Financial Results for the Second Quarter of FY2023

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.

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.

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.

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.