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NTT ANNUAL REPORT 2016 As Your Value Partner Nippon Telegraph and Telephone Corporation ANNUAL REPORT 2016 For the year ended March 31, 2016 Contents Overview Overview Strategy ESG Operation NTT Group in Five Minutes Top Message 16 Corporate Governance 38 Operations in Review NTT Group’s History of Transformation 2 Regional Communications Business 82 Market Environment and Direction of Growth Strategies 4 Medium-Term Value Creation through Long Distance and International Communications Business 84 NTT Group Formation 6 Management Strategy, Social and Environmental Mobile Communications Business 86 Strategy NTT Group Topics 8 “Towards the Next Stage 2.0” 26 Contributions 56 Data Communications Business 88 Performance Highlights 10 Expanding Global Business / Increasing Overseas Profit 28 Social 62 Other Businesses 90 Non-Financial Highlights 14 Enhancing Profitability of Domestic Network Business 34 Environment 74 Expanding B2B2X Businesses 36 Stock Repurchases 37 Innovation ESG Research and Development 92 Financial Section 96 Operation Consolidated Subsidiaries 115 Glossary of Terms 118 Stock Information 121 Forward-Looking Statements Editorial Policy Other Materials Innovation The forward-looking statements and projected figures This is an integrated report that combines information that is important to share- concerning the future performance of NTT and its Shareholders’ Newsletter “NTTis” Financial Results subsidiaries and affiliates contained or referred to in this holders and investors, including not only such information as growth strategies report are based on a series of assumptions, projections, http://www.ntt.co.jp/ir/library_e/nttis/ http://www.ntt.co.jp/ir/library_e/results/ estimates, judgments, and beliefs of the management of and financial results but also environmental (E), social (S), and governance (G) NTT in light of information currently available to it regard- information. The report focuses on explanations of NTT Group’s initiatives Presentation Materials Form 20-F ing the economy, the telecommunications industry in Japan, and other factors. These projections and esti- targeting increases in corporate value over the medium to long term. In editing this http://www.ntt.co.jp/ir/library_e/presentation/ http://www.ntt.co.jp/ir/library_e/sec/ mates may be affected by the future business operations report, reference was made to the International Integrated Reporting Framework of NTT and its subsidiaries and affiliates, the state of the of the International Integrated Reporting Council (IIRC). The report is intended to Shareholders’ Meeting Materials Sustainability Report economy in Japan and abroad, possible fluctuations in the securities markets, the pricing of services, the effects help readers to understand NTT Group, which is accelerating the process of http://www.ntt.co.jp/ir/shares_e/shareholders_meetings.html http://www.ntt.co.jp/csr_e/report.html of competition, the performance of new products, business structure transformation to be a “Value Partner” and working to increase services and new businesses, changes to laws and regulations affecting the telecommunications industry in corporate value by contributing to the realization of a sustainable society. Japan and elsewhere and other changes in circum- stances that could cause actual results to differ materially from the forecasts contained or referred to in this report. ANNUAL REPORT 2016 1 NTT Group in Five Minutes NTT Group’s History of Transformation 1985 NTT Group is implementing strategic initiatives that address Establishment of 1991 changes in the social structure while simultaneously reinforcing Nippon Telegraph and Establishment of Telephone Corporation its position as a leading innovator in information and telecom- 1999 munications technologies. In this way, the Group is continuing Overview Establishment of to drive ahead with a process of self-transformation to achieve sustained increases in its corporate value. 1996 Start of provision of OCN 1988 Strategy Establishment of 1987 Regional 2000 Communications Start of provision of Start of provision of mobile phone service 2015 Business FLET’S ISDN and FLET’S ADSL Start of provision of — Hikari Collaboration Model 2015 2001 Start of 2004 2008 Long Distance Start of provision of 2015 provision of Start of provision of FLET’S TV and International Towards the Acquisition Hikari Denwa B FLET’S of e-shelter Communications 1999 2014 Business Start of provision of i-mode 2008 2009 2010 Acquisitions of Arkadin, Virtela, Start of Acquisition of Acquisition of RagingWire, NextiraOne, and Nexus IS Next Stage 2.0 ESG 2001 provision of Integralis (currently, Dimension Data Start of provision of FOMA Hikari TV NTT Security) 2013 2015 Accelerating Self-Transformation towards 2009 Start of provision Start of provision Mobile Start of provision of 2010 of iPhone of docomo Hikari Communications a “Value Partner” and Embarking on a Android™ OS Start of provision of Business smartphones LTE (Xi) service 2014 Profit Growth Track Start of provision of billing plan Kake-hodai & Pake-aeru Developing New Markets by 2008 Acquisition of itelligence Further Promoting the B2B2X Model 2010 Data Acquisition of Keane Communications Operation (currently, NTT DATA, Inc.) 2014 Acquisition of everis Business SI, etc. 26% SI, etc. 48% IP 26% Transformation I ¥10.7 trillion ¥11.5 trillion Transformation Transitioning from operations IP 33% Voice 48% centered on voice services to in the Revenue Structure operations centered on Voice 19% Innovation Fiscal year ended March 31, 2008 SI / IP services Fiscal year ended March 31, 2016 Medium-Term Management Strategy 2008– Medium-Term Management Strategy 2012– Overseas sales Road to Service Creation Business Group Towards the Next Stage Overseas sales $ 22.0 billion Full-scale roll-out of broadband and ubiquitous service The “Value Partner” that customers continue to select $15.6 billion Business Development Overseas sales Transformation II Overseas operating income $ 2.0 billion Expanding overseas sales in the Global Market Overseas operating income $1.5 billion Fiscal year ended March 31, 2008 $ 0.69 billion More than double Fiscal year ended March 31, 2016 Fiscal year ending March 31, 2018 2 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2016 3 (Target) NTT Group in Five Minutes Market Environment and Direction of Growth Strategies Global ICT Market Domestic Telecommunications Market Overview BACKGROUND OUR DIRECTION BACKGROUND OUR DIRECTION Targeting sustained growth in domestic businesses, With a focus on growth in the global ICT The number of fixed-line telephone subscriptions is declining, Global corporate ICT expenditures are expected to grow at an average we will strengthen profitability in network business, annual rate of 7%, with the market reaching $2,700.0 billion in 2020. market, NTT Group is strengthening global while the number of subscriptions to mobile communications business, centered on cloud services as the continues to expand due in part to demand for second devices. and we will create high-value-added business models. Cloud services are expected to expand rapidly, at an average annual Growth in the number of fixed-line broadband subscriptions is rate of 27%. Group’s new growth pillar. Enhancing Profitability of Domestic （（（（（（sluggish, and there is a need for the creation of new business P.34 Network Business There is a need for the comprehensive provision of ICT services that and high-value-added services by a diverse range of Strategy address the diversifying needs of companies. Expanding Global Business / Increasing Overseas Profit P.28 enterprises. Expanding B2B2X Businesses P.36 Global ICT Expenditures: Trends and Forecasts Average annual Fixed-Line Telephone / Mobile Communications: Number of Subscriptions (Billions of US$) growth rate: (Millions of subscriptions) 3,000 % 180 Mobile Communications (cellular phones + PHS) Forecasts 7 2,717.2 2,556.6 160 million (as of March 31, 2016) 2,405.5 2,245.5 ESG 2,089.3 2,000 1,936.4 120 1,832.1 Fixed-Line Telephone (telephone subscriber lines + ISDN) 1,000 60 25 million (as of March 31, 2016) 0 0 (Fiscal year (Calendar year) 2014 2015 2016 2017 2018 2019 2020 ended 1990/3 1992/3 1994/3 1996/3 1998/3 2000/3 2002/3 2004/3 2006/3 2008/3 2010/3 2012/3 2014/3 2016/3 Operation March 31) Source: IHS Technology Source: Created from data in MIC information and communications statistics database http://www.soumu.go.jp/johotsusintokei/field/tsuushin02.html (Japanese) Average annual Scale of Global Market for Cloud Services: Trends and Forecasts growth rate: Fixed- Line Broadband: Number of Subscriptions (Billions of US$) (Millions of subscriptions) % 27 DSL 250 Software as a Service (SaaS) 242.0 40 Forecasts Average annual Platform as a Service (PaaS) growth rate: CATV 3.20 million (as of March 31, 2016) 200 Cloud as a Service (CaaS) 200.6 +14% Innovation 30 6.73 million (as of March 31, 2016) Infrastructure as a Service (laaS) FTTH 159.3 150 +60% 27.87million (as of March 31, 2016) 122.9 20 100 93.1 +59% 60.4 10 50 +23% 0 0 (Fiscal year (Calendar year) 2014 2015 2016 2017 2018 2019 ended 2001/3 2002/3 2003/3 2004/3 2005/3 2006/3 2007/3 2008/3 2009/3 2010/3 2011/3 2012/3 2013/3 2014/3 2015/3 2016/3 March 31) Source: IHS Technology Sources: Created from data in MIC information and communications statistics database http://www.soumu.go.jp/johotsusintokei/field/tsuushin01.html (Japanese) 4 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2016 5 NTT Group in Five Minutes NTT Group Formation (Fiscal year ended March 31, 2016) 1 Composition by Segments NTT Group* Overview Other Businesses 9.9% Regional Total Assets: Consolidated Operating Revenues: Consolidated Operating Income: Number of Employees: Consolidated Subsidiaries: (¥1,294.5 billion) Communications Business Data Communications 26.0% Business ¥21,035.9 billion ¥11,541.0 billion ¥1,348.1 billion 241,448 907 (¥3,407.9 billion) 12.3% Operating Long Distance and (¥1,616.8 billion) 3 Revenues* International Communications Business Mobile Business Activities: Communications Business 17.2% Regional telecommunications operations in Japan and related businesses, etc.
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