Microsoft and Softbank Discuss Low-Cost Japanese Internet Access Deal

When Internet investor Softbank Corp or software giant Microsoft talk, people pay attention. When they talk together, the audience is tuned in even more.

The two industry heavyweights are reportedly talking about establishing a joint-venture to offer low-cost Internet access to the Japanese market, a move that could bump the 10 percent Internet user rate of the Japanese up to American levels of 25 percent.

Softbank — a Tokyo-based investor in over 100 online businesses ranging from Yahoo! to Webvan — is reportedly discussing a deal with Microsoft and the Tokyo Electric Power Co. that would provide flat-rate connectivity to users by bypassing local telephone lines owned by the powerful Nippon Telegraph and Telephone Corp. The deal would reportedly call for the use of Tokyo Electric Power’s extensive fiber-optic system.

Nippon Telegraph and Telephone has been slow to introduce a flat-rate service. A joint venture between the three would allow Tokyo Electric Power to establish itself as an Internet player with a proven partner. Softbank, on the other hand, would benefit from an increase in Internet traffic in Japan to its extensive network of sites.

According to a published report, Softbank confirmed it was in negotiations with Microsoft and Tokyo Electric Power, but refused to comment on details of the talks.

Casting a Wider Web

A Japanese newspaper said the deal would start providing Internet access by the middle of next year at a rate of $43.50 (US$) a month, significantly cheaper than Nippon Telegraph and Telephone’s new service aimed at Osaka and Tokyo at a cost of $87 a month.

Analysts say that Softbank would have to take on significant infrastructure costs to start up the service, in which it would be expected to take a majority stake.

That doesn’t sound like too heavy a burden for a company that churns out more Internet-related news than many other companies combined.

Since the beginning of summer, Softbank has 1)Formed a new $600 million fund aimed at early-stage Internet companies, 2) Invested over $275 million with two other investors in online grocer WebVan,3) Invested $20 million in Internet recruiter WebHire, 4) Acquired a $91 million stake in investment information service Morningstar, and 5) Invested $100 million in OptiMark technologies, which runs an electronic service that matches stock trades.

That was just in July! In June, Softbank also announced its intention to create a sister electronic trading system with Nasdaq. The company also created eS-Books, a Japanese joint venture online book retailer, and took a 67 percent stake in E*Advisor Co Ltd., a joint venture with Microsoft and DirectAdvice.com, to offer online financial investment advice. A flurry of other deals were conducted, and Softbank shows no signs of impeding progress.

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