News Release 041110b

3. BUSINESS RESULTS AND FINANCIAL CONDITIONS

(1) Business Results

During the half-year ended September 30, 2004, capital investment increased due to improved business confidence and other factors. Although employment conditions remained difficult, there were signs of economic improvement, and this has led to a gradual but steady increase in personal consumption and increases in exports and production levels in the mining and manufacturing industries. Against this backdrop, the Japanese economy continued on a steady path to recovery, as evidenced by further growth in capital investment.

Great changes are taking place in the telecommunications market environment due to such factors as the rapid advance of broadband communications. ADSL services are continuing to grow in the quickly expanding broadband market. Fiber optics access services, which are the mainstay of broadband services, are also steadily spreading amid intense competition. In the mobile communications market, growth in the overall number of subscriptions continues to slow. However, the spread of third-generation mobile communications services is accelerating, and services for video clip transmission have been introduced, as have fixed-rate Internet access services. These developments have resulted in an intensification of service and fee competition. At the same time, the market for conventional fixed-line telephone services continues to shrink because of the accelerated expansion of fixed-rate Internet connection services and IP telephone services. Within this context, competition is expected to further intensify in connection with the anticipated introduction of direct connection phone service with lower basic monthly charges for fixed-line telephones.

Amid these conditions, the NTT Group actively pursued measures based on the NTT Group Three-Year Business Plan (fiscal years 2003-2005). Specifically, efforts were concentrated on increasing sales of ultra high-speed fiber optics access services that are superior in interactivity and stability through an aggressive campaign that included the provision of new services and terminals, coupled with a reduction in fees. In addition, efforts were made to expand sales of and increase the number of subscribers to the third-generation FOMA mobile communications services by initiating fixed-rate packet communication services, as well as expanding and upgrading terminal services and functions. Meanwhile, structural reforms continue to be pursued to make business operations even more efficient, while efforts are made to enter new business areas.

To address changes in the competitive environment for existing fixed-line phone services, NTT Group announced revisions to its basic monthly charges which anticipate the flat rate system expected to prevail in the fiber-optic IP era.

As a result of these activities, for the half-year ended September 30, 2004, NTT Group's consolidated operating revenues amounted to 5,321.6 billion yen (a decrease of 1.7% compared with the same period last year), while income before income taxes amounted to 774.2 billion yen (a decrease of 2.4% compared with the same period last year). Consolidated net income for the same period was to 344.6 billion yen (an increase of 3.1% compared with the same period last year).

NTT DoCoMo publicly repurchased 1,748,000 of its own shares from NTT during the period under review at a total cost of 319.9 billion yen. As a result, NTT's ownership ratio of NTT DoCoMo voting shares decreased from 63.6% to 62.4% as of September 30, 2004.

The business results of the principal companies of the NTT Group during the half-year ended September 30, 2004 were as follows.

Nippon Telegraph and Telephone Corporation (Holding Company)

NTT is focusing on the healthy and sustained development of the broadband and ubiquitous computing markets. To that end, it has aggressively pursued management policies such as conducting studies for formulating a new medium-term management strategy for the NTT Group. As a result, it has received total payments of 10.4 billion yen (a decrease of 0.2% compared with the same period last year) from the Group companies during the period under review. With regard to R&D, NTT has implemented a "comprehensive production function" program for planning and promoting the commercialization of basic technologies, and it is making steady progress. To deal with the dramatic rise in telecommunications traffic stemming from the dissemination of the Internet, as well as to address the social problem of network attacks by hackers, NTT has developed the world's fastest packet processing board, which operates at 10Gbps. In these and other ways, NTT is involved in a wide range of R&D projects that provide the basis for data distribution and have enabled the company to earn 69.6 billion yen (a decrease of 5.2% compared with the same period last year) in basic research and development revenues. In addition, the company earned a total of 113.3 billion yen in dividend income from its Group companies (dividend income from Group companies in the same period last year was 54.5 billion yen).

As a result of these activities, NTT's operating revenues for the half-year ended September 30, 2004 amounted to 200.1 billion yen (an increase of 41.3% compared with the same period last year) and recurring profit amounted to 125.3 billion yen (an increase of 71.6% compared with the same period last year). Its net income amounted to 408.9 billion yen (an increase of 77.8% compared with the same period last year) due to the registering of revenues from the sale of NTT DoCoMo shares as special profits of 319.1 billion yen.

Nippon Telegraph and Telephone East Corporation and Nippon Telegraph and Telephone West Corporation

During the period under review, NTT East and NTT West continued working actively to expand their broadband services and lower their service fees, while improving managerial efficiency.

Concerning "B FLET'S" fiber optics Internet access services in the field of broadband service, efforts were made to step up sales efforts oriented toward apartment buildings and to pursue aggressive sales campaigns in areas of concentrated demand. For users of "Mansion-type B FLET'S," the new "Hikari IP Telephone Service" was launched, which enables apartment-dwelling subscribers to continue using their existing phone numbers and also gives them access to emergency numbers (110, 118, 119). In these and other ways, the two companies have worked to boost the appeal of their products. With regard to "FLET'S ADSL," efforts are being made to make the service more competitive by offering a new menu of services capable of maximum download speeds of up to 47Mbps, and giving discounts on various types of fees. Also, for users of "B FLET'S" and "FLET'S ADSL," a new videophone terminal called "FLET'S PHONE VP1000" has been introduced that features an easy-to use touch panel for operation. These are just some of the ways that NTT East and NTT West are working to meet diverse customer needs.

Turning to efforts to improve managerial efficiency, NTT East and NTT West continued to implement further cost-reduction measures to expand the range of works entrusted to the Group's regional outsourcing companies in order to reduce consignment costs, and to otherwise advance their structural reforms.

With respect to existing fixed-line phone services, NTT East and NTT West decided to reduce basic monthly charges and other charges in an effort to deal with new competition.

Despite these managerial efforts made under difficult business conditions such as a shrinking fixed-line market and intensified competition, the operating revenues at NTT East amounted to 1,071.4 billion yen, (a decrease of 3.8% compared with the same period last year) and the operating revenues at NTT West amounted to 1,029.1 billion yen (a decrease of 3.0% compared with the same period last year).

NTT Communications Corporation

During the period under review, NTT Communications actively provided clients with a wide spectrum of solution services. For corporations and governmental agencies, these services ranged from constructing networks to operating and managing servers. It also installed smart-card employee identification systems operating within secure environments. These systems, which combine security and mobile systems, enable the management of people entering and leaving offices and their transactions at company cafeterias, as well as the provision of new financial and transportation-related services. For individual clients, the company initiated its "CoDen User Support Plan" based on its CoDen concept, through which users can receive home visits from technicians who provide support for setting Internet connections and giving useful advice. Similarly, it began offering the ".Phone Personal V" IP videophone service for video communication. These and other innovative services help to provide clients with a pleasant Internet environment.

NTT Communications also advanced the global development of its IP services by becoming the first Japanese communications company to provide international IP-VPN services in India, where many multinational corporations are establishing a presence through the development of software and the setting up of call centers.

Despite these diverse managerial efforts made in a severe business environment, with its heightened levels of industry competition and contraction of the fixed-line market, NTT Communications' operating revenues for the half-year ended September 30, 2004, was 525.3 billion yen (a decrease of 1.8% compared with the same period last year).

NTT DATA Corporation

During the period under review, NTT DATA set its sights on providing customer value to become "number one in customer satisfaction." With that in mind, it adopted policies designed to improve its basic organizational fitness and promote growth.

With regard to improving basic organizational fitness, the company created a mechanism for strengthening its marketing capability by enabling marketing managers to steadily take reform action, and this has helped improve the business process. At the same time, steps have been taken to boost system-integration competitiveness by establishing a project management environment and thoroughly implementing risk management measures using project risk investigation standards that will help reduce costs and ensure profitability.

Concerning strategies for growth, the company has taken steps such as expanding its hiring of experienced personnel in an effort to enhance its marketing and developmental power in the enterprise systems area. It also conducted validation tests on electronic tag technologies as part of its efforts to develop innovative solutions and services.

NTT DATA continued to provide stable service through the systems it already offers, while further creating and enhancing the functions of core systems such as electronic application filing systems used in electronic governmental applications.

As a result of these efforts, NTT DATA's consolidated operating revenues for the half-year under review amounted to 381.7 billion yen (an increase of 6.8% compared with the same period last year).

NTT DoCoMo, Inc.

During the period under review, NTT DoCoMo focused on increasing the number of subscribers to its "FOMA" services by introducing a flat-rate packet option called "Pake-Hodai" to its "i-mode" services, enhancing its line-up of terminals in the "FOMA900i" series, and expanding its service area for both indoor and outdoor use.

Also, as part of its efforts to promote the use of the "i-mode" service, the company initiated the "i-mode FeliCa" service, a new "mobile wallet phone" that enables users to settle accounts and identify themselves electronically using a contactless "FeliCa" smart card built into the phone terminal.

NTT DoCoMo also took further steps toward promoting its global technical alliances. In June 2004, a Greek mobile phone operator with which NTT DoCoMo has formed a technical alliance launched "i-mode" services in Greece. In addition, an "i-mode" licensing agreement was concluded with a mobile phone operator in Australia.

Through these and other management initiatives, NTT DoCoMo was able to limit the effect of a severe economic environment characterized by intensified competition in rates and services, consolidated operating revenues amounted to 2,452 billion yen for the period under review (a decrease of 3.3% compared with the same period last year).

(2) Financial Conditions

Cash flows provided by operating activities for the current half-year amounted to 1,271.5 billion yen (a decrease of 232.9 billion yen, or 15.5% compared with the same period last year) resulting from net income and depreciation and amortization costs. Cash flows used in investing activities amounted to 1,034.6 billion yen (an increase of 42.3 billion yen, or 4.3% compared with the same period last year) due to acquisition of property, plant, and equipment. Cash flows used in financing activities reached 222.8 billion yen resulting from repayment of debt and other activities (a decrease of 140.8 billion yen, or 38.7% compared with the same period last year).

As a result, cash and cash equivalents at the end of the current half-year increased by 16.5 billion yen (1.2%), to 1,448 billion yen.

(3) Projections for the Full Fiscal Year (Ending March 31, 2005)

While we must keep in mind trends in the global economy and how fluctuations in crude oil prices can affect the economies of Japan and other countries, production in the corporate sector is expected to continue increasing, and it seems likely that the Japanese economy will continue to recover.

In the telecommunications field, broadband services such as ADSL and fiber optics access services are being developed for fixed-line use, accompanied by lower fees and the rapid spread of IP phones. Today, a majority of mobile phone users use mobile Internet connection services, and more and more users are changing over from second-generation to third-generation services. These trends indicate that consumer needs are growing increasingly diverse and complex for both fixed-line and mobile communications.

Under these conditions, the NTT Group has taken steps to realize the "Vision for a new optical generation" it announced in November of last year by formulating the NTT Group Medium-Term Management Strategy. According to this strategy, the NTT Group will: (1) use its comprehensive strengths to actively pursue the creation of a ubiquitous broadband market and contribute to the realization of the "e-Japan Strategy" and the "u-Japan Initiative"; (2) build safe, secure and convenient communications network environment and broadband access infrastructure, while achieving a seamless migration from fixed-line service to IP telephone service, and from metal (copper wire) to fiber optics access; and (3) strive to increase corporate value and achieve sustained development. These are the three management goals of the Medium-Term Management Strategy. The specific measures being taken to realize these goals include using the Group's comprehensive strengths to develop and provide broadband and ubiquitous services that combine fixed-line and mobile communications, with an emphasis on providing enhanced support for nursing care, remote medical treatment, and preventive medicine, as well as resolving the problem of mismatches in the field of employment. The basis for providing these services will be fiber optics access combined with a high-quality, flexible, and security-assured "next-generation network" that integrates the features of fixed-line networks and IP networks. The Group will work as a single entity to construct such a network. Efforts will be made to enhance competitiveness and establish a firm financial base through the expansion of new business opportunities and a thoroughgoing cost reduction in the areas of business operations and capital investment.
For the continued development of a broadband society, issues that have come to the fore must be solved, including the need to ensure reliable network interconnectivity and security, and finding solutions to the digital divide issue (that is, unequal access to broadband services). The NTT Group proposes that the public and private sectors work together to develop solutions to these issues, the NTT Group intends to play an active role in this effort. The NTT Group also proposes an urgent review of the model of competition that is appropriate to the broadband and ubiquitous computing age, including the development of a system for encouraging competition in building facilities and equipment to accelerate the spread of fiber optics access.

With regard to customers' personal information, the NTT Group is committed to taking even more steps to rigorously manage personal data in accordance with the Law concerning the Protection of Personal Information, which is scheduled to come into effect next spring, and the Guidelines for the Protection of Personal Information in the Telecommunications Business Field. In these and other ways, every effort will be made to ensure that customers can use the NTT Group's products and services with peace of mind.

NTT itself will use its status as a holding company to allocate the managerial resources of the entire Group with flexibility to promote the Group's business operations, while forging full speed ahead with creating the base technologies to support a resonant communications environment.

Through the activities described above, the NTT Group will continue to establish a foundation for business by actively carving out new markets, thereby maximizing the Group's corporate value.

NTT's consolidated projections for the full fiscal year ending March 31, 2005 are as follows. Operating revenues are projected to reach 10,780 billion yen (a decrease of 2.8% compared with the previous year). Consolidated income before income taxes is projected to amount to 1,645 billion yen (an increase of 7.7% compared with the previous year), while consolidated net income is expected to reach 670 billion yen (an increase of 4.1% compared with the previous year).

NTT expects to offer dividends of 6,000 yen per share of common stock for the full fiscal year ending March 31, 2005.

[NOTE]

The forward-looking statements and projected figures on the future performance of NTT contained in this financial report are based on the judgments, evaluations, recognition of facts, and formulation of plans by the current management of NTT based on the information at their disposal. The projected figures in this report were derived using certain assumptions that are indispensable for making projections in addition to historical facts that have been ascertained and acknowledged accurately. In view of the element of uncertainty inherent in future projections, the possibility of fluctuations in its future business operations, the state of the economy in Japan and abroad, stock markets, and other circumstances, NTT's actual results could differ materially from the projected figures contained in this report.