Standard & Poor's said Tuesday that last week's agreement between Japan and the United States to lower Nippon Telegraph and Telephone Corp.'s interconnection fees may affect the telecommunication group's credit quality over the long term.
The pact to slash the fees that NTT charges other companies to connect to its local telephone network will be a drag on the NTT group's profitability, although it will have no immediate impact on its ratings, the major U.S. credit rating agency said.
Revenues will come under direct pressure from the agreed cut of around 20 percent within two years and indirect pressure from rising competition as more companies enter Japan's telecommunications market, it said.
However, the impact on the NTT group's revenues is likely to be offset somewhat by increased traffic on NTT's network.
In addition, Nippon Telegraph and Telephone East Corp. and Nippon Telegraph and Telephone West Corp., the local service components of the NTT group, may be allowed to expand the scope of their operations, the agency said.
Overall, the profitability of the NTT group should remain strong, S&P said.
The agency has kept NTT's "AA+" rating on credit watch since May following the group's agreement to acquire all shares in U.S.-based Internet service provider Verio Inc. While the resolution of the credit-watch placement depends on S&P's meetings with NTT's management on its financial strategies, the group's ratings are expected to remain within the current AA category, even if the Verio purchase is funded entirely from external sources, the agency said.