DoCoMo Debt Put on Negative Watch

The debt ratings agency, Moody's has downgraded Japan's DoCoMo's debt rating from stable to negative. Moody's says that the change reflects its concern over the future of DoCoMo's competitive advantage in 3G services.

DoCoMo's own 2G services are very popular and meet the needs of most of its customers, while competitors have introduced their own 2.5G and 3G services. Consequently, it may face greater challenges in securing for FOMA, its 3G network the solid market position it has achieved for its 2G services. This, in turn, means that the company's ability to generate stable and exceptionally rich cash flow - which supports its Aa1 rating - may also be increasingly challenged over the intermediate term.

DoCoMo has acquired for approximately US$15 billion the minority shares of its global partners - AT&T Wireless, KPN Mobile and Hutchison 3G UK - in order to expand its W-CDMA network worldwide. Its overseas partners in this venture had suffered significant falls in their market capitalization largely due to the financial burden of their 3G-license acquisitions and delays in the launch of 3G services.

For the last 2 years, DoCoMo has posted revaluation losses of approximately US$11.7 billion, or about 75% of its original investment. While these revaluation losses do not represent cash outflows, delays by its partners in introducing 3G services may diminish the global competitiveness of W-CDMA.

Moody's does not expect its market competitiveness in 2G services to face serious challenges in the intermediate term."

Posted to the site on 8th January 2003