| 1. BUSINESS RESULTS | ||
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| During the fiscal year ended March 31, 2008, the Japanese economy continued to expand at a moderate pace supported by strong performance in the business sector, but fluctuations in stock and currency exchange markets triggered by the subprime mortgage crisis in the United States and crude oil price trends resulted in weak corporate earnings and flat capital investment. Improvements in employment came to a standstill and cautious views concerning economic recovery are becoming more widespread. Dramatic changes continue to take place in the telecommunications market environment including the advance of ubiquitous broadband communications and the convergence of services in conjunction with the increased use of IP-based services. In the fixed-line market, optical access services are expanding and the shift from existing fixed-line telephones to optical IP telephony is continuing. In the mobile communications market, the introduction of mobile number portability in the fiscal year ended March 31, 2006 and market entry by new carriers are spurring advanced functionality of handsets and networks as well as fierce price competition. Under these business conditions, NTT Group worked to expand and increase the use of broadband infrastructure including optical access services to achieve the goals of the NTT Group's Medium-Term Management Strategy (released November 2004). Specific business activities relating to the FLET'S Hikari optical access service included tie-ups with other companies to expand and improve video services, increased sales of security services to protect against computer viruses and other threats, efforts to provide convenient and high value-added services that customers can use with peace of mind, promotion of connectivity with terminals other than PCs and other measures to expand applications. NTT Group also worked to enhance customer service by reducing lead times from application to the start of services and improving Web-based service application functions. As a result of these efforts, the number of FLET'S Hikari subscriptions reached 8.78 million as of March 31, 2008. NTT Group worked with firms in a wide range of fields and consumers on field trials for its next-generation network (NGN), one of the foundations of the Medium-Term Management Strategy, to confirm the NGN technologies and identify customer preferences. Based on the results of those trials, the FLET'S Hikari Next commercial service was launched in March 2008 in areas of the Tokyo metropolitan region and Osaka Prefecture. NTT Group also established the Next-Generation Services Joint-Development Forum and began activities to deepen understanding concerning the NGN and to develop and commercially launch services utilizing the NGN with a diverse range of partners. NTT Group took comprehensive measures to enhance the competitiveness of its FOMA third-generation mobile communications services including expansion of fee plans and services, introduction of new sales models, improvement of network quality, and expansion of the handset lineup. Efforts were also made to expand revenue opportunities by promoting the increased use of credit services and international roaming services. As a result of these efforts, the number of FOMA subscribers reached 43.95 million as of March 31, 2008. With regard to services for corporate customers, NTT Group worked to reinforce its marketing capabilities by reorganizing business divisions on a customer and industry basis, enhancing its system-engineering (SE) capabilities and providing high value-added solutions. NTT Group also worked with other companies to expand business in growth areas. In addition, the system integration (SI), data center, and network service offerings were strengthened and service territories expanded to accommodate the global business activities of NTT Group's customers. As a result of these activities, despite increases in IP/packet communications service revenues from FLET'S Hikari and FOMA and system integration revenues, NTT Group's consolidated operating revenues were 10,680.9 billion yen for the fiscal year ended March 31, 2008 (a decrease of 0.7% from the previous fiscal year) due to a decline in fixed voice related services revenues. Consolidated operating expenses were 9,376.3 billion yen (a decrease of 2.9% from the previous fiscal year), due to cost reductions and a decrease in operating expenses resulting from the return of the substitutional portion of pension assets to the government. Consolidated operating income was 1,304.6 billion yen (an increase of 17.8% from the previous fiscal year), consolidated income before income taxes was 1,322.3 billion yen (an increase of 16.7% from the previous fiscal year), and consolidated net income was 635.2 billion yen (an increase of 31.9% from the previous fiscal year).
The business results for NTT (holding company) and the main NTT Group companies during the consolidated fiscal year ended March 31, 2008 are as follows. |
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Nippon Telegraph and Telephone Corporation (Holding company) |
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| In its capacity as a holding company, NTT worked to efficiently develop the businesses of the NTT Group through the planning of overall strategies and redistribution of managerial resources in line with changes in the business environment. To carry out NTT Group's Medium-Term Management Strategy, NTT provided advice and intermediary services aimed at developing broadband services and promoting international business, established the Next-Generation Services Joint-Development Forum, and developed structures for supporting the expanded use of services utilizing the NGN to be provided by NTT Group companies. In compensation for these services, the Company received 19.0 billion yen in group management and administration revenues (a decrease of 3.2% from the previous fiscal year). In addition, with its focus on developing high quality networks and new services that support a secure, safe, and convenient broadband and ubiquitous communications, NTT conducted fundamental research and development and actively developed future-oriented basic technologies, and received 126.8 billion yen (an increase of 3.9% from the previous fiscal year) in fundamental research and development revenues. NTT also received 213.2 billion yen in dividends (an increase of 7.3% from the previous fiscal year) as consideration for research and development activities. As a result of the above, NTT's unconsolidated operating revenues for the fiscal year ended March 31, 2008 were 375.7 billion yen (an increase of 4.4% from the previous fiscal year), unconsolidated recurring profit was 217.7 billion yen (an increase of 5.6% from the previous fiscal year), and unconsolidated net income was 195.8 billion yen (an increase of 3.4% from the previous fiscal year). |
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Nippon Telegraph and Telephone East Corporation (NTT East) and Nippon Telegraph and Telephone West Corporation (NTT West) |
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| NTT East and NTT West took measures to secure solid revenue structures by enhancing and expanding broadband services with a focus on FLET'S Hikari and worked to raise business efficiency. Specific activities included enhancement of video services such as multi-channel broadcasts and VOD in collaboration with other companies with the objective of increasing the number of FLET'S Hikari customers. NTT East and NTT West also took measures to expand and promote high value-added services such as increasing sales of security services to protect against computer viruses and other threats and launching FLET'S Home Security, a service that enables customers to monitor their homes from remote locations via a mobile phone using network cameras. NTT East and NTT West worked with other companies to encourage connectivity between TV game consoles and FLET'S Hikari and to increase sales by proposing new use scenarios. With regard to the NGN, in light of the customer preferences identified and results of technological confirmations made through the field trials, in addition to the existing optical access services and optical IP telephone services, in March 2008, NTT East and NTT West launched quality-assured high sound quality telephone services, video phone, Ethernet services and other services for corporate customers on a commercial basis in areas of the Tokyo metropolitan region and Osaka Prefecture. Measures designed to enhance customer service included the expansion of a system that immediately determines the installation and start of service date when a customer applies for FLET'S Hikari services, and the increased efficiency achieved through expansion of operational systems, in efforts to reduce lead time from application to the start of services. NTT East and NTT West also took active measures to train their IP engineers as a key effort in further promoting the stable operation of broadband services. To increase business efficiency, NTT East consolidated sites including billing divisions and 116 Centers and increased the use of outsourcing. NTT West supplemented its existing corporate marketing divisions, which focus on larger companies, by establishing the Office Marketing Division at its head office to conduct effective marketing and reinforce proposal-making capabilities targeting small and medium businesses and SOHO business. On March 13, 2008, the Fair Trade Commission determined that certain advertising implemented from July to October 2007 for the "Dial 104" service, which directly connects callers to the 104 directory information service to the requested number, violated Article 4, Paragraph 1, Item (2) of the Law for the Prevention of Unreasonable Premiums and Misrepresentation concerning Products and Services and issued a retraction order. NTT East and NTT West would like to apologize sincerely for the concern and inconvenience that they caused to customers and other related parties. They will implement thorough and appropriate remedial measures and work to continue improving services. Despite efforts to expand revenue bases through the expansion and improvement of broadband services, revenues from voice related services declined. As a result, during the year under review, NTT East's operating revenues were 2,002.7 billion yen (a decrease of 2.8% from the previous fiscal year), and those of NTT West were 1,901.2 billion yen (a decrease of 2.6% from the previous fiscal year). Due to such factors as extraordinary income from the return of the substitutional portion of pension assets to the government, NTT East had net income of 96.8 billion yen (an increase of 14.9% from the previous fiscal year). Due mainly to the effect of an adjustment in the amount recorded for deferred tax assets, NTT West posted a net loss of 37.7 billion yen. |
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NTT Communications Corporation (NTT Communications) |
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| NTT Communications took additional measures to provide corporate customers with ICT (Information and Communication Technology) solutions for management issues, and worked to offer services tailored to the diverse lifestyles and needs of individual customers. Specific activities included the reorganization of structures for the provision of services to corporate customers according to business type and industry, bolstering of SE functions, promotion of consulting services tailored to customer business formats, and the provision of high added-value solutions. NTT Communications also strengthened its product lineup by becoming the first provider in Japan to offer a 40 Gbps service through GIGASTREAM, a high-quality, high-reliability, next-generation dedicated line service. In its global business, NTT Communications collaborated with a local firm in Shanghai to launch a high-quality, high-reliability premium data center, and established a joint venture company with a local carrier in Vietnam to develop the data center business in Vietnam. NTT Communications worked to expand its service territories, and became the first Japanese telecommunications carrier to offer an international IP-VPM service (MPLS type) in the Middle East by starting services in the United Arab Emirates. To address the rapid increase in international traffic volume, NTT Communications engaged in efforts to build more reliable international networks, including reaching an agreement with major carriers in several countries concerning the construction of a new, high-capacity undersea optical cable linking Japan, China, South Korea, Taiwan and the United States. For individual customers, NTT Communications augmented its marketing of the OCN Hikari with FLET'S optical access service menu, and took other measures to increase sales of its OCN Internet access services. NTT Communications also began offering new services such as SNS (Social Networking Service) "goo Home," and expanded the high audio quality Music Ocean music distribution service. NTT Group video distribution services for television were consolidated in NTT Plala Corporation to increase business efficiency and provide more appealing services, and a high-quality video distribution service compatible with the NGN, known as Hikari TV, was launched. Concerning fixed-line telephone services, NTT Communications continued to offer its Pl@tinum Line low-cost plan for domestic and international calls and calls to mobile phones in response to the needs of a diverse range of customers. As a result of these efforts, NTT Communications' operating revenues for the fiscal year under review were 1,154.5 billion yen (an increase of 0.8% from the previous fiscal year). Due to extraordinary income from the return of the substitutional portion of pension assets to the government, net income was 62.7 billion yen (an increase of 106.8% from the previous fiscal year). |
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NTT DoCoMo, Inc. (NTT DoCoMo) |
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| Due to the impact of the start of mobile number portability in the fiscal year ended March 31, 2006 and other factors, competition continues to intensify. In response, NTT DoCoMo has worked to enhance its overall competitiveness through comprehensive measures from a "customer-oriented perspective" such as providing user-friendly fees and services, raising network quality, and enhancing and expanding its handset lineup. User-friendly fees and services include new discount services such as Fami-wari MAX50, Hitori Demo 50, and Office Wari MAX 50. NTT DoCoMo also introduced a new sales model that allows customers to choose one of two programs-the Value Course or the Basic Course-when purchasing the FOMA905i series and later eligible mobile phone handsets. Measures to raise network quality included service area improvements finely tuned to customer requests and installation of additional facilities to increase communications capacity. Network speeds were increased by expanding FOMA High-Speed Areas which enables high-speed communications. NTT DoCoMo reinforced its handset lineup with the introduction of the FOMA905i series, which features new functions including FOMA High Speed, international roaming capability, and a One Segment broadcast reception function, and the FOMA705i series, which boasts a wide variety of designs and functions. NTT DoCoMo worked to raise revenues from international business by expanding the lineup of handsets that support international roaming services and by increasing countries and territories where international roaming services are available. The company also increased membership in the DCMX credit service using the Osaifu Keitai and installed iD payment terminals in convenience stores in order to expand its credit business. Although NTT DoCoMo engaged in the above activities under conditions of increasingly fierce competition, consolidated operating revenues for the fiscal year under review were 4,711.8 billion yen (a decrease of 1.6% from the previous fiscal year). Consolidated net income was 491.2 billion yen (an increase of 7.4% from the previous fiscal year) due to cost reductions and a decrease in operating expenses resulting from the return of the substitutional portion of pension assets. |
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NTT DATA Corporation (NTT DATA) |
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| During the fiscal year under review, against a backdrop of strong investment in software, particularly in the financial and manufacturing industries, supported by the construction of backbone systems, primarily by financial institutions, and increased investment in compliance-related information systems, NTT DATA shifted the emphasis of its business from "quantity (revenues) to quality (work practices and the value creation business)" and to becoming "number one in customer satisfaction," as means to gain competitive superiority and answer customer needs. Specifically, NTT DATA implemented measures to address the main foundations of its medium-term business strategy: marketing reforms, development process reforms, increasing business efficiency group-wide, reviews of unprofitable businesses, growth engines, and development of human resources. Marketing reforms included adoption and implementation of business improvement plans for individual customers by each division to raise customer satisfaction levels, while development process reforms included reorganization and reinforcement of software engineering-related research and development organizations. As to group-wide business efficiency, employee secondment policies were revised in order to increase competitiveness by promoting the autonomy of group companies and achieve the missions of individual companies. Reviews of unprofitable businesses led to decisions to dissolve certain consolidated subsidiaries and other measures to shift management resources to high-profit businesses as well as further efforts to increase profitability. With regard to growth engines, to reinforce business in the healthcare field, an area that is expected to undergo growth in the future, in addition to establishing a Healthcare Systems Business Unit, NTT DATA formed a business tie-up with a firm that has global technologies relating to clinical trial computerization solutions for the pharmaceutical industry, and promoted services that support the use of IT in clinical testing. Measures to develop human resources included the operation of programs to certify the specialization and qualification levels of individual employees, certification of professional personnel who can plan and implement projects using advanced specialized skills, and measures to train and foster younger employees. Through these endeavors, NTT DATA engaged in vigorous marketing activities and promoted development of efficient systems geared towards obtaining orders for new systems and launching new services in the public sector, finance, and corporate customer segments. NTT DATA also continued to provide stable services for existing systems. NTT DATA also promoted its international business activities by enhancing its IT support services in China, other parts of Asia, the United States, and Europe through the establishment of overseas subsidiaries and acquiring overseas companies so it can support the global business activities of its customers. As a result of these efforts, NTT DATA's consolidated operating revenues for the fiscal year under review were 1,074.4 billion yen (an increase of 2.8% from the previous fiscal year). Because of such factors as extraordinary losses due to revision of secondment policies, consolidated net income was 30.4 billion yen (a decrease of 39.9% from the previous fiscal year). The forecast of performance in the next term is as follows: consolidated operating revenues of 10,750.0 billion yen (an increase of 0.6% from the previous term), consolidated operating income of 1,160.0 billion yen (a decrease of 11.1% over the previous term), consolidated income before income taxes of 1,170.0 billion yen (a decrease of 11.5% from the previous term) and consolidated net income of 500.0 billion yen (a decrease of 21.3% from the previous term). |
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| "Cash flow from business activities" for the fiscal year ended March 31, 2008 (on a consolidated basis) was 3,090.8 billion yen, due to such factors as net income and depreciation and amortization costs. Compared to the previous fiscal year, cash flow increased 729.5 billion yen (30.9%). This increase was due to various factors including a decrease in the amount paid (net amount) in corporate taxes (in the fiscal year ended March 31, 2008, the amount paid (net amount) in corporate taxes was 237.3 billion yen, due to such factors as an impairment of Hutchison 3G UK Holdings Limited shares, which was recognized as a tax-deductible loss) and a decrease in trade accounts receivable resulting from collection of telephone fees which was delayed until the fiscal year ended March 31, 2008 due to a bank holiday at the end of the prior fiscal year. "Cash flow from investment activities" amounted to 1,990.6 billion yen for the fiscal year ended March 31, 2008. Cash was principally used in acquiring fixed assets. "Cash flow from investment activities" for the fiscal year ended March 31, 2008 reflected a decrease of 160.3 billion yen (7.5%) in cash outlays over the previous fiscal year. This decrease resulted from an increase in outlays directed towards equity and other long-term investments on the one hand, offset by a decrease in the acquisition of property, plant and equipment on the other. "Cash flow from financing activities" amounted to 726.4 billion yen for the fiscal year ended March 31, 2008. Cash was principally used for such purposes as repaying loans. "Cash flow from financing activities" for the year ended March 31, 2008 reflected a decrease of 105.4 billion yen (12.7%) from the previous fiscal year. This decrease resulted from an increase in short-term borrowings on the one hand, and an increase in expenditures for acquiring NTT's own shares on the other. As a result, the balance of cash and cash equivalents for the NTT Group during the fiscal year ended March 31, 2008 totaled 1,169.6 billion yen, an increase of 373.3 billion yen (46.9%) compared with the fiscal year ended March 31, 2007. |
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| In addition to increasing corporate value over the medium- and long-term, NTT has identified the return of profits to shareholders as an important management goal. In determining the level of dividends, NTT, while giving consideration to stability and sustainability, takes into account a full range of factors, including business performance, financial standing and dividend payout ratio. It is planned that dividends for the current annual period will be 9,000 yen per share, comprising a 4,500-yen end-of-term dividend and a 4,500-yen interim dividend. For the next annual period, dividends are planned to be 11,000 yen for the full year. While maintaining a good financial standing, NTT intends to use internal funds for investments in new business opportunities and a capital policy to improve capital efficiency. |
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