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February 9, 2023

CEO Press Conference

Financial Results for the Third Quarter of the 2022 Fiscal Year

Akira Shimada, President and Chief Executive Officer, Representative Member of the Board
Also in attendance:
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

(Akira Shimada)

Now, I would like to explain the Financial Results for the Third Quarter of the 2022 Fiscal Year.

Our operating revenues and profit for the period reached record highs for the third quarter. Our operating revenues increased by 649.4 billion yen year-on-year to 9,572.6 billion yen due to factors such as increased operating revenues in the Global Solutions Business Segment. Of this 649.4 billion yen, approximately 220.0 billion yen was the result of a favorable exchange rate.

Operating income was 1,520.8 billion yen, a decrease of 18.8 billion yen year-on-year, as we were not able to outweigh the impact of factors such as soaring electricity charges, although there was an increase in operating income due to the increase in sales. Since the first half of the fiscal year, we have been promoting cost-reduction measures to address the impact of rising electricity prices, and we aim to achieve our annual business plan through these measures.

Profit for the year increased by 2.2 billion yen year-on-year to 1,032.5 billion yen due to one-off factors such as corporate tax. The overseas operating income margin improved by 1 percentage point year-on-year to 6.4%, due to increased operating income accompanying increased sales and cost reductions through structural reforms.

I'll now announce the operating revenues and operating income for each segment (which you can see on page 5).

In our Integrated ICT Business Segment, operating revenues increased. The impact of price cuts in the consumer business was offset by increased sales and cost reductions in the corporate business and smart life business, resulting in an increase in operating income compared to the previous year.

In our Regional Communications Business Segment, operating revenues and operating income decreased year-on-year due to less demand for optical services for remote work and online businesses and the impact of higher-than-expected increases in electricity prices. Nevertheless, we expect to achieve our annual business plan of increasing sales and operating income year-on-year by accelerating efforts to improve cost efficiency and increasing operating revenues from SI and other growth business segments.

In our Global Solutions Business Segment, NTT DATA recorded a year-on-year increase in operating revenues and operating income due to factors such as the robust demand for digitalization. At NTT Ltd., operating revenues and operating income increased year-on-year due to increased revenues from the expansion of high-value-added services and cost reductions through structural reforms.

In the segment encompassing other businesses, such as real estate and energy, operating revenues increased year-on-year due to an increase in electricity brokerage at ENNET and an increase in operating revenues from electricity charges, reflecting soaring fuel prices.

Next, I have three news items to share (outlined beginning on page 7).

First, I would like to explain our efforts to address environmental and food shortage problems. NTT has announced its plans to establish a planning company to cooperate with Regional Fish Institute, Ltd. (Regional Fish) in March 2023. NTT Laboratories possess genome editing technology for algae, which increases CO2 absorption by about 1.5 times, and Regional Fish has genome editing technology that increases the growth rate of certain species* of fish by approximately 2 times. By combining the capabilities of both companies, we aim to develop and provide a sustainable land-based aquaculture system to grow algae, absorb CO2, and feed the algae to farm-cultivated fish. This process will enable us to fix CO2 in the cartilage and muscle of fish, providing an impactful solution to address environmental and food shortage problems. In the first half of FY2023, we will establish a green food joint venture company consisting of the NTT planning company and Regional Fish to help solve these social and environmental challenges.

*Regional Fish's genome editing technology can increase the growth rate of tiger puffer fish by approximately 2 times, although the growth rate varies depending on the species of fish.

Next, I would like to discuss our efforts in the Space Business (outlined on page 8). Space Compass Corporation (a joint venture between NTT and SKY Perfect JSAT) has signed a joint business agreement with Skyloom Global Corporation for the early realization of global expansion. To develop optical data relay services that transmit data from Earth-Observation LEOs (Low Earth Orbit Satellite) to the ground at high speed, we will jointly launch three GEO (Geostationary Orbit Satellite) with Skyloom and one as a stand-alone to cover the entire globe. We plan to launch one geostationary-based (GEO) optical data relay node over the Asia-Pacific, launch the service within FY2024, and gradually expand the area covered. It will achieve large-capacity, near-real-time data transmission from observation satellites to ground stations.

Finally, I will discuss the status of our Remote Standard system (outlined on page 9). About half a year has passed since we introduced this system in July 2022, which allows employees to freely choose where to live and work. The number of employees eligible for the system has increased by approximately 10,000. In addition, while we have reduced the number of employees assigned to work away from home by about 900 since the introduction of the system, there are approximately 500 employees who have newly started working away from home, resulting in a net decrease of roughly 400 employees assigned to work away from home. We will continue to increase the number of people eligible for the system and expand the options for employees' work styles and lifestyles. I will omit the detailed explanation in the interest of time, but please see the results of the employee survey regarding remote work on the next page. In general, employees are responding positively about their satisfaction with remote work and report boosts in productivity.

This concludes my presentation.


  • I think that the Japanese labor union has not yet made a formal demand for a wage increase, but I think they are likely to demand additional compensation in response to the recent inflation in consumer prices. What are your thoughts on wage increases for the next fiscal year, and what kind of stance will you take in the future?

    First, it is true that the labor union has not made a demand yet, so we will negotiate with the union and decide when the time comes. As for our long-term stance, we have raised wages continuously for about nine years, and the consumer price index has risen by about 5% over the last 10 years. We have increased wages by about 25%, so regardless of the timing of deflation or inflation, we consistently raise wages in principle, which I think is essential.
    In response to the recent inflation, we will, for example, raise hiring salaries by 14%, and we will conduct a major overhaul of our personnel system this coming April. Of course, when we review our personnel system, we will also incur the necessary expenses associated with the transition, so we will negotiate with the union in earnest while considering the overall balance. For the time being, I am aware of the recent high prices, but I think it is important to stably raise wages as a basic principle.

  • I would like to ask for your comments on the outlook of the Japanese economy.

    The impact of the war in Ukraine, paired with environmental changes, are both contributing to energy problems, which have led to especially challenging circumstances. I believe the greatest impact on Japan is the rise in energy prices. NTT's electricity costs have risen by about 40% for this fiscal year in comparison with last year due to soaring energy prices. If this situation continues, addressing the impact on the Japanese economy will be a major issue that all people in management positions, as well as those in the business, political, and financial circles, must consider. Considering these circumstances, I believe we must move toward carbon neutrality, but we also must ask ourselves how we can make this transition.
    On the other hand, overseas inflation is extremely high, and interest rates are also on the rise, yet our IT business has not been significantly affected. For example, in the data center business, we continue to receive a large volume of orders and cannot keep up with demand unless we make capital investments at a pace that exceeds our previous business plans. Of course, no one knows what kind of impact there will be when various countries in Europe and other regions start to relax their interest rates, but I think there will not be much change in the shift to a data-driven society, so the impact will be relatively small.

  • Regarding the dual-SIM service announced by KDDI and Softbank, it seems that DOCOMO was late to provide their option. What is your opinion on the current situation?

    The matter is currently under discussion, so I think we can develop our option for release at a similar time. I cannot comment on the details, but in any case, we have the same recognition that we must improve our resilience in response to service outages, so we would like to provide similar services without delay.
    We have been discussing how to increase the resilience of the NTT Group for quite some time now, and we plan to spend about 160 billion yen on network resilience by fiscal 2025. I would like to explain further details about our plans in the near future.

  • Currently, large IT companies and startups in the United States are also putting a lot of effort into developing conversational AI. What is the NTT Group's view on this technology, and what is the future outlook, including possible developments?

    I believe that the time has come for AI to become part of everyday life. NTT Group companies already incorporate AI into their services to complete all sorts of tasks, such as displaying the most appropriate answer to a customer's question on a screen and replacing human voice with text. The incorporation of AI is not a sudden change for NTT but a present reality.
    However, the AI developed by each company has its unique strengths and idiosyncrasies, so I think we should keep an open mind and collaborate with different types of AI with varying characteristics, not just the AI created by our research institutes.

  • I imagine it would be difficult to reduce the number of employees assigned to work away from home (currently about 4,500 NTT employees) to 0, even with the Remote Standard. However, to what degree do you think this number can be reduced?

    I mentioned that the number of employees assigned to work away from home decreased by approximately 400. During the same period last year, the number of employees assigned to work away from home decreased by 35 to around 5,000. Based on these figures, the effect of introducing this Remote Standard system has reduced the number of employees working away from home by about 400. I would like to reduce this number as much as possible, but I think it may not be possible to allow certain people, such as branch managers, to work remotely. Of course, it is also important to train employees in each area and create leaders, so I think it is necessary to reform work styles in combination with human resource development.

  • How often do you use the remote work system?

    Since I have many opportunities to meet customers, I usually commute to the company.

  • Regarding the impact of soaring electricity prices, it is estimated that there will be an impact of 60 billion yen on the operating income this fiscal year. Is there a possibility that this amount will increase further in the next fiscal year? Will the rising costs affect the consumer prices of NTT's related services?

    I think the impact for this year will be an increase of about 60 billion yen since it was around 45 billion yen by the end of the third quarter. A series of price increases is expected for the next fiscal year, meaning we expect some sort of price increase, so we recognize that there is some possibility of an increase like the one experienced this year.
    Since the government may provide support in the future, this will reduce the burden by a certain amount, but it is still expected to increase considerably. Corporations would like to ask the government to offset the burden of electricity charges as much as possible. We will do our best to offset this burden by improving efficiency, but if costs continue to rise, this will be a difficult task. There may come a time when we must raise consumer prices at some point. However, for the time being, we would like to do our best to absorb these costs through our efforts.

  • The Global Solutions Business Segment has been the driving force behind your performance this quarter, so please tell us which areas will be the driving force behind your performance from the next quarter onwards and whether this trend will continue.

    Within the Global Solutions Business Segment, I think digital demand will continue to be the driving force. Another driving force behind our overall performance is the Data Center Business. As you can see in the supplementary materials for the third quarter financial results, sales are about 1.5 times higher than last year. Demand continues to be strong, so we have planned to invest about 300 billion yen in Data Centers for this fiscal year, including from third-party funds. Furthermore, I think it is necessary to increase the investments by several tens of billions of yen in response to client demand. I believe the Global Data Center Business and Digital Business will continue to be the driving forces behind our performance.
    Aside from these two areas, DOCOMO's ARPU also rose from 4,080 yen in the second quarter to 4,090 yen in the third quarter, so even though it may decrease during the final quarter of the fiscal year. Since the impact of price cuts has considerably subsided, customers can now use large-capacity plans, and I think the economic environment has improved.

  • What kind of cost reduction measures will be taken to address the rising electricity costs?

    NTT East, NTT West, and NTT DOCOMO bear their own electricity costs. NTT East and West have more exchange facilities (such as switching equipment), so the burden is a little larger. To reduce costs, we are working to accelerate our digital transformation. We have no choice but to accelerate the implementation of our plan and steadily introduce processes that cut costs. We cannot cut labor costs, which are fixed costs, so all we can do is cut expenses.
    Since we are involved in an industry that relies on equipment, if certain investments are not made in a planned manner, quality will decrease. Investment in equipment is indispensable to ensure customer service, so we cannot reduce costs in this area. This leaves us with only one option: to reduce general expenses.
    The effort of employees makes it possible to increase the speed of digital transformation for a certain period, but it is quite difficult to keep up this momentum, so we will have to work together as a group to figure out how to absorb the increase in electricity costs in our business plan for the next fiscal year.

  • In connection with the ongoing labor movement, the union is requesting a one-time payment of 100,000 yen. In addition, there is a policy of requiring a bare minimum of a 2% raise due to the concerns voiced by employees in response to rising prices. Compared to the actions some other companies have taken, I think 2% is low. What are your thoughts on the matter?

    Fundamentally, we recognize that we must take inflation into account, but if we say we are raising wages in response to inflation, we should also lower wages during periods of deflation. Instead, it is important to have discussions and work to agree on a set standard. In principle, I think it would be better to raise wages, so I would like to conduct management that raises wages as much as possible.

  • What business scale do you envision for the collaboration with Regional Fish?

    We will soon establish the planning company for this project, so I would like to explain when the joint venture is established. We would like to achieve land-based aquaculture on a national scale, so I think we will need to set up many facilities.

  • Recently, NTT has been promoting Smart City initiatives overseas in places such as Las Vegas, has conducted demonstrations in Colombia, and seems to be resuming its overseas business following the pandemic. Can you share any specific projects you would like to focus on in the future?

    The Smart City business is expanding steadily overseas. Originally, we began this business in Las Vegas, and it has since expanded to other cities in Nevada. Initially, the focus was on traffic safety solutions, but after the pandemic, we began to use AI to analyze people flow and crowd management, as well as logistics delivery and SNS analysis. In addition to the United States, we have also launched initiatives in Australia, New Zealand, and Japan, and are also expanding business to Southeast Asia, so Smart City projects are steadily expanding. We previously announced that our sales target is 100 billion yen (1 billion dollars) on a cumulative basis and, at present, achieved more than half of that amount (about 600 million dollars).

  • NTT DOCOMO's capital investment trend has fallen compared to the previous year's figures. Looking at the breakdown, Smart Life Business investments are increasing, but Consumer Business investments have stagnated. Please tell us about your approach to cost reduction.

    We are seeing gains from more efficient telecommunications equipment investment in the Consumer Telecommunications Business, but we expect that we will need more investment to some extent by the end of the fiscal year. We have made investments in 5G, so although we are a little behind in some areas, I think we need to catch up.

  • KDDI and Softbank have both stated that they have not discussed MVNOs, but can NTT please explain the position of MVNOs in this backup system?

    We have not yet talked to MVNO operators. Therefore, we are in discussion with SoftBank and KDDI, and we think it is important to create a backup system for those with a large volume first, so we will start from there. Then, we will consider how to collaborate with MVNO operators. Currently, we are at a stage where we must first focus on dividing the roles between the three companies and aligning the specifications, so it will take a little more time.

  • Can you provide an estimate of the price range for the dual-SIM service?

    Both SoftBank President Miyagawa and KDDI President Takahashi have said that their service will cost around a few hundred yen, so I think ours will also be around that level.

  • KDDI and Softbank have already announced the launch of their dual-SIM service is set for late March. What progress has NTT made towards a dual-SIM service?

    The schedule is not fixed yet, so it depends on when the preparations are finished.

  • Since NTT operates in a business domain that is changing rapidly while hiring many employees, I would like to know your thoughts on the state of the labor market and the flow of workers.

    I believe NTT's introduction of a personnel system based on specialized skills from April 2023 is one measure to increase the employability of a wider variety of people. Corporations around the world generally evaluate wages based on specialized skills, so I think that Japan should gradually move in that direction. I believe this would lead to the establishment of certain specialized fields and create fluidity in corporations.
    Across the globe, guilds and labor unions created skill level evaluation standards, so there were clearly delineated levels, but there was no such a system in Japan until recently. From now on, I think that specialized skills and fields of expertise will gradually become a little more limited even within Japan, and that fluidity will increase a little more.
    I think we should begin the transition to a similar system. Although some people often refer to NTT as a GAFA (Google, Apple, Facebook, Amazon) preparatory school, I think these are good companies to work for. Working in various places is very important for career development, and these companies provide many opportunities, although I would like to see some employees return to NTT afterward.
    Diversity in work experience applies not only to job type but also to the experience of living in different regions. For example, due to the recent changes in working styles, some employees have moved from Tokyo to Akita with their families. It may be a bit of an exaggeration to say that we can always support such employees or create a system that makes it easier for employees who need to provide nursing care or childcare by accepting remote work style reforms. Nevertheless, I believe this may become one of the countermeasures against the declining birth rate.

NTT Group Medium-Term Management Strategy

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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