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KDDI Corp. is engaged in final negotiations with Tokyo Electric Power Co. over its possible absorption of Tepco’s telecom subsidiary, PoweredCom Inc., in January, sources said Friday.

A KDDI-PoweredCom merger would follow the acquisition of Japan Telecom Co. by Softbank Corp. last year. It would also reduce the number of major fixed-line telecom service groups in Japan to three — groups led by Nippon Telegraph and Telephone Corp., Softbank Corp. and KDDI.

KDDI, ranked third here in terms of fixed-line telecom services and second in the mobile phone business with its au services, plans to acquire all of PoweredCom’s shares and give some of its own shares to Tepco.

Tepco, Japan’s largest utility, owns nearly 84 percent of PoweredCom, which is the fourth-largest fixed-line telecom carrier in Japan.

Tepco may dispatch directors to the KDDI board, where they will participate in the telecom carrier’s management, they said.

KDDI hopes to enhance its fixed-line telecom services through the absorption of PoweredCom. It will cooperate with Tepco in the fiber-optic cable field in order to compete with the giant NTT group, the sources said.

As conventional telephone services have been hit by the proliferation of Internet phone services, telecom carriers are being compelled to provide a low-price combination of mobile phone services, fixed-line communications and Internet access services.

The Tepco-PoweredCom group has concluded that it cannot survive in the telecom industry without mobile services, the sources said.

KDDI logged sales of 2.92 trillion yen in fiscal 2004. Of this figure, its fixed-line segment — including telephone, Internet and data communications — accounted for about 20 percent. PoweredCom posted sales of 180.5 billion yen the same year.

DoCoMo up in quarter

Bloomberg NTT DoCoMo Inc.’s first-quarter profit rose 22 percent because of a surge in high-speed service subscribers, lower costs and a gain from selling shares in a U.K. venture, the firm said in a statement released Friday.

Net income climbed to 207.9 billion yen in the three months to June, from 170.4 billion yen the prior year, the Tokyo-based company said.

The world’s second-largest mobile-phone operator reported a one-time gain of 62 billion yen from a sale of Hutchison 3G UK Holdings Ltd. shares.

DoCoMo, KDDI and Vodafone Group PLC’s Japan unit are seeking to attract subscribers to their high-speed services before the government allows new entrants into the 8.7 trillion yen cell phone market next year.

DoCoMo President Masao Nakamura said he may raise the firm’s forecast after the current quarter, given that a decline in revenue per user is slowing.

“DoCoMo, like KDDI, had good results,” said Taiji Yoshida, who helps manage the equivalent of 683 billion yen at Yasuda Asset Management Co. in Tokyo. He declined to say whether he owned DoCoMo stock.

“The company’s earnings might suggest that the industry isn’t as terrible as we all say it is,” Yoshida said.

KDDI said Monday its profit rose 1.8 percent to 52.6 billion yen in its first quarter after the company signed up more 3G subscribers.

DoCoMo’s operating profit, rose 4 percent to 287.6 billion, yen largely because the company paid less commission to retailers. Sales fell 2.8 percent to 1.187 trillion yen.

The net number of new subscribers rose 20 percent in the quarter from the previous year, with the number of users on its 3G FOMA service almost tripling during the period, the company said.

DoCoMo is catching up with KDDI in high-speed service subscribers after it increased promotions and discounts. The company added 1.47 million high-speed users in the quarter, partly by selling cheaper handsets for its 3G network. The company also offered discounts and fixed-rate services, including free e-mail and shared airtime for users in the same family.

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