Vodafone in talks to sell struggling Japan unit

Vodafone is in talks with Japan's Softbank over the sale of its struggling Japanese unit, the companies said Saturday.

Vodafone Group PLC is in talks with Japan's Softbank Corp. over the sale of its struggling Japanese unit, the companies said Saturday.

"Vodafone confirms it is in discussions regarding a potential sale of a controlling interest in Vodafone Japan to Softbank," the company said in a statement. "These discussions may or may not lead to a transaction. A further announcement will be made in due course."

The two companies have already reached a basic agreement, according to a report in the Sunday edition of the Nihon Keizai Shimbun newspaper. The report said the deal is likely to be worth between ¥1.7 trillion (US$14.6 billion)and ¥2 trillion, which would make it one of the biggest acquisitions by a Japanese company.

The acquisition will be part of a broader business alliance between Softbank, Vodafone and Yahoo Inc., in which Softbank holds a stake, that could lead to greater integration between Vodafone and Yahoo's Internet portal business, the report said.

The collaboration will particularly focus on distribution of video content to cell phones and promotion of Internet auction and billing services. The alliance could also see the Yahoo portal given priority on Vodafone handsets in the European market, the newspaper said.

A deal between Vodafone and Softbank would put to an end Vodafone's foray into a Japan market that has proved disappointing for the U.K.-based company.

Vodafone started making serious moves in Japan in 2000 when it began acquiring lumps of Japan Telecom Co. Ltd., a fixed-line carrier that held a controlling stake in a mobile operator called J-Phone. At the time J-Phone was Japan's number three cellular carrier and was admired partly because it introduced and popularized multimedia messaging. Vodafone had a controlling interest in Japan Telecom by 2001 that effectively gave it control of J-Phone.

Over the next few years Vodafone sought to leverage its strength in Europe to greater success in Japan but soon found that what works in Europe doesn't necessarily work in Japan. For example, Vodafone's attempts to rollout common handsets in both markets failed in Japan because local consumers disliked the European-style interfaces on the new phones. This prompted a slow-down in new subscriptions and for several months Vodafone was losing subscribers to competitors.

Vodafone has managed to arrest the subscriber decline and recently began reporting net monthly gains.

"We feel quite confident with the turnaround, with the progress, but we acknowledge and we know that we still have a lot of work to do," said Bill Morrow, Vodafone Japan's president last week. He was speaking at a news conference in Tokyo where the company's senior management outlined their plans for this year. At the event no hint was made that Vodafone may be pulling out of Japan.

Softbank is best known in Japan as a pioneer of cheap and high-speed broadband Internet services. The company also has an active investment arm that holds stakes in many Internet and telecommunications companies and has acquired a license to operate a new cellular telephone service in Japan. It previously acquired Japan Telecom's fixed-line business from Vodafone.

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