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A New Player Emerges in Japanese Cable

Tokyo-Japan's cable-television industry continues to expand through consolidation and with upstart operators that seek economies of scale to implement new broadband interactive services.

The newest player is Tomen Mediacom Inc., the country's seventh-largest trading company. It aims to become one of Japan's top two MSOs within the next three years and to pass 2 million homes, a more than two-and-a-half-fold increase from its current homes-passed base.

Tomen hopes to see a similar increase in its 250,000-subscriber base, and it aims to be the first to provide full interactive-TV services by offering Pacific Century CyberWorks' "Network of the World" (NOW) interactive service.

Tomen will have to take on Jupiter Telecommunications Co., by far Japan's top MSO, which absorbed No. 2 operator Titus Communications Corp. last month. Partners in the merged Jupiter-Titus include heavyweights Liberty Media International Inc., Sumitomo Corp., Microsoft Corp., Toshiba Corp. and Itochu Corp.

"Tomen got off to a very late start compared with other rival trading companies, such as Sumitomo, Itochu and Marubeni [Corp.], in cable TV, but they're looking to quickly close the gap," said a programmer who asked not to be identified.

The company sees an opportunity to grow significantly by consolidating its existing cable operations and by investing in other cable operators in the Tokyo area, in effect forming an MSO.

Tomen has taken on Hong Kong-based Olympus Capital Holdings Asia, an Asia-specific investment company, as a 50 percent equity partner to help it grow.

"The timing is right," Mediacom president Hiroshi Morimoto said. "We cannot miss this chance" to grow in the cable market.

Indeed, the Ministry of Posts and Telecommunications, a regulatory agency, is now driving consolidation of what has been a very fragmented market. Even with the merger deals and strategic alliances, "there are [still] some 300 cable operators in Japan," Morimoto said.

The capital infusion from Olympus will be used to upgrade Tomen's current holdings to 750 megahertz from 450 MHz. It will also connect the system operators over a new fiber ring to deliver high-speed broadband Internet access and new content and initiate MSO consolidation, administration, management and operations in its service areas.

Mediacom estimated that it will cost ¥ 5.7 billion ($54 million) to upgrade its network entirely by April 2001.

The combined assets of Jupiter and Titus make it Japan's largest MSO, with 750,000 subscribers, 24 local cable operations and more than 5 million homes passed out of a total franchise area of 7 million homes. The operators have invested heavily in new Internet and multimedia services and cable telephony.

Mediacom currently holds stakes in six cable-TV operators in the Tokyo area. Morimoto intends to fuel growth by inviting neighboring independent operators to join the group, offering them MSO synergies and scale, as well as novel broadband services.

A key component of Mediacom's strategy is to go beyond basic-cable and premium channels and deliver interactive television with pay-per-download gaming and music features, as well as access to the NOW portal and the wider Internet.

The interactive-TV-service screen will feature an electronic program guide, video-on-demand, Internet services and e-mail, as well as NOW.

Mediacom is also in talks with Scientific-Atlanta Inc. and Canal Plus S.A., as well as Matsushita Electric Industrial Co. Ltd. and Toshiba, to build a special digital set-top box for its slate of interactive-TV services.