Financial Results for the Third Quarter of the 2022 Fiscal Year

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.

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.

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.

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 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.

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

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.

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.

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.

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.

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.

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).

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.

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.

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.

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

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.