KDDI, Japan's second largest telecom operator, is acquiring ISP PoweredCom of Japan, in a share-swap deal worth Y127 billion ($1.1 billion), aimed at taking on industry leader NTT. The merger is slated to take place on January 1, 2006. The deal comes as Japan's fixed line sector faces growing competition from mobile and IP telephony. KDDI is also linking the tie-up with Tokyo Electric Power (Tepco), PoweredCom's parent, in fibre optic services. The two groups will combine their fibre optic services within the year to provide high quality content delivery service to compete with NTT. Tepco and PoweredCom have a combined 160,000 km of optic fibre and an alliance with the optic fibre businesses of other regional electrical power companies. KDDI will issue new shares to Tepco, which will transfer its 83.8 per cent stake in PoweredCom in the ratio of one KDDI share for each 0.032 PoweredCom share. This would give Tepco a 4.8 per cent stake in KDDI.