforms; cloud infrastructure provides massive computing resources; and those resources increasingly support AI models and applications.
Being essential, however, is not the same as capturing the greatest economic value.
The investment numbers tell the story
Microsoft has announced A$25 billion of investment in Australian cloud and AI infrastructure through 2029. Amazon has announced A$20 billion for Australian data-centre infrastructure.
These amounts dwarf traditional Australian telecommunications investment programs.
Globally, the major US technology companies are committing hundreds of billions of dollars annually to AI infrastructure, data centres and computing capacity.
Economic power tends to follow capital.
Telstra illustrates the resulting paradox. It remains financially strong, with a highly profitable mobile business and valuable infrastructure assets. But it operates predominantly in a mature Australian connectivity market.
Telstra can therefore remain highly profitable while becoming relatively smaller within the digital economy it enables.
Telstra, Optus, Vocus and TPG will transport enormous quantities of data between businesses, consumers, data centres and international networks. Increasingly, however, companies such as Microsoft, Amazon, Google, Meta and Nvidia occupy the higher-value layers built upon that connectivity.
Australia risks repeating a familiar pattern
This raises a broader economic question.
Australia has prospered by supplying resources to the world — minerals, energy and agricultural commodities — while often capturing less of the downstream processing, manufacturing, technology and intellectual property.
The AI revolution could reproduce that model in digital form.
The resources are different this time: land, electricity, renewable-energy potential, fibre connectivity, political stability and capital.
Australia has these resources in abundance and is consequently becoming an attractive location for hyperscale data centres and AI infrastructure.
But attracting data centres does not automatically mean Australia is moving up the AI value chain.
If Australia supplies the land, energy, buildings and connectivity while overseas companies control the advanced chips, cloud platforms, AI models, software and intellectual property, we may again remain concentrated towards the resource end of the value chain.
Instead of exporting iron ore, we could effectively be exporting computing resources.
There is nothing inherently wrong with that. Data centres bring investment, engineering, construction, energy infrastructure, telecommunications demand and skilled employment.
But attracting investment and capturing economic value are not the same thing.
A shift in economic power
There is another important dimension.
Australia’s traditional telecommunications industry has largely been shaped by Australian and Asian companies. Telstra is Australian, Optus is controlled by Singapore’s Singtel and TPG is Australian-listed.
The emerging cloud and AI infrastructure environment is overwhelmingly influenced by giant US corporations operating on a completely different scale.
Microsoft, Amazon, Google, Meta and Nvidia have financial resources that dwarf Australia’s telecommunications companies.
This does not mean Australia should resist their investment. Australia needs international technology and capital if it wants to participate seriously in the AI economy.
But we should recognise the resulting shift in economic influence.
The important questions are no longer simply who owns the networks and how many mobile operators Australia should have.
They increasingly include who controls Australia’s computing capacity, where investment decisions are made, who owns the intellectual property and where the profits generated by the digital economy ultimately flow.
Moving beyond the Lucky Country
Telecommunications isn’t disappearing. AI will require more fibre, greater international capacity and increasingly resilient networks.
But its position within the digital economy is changing.
Telecommunications is moving from the centre of digitalisation towards becoming the transport layer of a much larger digital infrastructure economy. Capital is moving higher up that value chain, and economic influence is moving with it.
For Australia, this presents both an enormous opportunity and a familiar risk.
We have many of the resources required by the AI revolution and global companies clearly want to invest here.
The challenge is to use that investment to develop Australian technology, AI companies, intellectual property, skills and applications rather than simply becoming an efficient supplier of land, electricity and computing infrastructure to industries controlled elsewhere.
The Optus ownership discussions may therefore be a small indication of a much larger transformation.
Twenty years ago telecommunications companies were among the most powerful players shaping Australia’s digital future.
They will remain essential. But increasingly they will carry a digital economy whose largest investments, technologies and economic power reside elsewhere.
Paul Budde