Vodafone denies J-Phone equity swap report

By CNN's Kristie Lu Stout and reports

TOKYO, Japan (CNN) -- Vodafone has denied reports that it would reduce its stake in Japan Telecom for a bigger slice of its mobile unit J-Phone.

"The reports are totally untrue," said Bill Morrow, Vodafone vice president Japan, in a statement delivered by Vodafone's public relations firm.

Analysts nevertheless believe that Vodafone may want to gain more control of J-Phone beyond the group's current effective ownership of about 60 percent.

"I think that's quite possible," said Gartner Group mobile analyst Nick Ingelbrecht.

"You have to remember, the fixed line business in Japan Telecom is marginally profitable… And that's not the business Vodafone is really in."

Japan Telecom shares hit

Fears that Vodafone was ready to dump its 45 percent stake in Japan Telecom hit hard on the share price of Japan's third largest telco.

Japan Telecom shares were pushed down 9.43 percent by midday to 413,000 yen.

A report in Britain's Sunday Telegraph newspaper said that Vodafone was expected to swap its shares in Japan Telecom for an increased stake in J-Phone.

"There are no discussions between Vodafone, Japan Telecom and J-Phone in regard to an equity swap," said Bill Morrow, Vodafone vice president Japan, in a statement delivered by the firm's media representative, Gavin Anderson managing director Ross Rowbury.

Rowbury added that the Sunday Telegraph story was the result of muddled reporting.

"There has been a decision to merge the companies by the end of the year. The Sunday Telegraph got those issues confused," he said.

J-phone consolidation push

Vodafone, which is set to acquire a five percent stake in each of J-Phone's three regional companies, has been pushing for consolidation of the J-Phone group by the end of the year.

Vodafone Chief Executive Chris Gent has told reporters he hoped to streamline the J-Phone group of companies and improve operating margins.

Industry observers see promise for Vodafone in the event that the UK operator chooses to proceed with an increased presence in J-Phone.

"This sounds like a good move but we'll have to wait and see before we get the confirmation on it," Gartner Group's Ingelbrecht said.

"It sheds more light on how Vodafone is moving in Japan which is quite sensible."

Vodafone's Gent, who was in Tokyo recently to detail Vodafone's Japan strategy, said then that his main concern was to combine the J-Phone group companies -- J-Phone East, J-Phone West, J-Phone Tokai and holding company J-Phone Communications.

Gent ruled out a listing of J-Phone in the medium term and appeared eager to dismiss concerns that Vodafone was not interested in Japan Telecom's fixed-line business.

J-phone gaining momentum

Vodafone built up its stake in Japan Telecom and J-Phone through a series of deals late last year and in the first half of this year with British Telecommunications and AT&T.

Japan's competitive mobile market is the world's second largest with 64.2 million cell phone users.

An estimated 42 million people in Japan browse the Internet via their mobile phones.

At the end of July, J-Phone posted a total subscriber base of 10.7 million users, of which 7.9 million have access to the wireless Web.

The J-Phone group saw its market share climb to 28.2 percent in July on strong sales of a new cell phone with a built-in digital camera and high-resolution color display, according to the Nihon Keizai Shimbun.

J-Phone added more subscribers in June and July than Japan's number two carrier KDDI's wireless arm "au" and is challenging the mobile giant NTT DoCoMo.