Liberty and Microsoft to Provide Net Access to Japan
By Matt Paolucci

In the race to provide millions of Japanese customers with high-speed Internet access, Denver-based Liberty Media Group (LMGa) said it plans to combine its jointly owned cable television assets in Japan with those of Redmond, Wash.-based Microsoft Corp. (MSFT).

The proposed merger is another move by Liberty to expand its worldwide operations. Just yesterday, Liberty announced plans to become the biggest shareholder in UnitedGlobalCom (UCOMA), one of Europe's largest TV and cable outfits.

Roughly seven million people live in the franchise areas of the two companies, giving them a sizeable pool of customers to obtain.

Liberty plans to merge its Jupiter Telecommunications unit, a Tokyo-based cable-TV operator jointly owned by Liberty and Sumitomo Corp., with Titus Communications, another closely held Japanese cable-TV operator that is 60 percent-owned by Microsoft.

Jupiter will effectively combine its 600,000+ subscribers with Titus' 150,000+ subscribers, totaling more than three-quarters of a million subscribers.

The new firm will own 24 cable television companies.

Ownership will be broken down as follows: Titus will become a wholly owned subsidiary of Jupiter. Liberty Media and Sumitomo, Jupiter's two largest shareholders, will own 35 percent of the new company. Microsoft will have a 24 percent stake. Toshiba and Itochu, the other two shareholders of Titus, will split the rest, owning 3 percent each.

The stock for stock exchange is expected to be completed by early September.

"This merger will help stimulate the entire CATV industry," said Takehiro Hayashi, spokesperson of Fujitsu, which owns AtNifty, one of Japan's top ISPs and has stakes in 15 cable television companies around the country. The new Jupiter can lead the industry for potential cooperation among different CATV operators. With its size, now they can experiment more on different services."

The combined company, which would be worth about $5 billion, would also plan an initial public offering on both the Nasdaq in the U.S. and its new sibling, Nasdaq Japan. No date for the IPO has been discussed.

Sources say it isn't clear how much the shares would fetch on the open market, but some peg the overall value of the company at several billion dollars.

Today's merger announcement comes just a month before a meeting between the U.S. and Japan to discuss ways to lower interconnection fees charged by government-owned Nippon Telegraph and Telephone (NTT) for the use of its cable switch boxes and copper lines that facilitate telephone services throughout Japan.

NTT's fees have long been blamed for Japan's high local phone rates and expensive Internet access charges. It is this issue that concerns Lee A. Daniels, president and CEO of Titus Communications, who says that unless revisions are made to the current laws, NTT's entrenchment in Japan could be a huge threat to the proposed new cable company.

The current laws state that NTT is not allowed to offer broadcasting and cable television services.

On the flip side, the increase in competition from the Microsoft/Liberty venture may force NTT to reconsider its pricing. The Japanese juggernaut cut its prices by 50 percent late last year after criticism from other industry players. Failure by NTT to open its expansive network to competition could result in customers bypassing its services and using potentially cheaper providers like Jupiter for high-speed Internet services.

The deal doesn't include Jupiter's programming arm, which is also owned 50-50 by Liberty and Sumitomo. The unit has long- term programming contracts in place with Jupiter.

In afternoon trading, shares of Liberty were up $0.06 at $24.25, while shares of Microsoft were down $0.38 to $79.13.