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February 7, 2022

CEO Press Conference

Financial Results for the 3rd Quarter of the 2021 Fiscal Year

Jun Sawada, President and Chief Executive Officer, Representative Member of the Board
Also in attendance were:
Kazuhiko Nakayama, Senior Vice President, Head of Finance and Accounting Dept.
Takashi Taniyama, Senior Vice President, Head of Corporate Strategy Planning Dept.

Photo of press conference with President

(Jun Sawada)

Thank you all for taking the time to attend this press conference during this busy time of year. I'll now share our consolidated results for the third quarter of the 2021 fiscal year.
 Our operating revenue and operating income for the third quarter of the 2021 fiscal year both increased year-on-year and our operating revenue, operating income and profit for the period were all our highest yet. Our operating revenue increased by 185.2 billion yen to 8 trillion 923.2 billion yen due to factors such as an increase in revenue for NTT DATA. Around 94 billion of that 185.2 billion yen was the result of a favorable exchange rate. Operating income increased by 37.3 billion yen year-on-year to 1 trillion 539.7 billion yen due to revenue increases in companies such as NTT DATA and cost cutting. Profit for the period increased by 199.2 billion yen year-on-year to 1 trillion 30.3 billion yen due to factors such as the acquisition of minority stockholders' shares in NTT DOCOMO in order to make it a wholly owned subsidiary. This is the first time profit for a period has exceeded 1 trillion yen since our privatization in 1985. The ratio of overseas operating income increased by 2.4 points due to factors such as NTT DATA's revenue increase and the effects of our structural reform.

I'll now announce the results for each segment. Revenue grew in all segments. Operating income decreased in the mobile communications business segment and long distance international communication business, but this was offset by the results of our regional communications business and data communications business.

I will speak about our mobile communications business in detail in a moment.

In our regional communications business segment, both operating revenue and operating income both increased year-on-year due to an increase in revenue for packet communication and IP systems centering on optical services at both NTT East and NTT West, along with factors such as the change in the accounting system and cost reduction measures.

In our long distance international communication business segment, operating revenue decreased this year because NTT Communications' revenue from voice services for purposes such as conference was unusually high in the 2020 fiscal year due to the spike in demand for remote work. Operating income also decreased due to the increase in depreciation for reasons such as the establishment of our new data center, and other factors such as delays in solutions projects. NTT Ltd. also experienced a decrease in operating income due to the costs incurred during its structural reform.

In our data communications business segment, both operating revenue and operating income increased year-on-year, as NTT DATA mentioned in the announcement of their financial results the other day, due to a high level of demand for digitalization and the increase in that demand as NTT DATA rolled out its cloud solutions.

I'll now talk about our mobile communications business segment. Although monthly discount support was discontinued and upselling was done, the introduction of pricing plans such as ahamo and a decrease in wholesale voice prices led to a 56.5 billion yen year-on-year decrease in revenue for mobile communications services. However, this was offset by increases in revenue from device sales and our smart lifestyle business, resulting in an overall increase year-on-year. In terms of operating income, however, there was an unusual increase in the previous fiscal year as a result of the changes to the accounting system of our d point program, and network costs also increased this year due to factors such as investment in 5G. As a result, operating income decreased year-on-year. In our smart lifestyle business, a key growth area of ours, if we ignore the effects of the changes to the d point program's accounting system in the previous fiscal year, this business is growing steadily due to growth in our finance and payments businesses, along with expansion of demand for remote work and the scope of our corporate IoT solutions.

I'll now cover NTT DOCOMO's operating income for the quarter. As of the third quarter, there is a 52.1 billion yen year-on-year decrease in operating income, but operating income for the third quarter itself has increased by 15.1 billion yen, and when we ignore the unusual profit generated by the change to the d point program's accounting system in the previous fiscal year, operating income has increased in all three quarters so far. The steady expansion of our smart lifestyle business has contributed to this, and we expect to see ongoing growth in the fourth quarter through measures such as efforts to expand our finance and payments businesses, acceleration of our initiatives in the medical and XR fields and strengthening of collaboration between NTT DOCOMO and NTT Communications in the corporate domain. Costs in the fourth quarter are also unlikely to result in a year-on-year decrease in operating income as the expansion of investment in 5G took place in the second half of the previous fiscal year. Additionally, 3G assets that were no longer needed were removed in the previous fiscal year. Since we will not have that on our balance sheets in this fiscal year, profit will increase year-on-year. The ongoing shift to online sales is also streamlining our sales costs. With ongoing cost reduction measures in place, we can expect to see a significant improvement in our balances, which will make it possible for NTT DOCOMO to adequately deliver on its annual business plan.

Based on these financial results, we have increased all of our annual projections, from operating revenue to the ratio of overseas operating income. Specifically, as NTT DATA mentioned the other day during the announcement of its financial results, its projected operating revenue has been increased by 180 billion yen. NTT DATA's projected operating income has been increased by 35 billion yen, while NTT Ltd.'s has been increased by only 15 billion yen to account for its active structural reform. I will explain NTT Ltd.'s situation in a moment. Projected profit for the period has been increased by 15 billion yen, taking into account lower financial costs due to factors such as decreases in interest due and a decrease in taxes incurred for reasons such as an increase in tax exemptions associated our testing and research costs. Projected EPS will be increased from 302 yen to 306 yen. The projected ratio of overseas operating income will also be increased by 0.1 point, which will put us on track to achieve our target of 7% for the 2023 fiscal year.

Regarding the revision of annual projections for NTT Ltd., COVID-19 and the semiconductor shortage are having an ongoing impact, and as a result, the company is expecting its operating income to be 7 billion yen lower than its original projection. The company is also considering further acceleration of its structural reform in order to meet its medium-term financial targets, which would consist of outsourcing to slim down overhead and restructuring the company's security business, and would incur additional costs of 15 billion yen. If the initial exchange rate of 104 yen to the US dollar had continued, this would have increased costs associated with the structural reform from 28 billion yen to 43 billion yen, but with one USD now worth 112 yen, the structural reform would now cost 47 billion yen. On the other hand, it is predicted that this structural reform would increase operating income for the 2021 fiscal year by 3 billion yen. We therefore want to revise our projected operating income to 3 billion yen, which would be 19 billion yen less than our initial projection.

Each company's annual projections for the 2021 fiscal year are as shown on P.11 of the presentation. As I mentioned, NTT Ltd.'s operating income will be 19 billion yen lower than initially projected, and NTT DATA's operating income will be 35 billion yen higher. Otherwise, all companies are working toward their initial targets.

Next, I will talk about how operating revenue and operating income are trending. Here you can see the degree to which operating revenue and operating income have increased or decreased year-on-year in each fiscal year. The blue dotted line indicates the 2018 fiscal year, the green one is for 2019, the yellow one is for 2020 and the red one is for 2021. Since our business projection for operating income has been revised, that line has been angled upward compared to the initial projection.

Next, I'll talk about shareholder returns. It was decided at today's Board of Directors' meeting that year-end dividends will be increased to 60 yen, 5 yen higher than the initial projection. Dividends for the year will therefore be 115 yen per share, a 10 yen increase year-on-year. We are also considering increasing our dividends for the next period due to the extremely strong progress we are seeing in our results. Acquisition of treasury stock was decided at our Board of Directors' meeting in August 2021, and acquisition of the maximum amount, 250 billion yen, was completed in December 2021.

Next, I have five news items to share. The first is the strengthening of our security business. In cyberspace, as in so many other areas, safety and security need to be considered these days, and we particularly want to strengthen our performance in threat analytics. For this reason, we want to reorganize NTT Security in April 2022 to strengthen its service development, client support, security governance and managed services. In terms of structure, NTT Security Holdings will be established as a new wholly owned subsidiary. Practical development functions will be transferred from NTT Laboratories, SE functions will be transferred from NTT Communications and operational functions from NTT will be transferred to support the group's CISO functions. Security services will be merged and integrated with NTT Ltd.'s managed services, and consulting functions in each region will be transferred to NTT Ltd. These moves will strengthen NTT Ltd.'s managed services.
 My second piece of news is about the merging of our energy-related operations to accelerate the expansion of our smart energy business. In July 2022, the energy-related operations of NTT FACILITIES will be transferred to NTT Anode Energy and merged with the smart energy business there. This will concentrate the NTT Group's energy capabilities in NTT Anode Energy and enable us to strengthen and expand our smart energy business with a value chain of green power generation, local grids, consumer energy and building and maintenance operations. Initiatives for the NTT Group's new Environmental Energy Vision which was announced in September 2021 will be implemented to bring the NTT Group and society at large closer to carbon neutral, promote local energy and strengthen resilience.
 My third piece of news is our progress toward our new management style. First, the introduction of our zero-trust system and our plan to complete the introduction of our IT environment for our staff and management systems in the 2022 fiscal year are on schedule. In fall 2021, we explained that we had planned for 30% of newly appointed managers to be female. As of this February, we have met this target at our five core companies, excluding NTT DATA, with women accounting for 31% of newly appointed managers.
 In terms of our "Work-in-Life (Health Management)" initiative, 70.8% of our employees worked remotely in the third quarter. In regions where semi-state of emergency COVID-19 restrictions are in place, such as measures to prevent the spread of COVID-19, operations have been altered to ensure that no more than 20% of employees are on our premises at any time. To give our employees more options about where they work, we have eliminated restrictions on where employees can live, and we are putting provisions in place to reduce the costs borne by commuting employees in the next fiscal year. We are also working to expand remote work for our contact center employees. Regarding the 260 satellite offices we had planned to set up by the end of the 2022 fiscal year, 249 are ahead of schedule, and so we will probably be able to increase our target.
 Regarding the decentralization of our organization, we plan to successively disperse our head office and indirect divisions across multiple regions. We are also carrying out a Hometown Double-Work initiative so that head office employees can work from home in their regions of origin or take side jobs there.
 My fourth piece of news is about a new service of ours. As NTT DOCOMO announced on February 4, 0AB-J fixed-line telephone services using our mobile network will be launched at the end of March. The range will include home Denwa Basic, which will come with additional functions and free calls, and home Denwa Light, which will have just the basic features. These services can be purchased together with home 5G for a discount of 1,650 yen or 550 yen respectively. Docomo Denki will also be launched in March, with the aim of providing customers with a package deal for their home and mobile services.

Lastly, I will provide an update on our progress in our medium-term business management strategies. First, we have launched the Business DX Store, a new Docomo group that provides DX for core companies and small and medium businesses. In the IOWN area, we have succeeded in developing the basic technology for a large-scale rack-sized optical quantum computer. In addition, NTT and NTT DOCOMO have signed a research and development memorandum with Airbus and SKY Perfect JSAT for the commercialization of a HAPS. Lastly, we are now certified as meeting the 1.5°C Standard in the SBT (Science Based Targets).

This concludes my explanation.


  • What are your thoughts on the scale and key themes of your capital investment for the 2022 fiscal year? And how will you factor the high material prices and semiconductor shortage into your capital investment plan?

    I cannot talk about the next fiscal year's capital investment plan at this stage, but basically we will accelerate our 5G and carry out research and development for IOWN. Meanwhile, we have our global structural reform and strong demand for our data centers. We also have our eye on capital investment in areas such as real estate and energy, and will increase this. At the same time, our basic principle is to streamline the scope of our investment to the greatest degree possible by utilizing off-balance-sheet transactions. Additionally, we want to increase the efficiency of investments in our existing networks in order to meet our Capex to Sales target for this fiscal year. On the other hand, we are expecting to see prices increase by several percent due to the semiconductor shortage, which creates pressure to increase capital investment, so we will be forced to account for the impact of that.

  • The leaders of other communications companies have said that there has been a pause in the race to the bottom on pricing, and that if ARPU stays as it is now, there is a risk that Japan will not see new technology due to a loss of revenue efficiency. What do you think will happen with mobile communications pricing in future?

    I think the ultimate, ubiquitous needs of individual and corporate customers are for things to be cheap and easy to use. Obviously there are cases where good service can increase the value of something even if the price is the same. I want to continue working to provide pricing and service that will be acceptable to our customers, which will include cost reduction. But as the other companies have said, when you compare prices internationally, we are already the cheapest in the world, and I think that's why there has been a pause in competition on that point. So our basic stance is to keep doing what we have been doing, but I think for now there will be no more exceptional cases of price decreases. On the other hand, I think businesses need to keep working on our next investments, such as increasing ARPU, boosting cost efficiency or improving service.

  • In the announcement of your previous financial results, you said that ahamo had more than two million subscribers. How many are there now?

    ahamo is doing well as we now have around 2.5 million subscribers, but I will not specify any further details.

  • I'd like to know the current situation for Economy MVNO and the response to it.

    Its launch was delayed and there still wasn't enough recognition for it at that time, but we have been promoting it heavily since around December, and are now watching to see how much sales will increase. Boosting Economy MVNO sales is NTT DOCOMO's policy, so as the holding company, we are throwing our support behind that.

  • What are the reasons for NTT DATA's strong performance? Do you expect those good results to continue in the upcoming fiscal years?

    NTT DATA is performing strongly both in Japan and overseas. In particular, this year there has been an increase in general corporate projects where even if the project isn't large, it involves DX consulting, which is highly profitable work. The company's finance business has received large orders and this has tended to be the case every year, so I think we can assume that the large amounts of business in the general corporate and finance areas will continue in the next fiscal year. The public sector is also seeing a substantial amount of DX, both in Japan and overseas, and I expect that that will basically continue in years to come, although some elements in Japan are uncertain as they are dependent on the Digital Agency's procurement policies. Lastly, in the medical sector, a significant amount of DX is taking place in hospitals and healthcare due to COVID-19. NTT DATA Services is particularly strong in the U.S. medical sector, and we can expect to see more projects in this area in years to come.

  • The Japanese government is championing a Vision for a Digital Garden City Nation, and it looks as if the installation of regional 5G stations will need to be accelerated for this purpose. How will you handle that? The Ministry of Internal Affairs and Communications is also discussing broadband installations in the regions; how much do you think NTT needs to do in that area, taking into account factors such as cost performance?

    Regarding 5G, we have launched stand-alone 5G. The government is telling us to increase coverage, the percentage of the population that has access to 5G, and we aim to do so, but I think our first move should not be to simply shift existing 4G frequencies to 5G but to introduce and roll out services with new frequencies just for 5G so that people can experience the full value of 5G. The broadband work is being organized by the Ministry of Internal Affairs and Communications, and the universal service concept that previously only existed for fixed-line phone services will now be applied to broadband too. We ourselves act as a public service provider in some ways, so we intend to work on setting up and maintaining broadband services in regions that have been without access to broadband, with subsidies from charitable funds. This new policy on broadband services from the Ministry of Internal Affairs and Communications is one that we can stand behind in light of the current situation.

  • Today NTT DOCOMO made an announcement about the impacts and cause of the recent disruption to its services. What measures are you considering to ensure that a fault like this does not occur again in future?

    I would like to offer my sincere apologies to the around 18,000 customers who were affected by the disruption to our services. As NTT DOCOMO said, the fault occurred after our protocol changeover because the server design and capacity design did not adequately account for the traffic that came with the new protocol. The previous service disruption was discussed, and that discussion covered our partner company's server systems, but this disruption occurred because server capacity was not sufficient to load things like the new addresses after the changeover from IPv4 to IPv6. If the communication between a device and a server is delayed, various functions kick in, such as cutting off information from the device, so it's not a matter of simply having enough server capacity; you have to look more deeply at the network design and consider which device will handle packets that are too large, and what that device will do. NTT DOCOMO needs to rethink the basic operations from scratch.

  • As I understand it, NTT DOCOMO's home Denwa service will compete with NTT East and West's fixed-line phone services. Did this become viable as a result of NTT DOCOMO being acquired as a wholly owned subsidiary the year before last? And does the NTT Group plan to replace the last of its wired services with wireless services?

    From customers' perspective, home Denwa is phone service contract that combines fixed-line and mobile. This is something our competitors have already introduced, so the NTT Group is basically just regaining ground that was taken by our competitors. I've explained in the past that acquiring NTT DOCOMO as a wholly owned subsidiary has enabled us to provide services that combine mobile and fixed-line services, and home Denwa is one of those services. And for that reason, I have no intention to coordinate between NTT East and West and NTT DOCOMO. Rather, I think healthy competition between the three companies is the right way to go. As for those last areas with wired services, I think we're now in an age where it's more convenient and cost-effective to upgrade to wireless.

  • When we look at the recent global conditions of the communications sector, we can see an upswing in virtual spaces and the metaverse, with Microsoft buying game companies for vast sums and the company behind Facebook changing its name. What is NTT's policy for navigating this?

    In terms of virtual spaces and the metaverse, NTT has had a technical presence in digital twin computing for several years. Second Life used to be a term that was heard a lot, but that virtual world had a lot of technical issues. In a way, I think the term "metaverse" is a buzzword too, but our approach has two steps. First, we've been providing a VR space called DOOR since the year before last. This is a media owned by NTT, and we are working on incorporating new technology and elements such as 3D and XR. Efforts to create services and platforms for the next step are being undertaken not only by NTT DOCOMO but by the NTT Group as a whole, using XR as a starting point to build our virtual world. In the long term, various discussions will be needed about the legal and systemic sides of our metaverse world. And in order to create more elaborate and realistic content, we will need to reduce high-volume data processing and the power consumption that comes with it. To accomplish that, we will need to build an IOWN. So, I want to approach the current state of our metaverse with a resolute view to the future.

  • The Ministry of Internal Affairs and Communications' Telecommunications Business Governance Study Group has put together a report indicating the direction they will take, which includes policies such as requiring consent from site users and not disclosing the country where a site's servers are based. What is NTT's stance in light of this?

    In terms of governance, I think it is important to ensure our customers' safety and allay any fears they may have. Specifically, I think having our servers in Japan where we can handle them ourselves is the right approach. Obviously, we could broaden that policy if we can be sure that the servers will be in an allied country with the same approach as Japan, or an otherwise trustworthy country. That mindset is called "Data Free Flow with Trust", and I find it odd that a business would not want to disclose where its servers are. When it comes to the Ministry of Internal Affairs and Communications' Telecommunications Business Governance Study Group and the points covered by their report, I want Japanese businesses to address these issues thoroughly so that we do not fall behind other countries in this area.

  • Regarding remote work, you mentioned that you are considering covering the expenses of employees who travel from remote areas to come to your premises. Could you tell us more about that, including your decision to remove restrictions on where employees can live? Also, you said that you are making this move to establish health management practices; does this mean that this is a move to attract a high caliber of personnel? I'd like to know about the background of this.

    Regarding remote work, we had already taken measures such as split hours, remote work allowance and scrapping commuter pass charges. Our move to allow employees to work from anywhere will take a while to roll out since we have 180,000 employees. Additionally, if employees can live anywhere, we will need to establish provisions such as how many times employees can use the Shinkansen to commute. With all of this in mind, we plan to put this system in place from the 2022 fiscal year. I cannot give specifics at this point in time, but I want NTT's main subsidiaries to roll out various initiatives. In terms of securing personnel, we are also hiring more mid-career employees and we expect that no longer having restrictions on where employees can live will be a point that attracts talent to the NTT Group. With that said, this is not solely to attract good personnel but to provide healthier management, a better work-in-life and greater wellbeing for the employees we have now.

  • What were the development costs involved in enabling migration of NTT DOCOMO carrier email addresses, and how much is that system being used at the moment?

    The migration of carrier email addresses is something every company has been doing to eliminate a bottleneck and make themselves more competitive, but development costs are confidential. Email development in general comes with some costs, so think of the expenses that have been involved in other development projects of this nature. As for usage of our carrier email migration service, we've had feedback through channels such as social media from customers saying they appreciate being able to migrate their carrier email address, but we are not expecting a major impact. Regarding user details, those are confidential.

  • You mentioned that you have stopped competing on pricing for ahamo for the time being. Do you have any future strategies in mind at present, like expanding the service for the sales battle in spring?

    For the spring sales battle, NTT DOCOMO plans to launch services related to DOCOMO Denki and the company's carbon neutrality plan, as well as the home Denwa service we mentioned earlier. You'll need to ask NTT DOCOMO about details such as how these will be promoted and how they will work together with OCN Mobile and FreeBit on joint promotions.

  • It sounds as if the reorganization of NTT DOCOMO, NTT Communications and NTT COMWARE has been completed and full-scale operations with the new format will commence this summer. What has the response been so far, and what synergies do you expect to see in future?

    Restructuring of local sales and engineering will take place in the NTT DOCOMO Group after the reorganization. The group will also strengthen its smart lifestyle business, so all in all there will be many more changes in future. The response has been excellent: we achieved record financial results such as profit for the period in the third quarter of the 2021 fiscal year, and NTT DOCOMO, NTT Communications and NTT COMWARE are clearly redoubling their efforts in the leadup to July. I expect to see synergies like the ones we have seen so far; we are on track to achieve our targets of 100 billion yen in the 2023 fiscal year and 200 billion yen in the 2025 fiscal year.

  • Regarding your 5G capital investment, you explained that you will make genuine 5G a focus as you expand your user base. With the Japanese government pledging to achieve 90% coverage by the end of the 2023 fiscal year, are you thinking about bringing forward NTT DOCOMO's goal of achieving 80% coverage by the end of March 2024 (5G using new dedicated 5G frequencies (Shunsoku 5G))? If so, how will moves such as the capital investment affect revenue?

    Regarding our 5G investment and coverage, I want to make sure all of the media representatives in the audience understand the difference between 5G created by shifting existing 4G frequencies and 5G that uses new dedicated 5G frequencies (Shunsoku 5G). It's not clear whether the Ministry of Internal Affairs and Communications is including 5G created by shifting existing 4G frequencies or whether they are referring solely to 5G that uses new dedicated 5G frequencies (Shunsoku 5G), but when other companies talk about coverage, they're referring to the percentage of the population with access to any 5G, including 5G created by shifting existing 4G frequencies. But only 5G that uses new dedicated 5G frequencies (Shunsoku 5G) really gives customers the full benefits of 5G in terms of speed and capacity. When NTT DOCOMO talks about 80% coverage, this refers to the coverage of 5G that uses new dedicated 5G frequencies (Shunsoku 5G). So what NTT DOCOMO is saying is that they will launch 5G on dedicated frequencies right from the start, rather than starting with 4G frequencies, although in future they will also shift existing 4G frequencies for efficient 5G rollouts in areas where covering a wider area is the priority. If by moving forward NTT DOCOMO's 5G rollout you mean the part where they expand their 5G created by shifting existing 4G frequencies, I do not expect significant capital investment to be necessary.

    Note: Some of this section is not a direct quote.

  • 5It's been almost two years since 5G was launched, but we're not seeing any services that consumers feel are beneficial yet. What is NTT's current perception of 5G, and what is Japan's situation relative to the rest of the world?

    As I've explained before, the benefits of 5G are seen in businesses, in companies. I think IoT and its high-speed connections, including local 5G, is easier to use when it comes to companies' DX. There are actually various services being launched for businesses. In that sense, we're likely to see a lot of progress in services for businesses in 2022 and 2023. Consumers, I think, won't see the benefits of 5G unless their devices support Sub6 or millimeter wave 5G rather than 4G-based 5G, and are using a service like the metaverse, where high speeds and capacities are involved. So it's a little unrealistic to expect benefits to be noticeable with that coverage that was mentioned earlier, which will be achieved by shifting 4G frequencies. We really need to increase our coverage of 5G that uses new dedicated 5G frequencies, and that's likely to take another two years or so.

    Note: Some of this section is not a direct quote.

  • We are seeing monetary easing policies being reduced and interest rates increasing in regions such as North America and Europe. How do you think that will affect your financing in future?

    As with green bonds, basically we carry out financing measures when interest conditions are favorable. While interest rates are trending upward around the world, I don't expect costs associated with financing to increase for the time being. At present, our interest-bearing debt as of the end of the last period is 7.6 trillion yen, and that figure is expected to be over 7 trillion yen again at the end of this period, but that's based on a repayment schedule of around 10 years. That means that we need to procure 600 billion to 700 billion yen for refinancing and repayment. Meanwhile, we are expecting to put around 500 billion yen into green investments, and use around 600 billion yen of refinancing each year to issue company bonds and procure long-term refinancing from banks. In any case, we plan to focus on green bonds when we issue company bonds.

NTT Group Medium-Term Management Strategy

New Value Creation & Sustainability 2027 Powered by IOWN

We announced our new NTT Group medium-term management strategy which is based on the fundamental principle "Innovating a Sustainable Future for People and Planet" in May 2023