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February 8, 2024

CEO Press Conference

Financial Results for the Third 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)

Before I discuss the financial results, I would like to express my deepest sympathies to all those affected by the Noto Peninsula Earthquake 2024. I sincerely pray for the speedy recovery and reconstruction of the affected areas. The NTT Group will continue to make every effort to restore and rebuild the affected areas.
 I would now like to explain the financial results for the third quarter of fiscal 2023. Please see page 4. Consolidated financial results for the third quarter shows an increase in sales and a decrease in profit from the previous year. Operating revenues set a record for the third quarter. Operating income and net income both increased year-on-year in the third quarter.
 Operating revenues increased by 144.3 billion yen year-on-year to 9,716.9 billion, mainly due to an increase in sales in the comprehensive ICT business segment and the global solutions business segment, despite a decrease of approximately 190 billion yen in electricity tariff revenues due to a reduction in electricity procurement volume in response to rising electricity procurement prices at ENET. Of this increase, the impact of foreign exchange was approximately 120 billion yen.
 In the regional communications business segment, operating income decreased by 34.6 billion yen from the previous year to 1,486.2 billion yen as of the third quarter, mainly due to a net increase in optical lines and severe voice traffic, as well as an increase in the cost of removing unnecessary assets to slim down assets. In the future, it is expected that the costs required to provide safe and secure services, such as security measures costs and recent disaster recovery costs, will increase. However, we expect an increase in profit in the fourth quarter through the reduction of non-core assets, we will aim to achieve the NTT consolidated plan, which will continue to increase profit on an annual basis, together with the reliable implementation of cost reduction measures.
 Net income decreased from 21.4 billion yen to 1011.1 billion yen, mainly due to a decrease in operating income and an increase in interest expense. EBITDA was 2,571.7 billion yen, a decrease of 16.2 billion yen from the previous year, mainly due to a decrease in operating income.

Please see page 5. Regarding profit by segment, in the comprehensive ICT segment, the corporate business, the smart life business, and the consumer communications business all increased year-on-year. Although there was a decrease in the Smart Life business due to the special factors in the previous year, the increase in the corporate business due to the increase in income and the increase in the consumer communications business due to cost efficiency increased. In the regional communications business segment, we expect a large increase in profit in the fourth quarter due to the reduction in fixed voice revenues and other revenue, as well as the slimming down of non-core assets discussed earlier. As of the third quarter, due to a decrease in revenue and profit from the previous year, we expect to incur disaster recovery costs and other costs in the future, making it difficult for the regional communications business segment to achieve its plan. However, we will make the most of this by taking actions such as reducing the number of non-core assets.
 Moving on to the Global Solutions Business Segment. In addition to the increase in sales of public financial corporations in Japan, the year-on-year increase was mainly due to the impact of foreign exchange. The year-on-year increase was mainly because of the effects of structural reforms and the increase in profit resulting from the increase in sales.
 Moving on to another segment. Revenues at Ennet decreased from the previous year due to a decrease in electricity revenues due to a reduction in electricity procurement volume in light of rising electricity procurement prices. In Ennet, profits decreased from the previous year due to higher electricity procurement prices, while profits were lower in the previous year.

Please see page 6. I would like to reiterate our outlook for operating income in fiscal 2023. In the first quarter and the second quarter, mainly in the regional communications business segment, profit decreased from the previous year, mainly due to costs for slimming down non-core assets. However, profit steadily improved each quarter due to cost reduction effects, and the third quarter alone showed a year-on-year increase. In the fourth quarter, we expect to increase base profit by expanding growth areas and further reducing costs, and increase profit by slimming down non-core assets. We aim to achieve our consolidated profit target despite the difficult environment such as disaster recovery costs.
 Please see page 7. Next, I will explain about six topics.
 Please see page 8. First, let's talk about the IOWN All-Photonics Network for a distributed data center. Within this fiscal year, we will establish APN connections between major NTT Group data centers. In addition, we plan to expand our network to regional data centers in fiscal 2024 and build decentralized data centers. Utilizing the characteristics of APNs, it is possible to use them as if they were a single data center by linking in real time even between remote data centers.

Please to page 9. We have already announced this, but I would like to explain our new initiatives with Tokyo Electric Power Company Holdings. We have agreed to establish a new company TEPCO Power Grid. We have developed a data center in the Innishi-Shirai area of Chiba City and will begin providing services in the second half of fiscal 2026. In November 2023, we established a limited liability company with Tokyo Electric Power Company Holdings, Inc. to carry out the power storage plant business in Tsumagoimura, Gunma Prefecture. We aim to start the business in 2025. We will continue to utilize our power and communications assets and know-how to create new value and create a sustainable society.
 Please refer to page 10. Next, I will explain new initiatives in the field of green transformation. We launched a new solution brand, NTTG×lnno, to strengthen our efforts in the GX field. We also started to provide a green power generation business integration platform for GX, a renewable energy power producer, and to build an energy distribution platform to support renewable energy electricity supply. In addition, we will introduce a platform for visualizing CO2 emissions to about 1,000 suppliers, aiming to achieve carbon neutrality up to Scope 3.
 Please see page 11. Next, I would like to explain the status of support for the affected areas in the Noto Peninsula Earthquake. In addition to restoring communications, we visit approximately 300 locations directly, including non-designated evacuation sites, and provide mobile phones and DOCOMO satellite mobile phones and communications such as WIDESTAR II and Starlink. In addition to the 171 pre-installed public telephones, we installed additional post-installed portable satellites at the 23 locations requested after the disaster. To take care of the mind and body during the extended evacuation period, we provide video services including secondary evacuation centers and online follow-up visits. From now on, in cooperation with local governments and others, we will also set up business travel desks for people who have been affected by the disaster or evacuated to receive communication problems.
 Please see page 12. It is about the status of the number of shareholders. This is the number of shareholders at the end of December after the stock split. The right side of the graph shows the number of shareholders at the end of December. The number of shareholders, which had been on a slight upward trend until now, has continued to increase since the announcement of the stock split and is 1.7 times higher than at the end of March. The percentage of people in their 40s and under has increased approximately four times, and the age structure has diversified.
 Please refer to page 13. You can see the progress of our medium-term management strategy since November.


  • How much damage was caused by the Noto Peninsula Earthquake?

    First, about 97% of the area has been recovered from an area point of view. Although we are carrying out restoration activities on a mobile-line first basis, the number of base stations that remain affected in the area due to the lack of road access has not recovered to about fifteen. In addition, the number of communication stations for which fixed lines have not been recovered is two.
    It is not clear exactly how much it will cost since there are still some inaccessible areas, but I think it will be about 10 billion yen based on past disaster recovery. About two-third of the restoration cost will be fixed line. However, the fixed line will be restored after evacuees return to their homes and rebuild their homes, so we don't know the details yet.

  • The other day, KDDI announced that they will make a TOB to Lawson. With NTT DOCOMO also owning 2% of the shares, what is the future ownership policy and services such as d-payment and d POINTs at stores?

    NTT DOCOMO owns about 2% of Lawson's shares, but, we have not decided any action on how to proceed with this so I am not able to comment on this matter at this time. As for payment services, Takahashi, President of KDDI said at the press conference that he would not restrict to only his own services, so I expect NTT DOCOMO's services to continue.
    We will work hard to ensure that your payment service is used as widely as possible. We're not in talks about specifics at this point.

  • Regarding KDDI's efforts, you have said that the two companies would work together on product and service flexibility, support for store DX (digital transformation), finance, and points. How do such efforts by KDDI and the Lawson alliance affect the business environment and NTT's strategy?

    I'm not going to follow the same strategy. For example, in the supply chain, not only the final retailers but also the upstream process is connected. We have been supporting DX in each field, but we would like to continue to do so. We also have business relationships with three major convenience store companies, and we would like to continue to strengthen them.
    We have no intention of entering the convenience store business.

  • Recently, there have been a series of compliance issues at Japanese companies. The NTT Group and the NTT West Group have had issues regarding personal information. NTT has started new compliance initiatives in response to the issue with the Ministry of Internal Affairs and Communications several years ago. What is your understanding of the importance of compliance, evaluation of what NTT has been doing, and new initiatives you are taking in response to this incident?

    Compliance is very important for companies, and it is not so much compliance with laws and regulations, but rather the need to respond to changes in the social environment with firm discipline. I believe that there is always compliance that suits the modern era.
    The NTT West is deeply sorry for the leakage of customer information of 9.28 million clients and 69 companies caused by cyber-attacks last year. Since last year, we have been investigating whether similar problems have occurred not only in the NTT West but also in the entire NTT Group as an emergency response. We took measures by the end of December last year, and some of them were dealt with past December, but we took measures for the time being.
    However, for example, to completely ban USB thumb drives, the process of their operation must be changed, and in addition, new facilities must be built. Therefore, in the interim measures, we are taking measures such as strengthening the management of USB thumb drives, but this is not enough. Therefore, we are having each company in the NTT Group seriously discuss making a budget including investment for the next fiscal year by the end of February this year, and we intend to switch from interim measures to full-scale measures. This operation has already started in some places, but we are considering full-fledged measures over the next fiscal year, such as reviewing the system and implementing specific log checks.
    The NTT West Group's investigation into the information leak is being investigated by a committee including third parties, and we are told that the investigation report will be finalized by the middle of February this year. At the end of February, the NTT West Group instructed the president of NTT West to create an opportunity to make a presentation based on the report, including measures that have been taken and measures that should be taken in the future.
    In any case, we recognize that compliance is very important for the survival of a company, and we would like to continue to strengthen it.

  • Regarding the restoration of the Noto Peninsula Earthquake, there has been some discussion on how universal service should be based on the NTT Law. What are your thoughts on how to proceed with the disaster restoration based on this?

    Since the Great East Japan Earthquake, we have recognized that the customer's need is to restore mobile lines as soon as possible. Of course, important lines such as seismometers of the Self-Defense Forces and the Japan Meteorological Agency are given the highest priority, but other than that, we instructed NTT West and NTT DOCOMO to restore mobile lines as soon as possible.
    Now that the Ministry of Internal Affairs and Communications has started working on universal service in relation to the NTT Law, I think we need to create a system that considers mobile lines as the core of universal service.
    Conventional metal fixed lines provide point-to-point communication to residences and business establishments, but I believe that what customers today are seeking, for example, when there is a disaster such as the recent one, is communication not over points but over planes, such as evacuation centers and major roads in the process of evacuation. Therefore, I think it is necessary to think based on universal service centered on mobile lines in the future.
    Of course, we have to protect the optical line service, which is the backbone of the service, but it is important not only for NTT but also for fiber optic cables provided by cable companies and subsidiaries of electric power companies. In addition, mobile operators have their own backhauls and their own optical networks for core networks. I think it is important to deepen discussions based on these issues and create a new universal service system.
    There is a lot of discussion about last resort, but I think it should be made to be cheap and efficient in view of the national economy. In the end, I think it would be good for the government to be able to choose a business operator.
    However, as I have said before, if there is an area where no one raises their hand, NTT EAST and NTT West are prepared to take the last resort in that area, and I think mobile operators themselves may need to be prepared to do so.

  • About the NTT DOCOMO business, the consumer communications segment recorded an increase of 15.5 billion yen due to improvements in equipment balance. On the other hand, mobile communications revenues have continued to decline What are the factors and trends for each of these results> Also, at the time of the first half of the financial results, President of NTT DOCOMO, Motoyuki Ii suggested that ARPU of about 4,000 yen would stop the decline in the current fiscal year.

    ARPU at the end of the third quarter was 3,990 yen, slightly below 4,000 yen. One factor is that irumo is selling well. The impact of the launch of a second brand is coming out a little later, but the perception has been reversed since then.
    With the release of new iPhone handsets and the third quarter of the handset overhaul, NTT DOCOMO hasn't really cut prices. As a result, the mobile number portability (MNP) has not necessarily performed well, and the ARPU has not completely reversed, so we are now considering how to respond to the business situation in the spring.
    Also, how to secure future customers is very important, so how to appeal attractive services to young people will be a big factor.

  • How did NTT DOCOMO's network quality problem affect the number of users?

    I don't know because we didn't conduct a survey, but I think there aren't many of them. NTT DOCOMO also reflected on the fact that we have been a little slow to respond to the traffic volume since the end of the COVID-19 pandemic. After that, we took firm action, and as far as our plan is concerned, we did everything we could to make improvements until the end of December last year.
    In the future, there are some areas where it is necessary to increase the number of base stations. In this regard, there may be some areas where negotiations took longer than expected, and there may be some areas that exceed the fiscal year, but we are making steady improvements. We have also made considerable improvements along the so-called "commuter lines," and we will continue to improve the quality of our services by carefully managing the performance of our applications. We will do our best to ensure that there will be no more press conferences about the quality of communication.

  • NTT DOCOMO announced today that they have signed a contract with the J.League (soccer) and will start broadcasting the Levain Cup on "Lemino." What is the significance of this in relation to the future of the "Lemino" business?

    I think the streaming business is now in an era where each of them is competing for their own content. In this sense, customers are contracted to multiple services and choose the content they want to see at the time. Therefore, we recognize that it is important in the era of competition to provide content that can only be found in Lemino, such as the case of boxer, Naoya Inoue.
    As part of this, we have also signed this contract, and we would like to do our business to win the hearts of our customers by providing outstanding content such as broadcasting when Manchester City FC recently came to Japan.

  • The NTT labor union seems to demand a 5% increase in the wage negotiation, but how does the company plan to participate in the negotiation?

    First, I haven't received a demand letter from the NTT union yet. I have always said that people create services to enhance the customer experience, and I believe that investing in people is very important. In that sense, we've been raising wages for the past 10 years. For example, the consumer price has increased by about 8% in 10 years, and the cumulative wage increase in our company has been about 30% in 10 years, which is considerably higher than the consumer price.
    I believe it is important to raise wages continuously and steadily. Therefore, I believe that it is important not to suddenly raise wages at a certain point in time, or to stop suddenly, but to steadily raise wages, which will effectively contribute to the overall growth of society. Therefore, we will continue to raise wages this year.
    I believe that the extent of the wage increase will be concluded after a discussion between labor and management. Naturally, we are aware of the trend of raising wages to boost the world economy, so I would like to make a conclusion based on this.

  • Regarding the universal service, it was mentioned that the focus will be on mobile lines, but now that public telephones are also covered, what should the universal service for public telephones be like as installation standards are eased and the number of phones decreases? In addition, public telephones are provided using metal facilities, but what should be done to provide service when these facilities are reduced in size?

    First, in most countries, the obligation to install public telephones has disappeared. The main idea is to focus on covering mobile lines as the basic idea.
    The current system of public telephones consists of a metal line, and if you want to provide service through an optical line, of course, you have to create new software, a billing system, and so on, which is costly. This is not to say that we do or do not do it because it is costly, but I think we need to discuss how we can achieve the most desired benefits in terms of economy and convenience. In that sense, I think it is necessary to discuss how public telephones should be in the discussion of universal service that is taking place right now.

  • Will the KDDI, and Lawson alliance affect NTT DOCOMO's financial and points businesses?

    I don't think it's directly related. I don't know about the collaboration strategy with Lawson until I ask KDDI, but as far as I can tell from the news reports, I don't think it will have a big impact because I know that d payment and d POINTs won't suddenly become unavailable at Lawson stores.

  • About satellite communications, which were heavily utilized in the Noto Peninsula Earthquake, there is an impression that NTT Group is currently casting a net in various places, such as the launch of Starlink service, the launch of Space Compass Inc., and the partnership with Amazon for Project Kuiper. Could you tell us about the business of satellite communications?

    In response to the Noto Peninsula Earthquake, NTT DOCOMO brought WIDESTAR II terminals to the affected areas. The reason is that WIDESTAR II is good at making voice calls, compared to WIDESTAR III, which has many functions such as linking with smartphones, we decided that it would be best to bring in a service that can secure contact.
    In addition to the fact that satellite communications will be used in various ways depending on the application from time to time, it is necessary for the time being to look at the convenience and characteristics at the timing of the future evolution of satellite communications and make a choice at each timing of use. Therefore, I recognize that we need to participate in various projects and look at their superiority and convenience.
    There is a debate about whether Japan should also build a low-earth orbit satellite, but NTT Group alone cannot do that, so I think it is necessary for the government to take the lead in building such a satellite.
    We're now focusing on HAPS. I would like to bring HAPS to the area of Japan as soon as possible and do the experiment as soon as possible. However, HAPS itself has a problem in that the output of electricity can be suppressed to some extent by solar panels at high latitudes, so I think it is necessary to carefully observe the characteristics of satellite communication and HAPS.
    For the time being, space services need to be tested and put into practical use while taking on various challenges.

  • Regarding NTT DOCOMO's payment and settlement services business, in the case of its competitors, the company is deepening its cooperation with payment and settlement services along with mobile service pricing plans and with banks. NTT DOCOMO has announced a partnership with Monex, Inc. and has formed an alliance with MUFG Bank. However, there is an impression that cooperation in this area has been slow. How do you judge the situation?

    The NTT Group's policy has always been B2B2X, and it was intended to support customers in Center B. Therefore, for example, the financial industry was based on providing various support for Center B.
    But we've moved into an era where the world needs to be able to complete things in a single smartphone app, so I think it's true that NTT DOCOMO is a little late in that area.
    There is a growing need for life insurance and non-life insurance to be combined, including point-of-sale linkage, and we are in the process of putting this in place but I believe that we are still lacking. It will take a little more time, but we would like to build a system that can firmly respond to customer needs and catch up with them in the next fiscal year if possible.

  • It seems that the connection fee for dry cuppa (metal cable) exceeds the basic fee in some cases, and the deficit has to increase structurally, What is your opinion on this matter?

    It is difficult to state clearly here now, but I believe that it is very difficult to continue a loss-making business. Therefore, I believe that an appropriate profit level is necessary, and I would be grateful if they could review this systematically if possible.
    It's a little off topic, but metal landlines had more than 60 million contracts at their peak, but they dropped to 13.5 million at the end of last year. Currently, we receive about 100,000 requests for new installation annually, but on the other hand, we receive about 1.6 million requests for removal or discontinued subscription, which is a decrease of about 1.5 million per year.
    However, due to the universal service obligation, we have to open the phone within a week, upon request. The fact that we have to open all over the country upon application means that we have to maintain such a huge amount of metal fixed telephone equipment. Currently, we are losing about 60 billion yen a year, but 10 years from now, we will lose more than 90 billion yen a year. If we add up the number, it will be a very large amount.
    It is important to allocate such cash to the upgrading of advanced infrastructure as soon as possible, so I think it would be appreciated if the current discussion on universal service takes a close look at these aspects, revises the areas that need to be reviewed, and proceeds with discussions to promote the allocation of caches to advanced new networks.

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