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November 7, 2023

CEO Press Conference

Financial Results for the Second Quarter of FY2023

Akira Shimada, President, Representative Member of the Board
Toshihiko Nakamura, Senior Vice President, Head of Finance and Accounting
Akitoshi Hattori, Senior Vice President, Head of Corporate Strategy Planning

Photo of press conference with President

(President Shimada)

I will explain the financial results for the second quarter of fiscal 2023.
 Please see page 4. Consolidated financial results for the second quarter showed an increase in sales and a decrease in revenue from the previous year, and operating revenues were the highest ever for the second quarter.
 Operating revenue increased by ¥78.4 billion year-on-year to ¥6,364.6 billion, mainly due to higher sales in the comprehensive ICT business segment and the global solutions business segment. Of this increase in revenue, the impact of foreign exchange was approximately over 80 billion.
 Operating income decreased ¥45.6 billion year on year to ¥950.9 billion in the second quarter due to an increase in upfront costs for operational efficiency improvements such as large-scale system upgrades in the regional communications business segment and an increase in the cost of removing unnecessary assets to reduce asset slimming. Although the Company has not disclosed its plans for the second quarter, both revenues and profits are generally progressing as expected.
 In the second half of the fiscal year, we plan to expand growth investment and streamline non-core assets to generate cash and profits. In addition to ensuring the implementation of cost reduction measures, we will work to achieve the NTT Consolidated Plan, which will result in annual profit increases.
 Net income decreased by ¥25.8 billion from the previous year to ¥670.8 billion, mainly due to a decrease in operating income and an increase in interest expense. EBITDA was ¥1,673.1 billion, a decrease of ¥34.5 billion from the previous year, mainly due to a decrease in operating income.

Please see page 5. Revenue and profit by segment.
 The overall ICT business segment increased year-on-year mainly due to higher sales in the corporate business and Smart Life Business. The decrease in profit due to increased costs such as the strengthening of the proposal support system for small and medium-sized enterprises in the corporate business was covered by cost efficiency improvements in the consumer communications business.
 In the Regional Communications Business segment, in addition to the decline in revenues from fixed voice revenues, costs were leading the way in the first half of the year, resulting in a year-on-year decline in revenues and profits. Earnings and profits are generally progressing as expected, and we will continue to work toward annual revenue and profit growth.
 Global Solutions Business. In addition to the increase in sales in Japan, mainly in the public corporation sector, the year-on-year increase was mainly due to the impact of foreign exchange. Although there was an increase in overseas business integration costs, the year-on-year increase was due to the effects of structural reforms and an increase in profit resulting from increased sales.
 In other areas, such as real estate and energy, revenues and profits decreased year on year due to a decrease in electricity revenues generated by NTT Anode Energy Corporation.
 Please see page 6. As of the second quarter, operating income and net income both decreased from the previous year, but progress has generally been as expected. By covering the increase in income in the second half of the year, we will work to achieve our annual plan and EPS target which is set for the final year of fiscal 2023.

Please see page 7. Next, I will explain four topics.
 Please see page 8. First, let me explain our initiatives related to autonomous driving. In anticipation of the full-scale development of autonomous driving services in Japan, NTT invested in May Mobility, which has strengths in autonomous driving technology, and acquired exclusive marketing rights for its autonomous driving solutions in Japan. Utilizing May Mobility's autonomous driving system and our company's high-speed, reliable network and ICT technology, we will provide autonomous driving services to solve social issues in cooperation with various partners.
 Please refer to page 9. NTT Data Group has established IOWN Global Promotion Offices in North America and EMEAL to create business examples using IOWN. Aiming at the end of fiscal 2025, we will train up to 600 IOWN technical experts globally and aim to fully implement the technology in society.
 Please see page 10. Next, I will explain the realization of IOWN data center by APN and so on. Toward the end of fiscal 2023, we will conduct demonstration tests of APN connectivity between data centers in the United States, the United Kingdom, and Japan. By performing low-latency, high-capacity, high-quality data transmission, we plan to demonstrate information processing as if we were using a single data center at multiple sites. In the future, we will conduct similar demonstration tests in countries other than the United States and the United Kingdom.
 Please refer to page 11. The progress of our medium-term management strategy is as shown.
 Please refer to page 12. Finally, I would like to explain the status of the number of shareholders.
 The number of shareholders, which had tended to increase slightly in the past, has increased significantly, more than 1.5 times. We believe that the stock split has triggered interest in investing in NTT stock, particularly among individual shareholders, and the age demographic has become more diverse, with the percentage of shareholders in their 40s or younger having quadrupled.
 This concludes my explanation of the financial results.
 Next, I would like to explain our position on the NTT Law. First, regarding the discipline related to the prohibition on the merger of NTT East, NTT West and NTT DOCOMO, I would like to reiterate that we do not intend to integrate the three companies. We are saying that they should be integrated into the universal service obligation for broadband services stipulated in the Telecommunications Business Law, including fixed voice services stipulated in the NTT Law.

Mr. Yamamoto, former Director General of the Cabinet Legislation Bureau and Supreme Court Justice, has commented that there is no legal problem with the Telecommunications Business Law imposing the responsibility of broadband service dissemination and exit restrictions on certain service providers.

If you look at the deliberations of the Ministry of Internal Affairs and Communications' Special Committee on Telecommunications Policy reveals a discussion that misunderstands legislative theory. For example, one committee member's opinion states that "If the government were to designate a provider entity responsible for last resort responsibility for universal broadband service, it would be stipulated in the Business Law, but it would be difficult to name NTT in the Business Law. However, it is very common for the Business Law to impose legal obligations on business operators that meet certain requirements. Therefore, by designating in the Telecommunications Business Law those carriers that "meet the requirements specified by a Cabinet Order as carriers that possess the necessary equipment and materials to provide nationwide basic telecommunications services" as those that must provide universal service, and by devising a way to establish such requirements, it is conceivable that only NTT East and NTT West would be subject to this requirement. Therefore, it is quite possible to establish provisions for universal service in the Business Law without using the NTT Law, and this is a common practice in the Business Law. In addition, it is difficult to agree with the Commissioner's notion that the Business Law is neutral or that the NTT Law is a law for a limited field. Since a law gives rights and imposes obligations on people in a specific field, it would be better for the public to be governed by a single law as much as possible within the scope that is consistent with the purpose of the law, so that the public can easily understand the relationship between the content of the regulations.
November 2, 2023: Tsuneyuki Yamamoto, Former Cabinet Legislation Bureau Chief Justice

Regarding the approach of discipline for foreign capital control, we believe that it is necessary to cover all major telecommunications carriers. We believe that it is important to consider not only the Foreign Exchange and Foreign Trade Control Law, but also the Telecommunications Business Law and other laws and regulations, etc. Even if we protect only NTT, we will not be able to fully protect them.
 Please refer to the next page. There is a misunderstanding about the universal service for telephones: the figure of 60 million is given, but the Telecommunications Business Law stipulates that NTT is responsible for ensuring the appropriate, fair, and stable provision of telephone services throughout Japan, as stipulated in the NTT Law, Services such as Hikari line (Optical Fiber Phone) provided by NTT East and NTT West are not subject to this law. The Telecommunications Business Law covers subscriber phones, fiber-optic line phones, wireless fixed-line phones, and public phones. Since the main service is only for subscriber phones, the number of subscriptions is currently 13.5 million lines.

Please refer to the next page. I would like to talk about the succession of assets from the period of public corporation. When the shares were allocated to the government at the time of privatization, the assets belonged to the government as the shareholder. Subsequently, when the government was sold and two-thirds were transferred to the private sector, two-thirds were transferred to the private sector shareholders as to the final attribution. In the United Kingdom, France, and Germany as well, there have been asset successions in the past. The business laws regulate fair and equitable lending in the same way as in Japan, but there is no special corporation law. There are no special corporation laws in major countries, and universal service is regulated by business laws.


  • Last month, it was revealed that 9 million cases of personal information were leaked by former temporary employees of NTT West's subsidiary. I would like to know President Shimada's response and what he will do in the future.

    We sincerely apologize for the leakage of customer information caused by a subsidiary of NTT West. In particular, we deeply regret that the rules set by the NTT Group, such as no portable external recording media, no behavior detection software, and keeping a thorough log, did not work.
    At present, as an emergency response, we will first check with all NTT Group companies to see if the rules are being properly implemented, and if there are any issues, we will review them as soon as possible.
    For example, the rule has always been that portable external recording media should not be used in principle, but now we are considering a form in which the principle will be removed and no such media will be used at all. Also, regarding behavior detection, we have instructed that it should be introduced in June 2020, especially for customer systems, but since this had not been followed, we will make sure that it is thoroughly implemented.
    We will make sure that these two points are fully implemented, and we will also include unannounced audits of internal controls. We are truly sorry for any inconvenience caused to our customers.

  • Regarding the second quarter results, you mentioned that operating revenue reached a record high, but looking at the situation by segment, it appears that the global solutions business is growing, while the regional communications business has declined significantly. Could you tell us the factors behind these results?

    First of all, earnings from the Global Solutions business are growing steadily in NTT DATA's business in Japan. On the other hand, there is a positive factor of about 80 billion yen due to the impact of foreign exchange rates. Therefore, if you simply think about it, I would like you to understand that it is a little more than +20.0 billion yen. Profits are positive due to the results of structural reforms overseas, rather than domestically.
    As for the regional telecommunications business, earnings are already in the red in the fixed-line business, as I mentioned in my presentation on the NTT Law, and this year, the optical line business, which had grown in response to the new Corona vortex, has been sluggish due to a reactionary effect.
    In the past, we had covered the decline in fixed-line revenues by increasing the net increase in fiber-optic lines, but we are now in a difficult situation.
    Our strategy is to cover this situation through cost reductions and other measures. In the first half of the year, we completely replaced our financial, procurement, and other systems, and we also retired, redeveloped, and sold unneeded assets in the first half, so costs have been incurred ahead of schedule. In the second half of the year, we hope to bring the overall level to roughly the same level as last year through the liquidation of these assets and other measures.

  • What is your view of the business environment in the second half?

    NTT DOCOMO, which accounts for a large portion of our earnings, has been making upfront investments in corporate sales and smart life business, and the effects of these investments are expected to emerge in the second half.
    NTT East and NTT West are also expected to increase profits in the second half due to cost improvement effects and sales of unneeded assets.
    As for the global solutions business, we believe that profits will continue to grow steadily.
    As for the electric power business, since procurement of electric power has been extremely difficult this year and earnings have dropped all at once, we plan that it will be difficult to recover earnings and profits from that part of the business.

  • Regarding the investment in May Mobility, I believe SoftBank also entered into a business alliance with the company last year, but is it correct to understand that NTT took it from them?

    The fact is that we have spoken with May Mobility and have received the exclusive distribution rights within Japan.

  • Regarding the NTT Law, KDDI and Softbank are promoting the disadvantages of eliminating the NTT Law, but conversely, I would like to know if there are any advantages to the public of reviewing the NTT Law.

    One is that the disclosure requirement for research and development is a constraint in many ways, but partnering with other companies will make it easier for us to develop our business by bringing our strengths together.
    The structure of the NTT Law is to promote the widespread use of fixed-line telephones, but it is meaningless to discuss the widespread use of fixed-line telephones in this day and age. I believe that a major factor in this review will be to be able to discuss the future from the viewpoint of how the public can enjoy evolving technologies.
    For example, if we change to all-photonics networks and multi-core fibers, we need to change the physical network, and if we change to AI and digital twin, we need to combine them. In addition, I believe that it is important to develop a vision for the future and institutionalize it so that various new technologies such as Starlink, satellite constellation, and HAPS can flourish in Japan.
    We believe that this should be done while competing with each other.

  • NTT Data is considering measures to prevent a recurrence of the recent failure of the Zengin system. What is President Shimada's view on this?

    As in the case of the information leakage at the NTT West subsidiary, we are truly sorry for the failure of the system, which can be said to be the infrastructure used by customers all over Japan, and we apologize for the inconvenience caused.
    We have not had a failure in the past 50 years, and this is the first time we have had a problem like this. This time, the problem occurred at the point of taking the system to the cloud, and software was involved. Therefore, when we introduce new technologies into our systems in the future, there is a possibility that something unexpected may happen. I would like to discuss the specific measures to be taken this time.
    I am sure that NTT DATA will have another opportunity to talk to you about the specific measures taken this time, so I hope you will wait a little longer.

  • With regard to the NTT Act, KDDI President Takahashi and others have stated that there is no possibility of a simple repeal and that it would take time to revise the law, so it would be better to keep the law and revise it. What is your opinion on this?

    If you look at the major countries in the world, few have special corporation laws other than Australia's Telstra law. In the world, we had this discussion 20 years ago, and I am asking, "Are we going to have this same discussion again in Japan when things have changed in the world 20 years ago? I think it should be changed.
    Twenty years ago, the Information and Communications Council in Japan issued a report on what we are arguing now. I wonder why only Japan needs to keep the law as it was 40 years ago. I still believe that we should move forward into the future.

  • What is the future of the collaboration with May Mobility?

    In 2024, we will begin demonstration experiments in a certain closed area, including behavioral habits and driving characteristics of Japanese pedestrians. We don't know how long it will take to demonstrate it, but we hope to provide community bus services to operators who operate them from around 2025, when a form of autonomous driving suitable for the Japanese environment has been developed. As exemplified by the 2025 problem, social issues such as having no drivers for taxis and buses, are emerging in rural areas even today. As a means of resolving these issues at the earliest possible stage, we hope to provide such software in such a way that we can develop services that meet customer needs.

  • Regarding the NTT Law, KDDI stated that there were 60 million telephone subscriptions and that it had also confirmed this with the Ministry of Internal Affairs and Communications. Please tell me why there is a discrepancy in the perception of the numbers.

    Since Hikari line (Optical Fiber Phone) is not subject to receiving money from the Universal Service Fund, it is not a service covered by the Universal Service. If we were to say that Hikari IP phone itself is a universal service, we would have to receive the same supplemental money, but since we do not receive it, I think the definition is clear.
    Universal service is obligated to NTT East and NTT West because no one else provides the service for the last resort. Therefore, when we are asked to pull a landline phone line, no matter how much it costs, we pull the line no matter whether it is in a remote island or not. For this, we receive a supplement of about 10% of the total amount in the form of the Universal Service Fund. The principle of universal service, which is to be fair to all, is interpreted as providing the same service at the same rate even if it costs a lot of money to install the equipment.

  • Regarding the NTT law, please tell us why your analysis is that nothing has changed since the report was issued by the Information and Communications Council 20 years ago.

    Perhaps our company should have appealed to them more. Although it is the government's job to ultimately revise the law, I think now that our company could have taken proactive action after the report was submitted, but unfortunately, I honestly regret that we did not do more at that time.

  • Regarding the situation in Israel and Palestine, NTT Israel is a local subsidiary, and I would like to know the current status of the workers and the prospects for business continuity.

    I have been communicating directly with Mr. Noah, the CEO of NTT Israel, via e-mail this week. 9 employees are safe and sound, including their families, so I am relieved, but I hope the situation will be peaceful as soon as possible. Two Japanese employees have been sent back to Japan.
    The business itself is still going on, and we are very grateful to hear that they want to continue their activities as a member of the NTT Group.

  • Regarding the NTT Law, please tell us your thoughts on the claim that you do not intend to merge NTT East, NTT West with NTT DOCOMO, while other companies have expressed concern about the lack of a law to ensure that it is not a verbal agreement.

    The Telecommunications Business Law contains regulations on prohibited acts, such as the prohibition of directors of NTT East, NTT West and NTT DOCOMO from concurrently serving as directors, and the prohibition of separating the facilities division and the sales division of NTT East and NTT West. I think there is an option to add a provision that NTT East, NTT West and NTT DOCOMO should not merge, and I believe the opinion of Mr. Tsuneyuki Yamamoto, whom I introduced, was also a similar argument.
    Various provisions can be made in the Telecommunications Business Law, and all major overseas countries have such provisions in their business laws. I would like to know why the Telecommunications Business Law does not provide for this in Japan.

  • Please let me know if your stance on the NTT law remains the same as a result of the repeal.

    We have been saying for some time that the result would be abolition, and that point has not changed.
    I am not saying that the universal service for telephony should be abolished out of the blue, but I think it would be better for people's lives if the universal service for telephony is integrated and positioned within the Telecommunications Business Law.
    Since voice services are like applications within broadband, I think it is acceptable to position telephone services that comply with technical standards within broadband in the future, and we should consider the content of services that are appropriate for the times.
    If there are many people in Japan who demand a high level of voice service, then such rules should be established, but if there is a need for applications that can be controlled by simpler software, then such an arrangement may be possible.
    Therefore, I think it is important to have a system that clarifies what society and the people want, and then provide it to them.
    On the other hand, since universal service means providing services to areas with a deficit, it naturally incurs costs. Therefore, I think it is important to find a balance between how to minimize the cost burden on the public and how to provide the best service.

  • What are the features of May Mobility's software?

    May Mobility is unique in that it uses AI to monitor all of its surroundings. In the U.S., the company has conducted more than 350,000 driving tests in various locations including California, in addition to the state of Michigan where the company's headquarters is located. However, Japan has its own traffic rules and driving manners, and more people walk than in the U.S. and other countries, so I think it is important to make the system practical while tuning it to an operating system that suits the Japanese environment.

  • What is your reaction to DOCOMO's communication quality?

    We will do our best. We will invest an additional +30 billion yen to power up well. It is true that we still have some issues on some of our routes. Therefore, we will strengthen it firmly and work to bring it up to 100%, or even 120% as soon as possible, although NTT DOCOMO has said 90% by December this year.
    Traffic should still increase in the future. Traffic has increased 1.7 times in some urban areas since the new COVID dawned, and we expect that the number of customers who use video services outdoors will increase. We will do our best to improve the quality of our services by combining them with AI services that we have created ourselves.

  • Regarding IOWN, I would like to know if the NTT law restricts worldwide dissemination.

    As far as the obligation to promote and disseminate research and development is concerned, we would be more grateful if we did not have it. When collaborating with partner companies, there are cases of openness, patenting, and black box operations, but since there is a partner, it is not up to us alone to decide which to choose.
    Therefore, it is better for the partner company to have the same options for partnering as for a normal company, otherwise the choice of strategies will be reduced, which is a negative factor for collaboration. Naturally, we would like to see the said areas reviewed as soon as possible, and I think it would be a positive thing for the national interest as well as for the advancement of research and development.

  • As services such as automated driving are deployed, I believe that large bandwidths will be needed for 5G and other services, but I would like to know if there are any plans for significant investment.

    I think you are right that 5G networks will be important in the development of mobility services. 5G networks are necessary, and since I think the era of automated driving will arrive around 2030, we are moving into the world of 6G. Therefore, we will conduct various experiments at the 5G stage, and for example, since the service provided by community buses will focus on a specific area, we will expand the service by installing concentrated antennas, etc. At the 6G stage, APNs will also be included, and we will develop new mobility services that combine optical and wireless technologies as a whole. I think that the overall goal is to develop new mobility services in the world by combining optical and wireless technologies.

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