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Last Updated: Friday, 3 March 2006, 17:38 GMT
Vodafone could sell Japanese arm
Vodafone Japanese phones
Vodafone has faced tough competition in Japan
Vodafone has revealed it is in talks about selling its struggling Japanese phone business to internet and telecoms provider Softbank.

Its Japanese subsidiary has been losing customers in the face of fierce competition from domestic operators such as NTT DoCoMo and KDDI.

It has struggled since a disappointing launch of its 3G service in 2004.

Vodafone's shares - which have been depressed by its Japanese problems - rose 8.4% to 121.5 pence on the news.

Falling customers

These discussions may or may not lead to a transaction

"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."

Although Vodafone still has nearly 15 million customers in Japan, its customer base has shrunk over the past year amid tough competition and a poor reception for its 3G service.

Profits fell sharply in the past six months while revenues were flat.

Recovery claim

Vodafone has said it is confident of increasing its share of new customers by 2007.

Only last November, Japanese boss William Morrow said he felt the business had turned the corner and was on the road to recovery.

I think Vodafone had singularly failed to achieve success in Japan
Paul Kavanagh, Killick & Co

However, the firm has warned that expenditure on new handsets and improving its 3G services will further reduce profit margins.

Paul Kavanagh, an analyst with stockbrokers Killick & Co, said the sale of its Japanese business would be popular with the City.

"I think Vodafone had singularly failed to achieve success in Japan," he told BBC News.

The rising share price signalled City confidence that Vodafone bosses were "taking appropriate action to tackle the problem", he added.

No fix

Telecoms analysts said Vodafone's Japanese difficulties had frustrated both its management and shareholders.

"Vodafone would shed a unit that it just doesn't seem able to fix and which certainly does not fit within the profile of the Vodafone investment portfolio," said Ovum's Robin Hearn of the mooted sale.

Bill Morrow, Vodafone's Japanese boss
Bill Morrow recently said the business had turned the corner

"It might also buy Vodafone's management just a little respite after a very rough ride over the past few months."

Vodafone's management has come under growing pressure amid a slowdown in the firm's growth and problems in key markets.

Earlier this month, it revealed it would write down the value of its assets by up to 28bn and that earnings were likely to fall 1% in 2007.

Softbank secured a licence to operate a mobile phone business last year.

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