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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Nippon Tel.& T. | LSE:NPN | London | Ordinary Share | JP3735400008 | NPV |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 3,910.3704 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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Nippon Telegraph and Telephone Corp
30 June 2005
PART 1
Table of Contents
SECURITIES AND EXCHANGE COMMISSION
----------------
FORM 20-F
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
or
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2005
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-8910
----------------
NIPPON DENSHIN DENWA KABUSHIKI KAISHA
(Exact name of Registrant as specified in its charter)
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
(Translation of Registrant's name into English)
JAPAN
(Jurisdiction of incorporation or organization)
3-1, OTEMACHI 2-CHOME, CHIYODA-KU, TOKYO 100-8116, JAPAN
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
----------- ----------------------------
Common stock ("Shares") New York Stock Exchange*
American Depositary Shares ("ADSs"), New York Stock Exchange
each of which represents 1/200 of a Share
--------
* Not for trading but only in connection with the registration of ADSs pursuant to the requirements of the Securities
and Exchange Commission.
----------------
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
6% Global Notes Due March 25, 2008
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
Common stock 14,939,758 shares
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 Item 18 x
--------------------------------------------------------------------------------
Table of Contents
TABLE OF CONTENTS
Page
PART I
ITEM 1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS 4
ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE 4
ITEM 3 - KEY INFORMATION 4
ITEM 4 - INFORMATION ON THE COMPANY 19
ITEM 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS 57
ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 87
ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 95
ITEM 8 - FINANCIAL INFORMATION 97
ITEM 9 - THE OFFER AND LISTING 97
ITEM 10 - ADDITIONAL INFORMATION 100
ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 106
ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 108
PART II
ITEM 13 - DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 109
ITEM 14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 109
ITEM 15 - CONTROLS AND PROCEDURES 109
ITEM 16A - AUDIT COMMITTEE FINANCIAL EXPERT 109
ITEM 16B - CODE OF ETHICS 109
ITEM 16C - PRINCIPAL ACCOUNTANT FEES AND SERVICES 110
ITEM 16D - EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES 111
ITEM 16E - PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS 111
PART III
ITEM 17 - FINANCIAL STATEMENTS 112
ITEM 18 - FINANCIAL STATEMENTS 112
ITEM 19 - EXHIBITS 112
SIGNATURES 113
2
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Table of Contents
In this annual report, except as otherwise specified, "NTT" refers to Nippon
Telegraph and Telephone Corporation (hereinafter also sometimes referred to as
the "registrant"), "NTT Group" refers to NTT and its subsidiaries and any of
their respective predecessors in business, and the "predecessor corporation"
refers to Nippon Telegraph & Telephone Public Corporation, which operated the
business of NTT prior to April 1985. "NTT East," "NTT West" and "NTT
Communications" refer to NTT's three wholly owned subsidiaries, Nippon Telegraph
and Telephone East Corporation, Nippon Telegraph and Telephone West Corporation
and NTT Communications Corporation, respectively. In addition, "NTT DoCoMo"
refers to NTT DoCoMo, Inc., "NTT DoCoMo Group" refers to NTT DoCoMo and its
consolidated subsidiaries and "NTT DATA" refers to NTT DATA CORPORATION. The
Government of Japan is sometimes referred to herein as the "Government."
References to fiscal years are to 12-month periods commencing in each case on
April 1 of the prior year and ending on March 31 of the year indicated.
References to years not specified as being fiscal years are to calendar years.
In this annual report, except as otherwise specified, the financial information
is presented according to generally accepted accounting principles in the United
States, referred to as "U.S. GAAP."
Under the Law Concerning Nippon Telegraph and Telephone Corporation, Etc. ("NTT
Law") and for Japanese reporting purposes, NTT calculates the percentage of its
Shares owned by the Government based on total number of issued Shares regardless
of whether such Shares are outstanding for U.S. reporting purposes. In this
annual report, where the percentage of total issued Shares differs from the
percentage of outstanding Shares, the Government's ownership of Shares is
presented using both percentages.
3
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Table of Contents
PART I
ITEM 1-IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2-OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3-KEY INFORMATION
Selected Financial Data
The following data for each of fiscal 2001 through fiscal 2005 have been derived
from, and should be read in conjunction with, the Consolidated Financial
Statements of NTT and its subsidiaries. Consolidated balance sheets at March 31,
2004 and 2005, the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years ended March 31, 2003, 2004 and
2005 and the Notes thereto appear elsewhere in this annual report.
4
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Table of Contents
STATEMENT OF EARNINGS DATA
Nippon Telegraph and Telephone Corporation
and Its Subsidiaries
Years ended March 31,
2001 2002 2003 2004 2005 2005
(millions of yen) (millions of
U.S. dollars)
Operating Y 10,836,788 Y 11,027,753 Y 10,923,146 Y 11,095,537 Y 10,805,868 $ 100,990
revenues
Operating 10,001,982 10,966,219 9,559,589 9,535,216 9,594,667 89,670
expenses
- - - - - -
Operating income 834,806 61,534 1,363,557 1,560,321 1,211,201 11,320
Other expenses (470,351 ) 151,992 (41,468 ) 32,973 (512,111 ) (4,786 )
(income)
Income (loss) 1,305,157 (90,458 ) 1,405,025 1,527,348 1,723,312 16,106
before income
taxes
Income tax 592,206 (73,379 ) 704,271 603,211 713,918 6,672
expenses
(benefit)
Minority
interest (161,324 ) 977 (114,980 ) (259,952 ) (290,225 ) (2,713 )
in consolidated
subsidiaries
Equity in (17,808 ) (668,688 ) (329,536 ) (20,323 ) (8,985 ) (84 )
earnings (losses)
of affiliated
companies
(including
write-down of Y
653,751 million
and Y319,564
million, net of
income taxes, in
affiliates in
2002 and 2003)
Income (loss) 533,819 (684,790 ) 256,238 643,862 710,184 6,637
before cumulative
effect of
accounting
changes
Cumulative effect - (149,882 ) (22,880 ) - - -
of accounting
changes (net of
income taxes of Y
108,534 million
and Y25,852
million in 2002
and 2003 and net
of minority
interest of Y
12,836 million in
2003)
Net income
(loss) Y 533,819 Y (834,672 ) Y 233,358 Y 643,862 Y 710,184 $ 6,637
2001 2002 2003 2004 2005 2005
(yen, except share amount) (U.S.dollars)
Per Share of common stock:(1)
Income
(loss) Y 33,465.58 Y (42,442.49 ) Y 15,975.52 Y 40,607.65 Y 45,891.26 $ 428.89
before cumulative
effect of
accounting
changes
Cumulative effect - (9,289.51 ) (1,426.49 ) - - -
of accounting
changes
Net income
(loss) 33,465.58 (51,732.00 ) 14,549.03 40,607.65 45,891.26 428.89
Cash
dividends, Y 5,000.00 Y 5,000.00 Y 5,000.00 Y 5,000.00 Y 6,000.00 $ 56.07
applicable to
earnings for the
year
Average number
of 15,951,285.83 16,134,538.17 16,039,414.63 15,855,684.15 15,475,366.20
Shares
outstanding
(adjusted to
reflect changes
in capital)
--------
(1) The financial data for per Share of common stock are appropriately adjusted for stock splits of NTT common stock.
As of the end of fiscal 2005, NTT had 14,939,758 Shares outstanding.
5
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Table of Contents
BALANCE SHEET DATA
Nippon Telegraph and Telephone Corporation
and Its Subsidiaries
Years ended March 31,
2001 2002 2003 2004 2005 2005
(millions of yen) (millions of
U.S. dollars)
Property, plant and equipment Y 11,792,368 Y 11,497,686 Y 11,057,908 Y 10,769,626 Y 10,480,552 $ 97,949
(net)
Total assets 21,759,402 21,424,806 19,783,600 19,434,873 19,098,584 178,491
Current liabilities 4,852,089 4,131,992 3,766,391 3,808,845 3,679,579 34,389
Long-term liabilities 8,665,418 9,918,401 8,853,305 7,614,868 6,921,133 64,683
Capital Stock (common stock 3,607,686 3,607,686 3,607,686 3,660,042 3,737,778 34,933
plus additional paid-in
capital)
Shareholders' equity Y 6,756,154 Y 5,865,052 Y 5,637,595 Y 6,397,972 Y 6,768,603 $ 63,258
Dividends
NTT has paid dividends on the Shares semiannually in respect of each fiscal year
since NTT's founding in 1985. The annual dividend is recommended by the board of
directors and is subject to approval by shareholders at the general meeting of
shareholders required to be held in June of each year and by the Minister for
Internal Affairs and Communications (the "Minister") (formerly the Minister of
Posts and Telecommunications or Minister of Public Management, Home Affairs,
Post and Telecommunications). Immediately following approval thereof at the
meeting and approval of the Minister, dividends are distributed to holders of
record on the preceding March 31 in proportion to their respective holdings of
Shares at that date. Annual dividends may be distributed either in cash or, if
approved by the shareholders, in the form of Shares. In addition to annual
dividends, NTT may make cash distributions from its retained earnings to its
shareholders of record as of September 30 in each year by resolution of its
board of directors and subject to approval by the Minister.
For dividend policy, see "Item 8-Financial Information-Other Financial
Information-Dividend Policy."
The following table lists the respective shareholder and board of director
(interim dividend) approval dates, payment dates and amount of dividends
(expressed in Japanese yen and the U.S. dollar equivalent based on the noon
buying rate in New York City for cable transfers payable in Japanese yen as
announced for custom purposes by the Federal Reserve Bank of New York (the "Noon
Buying Rate") on the date of payment) paid by NTT applicable to each of the
six-month periods indicated.
Record Date/ Approval Date Payment Date Dividend per Share
Six months ended
------------
(yen) (dollars)
September 30, 2000 November 20, 2000 December 12, Y 2,500 $ 22.18
2000
March 31, 2001 June 28, 2001 June 29, 2001 Y 2,500 $ 20.02
September 30, 2001 November 22, 2001 December 12, Y 2,500 $ 19.86
2001
March 31, 2002 June 27, 2002 June 28, 2002 Y 2,500 $ 20.90
September 30, 2002 November 18, 2002 December 12, Y 2,500 $ 20.21
2002
March 31, 2003 June 27, 2003 June 28, 2003 Y 2,500 $ 20.79
September 30, 2003 November 11, 2003 December 10, Y 2,500 $ 22.99
2003
March 31, 2004 June 29, 2004 June 30, 2004 Y 2,500 $ 22.81
September 30, 2004 November 10, 2004 December 6, Y 3,000 $ 29.02
2004
March 31, 2005 June 28, 2005 June 29, 2005 Y 3,000 n/a
See Note 16 to the Consolidated Financial Statements.
6
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Table of Contents
The payment, as well as the amount, of dividends in the future will be subject
to the level of NTT's earnings, NTT's financial condition and other factors,
including applicable government regulatory actions and approval by shareholders
and the Minister.
Under Japanese foreign exchange controls currently in effect, dividends paid on
Shares held by non-residents of Japan may be converted into any foreign currency
and repatriated abroad. Under the terms of the deposit agreement pursuant to
which American Depositary Receipts ("ADRs") are issued by JPMorgan Chase Bank
(formerly known as Morgan Guaranty Trust Company of New York), as depositary
(the "Depositary"), the Depositary is required, to the extent that in its
judgment it can convert Japanese yen on a reasonable basis into U.S. dollars and
transfer the resulting dollars to the United States, to convert all cash
dividends that it receives in respect of deposited Shares into U.S. dollars and
to distribute amounts received (after deduction of applicable withholding taxes
and expenses of the Depositary) to the holders of ADRs. See "Item 10-Additional
Information-Exchange Controls and Other Limitations Affecting Security Holders."
For a discussion of the tax treatment of dividends paid to U.S. holders of ADSs,
see "Item 10-Additional Information-Taxation."
Exchange Rate Information
In this annual report, all amounts are expressed in Japanese yen ("Y" or "yen"),
except as otherwise specified. Except as otherwise indicated, for the
convenience of the reader, the translations of yen into U.S. dollars have been
made at the rate of 107 yen to the U.S. dollar, the approximate rate of exchange
on March 31, 2005, the date of the most recent balance sheet included herein.
On June 24, 2005, the Noon Buying Rate was U.S.$1 = Y109.22.
The following table sets forth, for the fiscal periods indicated, certain
information concerning the exchange rates for Japanese yen and U.S. dollars
based on the Noon Buying Rates:
Years ended March 31 High Low(1) Average Period-end
-------------- (1) (2) (3)
(yen per dollar)
2001 125.54 104.19 111.64 125.54
2002 134.77 115.89 125.64 132.70
2003 133.40 115.71 121.10 118.07
2004 120.55 103.70 112.75 104.18
2005 111.39 102.68 107.28 107.22
Months of 2005 High Low(4) Average Period-end
---------- (4) (5) (6)
January 104.93 102.26 103.34 103.55
February 105.84 103.70 104.94 104.25
March 107.49 103.87 105.17 107.22
April 108.67 104.64 107.19 104.64
May 108.17 104.41 106.60 107.97
June (through June 24, 2005) 109.58 106.64 108.44 109.22
--------
(1) The highest and lowest of the Noon Buying Rates on the last business day of each month during the relevant year.
(2) The average of the Noon Buying Rates on the last business day of each month during the relevant year.
(3) The Noon Buying Rates on the last date of each relevant year.
(4) The highest and lowest of the Noon Buying Rates of each day in the relevant month.
(5) The average of the Noon Buying Rates of each day in the relevant month.
(6) The Noon Buying Rates on the last day of each relevant month.
7
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Table of Contents
Risk Factors
In addition to the other information contained in this annual report,
prospective investors should carefully consider the risks described below.
Additional risks not currently known to NTT or that NTT now deems immaterial may
also impair NTT Group's business operations. This annual report also contains
forward-looking information that involves risks and uncertainties. NTT Group's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including the risks
NTT Group faces as described below and elsewhere in this annual report.
Broadband access and other related growth areas may not expand as anticipated,
growth in NTT Group's mobile communications business may turn sluggish and the
expansion of our systems integration business may be limited.
In the growing broadband market, the number of users of fiber-optic and
Asymmetric Digital Subscriber Line ("ADSL") services and cable television
("CATV") Internet in Japan reached 18.63 million customers (as of the end of
December, 2004), suggesting that the broadband age has arrived. The use of
optical access services is accelerating and ADSL services continue to expand. In
order to strengthen the revenue base of NTT Group's broadband business in this
environment, NTT Group is concentrating its efforts on marketing high-speed
optical access services which boast superior interactivity and stability,
including through the full-scale introduction of the "Hikari Phone" internet
protocol ("IP") telephony service, which provides low priced voice transmission
with the same quality as fixed telephone lines. NTT Group is also implementing
sales promotions such as limited-time discounts and aggressive marketing to
residential complexes. Further, because optical access services offer the best
potential for creating new demand, NTT Group began marketing IP video phone
handsets to promote their use. NTT Group also has become an active participant
in the realization of video distribution services (to be provided by companies
within, as well as outside of, NTT Group) that enable customers to view film and
music video content from home TVs. Although the number of subscribers for B
FLET'S optical access services of NTT East and NTT West increased from 840
thousand at the end of March 2004 to 1,665 thousand at the end of March 2005,
this figure did not achieve the sales target for fiscal 2005. In the ADSL
market, while the number of FLET'S ADSL subscribers for NTT East and NTT West
increased from 4,089 thousand at the end of March 2004 to 5,208 thousand at the
end of March 2005, this figure also did not reach the sales target for fiscal
2005, and the rate of increase has slowed. If, in spite of NTT Group's enhanced
marketing efforts centered around B FLET'S, the broadband market does not expand
as anticipated or if competition forces rate reductions or continued discounts
or free service offerings, revenues from broadband services may not grow as
anticipated. Moreover, if the number of ADSL subscribers declines rapidly due to
an increase in the use of optical access services, NTT Group's investments in
its ADSL business may not generate anticipated returns on capital investments.
Fixed line IP/packet communications services have shown steady overall growth
with the spread of internet connection services, such as broadband access and
Open Computer Network ("OCN") services, and with the expansion of IP-related
services targeted at corporate customers, such as Internet Protocol-Virtual
Private Network ("IP-VPN") and wide-area LAN. However, the decline in unit
prices is expected to continue, due to factors such as the consolidation and/or
elimination of corporate networks and migration to IP-related services that
provide broadband communications at a lower cost.
In the mobile communications business, NTT Group believes that increased
revenues from the following sources is one of the critical elements for future
growth: expansion of audio-visual traffic in the form of video telephone using
FOMA handsets; the development and provision of i-mode FeliCa "Mobile Wallet"
electronic payment services and other new services that are helpful both in
daily life and in business; and increased data transmission. Nevertheless,
development of these services may be curtailed if: partners and content
providers required for the provision of new services and new ways of usage are
not developed as expected; an insufficient number of shops enter into agreements
to use the Mobile Wallet reading devices; new services fail to meet expectations
in terms of scheduling, costs, demands and attractiveness; manufacturers and
content providers cannot provide handsets and content in a timely manner and at
an appropriate price; current or future data
8
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transmission or other services of NTT DoCoMo Group, including the i-mode
service, are insufficient or not attractive enough to keep current subscribers
or attract new ones; continued or new growth is not achieved; market demand for
handset functions is not as envisioned, and as a result, handset costs cannot be
reduced; or high speed downlink packet access ("HSDPA") services are not
deployed in a timely manner and at an appropriate cost.
In the systems integration business, customers are increasingly demanding lower
costs, and with the imposition of stricter standards for evaluating the effects
of IT investments and low hardware costs, software costs are now perceived as
being high. These conditions may lead to lower sales prices for systems and
services handled by NTT Group. In addition, in the systems integration business,
NTT Group generally enters into contracts to develop a system from the receipt
of an order to delivery and assumes full responsibility for providing the system
to the customer. If any problems arise in project management or at the
development stage or if expenses substantially exceed projected costs,
unpredicted cost overruns may occur or delays may arise which result in damages.
In addition to the efforts described above, NTT Group is aiming to expand
revenues in next-generation network solutions and non-traffic business. NTT
Group is aware, however, that it must clear a number of hurdles in terms of the
formulation of business models and development of technology. Accordingly, no
assurance may be provided that revenues will grow as projected.
NTT Group's market share and revenues may suffer from competition.
It is anticipated that companies employing a variety of business models will
continue to enter the information and communications market in Japan, and with
the deregulation of rate agreements and other deregulation measures, competition
is expected to grow increasingly fierce. NTT Group faces competition in all
business segments, including its regional communications business, long distance
and international communications business, mobile communications business and
data communications business. See "Item 4-Information on the Company-
Competition."
The fixed line telephone market continues to contract as fixed rate unlimited
Internet access services and IP telephony services expand rapidly. In addition,
other companies have begun the full-scale offering of direct subscriber
telephone ("chokushu") services using dry copper lines (i.e., existing telephone
lines owned by NTT East and NTT West that are not being used). These factors
have led to intense competition over the full range of telecommunications
charges, including basic monthly charges. In response to this intensifying
competition, NTT Group has enhanced its competitiveness by reducing NTT East and
NTT West's basic monthly charges, offering a new discount service called "
Ichirittsu," which offers a flat rate for all intra-prefectural calls, and by
moving forward with the full-scale provision of the "Hikari Phone" service.
Nevertheless, due to competition, it is possible that if, for example, customers
of NTT East and NTT West switch to the services of other companies, revenues may
fall more than expected.
In the corporate market for IP telephony, the deployment of IP Centrex services
(a type of IP telephony service for corporate users that provides outsourcing
services for server maintenance and operation) has accelerated as more companies
have deployed IP telephony. In the residential market, IP telephony services
provided by ADSL providers and ISPs using the 050 calling code (the IP telephony
code) have been expanding. In fiscal 2005, optical IP telephony services were
introduced for both the corporate and residential markets that allow use of
existing fixed-line telephone numbers, resulting in expanded use. It is expected
that IP telephony, particularly IP telephony using optical access services, will
develop rapidly within the NTT Group, as exemplified by NTT Group's deployment
of the "Hikari Phone" IP telephony service, which provides low priced voice
transmission with the same quality as fixed line telephone service. However, if
the IP telephony businesses of competitors develop rapidly, there may be an
adverse effect on revenues from fixed line telephone service, which is one of
the main sources of revenue for NTT Group.
As the fixed line telephone market continues to contract, NTT Group is moving
ahead aggressively with the development of its broadband businesses. However,
with the increasing diversity and speed of access lines and
9
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lower rates, competition has become increasingly intense, both in terms of
services and prices, and a variety of businesses such as other carriers and
cable television businesses are entering the market by offering service packages
that include Internet access, IP telephony and video distribution services ("
triple play" packages). As a result, the broadband access business continues to
face stiff competition as companies seek to capture customers with the triple
play packages and as companies fight over market share in the ADSL market where
growth has slowed. As a result of free-service campaigns, installation discounts
and other measures implemented in response to this competition, it is possible
that anticipated revenues will not be achieved.
In the mobile communications market, other service providers have been deploying
new products, including handsets for third-generation wireless services and
handsets equipped with Global Positioning System (GPS) functions, and new
services, such as international roaming services. Moreover, among the wireless
services providers, some providers offer communications services based on a
technology different from the Wideband Code Division Multiple Access ("W-CDMA")
that NTT DoCoMo Group uses in its FOMA services. In data transmission, for
example, this alternate technology currently enables data transmission at a rate
faster than NTT DoCoMo's FOMA services and is being offered with fixed rate
packet transmission fees, which has led to greater competition. In addition,
some carriers are offering wireless / fixed line integrated services with
features such as a single invoice and combined point programs for wireless and
fixed line services. Competition may escalate further with the advent of new
services and technology (including fixed or mobile IP telephony, fixed-line high
speed broadband services, digital broadcasting and wireless LAN, either provided
as stand-alone services or in packages). Moreover, new competitors may appear in
the mobile communications industry. For these reasons, competition may intensify
and the number of subscriptions that NTT DoCoMo Group can acquire or retain and
the ARPU (average monthly revenue per user) it can achieve may be lower than
anticipated. Also, because of the intense competition for subscribers, the costs
required to keep subscribers from leaving NTT Group and to maintain ARPU levels
may be greater than anticipated and may adversely affect the financial condition
and performance of NTT Group and NTT DoCoMo Group.
Because the Personal Handyphone System ("PHS") has continued to suffer a decline
in subscriber numbers and increased operational losses, NTT DoCoMo Group stopped
accepting new subscribers as of the end of April 2005 to concentrate its
business resources on FOMA services. Going forward, NTT DoCoMo Group will
monitor trends in customer usage in order to move ahead with plans to review the
possibility of terminating PHS services. In addition, given the direction of the
PHS business, NTT Group realized impairment losses of Y44.3 billion in fiscal
2005 related to the PHS business.
It is expected that the PHS business will continue to record losses, and NTT
DoCoMo Group will offer preferential terms to PHS service subscribers to
encourage them to shift to FOMA services. Depending on the number of PHS
subscribers who shift to FOMA services and services of other carriers, losses
associated with PHS services may increase, adversely affecting the financial
condition and performance of NTT Group and NTT DoCoMo Group.
The software business, which is the focus of NTT DATA's business, is expected to
be a major area of growth in the information services industry, and hardware
vendors and others are now shifting their efforts to this business. It is not
entirely clear how the software market will grow, and increased competition
resulting from aggressive promotion and growth strategies of competing companies
may have an adverse effect on the financial condition and performance of NTT
Group.
We believe that NTT Group maintains a competitive advantage over other companies
in Japan's information and communications markets. However, as the fixed line
telephone market contracts, NTT Group must rise to the challenge of developing
new businesses in the highly competitive broadband market. There is no guarantee
that NTT Group will be able to maintain its current competitive advantage.
Increased competition resulting from corporate consolidations and
reorganizations in the information and communications markets may cause NTT
Group to lose market share and force NTT Group companies to lower their rates.
These factors may have a material adverse effect on NTT Group's future growth
and profitability, and there is no guarantee that current and future competition
will not adversely affect NTT Group's financial condition and performance.
10
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Changes or decisions made regarding telecommunications regulations may adversely
affect NTT Group's business.
The Japanese telecommunications industry has been deregulated in many areas,
including the elimination of foreign ownership restrictions (except in the case
of NTT), tariff deregulation and the implementation of a Long Run Incremental
Cost ("LRIC") Methodology ("LRIC Methodology") for interconnection charges and
amendments to telecommunications laws aimed at promoting competition. (For a
summary of current regulations, see "Item 4-Information on the Company-
Regulations.") Decisions relating to regulations and the resulting changes in
the telecommunications industry may adversely affect NTT Group's financial
condition and performance.
Interconnection Rates
With regard to interconnection charges for the three-year period commencing
fiscal 2006, a new calculation methodology has been determined based on the
October 2004 report of the Telecommunications Council.
Based on this new calculation methodology, NTT East and NTT West applied to
raise interconnection rates for the fiscal year ending March 2006, with the
group center ("GC") interconnection charge increasing to Y5.32 (an increase of
approximately 2.6% over the previous year) and the zone center ("ZC")
interconnection charge rising to Y7.09 (an increase of approximately 14.9% over
the previous year) (in each case for three minutes). In March 2005 the Minister
approved these new rates. While these rates represent increases over the charges
for the previous year, because traffic passing through NTT East and NTT West
switchboards has been experiencing a downward trend, it is expected that
interconnection revenues for fiscal 2006 will decline.
In addition, in its report the Telecommunications Council determined that over a
five-year period, non-traffic sensitive costs ("NTS costs") should be gradually
removed from interconnection rate costs and should be recovered instead through
basic monthly charges. However, given the competition from other carriers using
dry copper lines to provide "chokushu" telephone service without using NTT
circuits, raising basic monthly charges may not be feasible. For this reason, it
is expected that NTT Group will be forced to absorb NTS costs itself, leading to
an overall decrease in revenues.
Interconnection (Obligation to Make Optical Fiber Lines Available)
Because the optical fiber owned by NTT East and NTT West qualifies as Type I
designated facilities under the Telecommunications Business Law, NTT East and
NTT West are obligated to lease their optical fiber to other carriers at low
regulated rates (referred to as "dark fiber interconnection charges").
However, because the actual demand for optical fiber is lower than what NTT East
and NTT West had anticipated when the regulated rates were set, the revenue from
dark fiber interconnection charges is lower than the actual cost. Carriers
associated with power companies have installed their own optical fiber and have
initiated and expanded their own optical fiber services, increasing competition
in the delivery of optical access services. For these reasons, NTT has requested
that the obligation to make optical fiber lines available be reviewed by all
interested parties.
At present, it is unclear whether such review will occur. NTT intends to pursue
efficiencies in its investments and reductions in construction costs associated
with its optical fiber network. However, depending on the results of the review,
improvement of the cost and revenue structure for optical fiber interconnection
services may be delayed.
Universal Service Fund
NTT East and NTT West have an obligation to provide universal service throughout
Japan in accordance with the NTT Law.
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A Universal Service Fund was established in June 2002 for the purpose of serving
as a source for funds to pay for costs associated with providing mandatory
universal service. As initially contemplated, monies from the Fund would be paid
to NTT East and NTT West when costs of providing universal service exceeded the
revenues from universal service. To date, no monies have ever been paid to NTT
East or NTT West from the Fund to compensate them for the cost of universal
service under this scheme.
However, as other carriers start to use dry copper lines to provide "chokushu"
telephone services, and if the competition in regions with high margins for
fixed line services, including universal services, intensifies, it is expected
that NTT East and NTT West's income from universal service will decrease, and
the continuation of this service will become difficult. Accordingly, NTT has
requested that the Universal Service Fund system be amended. However, the
amendments sought by NTT may not be realized, and reimbursement from the
Universal Service Fund may continue to be unavailable.
Effect of the Prohibited Activities Regulations
With the spreading use of broadband, technological innovations have made it
possible to provide bundled services that until now had been separate. These
include services similar to broadcasting in which customers can watch movies
over a broadband Internet connection and services which integrate fixed line
services with cell phone services. It is expected that integrated services of
this type will increase in the future.
Although NTT Group believes that it must respond to these market trends, NTT
East, NTT West and NTT DoCoMo are subject to prohibited activities regulations
under the Telecommunications Business Law. Under these regulations, NTT East,
NTT West and NTT DoCoMo and regional subsidiaries of NTT DoCoMo may not give
preferential treatment to another carrier. As a result, the provision of
integrated services that only involve telecommunications companies within NTT
Group may be limited by these prohibited activities regulations, which may delay
the timing of the provision of these services by NTT Group or result in other
adverse consequences.
Administrative Advice and Hearing Based on the Antimonopoly Law
In December 2003, the Fair Trade Commission issued a warning with regard to the
B FLET'S New Family Type service that NTT East is currently providing. The
Commission found that, while NTT East was using only one optical fiber per user
in providing this service, it was setting interconnection rates for other
carriers and also user rates for customers based on a facility configuration
(split fibers) that it was not in fact actually using, and that, as a result of
this practice NTT East effectively was selling this service at user rates that
were lower than the rates for one optical fiber. The Commission concluded that
NTT East was effectively restricting competition by blocking the entrance of
newcomers, and it advised NTT East to stop this practice.
NTT East believes that its acts do not violate applicable laws, and has not
followed the advice provided by the Commission. An administrative hearing in
accordance with procedures set forth in the Antimonopoly Law has been initiated
and is currently in progress. While the outcome of this proceeding is not
determinable, NTT
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Group believes that an adverse outcome would not likely have a material adverse
effect on NTT Group due in part to NTT East having already deployed the
facilities for split-fiber transmission. However, no assurance can be given in
this regard.
Introduction of Number Portability System for Cellular Phones
A study report issued by the MIC in April 2004 and the guidelines regarding
mobile number portability deployment issued in May 2004 both concluded that it
would be appropriate to introduce portability of cellular phone numbers as early
as possible in fiscal 2007.
Currently, it is difficult to predict the effects of number portability as these
effects will be influenced by the services and rates of cellular phone service
providers at the time the system is introduced. Because subscribers will be able
to change providers easily, there will be an opportunity to capture new
subscribers, but at the same time there will also be a risk that NTT Group will
lose subscribers to other carriers or will be unable to recover the costs of
implementing the number portability system for cellular phones. There could be
material adverse effects if costs for capturing and retaining subscribers
increase or if there is further rate competition.
Allocation of Frequency Spectrum for Cellular Phones
In the mobile communications business segment, if changes are made to the
frequency spectrum allocation system, as in a reallocation of frequency spectrum
or the introduction of an auction system, such changes may adversely affect NTT
DoCoMo Group. (See "Item 4-Information on the Company-Regulations-Other
Regulatory Developments-Allocation of Frequency Spectrum for Cellular Phones.")
Formulation of an Electronic Government Construction Plan
Based on the "Electronic Government Construction Plan," which was revised in
June 2004, the Japanese Government has begun a fundamental review of
government-related IT systems. Under this plan, with respect to tasks and
systems that are common to ministries and agencies (21 fields) and tasks and
systems for individual ministries and agencies (51 fields), an optimization plan
is to be formulated as early as possible before the end of March 2006; under
this plan, a review is to be carried out of tasks and systems, shared, uniform
systems are to be constructed, and certain tasks are to be outsourced.
If government procurement policies are to be reviewed under this optimization
plan, depending on the details of such review, the future performance and
financial condition of NTT Data may be affected.
Trends in New Technology and New Systems
-Power Line Communications ("PLC")
A relatively recent technology referred to as "power line communications" or "
broadband over power lines" uses existing power lines to provide high-speed data
transmission. Due to fears that leakage of radio waves from power lines could
affect other wireless use, the new technology was developed in an effort to
reduce radio wave leakage. Since March 2004, equipment manufacturers and power
companies have carried out experiments focused on the transmission of data
through the use of indoor power lines. These experiments were performed to
determine the viability of the data transmission technology. The MIC has
established a research committee, with the goal of formulating recommendations
around October 2005 as to whether PLC and other wire use can co-exist, and if
so, under what conditions.
If use of PLC is introduced in Japan, competition in the broadband market may
intensify even further. Such intensified competition may affect the revenues of
NTT Group. Currently, the specific effects of PLC on NTT Group are unclear.
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-Other Trends In New Technology and New Systems
WiMAX is a standard for high throughput, IP-based wireless broadband
connections. In 2003, WiMAX was recognized as an international standard for
fixed wireless (75 Mbps maximum transmission speed) broadband connections,
including as a means to provide broadband access to a small number of people
scattered over a large area. Currently, standards for mobile wireless
communication (maximum speed in the 15Mbps range) using WiMAX technology are
being developed. This technology uses frequency spectrum from 2GHz to 11GHz. In
Japan, there is no spectrum available for deployment of this technology, because
these frequencies are used for other purposes. In addition, voice communication
software that uses P2P ("Peer to Peer") technology to allow any members of the
general public to carry out direct exchange of information is becoming
available. If these and other new technologies and systems are introduced and
developed in Japan, competition in the fixed communications and mobile
communications market may intensify further, and such intensified competition
may affect the revenues of NTT Group. Currently, the specific effects of new
technology developments on NTT Group are unclear.
The Japanese Government owns enough NTT Shares to give it considerable influence
over whether resolutions at NTT shareholder meetings are adopted.
The Japanese Government currently owns approximately 40.9% of NTT's issued
Shares (43.1% of outstanding Shares). The Government, in its capacity as
shareholder, votes at shareholder meetings of NTT and, by virtue of its position
as the largest shareholder, theoretically has the power to exert considerable
influence over most decisions made at such meetings. In 1997, in a statement at
the Diet, a government official stated that the Government did not then intend
actively to use its position as a shareholder to direct the management of NTT.
The Government has not used its power as a shareholder to direct the management
of NTT.
NTT Group's international and domestic investments, alliances and collaborations
and investments directed at new fields of businesses may not produce the returns
or provide the opportunities NTT Group expects.
NTT Group has actively sought to enter into joint ventures, alliances and
collaborations mainly with companies and organizations outside Japan focusing on
wireless services, IP networks and IP service platforms. Going forward, NTT
Group will seek to form affiliations, collaborate with and make investments in
domestic corporations with the aim of expanding non-traffic businesses.
There can be no assurance that NTT Group will be able to maintain or enhance the
value or performance of domestic and overseas operations in which it has
invested or agreed to invest, or which NTT Group will invest in or ally with in
the future. There can also be no assurance that NTT Group will achieve the
returns or benefits expected from these domestic and international joint
ventures, alliances or collaborations, or that any of the companies in which NTT
Group has invested will achieve the growth that was expected because of the
uncertainty of market conditions and environments.
Since NTT has recorded large impairment charges in past periods, the impact on
NTT's financials of future write-downs related to the impaired value of
investments may be limited. Nevertheless, as a result of investments in new
business fields both in Japan and abroad, to the extent there is impairment in
NTT's investments, NTT may in future periods record write-downs related to the
impaired value of investments.
NTT DoCoMo Group has only a limited amount of spectrum available for its
services, and other cellular phone operators may not adopt the W-CDMA technology
of NTT DoCoMo Group.
NTT DoCoMo Group has limited frequencies and facilities available for its
services. In areas such as the vicinity of major train stations in Tokyo and
Osaka, NTT DoCoMo's mobile communications network may suffer deterioration of
service quality at peak times, when use of available frequencies is at or near
its limit. Because base stations and switchboards have only a finite capacity
for handling traffic, service quality may
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deteriorate at peak times or if there is a rapid increase in subscribers, or if
there is a rapid increase in the volume of images, music or other content
provided by NTT DoCoMo Group's i-mode services. In addition, with regard to FOMA
services and FOMA i-mode packet transmission fixed rate services, it is possible
that the growth in subscriptions and subscriber traffic will be far greater than
anticipated by NTT DoCoMo Group and that its service quality will deteriorate
due to a lack of capacity for increased traffic using existing facilities.
In addition, there may be deterioration in service quality if government
agencies do not allocate the frequency spectrum required for unhindered
operation, as the number of NTT DoCoMo Group subscribers, as well as traffic
from such subscribers, increases.
NTT DoCoMo Group has made efforts to improve efficiency of frequency use through
the application of its technologies, and to obtain new frequencies. However,
there can be no assurance that NTT DoCoMo Group's efforts can improve service
quality. If NTT DoCoMo Group is unable to address such problems sufficiently and
in a timely manner, it is possible that NTT Group's financial condition or
performance will be materially affected due to weak growth in its wireless
services or loss of subscribers to competitors.
In addition, while other cellular phone carriers have adopted W-CDMA technology,
if the number of cellular phone operators using W-CDMA does not increase or if
there are delays in the deployment of this technology, NTT DoCoMo Group may not
be able to offer global roaming and other services as expected and may not be
able to realize the benefits of economies of scale it currently anticipates.
Also, NTT DoCoMo Group cannot assure that handset and network manufacturers will
be able to modify their handsets and networks appropriately and promptly if
standardization organizations make changes to the specifications for existing
W-CDMA technology which require modifications to the handsets and networks that
NTT DoCoMo Group currently uses. It is also possible that NTT DoCoMo's strategic
partners may not be able to increase the number of i-mode subscribers or advance
the use of i-mode service by such subscribers as anticipated.
NTT Group may not achieve anticipated cost savings.
Since before its reorganization in 1999, NTT Group has undertaken several
initiatives to improve its management efficiency and promote cost savings. These
include the transfer from NTT to subsidiaries of certain functions, including
telecommunications software and systems development, facility management and
maintenance, equipment sales and directory assistance.
In May 2002, NTT East and NTT West introduced a system to transfer to newly
established outsourcing companies in each region (comprising one prefecture or
block of prefectures) various functions, including order-taking, small office
home office ("SOHO") sales, equipment maintenance and operations and repairs. At
the same time, an arrangement was implemented whereby employees, primarily those
51 years of age and over, retired from NTT East and NTT West and were then
re-employed by the outsourcing companies at lower wage levels.
NTT Group is engaged in a comprehensive effort to utilize funds more
efficiently, including the realization of savings in personnel costs resulting
from the employee relocation system described above, enabling more focused
efforts to achieve operating efficiencies and more effective allocation of human
and other resources to business expansion initiatives. However, no assurance may
be given that the anticipated cost savings will be achieved.
With respect to capital investments in the fixed communications business, NTT
Group also expects to achieve significant cost reductions by reducing capital
investments in optical access services and next generation networks through
deploying the results of technical innovations, lowering cost of machinery and
improving construction methods. However, such cost reductions may not be
achieved as anticipated.
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NTT Group's business may be adversely affected by the economic situation in
Japan.
NTT Group's businesses, including its telephone services, broadband access
services, and systems integration services, are affected by the economic
situation in Japan, as most of NTT Group's revenues are generated in Japan.
In fiscal 2005, the Japanese economy showed signs of recovery, with a mild
increase in consumer spending and increased capital investment. However, in the
latter half of the fiscal year, a sense of uncertainty emerged, as consumer
spending showed signs of slowing and exports showed a weakening trend. With the
effects of inventory adjustments and the international political situation
unclear, it is expected that additional time may be required before the Japanese
economy fully recovers. If economic conditions in Japan require a long time for
recovery to occur or if economic conditions start to deteriorate again, NTT
Group's results of operations may be adversely affected. In addition, NTT
Group's real estate disposition plan and pension investments may be adversely
affected by economic conditions including the depressed stock and financial
markets.
System disruptions may adversely affect NTT Group's financial condition and
operating results.
In order to provide fixed and mobile voice and data communications services to
subscribers, NTT Group establishes and maintains fixed line subscriber
telephone, ISDN, optical access, ADSL and mobile communications networks
deployed on a nationwide scale. NTT Group's systems may suffer disruptions
arising from a number of different causes, including earthquakes that frequently
hit Japan, typhoons, floods, problems in hardware and software, terrorism,
cyber-terrorism and various other events. The occurrence of any of these events
on a large scale could cause severe damage to NTT Group's telecommunications
networks which could take a long time to restore. NTT Group's financial
condition and operating performance may be adversely affected by reductions in
income and expensive repair costs resulting from any such event.
Furthermore, because NTT DoCoMo Group's cellular phone handsets offer a variety
of functions including settlement of credit transactions, and because services
by companies outside NTT DoCoMo Group are provided through these handsets,
problems may arise if a handset malfunctions or is defective or misplaced, or if
the services provided by other companies are flawed. In particular, phones with
the Mobile Wallet function are used for e-money applications, which may give
rise to issues that are different from those previously encountered by NTT
DoCoMo in connection with its wireless communications services.
Number of subscribers may be adversely affected by disclosure of personal
information.
Mindful of its position of responsibility in the telecommunications business,
NTT Group has historically made efforts to protect the personal information of
customers. In the spring of 2005, in connection with the full-scale
implementation of the Law Relating to the Protection of Personal Information,
NTT Group formulated its "NTT Group Information Security Policy," which includes
enhanced internal information management, training and awareness-raising for
officers and employees, publication of manuals and other measures intended to
fully address the issue of protection of personal information.
NTT Group expects to be able to ensure proper management of personal information
in accordance with its policy. However, if personal information is stolen or
otherwise misused, there is a risk that such action may adversely affect NTT
Group's business, including by impairing NTT Group's ability to obtain new
subscribers or secure selective governmental bids.
Future sales of shares by the Japanese Government or NTT may adversely affect
the trading price of NTT Shares and ADSs.
The Japanese Government is required by the NTT Law to own one-third or more of
the total number of the issued Shares of NTT. Until October 1986, the
Government, through the Minister of Finance, owned 100% of the
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issued Shares. As of March 31, 2005, the Government owned approximately 40.9% of
the issued Shares (43.1% of the outstanding Shares) as a result of sales of
Shares by the Government to the public and sales of Shares by the government to
NTT as part of NTT's Share repurchase programs. Under the budget for fiscal
2006, the Government is permitted to sell up to 1,123,043 Shares. In addition,
if the NTT Law is revised, the requirements regarding Government ownership of
NTT Shares may be eased or abolished, and the number of Shares the Government is
allowed to sell may increase. The sale or the potential sale of Shares by the
Government or issuance or potential issuance of Shares by NTT could have an
adverse impact on the market price of Shares and ADSs.
Investors may have difficulty enforcing judgments under U.S. securities law
regarding the civil liabilities of NTT.
NTT is a limited liability, joint-stock corporation established under the laws
of Japan. Most, if not all, of NTT's members of the board of directors and
management reside outside of the United States (principally in Japan). All or a
substantial portion of the assets of such persons or NTT are located outside of
the United States. As a result, it may not be possible for investors to effect
service of process within the United States upon such persons or NTT or to
enforce against them in federal or state courts in the United States judgments
predicated upon the civil liability provisions of the securities laws of the
United States. NTT has been advised by its Japanese counsel that there is
uncertainty as to the enforceability, in actions originated in Japanese courts,
of liabilities predicated solely under the United States federal securities laws
and as to the enforceability in Japanese courts of judgments of United States
courts obtained in actions predicated upon the civil liability provisions of the
United States federal securities laws.
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Forward-Looking Statements
Some of the statements made in this annual report are forward-looking
statements. These include statements with respect to NTT's plans, strategies and
beliefs and other statements that are not historical facts. The statements are
based on management's assumptions and beliefs in light of the information
currently available to it. These assumptions and beliefs include information
concerning:
(i) NTT Group; and
(ii) the economy and telecommunications industry in Japan and overseas.
The assumptions also involve risks and uncertainties which may cause the actual
results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by the forward-looking
statements. Potential risks and uncertainties include:
(i) the financial and operating impact of equity investments in overseas companies, including Verio Inc. ("
Verio") and Hutchison Telephone Company Limited ("HTCL"), and any other companies in which NTT Group
companies may make equity investments;
(ii) risks and uncertainties associated with projections of future usage of NTT Group's networks, including
broadband services, the spread of 3G cellular subscriber services and Internet-related businesses;
(iii) risks and uncertainties associated with the pricing of services;
(iv) the effects of deregulation of the telecommunications market, including the calculation method of
interconnection rates and the revision of the price-cap system;
(v) risks and uncertainties associated with estimating the reduction in revenues that will result from
changes in rates;
(vi) the effects of increased competition including increased pressure to lower tariffs and continuous
threats to market share;
(vii) the ability of NTT Group, including NTT DoCoMo Group, to maintain growth and the success of new products
and services and new businesses;
(viii) the ability of NTT Group to add capacity to NTT Group's existing networks, including the availability
and allocation of radio frequency spectrum to NTT DoCoMo Group;
(ix) the effect of the introduction of or changes to various laws or regulations;
(x) the impact of system failure; and
(xi) volatility and changes in the economic conditions and security markets in Japan and other countries.
NTT desires to qualify for the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995.
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ITEM 4-INFORMATION ON THE COMPANY
NTT Group
NTT Group is the largest provider of fixed and mobile voice related services, IP
/packet communications services, sales of telecommunications equipment, systems
integration and other telecommunications related services in Japan and operates
one of the largest telephone networks in the world. NTT Group is comprised of
NTT, its 397 other subsidiaries and 145 affiliated companies (as of March 31,
2005), and its predominant businesses are regional communications, long distance
and international communications, mobile communications and data communications.
The principal services in the regional communications business are
intra-prefectural communications services and related ancillary services. The
consolidated subsidiaries in the regional communications business are NTT East,
NTT West, Plala Networks Inc., NTT VIETNAM CORPORATION, NTT DIRECTORY SERVICES
Co., NTT INFRASTRUCTURE NETWORK CORPORATION, NTT MARKETING ACT CORPORATION, NTT
NEOMEIT CORPORATION, NTT BUSINESS INFORMATION SERVICE, INC., AIREC ENGINEERING
CORPORATION, NTT NEOMEIT KANSAI CORPORATION, NTT-ME CORPORATION, NTT CARD
SOLUTION Inc., NTT Solco Corporation, NTT-ME TOKYO CORPORATION, NTT SERVICE
TOKYO CORPORATION, NTT MARKETING ACT KANSAI CORPORATION, and 122 other
companies.
The principal services in the long distance and international communications
business are inter-prefectural communications services, international
communications services and related ancillary services. The consolidated
subsidiaries in the long distance and international communications are NTT
Communications, NTT USA, Inc., Verio Inc., NTT America, Inc., NTT AUSTRALIA PTY.
LTD., NTT Europe Limited, NTT INVESTMENT SINGAPORE PTE. LTD., HKNet Company
Limited, Milletechno, Inc., NTT MSC SDN BHD, NTT PC Communications Incorporated,
NTT COM ASIA LIMITED, NTT SINGAPORE PTE. LTD., NTT Communications (Thailand)
Co., Ltd., NTT WORLD ENGINEERING MARINE CORPORATION, NTT Taiwan Ltd., NTT KOREA
Co., Ltd., PT. NTT Indonesia, NTT do Brasil Telecomunicacoes Ltda., DREAM NET
Corporation, NTT NaviSpace Corporation, and 24 other companies.
The principal services in the mobile communications business include cellular
services, PHS services, "Quickcast" services and related ancillary services. The
consolidated subsidiaries in the mobile communications business are NTT DoCoMo,
Inc., NTT DoCoMo Hokkaido, Inc., NTT DoCoMo Tohoku, Inc., NTT DoCoMo Tokai,
Inc., NTT DoCoMo Hokuriku, Inc., NTT DoCoMo Kansai, Inc., NTT DoCoMo Chugoku,
Inc., NTT DoCoMo Shikoku, Inc., NTT DoCoMo Kyushu, Inc., DoCoMo Service Inc.,
DoCoMo Engineering Inc., DoCoMo Mobile Inc., DoCoMo Support Inc., DoCoMo
Systems, Inc., DoCoMo Sentsu, Inc., DoCoMo Technology, Inc., and 73 other
companies.
The principal services in the data communications business include systems
integration and network systems services. The consolidated subsidiaries in the
data communications business are NTT DATA, NTT DATA SYSTEM TECHNOLOGIES INC.,
NTT DATA SYSTEM SERVICE CORPORATION, NTT DATA FINANCIAL CORPORATION, NTT DATA
TOKYO SMS CORPORATION, and 38 other companies.
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Other businesses include building maintenance, real property leasing, systems
development, leasing and research and development. The consolidated subsidiaries
in these other businesses are NTT URBAN DEVELOPMENT CORPORATION, NTT COMWARE
CORPORATION, NTT Resonant Inc., NTT FACILITIES, INC., NTT Electronics
Corporation, NTT BUSINESS ASSOCIE Corporation., NTT LEASING CO., LTD., NTT
ADVANCED TECHNOLOGY CORPORATION, NTT LOGISCO Inc., NTT INTERNET INC., NTT
Software Corporation, NTT ADVERTISING, INC., NTT BUSINESS ASSOCIE TOKYO Co.,
Ltd., and 68 other companies.
NTT Group is the principal provider of telephone subscriber services and ISDN
services in Japan, providing telephone and ISDN services to 58.79 million
subscribers nationwide as of March 31, 2005 (in calculating the number of
subscribers, each INS-Net 1500 subscription is counted as ten subscribers
because INS-Net 1500 is in all cases approximately ten times greater than
INS-Net 64 in terms of number of channels, transmission rate and line use fees
(basic monthly charges)).
NTT provides cellular services and PHS services through NTT DoCoMo Group. NTT
DoCoMo Group is one of the largest providers of cellular services in the world
and the largest in Japan, providing cellular services to 48.82 million
subscribers nationwide as of March 31, 2005. NTT DoCoMo was incorporated in
Japan as a joint-stock corporation in 1991. As of June 30, 2005, NTT owns 63.2%
of NTT DoCoMo's shares.
NTT Group provides data communications business through NTT DATA. NTT DATA is
the leading provider of information communications systems and computer
networking in Japan. NTT DATA primarily engages in strategic planning, systems
planning and systems design, and installation of information communications
systems and computer networks. NTT DATA was incorporated in Japan as a
joint-stock corporation in 1988. As of March 31, 2005, NTT owns 54.2% of the
shares of NTT DATA.
NTT's agent for U.S. federal securities law purposes is NTT USA, Inc., located
at 101 Park Avenue, 41st Floor, New York, NY 10178. NTT is located at 3-1,
Otemachi 2-chome, Chiyoda-ku, Tokyo 100-8116, Japan (Phone number:
81-3-5205-5581). NTT's Internet website address is http://www.ntt.co.jp/
index_e.html. The information on NTT's website is not incorporated by reference
into this document. This annual report will be placed on NTT's Internet website
concurrently with the filing with the United States Securities and Exchange
Commission (the "SEC").
History
Significant changes in the legislative and regulatory framework for
telecommunications in Japan have occurred in recent years and are still ongoing,
including the implementation of telecommunications reform laws aimed at
promoting competition in the telecommunications market. Prior to April 1, 1985,
the predecessor corporation, Nippon Telegraph & Telephone Public Corporation,
was the sole domestic telecommunications carrier in Japan.
On April 1, 1985, NTT was incorporated as a limited liability, joint-stock
company under the NTT Law and succeeded to all the assets and liabilities of the
predecessor corporation. The predecessor corporation was incorporated under the
NTT Law in August 1952 to take over from the Japanese Government the provision
of nationwide telephone, telegraph and related telecommunications services in
Japan, and all Government-owned assets relating to such services were
transferred to the predecessor corporation. In 1953, the predecessor
corporation's international division, which operated Japan's international
telephone, telegraph and related telecommunications services, was transferred to
a separate corporation, Kokusai Denshin Denwa Co., Ltd. ("KDD") (which became
KDDI after it merged with DDI Corporation ("DDI") and IDO Corporation in October
2000).
The Shares are listed on the Tokyo Stock Exchange (the "TSE") and on the Osaka,
Nagoya, Fukuoka and Sapporo stock exchanges in Japan. In 1994, NTT listed its
Shares on the New York Stock Exchange (the "NYSE") (in ADR form) and on the
London Stock Exchange (the "LSE").
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On November 24, 1995, NTT capitalized a portion of its capital reserve and
effected a 1.02-for-1 stock split, thereby distributing to the shareholders of
NTT the benefits of the sale of NTT DATA stock. As a result of the stock split,
together with the purchase by NTT of its Shares acquired to fulfill requests for
purchase of odd-lot Shares, the number of outstanding Shares as of March 31,
1996 amounted to 15,911,902.
At the general meeting of shareholders held on June 29, 1999, the shareholders
approved the purchase by NTT of up to 120,000 of its Shares from time to time at
an aggregate cost not to exceed Y120 billion, before its next general meeting of
shareholders to be held in June 2000. On July 12, 1999, NTT announced in Tokyo
that it would repurchase up to 80,000 Shares at a specified time on the
following day through transactions executed on the TSE in accordance with
applicable Japanese law at a price per Share equal to the closing price on the
TSE on July 12. On July 13, 1999, NTT purchased 48,898 Shares through such
transactions. Of the Shares it repurchased, 48,000 were acquired from the
Minister of Finance. Subsequently, NTT acquired an additional 28,512 Shares
during the period from February 4 to February 15, 2000, pursuant to the
authority granted by the shareholders at the general meeting of shareholders on
June 29, 1999. None of these Shares were purchased from the Minister of Finance.
As a result of these transactions, together with the purchase by NTT of its
Shares acquired to fulfill requests for purchase of odd-lot Shares, the number
of outstanding Shares as of March 31, 2000 was reduced to 15,834,555. In fiscal
2000, 77,410 of these acquired Shares were cancelled.
On October 23, 2000, NTT issued and sold to a variety of individuals and
institutional investors 300,000 new Shares in a global offering registered with
the SEC in the form of Shares or ADSs. See "Item 9-The Offer and Listing-Trading
Markets."
At the general meeting of shareholders held on June 27, 2002, the shareholders
approved the purchase by NTT of up to 200,000 of its Shares from time to time at
an aggregate cost not to exceed Y100 billion, before its next general meeting of
shareholders to be held in June 2003. On October 7, 2002, NTT announced in Tokyo
that it would repurchase up to 200,000 Shares at a specified time on the
following day through transactions executed on the TSE in accordance with
applicable Japanese law at a price per Share equal to the closing price on the
TSE on October 7. On October 8, 2002, NTT purchased 200,000 Shares through such
transactions. Of the Shares it repurchased, 91,800 Shares were acquired from the
Minister of Finance. As a result of these transactions, together with the
purchase by NTT of its Shares acquired to fulfill requests for purchase of
odd-lot Shares, the number of outstanding Shares as of March 31, 2003 was
reduced to 15,932,436. In fiscal 2003, 202,145 of these acquired Shares were
cancelled.
At the general meeting of shareholders held on June 27, 2003, the shareholders
approved the purchase by NTT of up to 200,000 of its Shares from time to time at
an aggregate cost not to exceed Y100 billion, before its next general meeting of
shareholders to be held in June 2004. On October 14, 2003, NTT announced in
Tokyo that it would repurchase up to 185,528 Shares at a specified time on the
following day through transactions executed on the TSE in accordance with
applicable Japanese law at a price per Share equal to the closing price on the
TSE on October 14. On October 15, 2003, NTT purchased 72,381 Shares through such
transactions. All repurchased Shares were acquired from the Minister of Finance.
Subsequently, NTT acquired an additional 118,079 Shares during the period from
October 16 to October 31, 2003, and from November 12 to December 12, 2003,
pursuant to the authority granted by the shareholders at the general meeting of
shareholders on June 27, 2003. None of these Shares were purchased from the
Minister of Finance. As a result of these transactions, together with the
purchase by NTT of its Shares acquired to fulfill requests for purchase of
odd-lot Shares, the number of outstanding Shares as of March 31, 2004 was
reduced to 15,741,201. In fiscal 2004, 191,236 of these acquired Shares were
cancelled.
At the general meeting of shareholders held on June 29, 2004, the shareholders
approved the purchase by NTT of up to 1,000,000 of its Shares from time to time
at an aggregate cost not to exceed Y600 billion, before its next general meeting
of shareholders to be held in June 2005. On November 25, 2004, NTT announced in
Tokyo that it would repurchase up to 1,000,000 Shares at a specified time on the
following day through transactions executed on the TSE in accordance with
applicable Japanese law at a price per Share equal to the closing price on the
TSE on November 25. On November 26, 2004, NTT purchased 800,145 Shares through
such transactions. Of these Shares, 800,000 were purchased from the Minister of
Finance.
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Pursuant to an amendment to the NTT Law that became effective as of August 1,
1992, foreign nationals and foreign corporations, which were previously
prohibited from owning Shares of NTT, are allowed to own Shares. Currently, the
aggregate amount of NTT's voting rights which may be owned by foreign nationals
and foreign corporations must be less than one-third of NTT's total voting
rights. NTT is prohibited from registering ownership of Shares by such persons
in excess of such limit. See "Item 10-Additional Information-Exchange Controls
and Other Limitations Affecting Security Holders-Restrictions on Foreign
Ownership."
NTT Group's cellular services, a part of NTT Group's mobile communications
business segment, are expanding operations throughout Japan through NTT's 63.2%
subsidiary, NTT DoCoMo, and its subsidiaries. NTT DoCoMo Group is Japan's
leading cellular services provider and is one of the largest cellular operators
in the world, as measured by the total number of cellular subscribers. NTT
DoCoMo Group offers a range of high-quality, high-mobility telecommunications
services such as cellular services, PHS services and other specialized wireless
services, including "Quickcast" services (formerly paging services), and
satellite mobile communications services, through its extensive and advanced
wireless networks. NTT DoCoMo Group also sells cellular and PHS handsets,
Quickcast terminals and related equipment.
Although NTT owns 63.2% of NTT DoCoMo's shares, NTT is not actively involved in
the daily management or operations of NTT DoCoMo Group. NTT DoCoMo Group's
business operations and management are conducted independently of the operations
and management of NTT and its other subsidiaries. In addition, transactions
between NTT DoCoMo Group and NTT and each of NTT's other subsidiaries are
conducted on an arm's-length basis. However, NTT DoCoMo discusses with, or
reports to, NTT on certain important matters.
On October 22, 1998, NTT DoCoMo listed its stock on the First Section of the
TSE. In connection with this listing, NTT sold 218,000 shares of NTT DoCoMo's
non-par value common stock and NTT DoCoMo issued 327,000 new shares as part of
the offering, which was completed on October 22, 1998. As a result of the
offering, NTT's ownership interest in NTT DoCoMo was reduced from 94.7% to
67.1%.
In February 2001, NTT DoCoMo issued and sold 460,000 new shares in the form of
shares or ADSs in the United States to qualified institutional buyers in
reliance on Rule 144A under the United States Securities Act of 1933 (the "
Securities Act") and outside the United States to investors in reliance on
Regulation S under the Securities Act. As a result of the offering, NTT's
ownership interest in NTT DoCoMo was reduced from 67.1% to 64.1%.
In January 2002, NTT DoCoMo's board of directors resolved to conduct a
five-for-one split of its shares (new shares were issued on May 15, 2002), as
well as to apply to list its shares on the NYSE and LSE. On March 1, 2002, NTT
DoCoMo listed its shares on the NYSE (in ADR form) and on the LSE.
In July and August 2002, NTT DoCoMo acquired 870,000 of its own shares in order
to convert its eight regional subsidiaries (NTT DoCoMo Hokkaido, NTT DoCoMo
Tohoku, NTT DoCoMo Tokai, NTT DoCoMo Hokuriku, NTT DoCoMo Kansai, NTT DoCoMo
Chugoku, NTT DoCoMo Shikoku and NTT DoCoMo Kyushu) into wholly owned
subsidiaries by means of an exchange of shares. In order to support this
acquisition, NTT sold to NTT DoCoMo in July 2002, 551,000 shares of NTT DoCoMo
for Y148.2 billion. As a result, these regional subsidiaries became 100% wholly
owned subsidiaries of NTT DoCoMo and NTT's ownership interest in NTT DoCoMo was
reduced from 64.1% to 63.0%.
In September 2003, NTT DoCoMo repurchased a total of 716,558 shares for Y194,904
million under its share repurchase program. NTT sold 698,000 shares, resulting
in a decrease in its ownership interest in NTT DoCoMo from 63.0% to 62.5%. From
November 2003 to March 2004, NTT DoCoMo repurchased a total of 859,658 shares
for Y199,998 million under its share repurchase program. As a result of these
repurchases, NTT's ownership interest in NTT DoCoMo increased from 62.5% to
63.6%.
In May 2004, NTT DoCoMo repurchased 43,000 shares of its common stock for Y8,447
million in the stock market. As a result of the repurchase, NTT's ownership
interest in NTT DoCoMo increased by 0.1% from 63.6%
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to 63.7%. In August 2004 NTT DoCoMo repurchased 1,815,526 shares of its common
stock for Y332,241 million through a tender offer. NTT sold 1,748,000 shares,
resulting in a decrease in NTT's ownership interest in NTT DoCoMo from 63.7% to
62.4%. From November 2004 to March 2005, NTT DoCoMo repurchased a total of
465,627 shares for Y84,558 million under its share repurchase program. As a
result of these repurchases, NTT's ownership interest in NTT DoCoMo increased
from 62.4% to 63.0%.
From May to June 2005, NTT DoCoMo repurchased 102,383 shares of its common stock
for Y16,916 million through a tender offer, resulting in an increase in NTT's
ownership interest in NTT DoCoMo from 63.0% to 63.2%.
Relationship with the Japanese Government
The Japanese Government is required by the NTT Law to own one-third or more of
the total number of the issued Shares of NTT. However, any increase in the
number of Shares attributable to the issuance of new Shares, including shares
issuable upon conversion of convertible securities or exercise of share
subscription warrants, are not included in calculating the proportion of the
Shares held by the Government for this purpose.
The total number of Shares of NTT issued at the time of its establishment was
15,600,000. Until October 1986, the Government owned 100% of the issued Shares
of NTT. Of the 10,400,000 Shares held by the Government which were permitted to
be sold under the NTT Law, 5,400,000 Shares were sold to a variety of individual
and institutional investors between October 1986 and December 1990.
On December 17, 1990, the Ministry of Finance ("MOF") announced its plan (the "
1990 plan") that out of the 5,000,000 Shares then available for sale under the
NTT Law, the Minister of Finance would sell 2,500,000 of such Shares at the rate
of approximately 500,000 Shares per fiscal year (with any Shares remaining
unsold to be sold in future years based on market conditions), and retain the
other 2,500,000 Shares for the time being. Prior to the offering of Shares in
December 1998, no such sales had been made as the Government concluded that
market conditions would not permit the smooth absorption of the Shares.
As a result of the 1.02-for-1 stock split on November 24, 1995, following the
sale of the NTT DATA stock, the number of issued Shares was 15,912,000 and the
number of Shares that the Government was permitted to sell was 5,100,000.
The Government's annual budget for fiscal 1999 contemplated the sale by the
Government of up to 1,000,000 additional Shares. On December 18, 1998, the
Government sold the 1,000,000 Shares contemplated to be sold to individuals and
institutional investors in a global offering registered with the SEC in the form
of Shares or ADSs. The offering reduced the Government's ownership interest to
9,419,339.24 Shares, or approximately 59%, as of March 31, 1999.
The Government's annual budget for fiscal 2000 contemplated the sale by the
Government of up to 1,000,000 additional Shares. On July 13, 1999, NTT
repurchased 48,000 Shares from the Government and on November 12, 1999, the
Government sold the balance of the 952,000 Shares contemplated to be sold to
individuals and institutional investors in a global offering registered with the
SEC in the form of Shares or ADSs. The offering reduced the Government's
ownership interest to 8,416,885.26 Shares, or approximately 53%, as of March 31,
2000. On December 20, 1999, the 1990 plan was terminated.
The Government's annual budget for fiscal 2001 contemplated the sale by the
Government of up to 1,000,000 additional Shares. On October 23, 2000, the
Government sold the 1,000,000 Shares contemplated to be sold to individuals and
institutional investors in a global offering registered with the SEC in the form
of Shares or ADSs. These Shares were sold together with 300,000 new Shares
issued and sold by NTT. The offering reduced the Government's ownership interest
to 7,413,823.26 Shares, or approximately 46%, as of March 31, 2001.
The Government's annual budget for fiscal 2002 contemplated the sale by the
Government of up to 1,000,000 additional Shares. No Shares were sold by the
Government in fiscal 2002.
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The Government's annual budget for fiscal 2003 contemplated the sale by the
Government of up to 1,000,000 additional Shares. Of this number, 91,800 Shares
were sold as a result of NTT's repurchase of Shares on October 8, 2002, but the
remaining 908,200 were not sold during that fiscal year.
The Government's annual budget for fiscal 2004 contemplated the sale by the
Government of up to 1,000,000 additional Shares. Of this number, 85,157 Shares
were sold at the time of NTT's repurchase of Shares on October 15, 2003 (of the
85,157 Shares sold by the Government, NTT acquired 72,381), but the remaining
914,843 were not sold during that fiscal year.
The Government's annual budget for fiscal 2005 contemplated the sale by the
Government of up to 1,000,000 additional Shares. Of this number, 800,000 Shares
were sold at the time of NTT's repurchase of Shares on November 26, 2004, but
the remaining 200,000 Shares were not sold during that fiscal year.
The Government's annual budget for fiscal 2006 contemplates the sale by the
Government of up to 1,123,043 additional Shares. As of the date of this annual
report, the Government has not announced its intention with respect to the sale
of additional Shares pursuant to its budgetary authority.
The NTT Law requires that any disposition of NTT's Shares owned by the
Government must be within the limits determined by the Diet in the relevant
annual budget.
The Government, acting through the Minister, also regulates the activities of
NTT and certain of its subsidiaries and approval by the Minister is required for
the issuance of new Shares subject to consultation with the Minister of Finance,
subject to certain exceptions. See "Item 4-Information on the Company-
Regulations." NTT Group transacts business with various departments and agencies
of the Government as separate customers on an arm's-length basis. The
Government, in its capacity as shareholder, votes at shareholder meetings of NTT
and, by virtue of its position as the largest shareholder, theoretically has the
power to exert considerable influence over most decisions taken at such
meetings. In the past, however, the Government has not used this power to direct
the management of NTT.
Business Overview and Strategy
While the Japanese economy is expected to continue to recover steadily during
the forthcoming fiscal year, due to signs of uncertainty observed in some
sectors of Japanese industry, careful attention must be paid to trends in
inventory adjustment and international conditions.
In the telecommunications market, ubiquitous broadband communications continue
to spread rapidly. The market can be expected to grow even further as evidenced
by the proliferation of network-compatible consumer electronics products and the
introduction of various solutions combining fixed-line and mobile
communications. Given the rapid pace of growth, it is expected that numerous new
participants will continue to enter this market based on a wide range of
business models. Possible alliances among companies from different industries
indicate that competition will become even more intense in the future.
Meanwhile, amid the rapid penetration of communications technologies as a new
social infrastructure, including broadband and mobile communications, there are
growing social expectations that information technology will help find solutions
to such issues as the achievement of more secure and safer lifestyles.
Under these conditions, NTT Group will continue to harness its comprehensive
strengths in accordance with the "NTT Group's Medium-Term Management Strategy"
and develop and provide ubiquitous broadband services that combine fixed-line
and mobile communications. Through such undertakings, the Group will contribute
to finding solutions to social issues, including providing enhanced support for
nursing care, remote medical treatment, and preventive medicine. The NTT Group
will also put effort into creating a framework for achieving quality and
reliable networks and guaranteeing connectivity with other telecommunications
carriers in
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order to construct a high-quality, flexible, and security-assured
next-generation network. By integrating this network with optical access
services, the Group will provide superior and highly flexible services that
integrate the features of fixed-line networks and IP networks.
NTT Group will continue to make an all-out effort to market its optical access
services by reinforcing its sales forces and upgrading services and expanding
service areas of the "Hikari Phone" IP telephony services, which has achieved
low-priced voice transmission with the same quality as fixed telephones. The
Group will also strengthen the competitiveness of FOMA services and for this
purpose will provide attractive products and services, introduce an
easy-to-understand fee structure, and improve network quality. Further efforts
will be made to create a new revenue base by proposing various ways to utilize
FOMA, including Mobile Wallet electronic payment services that collaborate with
shops and public transportation systems and the use of FOMA as a remote
monitoring device.
On the other hand, NTT Group will continue to move forward on structural reforms
and will aim to transform its business and financial structures by improving
operating efficiency and expanding into new business fields. With regard to the
personal information of customers, the entire NTT Group will be committed to
conducting continuous review of its personal data management systems to ensure a
rigorous framework.
NTT will continue to apply the managerial resources of NTT Group in a proactive
and flexible manner and will take advantage of the benefits of NTT's holding
company structure to promote unified research and development of fundamental
technologies. NTT will also provide NTT Group companies with advice and other
assistance, including assistance with their efforts to obtain cost-effective
financing.
On the research and development front, NTT Group will continue to focus its
efforts on the creation of basic technologies required to support the
development of secure, dependable and convenient broadband and ubiquitous
services, and will utilize the "Comprehensive Commercialization Functions" to
promote the commercialization of the products of research and development in
collaboration with NTT Group companies. NTT will also continue to promote the
dissemination of achievements in basic research and development, and to
contribute to the standardization of technologies, including the development of
industry standards, and will actively move forward with research and development
activities carried out in collaboration with other research institutions.
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Principal Business Activities
NTT Group is Japan's largest provider of telecommunications services, offering
fixed and mobile voice related services, IP/packet communications services, and
systems integration services. Its telephone network is one of the world's
largest. Telecommunications services provided by NTT Group are divided into the
six categories of fixed voice related services, mobile voice related services,
IP/packet communications services, sales of telecommunications equipment,
systems integration, and other services. The breakdown among these categories
for operating revenues for the past three fiscal years is as follows:
Years ended March 31,
2003 2004 2005
(in billions of yen)
Fixed voice related services Y 4,177.7 Y 3,882.2 Y 3,578.1
% of total operating revenues 38.2 % 35.0 % 33.1 %
Mobile voice related services Y 3,439.2 Y 3,393.9 Y 3,216.1
% of total operating revenues 31.5 % 30.6 % 29.8 %
IP/packet communications services Y 1,305.0 Y 1,639.6 Y 1,772.7
% of total operating revenues 12.0 % 14.8 % 16.4 %
Sales of telecommunications equipment Y 616.4 Y 713.3 Y 688.1
% of total operating revenues 5.6 % 6.4 % 6.4 %
Systems integration Y 844.7 Y 863.0 Y 910.3
% of total operating revenues 7.7 % 7.8 % 8.4 %
Other services Y 540.1 Y 603.5 Y 640.6
% of total operating revenues 5.0 % 5.4 % 5.9 %
NTT Group's results are also segmented according to its five primary lines of
businesses: regional communications business, long distance and international
communications business, mobile communications business, data communications
business and other businesses. See Note 17 to the Consolidated Financial
Statements attached hereto and "Item 4-Information on the Company-NTT Group."
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The following table sets forth certain information concerning NTT Group's
principal facilities and operations as of the dates and for the periods
indicated:
As of March 31,
2001 2002 2003 2004 2005
(in thousands)
Regional Communications Business:
(NTT East)
Telephone subscriptions 25,735 25,084 25,139 25,264 24,925
Public telephones 345 333 285 245 213
ISDN(1) 5,731 5,851 5,260 4,756 4,425
INS-Net 64 5,000 5,303 4,892 4,391 4,056
INS-Net 1500(1) 73 55 37 36 37
B FLET'S - 12 111 426 885
FLET'S ADSL 17 513 1,430 2,283 2,833
FLET'S ISDN 360 653 651 514 413
Conventional leased circuit services 386 342 301 267 240
High-speed digital circuit services 287 310 291 249 211
ATM services 8 11 10 8 6
(NTT West)
Telephone subscriptions 26,354 25,654 25,575 25,674 25,396
Public telephones 362 347 299 258 229
ISDN(1) 5,096 5,299 4,868 4,378 4,042
INS-Net 64 4,562 4,922 4,647 4,162 3,829
INS-Net 1500(1) 53 38 22 22 21
B FLET'S - 6 88 414 779
FLET'S ADSL 10 454 1,127 1,806 2,374
FLET'S ISDN 360 651 621 466 356
Conventional leased circuit services 344 306 275 247 223
High-speed digital circuit services 238 261 247 213 175
ATM services 5 8 7 6 5
Long Distance and International Communications Business:
Packet exchange services 790 820 836 863 885
Frame relay/cell relay services 95 94 78 56 39
Facsimile communications network services 1,351 1,345 1,419 1,435 1,385
OCN 2,302 3,039 3,504 4,118 4,640
IP-VPN 8 39 64 86 93
Leased circuit services 27 21 17 13 11
High-speed digital circuit services 47 48 42 34 27
ATM Services 3 5 4 2 2
Mobile Communications Business:
Cellular (mova) services 36,219 40,922 43,819 43,283 37,324
Cellular (FOMA) services - 89 330 3,045 11,501
i-mode services(2) 21,695 32,156 37,758 41,077 44,021
PHS services 1,812 1,922 1,688 1,592 1,314
Quickcast services 1,098 827 604 457 306
--------
(1) In terms of number of channels, transmission rate and line use fee (basic monthly charge), INS-Net 1500 is in all
cases roughly ten times greater than INS-Net 64. Accordingly, one INS-Net 1500 subscription is counted as ten
INS-Net 64 subscriptions.
(2) The number of i-mode subscriptions includes subscriptions to both cellular mova (32,667 thousand) and cellular
FOMA (11,353 thousand).
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Fixed Voice Related Services
Operating revenues from fixed voice related services in fiscal 2005 accounted
for 33.1% of NTT Group's total operating revenues. Fixed voice related services
include a portion of the regional communications business segment and long
distance and international communications business segment, including telephone
subscriptions, ISDN ("INS-Net 64" and "INS-Net 1500"), conventional leased
circuits, high-speed digital transmission, and ATM services (ATM Mega Link, ATM
Share Link).
NTT Group is Japan's largest provider of telephone subscriber and ISDN (INS-Net
64 and INS-Net 1500) services in Japan. INS-Net 64 uses existing copper lines to
transmit digital signals, providing two circuits' worth of efficient,
high-quality communications services. INS-Net 1500 uses optical fiber with a
transmission speed of 1,536Kbps. It offers 23 times the capacity of a 64Kbps
line and is suited for corporate users who need to access large volumes of
information.
Fixed line telephone subscriptions, which had increased during fiscal 2004,
decreased in fiscal 2005 due to a decline in subscribers migrating from INS-Net
64 services attributable to a slowdown in growth of ADSL services and migration
of subscribers to other carriers' "chokushu" telephone services. ISDN services
saw a smaller rate of decline due to the slower growth in ASDL services. As a
result, as of March 31, 2005, fixed line telephone subscriptions decreased by
617 thousand from the previous year to 50,321 thousand, and ISDN subscriptions
decreased by 667 thousand to 8,467 thousand. As of March 31, 2005, the usage
proportions for fixed line telephone and ISDN subscription services were 78.5%
residential / 21.5% business and 24.8% residential / 75.2% business,
respectively.
The following table shows the number of fixed line telephone and ISDN
subscriptions for NTT East and NTT West:
As of March 31,
2003 2004 2005
(in thousands)
(NTT East)
Telephone subscriptions 25,139 25,264 24,925
Public telephones 285 245 213
ISDN(1) 5,260 4,756 4,425
INS-Net 64 4,892 4,391 4,056
INS-Net 1500(1) 37 36 37
(NTT West)
Telephone subscriptions 25,575 25,674 25,396
Public telephones 299 258 229
ISDN(1) 4,868 4,378 4,042
INS-Net 64 4,647 4,162 3,829
INS-Net 1500(1) 22 22 21
--------
(1) In terms of number of channels, transmission rate and line use fee (basic monthly charge), INS-Net 1500 is in all
cases roughly ten times greater than INS-Net 64. Accordingly, one INS-Net 1500 subscription is counted as ten
INS-Net 64 subscriptions.
Current monthly rates for telephone subscription services vary according to
business or residential use, and the number of subscribers in the intra-city
calling area, or message area. Current call rates for telephone subscriptions
and ISDN services vary according to distance, duration, day and time of day.
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The following tables set forth rates currently applied to telephone subscriber
services (consumption tax not included):
Installation Fee: Y36,000
Subscriber line use fee (basic monthly charge per line):
Number of subscribers in an intra-city area 400,000 50,000 Less
or more to than
400,000 50,000
Residential Y 1,700 Y 1,550 Y 1,450
Business Y 2,500 Y 2,350 Y 2,300
The following table sets forth information regarding intra-prefectural dialing
rates of NTT East, NTT West and NTT Communications(1):
8 a.m.-7 p.m. 7 p.m.-11 p.m.(2) 11 p.m.-8 a.m.
Intra-city area Y8.5 per 3 min. (Y Y8.5 per 3 min. (Y Y8.5 per 4 min. (Y
8.5) 8.5) 8.5)
Adjacent area, up to 20 km Y10 per 90 sec. (Y Y10 per 90 sec. (Y Y10 per 2 min. (Y20)
20) 20)
20 km-60 km Y10 per 1 min. (Y30) Y10 per 75 sec. (Y Y10 per 90 sec. (Y
30) 20)
Over 60 km Y10 per 45 sec. (Y Y10 per 1 min. (Y30) Y10 per 90 sec. (Y
40) 20)
--------
(1) Amounts in ( ) are rates for 3-minute calls.
(2) Also includes daytime calls on weekends and holidays.
The following table sets forth information regarding inter-prefectural dialing
rates of NTT Communications (call duration for Y10 from a subscriber telephone)
(1):
8 a.m.-7 p.m. 7 p.m.-11 p.m. 11 p.m.-8
(2) a.m.
Adjacent area-20 km 90 sec. (Y20) 90 sec. (Y20) 2 min. (Y20)
20 km-30 km 60 sec. (Y30) 60 sec. (Y30) 75 sec. (Y
30)
30 km-60 km 45 sec. (Y40) 60 sec. (Y30) 75 sec. (Y
30)
60 km-100 km 30 sec. (Y60) 45 sec. (Y40) 60 sec. (Y
30)
Over 100 km 22.5 sec. (Y 26 sec. (Y70) 45 sec. (Y
80) 40)
--------
(1) Amounts in ( ) are rates for 3-minute calls.
(2) Also includes daytime calls on weekends and holidays.
In certain areas, new common carriers ("NCCs") offering lower rates than NTT
Group have established a position in the long distance market. The current NTT
Communications long distance fee schedule is essentially the same as that of
major NCCs.
As of March 31, 2005, NTT Group's market share of MYLINE services combined was
74.0% for intra-city calls, 68.2% for intra-prefectural inter-city calls and
60.7% for inter-prefecture calls.
"Chokushu" telephone services and IP telephony services offered by competitors
are expected to have an increasingly greater impact on tariffs and basic monthly
charges. NTT Group hopes to offset any resultant decrease in revenues by
offering optical IP telephony services as well as IP telephony terminals for
users of FLET'S and by actively pursuing IP and broadband opportunities. In
fiscal 2005, NTT East and NTT West began providing the "Hikari Phone" IP
telephony service, which provides low-priced voice transmissions with the same
quality as fixed line telephone service, first to apartment buildings, and then
to single family homes. Also, for "Hikari Phone Business Type" (previously the "
Corporate IP Telephony Service"), which had previously been provided to meet the
IP telephony demands of large corporate customers, the conditions of service
were revised to allow use by corporate customers with fewer phone lines. In
addition, NTT Communications began offering a new service called "PL@TINUM LINE,
" a discount service for domestic calls (including intra-city calls),
international calls and cellular phone calls, in an effort to strengthen its
competitiveness.
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In fiscal 2005, interconnection rates were Y4.37 for three minutes for GC
interconnection (a decrease of 3.1% as compared to fiscal 2003 rate) and Y5.36
for three minutes for ZC interconnection (an increase of 11.9% as compared to
fiscal 2003 rate). In addition, a post-facto adjustment mechanism for access
charges was introduced and took effect during fiscal 2004.
While conventional telephone services are communication services for the general
public, allowing communication with anybody anywhere, dedicated services in the
form of leased circuits are services that directly connect specific points of
contact and are used exclusively by the subscribing customers. While
conventional telephone calls are connected through switchboards, with a new
circuit established each time communication is made, with dedicated services,
because the circuits are always connected, stable, high-quality service is
always provided. In addition, because the fees for dedicated services are fixed
monthly charges, for customers using phones above a certain level each month,
use of dedicated services can result in significant savings.
High-speed digital transmission services are dedicated digital services offering
high-speed, high-volume transmission. These services are capable of transmitting
virtually any type of information, from voice to data and images; particularly
when used for IP/packet communications, these services are far more economical
than conventional leased circuits.
There are two types of conventional leased circuits: an analog type for
telephone and fax transmission, and a digital type for IP/packet communications.
"ATM Mega Link" service uses asynchronous transfer mode (ATM) protocols, as
opposed to the conventional synchronous transfer mode protocols, to meet
communication needs requiring high-speed transmission and a broad coverage area.
ATM is a high-speed switching technology that uses fixed-sized cells to transmit
voice, data and images. These cells are like envelopes that each carry the same
number of bytes of information, "ATM Share Link" service provides computer
communication functions with extremely high flexibility, providing corporate
customers with high-speed ATM networks at a low price.
Against the background of demand for the development of private networks,
including intranets for corporations and local governments, and the rapid spread
of the Internet market, NTT has endeavored to expand its dedicated service
business in order to provide fixed-rate, high-quality access services for
businesses. However, as a result of the rapid shift of customer needs to IP/
packet communication services, such as high-volume, low cost IP and Ethernet
services, combined with the rapid spread of broadband services, the number of
dedicated service subscriptions has continued to decline. As of March 31, 2005,
NTT East had 211 thousand and NTT West had 175 thousand high-speed digital
circuit subscribers, and the respective figures for conventional leased circuit
subscriptions were 240 thousand and 223 thousand. For NTT Communications, as of
March 31, 2005, the number of high-speed digital circuit subscribers and the
number of conventional leased circuit subscribers were 27 thousand and 11
thousand, respectively.
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The following table sets forth the number of subscriptions to dedicated
services.
As of March 31,
2003 2004 2005
(in thousands)
Regional communications business
(NTT East)
Conventional leased circuits 301 267 240
High speed digital circuits 291 249 211
ATM circuits 10 8 6
(NTT West)
Conventional leased circuits 275 247 223
High-speed digital circuits 247 213 175
ATM circuits 7 6 5
Long distance and international communications services
Conventional leased circuits 17 13 11
High-speed digital circuits 42 34 27
ATM circuits 4 2 2
Mobile Voice Related Services
Operating revenues for mobile voice related services in fiscal 2005 accounted
for 29.8% of overall operating revenues. Mobile voice related services include
certain services in the mobile communications business segment such as cellular
and PHS (partially recorded in IP/packet communications services).
The mobile communications market in Japan has continued to expand, though at a
slower pace than in previous fiscal years, and the total number of cellular
subscribers increased by 6.2% in fiscal 2005 to 86,998 thousand as of March 31,
2005.
NTT DoCoMo Group is Japan's leading provider of wireless communications
services, and is one of the world's largest cellular service operators. As of
March 31, 2005, NTT DoCoMo Group had a total of 48,825 thousand cellular
subscribers (including FOMA), an estimated 56.1% share of the domestic market.
The following table sets forth information regarding NTT DoCoMo Group's cellular
and i-mode service subscribers and its estimated market share:
As of March 31,
2003 2004 2005
(in thousands)
Cellular services 44,149 46,328 48,825
Cellular services (mova) 43,819 43,283 37,324
Cellular services (FOMA) 330 3,045 11,501
i-mode services 37,758 41,077 44,021
i-mode services (mova) 37,456 38,080 32,667
i-mode services (FOMA) 303 2,997 11,353
Estimated market share 58.1 % 56.6 % 56.1 %
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The following table sets forth selected information concerning monthly usage per
subscriber, or minutes of usage ("MOU"), and average monthly revenue per unit,
or ARPU, data:
As of March 31,
2004 2005
Total average monthly minutes (MOU) per subscriber (FOMA+mova) 159 151
Aggregate ARPU (FOMA+ mova) Y 7,890 Y 7,200
Voice ARPU (FOMA+ mova) 5,920 5,330
Packet ARPU (FOMA+ mova) 1,970 1,870
i-mode ARPU (FOMA+mova) 1,970 1,870
ARPU generated purely from i-mode (FOMA+mova) 2,240 2,060
--------
(1) MOU (Minutes of Usage): Average communication time per one month per one user.
(2) ARPU (Average monthly revenue per unit)1:
Average monthly revenue per unit, or ARPU, is used to measure average monthly operating revenues attributable to
designated services on a per user basis. ARPU is calculated by dividing various revenue items included in
operating revenues from the designated wireless services which are incurred consistently each month, such as
monthly charges, voice transmission charges and packet transmission charges, by the number of active subscribers
to the relevant services. Accordingly, the calculation of ARPU excludes revenues that are not representative of
monthly average usage such as equipment sales and activation fees. We believe that our ARPU figures calculated in
this way provide useful information regarding the monthly average usage of our subscribers. The revenue items
included in the numerators of ARPU figures are based on U.S. GAAP results of operations.
Aggregate ARPU (FOMA+ mova)=Voice ARPU (FOMA+ mova) + Packet ARPU (FOMA+ mova)
Voice ARPU (FOMA+ mova): Voice ARPU (FOMA+ mova) Related Revenues (monthly charges, voice transmission charges) /
No. of active cellular phone subscribers (FOMA+ mova)
Packet ARPU (FOMA+ mova): (Packet ARPU (FOMA) Related Revenues (monthly charges, packet transmission charges)+
i-mode ARPU (mova) Related Revenues (monthly charges, packet transmission charges))/ No. of active cellular phone
subscribers (FOMA+ mova)
i-mode ARPU (FOMA+mova)2: i-mode ARPU (FOMA+mova) Related Revenues (monthly charges, packet transmission charges)
/ No. of active cellular phone subscribers (FOMA+mova)
ARPU generated purely from i-mode (FOMA+mova)3: i-mode ARPU (FOMA+mova) Related Revenues (monthly charges, packet
transmission charges) / No. of active i-mode subscribers (FOMA+mova)
No. of active subscribers used in ARPU/MOU calculations are as follows:
FY Results: Sum of No. of subscribers* for each month from April to March
* subscribers = (No. of subscribers at the end of previous month + No. of subscribers at the end of current month)
/ 2
Notes:
1. Revenue and number of subscriptions for DoPa single service are not included
in the calculation of ARPU and MOU.
2. i-mode ARPU (FOMA+mova, FOMA and mova) is calculated based on total number of
FOMA+mova, FOMA and mova subscriptions, respectively, regardless of whether or
not i-mode was used.
3. ARPU generated purely from i-mode (FOMA+mova, FOMA and mova) is calculated
based only on the respective i-mode service subscriptions.
The following table sets forth selected information concerning monthly usage per
subscriber, or MOU, and average monthly revenue per unit, or ARPU, data
regarding mova services:
As of March 31,
2003 2004 2005
Total average monthly minutes (MOU) per subscriber (mova) 168 158 138
Aggregate ARPU (mova) Y 8,140 Y 7,830 Y 6,800
Voice ARPU (mova) 6,390 5,890 5,160
i-mode ARPU (mova) 1,750 1,940 1,640
ARPU generated purely from i-mode (mova) 2,140 2,200 1,850
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--------
Aggregate ARPU (mova)=Voice ARPU (mova) + i-mode ARPU (mova)
Voice ARPU (mova): Voice ARPU (mova) Related Revenues (monthly charges, voice
transmission charges) / No. of active cellular phone subscribers (mova)
i-mode ARPU (mova): i-mode ARPU (mova) Related Revenues (monthly charges, packet
transmission charges) / No. of active cellular phone subscribers (mova)
ARPU generated purely from i-mode (mova): i-mode ARPU (mova) Related Revenues
(monthly charges, packet transmission charges) / No. of active i-mode
subscribers (mova)
No. of active subscribers used in ARPU/MOU calculations are as follows:
FY Results: Sum of the number of subscribers* for each month from April to March
* subscribers = (number of subscribers at the end of previous month + number of
subscribers at the end of current month) / 2
The following table sets forth selected information concerning monthly usage per
subscriber, or MOU, and average monthly revenue per unit, or ARPU, data
regarding FOMA services:
As of March 31,
2003 2004 2005
Total average monthly minutes (MOU) per subscriber (FOMA) 109 219 229
Aggregate ARPU (FOMA) Y 7,740 Y 10,280 Y 9,650
Voice ARPU (FOMA) 5,050 6,900 6,380
Packet ARPU (FOMA) 2,690 3,380 3,270
i-mode ARPU (FOMA) 2,120 3,240 3,220
ARPU generated purely from i-mode (FOMA) 2,340 3,330 3,260
--------
Aggregate ARPU (FOMA)=Voice ARPU (FOMA) + Packet ARPU (FOMA)
Voice ARPU (FOMA): Voice ARPU (FOMA) Related Revenues (monthly charges, voice
transmission charges) / No. of active cellular phone subscribers (FOMA)
Packet ARPU (FOMA): Packet ARPU (FOMA) Related Revenues (monthly charges, packet
transmission charges) / No. of active cellular phone subscribers (FOMA)
i-mode ARPU (FOMA): i-mode ARPU (FOMA) Related Revenues (monthly charges, packet
transmission charges) / No. of active cellular phone subscribers (FOMA)
ARPU generated purely from i-mode (FOMA): i-mode ARPU (FOMA) Related Revenues
(monthly charges, packet transmission charges) / No. of active i-mode
subscribers (FOMA)
No. of active subscribers used in ARPU/MOU calculations are as follows:
FY Results: Sum of No. of subscribers* for each month from April to March
* subscribers = (No. of subscribers at the end of previous month + No. of
subscribers at the end of current month) / 2
MOU (FOMA+mova) decreased compared to fiscal 2004 from 159 minutes per month for
fiscal 2004 to 151 minutes for fiscal 2005. Voice ARPU (FOMA+mova) has been
declining over the past few years. The primary reasons for this decline include:
(1) a decline in cellular phone rates and an increase in subscribers using
discount plans and (2) expanded penetration among low-use customers and the use
by many subscribers of i-mode mail instead of voice calls. Until fiscal 2004,
increases in cellular phone subscriptions offset decreases in aggregate ARPU
(FOMA+mova) and decreases in revenue from PHS services and "Quickcast" services.
However, with deeper "Family Discounts" and other measures taken to increase
competitiveness, as well as reductions in various charges with an aim toward
further growth, introduction of fixed-rates for packet transmission, and
migration to FOMA, which offers lower unit charges for packet transmission than
mova, voice ARPU (FOMA+mova) for fiscal 2005 further declined, and packet ARPU
(FOMA+mova) also showed a decline. As a result, aggregate ARPU (FOMA+mova)
decreased 8.7%, from Y7,890 in fiscal 2004 to Y7,200 in fiscal 2005. In line
with this decrease in ARPU, revenue from wireless communication services in
fiscal 2005 declined from prior year levels.
a. Cellular Services
Cellular (mova) Services
NTT DoCoMo Group provides mobile voice related services using a network that
covers virtually all of Japan. Basic mobile voice related services are provided
on a nationwide basis using an 800MHz digital network,
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and services using a 1.5GHz network are also provided for Tokyo, Osaka, Nagoya
and surrounding areas. Both the 800MHz and 1.5GHz networks are second generation
("2G") services.
Some revenues from mova are included in IP/packet communications services
revenues.
Cellular (FOMA) Services
FOMA services are 3G services enabling voice and data transmission using
leading-edge technology that provides high-speed and high-quality services. NTT
DoCoMo Group recognizes that development and expansion of FOMA services is one
of the most critical issues for fiscal 2006. As of the end of March 2005, the
number of FOMA subscriptions had exceeded 11.5 million, and the shift from mova
to FOMA is expected to continue in fiscal 2006.
NTT DoCoMo Group, while working to improve service quality in areas where FOMA
is already available, has continuously expanded the FOMA service area. As a
result of this expansion, FOMA services are available to 99.9% of the total
population, including all of Japan's major cities, as of March 31, 2005.
Some revenues from FOMA are included in IP/packet communications services
revenues.
NTT DoCoMo Group's cellular business revenues are generated primarily from fixed
monthly plan rates, usage rates for outgoing calls, revenues from incoming calls
and rates for optional value-added services and features. Over the past few
years, as the competition for subscribers has increased, usage rates and monthly
rates have been significantly reduced with certain other fees eliminated
entirely. Currently, NTT DoCoMo Group's cellular subscribers pay (i) an
activation fee, (ii) a fixed monthly plan charge based upon the plan chosen,
(iii) usage or per call rates which vary according to distance, duration, day
and time of day and the particular plan chosen, and (iv) additional monthly
service fees for miscellaneous value-added services.
One of NTT DoCoMo Group's basic strategies has been to focus on offering
subscribers usage plans and rates tailored to their usage patterns. As a result,
NTT DoCoMo Group offers a variety of different monthly plans targeted at
different segments of the market. These plans include basic usage plans for
ordinary usage and heavy usage. In addition, most of the plans include a certain
amount of prepaid usage (i.e., free minutes) per month for fixed-rates. Prepaid
amounts are credited against total usage. As customer usage varies from month to
month, prepaid usage amounts may remain unused in months in which usage is low.
NTT DoCoMo has introduced from November 2003 its new "Nikagetsu Kurikoshi"
service which permits carry-over of unused "free-minutes" to the following two
months. Additionally, NTT DoCoMo Group offers various discounts, including
family discounts, long-term subscriber discounts and heavy-volume user
discounts. The prepaid usage amounts will not change even after a discount for
monthly rates has been applied. In fiscal 2005, a number of measures were taken
with the purpose of enhancing competitiveness and promoting further growth.
These included implementing further "Family Discounts," allowing the new "
Nikagetsu Kurikoshi" service to apply to all phones in a subscriber group,
lowering FOMA packet pack fixed-rate charges and introducing fixed-rate charges
for FOMA i-mode service.
b. PHS Services
NTT DoCoMo Group provides PHS services as part of its business. Because PHS base
stations are small and easy to install, PHS services can easily be provided in
buildings and underground passages, but in some cases PHS services cannot be
used in fast-moving automobiles or trains.
The number of PHS subscribers as of March 31, 2004 was 1,592 thousand, but this
number decreased to 1,314 thousand as of March 31, 2005.
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The following table sets forth information regarding NTT DoCoMo Group's PHS
subscribers and its estimated market share:
As of March 31,
2003 2004 2005
PHS subscriptions (in thousands) 1,688 1,592 1,314
Estimated market share 30.9 % 31.0 % 29.4 %
The number of subscriptions declined overall, mainly as a result of a decrease
in subscriptions for voice services, and it is expected that the usage of even
card-type handsets will decline as cellular phone service becomes increasingly
fast and multifunctional. For these reasons, NTT DoCoMo Group decided that it
would stop accepting new subscriptions to PHS services as of the end of April
2005 in order to concentrate its business resources on FOMA services.
IP/Packet Communications Services
Operating revenues from IP/packet communications services accounted for 16.4% of
NTT's total operating revenues for fiscal 2005. These services are included
partly in NTT Group's regional communications business segment, in part in the
long distance and international communications business segment, and in part in
the mobile communications business segment.
Those data transmission services included in the regional communications
business segment include "FLET'S ISDN," which runs on ISDN lines, "FLET'S ADSL,"
which uses ADSL technology, "B FLET'S," based on fiber-optic communications, and
other fixed-rate Internet access services, as well as high added-value services
that run on regional IP networks (relay networks connecting to the Internet and
other networks from access services including "B FLET'S" and "FLET'S ADSL,"
using dedicated prefectural IP networks built by NTT East and NTT West).
The following table sets forth information regarding IP/packet communications
subscriptions of NTT East and NTT West:
As of March 31,
2003 2004 2005
(in thousands)
(NTT East)
B FLET'S 111 426 885
FLET'S ADSL 1,430 2,283 2,833
FLET'S ISDN 651 514 413
(NTT West)
B FLET'S 88 414 779
FLET'S ADSL 1,127 1,806 2,374
FLET'S ISDN 621 466 356
Beginning in December 2000, NTT East and NTT West began full-scale provision of
"FLET'S ADSL." This is a fixed-rate service. NTT East currently charges Y2,700
per month and NTT West charges Y2,900 per month for 12Mbps service (maximum
download rates). In fiscal 2005, the service offering was made more attractive
with the addition of 47 Mbps (maximum download rates) and 5 Mbps-type high-speed
services (maximum upload rates) as well as a variety of new services. As a
result, as of March 31, 2005, the number of subscribers to "FLET'S ADSL" had
grown to 5,208 thousand, an increase of 1,119 thousand from the previous year.
NTT East and NTT West began full-scale provision of "B FLET'S" in August 2001.
In fiscal 2005, the companies began offering on a full scale the "Hikari Phone"
IP telephony service, which offers low price voice
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transmissions with the same quality as fixed line telephone services, and
maximum efforts were made in marketing this service, including the provision of
limited-time discounts and aggressive marketing directed toward apartment
buildings. As a result, as of March 31, 2005, the number of "B FLET'S"
subscribers had risen to 1,665 thousand, an increase of 824 thousand from the
end of the previous year. This is also a fixed-rate service. When multiple users
share a 100Mbps line, NTT East currently charges Y4,100 per month for this
service and NTT West charges Y4,300 per month.
Also in fiscal 2005, with a view toward developing the opportunities for new
demand offered by optical access services, and with the expansion of the sales
of video phone handsets, NTT Group became an active participant in the
realization of video distribution services (to be provided by companies within
as well as outside NTT Group) that will enable customers to view film and music
video content using home TVs. NTT Group also made strides to increase orders
from corporate and local government clients by concentrating its efforts on the
provision of optical access services (e.g., Mega Data Netz, Super Wide LAN,
Metro Ether, Flat Ether) and data centers.
IP/packet communications services handled by the long distance and international
communications business include OCN, IP-VPN and frame relay.
The following table sets forth information regarding IP/packet communications
subscriptions of NTT Communications:
As of March 31,
2003 2004 2005
(in thousands)
Packet exchange services 836 863 885
Frame relay/cell relay services 78 56 39
Facsimile communications network services 1,419 1,435 1,385
OCN 3,504 4,118 4,640
IP-VPN 64 86 93
In 1996, NTT began offering OCN service for Internet connectivity and LAN-to-LAN
connections. OCN, which is based on an IP network separate from the conventional
telephone network, consists of routers and high-speed transmission networks. NTT
also offers fixed-rate plans for this service regardless of distance or
connection time. In fiscal 2005, NTT Communications worked to expand use of IP
services by providing individual customers with an expanded menu for OCN "B
FLET'S" services, including services such as the "OCN Music Store," a music
distribution service, and "OCN Theatre," a video distribution service.
NTT Communications provides high-speed, high-volume frame relay services under
the name "Super Relay FR." Super Relay FR was deployed as an economical
multi-protocol data networking system, but as customers increasingly have
migrated to less expensive IP-based services, the number of subscriptions has
fallen.
NTT Communications provides an IP-VPN service "Arcstar IP-VPN," using "MPLS."
Arcstar IP-VPN, the IP-based communications of choice for corporations, has been
steadily gaining customers, as it actively responds to customers'
ever-increasing needs for broadband and ubiquitous communications. In fiscal
2005, NTT Communications responded to diversifying customer needs by commencing
a service for corporate customers called ".Phone Business V," which allows for
video phone calls between computers and FOMA handsets, and by effectively
combining a variety of VPN services, as well as maintenance and monitoring
services, to provide integrated service packages.
IP/packet communications services handled by the mobile communications business
segment include i-mode, FOMA and Quickcast.
i-mode service is a wireless, packet-based Internet-access service using a
system that transmits information that has been divided into blocks called
packets. Using handsets compatible with NTT DoCoMo Group's i-mode,
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subscribers access the Internet by way of i-mode servers. i-mode also enables a
full range of voice telephony services. The number of i-mode content providers
has risen dramatically. As of March 31, 2005, there were approximately 4,800
providers listed in the i-mode site menu and a total of 85,000 websites
independently offering mobile online services.
Sales of Telecommunications Equipment
Operating revenues from sales of telecommunications equipment accounted for 6.4%
of NTT's total operating revenues for fiscal 2005. This comprises sales by NTT
Group's regional communications business segment and the mobile communications
business segment.
For fixed line services, efforts were focused on commercialization of equipment
for FLET'S services and for VoIP services. In the mobile communications business
segment, efforts were focused on the sale of the "FOMA900i" series, which offers
smaller and lighter handsets and improved battery life and other basic
functions, as well as a full range of new features.
Systems Integration
Operating revenues from systems integration accounted for 8.4% of NTT's total
operating revenues for fiscal 2005. Systems integration is included in the long
distance and international communications business segment and the data
communications business segment.
In fiscal 2005, in the long distance and international communications business
segment, NTT Communications aggressively developed high value added services for
its IP network services to provide customers with total solutions for equipment
and systems, including data center, security services and management services
(monitoring and operating services).
In the data communications business segment, NTT Data continued to promote its
new businesses through alliances with client corporations and joint investments.
It also strived to improve its sales processes and enhance its business system
environment as part of its "initiatives to improve fundamental growth." These
initiatives are comprised of three pillars, namely "marketing strength," "
strengthening systems integration competitiveness" and "aggressively creating
new products and services," which in turn are supported by the principles of "
making efficient use of selling, general and administrative expenses" and "
creating an environment where human talent can flourish."
NTT Data also moved forward with its "initiatives for further growth," to
achieve strong growth by reforming the structure of its businesses focused on
government agencies and financial institutions. Specifically, NTT Data
progressed with initiatives focused on strengthening its marketing and
development capabilities in the corporate field, developing leading-edge
solution services, and developing and refining the foundation for construction
of critical next-generation systems.
Capital Investments
NTT Group's capital investments for fiscal 2005 are shown in the table below:
Years ended March 31,
2005 2005
(in (in
millions of millions
yen) of
dollars)
Regional communications business Y 830,859 $ 7,765
Long distance and international communications business 149,476 1,397
Mobile communications business 861,517 8,051
Data communications business 110,821 1,036
Other services 104,728 979
Total Y 2,057,401 $ 19,228
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The capital investment amount shown above is the amount, determined on an
accrual basis, used to acquire tangible and intangible fixed assets. Shown below
is the differential between the amount of capital investments shown above and
the amount presented on the consolidated cash-flow statement under "expenditures
for acquiring tangible fixed assets" and "expenditures for acquiring intangible
fixed assets":
Years ended March 31,
2005 2005
(in (in
millions of millions
yen) of
dollars)
Expenditure for acquiring tangible fixed assets Y 1,610,991 $ 15,056
Expenditure for acquiring intangible fixed assets 543,668 5,081
Total 2,154,659 20,137
Differential with capital investment amount Y 97,258 $ 909
NTT Group has shifted its capital investment from planned development of
telecommunications infrastructure to a strategy of investing in services
according to demand.
Capital investment for each segment in fiscal 2005 was as follows:
In the regional communications business segment, emphasis was placed on the
expansion of service areas for optical services such as "B FLET'S" and on
aggressively building facilities to meet the demands of an enhanced service
lineup with a view toward the full-scale spread of broadband access services.
For fixed line telephone services which are reaching a mature stage, capital
investments were carried out with a view toward making full use of existing
facilities, achieving greater efficiency and maintaining fixed line telephones.
In the long distance and international communications business segment, NTT
Group actively focused its investments on the expansion of IP network services,
such as OCN, wide-area LAN, IP-VPN and VoIP. NTT Group also responded to
customer needs by providing such new services as CoDen Optical Service and
Group-VPN. In addition, to improve customer service and perform tasks more
efficiently, NTT Group worked to enhance and strengthen internal systems.
In the mobile communications business segment, investment concentrated primarily
on the installation of equipment and construction of facilities, such as base
stations, switchboards and transmission paths, to expand FOMA service areas to
places such as underground train stations and malls and building interiors and
to maintain and improve transmission quality in areas where service is already
available. In addition, NTT DoCoMo has lowered the network costs of packet
communications by such means as building an "IP Router Network" based on optical
transmission networks and separating the voice and packet networks. In i-mode
services, investments were made in the construction of backup facilities to
provide greater convenience and reliability. To further improve the convenience
and reliability of i-mode service, backup and other facilities were constructed.
Additionally, to address trends such as the increase in demand for
telecommunications services, buildings to house communications facilities were
constructed.
In the data communications business segment, NTT Group continued to make capital
investments primarily in facilities relating to systems integration services.
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NTT Group records its physical-plant assets as follows:
As of March 31, 2005
Telecom Land Buildings Other Total
Facilities
(in millions of yen) (in
millions
of
dollars)
Regional communications business Y 4,002,722 Y 446,941 Y 1,294,636 Y 437,726 Y 6,182,025 $ 57,776
Long distance and international 274,018 42,661 149,388 242,660 708,727 6,623
communications business
Mobile communications business 1,650,388 195,260 483,340 1,024,900 3,353,888 31,345
Data communications business 133,494 48,835 106,066 364,072 652,467 6,098
Other services - 103,406 591,936 202,460 897,802 8,391
Total Y 6,060,622 Y 837,103 Y 2,625,366 Y 2,271,818 Y 11,794,909 $ 110,233
NTT Group forecasts Y2 trillion in capital investments for fiscal 2006, with
expansions and enhancements to IP-based services, such as "B FLET'S" and
broadband-related services relating to FOMA. NTT Group will also promote more
efficient use of existing infrastructure for mova and other
non-broadband-related services. The following is a breakdown of major items by
segment:
Years ended March 31,
2006 2006
(in (in
millions of millions
yen) of
dollars)
Total Y 2,050,000 $ 19,159
Breakdown (major items)
Regional communications business(1) Y 780,000 $ 7,290
Long distance and international communications business(2) 160,000 1,496
Mobile communications business(3) 848,000 7,925
Data communications business(4) 105,000 981
--------
(1) Total capital investment amount for NTT East and NTT West
(2) Capital investment amount for NTT Communications
(3) Capital investment amount for NTT DoCoMo
(4) Capital investment amount for NTT DATA
The breakdown for each segment is as follows:
* Regional communications business: Y479.0 billion in voice transmission services, Y89.0 billion in data
transmission services, and Y175.0 billion in leased circuit services.
* Long distance and international communications business: Y55.0 billion in voice transmission services, Y17.0
billion in data transmission services, and Y3.0 billion in leased circuit services.
* Mobile communications business: Y700.0 billion in mobile communications services, Y1.0 billion in PHS
services, and other items.
* Data communications business: Y76.0 billion in data communications plant and equipment (including software),
and other items.
Reorganization
On July 1, 1999, certain of NTT's business activities were transferred to NTT's
wholly owned subsidiaries, NTT East, NTT West and NTT Communications. Under the
Law Concerning Partial Revision to the Nippon
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Telegraph and Telephone Corporation Law promulgated in June 1997, NTT is
required to hold all the shares of NTT East and NTT West. NTT East provides
regional telecommunications and related services in the Hokkaido, Tohoku, Kanto
and Shin-etsu regions of Japan. NTT West provides regional telecommunications
and related services in the Tokai, Hokuriku, Kansai, Chugoku, Shikoku and Kyushu
regions of Japan. NTT Communications provides domestic inter-prefectural
telecommunications, data transmission services such as IP-VPN and OCN, and other
network and ancillary services throughout Japan and commenced offering
international telecommunications services in October 1999. In May 2001, NTT
Communications also began offering intra-city telecommunications services in
Tokyo, Osaka and Nagoya.
After the transfer of certain business activities, NTT continues to exist, but
operates primarily as a holding company. The principal sources of NTT's cash
revenues consist of three categories. NTT receives:
* dividends from its subsidiaries;
* payments for providing management services through contracts with its subsidiaries; and
* payments for its fundamental research and development activities through contracts with each of its
subsidiaries which benefit from the research and development activities.
NTT is directly responsible for formulating and promoting the overall strategy
of NTT Group, setting financial targets and conducting basic research and
development for NTT Group. The presidents of NTT East, NTT West, NTT
Communications, NTT DoCoMo, NTT DATA and NTT meet from time to time to discuss
the strategy of NTT Group. Generally, each of the companies within NTT Group
operates autonomously. However, each of the companies within NTT Group is
required to discuss with, or report to, NTT on certain fundamental business
decisions relating to that company, including amendments to the Articles of
Incorporation, mergers and consolidations, assignments and transfers of
businesses, election and removal of directors and corporate auditors,
appropriation of profits, increases in share capital, investments, including
international investments, loans and guarantees, and establishment of business
plans.
Other Subsidiaries and Affiliated Companies
NTT Group has undertaken several initiatives to improve its management
efficiency and promote cost savings. These include the transfer from NTT to
subsidiaries of certain functions, including telecommunications software and
systems development, facility management and maintenance, equipment sales and
directory assistance. In addition, NTT Group has begun making these services
available not only to NTT Group companies but also to third parties creating the
potential for new revenue sources. NTT expects these subsidiaries, as
independent companies, to take greater responsibility for the profit and loss of
their operations and to have a stronger incentive to boost revenues and cut
costs as compared to when they were divisions of NTT. As of March 31, 2005, NTT
had 542 subsidiaries and affiliated companies.
In May 2002, approximately 100 outsourcing subsidiaries started operations.
These companies perform such functions as the management and marketing of
network resources, installation and maintenance of facilities and equipment, and
administration of payrolls and accounting functions. NTT transferred an
aggregate of approximately 100,000 NTT East and NTT West employees to these
outsourcing companies.
While NTT East and NTT West maintain close relationships with the outsourcing
subsidiaries, they are focusing on providing reliable, high-quality services,
including universal services, and in addition, are working to reduce labor costs
through an arrangement with outsourcing subsidiaries whereby employees,
primarily those 51 years of age and over, retired from NTT East and NTT West and
are then re-employed by the outsourcing companies at wage levels 15% to 30%
lower than before. Each outsourcing subsidiary lowered its wage level to a level
consistent with the standards of the region and type of business, depending on
its respective expertise (maintenance, sales, payrolls, business
administration). This system of regional subsidiaries has the advantage of
giving NTT locations throughout Japan, to enable NTT to respond to the IT needs
of local governments,
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companies and individuals, which have grown in proportion to the spread of
broadband services. These outsourcing subsidiaries are involved in the
development of new business in the following areas:
* Companies in the facilities and equipment field: design, installation and maintenance of user systems for
corporations, local governments and others; support services for information-related equipment (PCs,
routers, etc.);
* Companies in the marketing field: marketing of local portals; collection, processing and editing of local
content; planning and implementation of IT seminars; planning, design and operation of websites; and
* Companies in the administrative field: outsourcing services for payroll settlement, accounting and others.
NTT Group established NTT Resonant Inc. ("NTT Resonant") with a view toward the
early realization of a resonant communications environment. NTT Resonant, which
commenced operations in April 2004, is to serve as the engine for NTT Group's
broadband business, bringing together the development resources of NTT
Laboratories and those of the individual NTT Group companies. NTT Resonant will
be a leading developer of new services, such as high-quality, easy-to-use
interactive video communication services, and broadband portal services offering
new functions with high added-value; it will provide these services to the
public in collaboration with other NTT Group companies. On March 31, 2004, the
businesses of NTT Broadband Inc. and NTT X Inc. were transferred to NTT
Resonant.
A resonant communications environment means a new generation, fiber-optic
communications environment that:
- is broadband-based and interactive;
- allows connections with anybody, anywhere and at any time over a ubiquitous network;
- is secure, dependable, simple and convenient; and
- will enable people and corporations to move forward with their pursuits, in resonance with the surrounding
world.
In September 2003, in response to a request for a Y12.0 billion capital increase
through third party allotment from Internet Initiative Japan Inc. ("IIJ"), both
NTT and NTT Communications purchased shares in IIJ for an aggregate subscription
price of Y9.6 billion and Y0.7 billion, respectively, for the purpose of
enhanced collaboration with IIJ, which has developed advanced Internet-related
technologies, as part of NTT Group's plans to develop and expand its broadband
businesses. As a result of this purchase, NTT Group's ownership in IIJ increased
to 31.6%.
NTT Urban Development Corporation ("NTT Urban Development"), the principal
business activities of which are real estate leasing and sale, along with
management of office buildings, was listed on the First Section of the Tokyo
Stock Exchange on November 4, 2004. NTT sold 83,277 common shares with no par
value of NTT Urban Development, and NTT Urban Development issued 132,000 new
shares in conjunction with this listing. As a result, NTT Group's ownership of
NTT Urban Development's shares declined from 100% to 67.3%.
Competition
The Telecommunications Business Law introduced competition in the
telecommunications service industry at the beginning of fiscal 1986. As a
result, NTT Group faces competition in virtually all aspects of its business,
including the regional communications business, long distance and international
communications business, mobile communications business and data communications
business segments. Regarding risks associated with competition, please see "Item
3-Key Information-Risk Factors-NTT Group's market share and revenues may suffer
from competition."
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In the fixed-line telephone service market, overall competition (including
competition in the basic monthly charges market) has intensified, as the market
size continues to contract, fixed rate, always-on Internet connection services
and IP telephony services expand and other carriers make a full-scale entry into
"chokushu" telephone services using dry copper lines. In response to this
intensified competition, NTT Group has enhanced its competitiveness by reducing
NTT East and NTT West's basic monthly charges, by providing a new service called
"Ichirittsu," a discount call service offering flat rates on intra-prefectural
calls, and by moving forward with full scale provision of the "Hikari Phone"
service. In addition, as less importance is put on raising funds to develop
fixed-line network quickly and other carriers have started providing "chokushu"
telephone services using dry copper lines without charging initial fees, similar
to the telephone subscription rights fees, NTT Group has reduced its telephone
subscription rights fees in order to respond to such changes in the business
environment. As a result of the lowering of these fees, some subscribers may
demand a refund of telephone subscription rights fees paid by them. NTT Group
believes that it has no obligation to provide any refund as the telephone
subscription rights fees were charged on the assumption that no refunds would be
made.
In the corporate market for IP telephony, introduction of IP Centrex services (a
type of IP telephony service for corporate users which provides outsourcing of
server maintenance and operation) has accelerated as more companies start to
deploy IP telephony. In the residential market, IP telephony services provided
by ADSL providers and ISPs using the 050 calling code (the IP telephony code)
have been expanding. In fiscal 2005, optical IP telephony service began for both
the corporate and residential markets that allows use of existing fixed-line
telephone numbers. In addition, voice communication software that uses P2P ("
Peer to Peer") technology to allow any members of the general public to carry
out direct exchange of information was introduced. NTT Group has responded to
such developments by expanding the fiber-optic services offered by NTT East and
NTT West to include the "Hikari Phone Business Type" service (previously the "
Corporate IP Telephony Service"), which provides low-priced voice transmissions
with the same quality as fixed-line telephone service, first to apartment
buildings, and then to single family homes. Also, regarding IP telephony
services for corporations which until now had been offered only to major
corporate customers, NTT Group revised its service conditions to allow use by
corporate customers with fewer telephone lines.
In the fixed line inter-prefectural market, NTT Communications began offering a
new service called "PL@TINUM LINE," a discount service not only for domestic
calls (including intra-city calls) but also for international calls and cellular
calls. Because of this, NTT Communications' share of MYLINE registrations has
been increasing, reaching 60.7% as of the end of March 2005 (an increase of 3.2%
over the previous year). NTT Communications' primary competitors in the
inter-prefectural market include KDDI and Japan Telecom; in addition, "chokushu"
telephone services that use dry copper lines and businesses providing IP
telephony services-both of which are not subject to the MYLINE registration
system-are also competitors in this market.
In the intra-prefectural communications market, market shares for NTT East and
NTT West for MYLINE registration are set forth in the table below. There is
intensive competition in these markets. NTT Group's primary competitors in the
local market are Poweredcom in the Tokyo Metropolitan region, QTNet in Kyushu,
as well as KDDI, Japan Telecom and other companies that entered the intra-city
communications market in May 2001. As with inter-prefectural communications, in
the intra-prefectural communications market NTT East and NTT West may suffer a
reduction in revenues from usage and monthly basic charges as providers of "
chokushu" telephone services using dry copper lines and providers of IP
telephony services, who are not participants in the MYLINE registration system,
increase their subscriber base.
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The following table shows intra-prefectural communications market shares based
on MYLINE registrations for NTT East, NTT West and NTT Communications:
As of March 31,
2004 2005
Intra-city:
NTT East 69.7 % 69.3 %
NTT West 73.9 % 72.0 %
NTT Communications 0.6 % 3.4 %
Intra-prefectural inter-city:
NTT East 62.9 % 62.8 %
NTT West 66.1 % 64.9 %
NTT Communications 1.1 % 4.3 %
As the fixed line telephone market continues to contract, NTT Group is moving
aggressively with the development of its broadband businesses. During fiscal
2005, the number of users in Japan of optical access, ADSL and cable access
reached 18.63 million customers (as of end of December 2004), indicating that
the broadband age has arrived. However, with the increasing diversity and speed
of access lines and lower rates, competition has become increasingly intense,
both in terms of services and prices. NTT Group made every possible effort to
increase sales of ultra high-speed fiber access services that are superior in
interactivity and stability through such measures as reduction in fees and the
provision of the "Hikari Phone" IP telephony service, which provides low-priced
voice transmission with the same quality as fixed telephone lines. Furthermore,
to cultivate new demand for fiber-optic services, NTT Group began marketing IP
video phone handsets to spread their use. NTT Group also was an active
participant in the realization of video distribution services (to be provided by
companies within as well as outside NTT Group) that will enable customers to
view film and music video content from home TVs. However, a variety of
businesses such as other carriers and cable television businesses are entering
the market by offering service packages, including Internet access, IP telephony
and video distribution services ("triple play" packages).
There are three principal wireless services providers in Japan: NTT DoCoMo
Group, KDDI Group (including TU-KA Group) and Vodafone. As of March 31, 2005, on
the basis of number of subscribers, NTT DoCoMo Group had significantly more
subscribers for its wireless services (approximately 49 million subscribers)
than did KDDI Group for its "au" services (approximately 20 million
subscribers). However, in fiscal 2005, KDDI Group had a slightly higher net
increase in subscriptions for its "au" services. As of March 31, 2005, the
estimated market share for the three providers was: 56.1% for NTT DoCoMo Group,
26.6% for KDDI Group (including TU-KA Group) and 17.3% for Vodafone.
The competitors of i-mode are "EzWeb" provided by the KDDI Group and "Vodafone
live!" provided by Vodafone. As with i-mode, KDDI's "EzWeb" and Vodafone's "
Vodafone live!" services allow their users to connect to the Internet, send
color images and utilize navigation programs. NTT Group expects increasing
competition in these areas.
With regard to 3G services, in October 2001, NTT DoCoMo Group commenced W-CDMA
services ahead of all other competitors. As of the end of March 2005, NTT DoCoMo
Group had roughly 11.5 million subscribers to its 3G services. Competition has
become intense in the 3G market. In April 2002, the KDDI Group started a CDMA
2000 1x 3G service in Japan's major cities. As of March 31, 2005, KDDI's 3G had
approximately 17.9 million subscribers. Vodafone provides a service that, like
NTT DoCoMo Group's, employs W-CDMA technology. As of March 31, 2005, Vodafone's
W-CDMA service had approximately 0.9 million subscribers.
In the PHS market, NTT DoCoMo Group's competitors are the Willcom Group and
ASTEL Group. Willcom Group remains the leader among the three PHS operators with
approximately 67.7% of the market share
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of PHS subscribers as of March 31, 2005. NTT DoCoMo Group is second with
approximately 29.4% market share and ASTEL Group has an approximately 2.9%
market share. With the decrease in handset prices and prices of cellular
services, many PHS subscribers are switching to cellular phone services, causing
the PHS market to shrink. A decline in subscriptions for voice services resulted
in an overall decrease in subscribers, and it is expected that the usage of even
card-type handsets will decline as cellular phone service becomes increasingly
fast and multifunctional. For these reasons, NTT DoCoMo Group decided that it
would stop accepting new subscriptions to PHS services as of the end of April
2005 in order to concentrate its business resources on FOMA services.
The software business, which is the focus of NTT DATA's business, is expected to
be a major area of growth in the information services industry, and hardware
vendors and others are now shifting their main focus to this business. It is not
entirely clear how the market will grow, and there is a possibility that the
competition resulting from the entry of other companies into this market may
increase.
Regulations
General
The MIC is the main regulatory body in Japan responsible for the
telecommunications service industry. NTT East, NTT West, NTT Communications and
NTT DoCoMo Group companies are regulated by the Minister under the
Telecommunications Business Law in respect of their respective business
activities. NTT, NTT East and NTT West are also subject to regulation under the
NTT Law.
In 1985, there were significant changes in the legislative and regulatory
framework for telecommunications in Japan. At the same time that NTT was
incorporated as a private company, the Telecommunications Business Law that
opened the Japanese telecommunications services industry to competition came
into effect. Since then, the Japanese Government has taken various deregulation
measures to promote competition in the Japanese telecommunications market. As a
result, NTT Group faces increasing competition in many of its business sectors
from a large number of companies which have entered or are about to enter the
market.
For more information on risks associated with regulations, see "Item 3-Key
Information-Risk Factors-Changes or decisions made regarding telecommunications
regulations may adversely affect NTT Group's business."
The NTT Law
Amendments to the NTT Law were implemented in July 1999, under which NTT was
reorganized as a holding company. The amended NTT Law provides that the purpose
of NTT is (i) to hold all the Shares of NTT East and NTT West, (ii) to ensure
proper and stable provision of telecommunications services by NTT East and NTT
West, and (iii) to conduct research relating to fundamental telecommunications
technologies. The NTT Law also provides that the purposes of NTT East and NTT
West are to operate regional telecommunications businesses. NTT, NTT East and
NTT West are responsible for providing nationwide telephone services and for
promoting research in telecommunications technologies and disseminating the
results of such research. The NTT Law requires the Government to own one-third
or more, and restricts foreign ownership to less than one-third, of the total
number of issued Shares. See "Item 10-Additional Information-Exchange Controls
and Other Limitations Affecting Security Holders-Restrictions on Foreign
Ownership." The NTT Law also requires approval of the Minister with respect to
the appointment or dismissal of directors and corporate auditors of NTT. NTT,
NTT East and NTT West are required to submit business operating plans for each
fiscal year for approval by the Minister prior to the beginning of such fiscal
year. Amendments to the business operating plans also require approval.
Similarly, NTT East and NTT West are also required to obtain the approval of the
Minister to offer regional telecommunications services outside their service
areas. Following the 2001 revision of the NTT Law, they can engage in businesses
utilizing their equipment or technology and employees; however, in such cases,
they must obtain approval of the Minister. In addition, NTT, NTT East and NTT
West need the Minister's approval to: issue new Shares or debentures coupled
with rights to acquire new Shares (with certain exceptions);
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change the articles of incorporation; or merge or dissolve each company.
Approval of the Minister is also required for the disposition of profits of NTT,
and NTT East and NTT West need the Minister's approval to transfer or mortgage
their telecommunications trunk lines or other important telecommunications
facilities. NTT, NTT East and NTT West are each required to submit balance
sheets, profit and loss accounts and business reports to the Minister within
three months after the end of its fiscal year. To carry out his or her
supervisory function, the Minister may, when he or she deems it especially
necessary, issue orders to NTT, NTT East and NTT West, and may require these
companies to submit reports on business activities.
The following table summarizes certain of the major regulatory requirements
applicable under the NTT Law as of the date of this annual report:
NTT NTT East
(Holding Company) NTT West
(Regional Companies)
Obligatory shareholding by the Government One-third or more NTT must own 100%
Issuance of new Shares Minister approval(1)(2) Minister approval
Foreign ownership of Shares Less than one-third NTT must own 100%
Appointment of directors and corporate Minister approval Non-Japanese cannot be appointed
auditors
Change to the articles of incorporation Minister approval(3) Minister approval
Disposition of profits Minister approval(1) Unregulated
Business operating plan Minister approval(1) Minister approval(1)
--------
(1) Subject to consultation with the Minister of Finance.
(2) Subject to certain exceptions.
(3) Subject to consultation with the Minister of Finance only when the total number of Shares will be changed.
The Telecommunications Business Law
The Telecommunications Business Law gives the Minister the authority to regulate
telecommunications companies.
Under the NTT Law, NTT East and NTT West are subject to regulation as
telecommunications businesses responsible for providing nationwide telephone
services. NTT Communications, NTT DoCoMo Group companies, and certain of NTT
Group's other subsidiaries, are also subject to regulation as telecommunications
companies.
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This information is provided by RNS
The company news service from the London Stock Exchange
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