UK mobile phone giant Vodafone is in talks to sell its landline operations in Japan for as much as $2.5bn.

The plan is to shift the high-volume, low-margin side of its two-thirds owned Japan Telecom subsidiary onto someone else's shoulders while keeping hold of the more lucrative mobile service, J-Phone.

First in the line of suitors is US investment fund Ripplewood, Japan Telecom said on Wednesday after a blizzard of news reports suggesting a deal was close.

Leading business newspaper the Nihon Keizai Shimbun had reported earlier in the day that the deal could be sealed as early as March, prompting a 7% rise in Japan Telecom shares.

Gadget lovers

Japan has been a good market for Newbury-based Vodafone, at least so far as the mobile business is concerned.

Although the takeup rate of expensive third-generation phones has been slow, the Japanese are avid users of new services on existing networks.

But Japan Telecom was a fixed-line company long before it entered the mobile market, and just as Japanese number one NTT DoCoMo is seeing more of its profits from broadband, Japan Telecom's margins on the landline business are wafer thin.

The company turned in its first ever loss in the year to March 2002, amounting to 66bn yen ($528.6m; �326m), and promptly vowed to do something about the ailing fixed-line business.

Internet telephony and the popularity of mobiles has hammered Japan's landline market.

According to the Nihon Keizai Shimbun, the deal could be worth 300bn yen ($2.5bn; �1.5bn) in cash to Vodafone - although the UK company would hold onto debt worth 150bn yen, effectively halving its yield.

"If Vodafone missed this opportunity, it would be left with few choices, such as selling the operation to Tokyo Electric Power Co," said Motoharu Sone of UFJ Tsubasa Research Institute.