A clue as to why KDDI might want a controlling stake in Japan's biggest cable television operator can be found on the website of its biggest rival, NTT, the dominant telecom company.

One of the services advertised there is Hikari TV : a few dozen channels and all-you-can-watch access to a 5,000-title video-on-demand library, all streamed to your TV across the internet for Y3,675 ($41) a month.

Japan, with its tightly- packed cities and liberal planning rules, has among the highest penetration of fibre-optic connections in the world. As a result the convergence of TV and telecoms, where consumers get both services through one wire, is rapidly becoming a reality in Japan.

"In markets where there is a lot of video and telecom convergence, it makes sense for foreign investors [in cable TV] to sell out to a dominant telecoms player," says Vivek Couto of Media Partners Asia, an Asian research group.

He points to a similar deal in Taiwan last September, when the private equity group Carlyle traded control of cable TV operator Kbro for a minority stake in Taiwan Mobile, the telecoms company.

For KDDI, Japan's second-largest mobile phone operator, yesterday's purchase of a 37.8 per cent stake in Jupiter Telecommunications or Y362bn, is an attempt to position its fixed-line division for that new world.

In contrast to Japan's mobile phone market - a highly profitable oligopoly - the fixed-line market has suffered rapid declines in revenue from voice calls, without sufficient compensation from data revenues.

In the three months to the end of December 2009, KDDI's fixed-line business made a Y34.8bn operating loss, while the company said the division would be the main cause of a Y55bn restructuring charge.

Even NTT - from which KDDI has to lease wires into houses - earns meagre margins from its fixed-line activities.

JCom, by contrast, generates healthy operating profit margins of close to 20 per cent from pay-TV and has had considerable success in cross-selling telecom services using its cable network.

It brings 3.3m cable TV subscribers and high-speed internet connections to add to the 5.8m households that KDDI already serves.

"From KDDI's point of view, the fixed-line side of their business has been suffering, and it does bring in a partner with very large groups of customers and technological experience," says Nathan Ramler, telecoms analyst at Macquarie Securities in Tokyo.

JCom also brings content assets such as a controlling stake in J Sports, which operates four pay-TV sports channels, which KDDI may be able to use to make its own broadband offering more attractive.

"[The JCom deal] gives KDDI a lot more scale and superior TV and broadband to compete with NTT," says Mr Couto.

In the long term, the question is how the deal will shape competition in Japan's fixed-line telecoms market. It will leave only two companies - NTT and KDDI - that have significant networks of their own. But without regulatory change, such consolidation is likely to do little to increase the industry's profitability.

The deal also raises questions for Sky Perfect JSat, Japan's principal satellite pay-TV operator, which stands to lose out if consumers move towards fibre-optic connections, which bundle TV with internet and even mobile phone connections.