Financial Results for the First Quarter of FY2025

First, concerning the new rate plans, as announced yesterday when we introduced the new basketball-related plan, we launched DOCOMO MAX in June. We are pleased that approximately 700,000 customers have already subscribed. The monthly average is about 350,000, and with an annual target of 3 million, we believe we have made a solid start. We have also added NBA content, and we hope to further enhance customer satisfaction through this offering.
Regarding SBI Sumishin Net Bank, the process of making it a subsidiary has not yet been completed, but it is expected to be finalized around October. It will be consolidated from that point onward, meaning that roughly half a year's performance will be reflected in this fiscal year's results.

The optical switch being used at the Osaka-Kansai Expo operates at about 51 terabits per second. For the commercial version to be released next year, we plan to offer one exceeding 100 terabits, which has already been well received by customers. We plan to hold a briefing session on IOWN on October 6 from an IR and PR perspective and, if possible, invite representatives from the optical switch supply chain who use photonic-electronic convergence devices. While details are not yet finalized, we expect to provide more concrete information on potential customers within this fiscal year.
As for NTT's strengths, NVIDIA announced its CPO approach this spring, but the original concept of bringing light close to the chip was proposed by NTT. By realizing this concept, we can significantly reduce power consumption and also address thermal management issues that can no longer be handled solely by electricity. We have heard positive feedback recognizing the value of this concept, which suggests that the direction NTT has pursued is being acknowledged as the right one. NTT also possesses unique technologies, and by highlighting these strengths, we intend to move toward commercialization together with our partners.

Fixed-line telephones currently operate over copper lines. In disaster-prone regions, rebuilding copper lines after typhoons or floods is not efficient, so we would like to avoid doing so whenever possible. As we have previously mentioned, existing equipment will reach its operational limit around 2035, so we hope customers will gradually transition to alternative services by then. We plan to first inform customers of how they can switch to alternative services and, in September, explain our overall policy, although we will not be able to present specific geographic areas at that time. Ideally, we would like to begin the transition in urban areas where optical cable installation is mostly complete. We will continue listening to various opinions and requests and ensure that customers can transition smoothly to appropriate alternative services.

The basic premise is that customers who currently use NTT's services will transition to alternative offerings. However, some customers may choose to move voluntarily to other providers, such as mobile carriers. Further discussion will be needed, but it may be possible for NTT EAST and NTT WEST to provide services on behalf of, or wholesale to, mobile carriers in designated areas. Some customers may feel more comfortable being contacted directly by NTT EAST or NTT WEST, so we would like to design a system that accommodates such cases and preferences. In areas where optical networks are already in place, shifting customers to fiber is also desirable from the perspective of promoting broadband adoption. We plan to provide more concrete details around September.

One factor is that we increased marketing expenses, particularly from the third quarter of last fiscal year onward, to strengthen our customer base. Compared to the previous year, marketing costs rose, and we also incurred additional expenses for improving service quality by increasing the number of base stations by about 20 percent. These costs offset the positive contributions from Smart Life and corporate businesses. ARPU was flat year on year in the first quarter, so while we need to continue monitoring, we believe it has bottomed out.

We believe the exclusion occurred because in many areas both 4G and 5G signals are available simultaneously. Since there also appear to be differences in the number of surveyed locations for other carriers like SoftBank and KDDI, it is difficult to draw conclusions at this stage. We consider 5G SA to be the core of our 5G services and plan to begin offering it to corporate customers in areas where it can be effectively applied.

We are aware that workforce reductions have begun in regions such as North America as AI progresses, but we believe the situation largely depends on market conditions. When markets recover, companies will both adopt AI and require personnel for consulting and integration work related to that transition. Therefore, the spread of AI does not necessarily mean an overall reduction in employment. On the contrary, the demand for AI engineers and consultants will likely increase.
For this fiscal year, NTT expects to receive around 150 billion yen in AI-related orders, and by fiscal 2027, that figure could grow to around 500 billion yen. Consequently, we will continue hiring AI-related personnel globally. On the other hand, in areas such as contact centers, where chatbots and web-based processes are replacing traditional operations, the need for certain resources may decline. In short, the impact of AI adoption will vary by field, and we do not believe it will lead to a uniform decrease in overall employment.

NTT DATA Group is not directly involved in import or export activities, so we do not expect a direct impact from the tariffs themselves. However, if tariffs negatively affect the global economy, IT investment could decline. Therefore, we will need to monitor economic trends closely. In Germany's automotive market, where many of our clients operate, we are already seeing effects from recessionary factors rather than tariffs, so we are somewhat concerned.

Since NTT entered into a capital and business alliance with SBI Holdings, we cannot say that there is no connection at all. However, NTT has not invested directly in SBI Securities, so we are not in a position to comment on its partnerships. We will continue to maintain equal business relationships with both Monex and SBI Securities.

Our Chairman Sawada attended the recent opening ceremony and reported that he was impressed by the state-of-the-art, fully automated factory. We are pleased that such an advanced semiconductor facility has been completed. We made an initial investment of around one billion yen and have high expectations that photonic-electronic convergence devices will be integrated into the post-processing stages. Based on that outlook, we plan to continue providing investment support as appropriate.

We continue to make progress in our joint initiative with Toyota to achieve a society with zero traffic accidents through the combination of mobility, AI, and communications. Discussions have advanced significantly. Since the Woven City project is Toyota's initiative, we prefer not to comment further.

It is difficult to precisely assess the impact of competitors' pricing strategies at this time. With DOCOMO MAX, we have introduced plans that include bundled services such as DAZN and international roaming, and the number of subscribers has exceeded our expectations, indicating positive customer reception. DOCOMO MAX is not a price increase but a new pricing option that reflects the added value of these services. By continuing to add attractive content, such as the recently announced NBA package, we aim to further enhance customer satisfaction and deliver services that offer genuine value.

The number of new base stations planned last year was exceeded, and all installations have been completed. This year, we plan to increase that number further and accelerate progress by starting earlier in the fiscal year. For tuning work, in areas like Shibuya Station where new buildings continue to appear, ongoing adjustments are necessary, but in most other areas, improvements were largely completed last year.

From the perspective of antitrust law, since we already held a majority stake, we believe that making NTT DATA a wholly owned subsidiary would not affect fair competition. When NTT DATA was spun off, it voluntarily submitted a statement outlining fair competition conditions, which have since been codified and institutionalized. By adhering to these rules, we see no particular cause for concern.
Currently, NTT DATA's share in the solutions business is about 11 percent, which does not indicate a dominant market position. NTT EAST and NTT WEST are also bound by rules that prohibit certain preferential practices in service provision, so as long as these are followed, we believe there should be no issues requiring debate.

In large language models, increasing the number of GPUs enhances performance by enabling more parameters. Tsuzumi 2 can increase its parameter count to 30 billion with just a single GPU, which greatly improves cost performance and price competitiveness.
As for applications, the scope remains similar to that of the original tsuzumi. In Japan, successful AI adoption requires customized implementation and consulting tailored to each company. Through such consulting, if we determine that a different provider's LLM better suits a client's needs, we recommend that solution instead of tsuzumi. Last year, we delivered about 800 AI projects worldwide, and we believe this flexible, customer-first approach provides the greatest benefit. While tsuzumi remains our flagship model, we will continue promoting it alongside flexible, tailored solutions.

While we aim to offer products using 2-nanometer chips in the future, there are no specific plans at this stage. As various new devices emerge, demand will likely increase, and concrete opportunities will arise. One of the biggest challenges in the supply chain is managing heat in data centers. Cooling methods such as water cooling, which circulates water around the frame, or immersion cooling, which submerges equipment in liquid, consume large amounts of power for both cooling and air conditioning. Reducing this energy consumption is a major issue.
By incorporating optical wiring into the back-end processes, we can lower both power and heat, helping to gradually resolve the data center heat management problem. This, in turn, will enhance the value of the semiconductors produced by Rapidus. From that perspective, we look forward to supporting their efforts as much as possible.