Jupiter Telecommunications Co, 40 per cent of which is owned by AT&T unit Liberty Media, and Titus Communications Corp, in which Microsoft has just acquired a 60 per cent stake, said on Tuesday they would merge on September 1.Analysts said the tie-up would herald a shake-up in Japan's promising but underdeveloped market for high-speed Internet access by prompting more consolidation, which would pose a threat to the earnings of dominant telecommunications carrier Nippon Telegraph and Telephone Corp (NTT).

The news sparked a surge in the shares of Japanese firms with ties to Jupiter and Titus on the Tokyo stock market.

Major trading firm Sumitomo Corp, which owns 60 per cent of Jupiter, jumped 7.77 per cent to 1,151, while electronics manufacturer Toshiba Corp, which owns 20 per cent of Titus, climbed 5.2 per cent to 1,209.

Trading house Itochu Corp, which also has 20 per cent of Titus, added 2.71 per cent to 493.

"The integration by Microsoft and AT&T's cable television operators sets the first stage of competition for Japanese cable TV networks," said Kota Nakako, senior analyst at UBS Warburg.

"There are too many small cable TV operators in Japan and the market is not mature at all. The integration of Jupiter and Titus will spark further integration of these operators in the next few years and spark competition with NTT."

The merged company will have 750,000 subscribers and, with 28 cable TV systems nationwide, can save on the cost of upgrading network systems which would give it a technological advantage in providing rapid access to a wide range of broadcasting and Web services.

Sumitomo and Liberty Media are expected to hold the largest stakes of 35 per cent each in the merged company, to be capitalised at 75 billion Yen ($710.1 million). Microsoft will have the third-largest stake of 24 per cent followed by three per cent each by Itochu and Toshiba.

The Financial Times reported on Tuesday the merger could lead to an initial public offering of the combined company, valuing it at about $5 billion.High fees may cost NTT.

The overseas push by AT&T and Microsoft was seen as an attempt to turn cable networks, mostly used to transmit TV programmes, into two-way, interactive data pipelines that would replace traditional phone networks.

The merger, widely expected by industry watchers following Microsoft's move into Titus, is a potential threat to NTT, whose high fees have been widely blamed for stifling the number of Internet users in Japan.

Shinji Moriyuki, senior analyst at Daiwa Institute of Research, said: "It is possible that NTT's share in the Internet network may decline due to the integration of Jupiter and Titus."

But he added that offering network infrastructure alone would not generate sufficient profits in the long term and that AT&T and Microsoft would eventually shift their focus to the kind of content they could offer.

Cable Internet allows users to surf the Web using cable television lines, bypassing telephone-based networks while delivering service at speeds of up to 25 times quicker than the fastest dial-up modems.

Cable television reaches only a small portion of Japanese households compared with the United States and is a fragmented industry.