The Japanese Market and KDDI

Highlights Our Management Our Value Our Future Our Governance Financial Information

• The Japanese Market and KDDI • Analysis of the Consolidated Statement of Income • Analysis of the Consolidated Statement of Financial Position • Analysis of Capital Expenditures and Cash Flows • Performance Analysis by Segment • Consolidated Financial Statements • Corporate Overview / Stock Information

Mobile Communications Subscriptions Of this total, the KDDI Group’s MVNO service contracts (UQ mobile, BIGLOBE mobile, J:COM MOBILE) expanded 25.4% As of March 31, 2020, cumulative mobile communications sub- year on year to 3.07 million. scriptions in Japan totaled 184.80 million,*1 up 4.0% year on year. *1 Source: Ofﬁ cial Announcement of Quarterly Data on the Number of Telecommunications Service Subscriptions and Market Shares (FY2019 Q4 The mobile market continues to grow, driven by the spread of (End of March 2020)), Ministry of Internal Affairs and Communications smartphones, further advances in the trend of single users owning *2 The KDDI Group includes KDDI, Okinawa Cellular Telephone Company (au), and UQ Communication. The SoftBank Group includes SoftBank and multiple devices, and increased use in business, including IoT. Y!Mobile. In addition, the ﬁ gure includes subscriptions related to providing Of this total, the KDDI Group’s share expanded 0.7 points services to each company’s MVNO. *3 MVNO: Mobile Virtual Network Operator 2 year on year to 31.7%* (around 58.64 million contracts). *4 Percentage of MVNO contracts = MVNO service contracts ∕ mobile There has also been continued growth in the number of telecommunications contracts Percentage of SIM card-based contracts = SIM card-based contracts ∕ 3 service contracts for MVNO,* up 14.7% from a year earlier to (mobile telecommunications contracts − telecommunications module contracts 24.65 million.*1 The percentage of SIM card-based contracts provided by MNOs (29.85 million contracts)) reached 10%.*4

Mobile Communications Subscriptions*1 MVNO Service Contracts and Percentage of Contracts*4

(Million subs) (%) (Million subs) (%) 200 80 25 24.65 25 177.73 184.80 163.44 170.09 21.50 156.54 20 20 150 60 18.40 15 15.86 15.76 15 45.4 45.8 44.9 44.2 43.5 13.2 100 40 12.69 11.9 12.99 10.6 10.70 29.6 30.7 31.0 31.7 10 9.4 8.49 10 29.3 7.8 50 25.4 20 10.1 24.9 24.9 5.75 8.3 24.5 24.5 5 7.0 5 5.6 3.9 0 0 0 0 2016.3 2017.3 2018.3 2019.3 2020.3 2016.3 2017.3 2018.3 2019.3 2020.3 Mobile communications subscriptions KDDI Group NTT Docomo SoftBank MVNO contracts Percentage of MVNO contracts SIM card-based contracts Percentage of SIM card-based contracts

5G on the Rise

In Japan, 5G service started in March 2020. With the aim of ending March 31, 2022. quickly popularizing 5G services, each company is proactively In addition, to expand base stations into rural regions, we working to upgrade their networks. established 5G JAPAN as a joint venture with SoftBank. By KDDI aims to quickly roll out its 5G services nationwide, sharing mutual base station resources, we will continue accel- expanding its 5G base stations to 10,000 nationwide in the fiscal erating the expansion of base stations into rural areas. year ending March 31, 2021 and up to 50,000 in the fiscal year Page Link P. 26 Our Future 3: KDDI Accelerate 5.0

“au 5G” Rollout Schedule FY2020.3 FY2021.3 FY2022.3

4G 4G LTE

April 2019 2023 Allocation of 5 6 5G frequency 5G starts 5G (NSA* ) + 4G LTE 5G (SA* ) Toward area coverage bands comparable to 4G LTE

March 2020: Service begins Summer 2020 onward: Rollout to major cities in all prefectures March 2022: Increase in 15 prefectures Winter 2020 onward: Use some existing 4G LTE frequencies for 5G 5G base stations to around 50,000 *5 Non-Stand Alone: Networks that March 2021: Increase 5G base stations to around 10,000 combine 4G LTE core networks and 5G Rollout to all prefectures and areas for regional base stations revitalization *6 Stand Alone: Networks formed with 5G technologies, including core networks

46 KDDI CORPORATION | INTEGRATED REPORT 2020 Non-Telecommunications Field Percentage of Cashless Payments for Private Final Consumption Expenditure in Japan

(%) As growth in the telecommunications business alone becomes 30 more difficult, each mobile telecommunications company is 25 24.1 21.3 using its domestic telecommunications business customer 20 20.0 16.9 18.2 15.1 15.3 base to ramp up initiatives aimed at expanding earnings in 15 13.2 14.1 11.9 12.3 non-telecommunications business fields, including in settlement, 10 finance, and commerce, to secure new sources of income. 5 Of these fields, the market for smartphone payments is 0 2008 2009 2010 20112012 2013 2014 2015 2016 2017 2018 expanding significantly. To achieve the 40% cashless payment ratio targeted by the government by 2025, we carried out a Source: KDDI, based on the Payments Japan Association’s Cashless Roadmap 2020 campaign to give points (cashless point provision business, October 2019 to June 2020), which became a tailwind. Breakdown of Consumer Expenditure in Japan and In April 2019, KDDI began smartphone payment services KDDI’s Main Life Design Services under the name “au PAY.” These services are expanding steadily 17.6 as demonstrated by members exceeding 23.50 million and Others 27.2 Food point-accepting locations surpassing 1.90 million as of March 3.4 Clothing 31, 2020. 3.6 Education 3.7 Furniture Page Link P. 24 Our Future 2: “au PAY” Targets Healthcare Transportation 4.8 Communications 11.4 Basic In addition, KDDI will continue providing new experience 4.8 Housing utilities Entertainment value to customers through “the integration of telecommunica- 5.8 9.1 8.6 tions and life design” by developing the life design business with concentric rings entailing commerce, finance, energy, Source: KDDI, based on data from Ministry of Internal Affairs and Communications’ Family entertainment, and education, around a core of the domestic Income and Expenditure Survey for Households with Two or More People, March 2020 telecommunications business and its customer base. Furthermore, we aim to achieve sustainable growth in Japan Number of Fixed-Line Broadband Subscriptions*1 in Japan and overseas by leveraging the knowhow we cultivated in Japan (Million subs) mainly in the consumer business in Myanmar and Mongolia. 40 37.9138.82 39.64 40.24 41.20 0.01 0.01 1.73 1.40 2.51 2.15 3.20 6.83 6.71 6.88 30 6.85 Fixed-Line Telecommunications Business Domain 6.73

31.67 33.09 27.97 29.46 30.61 As of March 31, 2020, the number of fixed-line broadband 10 subscriptions was up 2.4% year on year to 41.20 million.*1 The market for fixed-line broadband service continues to 0 2016.3 2017.3 2018.3 2019.3 2020.3 expand gradually, driven by sales of discount bundled mobile FTTH CATV DSL FWA and fixed-line services and the opening of new markets by new operators using the wholesaling fiber access service of NTT 7 East and NTT West. In addition, we expect the fixed-line Total of Cumulative FTTH Subscriptions* and Number of RGU Households*8 broadband service business to remain firm due in part to (Million subs) increased demand, including for telework, remote learning, and 10 9.93 10.11 9.43 9.69 video streaming, caused by the COVID-19 pandemic. 8.80 7.5 5.54 The number of KDDI’s domestic broadband subscriptions 5.38 5.48 5.05 5.29 (FTTH subscriptions + CATV services for RGU households) 5.0 slightly increased at 10.11 million, up 1.9% year on year. 2.5 4.45 4.57 4.31 By cross-selling FTTH and CATV to the au and the Group’s 3.75 4.14 MVNO services, we expect the KDDI Group customer base to 0 2016.3 2017.3 2018.3 2019.3 2020.3 continue growing stronger and expanding. Cumulative FTTH Subscriptions Number of RGU Households

*7 Cumulative FTTH subscriptions: au HIKARI + Commuf@-hikari + au HIKARI Chura (OCT) + HIKARI J + BIGLOBE HIKARI and others (Personal Services segment basis) *8 RGU: Revenue Generating Units. Each household’s subscription to CATV, high-speed Internet connection, or telephony services represents one RGU.

KDDI CORPORATION | INTEGRATED REPORT 2020 47 Highlights Our Management Our Value Our Future Our Governance Financial Information

Market Conditions for Corporate Customer Businesses

To avoid economic losses due to a shortage of IT personnel Market Size of Japan’s 3rd Platform and the increase in legacy systems, the Ministry of Economy, (Trillions of yen) 25 Trade and Industry released the Guidelines for Promoting Digital 21.8 Transformations in December 2018, and initiatives to promote 20

DX are being advanced across Japan. 16.3 Due to the effects of the COVID-19 pandemic, regardless of 15 size, all companies (small, medium, and large) are expected to 10 further accelerate DX going forward. KDDI will continue helping customers realize DX while working with diverse partner com- 5 Source: KDDI, based on IDC panies and providing next-generation technologies, such as Japan’s Japan 3rd Platform 0 5G, IoT, and AI. and Digital Transformation 2019 2023 Trends (expenditure basis)

Frequency Allocated to Each Telecommunications Company and Construction of Resilient Networks

Due to the proliferation of smartphones and tablets, and the Mobile Communications Traffic in Japan,” Ministry of Internal increased performance of such devices, along with increasingly Affairs and Communications (December 2019)) diverse mobile content services and evolution of telecommuni- Going forward, we will continue working to promote 5G and cations technologies, mobile traffic in Japan continues to grow, expand networks that support telework, online education, with both average monthly traffic and peak traffic rising by remote healthcare, and more, in addition to expanding new about 20% in the most recent year. (Source: “The State of domains, including IoT business.

Allocation of Bandwidth among Japan’s Mobile Telecommunications Operators (As of March 31, 2020)

Excels in high-volume transfers Excels in overall area coverage • Only small areas can be covered by one station • Large areas can be covered by one station • Allocated a broad frequency range, • Encompasses broad area, not easily blocked allowing high-speed transfer

800MHz 4G 3.7GHz 5G Total 700MHz 1.5GHz 1.7GHz 2.1GHz 2.6GHz 3.5GHz 28GHz /900MHz Total /4.5GHz Total bandwidth

FDD-LTE FDD-LTE WiMAX 2 + FDD-LTE FDD-LTE FDD-LTE TDD-LTE NR (TDD) NR (TDD) 3G*1 3G*1 (TDD-LTE)

10MHz 15MHz*1 10MHz 20MHz*2 20MHz*1 100MHz*6 50MHz*4 40MHz 240MHz 400MHz*6 600MHz 840MHz 100MHz 10MHz 15MHz*1 10MHz 20MHz*2 20MHz*1

10MHz 15MHz 15MHz 20MHz*3 20MHz 100MHz*6 NTT DOCOMO 80MHz*5 240MHz 400MHz*6 600MHz 840MHz 100MHz 10MHz 15MHz 15MHz 20MHz*3 20MHz

10MHz 15MHz 10MHz 15MHz 20MHz SoftBank 30MHz 80MHz*5 250MHz 100MHz*6 400MHz*6 500MHz 750MHz 10MHz 15MHz 10MHz 15MHz 20MHz AXGP

20MHz Rakuten Mobile 40MHz 100MHz*6 400MHz*6 500MHz 540MHz 20MHz

*1 au 3G services using 800MHz and 2.1GHz will shut down on March 31, 2022. *5 Of this 80MHz, 40MHz was newly allocated by the Ministry of Internal Affairs and *2 Newly allocated by the Ministry of Internal Affairs and Communications on April 9, 2018 Communications on April 9, 2018. *3 Only in Tokyo, Nagoya, and Osaka *6 Newly allocated by the Ministry of Internal Affairs and Communications on April 10, 2019 *4 Following the shutdown of UQ WiMAX services on March 31, 2020, this service is currently being provided as WiMAX 2+ (TDD-LTE).

48 KDDI CORPORATION | INTEGRATED REPORT 2020