NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 For the year ended March 31, 2014
Value for Shareholders
Value Partner
Value for Society
Printed in Japan http://www.ntt.co.jp/ Steady Increases in Corporate Value Increasing Under the Medium-Term Management Strategy, “Towards the Next Stage,” the key strategic initiatives of the NTT Group are “Global Cloud Services” and “Comprehensively Strengthen Network Service Competitiveness.” NTT Value for has taken steps to achieve its medium-term fi nancial target of EPS growth of 60% or more in comparison with the fi scal year ended March 31, 2012. Shareholders We aim to achieve this target by the fi scal year ending March 31, 2016, and to that end we have taken steps to transform our business model. Now, the NTT Group is ready to take the next step with transformation initiatives targeting steady increases in corporate value.
Value for Society
ANNUAL REPORT 2014 001 Value for Shareholders
Creating Value for Society
Creating Value through Solutions to Social Issues
Contributing to the solution of social issues through ICT, that is the mission of the NTT Group. We will do more than simply take responsibility for the impact of our business activities on the environment and society. We believe that issues for which society expects solutions also con- tain business opportunities, and as a leading company in the fi eld of ICT, which contains unlim- ited potential, we will make full use of our strengths, create new value, and contribute to the realization of a sustainable society.
002 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 003 Contents
006 Performance Highlights 040 Operations in Review 086 Corporate Governance
006 Financial Data 042 NTT Group in Brief 094 Directors and Audit & Supervisory 008 Operational Data 044 Regional Communications Business Board Members 048 Long Distance and International 010 Message from the President Communications Business 097 Financial Section 052 Mobile Communications Business 098 10-Year Financial Summary 012 Interview with the President 056 Data Communications Business 102 Operating and Financial Review 060 Other Businesses and Prospects 062 Research and Development 118 Consolidated Balance Sheets 022 Special Feature 1 Strong Growth in Global Cloud Services 120 Consolidated Statements of Income 064 NTT Group CSR and Consolidated Statements of 024 Full Lineup of Cloud Services from the NTT Group Comprehensive Income 025 Further Bolstering the Scope and Depth of Our Business Operations 064 NTT Group CSR Charter 121 Consolidated Statements of Changes 026 The Unique Strengths of the NTT Group 068 Dialogue with Stakeholders in Equity 028 Overseas Sales Leading Growth in the Group’s Top Line 070 Communication between People and 122 Consolidated Statements of Cash Flows 030 Steps Taken to Strengthen Scope and Depth in the Past Year Their Communities 123 Reference Information 072 Communication between People and 125 Consolidated Subsidiaries the Global Environment 032 Special Feature 2 Contributing to Solutions for Social 076 Safe and Secure Communication 128 Glossary of Terms 080 Team NTT Communication Issues through ICT 131 Stock Information 082 Human Rights Awareness 034 Establishing Business Models to Resolve Social Issues 084 Supply Chain Management 036 Contributing to the Smooth Operation of Emergency Medical Care through ICT
038 Reducing Environmental Impacts through ICT Editorial Policy Annual Report 2014 is an integrated report that combines information that is important to shareholders and investors, such as financial results, operational reviews, and future strategies, with non-financial information, such as environmental (E), social (S), and governance (G) information. The NTT Group will strive to reinforce the competitiveness of Japanese industry and contribute to the solution of social issues by accelerating the transformation of its business models and increasing its corporate value. We hope that it proves useful to a wide range of stakeholders.
Other Information Forward-Looking Statements To help readers broaden their understanding The forward-looking statements and projected fi gures concerning the future performance of Shareholders’ Newsletter “NTTis” 20-F Glossary of Terms NTT and its subsidiaries and affi liates con- http://www.ntt.co.jp/ir/library_e/nttis/ http://www.ntt.co.jp/ir/library_e/sec/ tained or referred to herein are based on a To help readers broaden their understanding of the content of this report, this section provides series of assumptions, projections, estimates, explanations of general IT-related terms and terms related to NTT Group services that are used in judgments, and beliefs of the management of Presentation Materials CSR Report the report and may be difficult to understand. NTT in light of information currently available to http://www.ntt.co.jp/ir/library_e/presentation/ http://www.ntt.co.jp/csr_e/ it regarding the economy, the telecommunica- See page 128 tions industry in Japan, and other factors. Shareholders’ Meeting Materials These projections and estimates may be affected by the future business operations of http://www.ntt.co.jp/ir/shares_e/shareholders_meetings.html/ NTT and its subsidiaries and affi liates, the state To analyze the Company’s results of the economy in Japan and abroad, possible Financial Results fl uctuations in the securities markets, the http://www.ntt.co.jp/ir/library_e/results/ Fact Sheet pricing of services, the effects of competition, the performance of new products, services and Fact sheets that provide an overview of financial and operating data are available on the new businesses, changes to laws and regula- tions affecting the telecommunications industry Company’s website. in Japan and elsewhere and other changes in See website circumstances that could cause actual results to differ materially from the forecasts contained http://www.ntt.co.jp/ir/library_e/ff/ or referred to herein.
004 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 005 Performance Highlights Financial Data Fiscal years ended March 31
Billions of yen 2005/3 2006/3 2007/3 2008/3 2009/3 2010/3 2011/3 2012/3 2013/3 2014/3 1 Operating revenues / Operating income Operating revenues*1 ¥10,805.9 ¥10,741.1 ¥10,760.6 ¥10,680.9 ¥10,416.3 ¥10,181.4 ¥10,305.0 ¥10,507.4 ¥10,700.7 ¥10,925.2 1 Increase in operating revenues: ¥224.5 billion Increase in operating income: ¥11.7 billion Operating expenses 9,594.7 9,550.4 9,653.5 9,376.3 9,306.6 9,063.7 9,090.1 9,284.4 9,498.8 9,711.5 Regional Communications: Decline in voice-related revenues, decline in Operating income 1,211.2 1,190.7 1,107.0 1,304.6 1,109.8 1,117.7 1,214.9 1,223.0 1,202.0 1,213.7 1 expenses, etc. 1 714.5 503.1 481.4 635.2 538.7 492.3 509.6 467.7 521.9 585.5 Decrease in operating revenues: ¥87.5 billion Net income attributable to NTT* Increase in operating income: ¥34.3 billion Performance Highlights Total assets*1 19,064.0 18,820.2 18,291.1 18,518.8 18,796.4 18,939.1 19,665.6 19,389.7 19,549.1 20,284.9 Long Distance and International Communications: Increase in system integration revenues, etc. 1 Shareholders’ equity* 6,740.3 6,734.4 7,120.8 7,410.8 7,298.1 7,788.2 8,020.7 7,882.6 8,231.4 8,511.4 Increase in operating revenues: ¥152.0 billion Increase in operating income: ¥6.2 billion Interest-bearing debt 5,525.8 5,296.2 4,770.8 4,677.2 4,899.3 4,491.7 4,553.5 4,274.0 4,036.0 4,200.0 Mobile Communications: Debt ratio (%)*2 45.0% 44.0% 40.1% 38.7% 40.2% 36.6% 36.2% 35.2% 32.7% 33.0% Decline in voice-related revenues, etc. Decrease in operating revenues: ¥8.9 billion Capital investment*3 2,057.4 2,191.9 2,236.9 2,128.9 2,145.1 1,987.1 1,870.1 1,946.6 1,970.0 1,892.8 2 Decrease in operating income: ¥19.2 billion 318.1 308.4 272.1 271.1 268.2 278.1 268.2 267.9 269.2 249.3 Data Communications: R&D expenses Increase in overseas revenues, infl uence of EBITDA*3 3,539.6 3,442.6 3,340.5 3,607.0 3,369.8 3,240.8 3,282.2 3,219.1 3,207.4 3,192.3 unprofi table projects, etc. Increase in operating revenues: ¥40.3 billion EBITDA margin (%) 32.8% 32.1% 31.0% 33.8% 32.4% 31.8% 31.9% 30.6% 30.0% 29.2% Decrease in operating income: ¥17.9 billion Operating free cash fl ow*3 1,482.2 1,250.7 1,103.7 1,478.1 1,224.8 1,253.7 1,412.1 1,272.5 1,237.5 1,299.5 2 Capital investment Down ¥77.2 billion YOY ROE (%) 10.9% 7.5% 6.9% 8.7% 7.3% 6.5% 6.4% 5.9% 6.5% 7.0% [Factors contributing to increase] Ongoing development of LTE Xi service area, etc. ROCE (%) 5.8% 5.8% 5.5% 6.4% 5.4% 5.4% 5.8% 5.8% 6.1% 6.0% [Factors contributing to decrease] Capex to sales ratio (%)*4 19.0% 20.4% 20.8% 19.9% 20.6% 19.5% 18.1% 18.5% 18.4% 17.3% Reduced investment in FOMA (3G) service Effective utilization of existing facilities, etc. Cash dividends, applicable to earnings for the year (Yen) 60 60 80 90 110 120 120 140 160 170 3 3 Dividends per share Dividend payout ratio (%) 13.0% 17.1% 23.0% 19.5% 27.5% 32.3% 31.2% 38.2% 37.2% 33.4% Further enhancement of shareholder returns Dividends up ¥10 YOY, to ¥170 Net income attributable to NTT per share (Yen)*1*5 462 351 348 461 400 372 385 367 431 509
Operating Revenues*1 Operating Income / Net Income Attributable to NTT*1 Interest-Bearing Debt / Debt Ratio Capital Investment / Capex to Sales Ratio*4
(Billions of yen) (Billions of yen) (Billions of yen) (%) (Billions of yen) (%) 12,000 1,500 6,000 60 2,400 30 10,925.2 1,213.7 1,892.8 8,000 1,000 4,000 4,200.0 45 1,600 20 17.3 585.5 4,000 500 2,000 33.0 30 800 10
0 0 0 0 0 0 Fiscal year Fiscal year Fiscal year Fiscal year ended March 312005/3 2006/3 2007/3 2008/3 2009/3 2010/3 2011/32012/3 2013/3 2014/3ended March 312005/3 2006/3 2007/3 2008/3 2009/3 2010/3 2011/32012/3 2013/3 2014/3 ended March 312005/3 2006/3 2007/3 2008/3 2009/3 2010/3 2011/32012/3 2013/3 2014/3ended March 312005/3 2006/3 2007/3 2008/3 2009/3 2010/3 2011/32012/3 2013/3 2014/3
Operating income Net income attributable to NTT Interest-bearing debt (left scale) Debt ratio (right scale) Capital investment (left scale) Capex to sales ratio (right scale)
EBITDA / EBITDA Margin*3 Operating Free Cash Flow*3 Dividends per Share / Dividend Payout Ratio Ratings
(Billions of yen) (%) (Billions of yen) (Yen) (%) 4,000 50 1,600 180 60 Aa1/AA+ 170 Aa2 Aa2/AA 3,192.3 1,299.5 3,000 40 1,200 Aa3/AA– AA 120 40 A1/A+ 2007/5/21 2,000 30 800 33.4 A2/A AA– AA 29.2 A3/A– 60 20 2006/10/30 2011/9/1 1,000 20 400 Baa1/BBB+ Aa2 Aa1 Aa1 Aa2 Baa2/BBB 0 0 0 0 0 Baa3/BBB– Fiscal year Fiscal year Fiscal year Fiscal year ended March 312005/3 2006/3 2007/3 2008/3 2009/3 2010/3 2011/32012/3 2013/3 2014/3ended March 312005/3 2006/3 2007/3 2008/3 2009/3 2010/3 2011/32012/3 2013/3 2014/3 ended March 312005/3 2006/3 2007/3 2008/3 2009/3 2010/3 2011/32012/3 2013/3 2014/3ended March 312005/3 2006/3 2007/3 2008/3 2009/3 2010/3 2011/32012/3 2013/3 2014/3
EBITDA (left scale) EBITDA margin (right scale) Dividends per share (left scale) Dividend payout ratio (right scale) Moody’s S&P *1 In regard to affi liates that became subject to the application of the equity method in the the fi scal year ended March 31, 2008, and in the fi scal year ended March 31, 2014, the equity method has been applied retroactively to past years, and consequently fi gures for the period from the fi scal year ended March 31, 2005, to the fi scal year ended March 31, 2013, have been retroactively adjusted. *2 Debt ratio = Interest-bearing debt / (Interest-bearing debt + Shareholders’ equity) × 100 *3 Please refer to Reconciliation of Operating free cash fl ows, EBITDA, Capital investment on page 123. • Operating free cash fl ow = (Operating income + Depreciation and loss on disposal of property, plant and equipment) – Capital investment • EBITDA = Operating income + Depreciation and loss on disposal of property, plant and equipment • Capital investment is on an accrual basis for the acquisition of property, plant and equipment. *4 Capex to sales ratio = Capital investment / Operating revenues. Excluding sales and investments related to real estate and solar power generation operations, the Capex to sales ratio was 18.4% in the fi scal year ended March 31, 2012, 18.1% in the fi scal year ended March 31, 2013, and 16.7% in the fi scal year ended March 31, 2014. *5 With the application of the accounting pronouncement issued by the Financial Accounting Standards Board (“FASB”) in December 2007, relating to noncontrolling interests in consolidated fi nancial statements, starting from the fi scal year ended March 31, 2010, the name of this line item was changed. 006 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 007 Performance Highlights
Operational Data End of year / month
Thousands of subscriptions Number of subscriptions*1, etc. 2005/3 2006/3 2007/3 2008/3 2009/3 2010/3 2011/3 2012/3 2013/3 2014/3 1 FLET’S Hikari (FTTH) Telephone subscriber Net addition of 750 thousand subscriptions Fixed-line communications services 2 3 58,788 54,770 50,495 46,034 42,085 38,330 34,884 31,672 28,766 26,366 line* + INS-Net* Promoting uptake of discounts designed to Fixed-line broadband services FLET’S ADSL 5,208 5,682 5,323 4,656 3,992 3,381 2,858 2,322 1,848 1,483 promote long-term usage Effective in preventing churn FLET’S Hikari*4 (FTTH) 1,665 3,419 6,076 8,777 11,134 13,251 15,059 16,564 17,300 18,050 1 Strengthening initiatives targeting small and Hikari Denwa*5 4 867 3,174 5,725 8,011 10,142 12,113 13,900 15,169 16,256 medium-sized companies Performance Highlights Video services Hikari TV ———— 552 1,009 1,413 2,004 2,453 2,823 2 Increasing share of net additions represented by corporate customers FLET’S TV ———— 1202705928611,003 1,161 2 Advancing alliance business dvideo ———— — — —7404,130 4,410 2 Creating new usage scenarios
NOTTV ———— ————6841,610 2 2 Video services Xi (LTE) + FOMA (3G) Expanded range of services provided Mobile communications services 48,825 51,144 52,621 53,388 54,601 56,082 58,010 60,129 61,536 63,105 + mova (2G) Initiatives supporting the trend toward the use of FOMA (3G) 11,501 23,463 35,529 43,949 49,040 53,203 56,746 57,905 49,970 41,140 multiple devices Aiming to increase the number of subscribers Xi (LTE) ———— — — 26 2,225 11,566 21,965 3 3 LTE Xi service ARPU*6 Yen Net addition of 10,399 thousand subscriptions ARPU of fi xed-line Expanded uptake of smartphones NTT East ¥ —¥3,190 ¥3,170 ¥3,110 ¥3,050 ¥2,980 ¥2,930 ¥2,860 ¥2,810 ¥2,760 7 (Telephone subscriber line + INS-Net subscriber line) (Start of sales of iPhone* , etc.) NTT West — 3,050 3,020 2,960 2,900 2,850 2,800 2,760 2,720 2,690 Further expansion of Xi service area Increases in speed of Xi service ARPU of FLET’S Hikari (FTTH) NTT East — 4,650 5,050 5,310 5,580 5,740 5,880 5,900 5,860 5,660 Enhancement of dmarket NTT West — 4,890 5,120 5,460 5,620 5,780 5,890 5,930 5,880 5,830 Mobile aggregate ARPU Mobile aggregate ARPU 7,200 6,910 6,700 6,360 5,710 5,350 5,070 5,140 4,840 4,500 Voice ARPU 5,330 5,030 4,690 4,160 3,330 2,900 2,530 2,200 1,730 1,370 Packet ARPU 1,870 1,880 2,010 2,200 2,380 2,450 2,540 2,590 2,690 2,640 Smart ARPU ———— — — —350420490
8 Fixed-Line Broadband Services Subscriptions Mobile Communications Services CO2 Emissions Volume* Final Disposal Rate for Waste
(Thousands of subscriptions) (Thousands of subscriptions) (Million tons of CO2) (%) 20,000 1,483 80,000 6 3 18,050 4.85 15,000 16,256 60,000 21,965 4 2
10,000 40,000 41,140 1.15 2 1 5,000 20,000
0 0 0 0 End of year / End of year / Fiscal year Fiscal year month 2005/3 2006/3 2007/3 2008/3 2009/3 2010/3 2011/32012/3 2013/3 2014/3month 2005/3 2006/3 2007/3 2008/3 2009/3 2010/3 2011/32012/3 2013/3 2014/3 ended March 31 2009/3 2010/3 2011/3 2012/3 2013/3 2014/3 ended March 31 2009/3 2010/3 2011/3 2012/3 2013/3 2014/3
FLET’S Hikari*4 FLET’S ADSL Hikari Denwa*5 mova (2G) FOMA (3G) Xi (LTE)
ARPU of FLET’S Hikari (FTTH) Mobile Aggregate ARPU Paper Usage Volume*9 Employment
(Yen) (Yen) (Thousands of tons) 6,000 9,000 90 5,660 Female Male Female Male Overseas Japan 5,830 18,000 110,000 810 24,000 73,000 173,000 4,000 6,000 60 60 Number of Number of Number of 490 Employees*10 Managers*10, *11 Employees 2,000 3,000 2,640 30 by Region*12 128,000 24,810 246,000 1,370 0 0 0 Fiscal year Fiscal year Fiscal year ended March 312005/3 2006/3 2007/3 2008/3 2009/3 2010/3 2011/32012/3 2013/3 2014/3ended March 312005/3 2006/3 2007/3 2008/3 2009/3 2010/3 2011/32012/3 2013/3 2014/3 ended March 31 2009/3 2010/3 2011/3 2012/3 2013/3 2014/3
NTT East NTT West Voice ARPU Packet ARPU Smart ARPU *1 As of each fi scal year-end *8 Total for Scope 1 (direct emissions from the use of fuel, etc.) and Scope 2 (indirect emissions accompanying the use of energy, such as electricity) *2 Number of Telephone subscriber line is the total of individual lines and central station lines (Subscriber Telephone Light Plan is included). *9 Amount of paper used for bills, offi ce paper, telegrams, and telephone books *3 Number of INS-Net is the total of INS-Net 64 and INS-Net 1500 (INS-Net 64 Lite Plan is included). In terms of number of channels, transmission rate, and line use rate (base rate), *10 Estimated number of employees as of March 31, 2014, for NTT, directly affi liated companies in Japan, and their affi liated companies in Japan (total of 59 companies) INS-Net 1500 is in all cases roughly 10 times greater than INS-Net 64. For this reason, one INS-Net 1500 subscription is calculated as 10 INS-Net 64 subscriptions. *11 Section manager level or higher *4 Number of FLET’S Hikari subscriptions includes B FLET’S, FLET’S Hikari Next, FLET’S Hikari Light, and FLET’S Hikari WiFi Access provided by NTT East, and B FLET’S, *12 Estimated number of employees as of June 30, 2014, for eight principal companies (NTT, NTT East, NTT West, NTT Communications, NTT DOCOMO, NTT DATA, NTT FACILITIES, FLET’S Hikari Premium, FLET’S Hikari Mytown, FLET’S Hikari Next, FLET’S Hikari Light, and FLET’S Hikari WiFi Access provided by NTT West. and NTT COMWARE) *5 Number of Hikari Denwa subscriptions is calculated by number of channels in thousands. *6 Please see page 123 for the ARPU calculation method and other details. *7 TM and © 2014 Apple Inc. All rights reserved. iPhone is a trademark of Apple Inc. The iPhone trademark is used under license from AiPhone Co., Ltd.
008 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 009 Message from the President
We will strive to increase corporate value by accelerating the transformation of NTT into the “Value Partner” that customers continue to select. Message from the President the President Message from I would like to take this opportunity to express my sincere apprecia- tion for your continued understanding and support of the NTT Group. In November 2012, the NTT Group released its new Medium-Term Management Strategy, “Towards the Next Stage.” Under this strategy, we are taking steps to implement “Global Cloud Services” and to “Comprehensively Strengthen Network Service Competitiveness” as pillars for growth in our profi ts. In May 2014, we announced our next initiative, the Hikari Collaboration Model. This new business model represents the world’s fi rst full-scale fi ber-access services offered through a wholesale framework. In the past, fi ber-access services were offered directly to customers, but we will now open those ser- vices to a wide variety of players. We are already in an era in which telecommunications operators alone cannot provide all services. As the “Value Partner” that custom- ers continue to select, the NTT Group will work in collaboration with a diverse range of players. In this way, we will strive to support the new business development initiatives of partner companies, contribute to the realization of a comfortable, convenient society, and achieve steady increases in corporate value. In closing, I would like to ask our shareholders, investors, and other stakeholders for their ongoing understanding and support of the business activities of the NTT Group in the years ahead.
August 2014
Hiroo Unoura Representative Director and President, Chief Executive Offi cer
010 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 011 Interview with the President
reductions. As of the fi scal year ended March 31, 2014, we had reduced costs by Overseas Sales ¥410.0 billion in comparison with the fi scal year ended March 31, 2012. As a re- (Billions of US$) (%) 18 90 sult, we have increased our reduction target for the fi scal year ending March 31, 2015, to ¥600.0 billion, an increase of ¥200.0 billion. Through the daily efforts of 15.0 12.2 Aiming to achieve steady increases employees throughout the Group, our cost reductions have exceeded our initial 12 12.0 60
expectations, but this is just a transit point. Enhanced effi ciency is a never-ending 43.1% 36.6% in corporate value and to support task, and we will continue to do our utmost to increase effi ciency going forward. 31.8% 6 30 the further development of society, Achieving a reduction of ¥600.0 billion is certainly not an easy objective, but we will steadily take steps to achieve it, including implementing the transformation of our 0 0 business model. Fiscal year ended / the NTT Group has transformed its 2013/3 2014/3 2015/3 ending March 31 (Forecast) We have also made progress with the capex to sales ratio. Through increased Overseas sales (US$ basis) (left scale) business model. effi ciency in capital investment, centered on the regional communications business Proportion of corporate sales represented by overseas sales (right scale) and the mobile communications business, and through growth in operating reve- nues, we were able to reduce this ratio by 1.4 points, to 16.7%, in the fi scal year Cost Reductions in Fixed-Line / ended March 31, 2014. We expect to reduce it further, to 15.9% in the fi scal year Mobile Access Networks* Hiroo Unoura Interview with the President ending March 31, 2015. We are moving closer to the achievement of our goal of (Billions of Yen) Representative Director and President, 0 Chief Executive Offi cer 15.0% in the fi scal year ending March 31, 2016.
In regard to EPS, for which our objective is growth of 60% or more from the –200 –120.0 fi scal year ended March 31, 2012, to the fi scal year ending March 31, 2016, we
were able to achieve an increase of 39% in the fi scal year ended March 31, 2014, –400 through growth in net income and acquisitions of treasury stock. This is our high- –410.0 est priority fi nancial target, and moving forward we will do our utmost to achieve it. –600 –600.0 In these ways, in the year and a half since we announced our growth strategy, –800 the NTT Group has made steady progress toward the achievement of its objectives. Fiscal year ended / 2013/3 2014/3 2015/3 ending March 31 (Forecast) * Compared to the fiscal year ended March 31, 2012 Would you discuss the progress achieved under the Medium-Term Q1 Capital Investment / Capex to Sales* Management Strategy? (Billions of Yen) (%) 2,400 30 Medium-Term Financial Targets 1,907.5 1,795.7 1,750.0 The Path to Profi t Recovery and Growth 1,600 20 18.1% 16.7% 15.9% A The NTT Group is making steady progress toward its objectives. “Global Cloud Services” as the By the fi scal year ending March 31, 2017
cornerstone of NTT’s business Overseas sales $20 billion 800 10 operations Proportion of corporate sales repre- sented by overseas sales 50% or more Comprehensively strengthen In November 2012, we announced our new Medium-Term Management Strategy, By the fi scal year ending March 31, 2015 0 0 network service competitiveness Fiscal year ended / 2013/3 2014/3 2015/3 ending March 31 (Forecast) “Towards the Next Stage.” “Global Cloud Services” is one of the pillars of this strat- At least 400 billion yen in cost Further improvement of facility effi ciency Capital investment (left scale) egy, which also included the objective of increasing overseas sales to $20.0 billion reductions in fixed-line / mobile access Establishment of simple and highly networks (compared with the fiscal year Capex to sales ratio (right scale) * Amounts exclude sales and investments related to real by the fi scal year ending March 31, 2017. Our progress toward the achievement of effi cient business operations tailored ended March 31, 2012) estate and solar power generation operations to future market changes this objective has been in line with our expectations, and in the fi scal year ended Revised to 600 billion yen in cost March 31, 2014, overseas sales increased to $12.2 billion. In addition, the propor- reductions EPS (Earnings per Share) tion of corporate sales represented by overseas sales increased 4.8 points, to (Yen) 600 36.6%. This also represents solid progress toward our objective of 50% or more Cash Control and its Effective Utilization By the fi scal year ending March 31, 2016 536 (+46%*) 509 (+39%*) by the fi scal year ending March 2017. Streamlining capital investment Capex to Sales: 15% Increasing M&A with a focus on cloud- 431 In the fi scal year ending March 31, 2015, we are planning overseas sales of 400 related businesses $15.0 billion, an increase of $2.8 billion year on year. We have recorded favorable Enhancing shareholder returns in the growth in cross-selling, where we receive orders through collaboration among Group medium term 200 members, and we are maximizing the effects of the M&A transactions that we imple- mented in previous years. We are moving steadily toward our $20.0 billion objective. The second pillar of the strategy is “Comprehensively Strengthen Network 0 Fiscal year ended / 2013/3 2014/3 2015/3 EPS growth of 60% or more by the fi scal year ending March 31, 2016 ending March 31 (Forecast) Service Competitiveness.” This applies to the fi ercely competitive fi xed-line and (compared with the fiscal year ended March 31, 2012) * Compared with the fi scal year ended March 31, 2012 mobile environments. We have made especially strong progress with cost (Note) For the fi scal year ended March 31, 2014, EPS is ¥477 (30% increase) when excluding the effect of non-operating income relating to the Otemachi 2-chome area redevelopment project. 012 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 013 Interview with the President
indicates our ability to provide solutions in those fi elds. To that end, we will imple- Q2 What specifi c progress has been made in “Global Cloud Services”? ment M&A transactions that will generate Group synergies. As demonstrated by the receipt of large orders from global corporations, the recognition of the NTT Group in global markets has steadily increased. Accompa- nying the increased recognition and the enhanced Group formation, I believe that Our efforts to “continue to be selected” have generated results, and there will be a growing number of projects for which we can leverage the breadth A we are recording favorable growth in cross-selling activities and of our lineup, and that we will see growth in the results of our cross-selling activi- overseas sales. ties. Moving forward, once we have received an order from a customer, we will deepen our understanding of that customer’s needs and implement upselling initiatives (receiving orders from existing customers for higher level services). In the fi scal year ended March 31, 2014, we Cross-Selling Contract Value recorded dramatic growth in cross-selling, (Millions of US$) with the order volume reaching $700 million. 800 One example is the business process out- 700 sourcing (BPO) and IT outsourcing (ITO) 600 Interview with the President contract that we signed with Yum! Brands, Would you describe the background to the Hikari Collaboration Model? Inc., one of the world’s largest restaurant 400 Q3 companies. The restaurant brands operated 200 by Yum! Brands include KFC and Pizza Hut. 143 85 This order was the result of collaboration be- 62 The era in which telecommunications operators could take the 0 tween NTT DATA and NTT Communications, Fiscal year ended 2011/3 2012/3 2013/3 2014/3 March 31 lead role and provide all services by themselves has already come as well as the use of the cloud migration A advisory tool developed by NTT Innovation to an end. Institute, Inc. (NTT I3). The partnership contract that we signed with the Texas De- partment of Transportation, one of the largest transportation departments in the Since I was appointed president in June 2012, I have consis- United States, was the result of the high evaluation of the comprehensive range of tently emphasized, both inside the Company and outside, services from NTT DATA, Dimension Data, and Solutionary and the total solution my strong determination to transform the NTT Group’s busi- provided by these companies in the fi eld of security. Moving forward, we expect ness model, as indicated by the words “Value Partner.” our cross-selling initiatives to generate more large orders, and I look forward to During the “telephone era,” telecommunications opera- reporting the results in the future. I believe that our achievements in cross-selling tors had the starring role. The operators themselves built the and the growth that we have achieved in overseas sales are the result of our efforts platform for all services, including not only communications to “continue to be selected.” These efforts have included strengthening collabora- infrastructure but also upper layer services, and provided tion among NTT Group companies and substantially expanding our ability to pro- those services to the customer. In other words, facilities and vide solutions. services were provided as a package. However, the times The NTT Group’s global cloud business infrastructure is in the top ranks have changed signifi cantly. Currently, cloud services are a worldwide in terms of scale. This includes data center server room fl oor space in global trend. In the past, customers accepted, as is, the more than 250 locations worldwide and the traffi c volume on the global IP back- services prepared by the service provider, but that market bone that extends around the world. Of course, our strengths include more than structure no longer exists. Now, customers can freely choose just scale. It goes without saying that we have been highly evaluated for reliability service providers and use optimal combinations of services. A good example and quality as well. In particular, the Group includes telecommunications operators is how a variety of companies use voice call applications to provide services over that provide IP backbone on a global scale, and this is a major advantage in the the NTT Group’s networks. Under our former business model, we implemented global, integrated management of cloud service quality. One of our strengths is our upfront investment in the construction of facilities, recovered funds through com- ability to provide total services on the base of this robust infrastructure. These ser- munications charges, and then reinvested those funds in facilities. That business vices include consulting and application services related to the migration from on- model has reached its limit. premises to the cloud; network integration (NI), such as communications device The future will not be an era in which telecommunications operators take the installation and setup; and monitoring, maintenance, and ITO. Further, the NTT lead role and provide all services by themselves. I believe that NTT Group, as one Group includes companies with positions of leadership in each of its fi elds of busi- company among many, must work to support the business development initiatives ness. We are proud to be one of the few groups in the world that can provide this of its partner companies. Customers have a wide range of choices, and for the full lineup of high-quality services. The Group’s ability to provide one-stop solutions NTT Group to continue to be selected as a trustworthy partner in this environment to the wide-ranging needs of customers that are migrating to the cloud is one of its we will need to transform our approach and our business model. These concepts greatest strengths. Moving forward, we will work to further reinforce our footprint, are incorporated in the words “Value Partner,” and they are given concrete shape which indicates the scope of our business fi elds, as well as our depth, which by the Hikari Collaboration Model, which was announced in May 2014.
014 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 015 Interview with the President
Previously, fi ber-access services were considered to offer a high level of value Q4 How will the role of the NTT Group be changed by the Hikari Collaboration Model? for their provision of a high-speed, stable Internet environment. However, the roll- out of LTE has made it possible to enjoy high-speed, large-volume communica- tions in a mobile environment, and in this setting there is no expectation of substantial growth in usage without the addition of a variety of added value, such as services leveraging fi xed-mobile convergence. If NTT East and NTT West are We will foster innovation through collaboration A providing services directly to customers, and competing for share only within the with a variety of companies. telecommunications industry, then there is a limit to how much of that added value we can create. To break free from this situation, we decided to discard our insistence on do- We have leased access line functions to operators in accor- ing everything in-house and to open up fi ber-access services to a wide range of dance with connection rules determined by law. In contrast, industry players. We decided to introduce the Hikari Collaboration Model. We will under the Hikari Collaboration Model, fi ber-access services, consider fi ber-access services to be “tools” rather than “products,” and we will including the core network, will be provided to partner com- devote ourselves to being a “Value Partner” that supports companies in a wide panies on a wholesale basis. It will be a challenge to imple- range of industries as they implement business initiatives as main players. I believe Interview with the President ment this model, which is the world’s fi rst fi ber-access that this approach will ultimately lead to growth in the use of fi ber access. services wholesale model that covers an entire country. As we provide support, we will also contribute to the business development Through this model, the previous B2C model of NTT East initiatives of partner companies by providing added value that leverages the dis- and NTT West will be transitioned to a B2B2C model. tinctive strengths of the NTT Group. In this way, we will be evaluated as a “Value The Hikari Collaboration Model is something that I have Partner,” and will maintain a presence that is indispensable for our partner compa- thought about since I became president. It will enable us to nies. For example, in R&D we will continue to enhance our broadband platform create new businesses through collaboration with a wide technologies, which are in the highest level worldwide, and give shape to the range of business partners, leading to steady increases in emerging needs of our partner companies. Under the Hikari Collaboration Model, corporate value for the NTT Group and further development we will encourage partner companies to make aggressive use of our research re- for society. The choice of Tokyo as host of the 2020 Olympic and Paralympic sults, and will expand business opportunities by fostering innovation. Games provided an additional incentive for my decision to announce this model. The Hikari Collaboration Model is a major transformation of our business model. The NTT Group has led the world in the installation of a fi ber-access network, The question of whether or not the NTT Group’s value to society will continue to be and the Group’s network extends throughout Japan. In contrast to the availability recognized in the years ahead depends on the extent to which we foster innovation of fi ber access, the actual use of that fi ber access is not suffi ciently advanced. through collaboration with a variety of partner companies. In preparation for 2020, telecommunications operators have the responsibility— and the opportunity—to resolve this issue and foster further advances in ICT. Which raises the following questions. What can the NTT Group do? And what should we do? My answer to those questions can be found in the Hikari Collaboration Model. Hikari Collaboration Model
Current Model Hikari Collaboration Model The World’s First Wholesaling of Fiber-Access Services
Wholesaling fi ber-access services by NTT East and NTT West A variety of market players provide The world’s fi rst full-scale wholesaling of fi ber-access services their own integrated services to NTT East and NTT West directly end users by combining their Fair provision to diverse market players in a wide variety of industries provide fi ber-access services strengths with the wholesale fi ber- to end users Able to provide the service within the current legislation access services of NTT East and (while continuing to provide facility access under the current intercon- NTT West nection regulations) B2C NTT East and NTT West support a variety of market players to create B2B2C new services as a “Value Partner (Value Added Enabler)”
Hikari* Collaboration Model
* Hikari: Optical, fi ber access
016 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 017 Interview with the President
In addition, partner companies will develop value-added Would you discuss, in specifi c terms, the effect that the Hikari Collaboration Model Q5 services utilizing fi ber-access services, and the size of the will have on the NTT Group and on society as a whole? fi ber-access services market will be expanded through the proposal of these services to customers that the NTT Group has not previously been able to reach. This will grow the I am confi dent that the Hikari Collaboration Model will lead to steady business of the NTT Group and, at the same time, increase A increases in the corporate value of the NTT Group and will strengthen the effi ciency of our optical-fi ber network. In addition, NTT the overall competitiveness of Japanese industry. East and NTT West will transition from the previous B2C model to a B2B2C model. As a result, we expect to control sales-related expenses. Furthermore, we also anticipate The implementation of this model will have advantages not only for telecommuni- new sources of revenues, such as support for call center cations operators but also for a wide range of industry players that do not own operation and maintenance service functions for partner telecommunications facilities. These companies will be able to draw on their companies. I am confi dent that, in these ways, the Hikari strengths to create diverse services that utilize fi ber-access services under their Collaboration Model will lead to steady growth in the corpo- own brand name. Telecommunications operators will likely offer bundles of mobile rate value of the NTT Group. telecommunications and ISP services that offer added value not only in price but Interview with the President also in service. Real businesses, meanwhile, will likely offer new services that com- bine their own real businesses with telecommunications. I believe that this will re- sult in further advances in cross-sectional collaboration among industries. In addition, it will be possible to offer a diverse array of services on a one-stop basis, thereby substantially enhancing convenience for customers. As 2020 approaches, the Hikari Collaboration Model will result in the provision of new services that were Q6 Please discuss the positioning of CSR in the NTT Group’s business operations. not previously possible. It will also increase convenience through multilayered ser- vices that incorporate fi ber-access services. We expect that this will reinforce the competitiveness of Japanese industry. A For the NTT Group, business and CSR are inseparable.
As we advance Groupwide CSR activities, we are guided by the NTT Group CSR Creation of Value through Collaboration Charter. In regard to global environmental problems, we act in accordance with the Health Care Group’s environmental vision: The Green Vision 2020. In line with three themes— Environment Distribution Creating a low carbon society, Implementing closed loop recycling, and conserving
Transportation Manufacturing biodiversity—we are working to reduce the burden on the global environment. In Innovation by Service Collaboration addition, the NTT Group CSR Priority Activities were formulated to increase the level of Groupwide CSR initiatives. To measure Groupwide activities, we have Sports / completed the establishment of quantitative indicators for all eight of the priority Tourism Entertainment activities and have commenced the use of those indicators. Collaboration The basis of these CSR activities is the resolution of social issues through ICT. I believe that opportunities for growth will be found in the problems for which Creation of New Value Creation Companies in other society expects a solution. In other words, business and CSR cannot be sepa- Carriers MVNOs, ISPs industries rated, and neither can our Medium-Term Management Strategy and our social responsibilities. On the other hand, if we cannot meet the expectations of society, then our growth will slow and, what is more, our corporate value could Collaboration be adversely affected. In recent years, our employees have been involved in serious compliance violations. In response, the NTT Group is strengthening compliance on a Groupwide basis. Moreover, as a global company we are also (NTT East, NTT West, R&D) working actively in the area of respect for human rights, for which there are grow- Value Partner ing demands around the world. In June 2014, we formulated the NTT Group Human Rights Charter, and are working to enhance awareness of this charter and to ensure that it is followed.
018 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 019 Interview with the President
For example, smart communities, which are next-generation Would you discuss, in specifi c terms, how the NTT Group is implementing Q7 social infrastructure, are expected to signifi cantly increase initiatives that combine CSR and growth strategies? the use of ICT. Team NTT Communication is a CSR Goal that shines a spotlight on human resources. In Japan, where the popula- In accordance with four goals, we are implementing initiatives that tion is aging, a major issue for companies is how to secure A the human resources who will support the future. To foster combine CSR and growth strategies. innovation and reinforce corporate strength, diversity man- agement has been positioned as an important management strategy at the NTT Group. In regard to the employment of The four CSR Goals are Communication between People and Their Communities, women and support for their career development, we have Communication between People and the Global Environment, Safe and Secure set the specifi c objective of raising the percentage of fe- Communication, and Team NTT Communication. Based on these goals, we are male managers from the current level of 3.3% to 6% by the implementing initiatives that combine growth strategies and CSR. One example of fi scal year ending March 31, 2021. In addition, under the an initiative addressing the CSR Goal of Communication between People and Their Medium-Term Management Strategy, developing and utilizing global human re- Interview with the President Communities is the new emergency medical information system. This system is a sources is an important issue in expanding our global business foundation. Mov- cloud-based solution to the problem of emergency patients being unable to fi nd a ing forward, we will recruit people who can be active on the global stage, without hospital that can treat them, which has become a major social problem in Japan regard to nationality. (Please refer to pages 36–37). In today’s Internet society, security is recognized as a major social problem. For NTT, defenses against cyber attacks are an ongoing obligation that addresses the CSR Goal of Safe and Secure Communication. At the same time, our ability to provide those defenses will be a major differentiating factor in the advancement of our strategies. The provision of ICT services that are resistant to disasters is our Finally, what aspects of the NTT Group’s operations should stakeholders greatest duty. In addition, a solid reputation for network reliability will become the Q8 foundation for the stable growth of the NTT Group. focus on going forward? Through the provision of value that leverages the unique capabilities of the NTT Group, we can also discover diverse business opportunities in addressing the CSR Goal of Communication between People and the Global Environment. Please keep a watch on growth in cloud services and the A transformation of our business model.
The NTT Group CSR Charter As I mentioned, I would like stakeholders to focus on the extent to which the NTT Group can leverage its strengths and record growth in the cloud service market, which is a future growth fi eld. In addition, I would also like people to focus on the transformation of our business model through the and Safe and secure Creation of a safe, Team NTT Hikari Collaboration Model communication secure and prosperous communication on each of the other initiatives that we implement. Specifi cally, a key point will be society through the extent to which these activities contribute to increasing the corporate value of communications that the NTT Group as well as to boosting the overall competitiveness of Japanese serve people, communities, and industry and to resolving social issues. the global environment Going forward, we will continue to do our utmost to advance initiatives in ac- Communication Communication cordance with the Medium-Term Management Strategy, and I would like to ask all between people between people of our stakeholders for their support. and the global and their communities environment
020 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 021 Special Feature 1
Strong Growth in Global Cloud Services
In its Medium-Term Management Strategy, “Towards the Next Stage,” the NTT Group announced the concept of working to become the Value Partner that customers continue to select. The strategy also positioned Global Cloud Applications / Solution Services Services as the future growth driver of the NTT Group and included the objective of $20.0 billion in overseas sales by the fi scal year ending March 31, 2017. This special feature explains the steps taken by the NTT Group to strengthen its Global Cloud Services and the progress of those initiatives. Special Feature 1 Special Feature Managed ICT Services
Feature: Contents
Full Lineup of Cloud Services from the NTT Group 024
Further Bolstering the Scope and Depth of Our Business Operations 025
The Unique Strengths of the NTT Group 026
Overseas Sales Leading Growth Data Centers / Networks in the Group’s Top Line 028
Steps Taken to Strengthen Scope and Depth in the Past Year 030
022 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 023 Special Feature 1: Strong Growth in Global Cloud Services Value Proposition Initiatives
InitiativesFull Lineup of Cloud Services from the NTT Group Further Bolstering the Scope and Depth of Our Business Operations
Cloud services comprise applications / solution services, managed ICT services, and data centers / networks. The To provide higher quality cloud services to customers, the NTT Group is working to further reinforce the footprint of its NTT Group provides a full lineup of services that meet customer needs at each of these layers, from advisory services operations, which indicates the scope of its business fi elds, as well as the depth of its operations, which indicates its for the customer’s migration to the cloud to management services after the migration is completed. ability to provide solutions in those fi elds. To that end, the Group is implementing M&A transactions.
Global Cloud Business Promotion System Overview and Purpose of Major M&A Transactions in the Past Year
Cloud Services
The acquisition of the everis Group has expanded our footprint. Through this transaction, we Advisory Migration Operational Management Services Services Services Services acquired a robust business foundation in Spain and major countries in Central and South January 2014 America, and we strengthened our comprehensive solutions provision capability from upstream Acquisition to downstream. The everis Group has near-shore and offshore development bases, and we still strive to use those assets to increase our price competitiveness and service quality. Applications / Solution Services * In North America, we brought Optimal Solutions Integration, which has advanced skills and December 2013 abundant training in the SAP fi eld, where we expect to see strong demand growth, into the Acquisition NTT Group. Going forward, we will expand our fi elds of business to include the provision of * In May 2014, the consolidation of Optimal Solutions SAP services to the public sector, retail, distribution, and other entities. 1 Special Feature Integration into the NTT DATA brand was completed. Managed ICT Services Corporate Customers Data Centers / In Europe, we acquired NextiraOne, which has technological strengths in unifi ed communication Networks February 2014 and collaboration services. NextiraOne’s technologies will strengthen Dimension Data’s ICT Acquisition service provision capabilities, leading to a larger market share in Europe for the NTT Group.
In the United States, we acquired Nexus IS, which provides advanced ICT services. As a result R&D of this acquisition, Dimension Data’s presence on the west coast and southeastern regions of April 2014 the United States have been substantially enhanced, and the scale of our operations in the Acquisition United States as a whole has been increased by about 40%. In addition, it will now be possible Applications / Solution Services to provide customers with a wider range of more specialized services. Approximately 42,000 employees in 175 cities in 41 overseas countries provide a wide range of services to the customers of the NTT Group. These include system Integration (SI) services, such as corporate ICT system planning, design, development, construction, installation, maintenance, and operation; outsourcing services, such as business process outsourcing (BPO); and application services using SAP, Oracle, and other applications. Through the acquisition of RagingWire, a U.S. data center operator, NTT Communications’ data center fl oor space in the United States has doubled from about 20,000 square meters to about Managed ICT Services 43,000 square meters. Moreover, RagingWire has know-how related to effi cient data center facility The NTT Group provides a wide range of ICT services in an end-to-end manner. These range from network integration (NI)—such as design for January 2014 design and operation, and moving forward we will apply that know-how to other data centers. network construction and the installation and set-up of communications equipment—to IT outsourcing (ITO), including monitoring, mainte- Acquisition nance, and operation of networks after they are put into operation. We also acquired Virtela Technology Services, which has strengths in network virtualization technologies. Through this acquisition, the area in which NTT Communications provides net- Data Centers / Networks work services to corporate customers has expanded from 160 countries and regions to 196 Data centers are an extremely important operational platform for the provision of cloud services to corporate customers, and the NTT Group January 2014 Acquisition countries and regions. Moving forward, we will draw on the advanced, highly effi cient opera- is in the top ranks worldwide in terms of server room fl oor space. We operate more than 250 data centers around the world, and we provide tional know-how of Virtela Technology Services to further enhance the quality and competi- colocation services, which entail the provision of data center space, as well as hosting services, under which we provide sets of equipment tiveness of our global network services. and space. In addition, the NTT Group’s global base of corporate customers extends to more than 10,000 companies in 196 countries and regions around the world. As a world-class global IP backbone operator, the Group provides IP-VPN and other data communications networks as well Approach to M&A Transactions in the Future as global network services, such as Internet access. We will implement M&A transactions that expand our footprint of our business fi elds, strengthen our ability to provide services, and enable us to leverage synergies on a Groupwide basis in building new business models. At NTT Laboratories, we are enhancing high-value-added technologies, such as cloud migration support technologies and security man- agement technologies. In this way, we are working to differentiate our cloud business services.
024 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 025 Special Feature 1: Strong Growth in Global Cloud Services
NTT’s Cloud Technologies Advanced by R&D Advantages Cloud Migration Support Technologies In migrating from an on-premises environment to the cloud, In response, we provide services that address those corporate customers have a variety of concerns, such as concerns. These services utilize technologies to analyze the The Unique Strengths of the NTT Group to what kind of cloud they should implement the migration, customer application profi le (current), identify those applica- what the procedures will be, and if they will be able to oper- tions that can be migrated to cloud services, and support Total solutions that leverage the distinctive strengths of a telecommunications carrier ate in a safe and secure manner. the formulation of a migration plan, as well as application migration automation technologies.
Application Migration Automation On-premise Technologies The Distinctive Strengths of Carrier Cloud (customer site) Automates a series of migration procedures The NTT Group includes telecommunications carriers, and Hong Kong Financial Data Center this is a major strength in comparison with many other cloud Select migration mode Automate migration procedures Monitor the systems Select a cloud appropriate for the Automate installation of concerned after migration vendors. The unique advantages of carrier cloud include application concerned software stack, etc. seamless connections to the cloud using optical fi ber, which is an existing asset for carriers, and integrated control of Migration to private, hybrid, and public clouds service performance and stability. The NTT Group’s data center in Hong Kong, which is oper- ated by NTT Communications, succeeded in reducing the time required for a signal to travel between Tokyo and Hong Kong by MYSql Customer DB MYSql Offerings DB Apache Web Server 0.001 second through the use of a fi ber-optic submarine cable Java Modules pHp Modules Linux linking Japan and Hong Kong. This achievement has been high- High reliability at Tier IV level, the highest quality level in Special Feature 1 Special Feature ly evaluated by customers in the fi nancial industry who conduct the world ultra-high-speed transactions. To meet future growth in demand, The data center has an ideal location near the Hong Kong in 2015 we plan to further expand the fl oor space of this data stock exchange data center, high security, and a low World-Class Security Services latency network. center, which is already one of the largest in Hong Kong. As the uptake of cloud services progresses, the threat of as targeted attacks, were diffi cult to defend against. The SIEM cyber attacks is increasing. Through its advanced security platform, however, can rapidly detect signs of these attacks technologies, the NTT Group protects the valuable data that and defensive measures can be implemented. Total Solutions Provided through Leading Companies at Each Layer customers have entrusted to the cloud. Going forward, we will enhance our detection logic, The NTT Group’s Security Information & Event Manage- which is not available from other companies, and incorporate At each layer—applications / solution services, managed ICT Key Aspects of Global Cloud Services ment (SIEM) platform utilizes world-leading log analysis tech- into our services differentiated technologies and know-how services, and data centers / networks—industry analysts nologies and malware countermeasure technologies developed that can respond to cyber attacks, which continue to be- Leader’s Quadrant have given the NTT Group high evaluations that place the Gartner’s Magic Quadrant for Communications Dimension Data independently by NTT Laboratories. Previously, cyber attacks come more sophisticated. In this way, we will maintain our Group in the top ranks worldwide. The NTT Group includes Outsourcing and Professional Services* and incidents continuing over an extended period of time, such world-class security services. leading companies in each of these fi elds, and those compa- Leader’s Quadrant Gartner’s Magic Quadrant for Global Network nies mutually leverage their service provision capabilities and The SIEM platform was developed by integrating the know-how of NTT Communications and NTT Com Security Service Providers** customer bases to generate synergies. In this way, the Group NTT Communications and the advanced technologies of NTT Laboratories. is further enhancing its ability to provide total solutions. Hybrid World-Class Global IP Backbone (Traffi c volume (Source: Renesys Corporation)) cloud services, which combine on-premises private clouds SIEM platform Analyst report World-Class Data Centers and public clouds, are a good example. The system linkage Prediction / detection Threat detection Infl uence analysis Severity judgment (Server-room fl oor space: 0.425 million square NTT Group Refl ection of Automatic notifi cation between the private and public clouds requires advanced meters (as of the end of March 2014)) know-how provision capabilities at each layer as well as cooperation Analyst Customization / tuning Salesforce.com’s Platinum NTT Centerstance Increasing detection precision Improving misdetection rate among the service providers. Consequently, our ability to draw Security countermeasure product logs Cloud Alliance Partner NTT DATA on our full lineup, from applications to infrastructure, in the Correlation analysis
Server and other logs Customer portal provision of total solutions is a major strength. Using proprietary know-how to detect new threats Customer Patch analysis engine Network device logs NTT Laboratories’ * Source: Gartner, “Magic Quadrant for Communications Outsourcing and Professional Services” Eric Goodness, et al. 21 October 2013 Data by customer analysis engine ** Source: Gartner, “Magic Quadrant for Global Network Service Providers” Neil Rickard, Robert F. Mason. 20 March 2014 Database by region Gartner does not endorse any vendor, product, or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Real-time analysis engine Customer system data Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect NTT Laboratories’ to this research, including any warranties of merchantability or fitness for a particular purpose. proprietary database Collection of events and logs The Gartner Report(s) described herein, (the “Gartner Report(s)”) represent(s) data, research opinion, or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. (“Gartner”), and are not NTT Communications’ proprietary blacklist representations of fact. Each Gartner Report speaks as of its original publication date (and not as of the date of this Prospectus), and the opinions expressed in the Gartner Report(s) are subject to change without notice.
026 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 027 Special Feature 1: Strong Growth in Global Cloud Services
Example of Cross-Selling Track Record 1 Yum! Brands, Inc.
Overseas Sales Leading Growth in the Group’s Top Line Customer One of the world’s largest restaurant companies, with brands including KFC and Pizza Hut Migration of common information systems to the cloud Contract Summary Business process outsourcing (BPO), Provision of outsourcing services such as accounting, general affairs, and personnel Information technology outsourcing (ITO)
In July 2013, the NTT Group received an order for IT out- Growth in Cross-Selling Order Volume sourcing from Yum! Brands, one of the world’s largest res- taurant companies. The restaurant brands operated by Yum! Advisory Services Growth in Cross-Selling $700 Brands include KFC and Pizza Hut. Yum! Brands, which (Orders received through million (Cross-Selling Contract Value) conducts global business operations, had been searching Group collaboration) for a partner that offered high levels of technical capabilities and service quality. This partner needed to be able to help Assessment of cloud migration with By advancing Group collaboration and further strengthening Yum! Brands to reduce costs through the provision of tools developed independently our business system through M&A transactions, we have optimal services with fl exible accommodation of changes in needs. We proposed a total solution encompassing (1) mi- substantially enhanced the Group’s ability to provide total gration of the client’s ERP system, which had been operated Yum! Brands, Inc. solutions, from IT infrastructure to applications. We are re- on their own servers, to a cloud environment utilizing an NTT cording growth in cross-selling orders leveraging cloud and Communications’ data center, (2) outsourcing of indirect Data Center Applications / Managed ICT IT outsourcing (ITO) services as triggers. Consequently, our operations, including accounting, general affairs, and per- sonnel (BPO), and information technology outsourcing (ITO), cross-selling contract value has increased substantially, ris- $143 with the outsourced operations handled by NTT DATA, and million Customization and implementation ing from $143 million in the previous year to $700 million in (3) advisory services for an effective, effi cient migration to the Provision of data center
of Oracle ERP application 1 Special Feature the fi scal year ended March 31, 2014. $85 cloud using a proprietary tool developed by NTT I3. The NTT million Provision of private $62 Group received the order as a result of the high evaluation of The expansion of our business in the global market million cloud service and the receipt of large orders has further increased rec- its comprehensive capabilities. ognition of the NTT Group around the world and gener- ated a favorable cycle leading to new transactions with Fiscal year ended 2011/3 2012/3 2013/3 2014/3 global enterprises. March 31 Example of Cross-Selling Texas Department of Transportation Overseas Sales 2 Overseas Sales On a dollar basis, overseas sales in the fi scal year ended Customer Government agency responsible for maintaining public transportation / aviation / rail infrastructure March 31, 2014, were $12.2 billion. Contract Summary Provision of core system for public transportation management on highly secure cloud platform Targeting the achievement of our objective of overseas ¥1,530.0 billion sales of $20.0 billion by the fi scal year ending March 31, In June 2013, the NTT Group concluded a partnership 2017, we will strive to achieve organic growth at each Group agreement with the Texas Department of Transportation, ¥1,196.0 company, centered on NTT DATA, Dimension Data, and NTT billion one of the largest transportation departments in the United Applications States. The aims of the Texas Department of Transportation Communications. In addition, through M&A transactions we ¥954.1 billion are to reduce costs and focus management resources on will further strengthen our operational scope (expand our $15.0 primary strategic operations. Accordingly, the agreement billion Application development / footprint / fi elds of business) and operational depth (ability to $12.0 $12.2 covers a wide range of areas, including application devel- maintenance / quality assurance provide solutions). We will also strive to make additional gains billion billion opment, operation, and quality control; operation and in cross-selling. As a result, we are forecasting overseas sales maintenance of networks and core systems; and security. Texas Department NTT DATA will handle applications and core system, of $15.0 billion in the fi scal year ending March 31, 2015. 36.6% 43.1% of Transportation 31.8% Dimension Data will be in charge of network construction Security Managed ICT We are making steady progress toward our objective of Proportion of corporate sales and maintenance, and Dimension Data and Solutionary will increasing the proportion of corporate sales represented by represented by overseas sales provide managed security services. Especially important Provision of private cloud service Fiscal year ended / factors in the receipt of the order were NTT DATA’s track overseas sales to 50% or more in the fi scal year ending 2013/3 2014/3 2015/3 ICT support for core systems, ending March 31 (Forecast) record in application maintenance and management and March 31, 2017. Due to steady growth by overseas sales, the such as CAD and GPS Solutionary’s total security solutions that leverage advanced proportion of corporate sales represented by overseas sales technical capabilities. Full-line security service increased 4.8 points year on year, to 36.6%, in the fi scal year Construction and operation of ended March 31, 2014, and we are forecasting a further unifi ed communication platform* increase to 43.1% in the fi scal year ending March 31, 2015. * Unified platform for telephone calls, video conferencing, etc., provided via network
028 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 029 Special Feature 1: Strong Growth in Global Cloud Services
M&A Mergers and acquisitions DC Data center Order Order Action France
2014/01 M&A Steps Taken to Strengthen Scope and Acquired Arkadin International SAS, Depth in the Past Year a provider of teleconferencing services Denmark Romania 2014/02 M&A 2014/01 M&A 2013/11 M&A Acquired Nextira One, a provider of ICT Acquired 4C Management Consulting Acquired EBS Romania, which conducts solution services in Europe through German subsidiary itelligence business centered on software development United Kingdom United States Germany Austria 2013/09 DC 2013/06 M&A 2013/10 M&A 2013/04 Began construction of the Hemel Established NTT Innovation Institute, Inc. Hempstead 3 data center Made subsidiary itelligence a wholly Acquired fine trade, a provider of settlement (NTT I3) as an R&D base in North America owned subsidiary services for online retailers
2014/03 M&A 2013/05 Order Spain Made BDC, which provides security Provided solution utilizing the cloud for core systems 2014/01 M&A services, a subsidiary for the Texas Department of Transportation Hong Kong Acquired the everis Group, which 2013/05 DC 2013/08 M&A provides ICT services in Spain and six countries in Central and South America Commenced provision of services at Acquired Solutionary, a provider of security India solutions for corporations Hong Kong Financial Data Center 1 Special Feature 2014/03 DC 2013/08 Order Commenced provision of Established a new BPO / IPO center in services at Bangalore 2 Data Louisville, Kentucky Center, one of the largest data Received order from Yum! Brands, Inc. centers in India 2013/11 M&A Thailand Acquired the Aster Group, a provider of SAP-related consulting and other services 2013/06 M&A
2013/12 M&A Agreed to the acquisition of Digital Port Asia Limited, a data center operator Acquired Optimal Solutions Integration, Inc., Expanded comprehensive ICT a provider of SAP-related services services in Central and South America through the acquisition Malaysia 2014/01 M&A of the everis Group 2014/04 DC Acquired Virtela Technology Services, ● Santiago a major network operator ● São Paulo Commenced provision of services at ● Buenos Aires Cyberjaya 4 Data Center 2014/01 M&A ● Bogota Acquired RagingWire, a data center operator ● Mexico City Philippines ● Lima 2014/03 DC 2013/08 Launched Biz Hosting Cloud n services at Established offices aimed at scouting ICT data centers in the United States markets and ICT business opportunities
2014/04 M&A Guam NextiraOne, a provider of Acquired Nexus IS, a U.S. ICT solutions ICT solutions services in service company 2013/05 M&A 13 European countries, acquired by Dimension Data Acquired MCV, a cable TV and Internet operator
030 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 031 Special Feature 2
Contributing to Solutions for Social Issues Contents Establishing Business Models to Resolve through ICT Social Issues 034 The NTT Group aims to contribute to the realization of a sustainable society through the use of ICT. To that end, the NTT Group will provide its world-class ICT platform to diverse players and support the creation of innovation Contributing to the Smooth Operation of Emergency Medical Care through ICT 036 through wide-ranging collaboration. This section introduces the types of capital that the NTT Group will utilize and the various forms of Reducing Environmental Impacts through ICT 038 collaboration with diverse players that the Group will engage in as it targets the creation of new innovation that helps to resolve social issues. Special Feature 2 Special Feature
032 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 033 Special Feature 2: Contributing to Solutions for Social Issues through ICT
Targeting the Realization of Steady Growth Social Responsibility Together with Stakeholders NTT has been a leader in achieving higher speeds and larger variety of industries. In this way, we will work to create Establishing Business Models to Resolve Social Issues capacities for fiber-optic technologies. We also led the world wide-ranging innovation through collaboration with players in the construction of a fiber-optic network, and we devel- in different fields. To contribute to the resolution of social oped and promoted the LTE high-speed mobile communi- issues and the development of the Japanese economy, the cations standard. As a result, Japan now has one of the NTT Group will strive to be a “Value Partner” that supports world’s most advanced ICT platforms. Moving forward, NTT customers and realizes sustained growth together with will provide this platform for use by diverse players in a stakeholders. With business models that utilize a wide range of capital, the NTT Group aims to contribute to the resolution of social issues and to achieve growth over the medium to long term.
We aim to resolve these social issues through the use of ICT.
Contributing to the Resolution of Social Issues Improving medical / Introducing advanced educational Medicine welfare environments Environment Logistics environments P36–37
Transportation Manufacturing Innovation by Service Collaboration
Activating regional Reducing the environmental 2 Special Feature Tourism Sports / Entertainment Education economies impacts of society
P38–39
Supporting Collaboration with players countermeasures for Providing information in a wide range of industries the aging of social security measures infrastructure NTT Group “Value Partner” Excellent human World’s resources in most-advanced Reinforcing and Expanding the Various Capitals each region of technical the world Communications capabilities facilities and that Support New Business Models Human data centers Intellectual capital capital Manufacturing Advances in ICT, centered on the globalization and initiatives outside the Group. On that foundation, we will utilize M&A, capital of corporations and on migration to the cloud, have tran- R&D, and alliances to further reinforce and expand our scended the boundaries of fields and industries and brought various capitals. These capitals include human capital in Increase Increase Increase about new types of competition. In this setting, companies each region of the world, as well as manufacturing capital are not trying to address the needs of customers entirely on in the form of our ICT platform, including communications M&A, R&D, and alliances their own. Rather, they are actively taking steps to maximize facilities that support a world-class ICT communications Strong partnerships inside and customer satisfaction by creating new innovation through foundation and the world’s second largest data center outside the Group, shared values collaboration among players that extends across industry operations. In addition, our intellectual capital includes the Social and lines. NTT has a responsibility to offer “ICT as catalyst” in world’s most advanced technical capabilities. Together with relationship capital order to support innovation through collaboration. We have players from a wide range of industries, we will contribute to a foundation of social and relationship capital comprising the creation of new value and the resolution of social issues. Natural capital strong partnerships and shared values, both inside and
034 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 035 Special Feature 2: Contributing to Solutions for Social Issues through ICT
Development of a New Emergency Medical Information System Using ICT For Social Communities Developing a system to transport sick or injured people to the optimal medical institution as rapidly as possible On the front lines of emergency medicine, emergency results. This system facilitates the transport of emergency response teams share the patient intake readiness of medical patients to the optimal medical institution as rapidly as possible. Contributing to the Smooth Operation of Emergency Medical Care institutions, and IT systems have been used for these With the new emergency medical information system, purposes. However, there have still been issues, such as the each time an emergency patient is transported the emergency through ICT appropriate updating of information about whether or not a response teams use their smartphones to enter that medical institution can accept patients. In some cases, these information. As this information accumulates, related parties systems were not fully utilized in certain municipalities. can visualize information about medical institutions that can In response, NTT DATA proposed a new emergency accept patients, even during emergency situations, and medical information system (EMIS) to municipalities. The the problem where ambulances carrying people needing proposal called for shifting the primary data input role from the emergency transport are refused at multiple hospitals can be medical institutions to the emergency response teams. Under controlled. In addition, the emergency response teams use the system created by NTT DATA, the emergency response digital pens during transport to digitize and register their teams and medical institutions can use smartphones or other observations of the emergency patient. The registered devices to share information in real time, such as information information can be seen in advance by the medical institution, about the emergency patients and information about transport which can prepare to rapidly implement emergency measures.
Improvements Offered by the New Emergency Medical Information System
Data entry Registered information Method of registration Frequency Input by medical Availability input Written with Twice per day Previous institution ballpoint pen
Issue: Human resources Issue: Difficult to forecast Issue: Cannot be managed Issue: Information out 2 Special Feature shortage electronically of date Urgent Issues in Emergency Medical Care growing number of people require emergency transport, such The number of patients being transported by ambulance Input by emergency Input transport results Written with digital pen Input at all times as those who experience a sudden decline in their physical is increasing, and it is taking longer for emergency New response team patients to find a hospital that can treat them. condition. In recent years, while the number of emergencies Effect: Rapid decisions Effect: Rapid decisions Effect: Achieve digitization Issue: Information more Japan faces a problem where ambulances carrying people attended and the number of patients transported is increasing, regarding hospital regarding hospital without changing up-to-date the practice of using needing emergency transport, such as pregnant women in a variety of problems and issues have combined to result in an handwritten notes serious condition, are refused at multiple hospitals. This increase in the length of time required to reach the hospital. situation occurs throughout the country and has become a Basic Operational Flow Digitization of Patient Observation Notes Using Digital Pen
major social problem. Factors contributing to this problem Acceleration of Digital pen Emergency responder include social issues, such as a shortage of doctors and Doctor shortage population aging Negotiations with Observation ofhospital regardingDecision on Transport to mismatches between physician specialties and the needs of Call emergency acceptance where to SmartphoneSm Cloud serverer patient of patient take patient hospital Issues in emergency medical care patients. Moreover, there are also ethical issues, such as Information Information Information patients with minor illnesses who call an ambulance rather Medical institution sharing sharing sharing Mismatch between Observation Emergency Preparation Irresponsible use Receipt Receipt physician specialties items decision confirmation patient for than use a taxi. Also, Japan’s population is aging, and a of ambulances confirmed confirmation treatment and patient needs Number of Emergencies Attended and Number of Patients Transported
(1,000 emergencies / 1,000 patients) 5,802,455 Time Required to Reach Hospital 6,000 Increase of (Minutes) Increase of about 10 minutes in 5,000 about two times 40 comparison with 10 years ago Using the EMIS in Multiple Prefectures and in the Field of Disaster Medicine 4,000 in comparison 38.7 5,250,302 The system developed by NTT DATA has been the focus of attention from other
3,000 with 1989 prefectures, and we are moving ahead with discussions regarding its introduction. 30 In addition, experts in domestic disaster medicine have also shown interest in this 2,000 28.5 system, and this has led to the start of initiatives targeting the introduction of the system to 1,000 Number of emergencies attended the field of disaster medicine. The Group is also actively implementing activities targeting Number of patients transported overseas markets. For example, we exhibited the system at the 18th World Congress on 0 20 1965 1989 2014 2002 2012 Disaster and Emergency Medicine, which was held in May 2013 in Manchester, England.
Source: Fire and Disaster Management Agency, Ministry of Internal Affairs and Source: Fire and Disaster Management Agency, Ministry of Internal Affairs and Communications, 25-nenban, Kyukyu/Kyujo no Genkyo Communications, 25-nenban, Kyukyu/Kyujo no Genkyo
036 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 037 Special Feature 2: Contributing to Solutions for Social Issues through ICT
Example of Environmental Impact Reduction through ICT Services For Global Environment Provided by the NTT Group Cloud services: Saving energy and space in data centers Reducing Environmental Impacts through ICT The NTT Group is continuously working to reduce environ- Moreover, the use of the cloud will facilitate the consoli- mental impacts at its data centers, such as installing dation of air conditioning, UPS (uninterruptible power energy-saving servers and high-efficiency air-conditioning supply), and lighting equipment as well as reductions in the equipment (please refer to page 74). In addition, the Group is number of servers as a result of virtualization. This means conducting R&D into new technologies. For example, the that users of ICT services will achieve substantial savings in replacement of electric signals with optical signals in servers will the use of energy and space. reduce energy consumption by a large amount in the future.
Consolidating Customer Data Servers on the Cloud Reduction in CO Emissions 2 CO2 emission reductions achieved by saving space Customer Reducing “consumption 18% and increasing efficiency A of energy” by servers reduction in maintenance and management Reducing “work pro- Customer cesses” for maintenance B Source: Provisional calculation by NTT and management Environmental Protection Office. Figures Customer are for annual environmental impacts, with Reducing “storage C housing service in which customer servers of goods” through are consolidated and managed, with shared decreases in installed air conditioning, UPS, and lighting as well as Customer equipment maintenance and management operations, D Separate Use of compared with separate installation, installation the cloud maintenance, and management of equipment.
dvideo: Lowering Environmental Impacts throughout Society as a Whole through New Services
NTT DOCOMO is providing the dvideo service, which is dvideo facilitates reductions in the materials and energy 2 Special Feature Japan’s largest online video on demand service. dvideo required to produce media and in the energy consumed in Reducing Environmental Impacts Provision of ICT services enables customers to use a variety of devices, such as TVs, the distribution of media to stores. In addition, customers no through ICT smartphones, tablets, and PCs, to enjoy video entertainment longer need to visit stores, reducing the amount of energy Reducing the environmental impacts on society through at any time and any place. By distributing content online, used in movement. business activities, while controlling the environmental Energy consumption Reducing “consumption of Reducing Environmental Impacts for Society with dvideo Reduction in CO2 Emissions impacts of the business activities for service provision materials and energy” Reducing “consumption Reduction of greenhouse gases, such as CO2, is one of the Reducing “work processes” Reducing CO2 through Reducing “movement of people” of materials and energy” transition to digital content important issues that needs to be addressed on a global Use of dvideo used to create media Reducing “movement of goods” 90% scale. The NTT Group aims to reduce CO2 emissions from Reducing “storage of goods” Reducing “movement of reduction Source: Provisional calculation by NTT Environmental goods” in the distribution Protection Office. Figures are for annual its ICT services because we have a large number of data environmental impacts, with dvideo of media to stores compared to store-based DVD rentals. The centers in Japan. For example, our efforts to achieve this movement of customers to stores estimates Reducing “movement the environmental impact of average aim include choosing and installing energy conservation of people” related to movement based on survey results. Also, CO2 generation Controlling the generation of CO2 customers visiting stores Rental at stores dvideo the calculations assume the use of one equipment, as well as using high-efficiency air-conditioning device per subscription. equipment. On the other hand, ICT can help to control the genera-
tion of CO2 by reducing “consumption of materials and Increase these effects as much as possible energy,” such as decreasing the use of “energy and Reducing CO2 Emissions in Society through ICT Services Provided by the NTT Group materials” for the production of books and music as well as Along with the widespread use of smartphones and the Reduction of CO2 Emissions in Society throgh visual media; reducing “work processes” through increased realization of high-speed and large-capacity networks, various ICT Services Provided by the NTT Group operational efficiency; reducing the “movement of people” kinds of new services, such as video on demand, are making Fiscal 2011 10.37 million tons through network utilization; and reducing the “movement progress in the markets. As a result, contributions to CO2 Environmental and storage of goods” through information digitization. Environmental reductions in society through ICT services provided by the NTT impacts Therefore, ICT services not only provide innovation in daily impact from ICT Group were estimated at 29.64 million tons in fiscal 2014. We Fiscal 2014 29.64 reduced by million tons life but also contribute to reducing CO2 emissions in services ICT services will continue working to reduce the environmental impacts 02010 30 society. This contribution is called “Green by ICT,” and in throughout society through the use of ICT in a variety of fields. (CO2 emissions / million tons)
this way the NTT Group makes efforts to contribute to the * Calculation methods: Telecommunication Technology Committee (TTC) standard, “Methodology for the assessment of the environmental impact of information and communication technology goods, networks and services” (JT-L1410), and an LCA calculation method for ICT business organizations from the Life Cycle Assessment Society of Japan (JLCA). Using reduction of CO2 throughout society. these methods, we estimated the Green by ICT effects. In addition, the estimations used average usage time for ICT services and usage status for various services based on surveys conducted over the Internet.
038 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 039 Operations in Review
Contents
NTT Group in Brief 042
Regional Communications Business 044
Long Distance and International Communications Business 048
Mobile Communications Business 052 Operations in Review
Data Communications Business 056
Other Businesses 060
040 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 041 NTT Group in Brief Fiscal year ended March 31, 2014 / As of March 31, 2014
NTT Group Regional Communications Business Total Assets: ¥20,284.9 billion See page 044 Consolidated Operating Revenues: Principal Subsidiaries Operating Revenues: ¥3,572.3 billion Business Activities: Regional telecommunications operations in Japan and related businesses Operating Income: ¥127.2 billion ¥10,925.2 billion Voting rights Competitors: 100% Capital Investment: ¥722.8 billion Regional telecommunications companies, electric power company-related telecommunications companies, etc. Number of Employees: R&D Expenses: ¥107.9 billion 239,750 Competitive Advantages: Voting rights Number of Employees: 75,838 In the fi eld of regional telecommunications, comprehensive strengths (reliability / stability of services Consolidated Subsidiaries: 946 100% and area coverage), large market share, and extensive customer base Consolidated Subsidiaries: 67
Nippon Telegraph and Telephone Corporation (Holding Company) Long Distance and International Communications Business Total Assets: ¥7,302.1 billion See page 048 Operating Revenues: ¥430.8 billion Principal Subsidiaries Operating Revenues: ¥1,809.9 billion Business Activities: Long-distance telecommunications operations in Japan, international telecommunications operations, Operating Income: ¥127.5 billion solutions business, related businesses, etc. Number of Employees: 2,850 Voting rights 100% Capital Investment: ¥168.4 billion Competitors: Common Stock: ¥937.9 billion Long-distance telecommunications companies, ISP companies, domestic and overseas IT services R&D Expenses: ¥16.1 billion Main Businesses: For the NTT Group as a companies, etc. Voting rights Number of Employees: 38,069 Competitive Advantages: whole, formulation of man- 100% In the fi elds of long-distance and international telecommunications, comprehensive strengths (reliability Consolidated Subsidiaries: agement strategies and 339 / stability of services and area coverage), extensive service lineup, including application services and promotion of basic research cloud services, large market share, and extensive customer base
Mobile Communications Business See page 052 Composition of Operating Revenues Principal Subsidiary Operating Revenues: ¥4,461.2 billion Business Activities: Percentage of simple sum of all segments (including intersegment transactions) Mobile phone business in Japan and overseas, related businesses, etc. Operating Income: ¥817.2 billion Other Businesses Regional Voting rights Competitors: 10.6% Communications 66.6% Capital Investment: ¥703.1 billion Mobile telecommunications companies, etc. Business Data R&D Expenses: ¥102.0 billion Competitive Advantages: Communications 28.5% In the mobile telecommunications market, technical and R&D capabilities, as demonstrated by the LTE Business ¥12,515.8 Number of Employees: 24,860 Xi service, network quality, service development capabilities, including partnerships with related com- Long Distance 10.7% billion panies, large market share, and extensive customer base and International Consolidated Subsidiaries: 195 Mobile NTT DOCOMO Communications Annual Report 2014 Communications Business
Business in Brief NTT Group 14.5% 35.6% Data Communications Business Composition of Operating Income See page 056 Percentage of simple sum of all segments (including intersegment transactions) Principal Subsidiary Operating Revenues: ¥1,343.9 billion Business Activities: Systems integration, network system services, etc., in Japan and overseas Other Businesses Regional Operating Income: ¥67.9 billion 4.7% Communications Voting rights Competitors: Business Data 54.2% Capital Investment: ¥147.7 billion IT services companies, etc., in Japan and overseas Communications 10.6% Competitive Advantages: Business R&D Expenses: ¥12.8 billion ¥1,196.0 Long Distance In the IT services market, neutrality, technical capabilities, reliability, and foresight, as well as results 5.7% billion and International Number of Employees: 75,020 and know-how in large-scale systems that leverage these capabilities in such fi elds as the public Mobile sector and fi nance Communications Consolidated Subsidiaries: 263 Communications Business NTT DATA CORPORATION Business Annual Report 2014 10.7% 68.3%
Composition of Capital Investment Other Businesses See page 060 Other Businesses Regional Operating Revenues: ¥1,328.5 billion Business Activities: Communications 8.0% Real estate, fi nance, construction / electric power, system development, advanced technology devel- Business Data Operating Income: ¥56.1 billion opment, etc. Communications 38.2% Business ¥1,892.8 Capital Investment: ¥150.7 billion Long Distance 7.8% billion and International R&D Expenses: ¥125.0 billion Mobile Communications Number of Employees: 25,969 Communications Business Business 8.9% Consolidated Subsidiaries: 82 37.1%
042 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 043 Regional Communications Business
Financial Results for the Fiscal Year Ended March 31, 2014
IP / packet communications service revenues increased decreased 3.4%, to ¥3,445.1 billion, due in part to lower due to growth in subscriptions for FLET’S Hikari and Hikari personnel expenses as a result of a smaller workforce, to Denwa. However, this increase was not enough to offset lower depreciation and amortization expenses as a result of a decline in fi xed voice-related revenues stemming from a increased investment effi ciency, and to increased effi ciency decrease in the number of fi xed-line telephone subscriptions. in selling, general and administrative expenses. Consequent- As a result, operating revenues were down 2.4% from the ly, operating income was ¥127.2 billion, an increase of previous fi scal year, to ¥3,572.3 billion. Operating expenses 36.9% from the previous fi scal year.
Operating Revenues Operating Income Capital Investment
(Billions of yen) (Billions of yen) (Billions of yen) 5,000 150 1,000 127.2 4,000 800 786.0 3,659.8 3,572.3 722.8 100 3,000 93.0 600
2,000 400 –2.4% 50 +36.9% –8.0% 1,000 200
0 0 0 Fiscal year ended 2013/3 Fiscal year ended 2013/3 Fiscal year ended 2013/3 March 31 2014/3 March 31 2014/3 March 31 2014/3
Number of Subscriptions for Major Services The number of FLET’S Hikari subscriptions reached 18.05 million as of March 31, 2014, an increase of 0.75 million from a year earlier. The number of Hikari Denwa channels reached 16.26 million, an increase of 1.09 million, and the number of FLET’S TV subscriptions was 1.16 million, an increase of 0.16 mil- lion. In addition, the number of subscriptions for Remote Support Service, which offers remote support over the customer’s phone to provide responses to a broad range of customer inquiries concerning all aspects of broadband services, reached 4.60 million, an increase of 70 thousand from a year earlier.
FLET’S Hikari (FTTH) Hikari Denwa FLET’S TV Remote Support Service
+ 0.75 million + 1.09 million + 0.16 million + 0.07 million Business Environment and Basic Business Policy (Millions of subscriptions) subscriptions (Millions of channels) channels (Millions of subscriptions) subscriptions (Millions of subscriptions) subscriptions 20 20 88% 90% 91% 1.5 6 18.75 84% 17.30 18.05 1.35 16.56 16.26 17.11 1.16 4.60 4.68 Number of Fixed-Line Broadband Services Subscriptions 15 15.17 4.30 4.53 The information and communications technology (ICT) market 13.90 1.0 1.00 4 in Japan 0.86 is undergoing structural changes that transcend the conven- 10 10 (Millions of subscriptions) (%) 0.5 2 tional market framework. These changes include the advance 5 40 80 74.4 74.5 74.3 72.5 of broadband, the uptake of fi xed-mobile convergence ser- 71.2 0 0 0 0 35.9 32.9 34.9 35.3 End of year / End of year / End of year / End of year / 34.1 6.0 2012/3 2013/3 2015/3 2012/3 2013/3 2015/3 2012/3 2013/3 2015/3 2012/3 2013/3 2015/3 30 60 month 2014/3 month 2014/3 month 2014/3 month 2014/3 vices, progress in cloud computing and smart TV develop- (Forecast) (Forecast) (Forecast) (Forecast) ment, and the market uptake of smartphones and tablets 4.5 Number of channels 20 40 Percentage of FLET’S Hikari users compatible with high-speed wireless and Wi-Fi technologies. * Number of Hikari Denwa channels divided by number of FLET’S Hikari subscriptions Regional Communications Business 10 25.4 20 The regional communications market is also undergoing multiplied by 100 signifi cant change. In broadband services, including fi ber- 0 0 access and CATV services, competition among telecommu- End of year / 2010/3 2011/32012/3 2013/3 2014/3 month Trend in FLET’S Hikari ARPU* nications operators is intensifying. In addition, an expanding FTTH DSL CATV (left scale) ARPU from basic monthly charge declined due to the uptake of discount services for long-term users. However, ARPU from value-added variety of new services are utilizing a broad range of Wi-Fi- FTTH market share: NTT East and NTT West (right scale) Source: MIC services increased, due largely to growth in the number of subscriptions for Hikari Denwa and Remote Support Service. Consequently, FLET’S compatible handsets, and as a result, customers are using Hikari ARPU was ¥5,660 at NTT East and ¥5,830 at NTT West. diversifying services in new ways. There is also an increased * Please see page 123 for the ARPU calculation method and other details. need for the offl oading of mobile traffi c to fi xed networks due promotion of fi ber-access and IP-related services, such as NTT East NTT West to growing mobile data traffi c. Telecommunications opera- offering a wider range of opportunities to use Hikari (FTTH) (Yen) (Yen) tors are taking steps to differentiate themselves from com- through Wi-Fi. In addition, NTT East and NTT West are 8,000 8,000 petitors by developing a variety of billing plans and working to advance alliance business using ICT services in 6,000 5,740 5,880 5,920 5,860 6,000 5,890 5,940 5,880 5,830 expanding FTTH usage through such initiatives as alliances a wide range of fi elds and are striving to enhance the broad- 5,660 5,500 5,780 5,740 1,450 1,570 1,640 1,720 1,770 1,800 1,460 1,580 1,650 1,730 1,800 1,840 with other companies. band and ubiquitous service environment while expanding 4,000 4,000 In this challenging, rapidly changing business environ- the range of customers using fi ber-access services. 2,000 4,310 4,280 2,000 4,320 4,310 4,290 4,150 4,030 3,900 ment, NTT East and NTT West are working to expand their 4,290 4,140 3,890 3,700
lineups of fi ber-access service billing plans that are easy to 0 0 Fiscal year Fiscal year ended / ending 2010/3 2011/3 2012/3 2013/32014/3 2015/3 ended / ending 2010/3 2011/3 2012/3 2013/32014/3 2015/3 use and support customer retention. Key steps include the March 31 (Forecast) March 31 (Forecast)
Basic monthly charges Value-added services Basic monthly charges Value-added services
044 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 045 Regional Communications Business
Initiatives and Overview
Initiatives to Advance Fiber-Access and IP-Related Services Solutions Business Initiatives
Expansion of Service Menus families that include single-person households. This service NTT East and NTT West provided a variety of solutions to consultation, keep watch over senior citizens, and introduces NTT East began to offer FLET’S Hikari Next Prio, a fi ber- is for households that already use FLET’S Hikari and have a assist large companies, small and medium-sized companies, and acts as an agent for services that resolve daily issues. access service for corporate customers. This service fea- family member living alone, such as a student or someone and municipalities to resolve their management issues. tures a maximum communication speed of 1 Gbps and living apart from their family for work-related reasons, who These solutions are centered on Biz Hikari Cloud services. Initiatives in Medicine priority bandwidth that ensures stable communications even starts to use FLET’S Hikari. The service offers discounts on In the provision of integrated patient care by multiple hospitals and when traffi c is congested. NTT East also launched FLET’S monthly usage fees for customers who pay for two FLET’S Initiatives for Companies and Municipalities clinics, collaboration among a region’s medical institutions has be- Azukeru for customers that use FLET’S Hikari. This service Hikari Next lines on a single bill. In this way, NTT East is As a new service in the Biz Hikari Cloud lineup, NTT East come increasingly important. Accordingly, NTT East began to offer enables customers to use Internet online storage to save working to expand the number of subscriptions by making introduced Biz Hikari Cloud Anpi Kakunin Service, which Biz Hikari Cloud Future Clinic 21 Warp, an electronic medical and share data on their smartphone or tablet, such as pho- it easier for people living alone to use FLET’S Hikari. enables customers to confi rm the safety of employees and records service for medical institutions. This service, which facilitates tos and video. FLET’S Azukeru increases convenience for To secure new subscriptions for FLET’S Hikari, NTT others in the event of a large-scale disaster. This service is the simple use of electronic medical records, has limited initial intro- users, such as by enabling them to view stored data from West launched Donto Wari, a billing plan that offers a dis- provided from a cloud platform installed in data centers that duction costs and offers free operability that maintains the sensation a mobile device when they are away from their PC. count on FLET’S Hikari monthly charges for up to two years can withstand a very severe earthquake registering 6-plus on of handwriting. In addition, the data in the electronic medical NTT West took steps to enhance its services that after the start of the subscription. In addition, NTT West be- the Japanese seismic scale. As a result, even in the event of records is centrally managed at data centers, which means that it use FLET’S Hikari, such as the launch of FLET’S Smart Pay, gan to offer Web Hikari Motto2 Wari, which offers additional a large-scale disaster, customers do not have to worry about is also protected in the event of disasters and crisis management. In a simple and easy-to-install payment service that will help benefi ts for new applications made over NTT West’s web- being able to confi rm safety and make emergency contact. these ways, the Biz Hikari Cloud Future Clinic 21 Warp service support stores. site. NTT West has already received a large number of ap- NTT West commenced fi eld trials of the Community Partici- contributes to increasing convenience for medical institutions. plications for these services, which are expected to have the pation Hazard Map Creation Service as one facet of the Smart Driving Growth in Subscriptions through Billing effect of increasing net additions in the future. Hikari Town Kumamoto project, which NTT West is implement- Initiatives in Education Plan Initiatives ing in collaboration with the prefecture and city of Kumamoto. NTT East and NTT West are providing cloud-based school ad- NTT East began to offer the Single & Family Support Dis- NTT West added Community Disaster Prevention Hazard Maps ministration support systems that reduce the administrative bur- count service, which promotes communication among to the Biz Hikari Cloud service lineup. Through the use of the den for school personnel and boards of education at elementary cloud, this service facilitates the simple creation and sharing of and junior high schools. NTT East started to provide Biz Hikari disaster prevention maps from consumers’ homes. In addition, Cloud School Administration Support System, an administration NTT West took steps to contribute to the realization of worry- support system for elementary and junior high schools. NTT West free, safe, and convenient lifestyles through the use of ICT. In is providing Biz Hikari Cloud Community School Administration collaboration with municipalities and companies, NTT West Support. The provision of administration support services began to offer the Senior Citizen Life Support Service, which through the cloud has resulted in economical initial introduction Expanding the Use of FLET’S Hikari through Collaboration with Other Operators in DEPTH offers telephone-based ser- cost and shorter times for system delivery, making the services vices for senior citizens, easy to use. These services are also contributing to the reduc- TSUTAYA Stick in use TSUTAYA TV Content distribution server server such as services that provide tion of TCO and the activation of communications. In collaboration with T-MEDIA HOLDINGS Co., Ltd., NTT Regional Communications Business East began to offer TSUTAYA Stick, a smart TV device that enables customers to view TSUTAYA TV, a video distribu-
tion service, via FLET’S Hikari. As a result, customers can Purchase / Remote control now easily view their favorite movies and dramas on their video replay FAQ Questions frequently asked by shareholders and investors Wi-Fi router home TV using the Internet. Wi-Fi environment supporting greater Due to workforce reductions, streamlining of telecommunications facilities, and other NTT West introduced , a security than 8 Mbps FLET’S de ALSOK (recommended) measures, NTT East and NTT West have a growing number of idle buildings. NTT Smartphone How are NTT East and service that it co-developed with SOHGO SECURITY East and NTT West are taking steps to make full use of their real estate holdings, NTT West using their real SERVICES CO., LTD. (ALSOK). This residential service FLET’S de ALSOK in use such as leasing them to companies inside and outside the NTT Group for use as estate holdings? utilizes cameras equipped with sensors and devices such Residence offi ce space or stores. In the future, NTT East and NTT West will develop these activi- Center server as PCs or smartphones. When the camera installed in Wi-Fi ties by stepping up leasing outside of the NTT Group. (wireless LAN can Optical fiber the house detects an intruder, notifi cation is automatically also be used) In-room We are taking steps to reduce costs, such as increasing productivity in each area sent to the smartphone or other device. Internet surveillance Wi-Fi router of operations through visualization initiatives, advancing IT systems, bringing work In these ways, NTT East and NTT West are working In-room Camera equipped with dedicated surveillance 3G circuit / What specifi c initiatives are that had been outsourced back within the Group, and reevaluating the outsourcing to expand the use of among a wider FLET’S de Alsok sensor Wi-Fi FLET’S Hikari being implemented to reduce process. In addition, we are also working to increase efficiency in capital investment. Outside range of customers through alliances with a variety of Confirm the status of the room prior to returning home location costs and capital investment? To that end, we are cutting the cost of laying optical transmission lines by increasing If motion is detected in the room, other companies. an image of the room is automatically construction projects that do not require the dispatch of NTT employees and sent to the smartphone or other device Smartphone or consolidating redundant network-related equipment. other device
046 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 047 Long Distance and International Communications Business
Financial Results for the Fiscal Year Ended March 31, 2014
For the fi scal year ended March 31, 2014, operating rev- billion, a rise of 9.5% from the previous fi scal year, due to enues in the Long Distance and International Communica- higher revenue-linked expenses, an increase in the number tions Business segment were ¥1,809.9 billion, an increase of of consolidated subsidiaries, and foreign exchange rate fl uc- 9.2% from the previous fi scal year. A decline in voice-related tuations, which offset a reduction in costs resulting largely revenues was offset by higher systems integration revenues, from an increase in administrative effi ciency. Consequently, the acquisition of data center operators, and other factors. operating income was ¥127.5 billion, an increase of 5.1% On the other hand, operating expenses were ¥1,682.4 from the previous fi scal year.
Operating Revenues Operating Income Capital Investment (Billions of yen) (Billions of yen) (Billions of yen) 2,000 150 180 1,809.9 168.4 1,657.9 121.3 127.5 147.5 1,500 100 120 1,000 50 60 500 +9.2% +5.1% +14.2%
0 0 0 Fiscal year ended 2013/3 Fiscal year ended 2013/3 Fiscal year ended 2013/3 March 31 2014/3 March 31 2014/3 March 31 2014/3
Number of Subscriptions for Major Corporate Services NTT Communication is stepping up its initiatives for growth businesses in the global and cloud areas. Under the Global Cloud Vision an- nounced in October 2011, NTT Communications is striving to contribute to the management reforms of its corporate clients through the provi- sion of seamless ICT outsourcing services. Consequently, the number of customers using cloud services has nearly doubled—from 2,400 to 4,700—in just one year.
Business Environment and Basic Business Policy Number of Customers Using Number of Subscriptions Number of Subscription Devices Cloud Services to Networking Services (VPN) for Managed Security Services Biz Hosting Enterprise Cloud / Cloudn Arcstar Universal One WideAngle The global economy is following an overall recovery trend, Global ICT Market (Based on End-User Spending) ( ) ( ) ( ) (Millions of subscriptions) with the U.S. market posting a solid recovery and business (Billions of US$) 6,000 0.4 10,000 5,000 2013–2018: Average conditions in Europe bottomed out. In this economic envi- annual growth rate 8,500 4,700 0.3 7,500 4,000 0.29 7,300 ronment, many companies around the world are taking Worldwide: +3.2% 4,000 0.26 0.2 5,000 3,000 2,400 steps to further strengthen their competitiveness and ad- 2,000 0.1 2,500 vancing aggressive management initiatives, such as entering 2,000 Asia-Pacific
0 0 0 Communications Business +5.0% new markets and investing in new growth fi elds, and there is End of year / 1,000 End of year / 2013/3 End of year / 2013/3 2013/3 2014/3 Long Distance and International month 2014/3 month 2014/3 month a need for fl exible yet strong ICT platforms to support those Japan +0.6% 0 management initiatives. In addition to industrially developed Year 2013 20142015 2016 2017 2018
countries, growth in the ICT market is also expected in Japan Asia-Pacific United States Canada Latin America emerging countries, centered on the Asia-Pacifi c region. Western Europe Central-Eastern Europe Middle East, Africa Number of Subscriptions for Major Consumer Services With average annual growth projected at 3.2% from 2013 Source: Gartner, “Gartner Market Databook, 2Q14 Update” Ken Newbury, et al. 23 June 2014 Due in part to intensifi ed competition with other operators, the total number of subscriptions to OCN and Plala fi xed-line ISP services was 11.12 Chart created by NTT based on Gartner data. million, a year-on-year decline of 160 thousand subscriptions. In the fi scal year ending March 31, 2015, we will aim to achieve an increase of 420 to 2018, increased investment is anticipated. thousand subscriptions through strengthened sales initiatives. The number of subscriptions to Hikari TV, a video distribution service, reached 2.82 In consideration of this operating environment, NTT combinations of networks, voice and other applications, and million, an increase of 370 thousand subscriptions. Moving forward, NTT Communications will work to further expand its customer base through Communications is implementing a variety of initiatives to security. In addition, Dimension Data provides a wide range enhanced content and the advance of smart TVs. become a truly leading player (Global ICT Partner) that cus- of services to customers, such as ICT infrastructure solu- tomers around the world select as their optimal business tions that can be used worldwide, systems integration, IT OCN Plala Hikari TV partner. In the corporate market, NTT Communications outsourcing, and ITaaS services.
works to provide seamless, total ICT outsourcing services on In the consumer market, NTT Communications is (Millions of subscriptions) (Millions of subscriptions) (Millions of subscriptions) a global basis. When customers move their ICT systems to working to propose new lifestyle offerings for its custom- 10.0 4 4 8.44 8.54 8.21 8.15 3.20 7.5 3 3.12 3.07 3.00 3 the cloud / data centers, NTT Communications offers these ers by providing highly convenient applications and abun- 2.97 2.82 2.45 global-standard services that leverage the unique strengths dant content. 5.0 2 2 2.00
of a telecommunications operator to provide optimal 2.5 1 1
0 0 0 End of year / 2012/3 2013/3 2015/3 End of year / 2012/3 2013/3 2015/3 End of year / 2012/3 2013/3 2015/3 month 2014/3 month 2014/3 month 2014/3 (Forecast) (Forecast) (Forecast)
048 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 049 Long Distance and International Communications Business
Initiatives and Overview
Initiatives Implemented by the NTT Communications Group Dimension Data Group Initiatives
Enhancing the Cloud Platform Developing Applications and Content Services Dimension Data, which has bases in 58 countries and re- from system investment (on premises) to system usage For Biz Hosting Enterprise Cloud, a private cloud service for To enhance cloud services that support reforms in working gions, offers a wide range of services that can be used (cloud), Dimension Data is strengthening its skills in the provi- corporations, NTT Communications began to offer On-Premises styles, NTT Communications expanded Biz Mail, a cloud- worldwide, including ICT infrastructure solutions and network sion of comprehensive cloud services. Dimension Data is also Connection Option, the world’s fi rst cloud migration service that based mail service. The additions included an environment communications, end user computing, security, and data working to maintain and enhance its profi tability by conduct- uses network virtualization technologies. This service offers cus- that enables the secure use of mail from a mobile device centers. In 2013, Dimension Data reformed its marketing ing upfront investment in growth fi elds, such as the cloud and tomers a smooth migration from on-premises environments to the when out of the offi ce and the capability for scheduler coop- system and advanced effi cient, effective proposal activities. In ICT outsourcing, and taking aggressive steps to increase cloud. In addition, NTT Communications added two new bases— eration. In addition, NTT Communications began to offer Biz addition, to address customer needs related to the change effi ciency and reduce costs in non-core businesses. in Australia and Germany—to expand its service provision Group Work, an SNS for corporate clients that is optimized area to 11 bases in 9 countries and regions around the world. to activate internal and external communications and in- In data center services, aiming to standardize quality at crease effi ciency in project management. in DEPTH Global Cloud Services that Address Diverse Needs a global level and to further enhance the level of services, Hikari TV, a video distribution service, has also been NTT Communications offers Biz Hosting Enterprise Customer Portal NTT Communications established the Nexcenter brand. Un- highly evaluated as a comprehensive entertainment service Virtual network Cloud, a cloud service for corporate customers that Possible to add / change ICT resources on-demand der this brand, NTT Communications began to offer services that enables customers to enjoy multi-channel broadcasts, can be used even for enterprise management systems, United at four data centers in the fi scal year ended March 31, 2014— VOD and other video services, Japan’s fi rst cloud game ser- States Australia and Biz Hosting Cloud n, a low-cost, highly expandable the Tokyo No. 6 Data Center, the Hong Kong Financial Data vice, music distribution, e-books, and shopping. Germany Japan public cloud service. Biz Hosting Enterprise Cloud is Biz Hosting Center, the U.K. Slough 2 Data Center, and the India Banga- Enterprise Cloud Customers’ the world’s fi rst cloud service to utilize network virtual- basees lore 2 Data Center. In April 2014, we began to offer services Global Rollout Development of Voice Communication Services ization technology. As a result, it offers advanced self- at the Cyberjaya 4 Data Center in Malaysia. In addition, in NTT Communications took steps to improve the quality and England Hong Kong management capabilities, including not only server January 2014 NTT Communications made RagingWire, of the enhance the functionality of , which enables cus- Thailand Singapore 050 plus resources but also network resources. With this ser- Malaysia United States, a subsidiary. In these ways, NTT Communications tomers to easily make IP telephone calls by installing a spe- Customers’ vice, global ICT resources integrated into the cloud can basees Customers’ Customers’ is addressing demand for cloud services by substantially ex- cialized application on their smartphone. Users can now basees basees be managed in an integrated manner through the cus- panding its data centers in Japan and overseas. exchange text messages with one another and outgoing tomer portal. In addition, Biz Hosting Enterprise Cloud voice calls are automatically adjusted. For corporate clients, offers an abundant menu of security and other options and is also compatible with hybrid use involving on-premises servers. Expansion of Network Services NTT Communications introduced a new platform for Arcstar Biz Hosting Cloud n can be used at a low cost with an upper limit on monthly charges. Offering more than 300 APIs, this ser- To meet the demand for high-quality, highly reliable IP backbones, , a cloud-based communication service, in Europe UCaaS vice facilitates the instant setup of virtual servers on an as-needed basis while simultaneously reducing customer application NTT Communications expanded its Global IP network, a and the United States. In this way, NTT Communications has utilization. By offering a lineup of two types of cloud services that leverage the distinctive strengths of a highly reliable tele- global ISP service, with the establishment of new connection established a foundation for the global, speedy provision of communications carrier, NTT Communications is meeting the diverse needs of customers. points in six cities across four countries, including Jakarta. In low-latency, high-reliability communications services. In addi- addition, NTT Communications expanded the service area tion, NTT Communications began to offer
Web Telephone Communications Business for Arcstar Universal One, a network service for corporate clients, Book, which enables business telephone books to be man- Long Distance and International from 160 countries and regions to 196 countries and regions. aged on the cloud, for 050 plus for Biz and Arcstar UCaaS. FAQ Questions frequently asked by shareholders and investors Global IP Network In 2013, Dimension Data announced a fi ve-year medium-term management plan, which included the objective of doubling Group sales in fi ve years. In February 2014, Dimension Europe Asia North America What are the medium-term Data acquired NextiraOne, a provider of unifi ed communications and network infrastruc- Asia–Europe US–Europe objectives of the Dimension ture. As a result, Dimension Data acquired more than 1,000 ICT engineers and further 180G Asia–US 330G 835G Data Group? expanded its customer base in Europe. Through organic growth and strategic acquisitions, Dimension Data will implement aggressive business development, centered on the growth fi eld of cloud services, to achieve the goal of doubling its sales.
NTT Communications began to offer Global Management One, a one-stop ICT management service providing integrated operation of the global ICT environments of What business initiatives are Asia Oceania customers. This service was launched in April 2014. The service, which covers the entire being implemented by NTT 860G ICT environment, including applications, cloud services, on-premises environments, and Communications to meet the networks, has the distinctive feature of also being compatible with the services of other needs of customers shifting companies. Global Management One is compliant with ITIL, a best-practice approach operations overseas? to IT service management and offers total operations services, including monitoring and Oceania South America troubleshooting, determination of causes, and consideration of countermeasures.
050 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 051 Mobile Communications Business
Financial Results for the Fiscal Year Ended March 31, 2014
Revenues from sales of smartphone handsets rose and rev- year. Operating expenses were ¥3,644.0 billion, a rise of enues from new business areas also increased. However, 0.3% from the previous fi scal year. Consequently, operating mobile communications service revenues declined, due in income was ¥817.2 billion, a decline of 2.3% from the previ- part to the infl uence of the Monthly Support discount pro- ous fi scal year. Capital investment was down 6.7%, to gram, under which the cost of the handset is deducted from ¥703.1 billion, due to focused investment on expansion of the monthly charges. As a result, operating revenues were the LTE network and increased investment effi ciency in other ¥4,461.2 billion, a decrease of 0.2% from the previous fi scal fi elds.
Operating Revenues Operating Income Capital Investment
(Billions of yen) (Billions of yen) (Billions of yen) 5,000 1,000 1,000 4,470.1 4,461.2 836.4 817.2 4,000 800 800 753.7 703.1 3,000 600 600
2,000 400 400 –0.2% –2.3% –6.7% 1,000 200 200
0 0 0 Fiscal year ended 2013/3 Fiscal year ended 2013/3 Fiscal year ended 2013/3 March 31 2014/3 March 31 2014/3 March 31 2014/3
Number of Subscriptions for Major Services Mobile phone subscriptions at year-end were 63.11 million, an increase of 1.57 million from the previous fi scal year-end. The number of LTE Xi (pro- nounced “crossy”) subscriptions increased 89.9%, to 21.97 million at year-end. Accordingly, LTE Xi subscribers accounted for about 80% of all smartphone users. As a result of the addition of the iPhone to our lineup in September 2013, the number of net additions improved 12% year on year, to 1.57 million. On the other hand, the churn rate increased to 0.87% due to intensifi ed competition with other companies.
Mobile Phone Subscriptions Net Additions and Churn Rate Smartphone Sales
(Millions of subscriptions) Xi achieved 20 (Millions of subscriptions) (%) (Millions of units) 80 million subscriptions 4 1.0 20 3.70 Business Environment and Basic Business Policy 0.82% 0.87% 66.80 0.8 60 60.13 61.54 63.11 3 15 15.30 0.60% 13.29 13.78 2.22 11.57 21.97 29.80 0.6 Number of Mobile Phone Subscriptions in Japan 40 2 2.12 10 The mobile communications market is the focus of new 1.57 8.82 1.41 0.4 (Millions of subscriptions) (%) 57.91 49.97 competition, not only among telecommunications operators 20 41.14 1 5 200 60 37.00 0.2
but also among providers of services over the Internet, such 50.0 48.5 0 0 0 0 46.9 45.2 150 43.8 45 End of year / 2012/3 2013/3 2015/3 End of year / 2012/3 2013/3 2015/3 End of year / 2012/3 2013/3 2015/3 as SNS companies. The mobile phone market is nearing 144.0 month 2014/3 month 2014/3 month 2014/3 128.2 136.0 (Forecast) (Forecast) (Forecast) 119.5 112.2 saturation, and mobile telecommunications operators have 100 30 FOMA (3G) Xi (LTE) Net additions (left scale) Churn rate (right scale) competed fi ercely in all areas, including services, service areas, billing plans, and devices, and the operating environ- 50 15 Mobile Communications Business
ment remains intensely competitive due in part to advances 0 0 Mobile Communications Service Revenues and Aggregate ARPU*1 End of year / 2010/3 2011/32012/3 2013/3 2014/3 in the number of smartphone users and the adoption of LTE. month Mobile communications service revenues declined ¥212.7 billion year on year, due to the influence of the Monthly Support discount program. Voice
In addition, new players in the mobile telecommunications Subscriptions (left scale) NTT DOCOMO’s market share (right scale) ARPU declined ¥360, to ¥1,370, as a result of the Monthly Support discount program. Packet ARPU decreased ¥50, to ¥2,640, on account of the market include mobile virtual network operators (MVNOs). Source: MIC Monthly Support discount program, which offset gains in smartphone and data plan subscriptions. Smart ARPU increased, due in part to growth in new business areas. Nonetheless, Aggregate ARPU was down ¥340, to ¥4,500. These companies, which are renting wireless communica- *1 Please see page 123 for the ARPU calculation method and other details. tions infrastructure from mobile telecommunications opera- year under review, NTT DOCOMO made comprehensive Packet ARPU from the fiscal year ended March 31, 2010, to the fiscal year ended March 31, 2011, includes amounts corresponding to smart ARPU. tors and offering a wide variety of services at low cost, are efforts to strengthen its mobile operations from four per- Mobile Communications Service Revenues Aggregate ARPU recording rapid growth. Due to competition with these new spectives—devices, networks, services, and billing plans / (Billions of yen) (Yen) types of companies, the industry structure is expected to channels. In addition, NTT DOCOMO expanded its opera- 4,000 8,000
continue to undergo signifi cant change. tions in new business areas by leveraging cooperative ven- 3,456.5 3,354.6 3,326.5 3,168.5 3,000 2,955.8 2,881.0 6,000 5,350 In this new competitive stage, NTT DOCOMO is working tures and alliances in a variety of fi elds, such as health and 5,070 5,140 1,546.0 4,840 1,642.4 1,784.6 350 420 4,500 4,390 to help make the lifestyles of customers more convenient education. Moreover, to accelerate these initiatives, we are 2,000 1,893.9 4,000 490 1,890.6 1,931.0 2,450 530 2,540 2,590 and comfortable. To that end, NTT DOCOMO is strengthen- taking steps to bolster our management constitution, such 2,690 2,640 1,000 2,000 2,620 ing its competitiveness in conventional mobile fi elds and 1,910.5 as shifting management resources to new areas and imple- 1,712.2 1,541.9 2,900 1,274.6 1,065.2 2,530 2,200 950.0 1,730 1,370 providing appealing services in new business areas. In the menting cost reductions. 0 0 1,240 Fiscal year Fiscal year ended / ending 2010/3 2011/3 2012/3 2013/32014/3 2015/3 ended / ending 2010/3 2011/3 2012/3 2013/32014/3 2015/3 March 31 (Forecast) March 31 (Forecast) Voice revenues Packet revenues*2 Voice ARPU Packet ARPU Smart ARPU *2 From the fiscal year ended March 31, 2013, the definition of items comprising packet communications has been changed. Packet revenues for the fiscal year ended March 31, 2010, and thereafter have been restated to reflect this change.
052 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 053 Mobile Communications Business
Initiatives and Overview
Initiatives to Bolster Competitiveness in the Mobile Field in DEPTH Initiatives to Expand New Business Areas Enhancing the Handset Lineup NTT DOCOMO began to offer VoLTE, which enables high-qual- gacco website: http://gacco.org/ To address a wide range of customer needs, in September ity, stable voice calls to be made over the LTE network, a fi rst in In April 2014, NTT DOCOMO and NTT Knowledge Square 2013 NTT DOCOMO added the iPhone to its handset lineup the domestic market. This service has been highly evaluated. Inc. established gacco, Japan’s fi rst Massive Open Online and thereby began to offer a lineup featuring both Android Course (MOOC) platform. MOOCs are large-scale online and iOS models. Due to the introduction of the iPhone, we Enhancing Services lectures in which anyone can participate over the Internet. recorded improvement in net additions and MNP port-ins and NTT DOCOMO took steps to enhance content so that dmarket In 2012, a leading U.S. university sparked a major global port-outs. In particular, we registered growth in MNP port-ins could be enjoyed by a wide range of customers. In the fi scal trend when it made some of its lectures available online. among younger customers between 10 and 30 years old. In year ended March 31, 2014, we began to offer dcreators, for gacco, which is an offi cial website of the Japan Open On- comparison with other age groups, younger customers make the exhibition or purchase of a variety of handmade items; line Education Promotion Council (JMOOC), provides on- line lectures in Japanese. By the middle of August 2014, greater use of dmarket and of such rich content as video and dfashion, a specialized fashion sales site; dkids, which offers music. Consequently, the introduction of new handsets is educational content for children, such as picture books and about 70,000 people, principally between the ages of 30 expected to increase our share of subscriptions and to sup- illustrated reference books; and dtravel, which provides compre- and 60, had registered for lectures. The establishment of port growth in new business areas in the years ahead. hensive support for travel, from the planning stage to support gacco will increase interest in online learning, thereby pro- provided during the trip. Targeting ¥100.0 billion in revenues moting the use of mobile communications. Another benefi t from dmarket in the fi scal year ending March 31, 2016, NTT will be increased awareness of the DOCOMO brand DOCOMO will take steps to develop content that matches cus- among younger and middle-aged customers. In the future, tomer tastes and lifestyles and strive to offer more-convenient NTT DOCOMO will work to provide a platform for corpo- services that customers can readily use every day. In addition, rate training and take steps to develop educational ser- NTT DOCOMO worked to provide easier-to-use mail services vices into a revenue-generating business area. for smartphones. We began to offer , which iPhone 5s iPhone 5c DOCOMO Mail features enhanced operability. allows e-mail TM and © 2014 Apple Inc. All rights reserved. iPhone is a trademark of Apple Inc. DOCOMO Mail The iPhone trademark is used under license from AiPhone Co., Ltd. to be stored in the cloud, and enables the use of a single Expanding the LTE Network e-mail address on multiple devices. To realize a communications environment that enables the smooth use of cloud services and rich content, NTT DOCOMO Introducing a New Billing Plan is accelerating the build out of the LTE Xi network. In the In June 2014, NTT DOCOMO introduced a new billing plan FAQ Questions frequently asked by shareholders and investors fi scal year ended March 31, 2014, we took steps to expand that fundamentally reformed the conventional billing plan the network, centered on stations, commercial facilities, and system. The new plan has four key elements: packet quotas With consumers migrating to smartphones, competition among companies has been schools, and increased the number of LTE base stations that can be shared among family members or multiple hand- intense, and in this environment MNP port-outs have been a major factor in the wors- Results are sluggish, with oper- ening of results over the past several years. To encourage customers to once again
nationwide to 55,300. NTT DOCOMO has also installed sets; fl at monthly rates for domestic voice calls; special ben- Mobile Communications Business ating income declining for three choose NTT DOCOMO, we will make new proposals in the areas of handsets, billing base stations compatible with downlink transmission speeds efi ts for long-term, continuous customers; and discounts for consecutive years. What are plans, networks, and services, and will strive to realize new growth in the mobile busi- of 100 Mbps or higher in all prefectures in Japan. In the fi scal customers age 25 or younger. This is an industry-leading the prospects for a recovery? ness. In regard to profi ts, we will work to control the impact of the Monthly Support year ending March 31, 2015, we plan to increase the number initiative that addresses changes in the way customers are discount program and selling expenses, and return to a course of growth in the fi scal of these base stations to 40,000, more than 10 times the num- now using their devices, such as higher data communica- year ending March 31, 2016, and thereafter. ber at March 31, 2014. In addition, NTT DOCOMO began to tions usage, increased needs for inexpensive voice calls operate Quad-band LTE, which effi ciently uses four frequency through VOIP, and the use of multiple devices. The plan puts We are aiming to strengthen our competitiveness in the mobile fi eld and expand rev- bands to realize a comfortable communications environment a stop to the market environment marked by excessive com- enue by positioning new business areas as growth drivers. Specifi cally, to make cus- that features high speed and large capacity. In June 2014, petition to secure customers through cash-back incentives, tomers’ lifestyles and business more secure, safe, and convenient, we are leveraging and we expect it to lead to a reduction in the churn rate. In What is your aim in the expan- collaboration with partner companies in a wide range of fi elds to advance a diverse range of services and content that can be used through smartphones and other addition, NTT DOCOMO will work to foster growth in packet sion of new business areas? Growth in Number of 95,300 handsets. In the fi scal year ended March 31, 2014, revenues from new business LTE base stations: communications revenues by encouraging existing custom- areas reached ¥632.0 billion. We will strive to increase revenues from new business LTE Base Stations 1.7 times ers to migrate to smartphones and use multiple devices. areas to ¥1 trillion in the fi scal year ending March 31, 2016.
55,300 LTE base stations Flat monthly rates for Packet quotas that can be compatible with a downlink transmission domestic calls shared among family speed of 100 Mbps or higher: 10 times LTE base stations 24,400 compatible with a downlink transmission speed of 100 Mbps or 3,500 higher: 40,000 base stations Special benefits for Discounts for customers End of year / long-term customers age 25 or younger month 2013/3 2014/3 2015/3
054 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 055 Data Communications Business
Financial Results for the Fiscal Year Ended March 31, 2014
Operating revenues in the fiscal year ended March 31, 2014, increased 4.8% from the previous fiscal year, to ¥1,275.9 increased 3.1% from the previous fiscal year, to ¥1,343.9 billion. This rise was due in part to an increase in unprofitable billion. This gain was due to an increase in revenues from transactions and foreign exchange rate fluctuations. As a overseas subsidiaries and to foreign exchange rate result, operating income was ¥67.9 billion, a decrease of fluctuations. On the other hand, operating expenses 20.9% from the previous fiscal year.
Operating Revenues Operating Income Capital Investment (Billions of yen) (Billions of yen) (Billions of yen) 1,500 100 160 147.7 1,303.5 1,343.9 85.8 75 120 122.1 1,000 67.9 50 80 500 +3.1% 25 –20.9% 40 +21.0%
0 0 0 Fiscal year ended 2013/3 Fiscal year ended 2013/3 Fiscal year ended 2013/3 March 31 2014/3 March 31 2014/3 March 31 2014/3
The NTT DATA Group’s Composition of Sales (by segment)
Global Business Public & Financial IT Services Provision of high-value-added Provision of high-value-added IT ser- ¥314.5 billion IT services in overseas markets vices that support social infrastructure, 21.0% ¥721.6 billion including public administration, health care, fi nance, and settlement 48.3%
Business Environment and Basic Business Policy ¥179.1 billion Solutions & Technologies Enterprise IT Services 12.0% In Japan, the economy is recovering at a moderate pace, with that offer IT assets at lower prices and with shorter delivery Provision of platforms and solutions Provision of high-value-added IT ser- that support cutting-edge IT services vices that support manufacturing, corporate profi ts continuing to improve and capital investment periods. Overseas IT investment is expected to be strong, ¥279.3 billion distribution, services, media, communi- recovering. In the fi nancial, manufacturing, distribution, and centered on emerging markets, and the advances of cus- cations, and other business activities % service industries, companies are advancing IT investment, tomers in global markets continue to accelerate. 18.7 including investment to address IT system renewal projects, In this operating environment, the NTT DATA Group which had been limited, and to support global business devel- is working to evolve into a corporate group that provides a opment initiatives. The information services market is showing wide range of IT services effectively on a global scale. Under Expanding the NTT DATA Group’s Global Platform Data Communications Business signs of a moderate recovery. On the other hand, NTT DATA its medium-term management plan, NTT DATA is taking expects ongoing demand for lower maintenance and operat- steps to achieve the goals of Global Top 5 (revenue over In the fi scal year ended March 31, 2014, approximately 42,000 employees deployed in 175 cities in 41 countries and re- ing costs and continued intense price competition. ¥1,500 billion) and earnings per share (EPS) of ¥200. To that gions outside of Japan. The needs of customers and society are becoming in- end, NTT DATA is focusing on three areas: “Expansion of (As of March 31, 2014) creasingly diverse and sophisticated, and there is growing new fi elds and reinforcement of product competitiveness,” demand for services that enable customers to use IT assets “Expansion, enhancement, and reinforcement of global when necessary without owning them, as well as for services business,” and “Pursuit of overall optimization.” EMEA Americas NTT DATA’s Medium-Term Management Plan China Expansion of new fields and reinforcement Provision of a wide range of IT services Focus area 1 of product competitiveness Medium-term management plan Global Top 5 (revenue over APAC Phase 2 Through fiscal year ending March 31, 2016 Dependency on ¥1,500 billion) large-scale SI Pursuit of overall Previous medium-term Focus area 3 EPS ¥200 management plan Current optimization Provide seamless support in Japan and abroad Phase 1 Through fiscal year ended On the way to Choose suitable resources from all over the world March 31, 2012 evolution Achieve best practices and gain new insights Individual optimization Expansion, enhancement, Focus area 2 Past and reinforcement of global business Bases: 78 cities Bases: 24 cities Bases: 13 cities Bases: 60 cities Entry into the EMEA Employees: APAC Employees: China Employees: Americas Employees: Dependency on the domestic market global market Approx. 13,500 Approx. 10,500 Approx. 4,000 Approx. 14,000
056 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 057 Data Communications Business
Overview
Progress of the Management Policies Status of Business Activity
Expansion of New Fields and 31, 2014, everis became a subsidiary, and as a result our busi- Public & Financial IT Services Solutions & Technologies Reinforcement of Product Competitiveness ness expanded to more than 40 countries around the world As one facet of Japan’s export of infrastructure solutions, To address the rapid uptake of smartphones, we began to To address customer needs for cost reductions, the NTT DATA and the overseas sales ratio surpassed 25%. Moving forward, NTT DATA has launched a service in Vietnam that has offer BizXaasS CRM, which enhances the capabilities of Group is working to expand its business in the provision of we will reinforce our presence in each region and business fi eld. increased the effi ciency of administrative procedures re- smart devices. In this way, we realized the integrated provi- solutions for the reduction of IT costs, such as cloud computing In addition, in overseas markets we will leverage the strengths lated to trade procedures and customs clearance, such sion of smart device handsets and software to control as and application management outsourcing (AMO). In addition, that we cultivated in domestic operations, such as quality, proj- as import / export declarations and port departure and well as supported the operation and control of those de- the NTT DATA Group is working to advance and diversify its ect management capabilities, and production technologies. entry procedures. For this project, NTT DATA drew on its vices. In addition, we began to offer the Multi-Cloud Infra- services for customers requiring the application of IT to opera- With the objective of raising the overseas sales ratio to 50% we extensive knowledge of these procedures in Japan. In structure Service, which allows for the selection and tions that are more sophisticated and complex. These include will strive to achieve growth in global business. Myanmar, as one facet of the Japanese government’s provision of the cloud service that best meets the diverse business analytics and business process outsourcing (BPO) of ODA in infrastructure exports, NTT DATA received an or- needs of the customer, and the Multi-Cloud Control Service, core operations. We are aiming to achieve sustained business Overseas Business Revenues der to develop account system software for the Central which allows for integrated control of multiple cloud services. (Billions of yen) growth through the development of new businesses, such as 500 Bank of Myanmar. 430.0– M2M cloud and robotics operations, and the allocation of 400 406.0 Global Business resources to fi elds in which we can expect existing business- In cooperation with NTT Group companies, our U.S. subsid- 300 298.7 Enterprise IT Services es to achieve growth and higher market shares. In addition, 231.3 As a partner of the Tokyo Electric Power Company, NTT iary NTT DATA, Inc., concluded multiple-year, large-scale 200 the NTT DATA Group is aggressively investing to expand new DATA is advancing a project to construct a smart meter data agreements with the Texas Department of Transportation 100 fi elds of business and strengthen its products, including the management system. In addition, since the start of a service and Yum! Brands, Inc., for a wide range of administrative 0 improvement of software production technologies, such as the Fiscal year ended 2013/3 2015/3 2016/3 for the provision of Twitter data, NTT DATA has advanced and IT support. In addition, an India-based unit of NTT DATA, March 31 2014/3 automation of software development, and R&D into advanced activities for the utilization and promotion of social media. Inc., achieved Maturity Level 5, the highest level, for version technologies in cooperation with academic institutions. Pursuit of Overall Optimization These activities have included the use of Twitter data on 1.3 of Capability Maturity Model Integration (CMMI). CMMI is The NTT DATA Group is taking steps to leverage its scale by news programs, research into purchasing behavior using a model for assessing the maturity of a system development Expansion, Enhancement, and standardizing, streamlining, and consolidating operations on a data analysis, and collaboration with Oracle Corporation organization. Our India-based unit earned Level 5 in both Reinforcement of Global Business global level and by restructuring and consolidating group com- Japan in big data analysis. development and service. The NTT DATA Group is expanding its coverage to new areas panies and organizations. In addition, we introduced the Group in order to support customers’ entries into the global market Business Management Core System, an in-house system to and provide services to overseas markets with growth potential. allocate resources in line with our rapidly changing business Moreover, in areas with existing bases, we are taking steps to portfolio and to increase the effi ciency of Group management. expand, enhance, and reinforce business by leveraging syner- We are working to increase management effi ciency, with the gies with NTT Group companies. In the fi scal year ended March objective of reducing Group administration expenses by 10%. FAQ Questions frequently asked by shareholders and investors Data Communications Business In the fi scal year ended March 31, 2014, we recorded a loss of about ¥31.5 billion in DEPTH Digitally Archiving Historic Handwritten Documents in the Vatican Apostolic Library due to the emergence of a number of unprofi table projects. The principal reasons were aspects of new projects, and of projects that required new technologies, to On March 20, 2014, NTT DATA and Vatican Apostolic Library Companies / which we did not pay suffi cient attention at the time when the order was received. the Vatican Apostolic Library con- Fund Promotion / Image browsing of the archive Corporations How will you avoid and To prevent a recurrence of this type of problem, in addition to screening at each cluded an initial agreement for a Individuals manage unprofi table projects? company, in October 2013 we established the Project Screening Committee, which project involving the digital archiving Researchers & is supervised by the president. This committee will screen projects that involve new Support institutions and long-term preservation of hand- customers, operations, or technological functions and exceed a certain scale. Moving written documents that are historic I. Digitization and storage: II. Release of promotional portal: forward, we will work to limit unprofi table projects by appropriately utilizing this com- Provision Contribution to preservation of PR for business historic treasures of humankind mittee and ensuring appropriate project implementation plans. treasures of humankind. These doc- of Digitization Digital archive service System integration Portal site uments, about 80,000 volumes with service NTT DATA is conducting systematic marketing. For example, we categorize our busi- about 40 million pages, are from the ness fi elds into growth fi elds, stable fi elds, and fi elds from which we will withdraw. 2nd to the 20th centuries and are You are devoting resources to Even for fi elds in which we were unable to make a market entry in the past, the situa- held by the Vatican Apostolic Library. The initial agreement between the Vatican Apostolic Library and NTT DATA, which is overseas business, but what tion changes from moment to moment, and the application of new technologies will worth approximately ¥2.3 billion, will cover the digital archiving of about 3,000 documents over a four-year period. In partici- initiatives will you implement in be possible in some cases. In these ways, we use the term “re-marketing” to refer pating in this project, NTT DATA will leverage the track record and know-how that it acquired through the construction of a the future for domestic business? to test runs for the creation of markets without being limited by preconceived ideas. digital archiving systems at Japan’s National Diet Library and through the provision of the AMLADTM digital archive service. In Through re-marketing initiatives we are working to expand our market share, cen- the future, NTT DATA will promote business operations related to digital archiving not only in Japan but worldwide. tered on such fi elds as manufacturing, distribution, broadcasting, and utilities.
058 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 059 Other Businesses
Financial Results for the Fiscal Year Ended March 31, 2014
Operating revenues in the fi scal year ended March 31, 2014, electric power business. On the other hand, operating ex- were ¥1,328.5 billion, an increase of 6.1% from the previous penses were ¥1,272.4 billion, an increase of 6.2% from the fi scal year. This gain was due to higher revenues in the fi - previous fi scal year, due in part to an increase in expenses nance business, higher revenues in the real estate business associated with the higher revenues. Consequently, operat- as a result of an increase in the number of condominium ing income was ¥56.1 billion, an increase of 5.3% from the units delivered, and higher revenues in the construction and previous fi scal year.
Operating Revenues Operating Income Capital Investment
(Billions of yen) (Billions of yen) (Billions of yen) 1,500 60 200 56.1 1,328.5 53.3 1,251.9 160.7 150 150.7 1,000 40 100 500 20 +6.1% +5.3% 50 –6.2%
0 0 0 Fiscal year ended 2013/3 Fiscal year ended 2013/3 Fiscal year ended 2013/3 March 31 2014/3 March 31 2014/3 March 31 2014/3
Real Estate Business Finance Business
Initiatives and Overview NTT Urban Development, which is the Group’s only comprehensive As the core fi nance company of the NTT Group, NTT FINANCE con- real estate company, conducts real estate leasing operations, cen- ducts leading-edge fi nance, settlement, and billing services. Through tered on offi ce buildings and commercial facilities, and condominium lease fi nance, credit cards, billing, and other services, NTT FINANCE NTT Urban Development Co. operations, principally through the WELLITH brand. Leveraging the meets a wide range of customer needs. As a Financial Solution Part- know-how acquired through these operations, NTT Urban Develop- ner, from July 2012 NTT FINANCE began billing and receipt opera- ment is expanding into new fi elds of business, such as global, real tions for communications service and other charges for NTT East, Developing Global Business redevelopment project in New York. In Asia, NTT Urban De- estate fund and real estate solutions businesses. NTT West, NTT Communications, and NTT DOCOMO. NTT FINANCE To diversify its asset portfolio, NTT Urban Development is velopment has opened an offi ce in Singapore. Moving for- now provides billing and other settlement services. advancing into Europe and the United States, where the ward, NTT Urban Development will take steps to secure markets have high levels of liquidity, and Asia, where the future growth opportunities, such as considering business Construction and Electric Power Business System Development Business markets are recording growth. In the fi scal year ended March proposals leveraging synergies with the NTT Group, which 31, 2014, in the United States NTT Urban Development es- has a presence in 46 cities in 17 countries in Asia. NTT FACILITIES provides one-stop services for buildings and structures, NTT COMWARE, which has core competencies in network technolo- tablished a local subsidiary in Delaware and participated in a ranging from planning, design, and construction to maintenance, opera- gies, systems and applications, and support and maintenance, is tion, and upkeep. In energy operations, NTT FACILITIES helps to build taking steps to build full IP networks, which will be the foundation of optimal energy environments from a comprehensive perspective, extend- broadband and ubiquitous services, and to develop operation sys- NTT FACILITIES, INC.
ing from consulting to monitoring, maintenance, and improvement propos- tems and application services for use in traffi c control to ensure com- Other Businesses als. In construction, NTT FACILITIES combines the technical capabilities munications quality. In these initiatives, NTT COMWARE is working acquired as a fi rst-class registered architect offi ce with IT and energy tech- together with NTT Laboratories and other Group companies. nologies to contribute to increases in the asset values of buildings and Building Solar Power Generation Systems / with a total generating capacity of 175.4 megawatts, one of the structures and to stronger management foundations for customers. Data Center Solutions largest capacities in Japan. NTT FACILITIES offers a wide range NTT FACILITIES provides large-scale solar power generation sys- of data center solutions that meet customer needs and facilitate Advanced Technology Development Business Others tem solutions that combine energy operations and construction continued increases in data center value. These include solutions
operations. As of the end of March 2014, NTT FACILITIES had to reduce electric power costs, solutions to address aging facili-
installed solar power generation systems in about 1,155 locations ties and buildings, and solutions to reduce workforce levels.
NTT Broadband Platform, Inc. NTT Group companies in this business segment offer design, devel- opment, maintenance, and operation as well as the provision of ser- vices backed by the advanced technologies of NTT Laboratories. Expanding Public Wireless LAN Services the use of this application, foreign visitors to Japan can These services include technology consulting backed by combina- NTT Broadband Platform constructs and operates access search for free Wi-Fi areas and complete the authentication tions of the latest technologies, such as network technologies, media points for public wireless LAN services provided by the NTT procedures needed for each area all at once. This applica- interface processing technologies, and other advanced technologies Group and others. It also constructs and operates informa- tion has been well-received for its resolution of problems from Japan and overseas; development, production, and sales of custom LSIs for communications use and optical devices that are tion provision platforms through collaborative ventures with related to the Wi-Fi environment faced by foreign visitors to indispensable in the realization of high-capacity communications etc. municipalities and companies. In November 2013, NTT Japan. In July 2014, NTT Broadband Platform received the networks; and total solutions related to software design / develop- Broadband Platform began to offer Japan Connected-free top prize at MM Research Institute Awards 2014. ment and information / communications networks. Wi-Fi, an application for smartphones and tablets. Through
060 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 061 Research and Development
R&D Initiatives Platform that allows all types of NTT R&D: Increasing Value in a Wide Range of Fields and Industries Any device devices to be connected Under the NTT R&D vision of develop- The role of a telecommunications operator has evolved ×ICT Simple and intuitive ing cutting-edge technologies that con- Creating a New Future Any people Any service from connecting people through “telecommunications” to Enhances the value in various user interface Information fi elds and industries tribute to the advancement of society, through ICT communications Highly reliable service connecting people and information through “information Creation of new value platform Connects people with science and industry, NTT has approxi- Any network communications.” Moving forward, as a partner that in- information Network imperceptible mately 2,500 researchers engaging in a to users creases value in a wide range of fi elds and industries, the Telecommunications Markets, technologies, Connects people wide range of diverse research activi- NTT Group will strive to contribute to the resolution of so- High-speed transmission institutions, etc., in ties, from basic research to R&D that Comprehensive Conversion of R&D of vast amounts of other fi elds commercialization functions results into business cial issues, such as the decline and aging of Japan’s popu- information supports the business development lation. In addition, to increase comfort and abundance in Rapid connection Information 1 Audio, speech & Information processing technology initiatives of operating companies. navigation xICT platform / UX* language Video & image society as a whole, we will work to accelerate the creation anytime Communication services R&D is the source of the NTT Group’s Cloud computing OSS*2 support Software develop- Cryptography and platform ment technology security of new value through the provision of technologies that Telecommunications technology growth potential. On that basis, the Convergence Network Environment and meet diverse needs. Past Present From now on network architecture energy Network operation NTT Group creates competitive tech- Information networks Communication traffi c Network technology nologies and engages in open innova- & service quality tion / collaboration initiatives with a Broadband and Electronics Photonics ubiquitous technology technology technology Open Innovation / Collaboration Initiatives Cutting-edge technologies wide range of corporations, universities, Communications Physics and Going forward, the NTT Group will utilize the fi elds and industries. In R&D, to meet the diverse needs of science materials science Hikari Collabora- and research institutions. In this way, (pages 15 to 19) to accelerate the creation of new customers, we will strive to foster innovation through collabo- *1 UX: User experience tion Model we strive to create new value. *2 OSS: Open-source software value through collaboration involving ICT and a wide range of ration with a wide range of partner companies.
Initiatives Targeting the Achievement of the Medium-Term Management Strategy Joint Development with Toray Industries —Functional Material hitoe In cooperation with Toray, we have developed and commercial- Expanding Global Cloud Services To increase the added value of cloud services, we are con- developed technologies that provide a high level of de- ized hitoe, a functional material that can measure biometric infor- ducting R&D into cloud migration support technologies fense, such as world-class malware countermeasure mation, such as heart rate and electrocardiogram waveform. and cloud platforms that enable rapid responses to diverse technologies, security management technologies, and Simply by wearing clothing that uses this material to measure biometric information, consumers will be able to comfortably needs. In addition, to eliminate concerns associated with encryption technologies. In this way, we are working to Functional material hitoe Clothing that measures Heart rate / the use of cloud services, such as unauthorized access differentiate the NTT Group’s cloud business. (For specifi c and easily measure their biometric information in wide range of biometric information electrocardiogram through the use of hitoe waveform and other security threats as well as loss of data, we have examples please refer to page 27.) daily life activities, such as working, playing sports, or driving.
Collaboration between NTT and DWANGO Strengthening Network Competitiveness Next-generation carrier networks using virtualization tech- rapid provision of necessary services. The use of these tech- Interactive Visual Technology for Spherical Images NTT, and DWANGO, which operates niconico (niconico Spherical scene nologies are one focus of our R&D activities. Using virtualiza- nologies facilitates effi cient network operation, and reduc- compression Douga, niconico Live), have jointly developed a prototype of Spherical scene
tion technologies—Network Functions Virtualization (NFV) tions in Capex / Opex can be anticipated. In addition, it will stream and Development Research a new service that provides an interactive view in any direc- Spherical scene and Software Defi ned Networking (SDN)—we have realized be possible to fl exibly provide network functions to custom- recording Selective delivery tion through a head-mounted display (HMD) that receives for each user highly reliable network services on inexpensive, general-use ers and partner companies. images from a 360-degree spherical camera placed in a live servers, and have developed technologies for the fl exible, house. No matter what direction viewers look, they receive Watch intuitively high-quality images without loss of fi eld of view. In this way, through head- Conventional Network Next-Generation Network (NFV + SDN) mounted display this service offers a new visual experience with a rich sense • Each device is dedicated to Advanced control functions and service functions are implemented nicofarre (Live house) Interactive viewing technology a specifi c function in software and centralized in cloud. of presence that makes it seem like the user is there. Cloud Virtual machine Function A Function B Function C Function D Function E Function F
Switch General-purpose servers NTT Receives Top 100 Global Innovators Award for Third Straight Year Simple construction Separation of with general-purpose Rapid and fl exible equipment service provision Firewall control functions NTT has received awards under the Thomson Reuters Top 100 Global Innovators and transport 2013 THOMSON REUTERS Integrated control of network network program for three consecutive years, from 2011 to 2013. This program selects Transport network equipment actions Load balancer innovative companies from around the world. We believe that our receipt of this General-purpose equipmentGeneral-purpose equipmentGeneral-purpose equipmentGeneral-purpose equipment TOP 100 award is global confi rmation of the advanced state of our R&D and of the innova- General-purpose equipmentGeneral-purpose equipment GLOBAL INNOVATORS Simple construction General-purpose equipmentGeneral-purpose equipment tions and results that have been produced by our R&D programs. WAN accelerator, etc. with general-purpose equipment Made up of commoditized, inexpensive, general-purpose equipment
062 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 063 NTT Group CSR
Guided by the NTT Group CSR Charter, we will contribute to the realization of a sustainable society by linking CSR initiatives and management strategies.
NTT Group CSR Charter
NTT drew up the NTT Group CSR Charter in June 2006 as a basic guideline for the more active implementation of CSR Creation of a safe, activities by Group companies. It revised the Charter in June 2011. The NTT Group CSR Charter consists of a state- Safe and secure secure and prosperous Team NTT ment of our commitment to corporate social responsibility, and the four CSR goals that outline specific priority aspects communication society through communication of our CSR activities. communications that serve people, communities, and the global environment NTT Group CSR Charter Communication Communication between people between people Our Commitment and their and the global As a leader of the information and telecommunications industry, the NTT Group is committed to providing communities environment reliable, high-quality services that contribute to the creation of a safe, secure and prosperous society through communications that serve people, communities, and the global environment.
Our CSR Goals In our NTT Group CSR Charter, we set ourselves four address various social issues through providing Global Communication between people and their communities Groupwide CSR goals. By linking CSR and management Cloud Services. These goals are closely tied to our CSR strategies, we are implementing activities in line with the goal of enabling communication between people and their 1. We shall strive to create a richer and more convenient communications environment, and utilize our technology to contribute to the resolution of the various issues faced by societies with aging and declin- CSR goals. communities. Where cloud services are concerned, building ing populations. We announced a new Medium-Term Management rock-solid security and data centers is essential to the Strategy, “Towards the Next Stage,” in November 2012. To creation of a safe and secure usage environment, and is Communication between people and the global environment reach the next stage in our evolution, we are committed to thus closely tied to our CSR goals of ensuring safe and achieving the dual goals of establishing Global Cloud secure communication and promoting communication 2. We shall strive both to reduce our own environmental impacts and build environment-friendly forms of Services as the cornerstone of our business operations between people and the global environment. communications, and to provide information and communications services that help to reduce the impact and Comprehensively Strengthen Our Network Service By increasing the efficiency of network facilities and of society as a whole on the global environment. Competitiveness. These goals are closely connected to the providing highly reliable services, we are comprehensively CSR goals outlined in our CSR Charter. strengthening our network service competitiveness, and in Safe and secure communication To ensure that we continue to be our customers’ first this way we are contributing to innovation through collabo- choice as a trusted “Value Partner,” we are committed to ration with a wide range of industry players. 3. While striving earnestly to ensure information security and resolve telecommunications-related social supporting our corporate clients in their efforts to transform By linking our CSR initiatives and our management issues, we shall do our utmost to provide a safe and secure user environment and contribute to the their business models and our individual customers in strategies in this way, we will contribute to the realization creation and future development of communication culture. creating diverse lifestyles, while at the same time helping to of a sustainable society. 4. Fully recognizing the role that telecommunications plays as critical infrastructure supporting society and protecting our livelihoods, we shall strive to offer secure and reliable telecommunications services fortified to NTT Group CSR NTT Group withstand disasters and capable of connecting people irrespective of time, location and other circumstances. Listed on Overseas Socially Responsible Investment (SRI) Indices NTT has been highly rated by SRI evaluation organizations. As of September 30, 2014, we are listed on international Team NTT communication SRI indexes such as Dow Jones Sustainability Asia Pacific Index and Ethibel Sustainability Index (ESI) Excellence 5. As Team NTT, we pledge to apply the highest ethical standards and awareness of human rights to our Global (Belgium). business duties, striving to fulfill our mission to society by working for the creation of pleasant work- places, personal growth, and respect for diversity, and for the further development of a flourishing and vibrant community.
Team NTT comprises all NTT Group employees, including temporary employees, contract employees, employees of our corporate partners, and also former employees who endorse the NTT Group’s CSR activities.
064 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 065 NTT Group CSR Charter
Managing PDCA Cycles across the Coordinating CSR Initiatives across the Group through Group CSR Liaison Meetings and Working Groups Group Based on Our CSR Priority Activities We hold periodical Group CSR Liaison Meetings to coordi- In June 2005, NTT established the CSR Committee to enhance the effectiveness of PDCA management. We will nate CSR activities across the whole Group through ensure the sustained and appropriate implementation of continue to promote Groupwide initiatives with the aim of discussing common issues, sharing information on success- CSR management. The committee is chaired by a Senior further integrating CSR activities with business goals. ful initiatives, and other means. We have also established Executive Vice President and comprises all directors up to issue- and theme-based working groups such as the Group NTT Group CSR Organization the level of Senior Executive Vice President. In addition, two CSR Priority Activities Review Committee and the Green with internal committees—the Global Environmental Protection Board of Directors Team NTT Promotion Working Group (which examines Promotion Committee and Social Contribution Promotion employee participation-based environmental initiatives) to President (Executive Officers Meeting) Committee—have been established. In this way, the NTT promote unity in CSR activities across the Group through
Group is advancing CSR in a systematic, ongoing manner. Committees Group CSR Liaison Meetings Groupwide projects. Under this system, based on the Guidelines for NTT CSR Committee CSR Promotion Working Groups Group CSR Activities that we drew up when we established Global Environmental Protection our NTT Group CSR Priority Activities in fiscal 2009, we work Promotion Committee with Group companies to monitor progress on the implemen- Social Contribution Promotion Committee tation of our CSR Priority Activities with respect to PDCA cycles and further promote a sense of unity across the Group. Corporate Ethics Committee From fiscal 2011, we have been coordinating CSR Business Risk Management Committee activities with business planning management so as to
Deciding Priority Activities for Each of the Four Goals Set Forth in the NTT Group CSR Charter Completion of the Setting of Quantitative Indicators for CSR Priority Activities
To drive the implementation of the NTT Group CSR Charter drawn In deciding our CSR Priority Activities, we drew up a list of 49 In fiscal 2010, Group companies drew up CSR action plans for each level. In fiscal 2012, we started to set common Groupwide up in June 2006 and take a more unified approach to addressing CSR activities that we saw as important both to the NTT Group and of the eight CSR Priority Activities so as to link them to their respective quantitative indicators, and we completed the setting of quantitative social issues both within Japan and overseas, we established our to stakeholders and society at large (see diagram below). We then businesses and take CSR activities across the Group to a higher indicators for all eight CSR Priority Activities in fiscal 2013. NTT Group CSR Priority Activities in November 2008 as activities to examined each activity to rate relative importance and PDCA be pursued in common by Group companies. management level to eventually narrow the list down to our eight CSR Priority Activities (see the page on the right).
Creating matrix of importance and Activities regarded as Rating importance CSR Goals CSR Priority Activities CSR Quantitative Indicators Results in Fiscal Year Ended March 31, 2014 important by the NTT Group PDCA management-level ratings We then rated the 49 activities Communication Number of new products / services NTT Group CSR Charter Helping to build a sustainable society for their importance from the between people and qualifying as contributing to sustainable 271 Medium-Term Management perspectives of the NTT Group 4 Independent through providing value to customers Further expansion their communities society Strategy, etc. CSR Charter, Medium-Term implementation Management Strategy, Creating a low carbon society CO2 emissions 4.852 million tons guidelines issued by various organizations, and the 3 Communication Final disposal rate for all waste materials* 1.15% CSRCS activityty initiatives of Japanese and between people and Implementing closed loop recycling CSR activityty CSRC activity Total paper consumption* 60,000 tons overseas companies known the global environment 49 CSR activities for CSR excellence and other Common qualitative initiatives for ecosystem ICT companies. 2 Conserving biodiversity CSR activityty CSRCS activity preservation and forest improvement activities* CSRC activityty Thought required PDCA improvement Number of employees receiving Ensuring information security 300,000 CSR NTT Group Rating PDCA information security training PDCA management level management level 1 Safe and secure Activities regarded as Service stability 99.9% Major group companies then communication important by stakeholders and Ensuring stable and reliable services investigated the current society at large as critical infrastructure status of the 49 CSR activities Global Reporting Initiative Number of serious accidents 4 to rate the PDCA level at 0 Nippon Keidanren which they are managing (Japan Business Federation) tools Promoting respect for diversity and them on a scale of five. Importance Ratio of women in managerial positions 3.3% for CSR promotion equal opportunity ISO 26000 We mapped all 49 activities on the matrix, placing those earning Team NTT Ministry of the Environment’s high importance and PDCA management level ratings in the Number of local community Environmental Reporting Guidelines communication “further expansion” category, and activities of high importance cleanup participants 123,000 participants UN Global Compact ten principles but with low PDCA management level ratings in the “PDCA Implementing citizenship activities Public feedback on NTT Group Number of PET bottle caps collected improvement” category. Approximately 29 million caps (Ecocap Movement)
* Indicator leading up to the fiscal year ending March 31, 2021
066 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 067 Dialogue with Stakeholders
Raising CSR Awareness through Symposiums and Conferences NTT Group CSR Conference
The NTT Group holds a yearly Environmental / CSR Report- For the NTT Group CSR Conference, we invited Group The conference successfully enhanced the CSR ing Symposium with assistance from the Ministry of the companies to submit superior CSR initiatives in line with the awareness of Group employees, and participants Environment and the Ministry of Economy, Trade and NTT Group’s CSR Priority Activities. More than 60 submis- commented that they had developed a deep understanding Industry. This symposium surveys and analyzes reports from sions were received, and from these nine superior initiatives of the initiatives of other companies and that they had the reader’s perspective and publishes its findings with the were selected. The conference was attended by 140 developed a better understanding of how their company is aim of raising awareness regarding CSR activities and people, including people in charge of the selected initiatives useful to society, which made them proud. We will continue reporting among the CSR handlers of participating companies. and people in charge of CSR and environmental issues at to hold this conference next year and in the years ahead, The 14th Symposium, which was held in December each company, as well as other Group employees with an and we will work to increase the numbers of initiatives and 2013 and drew a turnout of about 300 participants, featured interest in CSR. participants and to further enhance CSR awareness. a panel discussion on the subject “Human Resources At the presentation of the superior CSR initiatives, the Portfolio for 2020 to 2030—Is Your Organization Ready for person in charge of each initiative discussed the initiative’s purpose, how it got started, its characteristics and results, the Future?” and reported on the results of a questionnaire Environmental / CSR Reporting Symposium survey conducted both in Japan and overseas to compare its future outlook, and other matters. After the presentation, attitudes regarding the same subject. opinions, impressions, and questions were received from the In addition, in February 2014 we held the NTT Group participants. The conference concluded with the selection of CSR Conference with the objective of further promoting one initiative for the First NTT Group CSR Award. The panel the CSR initiatives that have been implemented by NTT of judges comprised people in charge of CSR at Group Group companies. companies, and the selection was made from the viewpoints of the scale of the social issue and the extent of the resolution, newness and originality, and future potential in Web Environmental / CSR Reporting Symposium (eco goo) such areas as business development. http://www.goo.ne.jp/green/business/env_report / (Japanese only)
Initiatives Presented at the NTT Group CSR Conference
First NTT Group CSR Award Cloud-based system to address the problem in emergency medical care where ambulances carrying people needing emergency transport are refused at multiple hospitals
Superior initiatives
Seamless, disaster-resistant community healthcare cooperation
Realization of optimal energy usage to reduce environmental burdens
Rearing environment sensing for endangered species through the use of a sensor network CSR NTT Group
Participating in the Hana Ippai Project at Higashiyama Zoo and Botanical Gardens
Construction of disaster-resistant information cooperation system in Ishinomaki city
BRIMOS® bridge monitoring system CSR activities that promote understanding of disabilities and initiatives to support the creation of pleasant, agreeable workplaces Tohoku reconstruction support volunteer initiative
068 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 069 For more information, please refer to the Company’s CSR website. Communication between People and Their Communities http://www.ntt.co.jp/csr_e/
We will leverage ICT to help address social issues and create a more prosperous and convenient society. Disaster-Resistant Community Healthcare Integration
In Miyagi Prefecture, certain areas have been suffering from system spread to the Sendai healthcare community area, and CSR Priority Activities shortages of medical practitioners as well as aging and is now being used by approximately 300 medical facilities. declining populations, creating a need for the efficient However, the need to prepare for large-scale natural integration of medical and nursing care systems to enhance disasters and address shortages of medical practitioners healthcare and welfare services. This region also faced the and aging and declining populations is not limited to Miyagi Helping to build a sustainable society through Number of new products / services qualifying as contributing need to respond to losses of medical records. This was Prefecture, but is rather an issue shared by many regions. providing value to customers to sustainable society 271 because the tsunamis that followed the March 2011 Great Accordingly, the NTT East Group will continue supporting East Japan Earthquake washed away physical medical the efforts of medical practitioners and municipal govern- records. In addition, even some hospitals that had introduced ment agencies across Japan to make community healthcare Importance electronic medical record systems suffered from losses of integration a reality. The development of ICT technologies is advancing centered across industry lines in order to create new innovation that data from on-site servers due to flooding from the tsunamis. around the globalization of corporate activities and their shift builds on state-of-the-art ICT platforms and technologies. To address this situation, Miyagi Prefecture collaborated with Miyagi Medical and Welfare Information Network to Diagnosis Health Nursing toward cloud computing, and this trend is breaking down the NTT believes that it can contribute to the resolution of social records records records create an ICT medical system for promoting community borders between various fields and industries. In the midst issues, and subsequently the development of the Japanese healthcare integration that was resilient to disasters in the Accumulation and Safe access anytime, sharing of medical records anywhere of these changes, it will be important for various customers economy, by accelerating the birth of such collaboration-bred Ishinomaki-Kesennuma healthcare community area. This (industry players) to engage in collaboration that spreads synergies through the promotion of ICT usage. undertaking took advantage of the project for building
foundations for community healthcare in northern Honshu Home-based Family Specialists sponsored by the Ministry of Internal Affairs and Communica- healthcare doctors Clinics NTT’s Initiatives tions. The NTT East Group was assigned to construct and Key hospitals Patients / residents
By leveraging ICT to help address social issues, NTT aims we will improve upon our data centers and global IP operate this system. The system went on stream in the Municipal University hospitals / Pharmacies Residential governments emergency medical facilities to achieve steady growth together with its stakeholders. To backbone, both of which already boast world-leading levels Ishinomaki-Kesennuma healthcare community area during care facilities guide us, we have positioned “Global Cloud Services” as the of quality. The Company will also undertake a wide range of July 2013. In the fiscal year ended March 31, 2014, the Regional healthcare community Wide-area healthcare communities cornerstone of our business operations and “Comprehen- other initiatives, including field trials for linking schools with sively Strengthen Network Service Competitiveness” as our households through ICT, facilitation of cooperation among strategic focus in the Medium-Term Management Strategy. regional medical institutions, and the utilization of Wi-Fi Striving to bring our operations in line with these directives, networks to breathe new life into local communities. Ehime Prefecture’s Wi-Fi Community Invigoration Plan
Recently, Ehime Prefecture has been advancing a project to plan to expand this service’s availability to other stores, Field Trial for Education Square x ICT invigorate the regional community through the use of Wi-Fi. tourist spots, and lodging facilities with the aim of providing Project to Link Schools with Households This project is being advanced by the Ehime Public Wireless an even more comfortable Internet usage environment and LAN Promotion Committee, which consists of representa- helping invigorate the community. Over the three-year period encompassing the fiscal years educational applications with the aim of making ICT a more tives from municipal government agencies and private- ended March 31, 2012–2014, the NTT Group has been common fixture in the classroom. sector telecommunications companies as well as Ehime advancing a field trial for the Education Square x ICT project, University. At the same time, Ehime Prefecture is working to Example of DoSPOT Usage Method which is designed to uncover new possibilities in the use of Education cloud transform certain areas, such as the Setouchi Shimanami Wireless ICT for educational applications. The trial was conducted Kaido Expressway, into popular cycling spots. access School portal Digital Lesson point DoSPOT (in-store) with the cooperation of 12 public elementary and junior (Divided into education plan LMS* To aid these efforts, in October 2014 NTT West will teacher and materials preparation CSR NTT Group high schools in five municipalities nationwide and through student portals) library tool begin installing the DoSPOT Wi-Fi services provided by NTT partnerships with academia, education-field experts, and MEDIASUPPLY CO., LTD., into stores, tourist spots, and educational material producers. logging facilities alongside the Setouchi Shimanami Kaido Home School Through this field trial, we witnessed an improvement in Expressway and the cycling paths in Ehime Prefecture. By DoSPOT STREET Classroom Staff room the interest levels, motivation, and even attitudes of students providing these services, we hope to supply tourists with Joint classes with using ICT, as well as in their cognitive and language skills. Electronic tourist information regarding Ehime Prefecture and respond Close Self study other schools in Network for visitors contact blackboards School LAN Japan and overseas Similarly, educators were inspired to utilize ICT after seeing the to the needs of cyclists wanting to utilize Wi-Fi networks. Usable up to 60 minutes per day (15 minutes × 4 times) on any Wi-Fi compatible terminal! with parents / Tablets benefits for students, and even veteran educators were able guardians * LMS (Learning DoSPOT can be used without charge by anyone Unlimited usage for FLET’S SPOT (free public wireless LAN service) subscribers! Management System) to incorporate ICT into their classes, showing that ICT skills Easy-to-use ICT for teachers For the integrated carrying a Wi-Fi compatible terminal, regardless of their were not a huge requirement. (Instruction methods and support) management of terminal type or contracted carrier. DoSPOT was available at educational material Looking ahead, the NTT Group plans to broadcast Network connecting school components distribution, study many stores, shopping districts, and tourist spots through- Portable gaming Smartphones / (classroom / staff room), school with homes, progress / history, etc. PCs devices Tablets information regarding the benefits and challenges of ICT for school with other schools out Ehime Prefecture as of March 31, 2014. In the future, we
070 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 071 For more information, please refer to the Company’s CSR website. Communication between People and the Global Environment http://www.ntt.co.jp/csr_e/
We are committed to reducing both the environmental impacts of our own business activities NTT’s Initiatives and those of society as a whole through providing ICT services. In November 2010, we formulated THE GREEN VISION by ICT,” which entails utilizing ICT services to reduce the 2020, our new NTT Group vision for the environment. Under environmental footprint of society as a whole; and “Green CSR Priority Activities this vision, we decided to focus our future efforts on the with Team NTT,” which involves NTT Group members and three environmental themes of creating a low carbon society, their families working with communities to help advance implementing closed loop recycling, and conserving biodiversity. various environmental conservation initiatives. Creating a low carbon society Efforts based on these three themes will be driven by Guided by this vision, the NTT Group is banding together CO2 million emissions three approaches: “Green of ICT,” which targets lower to contribute to the sustainable development of society. 4.852 tons environmental impacts from our business activities; “Green Importance
Reducing emissions of CO2 and other greenhouse gases, help realize lower society-wide energy consumption and
which are known causes of climate change, is an important CO2 emissions through means such as improving energy issue for society. In the ICT field, the advancement of and distribution efficiency. Green of ICT technologies brings with it concern for the rise in electricity Realizing this, the NTT Group is going beyond simply This approach is geared toward reducing the extent to which the NTT Group consumption that accompanies the need for processing reducing the amount of CO2 emitted by its business impacts the environment. One way this will be accomplished is by lowering the larger volumes of data and cooling massive servers. For this activities. By actively developing ICT services that help lower electricity consumption of ICT equipment, networks, data centers, and other
reason, ICT companies are increasingly being expected to the environmental footprint of society as a whole and ICT facilities in order to decrease CO2 emissions. At the same time, we will make their operations more energy efficient in order to lower promoting the spread of these services, we are working to reduce resource consumption by reusing and recycling ICT equipment while emissions. Conversely, ICT also possesses the potential to contribute to the creation of a low carbon society. also limiting the impacts of our communications facilities on ecosystems.
Implementing closed loop recycling Final disposal Total rate for all paper waste materials 1.15 % consumption 60,000tons Importance
Fossil fuels are indispensable to various industrial activities faced with the urgent need to realize sustainable usage of as energy resources and as the raw materials that make up the resources that it is built upon. chemical products. For this reason, the depletion of these At the NTT Group, we practice the “3 Rs” (reduce, fossil fuels could have an immeasurable impact on society. reuse, recycle), working to reduce the amount of materials Mineral resources, meanwhile, are a subject of concern consumed by our business activities and reuse or recycle as inter-country disputes are resulting in these resources the resources that are consumed. In addition, we are becoming increasingly difficult to procure and they are utilizing ICT to create systems for implementing closed loop becoming more expensive. At the same time, wood recycling in various industrial fields and to spread the 3 Rs resources are facing a need for stricter management amidst throughout society with the aim of helping society “close global deforestation. In this manner, the industrial society is the loop.”
Conserving biodiversity NTT Group CSR NTT Group Importance Green by ICT Green with Team NTT Held in Nagoya, Aichi Prefecture, during 2010, the 10th be impossible without an eye turned to biodiversity. This approach targets the reduction of the environ- This approach entails utilizing the manpower of “Team Conference of the Parties to the Convention on Biological Aware of this fact, the NTT Group takes the utmost care mental footprint of society as a whole from a broad NTT,” which consists of NTT Group members that Diversity (COP 10) served as a catalyst igniting concern for in preserving the natural environment in the areas surround- perspective encompassing a wide range of fields. support our CSR ideals, to participate in and contribute biodiversity conservation across Japan and sparking a ing sites where it builds offices, operating bases, or base Specifically, efforts include utilizing ICT to decrease to various environmental conservation initiatives nationwide wave of initiatives in this area. stations in addition to where it lays telecommunications the need to move people and objects, lower together with communities. Team NTT happily invites Everything we do, whether in our everyday lives or cables. consumption of resources, improve the efficiency all willing participants, including regular employees, during the business activities of the NTT Group, is At the same time, we are using the information transmis- of energy usage and supply chains, and make contract employees, temporary employees, and connected to the various life forms that exist on this planet. sion capabilities we possess as an ICT service company to environmental impacts more traceable. everyone else who works at the NTT Group as well as For this reason, the sustainable development of society will educate the public on the importance of biodiversity and help their families, retired employees, and business partners.
072 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 073 Communication between People and the Global Environment
Creating a Low Carbon Society Implementing Closed Loop Recycling Green Data Centers Single Billing and Internet Billing Services to Reduce
The role of data centers is growing increasingly important large amounts of electricity, NTT Communications uses the Amount of Paper Required for Billing Statements as the evolution of the ICT society progresses. Accordingly, high-efficiency water-cooled package systems and systems data centers are now expected to employ their own that cool through the intake of cold outside air. In addition, The NTT Group is improving customer convenience and employ the Ecoloju™ bio-based film developed by Mitsubishi environmental measures, such as those for reducing CO2 the company installs the Aisle Capping*2 airflow control helping to reduce consumption of paper through its single Plastics, Inc. This film is primarily made from polylactic acids emissions through energy savings. At the NTT Group, we solution and the Blank Panel system, which realize more billing service, which bundles monthly mobile phone, derived from plant and other bio-materials. After use, are actively advancing the development of technologies for efficient air flows, and introduces the advanced Smart fixed-line phone, and Internet usage charge invoices into if polylactic acid-based materials are buried or submerged 3 creating green data centers centered on companies that DASH* technology. These measures have proven effective one bill. in water they will biodegrade into water and CO2, thereby operate data center businesses. in curbing electricity consumption. In the fiscal year ended March 31, 2014, subscriptions allowing these substances to return to nature. At NTT DATA, for example, the creation of green data Such initiatives have earned high recognition in Japan to this service reached approximately 650,000, reducing Going forward, the NTT Group will continue reducing its centers is progressing based on five approaches: employing as well as overseas. In the fiscal year ended March 31, paper consumption by approximately 78 tons per year. paper usage while proactively employing materials that help virtualization technology, utilizing renewable energy, 2013, NTT Communications’ Singapore data center earned We also reduce our consumption of paper by providing lower environmental impacts. conducting green consulting, designing high-efficiency a Gold rating under the LEED green building rating system*4 customers who pay telephone charges by bank transfer with racks, and implementing high voltage direct current (HVDC) for eco-friendly buildings, and this rating was then acquired Internet billing services that enable them to check billing power transmission systems. by its Hong Kong Financial Data Center in the fiscal year statements and other information through Internet, e-mail, In April 2013, a joint project conducted between NTT ended March 31, 2014. and mobile phones. DATA and Intel Corporation placed as a finalist in the IT In the fiscal year ended March 31, 2014, subscriptions to Mobile phone Fixed-line telephone PC Product Deployment Division of the 2013 Green Enterprise IT this service reached 21.07 million, reducing our paper Smartphone (provider, etc.) Awards*1. This project, a verification test for data center *1 Green Enterprise IT Award consumption by approximately 42.47 million tons per year. business continuity technologies, utilized the power supply This award scheme is organized by the Uptime Institute of the United States to For the plastic viewing windows on the envelopes used Single billing management functions equipped on Intel® processors to recognize highly original products, projects, and ideas from around the world that when mailing monthly billing statements to customers, we contribute to energy savings in ICT. measure the electricity usage of data center servers and *2 Aisle Capping adjust power supplies based on server load. This verification Aisle Capping is a registered trademark of NTT FACILITIES, INC. testing confirmed a decrease in total data center electricity *3 Smart DASH Smart DASH is a registered trademark of Vigilent Corporation consumption of 16%–18%. (http://www.vigilent.com/). NTT Communications takes steps to reduce the *4 LEED green building rating system This system is operated by the U.S. Green Building Council, an environmental NPO, Conserving Biodiversity environmental impact of its data centers beginning at the for the purpose of rating the performance of eco-friendly buildings. LEED stands for design phase. For air-conditioning systems, which consume “Leadership in Energy & Environmental Design.” Monitoring System for Breeding Habitat of Endangered Species
Overview of Green Data CentersⓇ Electricity-Saving Measures in NTT Communication Science Laboratories is working with system is able to track dissolved oxygen content levels around Server Rooms Kinki University’s Faculty of Agriculture to conduct joint the clock and in real time, enabling more detailed analyses to experiments that make use of a wireless sensor network be conducted on the breeding habitat of these fish. Approach 1 Wireless gateway Wireless temperature sensor module Temperature sensor to elucidate conditions for promoting the breeding of the In the future, we plan to expand the functionality of the Realizes Employing (upper / lower) economic and virtualization Smart DASH Japanese rosy bitterling (Rhodeus ocellatus). The Japanese environment monitoring server (1U) ecological Temperature sensor information benefits technology collected wirelessly rosy bitterling is an endangered fish species listed in the system through means Aisle Capping Ministry of the Environment’s Red Data Book. It was found such as the installation Approach 2 Utilizing renewable to be living in Nara Prefecture by Kinki University in 2005, of image sensors, while Apppproachch U C C C ACAC D DD P CCCC A D DD energy
C and the university has been breeding it under protection utilizing the accumulated NTT Group CSR NTT Group 20%%程度削減削減
About 20% within its grounds ever since. data to identify what causes reduction Approach 3 Air conditioner automatically controlled Conducting green based on collected data In the fiscal year ended March 31, 2014, we ecosystem destruction and Reduced Green equipmentqp nt Power consulting constructed an environment monitoring system in the how our actions contribute Smart DASH Blank Panel protected breeding area at Kinki University that measures to such destruction. Data tracking application for AndroidTM smartphones Approach 4 the temperature of the water and the surrounding area and Furthermore, NTT Approach Approach Designing Aisle Capping: high-efficiency tracks sunlight levels in real time. In addition, NTT Microsys- West’s Nara Branch has Airflow control solution that increases the rectifying effect of the cool air Electricity High racks tem Integration Laboratories cooperated in constructing a been cooperating with savings density Smart DASH: wireless system for measuring and tracking the dissolved Kinki University’s Faculty Approach 5 Automatic air-conditioning control system that increases the oxygen content of the water, which is crucial to the breeding of Agriculture’s Japanese Implementing rectifying effect of the cool air of aquatic organisms. Previously, dissolved oxygen content Rosy Bitterling Conserva- HVDC power Blank Panel: transmission had to be measured by hand, and these measurements tion and Satoyama System that improves cooling efficiency by obstructing open spaces systems could only be obtained once a week. However, the new Restoration Project. Japanese rosy bitterling Sensor node deployed at (Rhodeus ocellatus) protected breeding area
074 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 075 For more information, please refer to the Company’s CSR website. Safe and Secure Communication http://www.ntt.co.jp/csr_e/
We provide reliable and disaster-resistant ICT services while also protecting personal information and maintaining information system security. World’s Fastest Secure Computing System that Realizes Safe and Effective Utilization of Highly Confidential Data CSR Priority Activities The clinical research data held by medical institutions approximately 100,000 items of data at speeds fast enough is highly valuable for research applications, such as in for practical purposes. analyzing medical statistics. At the same time, however, it is In the fiscal year ending March 31, 2015, we will make Number of employees Ensuring information security also information that can directly encroach upon patients’ this technology more accessible and more complete as receiving information security training 300,000 privacy. For this reason, there is a strong need for secure we develop a secure computing system that can analyze computing technologies for this type of data. Aiming to databases with content in the range of one million items. In address this need, in February 2012 NTT Secure Platform the following years, we plan to make this system capable Importance NTT’s Initiatives Laboratories (NTT SPL) and the Japan Adult Leukemia of processing databases with as much as 10 million items of data. This development project will enable such highly The importance of information security grows with each NTT Group companies are devoted to developing services Study Group (JALSG)* became the first team in the world to successfully field-test secure computing technology confidential personal data, which previously could not easily coming year as people seek to ensure the safety of Internet that help customers keep themselves safe from cyber aimed at enabling the safe and secure utilization of clinical be used for purposes other than its original intent, to be transactions, protect personal information, and prevent leaks attacks and constructing platforms for providing security that research data. utilized safely. We anticipate that this will help further social of confidential information. As an operator of telecommuni- can address unforeseen threats. The new technology encrypts data in a way that makes and industrial development. cations infrastructure, the NTT Group is charged with the In addition, we are developing sophisticated security it unreadable but enables it to be analyzed. Successful * Japan Adult Leukemia Study Group (JALSG) responsibility of combating the ever more diverse and technologies, such as encryption technologies that allow testing of the technology opened the door for its use for the JALSG is a multi-institutional cooperative study group established originally in 1987 in cunning threats to information security in order to protect customers to upload information to cloud servers with peace statistical analysis of clinical research data in encrypted Hamamatsu City, Shizuoka Prefecture, to conduct clinical research aimed at improving form. Expanding upon this technology in the fiscal year the level of leukemia treatment in Japan. With its membership of more than 200 customers’ precious information assets. of mind. The Japan Information Security Audit Association medical institutions, JALSG continues to contribute to the development of new At the same time, we plan to strengthen our cloud (JASA) has created the JASA Cloud Information Security ended March 31, 2014, we developed a secure computing treatment standards for adult leukemia. system with functions fine-tuned for small-to medium-sized services to respond to the social demand for more varied Promotion Alliance (JCISPA). In 2013, eight Group compa- medical institutions. This system succeeded in analyzing and convenient services to be provided at more affordable nies participated in the alliance. We also undertook other prices. However, we also realize that cloud services, which initiatives with the aim of contributing to the creation of an entail processing customers’ information assets through environment for the safe and secure use of cloud services networks, require an additional degree of security. and furthering the sound development of cloud technologies.
Security Promotion Systems Traceability Platform for Minimizing the Impacts of Recent circumstances (global issues) Examples of NTT Group initiatives Information Security Incidents
Protection and utilization For companies, information security incidents are not just there are created to when there are deleted have been of information assets limited to attacks from outside, such as unauthorized dubbed traceability technologies. Development of encryption access or computer viruses. In actuality, the causes of The traceability platform being developed by NTT SPL Growing usage of cloud services and technologies, etc. 80% of information security incidents come from inside is a system for tracking all file alterations made by users of smart devices a company in forms such as system operation errors, any PC within a company. In this manner, the system mismanagement, or crimes by people connected to the enables users to confirm when files, including those company*. In order to prevent the occurrence of these types containing vital information, have been viewed or deleted, Realization of traceability of internal incidents, NTT SPL is developing a traceability and thereby helps restrict actions that could result in
platform as a technology for realizing more stringent internal information leaks and prevent information security incidents. CSR NTT Group in security information management. Rise in cyber attacks (targeted attacks, etc.) Development of traceability Traceability generally refers to the ability to track the * Source: 2011 Information Security Incident Survey Report (Analysis Results of technologies, etc. Personal Information Leakage Incidents section), Security Incident movement of food and other items from the point of Investigation Working Group, NPO Japan Network Security Association production to when they reach the consumer. Applying this concept to information management at companies, Strengthening of technologies that track the movement of files from when security incident response capabilities Reinforcement of platforms for providing security, etc.
076 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 077 Safe and Secure Communication
CSR Priority Activities Disaster-Resilient Information Sharing System for Ishinomaki City Ensuring stable and reliable Service Number of services as critical infrastructure stability 99.9% serious accidents 4 During the Great East Japan Earthquake, there were many disaster will change with the passage of time. It can also be cases in which people were unable to sufficiently receive equipped with functions that permit the city’s residents to post and reference safety confirmation and missing person Importance NTT’s Initiatives disaster information broadcast by government disaster response agencies. Learning from this lesson, NTT Commu- information. The information sharing system has been Telecommunications networks have become an indispensable The NTT Group has defined three key themes for disaster nications worked together with the government of Ishino- designed to be flexible and allow for easy expansion to piece of infrastructure for supporting social and economic countermeasures—improving communications network reliability, maki City, Miyagi Prefecture, one of the cities heavily enable other municipal governments to introduce the activities. Particularly in times of disaster, telecommunications securing critical communications, and prompt restoration of impacted by the earthquake with which we engaged in system without issue. Currently, the NTT Group is coordinat- networks are vital for conducting critical communications during communications services. We have been strengthening efforts ongoing discussions that eventually led to the creation of ing its efforts to propose this system to other municipalities. rescue and restoration operations and when maintaining public based on these themes since the Great East Japan Earthquake. a disaster-resilient information sharing system. order. Moreover, this infrastructure is used for making emergency Specifically, we are taking measures to improve the reliability This system was built upon Ishinomaki City’s experi- Information calls to the police or paramedics, meaning it is also crucial for of our telecommunications infrastructure. To ensure that our ence with the disaster, and was designed to manage collection functions disaster-related information in an integrated manner. This saving human lives. communications services operate without interruption at all times, Functionality Information Japan is a country prone to frequent natural disasters, such we employ transmission trunk line multi-routing, have enacted means that even if government employees are unable to for inputting data transmission from outside as earthquakes and typhoons. As such, telecommunications blackout countermeasures for communications buildings and issue special alerts and provide other emergency informa- functions systems tion, this information can still be supplied through a range of networks are especially important, a fact that was reaffirmed by base stations, and are making communications buildings more Disaster-Resilient the devastating Great East Japan Earthquake. Faced with the disaster resistant. In addition, we are expanding the assortment mediums via a single transmission. The venues through Information Sharing System possible occurrence of a major earthquake originating from the of power supply vehicles and other disaster response equipment which this information can be provided include the municipal government’s homepage, Area Mails sent to mobile phones, Employee Safety Nankai Trough off Japan’s southern coastline or one occurring that we have positioned throughout Japan, and are conducting assembly confirmation directly under Tokyo, there is a pressing need for society to trainings to prepare for major natural disasters. We are making a and digital signs as well as Twitter and Facebook. In functions functions prepare for such potential disasters while ensuring the stability daily effort to guarantee that, in the event of a disaster, we are able addition, the system is equipped with information transmis- Evacuee and reliability of its telecommunications infrastructure. to immediately set up a Disaster Countermeasures Office and sion functions designed based on the assumption that the management functions other emergency structures and make the necessary emergency information needs of people who have fallen victim to and critical communications to the designated public authorities The NTT Group’s Basic Policy as defined by the Basic Act on Disaster Control Measures. on Disaster Countermeasures
Improving communications Disaster Securing critical communications Groupwide Drills to Ensure Prompt strikes network reliability Securing 110, 119, and other emergency services and Restoration of Communications Services Disaster critical communications Building disaster-resistant facilities and trans- countermeasures Installing emergency-use public phones and providing mission trunk line multi-routing safety status checking services when disasters strike, etc. The NTT Group aims to ensure the prompt restoration of procedures and installed emergency-use public phones. In 24/365 network monitoring and control, etc. Three key Countermeasures strengthened since the Great East communications services in times of disaster, and Group addition, NTT FACILITIES worked to restore electricity Countermeasures strengthened since the Great Japan Earthquake companies conduct restoration drills to this end. On January supply while NTT DOCOMO endeavored to get mobile East Japan Earthquake themes Measures for securing critical communications 29, 2014, a massive restoration drill was conducted to phones functioning again, truly making this drill a Groupwide Enhanced disaster resistance Early resolution of communications blackouts (damage prediction, hazard map utilization) Enhancements of disaster message services prepare for the possibility of a wide-spread disaster. NTT effort. For the drill, the Disaster Countermeasures Office was Stable provision of communications services Further Information Station implementation (improving trunk line reliability, etc.) East spearheaded this effort, and affiliated companies took equipped with video monitors that linked the office to part in the drill together with Group companies. The drill different bases participating in the restoration effort in real Prompt restoration of communications services simulated a major disaster originating from a specified point time. This new undertaking allowed the office to issue orders Early restoration of services by utilizing disaster Countermeasures strengthened since the Great East Japan Earthquake in Nagano Prefecture that halted communications at several while maintaining a detailed understanding of how proce- NTT Group CSR NTT Group countermeasure equipment, procurement of materials, Building up stock of disaster response equipment bases. Under these simulated conditions, employees of dures were progressing by confirming real-time footage. equipment, and manpower for restoration purposes, Enhancement of organization for disaster countermeasure operations NTT East and NTT East branches conducted restoration etc. Exercises and practice for a major earthquake Training of crisis management personnel and utilization of knowledge and skills
Disaster Countermeasures Office Deployed portable satellite Workers burrowing below rivers to lay trunk A disaster exercise in progress Workers restoring communications services serving as nerve center for other bases communications systems line cables after the heavy rains suffered by northern Video monitors linking the Disaster Employees installing emergency-use Kyushu in July 2012 Countermeasures Office to other bases public phones 078 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 079 For more information, please refer to the Company’s CSR website. Team NTT Communication http://www.ntt.co.jp/csr_e/
As Team NTT, we pledge to contribute to society by conducting our business according to the CSR Priority Activities highest ethical standards and awareness of human rights and creating agreeable workplaces where diversity is respected. Implementing Number of local Number of PET bottle CSR Priority Activities community cleanup caps collected citizenship activities participants 123,000 (Ecocap Movement) 29million
Importance NTT’s Initiatives Promoting respect for diversity and Ratio of women in managerial positions equal opportunity 3.3% The NTT Group has operating bases located throughout Japan The NTT Group CSR Charter calls on NTT Group employees, from which it provides telecommunications networks, an their families, and retired employees to come together as Team important lifeline. For these reasons, our business is deeply NTT and work to fulfill our mission to society by contributing to Importance NTT’s Initiatives rooted in local communities. In order to further develop this the further development of a flourishing and vibrant community. As a global ICT conglomerate, the NTT Group must create NTT aims to double the current ratio of female officers and business, it is absolutely essential that we pursue harmonic In accordance with this policy, we have defined the following innovation to breed new value and address the needs of various managers in Japan by the fiscal year ending March 31, 2021, relationships with local communities and the people that live six pillars for corporate citizenship activities: environmental users around the world. For this reason, it is essential that we and we are actively fostering and promoting capable women there. These relations must be built by turning our attention to conservation, social welfare, education and cultural promotion, respect the individuality of employees and their differing values to these managerial positions. At the same time, our business the issues faced by individual communities and collaborating local community development and dialogue, international as we work to this end. is becoming more global at an accelerated pace, and now with local municipal governments, community members, NGOs, exchange activities, and sports promotion. As one initiative Accordingly, the NTT Group places great importance on approximately 30% of Group employees are working overseas NPOs, and educational institutions to resolve these issues. in the area of environmental conservation, we launched the creating diverse workplaces in which people can realize their full in one of our various countries of operation. In light of this The NTT Group looks to address the various troubles faced “Green with Team NTT” slogan in the fiscal year ended March potential irrespective of sex, age, race, nationality, disability, or situation, we are hiring and cultivating employees who are by local communities, including those related to environmental 31, 2010, under which we engage in Groupwide environmental other factors. capable of understanding and communicating with people from issues, population aging, declining birthrates, and the education conservation activities that encourage employee participation. other cultures and who are thereby able to compete on the of children. In addition, NTT believes that reaching out to people As part of these efforts, since the fiscal year ended March global stage. Furthermore, we are promoting the employment that have been impacted by the Great East Japan Earthquake 31, 2013, we have continued to conduct volunteer activities of people with disabilities and striving to create a workplace and other major natural disasters is another important way we to support the reconstruction effort in the regions that were environment in which such individuals feel motivated. must aid communities. heavily impacted by the Great East Japan Earthquake. We hope to make the NTT Group into a place where a diverse range of employees are understanding of each other’s individuality and where all of these people can work to their full potential. Ongoing Employee Volunteer Support for Post-Earthquake Reconstruction
At NTT DOCOMO, employee volunteers, vowing not to forget themselves living in these housing units. The Company had Web Accessibility Diagnoses Incorporating the disaster and to take action as individuals, continue to take originally anticipated that only around 240 would apply, but part in activities to support reconstruction from impacts of the the number of employees that responded to the announce- the Perspective of People with Disabilities Great East Japan Earthquake. ment of the volunteer activities exceeded our expectations; It is believed that only around 10% of people with vision software or for small text to be magnified to an easily In the fiscal year ended March 31, 2014, these activities NTT DOCOMO received 811 applications from concerned impairments are able to read Braille. Recently, a large readable size. entered their second year. Volunteers continue to support the individuals, and 377 ended up participating. The strong desire number of these individuals have been utilizing text-to- Looking to remove these barriers, NTT Group special recovery of the fishing and agricultural industries and conduct of employees to do their part to aid the reconstruction effort is speech software or screen magnification software on PCs purpose subsidiary NTT CLARUTY Corporation has been cleanup activities by removing debris in the Miyagi Prefecture embodied in the large number of applications received. to acquire information from the Internet. However, several conducting web accessibility diagnoses and trainings that town of Minamisanriku, which suffered catastrophic tsunami Furthermore, those employees that stood directly on barriers still exist in using the Internet, such as an inability incorporate the perspective of people with disabilities. damage. In addition, employees have also been installing the devastated soil of the quake-stricken regions found the for text in PDFs to be properly converted to speech by wood decks on temporary housing in Rikuzentakata City, experience of seeing firsthand the true state of the area to be NTT Group CSR NTT Group Iwate Prefecture, to help address the needs of and improve a life-changing opportunity for them to consider how they can living conditions for the evacuees that continue to find personally contribute to the reconstruction. Feedback from senior citizens and Feedback from people that use people with color blindness text-to-speech software
Visuals lack contrast Information provided depends on color alone
Bad example Bad example Good A example B D10% Mail Good example C D C 15% A Mail 55% B 20%
Disability sensitivity and awareness training Bright-colored design for people with color blindness Graph for people that use text-to-speech software Employees installing wood decks Employees removing debris Employees supporting the fishing industry
080 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 081 Human Rights Awareness
Guided by the NTT Group Human Rights Charter, all NTT Group employees Groupwide Human Rights Education Programs around the world are working to raise human rights awareness. All NTT Group companies provide multifaceted and ongoing Meanwhile, NTT DOCOMO conducted a questionnaire human rights education programs that include workshops, to ascertain the awareness of compliance and human rights Based on the Universal Declaration of Human Rights and NTT supports the ideals contained within ISO 26000, an e-learning courses, and other programs that enable among all of the NTT DOCOMO Group’s approximately other references, the NTT Group has long endeavored to international standard for social responsibility published in employees to learn about these issues. Other activities to 38,000 employees (including temporary staff). The question- address the Dowa Issue (discrimination based on ancestry in 2010, as well as the Guiding Principles on Business and boost and establish awareness of human rights include naire results showed that employees had a generally high Japan) and other human rights issues, and to create a Human Rights that were endorsed by the United Nations soliciting slogans and ideas for posters promoting aware- awareness of compliance and human rights, but that there corporate culture opposed to any form of discrimination. In Human Rights Council in 2011. These ideals were incorpo- ness of human rights from NTT employees and their families, were still some areas requiring further attention. recent years, businesses have been becoming ever-more rated into the NTT Group Human Rights Charter. the best of which are compiled into calendars and distrib- Based on these results, our focus in the fiscal year global, and the international community is strongly urging Going forward, NTT will work to spread awareness uted around the workplace. ending March 31, 2015, will be measures to promote companies to implement measures to ensure that human throughout the Group’s global operations with regard to the For example, NTT Communications provided e-learning communication in the workplace and to continually provide rights are respected. Amidst this rising emphasis on human background of the formulation and goals of the NTT Group with streamed video on the themes of respect for human rights employees with information on compliance and human rights, the NTT Group unveiled its NTT Group Human Rights Human Rights Charter with the aim of instilling its mindset as a global enterprise and human rights in the workplace. rights. Charter in June 2014. This charter embodies our commit- into all employees. At the same time, we will pursue the ment toward fulfilling our social responsibilities as a company resolution of various human rights issues by acting in that is actively growing on the global stage. accordance with Our Basic Policies on Human Rights.
Human Rights Education at Group Companies NTT Group Human Rights Charter June 16, 2014 NTT conducts rank-based human rights education and is also developing an e-learning program that will be supplied We recognize that the respect for human rights is a corporate responsibility and aim to create a safe, secure and as the standard for Groupwide education on the newly To further raise human rights awareness, NTT DOCOMO actively rich social environment by fulflling its responsibility. established NTT Group Human Rights Charter. We anticipate conducts training at each organization using e-learning and video materials, rank-based trainings (including those for executives), and 1. We respect internationally recognized human rights, including the Universal Declaration of Human Rights in all company that this program will help raise awareness regarding the training for Risk Compliance Leaders. activities. charter and instill its mindset into Group companies. 2. We responsibly respect for human rights by efforts to reduce any negative impacts on human rights holders. We respond appropriately when negative impacts on human rights occur. 3. We aim to not be complicit in infringing human rights, including being involved in discrimination, directly or indirectly. 4. When negative impacts on human rights are done by a business partner and are linked to a product or service of the NTT group, we will expect them to respect human rights and not to infringe on them. NTT Laboratories is working together with the Human Rights Education NTT IT CORPORATION has established its own unique corporate ethics Office to advance a multifaceted and ongoing training program for all of regulations, and has compiled a collection of examples of the regulations (note) “We” means the NTT group and its officers and employees. its employees. Also, each year the company solicits slogans promoting in practice, which includes five examples pertaining to human rights. awareness of human rights from employees and their families, the best In addition, this company conducts trainings for all employees on of which are presented with awards. Through these activities, NTT harassment and corporate ethics once a year, in April and October, Laboratories aims to boost and establish awareness of human rights. respectively.
Our Basic Policies on Human Rights
Nippon Telegraph and Telephone Corporation, hereunder NTT, believes that human rights is an important issue, At special purpose subsidiary NTT CLARUTY Corporation, where NTT COMWARE CORPORATION provides various human rights education and recognizes the fact that making efforts towards promotion of and respect towards human rights is a social employees with disabilities work alongside those without, the president programs, including e-learning programs targeting all employees as well personally gives human rights lectures targeting managers. In addition, as trainings for new employees as well as newly appointed section responsibility that all companies should discharge. NTT aims to build up corporate culture that respects human employees are provided with CSR and corporate ethics training, and this managers and assistant section managers. It also holds workplace study rights in order to build a safe secure and enriched society. company also conducts various other activities, such as accepting ideas sessions designed to foster communication and cultivate a workplace for slogans promoting awareness of human rights. environment in which employees teach other employees. 1. The NTT management themselves take a lead in respecting human rights of all the stakeholders. NTT Group CSR NTT Group 2. NTT will, through its business activities, strive for a solution on the Dowa Issue* and other human rights issues. 3. NTT respects diversity, promotes equal opportunity, and strives to create a healthy working environment that is free of harassment issues. 4. NTT will, and from the standpoint of respect to human rights, review its operation, as appropriate, and will adapt and NTT FACILITIES works to cultivate and improve human rights awareness Workplace study sessions on human rights issues are held for all through an education program centered on annual all-hands trainings employees at domestic NTT DATA Group companies. These study improve these to its business activities. as well as rank-based trainings that are tailored to employees’ different sessions take place on the individual worksite level. Human rights issues 5. NTT will, through its Human Rights Education Committee, initiate and execute employee-focused activities. duties. Other proactive human rights education activities at NTT are also incorporated into rank-based trainings and trainings related 6. NTT is committed to supporting its Group companies in their efforts to raise awareness on human rights issues. FACILITIES include inviting outside lecturers to teach employees, to new hires. As the NTT DATA Group is increasingly sending its attending government-sponsored classes, and having company employees overseas, it has begun providing pre-departure training for * Owing to discrimination which had been formed based on the structure of social status in the course of the historical development of Japanese society, some Japanese people have been forced to representatives responsible for human rights education participate employees that are to be dispatched overseas. These trainings teach accept a lower status economically, socially and culturally, and they are subject to various kinds of discrimination in their daily lives even today. This is the Dowa issue, which is a unique Japanese in field studies. these employees about the religions, cultures, and customs of the human rights problem. country or region to which they are to be stationed.
082 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 083 Supply Chain Management
Working with suppliers, our procurement activities target the creation of outstanding services and take into account the environment and human rights. Cooperation with Suppliers to Resolve Conflict Mineral Issues
The trade in minerals originating in the Democratic To provide its customers with valuable services, the NTT Republic of the Congo and nine adjoining countries Group uses cost-effective products and technologies. Procurement Policies has become a global human rights issue owing to the Also, in order to contribute to society, the Group procures 1. NTT will strive to provide competitive opportunities with likelihood that some of these minerals have become a products that take into account the environment, human fairness to both domestic and foreign suppliers, and to source of financing for militant armed groups suspected rights, and other issues. Building trust-based partnerships build mutual trust and understanding. of committing inhumane acts. with suppliers is essential to implementing such policies. 2. NTT will conduct economically rational procurement of Companies listed in the United States are obliged by competitive goods and services that meet its business To facilitate this effort, the NTT Group has released its law to disclose any use of these conflict minerals in their needs, deciding on suppliers based on quality, price, delivery Procurement Policies, and formulated the NTT Guidelines times, and stable supply in a comprehensive manner. products. With NTT and NTT DOCOMO listed in this for CSR in Supply Chain and NTT Guidelines for Green 3. NTT will conduct procurement in a manner that follows country, the NTT Group issued the NTT Group’s Procurement. Based on these guidelines, we are working laws and regulations as well as social norms, and takes Approach to Conflict Minerals in March 2013 as a basic to conduct socially responsible procurement together with the environment, human rights, and other issues into policy with respect to conflict minerals so as to fulfill its our suppliers. account to contribute to society. social responsibility in the area of procurement in line Aiming to procure products that are friendly toward the with U.S. laws. environment, we have formulated and released technical Furthermore, in 2013 and 2014 the NTT Group held requirements for products that help lower environmental NTT Guidelines for Green Procurement briefings on conflict minerals for suppliers. We also asked impacts. We ask all suppliers to adhere to these requirements. that suppliers cooperate with written surveys and allow We also provide support for the activities of our The NTT Group strives to procure products in a manner us to inspect their offices and factories to determine suppliers. In addition to conducting seminars for suppliers, that is friendly toward the environment (green procurement). whether or not these minerals are used in their products. These guidelines set forth the general areas in which we present awards to suppliers who have provided us with The results of the 2013 survey were submitted to the the NTT Group and its suppliers address environmental proposals that contribute to environmental conservation. issues on a continuing basis. U.S. Securities and Exchange Commission together with a report on our due diligence activities in May 2014. This information has also been made available on the websites Web NTT’s Procurement Website of NTT and NTT DOCOMO. In the fiscal year ending http://www.ntt.co.jp/ontime/e/index.html March 31, 2015, we will continue to conduct surveys as we work together with suppliers to eliminate usage of Briefing on conflict minerals for suppliers conflict minerals with the aim of severing the flow of funds to militant groups.
NTT Guidelines for CSR in Supply Chain Web NTT Group’s Approach to Conflict Minerals http://www.ntt.co.jp/ontime/e/policy/conflict/index.html In recent years, a number of supply chain issues have The NTT Guidelines for CSR in Supply Chain have come to light, including excessive work hours, child labor, been released to complement the Procurement Policies unlawful disposal of chemicals, bribery, and other examples and the NTT Guidelines for Green Procurement. We of malpractice. These issues have served to intensify expect suppliers to adhere to each of these guidelines. society’s expectations for companies to comply with legal In the fiscal year ending March 31, 2015, we will and social standards in their procurement activities. begin issuing questionnaires to major suppliers based on
In light of this situation, we formulated the NTT these guidelines in order to maintain an understanding of CSR NTT Group Guidelines for CSR in Supply Chain in December 2013 their CSR activities. The findings of these questionnaires to guide our efforts as we work together with suppliers are used to provide feedback and advance discussions in order to conduct procurement activities in a socially with suppliers. responsible manner.
084 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 085 Corporate Governance
Basic Philosophy Reason for Selecting Current Corporate Governance System
As the holding company of the NTT Group, NTT believes that for maximizing corporate value. Accordingly, NTT is working to NTT believes that an auditing system based on audit & function of supervising the fairness of business execution. raising the effectiveness of corporate governance is an impor- strengthen corporate governance based on its fundamental supervisory board members, including outside audit & Outside directors receive reports on audit plans and audit tant management issue for meeting the expectations of vari- policies of conducting appropriate decision-making and busi- supervisory board members, is an effective means of super- results from audit & supervisory board members and the ous stakeholders, including shareholders and other investors, ness activities, ensuring sound management, clarifying ac- vising management. Accordingly, NTT chose the company Internal Control Offi ce. In addition, outside directors partici- as well as customers, business partners, and employees, and countability, and maintaining thorough compliance. with Audit & Supervisory Board model. In addition, through pate in the supervision of business operations through such the election of outside directors NTT has strengthened the means as making proposals when necessary.
Conducting Appropriate Decision-Making and Business Activities Board of Directors Overview of Corporate Governance Structure NTT maintains a Board of Directors with 11 members, holding company that supervises and coordinates the NTT including two outside directors. In principle, the Board of Group, on important matters related to company manage- Form Company with Audit & Supervisory Board Directors meets once per month to make decisions and re- ment and Group management. Moreover, through such Number of directors 11 port on important management issues. In addition, extraordi- means as periodic reports from directors on the status of Of which, number of outside directors 2 Of which, independent directors 2 nary meetings are held as needed. The Board of Directors business execution, the Board of Directors supervises the Term of offi ce for directors 2 years makes decisions on matters stipulated by law and, as the business execution of directors. Number of audit & supervisory board members 5 Of which, number of outside audit & supervisory 3 board members Executive Offi cers Meeting and Committees Functions of the Board of Directors The Board of Directors makes decisions on matters stipulated by law and, as the holding company that supervises and coordinates the NTT Group, on important matters related to The important corporate matters to be decided are, in principle member participates in the Executive Offi cers Meeting. In addi- company management and Group management. In addition, the Board of Directors super- vises the business execution of directors. and in advance, discussed by NTT’s Executive Offi cers Meet- tion, committees have been created under the Executive Of- Decisions on important matters In principle, decided after discussion by the Executive Offi cers Meeting ing, which is made up of the President, Senior Executive Vice fi cers Meeting to discuss specifi c issues related to the Frequency of meetings of the Executive Offi cers In principle, meetings of the Executive Offi cers Meeting are held about once a week. Presidents, full-time directors, and the heads of staff organiza- management strategies of NTT Group companies. These com- Meeting tions. In principle, meetings of the Executive Offi cers Meeting mittees, which are held as necessary throughout the year, are in Framework for increasing transparency of One audit & supervisory board member also participates in the Executive Offi cers Meeting. are held about once a week. To improve the transparency of principle chaired by the President or a Senior Executive Vice decision-making management decision-making, one audit & supervisory board President, and are attended by relevant directors and others. Discussions regarding the management strategies Committees have been created under the Executive Offi cers Meeting to discuss specifi c of NTT Group companies issues related to the management strategies of NTT Group companies. These committees, which are held as necessary throughout the year, are in principle chaired by the President or Committee Name Overview a Senior Executive Vice President, and are attended by relevant directors. CSR Committee Formulates basic CSR strategy and CSR Goals for the Group, formulates basic policy for CSR-related Audit fi rm KPMG AZSA LLC reports Names of Certifi ed Public Accountants conducting Hiroto Kaneko, Hiroshi Miura, and Atsuji Maeno auditing in the fi scal year ended March 31, 2014 Corporate Ethics Committee Establishes corporate ethics, takes thorough steps to maintain discipline Status and details of non-audit services The Company asks KPMG AZSA LLC to perform non-audit services. (Provision of guidance Human Rights Education Committee Establishes human rights education systems and responds to discrimination incidents, etc. and advice in relation to International Financial Reporting Standards (IFRS)) Technology Strategy Committee R&D vision, technology development strategy, R&D alliance strategy Corporate Governance Structure (Including an Outline of the Internal Control System) Investment Strategy Committee Investment strategy related to large investment projects, etc. General Meeting of Shareholders Finance Strategy Committee Basic strategies related to fi nance, policies for addressing fi nancial issues Election / removal Election / removal Election / removal Business Risk Management Committee Crisis management for the handling of new business risks related to company management Audit & Group Appointment and Board of Directors Audit Supervisory companies U.S. Sarbanes-Oxley Act Internal Tracking of status of internal control in accordance with Sarbanes-Oxley Act on a Groupwide basis Compensation Committee Board Control Committee Verifi cation and monitoring of measures to improve defi ciencies Election / removal and supervision Formulation of measures to maintain and improve internal control systems Groupwide President Instruction, reporting (Executive Officers Meeting) Cooperation Corporate Governance
Committees CSR Committee Accounting Independent Corporate Ethics Committee Audit Auditor Audit & Supervisory Board NTT Human Rights Education Committee (Holding Technology Strategy Committee company) Instruction, Investment Strategy Committee The Audit & Supervisory Board, has a total of fi ve members such as periodically exchanging information on audit plans reporting, etc. Finance Strategy Committee Business Risk Management Committee (two internal members, one of whom is a woman, and three and audit results, to bolster the audit system. Furthermore, the U.S. Sarbanes-Oxley Act Internal Control outside members, one of whom is a woman). The audit & audit & supervisory board members exchange information with Committee, etc. supervisory board members attend important meetings, such the Internal Control Offi ce, such as receiving reports on the as meetings of the Board of Directors, and conduct appropri- results of internal audits. The Audit & Supervisory Board also Business sections Internal Audit Internal Control Office ate audits regarding the status of business execution by the conducts audits in partnership with the audit & supervisory directors. They work closely with the Independent Auditor, board members of NTT Group companies.
086 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 087 Corporate Governance
Policies Concerning the Compensation of Directors and Audit & Supervisory Board Members Major Activities in the Fiscal Year Ended March 31, 2014
In regard to matters concerning the compensation of direc- In order to maintain a high level of independence, com- Attendance at Board of Directors’ Meetings and Audit & Supervisory Board Meetings
tors, in order to improve objectivity and transparency, NTT pensation of outside directors consists of a base salary only, Board of Directors’ Meetings Audit & Supervisory Board Meetings Position Name established the Appointment and Compensation Committee, and is not linked to NTT’s business results. Attended Attendance Rate Attended Attendance Rate comprised of four directors, including two outside directors, Compensation of audit & supervisory board members is Outside Katsuhiko Shirai 14 / 14 100% — — Directors and such matters are decided by the Board of Directors after determined by resolution of the Audit & Supervisory Board Sadayuki Sakakibara 13 / 14 93% — — Outside Toru Motobayashi 13 / 14 93% 20 / 21 95% deliberation by this committee. Compensation of directors and consists of a base salary only, for the same reasons as Audit & Super- Michiko Tomonaga 14 / 14 100% 21 / 21 100% (excluding outside directors) consists of a base salary and a those cited above with respect to outside directors. visory Board Members Seiichi Ochiai 12 / 14 86% 19 / 21 90% bonus. The base salary is paid monthly on the basis of the Total Compensation of Directors and Audit & Supervisory scope of each director’s roles and responsibilities. The bo- Board Members during the Fiscal Year Ended March 31, 2014 Statements at Board of Directors and Audit & Supervisory Board Meetings nus is paid taking into account NTT’s business results for the Position Number of Base salary Bonuses Total current term. Also, directors make monthly contributions of payees Board member Katsuhiko Shirai made comments mainly concerning global strategy, research and development, and the busi- Directors 10 ¥406 million ¥86 million ¥492 million ness strategies of NTT Group companies, from his perspective as an operations manager of an educational institution with at least a certain amount from their base salary for the pur- (Excluding outside directors) Audit & supervisory board members extensive experience. chase of NTT shares through the Director Shareholders As- (Excluding outside audit & 2 ¥55 million — ¥55 million sociation, to refl ect NTT’s medium- and long-term business supervisory board members) Board member Sadayuki Sakakibara made comments mainly concerning global strategy, research and development, and Total 12 ¥462 million ¥86 million ¥548 million investments, from his perspective as a corporate executive with extensive experience. results in compensation. Purchased shares are owned by (Notes) the directors during their terms of offi ce. 1. Upper limits on total compensation of directors and audit & supervisory board members were Audit & supervisory board member Toru Motobayashi made comments mainly concerning corporate governance, from his set at ¥750 million annually for directors and ¥200 million annually for audit & supervisory board professional perspective as a lawyer. members at the 21st ordinary general meeting of shareholders held on June 28, 2006. 2. In addition to the above, ¥16 million is to be paid as executive bonuses to fi ve directors Audit & supervisory board member Michiko Tomonaga made comments mainly concerning the accounting audit, from her who also hold executive management positions. professional perspective as a Certifi ed Public Accountant. Ensuring Sound Management Audit & supervisory board member Seiichi Ochiai made comments mainly concerning corporate governance, from his pro- fessional perspective as a law school professor and lawyer. Matters Related to Outside Directors and Outside Audit & Supervisory Board Members
NTT has elected two outside directors to strengthen the strengthen NTT’s supervisory function in business execution Total Compensation of Outside Directors and Outside Audit & Supervisory Board Members during the function of supervising the fairness of business execution. and expects to incorporate the advice they provide from their Fiscal Year Ended March 31, 2014 Each of the outside directors has a wealth of experience, wide-ranging managerial perspective. In addition, NTT expects
either as operational director of an educational institution that the three outside audit & supervisory board members will Number of payees Total compensation or as a corporate manager, and a high level of integrity and conduct future audits based on the specialized experience and Total compensation of outside directors and 5 ¥60 million insight. NTT believes that the outside directors will help insight that they have gained through their careers. audit & supervisory board members
Matters Regarding Independent Auditors Reason for Selection and Status of Independence
Name Reason for Selection Status of Independence Name of Independent Auditor Mr. Katsuhiko Shirai has a wealth of experience as operational director There are transactions between Waseda University, where Mr. Katsuhiko of an educational institution and a high level of integrity and insight. NTT Shirai was previously employed, and NTT, but in consideration of the KPMG AZSA LLC Katsuhiko Shirai believes that he will help strengthen its supervisory function in business scale and nature of those transactions, in NTT’s judgment there is no execution and expects to incorporate the advice he provides from his risk that a confl ict of interest will arise with general shareholders. Outside wide-ranging experience and his managerial perspective. Mr. Sadayuki Sakakibara has a wealth of experience as a corporate There are transactions between NTT and Toray Industries, Inc., where Compensation to Independent Auditor during the Fiscal Year Ended March 31, 2014 Directors executive, and a high level of integrity and insight. NTT believes that Mr. Sadayuki Sakakibara is Chairman of the Board of Directors, and he will help strengthen its supervisory function in business execution between NTT and the Japan Business Federation, where Mr. Sakaki- Sadayuki Sakakibara and expects to incorporate the advice he provides from his wide- bara works as Chairman, but in consideration of the scale and nature Independent Auditor Compensation ranging experience and his managerial perspective. of those transactions, in NTT’s judgment there is no risk that a confl ict of interest will arise with general shareholders. KPMG AZSA LLC ¥266 million Ms. Michiko Tomonaga has worked for many years as a Certifi ed There are transactions between NTT and Ernst & Young ShinNihon Note: The audit engagement agreements between NTT and the Independent Auditor do not distinguish between compensation for audits performed pursuant to the Companies Act and compensa-
Public Accountant, and NTT expects that she will conduct future LLC, where Ms. Michiko Tomonaga previously worked as senior Corporate Governance audits based on the knowledge and insight that she has gained partner, but in consideration of the fact that Ms. Tomonaga had retired tion for audits performed pursuant to the Financial Instruments and Exchange Act, and since it is not practically possible to make such a distinction, the above amount represents the total Michiko Tomonaga through her career. from Ernst & Young ShinNihon LLC in June 2010, prior to becoming fi gure for both audits. an outside audit & supervisory board member at the Company, and of the scale and nature of those transactions, in NTT’s judgment there is Outside no risk that a confl ict of interest will arise with general shareholders. Audit & Mr. Seiichi Ochiai has been serving for many years as a university There are transactions and donations between NTT and Chuo Univer- Total Monetary and Other Financial Benefi ts Payable by NTT and its Subsidiaries Supervi- professor specializing in the study of law, and NTT expects that he will sity, where Mr. Seiichi Ochiai is a professor, and between NTT and the conduct future audits based on the knowledge and insight that he has University of Tokyo, where Mr. Ochiai formerly was a professor, but in Seiichi Ochiai sory gained through his career. consideration of the scale and nature of those transactions, in NTT’s Independent Auditor Compensation Board judgment there is no risk that a confl ict of interest will arise with KPMG AZSA LLC ¥2,786 million Members general shareholders. Mr. Takashi Iida has worked for many years in law-related occupations, There are transactions between NTT and Mori Hamada & Matsumoto, Notes: 1. Of NTT’s material subsidiaries, NTT DATA EMEA Ltd., NTT EUROPE LTD. ,and UD EUROPE LIMITED are audited by KPMG LLP; Dimension Data Holdings plc is audited by KPMG Inc.; and NTT expects that he will conduct future audits based on the where Mr. Takashi Iida previously worked, but in consideration of the fact knowledge and insight that he has gained through his career. that Mr. Iida had retired from Mori Hamada & Matsumoto in December NTT DATA EUROPE GmbH & Co. KG, NTT DATA Deutschland GmbH, and net mobile AG are audited by KPMG AG Wirtschaftsprüfungsgesellschaft; DOCOMO interTouch Pte. Ltd. and Takashi Iida 2011, prior to becoming an outside audit & supervisory board member at NTT DATA Asia Pacifi c Pte. Ltd. are audited by KPMG LLP; NTT AUSTRALIA PTY. LTD. is audited by KPMG; Arkadin International SAS is audited by both Deloitte & Associés and Yves NTT, and of the scale and nature of those transactions, in NTT’s judgment CANAC; Buongiorno S.p.A. is audited by KPMG S.p.A.; and Everis Participaciones S.L. is audited by Ernst & Young S.L. there is no risk that a confl ict of interest will arise with general shareholders. 2. The non-audit services for which NTT pays compensation to KPMG AZSA LLC are the provision of guidance and advice and other services in relation to International Financial Reporting Standards (IFRS).
088 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 089 Corporate Governance
Clarifi cation of Accountability Enhanced Content on the IR Website
NTT believes that it is important to obtain proper corporate not only enhancing the general meeting of shareholders but NTT posts IR-related materials in a timely manner on its valuations in the market through the appropriate, timely, and also holding presentations for shareholders and investors website, with materials available in Japanese and English. fair disclosure of information. NTT is actively taking steps to and promptly making information available on the IR website. Examples of these materials include fi nancial results and achieve accountability in regard to all stakeholders, including other fi nancial information, periodic disclosure materials, annual securities reports and quarterly reports, the notice of convocation for the general meeting of shareholders, fi nan- Enhancing the General Meeting of Shareholders cial data, and presentation materials and videos for presen- tations. NTT is also taking steps to increase accessibility, The 29th ordinary general meeting of shareholders held in such as adding captions to the videos in July 2014. NTT Group IR website June 2014 was attended by about 3,800 shareholders, an increase of about 700 from the previous meeting. NTT re- evaluated the content and presentation of the information Rigorous Compliance provided to foster a deeper understanding of the NTT Group among shareholders. For example, the meeting in- NTT Group Corporate Ethics Charter cluded a presentation video that explained the business report, issues, and consolidated fi nancial statements in Recognizing that it is imperative to conduct business in compli- the guidelines are intended to remind everyone of their duty as an easy-to-understand manner. NTT’s 29th ordinary general meeting of shareholders ance with laws and regulations, and maintain high ethical stan- members of a telecommunications group which bears signifi cant dards in order to promote sound corporate activities, NTT drew responsibility to society in terms of preventing dishonesty, miscon- up the NTT Group Corporate Ethics Charter in November 2002. duct, and the disclosure of corporate secrets, as well as refraining Presentations for Shareholders and Investors The Charter, which applies to all offi cers and employees of the from exchanging excessive favors with customers and suppliers, NTT Group, lays out the basic principles of corporate ethics and and ensuring that they conduct themselves according to the high- To foster close communication with shareholders and inves- business trends and forecasts provided directly to investors, provides specifi c guidelines for ethical behavior. The stipulations in est ethical standards in both private and public activities. tors, NTT is working to expand opportunities for dialogue valuable feedback and requests received through dialogue is and is working to make the events a place for easy-to-un- being refl ected by management in business operations. Initiatives to Promote Awareness of the NTT Group Corporate Ethics Charter derstand, meaningful dialogue. In addition to explanations of To ensure the effectiveness of the NTT Group Corporate Ethics Charter, NTT Group companies offer training sessions Presentation for Institutional Investors on corporate ethics to employees. In addition, on a website At quarterly presentations, the president or vice president active participation in IR conferences in Japan and overseas. for employees, examples of corporate ethics issues are ex- provide explanations of results and other matters. The pre- Furthermore, the interests and analytical focus of investors plained in detail. In these ways, NTT is working to enhance sentations are streamed live over the Internet and subse- are increasingly diverse and sophisticated, and NTT imple- the understanding of employees. Furthermore, NTT con- quently NTT provides on-demand distribution in Japanese ments presentations related to the themes of global busi- ducts annual surveys of employees to measure their and English. In addition, at roadshows conducted several ness and R&D in accordance with requests received. These awareness, and the results are then used for awareness- times a year, the president, vice president, and other execu- are examples of how the NTT Group, which continues to enhancement initiatives. Corporate ethics website for employees tives hold individual meetings with investors. In addition, NTT transform its business, is conducting a variety of activities to is working to expand opportunities for dialogue through promote understanding of the Group. Establishment of Help Line
To prevent dishonesty and misconduct, each company has The NTT Group Corporate Ethics Charter clearly states Presentations for Individual Investors in place an internal help line. The NTT Group has also estab- that people who fi le reports with these help lines are pro- lished a Groupwide Corporate Ethics Help Line to enable tected from any disadvantage arising from the fact that they NTT considers presentations to be a valuable point of con- employees to fi le reports outside their company if required. fi led a report.
tact with investors, and NTT is working to implement major Corporate Governance increases in the number of presentations and the areas in About the arrests of employees of NTT East and NTT West for bribery which they are held. In the fi scal year ended March 31, For violations (acceptance of a bribe) of the Nippon Telegraph and Tele- further reinforce and strengthen compliance in accordance with the NTT 2014, NTT held 47 presentations, an increase of 29 year on phone Corporation Act (“NTT Law”), an employee of NTT East was ar- Group Corporate Ethics Charter. year. These included areas in which NTT had not previously rested in December 2013 and an employee of NTT West was arrested in Specifi cally, the president of NTT has issued written instructions to the held presentations. These presentations were attended by a January 2014 for accepting money in exchange for giving special treat- presidents of all Group companies ordering further reinforcement of com- ment to sales contractors. pliance. In addition, NTT is investigating the status of outsourcing contracts total of 3,100 people, an increase of 1,500 year on year. The NTT believes that these incidents are highly regrettable and that the and working to prevent a recurrence. We are working to ensure that every- president and other executives actively participate in these loss of support and trust from customers is extremely serious. We deeply one at the NTT Group rigorously observes social norms and internal com- Presentation for individual investors presentations, which provide a venue for direct and mean- regret, and offer our sincere apologies for, the concerns and worry caused pany rules and always acts in accordance with the highest ethical ingful exchange of opinions with investors. to customers and other affected parties. standards, whether in public or private activities, and we are aggressively The NTT Group takes these incidents very seriously and is working to striving to prevent a recurrence of fraud or misconduct.
090 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 091 Corporate Governance
Promotion of Risk Management Framework Basic Approach to and Current Status of Internal Control Systems
The NTT Group faces a rapidly changing business environ- of these efforts, NTT has formulated the NTT Group Busi- The NTT Group’s basic approach to the enhancement of internal control systems has been determined through a resolution of ment, including intensifi ed competition in the information ness Risk Management Manual and distributed it to all the Board of Directors. The details of that resolution are as follows. and telecommunications sector. In this context, NTT Group Group companies so that the entire Group can work to- 1. Basic Approach on the Maintenance of Internal Control Systems companies are exposed to an increasing amount of busi- gether to conduct risk management. In addition, each Group (1) NTT will maintain a system of internal controls including measures for the prevention and minimization of losses, with the objectives of ensuring compliance with legal requirements, managing risks, and achieving proper and effi cient business operations. ness risk. company has formulated its own manuals and other guide- (2) NTT has established an Internal Control Offi ce to oversee the establishment and maintenance of internal control rules and systems. The Internal Control Offi ce will evaluate the effectiveness of the internal control systems based on audit reviews and audits regarding high risk matters affecting the entire NTT Group, and will implement necessary corrective measures and improvements. The NTT Group strives to minimize the impact of losses lines, which refl ect its specifi c business operations, business (3) NTT will also take appropriate measures to ensure the reliability of its system of internal controls for fi nancial reporting based on the U.S. Public Company Accounting Reform and Investor that could result from the materialization of risk by anticipat- environment, and other factors, and is using these materials Protection Act of 2002 (Sarbanes-Oxley Act) and the Financial Instruments and Exchange Law. (4) As the chief executive offi cer, the president will be responsible for ensuring the establishment, maintenance, and operation of the system of internal controls. ing and preventing the occurrence of potential risks. As part to control business risks. 2. Development of the Internal Control Systems (1) Systems to ensure that the performance of duties by members of the board and employees conform with laws and regulations and NTT’s Articles of Incorporation NTT has implemented the following measures with the objective of ensuring that its business is conducted in compliance with applicable laws and in accordance with high ethical standards: 1) Employment rules and regulations require employees to adhere faithfully to applicable laws, regulations, and offi cial notices, and to devote all their energies to the performance of their duties so that business activities may be appropriately and effectively carried out. 2) NTT adopted the NTT Group Corporate Ethics Charter setting forth specifi c conduct guidelines concerning corporate ethics for all NTT Group offi cers and employees. Formulation of the NTT Group Information Security Policy 3) A Corporate Ethics Committee chaired by a senior executive vice president was established to clarify the structure of responsibilities for corporate ethics, including developing and promoting corporate ethics within the organization, raising awareness concerning compliance, maintaining corporate discipline, and conducting investigations concerning reports of misconduct. 4) An internal helpline was established to foster a more open corporate culture and provide a forum for personnel to report and consult on internal ethics issues. In addition, an external Group- If there is a leak or other misuse of such confi dential informa- course of its business, including the personal information of wide Corporate Ethics help line staffed by attorneys was created for personnel to report, and receive consultation on, ethical issues. 5) Corporate ethics training is conducted as part of continuous educational activities for offi cers and employees. In addition, corporate ethics awareness surveys are conducted to improve and tion as personal information, such action may affect the NTT customers. In addition, the NTT Group has formulated the reinforce internal checks.
Group’s business, including its credibility and reputation, and NTT Group Information Security Policy and is taking rigorous (2) Regulations and other systems concerning business risk management NTT takes the following measures to appropriately manage business risks: the NTT Group’s ability to obtain new subscribers or secure steps to protect personal information and other confi dential 1) NTT adopted Risk Management Regulations to establish fundamental policies concerning risk management and to promote effective and effi cient business operations. governmental contracts may be adversely impacted. information, including enhanced internal information man- 2) NTT established a Business Risk Management Committee, headed by a senior executive vice president, to clarify responsibilities concerning management of business risks and to perform crisis management in response to new business risks affecting corporate operations. To prevent such a situation, the NTT Group is making agement, training and awareness-raising for offi cers and 3) NTT also formulated the NTT Group Business Risk Management Manual with the goal of promoting a unifi ed risk management system for the entire NTT Group focusing on preventing and preparing for risks, and positioning the NTT Group to respond appropriately and rapidly as risks materialize. efforts to protect confi dential information obtained in the employees, and publication of manuals. (3) Systems for ensuring that members of the Board effi ciently perform their duties NTT has taken the following measures to ensure that its business activities are managed effi ciently through appropriate allocation of responsibilities among members of the Board and maintaining an appropriate oversight structure to monitor such matters: 1) NTT has adopted organizational rules governing the functions and operations of internal organizational groups, and responsibility regulations setting forth the allocation of responsibilities among the various organizational groups. Revision of the Disaster Management Operation Plan 2) NTT has adopted Board of Directors Regulations governing the function and responsibilities of the Board of Directors. In principle, the Board of Directors holds meetings once each month, and is responsible for decisions on important matters pertaining to management on the basis of applicable laws and regulations, business judgment principles, and other considerations including the duty of care of a good manager. Members of the Board report regularly to the full Board of Directors concerning the status of implementation of their duties. Five Group companies—NTT, NTT East, NTT West, NTT Damage prevention measures require an ongoing pro- 3) The Board of Directors includes outside members of the Board with independent perspectives to reinforce the oversight function for ensuring the impartial performance of duties. Communications, and NTT DOCOMO—have been desig- cess of periodic review to refl ect the latest knowledge and 4) As a holding company that oversees and coordinates NTT Group, NTT has established the Corporate Management Committee and subcommittees for the purpose of considering and deciding important matters pertaining to the management of NTT and the NTT Group, with the objective of promoting effi cient and effective group management. nated public institutions under the Basic Act on Disaster legal revisions. In June 2014, the Japanese government (4) Systems for custody and management of information relating to the performance of duties by members of the Board Control Measures. revised the Nankai Trough Earthquake Countermeasures NTT has adopted the following measures to facilitate appropriate and effi cient conduct of business activities through the proper management of information relating to the performance of duties by members of the Board: Accordingly, in preparation for a disaster, the NTT Group Basic Plan. In response, the NTT Group has revised the 1) NTT has adopted document retention regulations and rules on information security setting forth matters necessary for the management of documents (including related materials and informa- tion recorded on electronic media; referred to as “Documents”) and other information. has formulated the Disaster Management Operation Plan for Disaster Management Operation Plan and is strengthening 2) Documents shall be retained for the periods required by law and as necessary for business operations.
the purpose of smooth, appropriate implementation of mea- damage prevention measures. (5) Systems for ensuring the propriety of the business activities of the NTT Group NTT has adopted the following measures to ensure that transactions among NTT Group companies are conducted appropriately and in compliance with applicable laws and regulations, sures to prevent damage. and to ensure appropriate business conduct by the NTT Group, thus contributing to the growth and development of NTT Group: 1) Develop communications systems for notifying the parent company in emergency situations 2) Conduct employee education and training to prevent scandals or misconduct 3) Establish systems for information security and the protection of personal information 4) Require NTT Group companies to report regularly to the parent company on their fi nancial condition Formulation of Novel Infl uenza Countermeasures Plan 5) Audits of NTT Group companies by the parent company’s internal audit division
(6) Matters relating to employees who assist audit & supervisory board members in the performance of their duties and the independence of those employees from members of the Board The global spread of novel infl uenza and other diseases has In response, in March 2014 the NTT Group formulated NTT has adopted the following measures with respect to employees who assist audit & supervisory board members in the performance of their duties to ensure the effective performance of audits by the audit & supervisory board members: had a major infl uence on economies and lifestyles. In this the Novel Infl uenza Countermeasures Plan. In accordance 1) Offi ce of Audit & Supervisory Board Members was established as an integral part of NTT’s corporate organization under the Companies Act. Offi ce of Audit & Supervisory Board Members is staffed with dedicated personnel who work full time in assisting the audit & supervisory board members in the performance of their duties. setting, countermeasures have become a social issue. with the stages of an outbreak of novel infl uenza or other 2) Personnel assigned to Offi ce of Audit & Supervisory Board Members perform their responsibilities at the instruction and direction of the audit & supervisory board members. 3) Decisions concerning matters such as transfer of personnel assigned to Offi ce of Audit & Supervisory Board Members, evaluations of such personnel and similar matters are made with due In accordance with the Act on Special Measures for diseases, we have created a specifi c plan for the fulfi llment regard for the opinion of the Audit & Supervisory Board.
Countermeasures against Novel Infl uenza that was promul- of our responsibilities as designated public institutions and (7) Systems for reporting to audit & supervisory board members by members of the Board and employees and systems for ensuring the effective implementation of audits by audit & supervisory board members gated in 2012, fi ve companies in the NTT Group (same as for the prevention of infection from the viewpoint of respect To ensure that audits by audit & supervisory board members are carried out effectively, NTT has adopted the following measures concerning reporting to the audit & supervisory board mem- above) are designated public institutions. for human life. bers by members of the Board and employees with regard to important matters relating to the performance of their duties: Corporate Governance 1) Members of the Board and other personnel report the following matters concerning the performance of their duties: (a) Matters resolved at Corporate Management Committee meetings; (b) Matters that cause or may cause substantial damage to NTT; (c) Monthly fi nancial reports; (d) The status of internal audits; (e) Matters that pose a risk of violation of applicable law or the Articles of Incorporation; (f ) The status of reporting to help lines; and (g) Other material compliance matters. 2) Representative members of the board, accounting auditors, and internal control divisions report to and exchange ideas and opinions with audit & supervisory board members periodically and at other times as necessary upon request from the audit & supervisory board members. 3) Audit & supervisory board members may attend meetings of the Board of Directors and other important meetings. 4) Audit & supervisory board members may contract independently with and seek advice from external experts with respect to the performance of audit operations.
3. Basic Approach to and Current Status of Measures to Eliminate Antisocial Forces In accordance with the NTT Group Corporate Ethics Charter, all offi cers and employees of the NTT Group are required to comply with all laws and regulations, social standards, and internal company rules, whether in Japan or overseas, and to act in accordance with the highest ethical standards in both private and public activities. In addition, detailed policies for dealing with antisocial forces have been documented in the NTT Group Business Risk Management Manual.
092 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 093 Directors and Audit & Supervisory Board Members As of June 30, 2014
Directors
Back row Akira Shimada Hiroshi Tsujigami Mitsuyoshi Kobayashi Tsunehisa Okuno Hiroki Kuriyama Member of the Board Member of the Board Executive Vice President Member of the Board Member of the Board
Front row Hiromichi Shinohara Hiroo Unoura Satoshi Miura Jun Sawada Representative Director and Representative Director and President Member of the Board and Chairman Representative Director and Senior Executive Vice President Senior Executive Vice President
Principal Occupation and Other Responsibilities Outside Members of the Board and Directors
Satoshi Miura Jun Sawada Hiroshi Tsujigami
Chairman of Board of Directors Chief Financial Officer, Chief Senior Vice President of Corporate Members Audit & Supervisory Board Compliance Officer and Chief Strategy Planning Department Hiroo Unoura Information Officer; in charge Chief Executive Offi cer of business strategy and risk Tsunehisa Okuno Senior Vice President of Global Hiromichi Shinohara management Business Offi ce Katsuhiko Shirai Chief Technology Offi cer and Senior Mitsuyoshi Kobayashi Executive Advisor for Academic Affairs Sadayuki Sakakibara Vice President of Research and Senior Vice President of Technology Hiroki Kuriyama of Waseda University Chairman of the Board of Toray Industries, Inc. Development Planning; in charge of Planning Department Senior Vice President of Strategic technical strategy and international Business Development; in charge Chairperson of the Foundation Director of Hitachi, Ltd. standardization Akira Shimada of 2020 Project for the Open University of Japan Chairman of the Japan Business Senior Vice President of General Director of Japan Display, Inc. Federation (Keidanren) Affairs Department
094 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 095 Directors and Audit & Supervisory Board Members
Audit & Supervisory Board Members Financial Section
Seiichi Ochiai Akiko Ide Kiyoshi Kosaka Michiko Tomonaga Takashi Iida Audit & Supervisory Audit & Supervisory Audit & Supervisory Audit & Supervisory Audit & Supervisory Board Member Board Member Board Member Board Member Board Member
Background of Outside Audit & Supervisory Board Members (As of June 30, 2014) Michiko Tomonaga Seiichi Ochiai Takashi Iida Certifi ed Public Accountant Professor at Chuo Law School Lawyer Corporate Auditor of Keikyu Corporation Emeritus Professor at the University of Tokyo Auditor of Shimadzu Corporation Corporate Auditor of the Corporation for Director of Meiji Yasuda Life Insurance Company Auditor of JAFCO Co., Ltd. Revitalizing Earthquake-Affected Business Auditor of Ube Industries, Ltd. Director of Alps Electric Co., Ltd. Director of Japan Exchange Group, Inc. Financial Section: Contents Message from the Audit & Supervisory Board 10-Year Financial Summary 098 NTT’s Audit & Supervisory Board comprises three outside audit & supervisory board members, who have experience and knowledge in a range of fi elds—as a CPA, NTT’s audit & supervisory board members receive annual reports regarding university professor, and lawyer—and two internal audit & supervisory board mem- audit results from the audit & supervisory board members of principal subsid- Operating and Financial Review and Prospects 102 bers. In addition, one of the audit & supervisory board members has extensive knowl- iaries and exchange opinions with them. In addition, NTT is implementing edge concerning fi nance and accounting matters. Each audit & supervisory board initiatives that contribute to enhancing the auditing activities of each audit & member attends meetings of the Board of Directors and other important meetings. In supervisory board member, including training sessions by outside experts for Consolidated Balance Sheets 118 each audit & supervisory board member. addition, audit & supervisory board members meet periodically with the representative In addition, the audit & supervisory board members periodically exchange directors to exchange ideas and opinions and hold discussions on various topics with opinions with the Independent Auditor and the Internal Control Offi ce. The audit Consolidated Statements of Income and the directors, etc. In this way, the audit & supervisory board members grasp the & supervisory board members also receive explanations of audit plans and status of the performance of directors’ duties and provide their opinions as needed. reports on the status of internal control systems and provide advice as needed. Consolidated Statements of Comprehensive Income 120 Moreover, separate from meetings of the Audit & Supervisory Board, meetings of To support the audit & supervisory board members, NTT has established the Audit & Supervisory Board Members Preliminary Deliberation Meetings are held, the Offi ce of Audit & Supervisory Board Members, which has four staff mem- Consolidated Statements of Changes in Equity 121 in principle, each week. These meetings, which are attended by all audit & supervi- bers who work full time in assisting the audit & supervisory board members in sory board members, provide a venue for the sharing of information. For example, at the performance of their duties. In this way, NTT has established a fl exible these meetings the audit & supervisory board members listen to explanations from system for the support of the audit & supervisory board members. Consolidated Statements of Cash Flows 122 Financial Section corporate offi cers of matters to be discussed at the Executive Offi cers Meeting. Through these types of activities, the audit & supervisory board members In regard to on-site audits, the audit & supervisory board members receive support the sound, steady growth of NTT and its subsidiaries in Japan and information from the presidents of major subsidiaries in Japan and overseas overseas, from an independent perspective that differs from that of executives. Reference Information 123 regarding the status of internal control and initiatives to maintain and enhance In addition, the audit & supervisory board members strive to maintain and enhance corporate governance by strengthening the corporate governance corporate governance, and discussions are conducted on those matters. Consolidated Subsidiaries 125 The audit & supervisory board members of NTT Group companies work in system on a Groupwide basis, which has become increasingly important in cooperation with the audit & supervisory board members of principal subsidiaries. recent years, and by fostering a thorough awareness of compliance matters.
096 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 097 098 NIPPON TELEGRAPH AND TELEPHONE CORPORATION Fiscal yearsendedMarch 31 Nippon Telegraph andTelephone Corporationanditssubsidiaries 10-Year FinancialSummary • ROCE=Operatingincome×(1–Statutorytax rate) /Operatingcapitalemployed×100 • Operatingfree cashfl ow =(Operating income+Depreciation andlossondisposalofproperty, plantandequipment)–Capital • EBITDAmargin=(Operatingincome+Depreciation andloss on disposalofproperty, plantand equipment)/Operatingrevenues • Capitalinvestmentisonanaccrualbasisforthe acquisitionofproperty, plantand equipment. Please refer toReconciliation ofCapitalInvestment,EBITDAMargin, OperatingFree CashFlow, andROCEonpage123. (4) (3) (2) (1) Profi prtn xess95479504963593639366903790019244 9,498.8 9,284.4 9,090.1 ¥10,700.7 ¥10,507.4 9,063.7 ¥10,305.0 9,306.6 ¥10,181.4 9,376.3 ¥10,416.3 ¥10,680.9 9,653.5 ¥10,760.6 9,550.4 ¥10,741.1 9,594.7 ¥10,805.9 Other income(expenses) Operating income Operating expenses Operating revenues Income taxexpense(benefi t) I Less—Net incomeattributabletononcontrolling interests Net income (losses)ofaffiEquity inearnings liated companies Net incomeattributabletoNTT e ahpoie y(sdi)finnigatvte 1120 1199 818 764 333 613 296 981 (745.2) 9,776.7 ¥ (1,776.3) 9,806.4 ¥ (948.1) (1,971.2) 9,900.6 ¥ (2,052.2) (249.6) ¥2,453.7 ¥10,057.5 (2,308.9) ¥2,508.3 (651.3) ¥10,201.5 ¥2,830.9 (2,269.7) ¥10,385.6 (353.3) ¥2,817.8 (1,990.6) (726.4) ¥2,514.1 ¥3,090.8 ¥10,423.8 (2,151.0) ¥10,435.9 (831.8) ¥10,480.6 (2,077.3) ¥2,361.3 (1,139.9) (1,768.4) ¥3,242.9 (1,112.0) ¥2,829.8 Total assets Property, plantandequipment(net) Balance sheet(Atyear-end) Net cashprovided by(usedin)fi nancing activities Net cashusedininvestingactivities Net cash provided by operating activities Cash fl neetbaigdb ,2. ,9. ,7. ,7. ,9. ,9. ,5. ,7. 4,036.0 4,274.0 4,553.5 3,765.6 4,491.7 3,770.1 4,899.3 3,772.0 4,677.2 3,776.9 3,779.0 3,779.0 4,770.8 5,296.2 5,525.8 3,782.1 3,781.1 3,737.8 Shareholders’ equity Capital stock(commonplusadditionalpaid-incapital) Interest-bearing debt Current liabilities ahdvdns plcbet annsfrteya 00 00 00 00 1.0¥ 100 2.0¥ 100 1 ¥ 269.2 140.00 ¥ 120.00 267.9 ¥ 120.00 ¥ 268.2 110.00 ¥ 278.1 90.00 ¥ 268.2 271.1 80.00 ¥ 60.00 ¥ 60.00 ¥ 272.1 308.4 318.1 fortheyear Cash dividends,applicabletoearnings Per share ofcommonstock Research anddevelopmentexpenses(Fortheyear) Capital investment(Fortheyear) Other fi Equity Noncontrolling interests egtdaeaenme fsae usadn ,4,3,2 ,3,0,2 ,8,7,1 ,7,6,6 ,4,0,1 ,2,6,8 1,32 1,323,262,483 1,345,302,411 1,377,561,362 1,382,076,916 1,431,504,928 1,547,536,620 Weighted averagenumberofshares outstanding Net incomeattributabletoNTT Long-term liabilities mlye Tosns A ered 0 9 9 9 9 9 1 2 227 224 219 195 196 193 199 199 201 Operating free cashfl ow EBITDA margin Performance indicators Employees (Thousands)(Atyear-end) ROCE afficompanies liated ncome before(losses)of incometaxes,andequityinearnings dated fi nancial statements,startingfrom thefi scal yearendedMarch 31,2010,thename ofthislineitemwaschanged. theapplicationofaccounting pronouncement issuedbytheFinancialAccountingStandardsWith Board (“FASB”) inDecember20 during thefi scal yearsendedMarch 31,2008and2014.Theamountsinthetable aboveforthefi scal yearsendedMarch 31,2005 NTT hasretroactively appliedtheequitymethodofaccountingtoprioryears foranaffi liate investmentas aresult ofthe acq Consolidated FinancialStatements)conducted inthefi scal yearended March 31,2009. Financial datapershare ofcommonstockforthefi scal yearendedMarch 31,2008,andprevious years have beenadjustedtorefl tandloss(Fortheyear) (2)(3) (4) ows(Fortheyear) nancialdata (2)(3) (2) (4) (2) (2) (2)(3) (3) (4) (2) (2) (yen) (2)(3) (2)(3) (4) (1) (2) (2)(3) 1. 0. 8. 3. 3. 9. 0. 6. ¥ 521.9 ¥ 467.7 ¥ 509.6 ¥ 492.3 ¥ 538.7 ¥ 635.2 ¥ 481.4 ¥ 503.1 ¥ 714.5 417 5.6¥ 4.9¥ 6.7¥ 0.1¥ 7.1¥ 8.6¥ 6.7 ¥ 430.68 ¥ 366.67 ¥ 385.16 ¥ 372.01 ¥1,970.0 ¥ 400.41 ¥1,946.6 ¥10,522.0 ¥ 461.07 ¥1,870.1 ¥10,047.7 ¥1,987.1 ¥10,080.9 ¥2,145.1 ¥9,770.9 ¥2,128.9 ¥9,145.6 ¥ 348.29 ¥9,274.8 ¥ 351.46 ¥ 461.73 ¥2,236.9 ¥2,191.9 ¥8,955.3 ¥ 2,057.4 ¥8,570.6 ¥ 8,469.5 90401,2. 82111,1. 87641,3. 965619,389.7 19,549.1 19,665.6 18,939.1 18,796.4 18,518.8 18,291.1 18,820.2 19,064.0 ,1. ,9. ,0. ,0. ,0. ,1. ,1. 1,223.01,202.0 1,214.9 1,117.7 1,109.8 1,304.6 1,107.0 1,190.7 1,211.2 ,2. ,0. ,3. ,2. ,0. ,2. ,7. 1,239.31,197.6 1,175.8 1,120.1 1,105.2 1,322.3 1,132.7 1,302.1 1,723.3 ,1. ,7. ,0. ,3. ,5. ,7. ,9. 5,847.75,527.7 5,895.6 5,579.9 648.6707.6 5,956.6 701.9 5,332.1 681.9 733.2 832.5 5,605.0 6,276.9 6,914.8 676.2 749.2 1,004.8 ,7. ,7. ,3. ,1. ,9. ,8. ,8. 3,494.33,499.4 3,689.1 3,588.3 3,694.2 3,911.9 3,730.8 3,972.6 3,679.6 ,8. ,5. ,0. ,7. ,2. ,5. ,1. ,7. 1,237.5 1,272.5 1,412.1 1,253.7 2,165.12,290.6 1,224.8 7,882.68,231.4 2,060.2 1,478.1 8,020.7 1,982.7 7,788.2 1,847.5 7,298.1 1,864.0 7,410.8 1,103.7 1,250.7 1,482.2 1,834.5 7,120.8 1,836.3 6,734.4 1,729.3 6,740.3 28 21 10 38 24 18 19 06 30.0% 30.6% 31.9% 31.8% 32.4% 33.8% 31.0% 32.1% 32.8% uisition bytheNTTGroup ofadditionalshares oftheaffi liate 2. 4. 7. 3. 7. 5. 7. 8. 474.0 583.2 16.4(4.3) 474.6 (39.1) 452.9 2.4 371.3 (4.6) 531.7 17.7 471.0 25.7 547.9 111.4 728.3 512.1 9. 4. 9. 9. 9. 8. 9. 180.9185.7 192.2 189.6 194.5 197.4 194.8 246.1 290.2 .%58 .%64 .%54 .%58 6.1% 5.8% 5.8% 5.4% 5.4% 6.4% 5.5% 5.8% 5.8% 0520 0720 0921 0121 2013 2012 2011 2010 2009 2008 2007 2006 2005 . 50 454. 07 4707(.)(16.1) (7.6) 0.7 14.7 (0.7) 41.9 14.5 (5.0) 9.8 investment ect the100-for-1 stocksplit(seeNote 13tothe ×100 toMarch 31,2013,havebeenadjustedaccordingly. 07, relating tononcontrolling interests inconsoli- ,7,8 1,275,519,400 1,211,880,769 3,173,389 60.00 1,149,758,214 ANNUAL REPORT 2014 ANNUAL REPORT ¥ 585.5 ¥ 9,839.7 ¥ 2,727.9 ¥ 170.00 ¥ 509.21 ¥ 1,892.8 ¥10,924.8 ¥10,925.2 Billions ofyen 20,284.9 (2,106.8) 1,213.7 9,711.5 1,294.2 3,765.0 4,200.0 5,657.4 1,299.5 2,413.5 8,511.4 3,676.8 29.2% (622.4) 756.9 486.5 171.4 249.3 6.0% (50.8) 2014 80.5 240 099 10-Year Financial Summary 100 NIPPON TELEGRAPH AND TELEPHONE CORPORATION (JAPAN GAAP) NTT East MAJOR SUBSIDIARIES’DATA (Billions ofyen) Total OperatingIncome (Billions ofyen) Total OperatingRevenues SEGMENT DATA 10-Year FinancialSummary (JAPAN GAAP) NTT West * Certainitemsforprioryears’fi nancial statements havebeenreclassifi ed. Fiscal yearsendedMarch 31 Fiscal yearsendedMarch 31 12,000 15,000 prtn xess203120932014197719621,881.0 1,916.2 ¥1,831.7 ¥1,851.5 1,957.7 ¥1,957.1 2,001.4 ¥1,928.6 ¥1,952.9 2,059.3 ¥2,002.7 ¥2,061.3 2,093.1 ¥2,125.3 ¥2,180.9 Operating expenses Operating revenues e noe(os 103. 83(77 542. 902. 20.9 28.3 20.4 42.3 49.0 33.6 19.2 63.0 42.7 24.8 39.3 37.0 30.3 44.6 15.4 36.4 49.6 19.5 49.8 (37.7) 39.3 18.4 24.8 51.1 28.3 40.3 7.7 54.0 52.1 32.6 48.5 56.5 13.9 1,608.7 59.4 41.0 1,639.3 43.3 80.0 20.4 1,708.4 76.8 1,762.3 42.1 32.0 1,816.5 66.6 ¥1,627.9 ¥1,676.3 1,887.3 46.1 Net income (loss) ¥1,758.0 70.1 1,931.0 ¥1,780.8 56.0 Recurring profi t ¥1,824.3 1,997.5 Non-operating expenses ¥1,901.2 ¥1,951.5 2,027.8 Non-operating revenues ¥2,029.6 ¥2,098.0 Operating income Operating expenses Operating revenues e noe5. 128. 687. 055. 2152.8 32.1 88.8 52.3 75.2 50.5 36.3 96.0 65.0 60.1 77.5 33.5 71.7 50.3 58.4 96.8 34.9 65.3 77.1 53.8 84.3 37.5 67.4 47.6 61.6 51.2 40.5 90.3 36.6 69.2 58.1 43.7 84.2 44.9 66.1 39.9 97.6 59.9 70.4 45.0 65.9 63.2 51.1 Net income 87.7 61.0 Recurring profi t Non-operating expenses Non-operating revenues Operating income 3,000 6,000 9,000 1,200 1,500 1,800 300 600 900 0 0 0520 0720 0921 012013 2011 2010 2009 2008 2013 2007 2006 2011 2005 2010 2009 2008 2007 2006 2005 247.1 784.2 ,2. ,6. 1,183.3 1,263.0 1,221.4 4,844.6 4,574.9 1,217.0 36.9 57.3 42.0 832.6 4,765.9 1,268.0 4,449.0 832.6 172.3 40.5 59.7 74.1 887.3 0520 0720 0921 0121 2013 2012 2011 2010 2009 2008 2007 2013 2006 2012 2005 2011 2010 2009 2008 2007 2006 2005 1,013.8 4,788.1 4,308.0 1,289.8 115.9 773.5 59.7 61.3 82.8 105.8 285.6 796.5 1,059.5 4,711.8 1,322.8 1,185.1 4,209.7 58.8 78.9 825.4 ,6. 1,132.6 1,165.2 1,127.2 4,448.0 4,064.8 1,315.5 96.9 5213.3 15.2 70.5 86.8 4,284.4 1,259.6 1,132.5 3,964.3 828.4 82.1 64.9 98.2 4,224.3 839.1 1,332.7 4,027.2 1,163.2 127.3 1,120.3 44.9 77.0 97.1 2012 2012 1,083.2 4,240.0 116.7 876.4 3,766.3 1,678.7 1,251.8 86.9 56.9 71.5 ,7. ,0. 1,766.7 1,801.2 1,879.9 836.4 3,659.8 121.3 1,303.5 1,657.9 1,251.9 4,470.1 53.3 85.8 92.5 2014 2014 817.2 127.5 127.2 1,328.5 1,343.9 4,461.2 1,809.9 3,572.3 56.1 67.9
Fiscal yearsendedMarch 31 Fiscal yearsendedMarch 31 OtherBusinesses OtherBusinesses Business Data Communications Business MobileCommunications Business Communications International LongDistanceand Business RegionalCommunications Business Data Communications Business MobileCommunications Business Communications International LongDistanceand Business RegionalCommunications Billions ofyen Billions ofyen
¥1,773.8 ¥1,589.6 1,573.2 1,707.0 18.7 26.0 31.9 41.6 16.3 2014 2014 53.9 91.7 32.9 58.0 66.7 Fiscal yearsendedMarch 31 (JAPAN GAAP) NTT Communications * Certainitems forprioryears'fi nancial statementshave beenreclassifi ed. * Debtratio =Interest-bearing debt/(Interest-bearing debt+ Shareholders’ equity)×100 (Billions ofyen) Interest-Bearing Debt/Ratio DEBT-RELATED DATA * Certainitemsforprioryears’fi nancial statementshavebeenreclassifi ed. Fiscal yearsendedMarch 31 (U.S. GAAP) NTT DOCOMO(Consolidated) (JAPAN GAAP) NTT DATA (Consolidated) Fiscal yearsendedMarch 31 prtn xess10011003108110971063917901852826.6 875.2 940.1 981.7 ¥944.8 1,026.3 ¥981.0 1,049.7 ¥1,033.4 1,068.1 ¥1,079.2 ¥1,127.1 1,060.3 ¥1,154.5 1,020.1 ¥1,145.4 ¥1,127.8 ¥1,090.0 Operating expenses Operating revenues o-prtn noe(os 0. 1. 05 76 5.)19(.)25 (3.8) 837.2 2.5 874.5 (9.4) 844.7 834.2 1.9 830.9 (50.5) 3,632.9 808.3 3,365.5 (7.6) 3,379.5 773.5 3,450.1 (0.5) 832.6 3,617.0 ¥4,470.1 3,903.5 ¥4,240.0 784.1 ¥4,224.2 119.6 4,014.5 ¥4,284.4 ¥4,447.9 3,933.2 504.0 ¥4,711.8 4,060.4 ¥4,788.0 ¥4,765.8 ¥4,844.6 Non-operating income(loss) Operating income Operating expenses Operating revenues e noe2. 143. 278. 066. 8365.3 58.3 68.9 129.7 60.6 13.1 118.9 24.7 89.0 103.6 118.1 10.4 23.7 108.5 62.7 105.7 13.3 23.7 113.5 93.2 30.3 14.0 112.0 25.0 97.5 31.4 19.6 77.8 32.3 100.8 24.6 27.8 71.8 104.7 35.1 29.1 67.9 77.3 29.5 26.4 67.5 30.7 28.0 69.8 26.1 Net income Recurring profi t Non-operating expenses Non-operating revenues Operating income noebfr a 1282923729806704861853870 833.3 877.0 835.3 836.1 780.4 800.6 772.9 952.3 1,288.2 N Income before tax prtn noe 924. 029. 858. 838. 85.6 (3.8) 80.4 (4.8) 78.3 321.4 (2.5) 980.5 309.2 81.6 (5.9) 941.8 279.6 98.5 235.7 882.3 272.3 (2.9) 228.8 95.9 870.5 277.1 201.3 (1.5) 90.2 861.9 261.0 190.6 (4.4) ¥1,301.9 813.3 ¥1,251.1 46.8 258.5 178.6 ¥1,161.9 ¥1,142.9 786.3 (4.8) 225.0 ¥1,139.0 39.2 165.1 ¥1,074.4 682.2 ¥1,044.9 205.7 (7.1) 168.3 ¥907.2 648.3 ¥854.1 178.1 Non-operating income(loss) 166.4 Operating income Selling andgeneralexpenses Gross profi t Cost ofsales Net sales e noe2. 815. 044. 563. 04 43.5 30.4 81.8 37.3 75.5 35.6 75.7 48.3 75.7 30.4 95.5 50.6 94.3 28.1 85.7 20.1 42.0 32.1 Net income Recurring profi t 2,000 4,000 6,000 8,000 T OOO775604472412418447404439491.0 463.9 490.4 494.7 471.8 491.2 457.2 610.4 747.5 NTT DOCOMO et incomeattributableto 0 0520 0720 0921 012013 2011 2010 2009 2008 2007 2006 2005 45.0 5,525.8 5,525.8 44.0 5,296.2 5,296.2 40.1 4,770.8 4,770.8 0520 0720 0921 0121 2013 2012 2011 2010 2009 2008 2007 2013 2006 2012 2005 2011 2010 2009 2008 2007 2006 2005 0520 0720 0921 0121 2013 2012 2011 2010 2009 2008 2007 2006 2005 38.7 4,677.2 40.2 4,899.3 4,899.3 36.6 4,491.7 36.2 4,553.5 4,553.5 2012 35.2 4,274.0 32.9 4,036.0 2014 33.0 4,200.0 15.0 30.0 45.0 60.0 (%) 0 Fiscal yearsendedMarch 31
Debt ratio* Interest-bearing debt (right scale) (left scale) ANNUAL REPORT 2014 ANNUAL REPORT Billions ofyen Billions ofyen Billions ofyen ¥4,461.2 ¥1,343.7 3,642.0 1,031.2 ¥944.0 132.5 113.4 830.5 464.7 819.2 833.0 249.9 312.5 2014 2014 13.9 2014 62.5 23.2 62.1 88.9 27.4 (0.4) 8.3 101 10-Year Financial Summary 102 NIPPON TELEGRAPH AND TELEPHONE CORPORATION tute, Inc.(“NTTI lished anewresearch anddevelopmentbase,NTTInnovationInsti- Inthefi eld ofresearch anddevelopment,NTTGroup estab- agement andapplications. platforms, suchasdatacentersandtheIPbackbone,toICTman- hensive cloudservices,from informationandtelecommunications advantage ofitsstrengths asacorporategroup toprovide compre- NTTGroup workedtoexpandGlobalCloudservicesbytaking Status ofExpansionGlobalCloudServices Next Stage.” ment StrategyadoptedinNovember2012,entitled“Towards the work servicecompetitivenessinlinewithitsMedium-Term Manage- worked toexpanditsGlobalCloudservicesandstrengthen itsnet- Duringthefi scal yearendedMarch 31,2014,NTTGroup OFBUSINESSRESULTSOVERVIEW Operating andFinancialReviewProspects NTT I and cloudtechnologies.Theuniqueconsultingtoolsdevelopedby in order torapidlydevelopandbringmarketworld-classsecurity systems. tion, foroptimization solutionsandoperationservices foritscore outsourcing services,andfrom theTexas Departmentof Transporta- the provision ofcloud-basedcollective systemsforoperationsand whose portfolioincludesKentucky FriedChickenandPizzaHut,for United States),oneoftheworld’s largestrestaurant chainoperators, orders from companiessuchasYum! Brands,Inc.(headoffi AnumberofNTTGroup companies collaboratedtoobtain ce: ity networks. strengths ofthesedatacentersincludesafefacilities andhigh-qual- Tokyo, withitshighlyconvenienttransportation systems.The Malaysia, where there islittleimpactfrom naturaldisasters,andin ments forhigh-qualityandreliable ICTenvironments, aswell asin high concentrationoffi nancial institutionswithsignifi cant require- Group establishednewdatacentersinHongKong,whichhasa Inorder tostrengthen itsprovision ofdatacenterservices,NTT strengthen NTTGroup’s operatingbase inEurope and LatinAmerica. (head offi ce: Spain),aprovider ofawiderangeICTservices,to countries worldwide.Inaddition,NTTGroup acquired everisGroup related solutionscoveringaudio,webandvideoconferencing in32 (head offi ce: France),aprovider ofawiderangeconference- encing services,NTTGroup SAS acquired ArkadinInternational tered intheUnitedStates.To strengthen theprovision ofteleconfer- TechnologyVirtela Services,Incorporated,allofwhichare headquar- provider DataCenters,andnetworkserviceprovider RagingWire iaries: securityservicesprovider Solutionary, Inc.,datacenter service of GlobalCloudservices,NTTGroup acquired thefollowingsubsid- To strengthen theframeworkforitsprovision ofabroad lineup 3 havealready led to thereceipt ofneworders from customers. 3 ”), inNorthAmerica,anintenselycompetitivearea, ment withevengreater networkconvenienceforusers. bands: 800MHz,1.5GHz,1.7GHzand2GHz,providing anenviron- “Quad-Band LTE” servicesupportingthefollowingfourfrequency its Xiservice(LTE service).Inaddition,NTTGroup launchedits iPhone*, andatthesametimefurtherexpandedservicearea of expand theuseofsmartphones,includinglaunchingsales Inthemobilecommunicationsfi eld, NTTGroup workedto a maximumoftwoyears. discount onmonthlycharges,commencingfrom thestartofusefor launching thenewservice“DontoWari,” whichoffers subscribersa increase newsubscriptionsforits“FLET’SHikari”service,including Inthefi xed-line communicationsfi eld, NTTGroup workedto Competitiveness Status ofEfforts toStrengthen Network Service position in theClimateDisclosure Leadership Index(CDLI). also the only Japanesetelecommunications provider toachieve a companies inJapan forclimatechangedisclosure. NTTGroup was panies inthecontext ofclimatechangeissues,asone oftheleading ect (CDP),theworld’s largest organization fortheevaluationof com- society,” NTTGroup wasrecognized bytheCarbonDisclosure Proj- greenhouse gasesutilizingICTasameansof“creating alow-carbon Furthermore, asaresult ofNTTGroup’s initiativestoreduce medical care districtsofMiyagiPrefecture. adopted, constructedanddeployed intheIshinomaki/Kesennuma tinuity ofmedicaloperationsinthe eventofanaturaldisaster, were population andlackofmedicalresources, whilealsofacilitatingcon- resolution ofissues,includingthoseassociated withJapan’s aging viding valuetocustomers,”NTTGroup’s solutions,whichenable the Specifi cally, to“helpbuilda sustainable societythrough pro- “NTT Group CSRCharter”topromote collectivegroup initiatives. tative indicators,whichwere establishedinaccordance withthe Activities ofthe“NTTGroup CSRPriorityActivities”planandquanti- toward proactive informationdisclosure basedontheeightPriority NTT Group companiesundertookarangeofactivitiesandworked Inorder tocontributethesustainabledevelopmentofsociety, Responsibility (“CSR”) Status ofEfforts to Promote CorporateSocial nance andoperationsbusiness. employees, andworkingtofurtherimprove effi ciency initsmainte- ing constructionprojects thatdonotrequire thedispatchofNTT costs associatedwithinitiatingopticaltransmissionlinesbyincreas- by makingeffective useofexistingequipment,whilecuttingthe structure effi ciency byintroducing high-performanceequipmentand services. Specifi cally, NTTGroup workedtofurtherenhanceinfra- endeavored tocut costsinfi To xed-line andmobilecommunications strengthen itsnetworkservicecompetitiveness,NTTGroup * The iPhonetrademarkisusedunderlicensefrom AiPhoneCo.,Ltd. TM and©2014AppleInc.Allrightsreserved. iPhoneisatrademarkofAppleInc. Specifi cally, NTT Group seeks toimplementthefollowinginitiatives. ner” thatcustomerscontinuetoselect. range ofmarketplayers,withtheaimbecominga“valuedpart- generating businessopportunitiesthrough collaborationwithawide Next Stage,”NTTGroup iscommittedtocreating newservicesand BasedontheMedium-Term ManagementStrategy“Toward the Management Strategy Business DevelopmentsPursuanttotheMedium-Term BUSINESS OUTLOOK 31, 2013”forananalysisofconsolidatedresults ofoperations. ended March 31, 2014 compared withthefi scal yearendedMarch fi scal year).See“Item5—ResultsofOperations—The fi scal year NTT was585.5billionyen(anincrease of12.2%from theprevious previous fi scal year),andconsolidatednetincomeattributable to income taxeswas1,294.2billionyen(anincrease of8.1%from the 1.0% from theprevious fi scal year),consolidatedincomebefore dated operatingincomewas1,213.7billionyen(anincrease of increase of2.2%from theprevious fi scal year).Asaresult, consoli- year). Consolidatedoperatingexpenseswere 9,711.5billionyen(an 10,925.2 billionyen(anincrease of2.1%from theprevious fi scal ating revenues forthefi Asaresult oftheaboveefforts, NTTGroup’s scal yearendedMarch 31,2014were consolidatedoper- Taxes andNetIncomeAttributabletoNTT Expenses, OperatingIncome,IncomeBefore Income Consolidated OperatingRevenues, fromlessons learned theGreat EastJapanEarthquake. of exchangeoffi ces andre-examining itstransmissionlinesinlightof including improving theearthquakeresistance andwaterresistance “ensuring stableandreliable servicesascriticalinfrastructure,” Moreover, NTTGroup continuedtopromote initiativesaimedat bases, includingNTT I moting collaboration amongNTTGroup research anddevelopment implement effective andeffi cient research and developmentbypro- to thesafeandsecure useofcloudservices,NTT Group intends to Inaddition,toaddress thecritical issueofsecurity, whichrelates platforms, ICTmanagementandapplications. cations platforms,suchasnetworks anddatacenters,tocloud lineup ofGlobalCloudservices,from informationand telecommuni- intends tofurtherstrengthen itsframeworkforproviding abroad consulting andpost-migrationoperations andmanagement, meet itscustomers’wide-ranging needs, includingpre-migration NTTGroup continuestoprovide cloudmigration servicesto Expansion ofGlobalCloudServices sented by overseassales. seas sales, andtoincrease theproportion ofcorporatesales repre- Asaresult oftheabove, NTTaimstosignifi cantly increase over- businesspartners. ended March 31,2014,andwithexternal 3 , whichwasestablished duringthefi scal year 2012) bythefi scal yearendingMarch 31,2016. of 60%ormore (compared withthefi Through theseefforts, NTTGroup hopestoachieveEPSgrowth scal yearendedMarch 31, ness andonreturnstoshareholders. ciency inareas such asM&Aactivityfocusedoncloud-related busi- effectively utilizethefundsgeneratedthrough suchincreased effi - Investments” foradiscussionofcapitalinvestment.NTTplansto investments. See“Item4—InformationontheCompany—Capital and telecommunicationsservicesbysignifi cantly streamlining capital aims toreduce itscapextosalesratiointheareas ofinformation tiveness ofitsexistingnetworkservices.Inaddition,NTTGroup vices andwillcontinuetocomprehensively strengthen thecompeti- reduce costsrelated tofi Asaresult oftheaboveefforts, NTTGroup expectstofurther xed-line andmobilecommunicationsser- business. further improve effi ciency initsmaintenanceandoperations ects thatdonotrequire thedispatchofNTTemployees,andto installing opticaltransmissionlinesbyincreasing constructionproj- operations through continuedefforts tocutcostsassociatedwith Group alsointendstoestablishsimpleandhighlyeffi cient business controlled bysoftware, thereby buildingeffi cient infrastructure. NTT development aimedatrealizing technologiesthatcanbeeffi ciently to anticipatefl uctuations indemandandpromote research and ket. To handlerapidlyincreasing traffi c volumes,NTTGroup willseek appropriate according tochangesinbusinessmodelsandthemar- Inaddition,NTTGroup planstocontrol capitalinvestmentas sales channels.” “devices (handsets),”“networks,”“services”and“billingplans munications fi eld, NTTGroup isaimingtofurtherstrengthen creating newlifestyle-basedICTusescenarios.Inthemobilecom- achieve furtherpenetrationandexpansionoffi Inthefi ber-optic linesby xed-line communicationsfi eld, NTTGroup isworkingto Strengthening NetworkServiceCompetitiveness expected tooccurasaresult ofafuture large-scale earthquake, Furthermore, in lightofthe extent ofthepredicted damage contribution initiativesinvolving NTTGroup employees. utilization ofICTservices, andwillfurtherundertake environmental ing theenvironmental burden onsocietyasawholethrough the associated withits ownbusinessactivitiesandcontribute toreduc- NTTGroup willendeavor toreducecern, theenvironmental burden respect toenvironmental With issues,whichare aglobalcon- to NTTGroup’s initiatives. and websitecontentpromoting information disclosure relating ment transparency byfurtherenhancingthecontent ofCSRreports Group CSRCharter.” NTT Group also intendstoincrease manage- promote CSRinaccordance withtheguidelinessetoutin “NTT outside Japan,NTTGroup willcontinue tomakeacollectiveeffort to in order tohelpresolve themanysocialissuesthatexist bothinand Basedonitssocialmission tocontributesocietythrough ICT Promoting CorporateSocialResponsibility (“CSR”) ANNUAL REPORT 2014 ANNUAL REPORT 103 Operating and Financial Review and Prospects 104 NIPPON TELEGRAPH AND TELEPHONE CORPORATION slowdown, whichcouldreduce theprofi tability ofreal estate the apartment salesmarket willdeclineas a result ofan economic the real estateleasing marketor, as has historicallybeen thecase, Inthe real estatebusiness, there isapossibilitythatdemand in NTT Group’s fi nancial conditionandresults ofoperations. dictions. Thismay leadtounrecoverable loans,whichwouldaffect terparties more thananticipated byNTT’s credit management pre- affect theeconomiccircumstances ofNTTGroup companies’coun- Inthefi nance business,aneconomicslowdownmayadversely and servicesprovided byNTTGroup. declines inthesalespricesand volumeoforders forsystems stringent evaluationsofITinvestment results. This mayleadto revenues, byrequiring costreductions inITinvestmentandmore ment whenaneconomicslowdown results inadecline incorporate solutions businessinparticularfor customerstocurbtheirITinvest- OfallofNTTGroup’s businesses,there isatendency inthe enced bythestateofJapanese economy. fi nancial conditionandresults ofoperationsmaybeheavily infl u- are derivedfrom itsbusinessinJapan,andasaresult, NTTGroup’s overseas businessisgrowing, themajorityofitsbusinessrevenues vides oronitsoperations.Althoughtheproportion ofNTTGroup’s adverse effect onthedemandforservicesthatNTTGroup pro- nomic growth ofanythesecountriesandregions mayhavean and Oceania.Aneconomicslowdownordecelerationintheeco- North America,LatinEurope, Africa,theMiddleEast,Asia NTTGroup hasoperationsallovertheworld,includingJapan, Japanese economicsituation. NTT Group’s businessmaybeaffected byboththeglobaland NTT Group’s Corresponding BusinessStrategies Risks AssociatedwiththeBusinessEnvironment and below andelsewhere inthisannualreport. number offactors,includingtherisksNTTGroup facesasdescribed anticipated intheseforward-looking statementsasaresult ofa tainties. NTTGroup’s actual results coulddiffer materiallyfrom those contains forward-looking statementsthatinvolverisksanduncer- impair NTTGroup’s businessoperations.Thisannualreport also currently knowntoNTTorthatnowdeemsimmaterialmayalso ject andNTT’s relationship Additionalrisksnot withtheGovernment. business strategyandoperations,regulations towhichNTTissub- described belowrelated toNTTGroup’s businessenvironment, report, prospective investorsshouldcarefully considertherisks Inadditiontotheotherinformationcontainedinthisannual RISK FACTORS handling wide-scaleanddiversifi ed cyberattacks. NTT Group alsoplanstobuildsecuritycountermeasures capableof communications facilitiesintheeventofprolonged poweroutages. promoting initiativesthatincludeensuringpowersuppliesfortele- NTT Group willtakestepstoachievereliable networkoperationby Operating andFinancialReviewProspects tion ofcustomers tothese IPserviceswillhave anegativeeffect on ers forits IPtelephoneservices, NTTGroup expectsthat themigra- Although NTTGroup is workingtoincrease thenumber of subscrib- conventional fi xed-line telephone numbershavegrown inpopularity. protocol (“IP”)telephoneservices thatpermitthecontinueduse of Inboththecorporateand residential markets,fi ber-optic internet effect onitsfi nancial condition andresults ofoperations. a weakeningeconomyonthecapitalmarkets. pension investmentsmayalsobeadverselyaffected bytheeffect of may adverselyaffect NTTGroup’s results ofoperations.NTTGroup stock andotherfi nancial markets,theresulting impairmentlosses If theirassetvaluewere todeclinebecauseofarecession inthe NTT Group ownsinvestmentsecuritiesandotherassets. wise secure thefundsnecessaryforbusinessactivities.Inaddition, more diffi cult forNTTGroup toaccessthecapitalmarketsorother- capital. However, fl uctuations inthefi nancial marketsmaymake it ing toward securinglow-interest fi nancing andstablesources of including issuingcorporatebondsandobtainingloans,iswork- NTTGroup evaluatesvariousmeansofcapitalprocurement, and results ofoperations. investments andadverselyimpactNTTGroup’s fi nancial condition A decrease inthenumberofNTT vices provided byNTTGroup andadeclineinfi xed voicerevenues. in thenumberoftelephonesubscription contractsandINS-Netser- spread ofmobilephonesandapplications has resulted inadecrease services, thediversifi cation ofcommunicationmethodsduetothe communications market.Inthearea offi xed voicecommunications munications hasdecreased asaresult ofthegrowth ofthe mobile Inthefi xed-line communications fi eld, theuseoffi xed-line com- may decline. ket, itsmarketshare andearnings and otherchangesinthestructure ofthetelecommunications mar- Group isunabletorespond appropriately toincreased competition which NTTGroup operatesisbecomingmore rigorous. IfNTT over chargesandservices,thecompetitiveenvironment in Competition remains activeamongtelecommunicationsproviders providers expand,andcompetitionincreases onagloballevel. ute serviceswithoutowningitsowncommunicationsinfrastructure) communications infrastructure, allowingaserviceprovider todistrib- (“OTT”) (acontentdistributionserviceutilizingothercompanies’ companies inthemarket,servicesprovided byover-the-top content dramatically asvariousnewstakeholdersjointelecommunications the structure ofthetelecommunicationsservicesmarketischanging Project), theuseofcloudservicesisexpanding.Atsametime, with specifi cations formulatedbythe3rd GenerationPartnership speed, highcapacity, theeffi cient useofsignalsandlowlatency, (“LTE”) (awireless communicationstandard characterizedbyhigh speed wireless broadband services,includingLong-Term Evolution thegrowing popularityofsmartphones, tabletsandhigh- With changes inmarketstructure andincreased competition. NTT Group’s marketshare andrevenues maysuffer from Group userscould have an adverse have anadverse Group’s fi nancial conditionand results ofoperations. profi ts. Theforegoing factors may haveanadverse effect on NTT ing subscribers, mayalso result indownward pressure onoperating in therateoravailability ofdiscountprograms, whilepotentiallyattract- age revenue perunit(“ARPU”) maydecrease. Moreover, anexpansion using andswitching tofl at-rate servicesincreases, NTTGroup’s aver- plans anddiscount servicesdecreases orthetrend ofsubscribers existing subscriptionlevels.Ifthe rateforvarious sures willenableNTTGroup toacquire newsubscribersormaintain rate structure. However, there canbe noassurancethatthesemea- provided avarietyofnewrateplansandservices andhasrevised its ranging servicesandincrease customerconvenience, NTTGroup has market environment, inorder toprovide more advancedandwide- to acquire orretain subscribersmayincrease. Inthiscompetitive NTT Group acquires orretains maydecline,whilethecostsrequired Underthesemarketconditions,thenumberofsubscribers that is increasing. by payingmobilenetworkoperatorsforuseoftheirinfrastructure), communications servicesovernetworkstowhichtheygainaccess sion ofmobilevirtualnetworkoperators(whichprovide wireless cations servicesprovided byOTTbusinesses,aswelltheexpan- in themarket,includingcompetitionwithfree orlow-costcommuni- services. Inaddition,competitionresulting from structuralchanges (including handsetprices),networkquality, and theprovision of with otherserviceproviders continueswithrespect tocharges Inthemobilecommunicationsmarket,intensecompetition condition andresults ofoperations. result, whichmayhaveanadverseeffect onNTTGroup’s fi nancial NTT Group’s fi xed voicecommunicationservicesmaydeclineasa mobile devicesastheirsolemethodofcommunications.Theuse ers, particularlyyoungadults,are shiftingtosmartphonesandother speeds ofwireless andbroadband services,suchasLTE, custom- customers willincrease. Inaddition,asaresult oftheincreasing acquisition willslow, andthecostsrequired toacquire andmaintain that NTT’s marketshare willdecline,therateofnewsubscriber particularly inmetropolitan areas. Consequently, there isapossibility competition amongtelecommunicationsproviders hasintensifi ed, penetration increases andthemarketmatures. Atthesametime, Growth infi xed broadband servicesisslowingastherateof NTT Group’s fi nancial conditionandresults ofoperations. prolonged periodandothertemporarycostsmayadverselyaffect anticipated, thecostsrequired tomaintainduplicativefacilitiesfora 2010. However, ifthemigrationtoNGNdoes notprogress as networks totheNextGenerationNetwork(the“NGN”)inNovember NTTGroup announceditsmigrationplanfrom existingPSTN NTT Group’s andexpensesmaybeadverselyaffected. earnings However, ifrevenues intheseareas donotincrease asanticipated, mitigate anyadverseimpactonitsfi xed-line telephoneservices. fi ber-optic andbroadband servicesaswellcostreductions will Group expectsthatincreased revenues from theproliferation ofits the profi tability ofconventionalfi xed linetelephoneservices.NTT fi nancial conditionandresults ofoperations. aggressive marketentrymayhaveanadverseeffect onNTTGroup’s tion. Theintensifi cation ofcompetitionresulting from competitors’ nations, suchasIndiaandChina,isbringingaboutglobalcompeti- growth ofinformationservicecompaniesinrapidlydeveloping and otherplayersare focusedonthisbusiness.Moreover, the growth intheinformationservicesmarket,andhardware vendors NTTexpectsthesolutionsbusinesstobeamajorarea of tions/media content,fi nance/account settlement,commerce, from theconvergence ofserviceareas suchasmobile communica- to increase revenues byexpanding intonewbusiness areas resulting In themobilecommunications business, NTTGroup isworking fi nancial conditionandresults ofoperations. Group isabletoprogress thisnewbusinessmodelmay impact its these servicesto end users.However, theextent towhichNTT fi ber-optic accessserviceswithitsowntothenprovide Pursuant tothisnewbusinessmodel, eachplayerwillcombineNTT and NTTWest plantoprovide theseservicestoavarietyofplayers. viding fi ber-optic accessservicesdirectly toendusers,NTTEast pates. Further, inadditiontotheirtraditionalbusinessmodelofpro- NTT Group maynotachievetherevenue increases thatitantici- However,cation andgovernment. ifthesebusinessesfailtogrow, communications technology(“ICT”) use,includinginmedicine,edu- ing videodistributionservicesand publicsectorinformationand moting initiativestoexpanditscontent applicationsbusiness,includ- Inthefi xed-line communicationsbusiness,NTTGroup ispro- currently anticipated. expected. Insuchanenvironment, revenues maynotincrease as and NTTGroup’s share ofthismarketmaybesmallerthan is possiblethatthisbusinessmaybelessprofi table thanexpected, results ofoperations.Ifcompetitioninthecloudmarketintensifi es, it have anadverseeffect onNTTGroup’s fi nancial conditionand and infrastructure provision, willnotgrow asexpected,whichmay cloudmarket,aswellrelated services domestic andinternational construction ofnewdatacenters.However, itispossiblethatthe services andinfrastructure through corporateacquisitionsandthe potential, NTTGroup isworkingtoenhanceitsabilityprovide American R&Dfacilitiesaimedatincreasing servicedevelopment and developmentofthisbusiness.InadditiontoestablishingNorth is currently engagedinvariousinitiativeslinewiththeexpansion growth ofitsbusinessinthefuture. andthecornerstone NTTGroup NTTGroup expectsitsGlobalCloudservicestobeadriverof cial conditionandresults ofoperations. progress asexpected,thismayadverselyaffect NTTGroup’s fi nan- business areas donotgrow orthesenewbusinessmodelsdonot business models.However, if,foravarietyofreasons, thesenew been workingtoenterintonewbusinessareas andgeneratenew Inadditiontoitsexistingbusinessinitiatives,NTTGroup has services maybelowerthananticipated. NTT Group’s growth innewareas andexpansionofvarious ANNUAL REPORT 2014 ANNUAL REPORT 105 Operating and Financial Review and Prospects 106 NIPPON TELEGRAPH AND TELEPHONE CORPORATION related totheimpaired valueofinvestments infuture periods. be asprofi table asanticipated, andNTTmayrecord write-downs may not expand asanticipated, oritsbusiness expansionmay not Forthe reasons stated above,NTTGroup’s globalbusinesses adversely affected. Group’s results ofoperations andfi nancial conditionmaybe of itsoverseasbusiness activities.Ifsuchrisksmaterialize, NTT national politics,mayposechallenges toNTTGroup’s management petition, differences inbusinesscustoms,laborrelations, andinter- business, suchaslegalrestrictions relating toinvestment andcom- ations. Inaddition,there isariskthatfactorsrelated tocross-border overseas subsidiariesnecessaryto overseetheirbusinessandoper- may bediffi cult orimpossible forNTTtoexertthecontrol overits group andrender acommonunderstandingdiffi cult toachieve.It within NTTGroup mayresult inincreased fragmentationwithinthe However, the recent increase inthenumber offoreign subsidiaries promote acommonunderstandingofthegroup’s businessstrategy. the frameworkforpromoting itsglobalstrategy, andisworking to from group companies,includingforeign subsidiaries,tostrengthen mittee” anda“GlobalR&DCommittee”consistingofrepresentatives has establisheda“GlobalStrategyCommittee,”HRCom- acquisitions andtheexpansionofforeign subsidiaries.NTTGroup strengthen itsGlobalCloudservicesbusinessthrough business Overthepastfewyears,NTTGroup hasproactively strivedto investments, partnershipsorothercooperativeinitiatives. suffer potential lossesresulting from thedissolutionordispositionof fi cient synergieswiththeseoperations.Inaddition,NTTGroup could invested oragreed toinvestorthatithasacquired, orachievesuf- performance ofthedomesticoroverseasoperationsinwhichithas Group may notbeabletomaintainorenhancethevaluefi nancial competitiveness inrespond tocustomers’needs.However, NTT and otherstrategicinvestmentsinorder toenhanceitsbusiness laborations, bothdomesticallyandoverseas,aswellacquisitions NTT Group actively engagesinjointventures, alliancesandcol- unable toexertthenecessarycontrol overitsinvestments. business areas maynotbesuccessful,orNTTGroup maybe acquisitions, alliancesandcollaborationsdirected atstrategic NTT Group’s anddomesticinvestments, international Operating andFinancialReviewProspects fi nancial conditionandresults ofoperations. these outcomescouldhaveanadverseimpactonNTTGroup’s DOCOMO’s current subscribers orattractnewsubscribers.Anyof may beinsuffi cient, orinsuffi ciently attractive,tomaintainNTT vices thatNTTDOCOMOcurrently offers andmayoffer inthefuture costs, customerdemandandappeal.Inaddition,thevariousser- vices mayfailtomeetNTT’s expectationsintermsofscheduling, collaborate asexpectedoronacceptableterms,suchnewser- necessary toengageinthesebusinessesmaynotcooperateor relies ontoprovide theoperatingsystems,applicationsandcontent Nevertheless,thepartners NTT ecology andeducation/learning. medical/healthcare, machineto(“M2M”),environment/ effect onNTTGroup’s fi nancial conditionandresults ofoperations. expenditures willexceedexpectations,whichcouldhaveanadverse with thedevelopmentofcloudservices,itispossiblethatcapital migration toLTE, ortheenhancementofdata centersinconjunction from thespread ofsmartphonesandothertabletdevicesthe work capacityexpansioninresponse toincreased datatraffi c resulting expenditures asenvisioned,duetosuchfactorstheneedfornet- is unabletomore effi ciently deploycapitalinorder toreduce itscapital be abletoachievesuchcapitalexpenditure reductions. IfNTTGroup revenues. However, there canbenoassurancethatNTTGroup will the totalamountofcapitalexpenditures asapercentage ofoperating and more effi ciently constructingbasestations.Italsoaimstoreduce tions networksbystreamlining thelayingofopticaltransmissionlines capital expenditures onfi NTTGroup alsoexpectstoachievecostreductions byreducing ber-optic accessandmobilecommunica- other carriersorchangesinmarketconditions. does notprogress asplannedduetointensifi ed competitionwith be abletoachieveexpectedcostreductions ifoperationaleffi ciency to strengthen itsbusinessstructure. However, NTTGroup maynot facilities anddevicesinitsmobilecommunicationsbusinessorder networks, salesandservicesfunctions,research anddevelopment NTTGroup isworkingtoimprove theoperationaleffi ciency ofits changes inthemarketenvironment duetoaneconomicslowdown. in order toaddress changesinthecompetitiveenvironment or suffi cient costreductions if,forexample,itneedstodivertresources overall operationaleffi ciency. However, NTTGroup maynotachieve expenses andreviewing itsbusinessoperatingstructure toimprove its Group ispromoting costreductions bystreamlining itssales-related costs initsfi xed-line communicationsbusiness.Inaddition,NTT intends tocontinuereduce personnel-andequipment-related order tostrengthen thecompetitivenessofitsnetworkservices,and NTTGroup isworkingtoreduce costsinavariety ofareas in NTT Group maynotachieveanticipatedcostsavings. its subscribers theconvenience ofoverseas services.Inaddition, it roaming orotherservices asexpected andmaynotbe able tooffer technologies, NTTDOCOMO maynotbeable tooffer international technologies, orif there isadelay intheintroduction ofcompatible If a suffi cient number ofmobileserviceproviders switchtoother technologies compatible withNTTDOCOMO’s systems. gic partnersand other mobileserviceproviders willcontinuetouse ever, NTT Group cannotguarantee thatitsoverseasaffi liates, strate- technologies itusesonitsmobile communications systems.How- providers haveadoptedtechnologiesthatare compatiblewith the worldwide basisbecauseasuffi NTTDOCOMOisable tooffer global roaming servicesona cient numberofothermobileservice ability toofferservices. international communications systems,which couldaffect NTTGroup’s are compatiblewiththoseused byNTTDOCOMO’s mobile may discontinueuseoftechnologies andfrequency bandsthat mobileservice providersOther international maynotadoptor Group’s competitive advantage. Group’s contemplated licenserevenues andcompromise NTT lectual property andother rights couldresult inadecrease inNTT Further, anyimproper useby third parties ofNTTGroup’s intel- affect NTTGroup’s fi nancial condition andresults ofoperations. from businessesrelated adversely tosuchrights,which mayinturn products ortechnologies,which couldresult inalossofrevenues certain products orservicesandrequired todevelopnon-infringing injunction preventing certainNTTGroup companiesfrom offering ties tothird parties,ormaybesubjecttoatemporary orpermanent NTT Group, itmayberequired topaysubstantialdamagesorroyal- costs toreach aresolution. Ifsuchclaimsare determinedadverselyto property rights,itmayberequired toexpendconsiderabletimeand IfNTTGroup issubjecttoclaimsofinfringementintellectual or future intellectualproperty litigation. nologies, andacquires companiesthatmaybe subject toongoing tions, mayincrease asitdevelopsnewproducts, servicesand tech- foreign corporationsinjurisdictionswhere ithascompletedacquisi- infringement andotherclaimsagainstNTTGroup, particularlyby through overseasacquisitions,claimsofintellectualproperty Further, asNTTGroup’s businesscontinuestogrow, particularly technologies, products orservicestoitscustomers. Group anditsbusinesspartnersmaynotbeabletoprovide certain ers ofsuchrightsoncommercially acceptabletermsoratall,NTT NTT Group isunabletoreach ormaintainagreements withthehold- be abletoobtainsuchlicensesonreasonable terms.However, if well asindustrypractice,NTTGroup believesthatitwillcontinueto sary intellectualproperty licenses,andbasedontheirexperienceas NTT Group anditsbusinesspartnershaveentered intotheneces- rights tousetheintellectualproperty andotherrightsofthird parties. their businessoperations,theyneedtoobtainlicensesandother Inorder forNTTGroup anditsbusinesspartnerstocarryout reduce itsrevenues andthevalueofitsbrand. inability toprotect itsownintellectualproperty rightscould the intellectualproperty rightsofothercompanies,andany NTT Group maybeliablefordamagesduetoinfringementof may notbeavailableonreasonable termsoratall.Inaddition, intellectual property fortheoperationoftheirbusiness,which NTT Group anditsbusinesspartnersrely onaccesstothird-party on NTTGroup’s fi nancial conditionandresults ofoperations. sales maybeadverselyaffected, whichmayhaveanadverseeffect seas servicesorenjoythebenefi ts ofglobaleconomiesscale,its DOCOMO isunabletomaintainorimprove thequalityofitsover- IfcompatibletechnologiesdonotdevelopasexpectedandNTT modify theirhandsetsandnetworksappropriately andpromptly. cannot ensure thathandsetandnetworkvendorswillbeableto networks thatNTTDOCOMOuses.Ifthisoccurs, adopts, whichwouldrequire modifi cations tothehandsetsand changes tothestandardized technologiesthatNTTDOCOMO is possiblethatmobilestandardization organizationswillmake tions, and NTTDOCOMO provides its ownservicesas wellasthose equipped withvariousfeatures, suchas paymentsettlement func- Group todiminish.Further, NTT DOCOMO’s mobilephones are ized accessandvirus infections,causingcustomers’ trustinNTT able eventoccurs, itispossiblethatthere willbecasesof unauthor- actively workingon securitycountermeasures, butifanunforesee- vider intheinformation andcommunicationsindustry, NTTGroup is are becominganincreasingAsaresponsible concern. service pro- sures forsmartphones,cloudservicesandother newICTservices Inaddition,inrecent years,information securitycountermea- NTT Group’s servicesandproducts maybeaffected. settings, NTTmaybeheldliablefor damages,andthereputation of a defectorthere isahumanerror, such asanerror inequipment traffi c cannotbeprocessed oraserviceproduct ofNTTGroup has strengthen networkresilience andtoaccelerateresponse time,ifsuch and reliability bymakingcapitalinvestmentsinits networkfacilitiesto and thenetwork.WhileNTTGroup isendeavoring toenhancequality nections, whichcauseanincrease incontrol signalsbetweendevices such ascommunicationsapplicationsthatcansecure orcutoff con- load onNTTGroup’s network facilitiesbeyondthelevelcontemplated, smartphones andtabletscontainselementswhichcouldincrease the control risk.Inparticular, applicationsandothersoftware thatrunson advanced technologyhasincreased, resulting inincreased quality ThenumberofNTTGroup servicesand products that use substantial repair costs. and itscorporateimage,aswellleadtoreductions inincomeand events mayadverselyimpactNTTGroup’s reputation forreliability could hinderNTTGroup’s abilitytoprovide reliable services.These to restore, andtheresulting emergency electricityuserestrictions Group’s telecommunications networks,whichcouldtakealongtime Alarge-scaledisasterinparticularcouldseverely damageNTT and results ofoperationsmaybeaffected. reliable services.Insuchanevent,NTTGroup’s fi nancial condition cause systemandnetworkfailure orresult inaninabilitytoprovide armed action,regional confl ict andvarious othereventswillnot including software andhardware failure, cyberattacks,terrorism, pandemics suchasnewstrainsofinfl uenza, andotherissues disasters suchasearthquakes,tsunamis,typhoonsandfl oods, transmission lines.However, there canbenoassurancethatnatural bility andwaterresistance ofexchangeoffi ces andre-assessing its ensure safeandreliable services,includingstrengthening thedura- ety ofmeasures withrespect toitsnetworksandsystemsinorder to and LTE networksnationwide.NTTGroup hasimplementedavari- tains fi xed-line subscribertelephone,fi ber-optic access,W-CDMA tions servicestosubscribers,NTTGroup hasdeployedandmain- Inorder toprovide fi xed andmobilevoicedatacommunica- fi hardware failure orcyberattacksmayaffect NTTGroup’s architecture asaresult ofnaturaldisasters,software and System andnetworkdisruptionsissueswithsystem Risks AssociatedwithBusinessManagement nancial conditionandresults ofoperations. ANNUAL REPORT 2014 ANNUAL REPORT 107 Operating and Financial Review and Prospects 108 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ness, including itscustomers’ personalinformation. NTTGroup has protect confi dential information obtainedinthe courseofitsbusi- munications business,NTT Group hashistorically madeefforts to Inaddition, inlightofitsposition ofresponsibility inthe telecom- fi nancial conditionsandresults ofoperations. reputation andcredibility, whichcouldadverselyimpact NTTGroup’s improper personalbehavior. Suchactions mayadverselyaffect NTT’s reputational risks,including,forexample,inthe caseofanemployee’s However, it maynotalwaysbepossibletoeliminatecomplianceand is workingtowards furtherstrengthening itscompliancesystems. countries, particularlytheUnitedStates andtheUnitedKingdom,NTT the recent tighteningofbriberyandanti-corruption lawsinforeign ance andstrengthen itscompliancesystems.In addition,inlightof tant corporateresponsibility andworkstoensure thorough compli- NTTGroup considerslegalcompliancetobeanextremely impor- laws, theadoptionofnewlawsand therevision ofexistinglaws. able nature ofcommercial andjudicialinterpretations ofsuchlocal countries inwhichNTToperates,orthelackthereof, theunpredict- ming from, amongotherthings,thelocalrulesandregulations ofthe tions outsideofJapanmaybesubjecttoadditionalburdens stem- permit approvals. Inaddition,NTTGroup’s growing business opera- NTT Group’s businessactivities require licenses,notifi cations, and ucts andservicesbothinJapanabroad. Asaresult, someof lations, asthescopeofitsbusinessencompassesavarietyprod- NTTGroup issubjecttoawidevarietyofrelated lawsandregu- information. leaks ofconfi misconduct inJapanorabroad, orbyinappropriate useor NTT’s reputation andcredibility maybeaffected byfraudor Operating andFinancialReviewProspects delivery delays. development stagecouldresult incostoverrunsorlossesdueto tion from initialestimatesorproblems inproject managementatthe such systemstoclients.However, there isapossibilitythat adevia- of orders todeliverythebuildingofsystemsand assumes fullcontractualresponsibility atallstages—from thereceipt respect tothesolutionsbusiness,NTTGroup With generally and corporateimagemaysuffer. need toprovide compensationfordamages,NTTGroup’s credibility occur tothesesystemsandservices,inadditionthepossible impairment, unauthorizedaccess,virusinfectionsandcyberattacks activities anddailylife.Inparticular, ifproblems suchasinterruption, tute vitalsocialinfrastructure thatsignifi cantly affects economic Some ofthesystemsandservicesprovided byNTTGroup consti- there couldbedisruptionsandfaultsinthesesystemsservices. customers inthesolutionsbusinessandthere isapossibilitythat NTTGroup alsoprovides anddeliverssystemsservicesto ciencies intheservicesofsuchserviceproviders. tion from mobilephonesandotherissuescausedbyfl aws ordefi - increase theriskofmalfunctions,defects,leakspersonalinforma- of anumberothercarriersonitsmobilephones,whichmay dential businessinformationandpersonal cated, new issuesmayarise whensubscribers are charged higher Inaddition, ashandsetsand servicesbecome more sophisti- cancellations orotheradverse effects. as asocialproblem, whichmaylead toanincrease insubscription criminal usageincreases, mobile phonesmaycometoberegarded they rent theirmobilephones. However, itispossiblethat,ifsuch by, forexample,notverifying theidentityofcustomersto whom response tomobilephonerental companieswhoviolatesuch Act to provide services)pursuanttotheImproper UsePrevention Actin use, NTTDOCOMOhasimplemented measures (includingrefusing related crimes,suchasbanktransferscams.To combatsuch mis- Rentalmobilephones are frequently usedin mobilephone- issues maysimilarlydamageNTT DOCOMO’s corporate image. intended torestrict minorsfrom accessingsuchharmful sites.These illegal orharmfulwebsites,andthe effectiveness offi ltering services such asthepotentialnegativeimpact causedbyminors’accessto Further, there hasbeenawiderangeofdebateregarding issues subscriptions. to areduction inthenumberof“i-mode”and“sp-mode” satisfaction anddamageNTTDOCOMO’s corporateimage,leading a largeamountofunsolicitede-mailmayadverselyimpactcustomer yet beeneliminated.Anyreceipt byNTTDOCOMO’s subscribersof large amountsofsuchunsolicitedbulke-mails,theproblem hasnot the useoforterminatingcontractswithcompaniesthatdistribute ited bulke-mailfi ltering functionsthrough itshandsetsandsuspending ing notifyingitssubscribersviavariousbrochures, providing unsolic- economic disadvantagecausedbyunsolicitedbulke-mails,includ- to address thisissuebyprotecting itssubscribersfrom incurringany “Short MessageService,”despiteNTTDOCOMO’s extensiveefforts mail” service,“sp-mode”mail“i-mode”serviceand through NTTDOCOMO’s e-mail services,includingits“docomo- Forexample,withrespect tounsolicitedbulke-mailsbeingsent affectturn NTTGroup’s fi nancial conditionandresults ofoperations. NTTGroup’sand servicestarnish corporateimage,whichmay in users mayadverselyaffect thecredibility ofNTTGroup’s products Inappropriate useofNTTGroup’s products andservicesby corporate imageandcouldexposeNTTGroup toliability. have anadverseimpactonNTTGroup’s credibility and Misuse ofproducts andservicesoffered byNTTGroup may or secure contracts. governmental credibility, aswellNTTGroup’s abilitytoobtainnewsubscribers adversely affect NTTGroup’s business,includingitsreputation and However, anyleakorothermisuseofconfi dential informationmay ment ofconfi dential informationinaccordance withthispolicy. tion. NTTGroup expectstobeableensure theproper manage- of protection ofconfi dential information,includingpersonalinforma- relevant manualsandothermeasures intendedtoaddress theissue and awareness-raising foroffi cers andemployees,thedistributionof which requires informationmanagement,training enhancedinternal also implementedthe“NTTGroup InformationSecurityPolicy,” review, see“Item4—InformationontheCompany—Regulations.” regulations ForasummaryofGovernment currently under Group’s fi nancial conditionandresults ofoperations. ing changesinthetelecommunicationsindustrymayaffect NTT petition. Decisionsrelatingregulations toGovernment andtheresult- amendments totelecommunicationslawsaimedatpromoting com- (“LRIC Methodology”)forinterconnection charges,togetherwith the implementationofaLongRunIncremental CostMethodology restrictions (exceptinthecaseofNTT),retail pricederegulation and evolved inmanyareas, includingtheeliminationofforeign ownership Theregulation oftheJapanesetelecommunicationsindustry has regulations mayaffect NTTGroup’s business. Changes ordecisionsregarding telecommunications Rules, Regulations,andOthers Including Risks AssociatedwiththeGovernment, unhindered operation. Anychanges tothefrequency spectrum ment agencies donotallocate thefrequency spectrumrequired for devices, there maybe adeclineinthe quality ofservices ifgovern- with theexpanded useofdevices,suchassmartphones andtablet the traffi In addition,whilethenumberof NTTDOCOMOsubscribersand c persubscriberare expectedtoincrease inconjunction able frequencies isatornearits limit. fer deteriorationofservicequalityat peaktimes,whenuseofavail- Osaka, NTTDOCOMO’s mobilecommunicationsnetwork maysuf- In areas suchasthevicinityofmajortrainstations inTokyo and NTTDOCOMOhas limitedfrequencies availableforitsservices. spectrum foritsoperations. is possiblethatitwillnotbeable tosecure adequate frequency The frequencies thatNTTDOCOMO canuseare limited,andit may impactNTTGroup’s fi nancial condition andresults ofoperations. inability toacquire theanticipatednumberofnewsubscribers,which ing numberofcancellationsamongcurrent subscribersandan these issuesinanappropriate manner, thismayresult inanincreas- proper measures inthefuture. IfNTTGroup isunabletoaddress not certainwhetherNTTGroup willbeabletocontinuecarryout as mobilephonesdesignedspecifi cally foryoungpeople,butitis ing sitesthatcanbeaccessedbyanageverifi cation system,aswell issues byproviding servicessuchasfi NTTGroup believesthatithasproperly addressed thesesocial ltering functions andrestrict- information byfraudulentapplications(software) ontheInternet. conjunction withthespread ofsmartphones,theleakingprivate charged fortheexcessuseofpaidcontentbysubscribersand,in while walking.Inaddition,there arethehighfees issuesconcerning increasing incidenceofproblems causedbytheuseofmobilephones phones whileoperatingvehiclesorbicyclesaswellissueswiththe overtheincrease concerns inaccidentscausedbytheuseofmobile packet transmissionintermsoffrequency andvolume.There are also using handsetswithoutfullyrecognizing theextentoftheiruse fees forpackettransmissionthantheyare aware ofasaresult of results ofoperations. have amaterialadverseeffect onNTTGroup’s fi nancial conditionor wireless servicesorlosesubscriberstocompetitors,whichcould fi ciently andinatimelymanner, itmayfaceconstraintsinproviding quality. IfNTTDOCOMOisunabletoaddress suchproblems suf- DOCOMO’s efforts willbesuffi cient toavoiddeteriorationinservice migration toLTE. However, there canbenoassurancethatNTT its technologies,suchasLTE, andthrough thepromotion ofthe improve theeffi NTTDOCOMOisworkingtoobtainnewfrequencies andto ciency offrequency usagethrough theapplicationof progress asplanned. the 700MHzbandfrequency toadifferent bandfrequency donot the measures totransferexistingwireless systemsthatcurrently use suffer degradationofservicequalityandmayincuradditionalcostsif able tosmoothlyoperateitsmobilecommunicationsnetwork,may awarded rightstousethe700MHzbandfrequency, itmaynotbe impact thequalityofservices.AlthoughNTTDOCOMOwas the necessaryfrequency spectrum,whichcouldalsoadversely tion through anauctionsystemmaymakeitdiffi cult toobtain allocation systemthrough, forexample,theintroduction ofrealloca- may impactNTTGroup’s fi nancial conditionandresults ofoperations. new lawsandregulations are introduced, costsmayincrease, which demands withrespect totheenvironment materializeinthefuture, or ment. Intheeventthatstricterlawsandregulations andsocietal order tocomplywithsuchlawsandregulations relating totheenviron- sources andreusing andrecycling telecommunicationsfacilities,in variety ofmeasures, suchasintroducing highlyeffi cient power disposal andharmfulsubstanceremoval. NTThasimplementeda reduction ofgreenhouse gasemissions,energyconservation,waste regulations relating totheenvironment, suchasthosegoverning NTTGroup issubject,bothinJapanand overseas,tolawsand of greenhouse gasemissions. relating totheenvironment, suchasthoserelating toreduction NTT Group maybe impactedbylaws,regulations andsystems Government statedthatitdid notintendtoactively useitsposition Government made at such meetings.In 1997,inastatement attheDiet, the holder, hasthepower toexertconsiderable infl uence overdecisions by virtueofitsstatutorily mandatedpositionasthe largest share- capacity asashareholder, votesatNTT shareholder meetings and, inits sury stockandless-than-one-unit shares. TheGovernment, voting rights,calculated onthebasisofissuedShares minustrea- Shares excludingtreasury stock),whichequatesto36.56% of the owns 35.65%ofNTT’s issuedShares (36.50%ofNTT’s through TheGovernment, theMinisterofFinance,currently outstanding NTT Group companies. Japan provide withregulatory authorityover theGovernment shareholder meetingsare adopted,andrulesregulations in considerable infl ownsenoughNTT Shares togiveit The Government uence overwhetherresolutions atNTT ANNUAL REPORT 2014 ANNUAL REPORT 109 Operating and Financial Review and Prospects 110 NIPPON TELEGRAPH AND TELEPHONE CORPORATION increased 2.1%from theprevious fi Operating revenues inthefi scal year to¥10,925.2billion. scal yearendedMarch 31,2014 communications equipment, systemintegrationand otherservices. related services,IP/packetcommunications services,salesoftele- categories, comprised offi NTT Group’s xed voicerelated services,mobilevoice operatingrevenues are dividedintosix service Operating Revenues Operating RevenuesandExpenses including thecivilliabilityprovisions oftheU.S.securities laws. obtained inactionspredicated uponthelawsof foreign countries, eral orstatecourtsintheUnitedStates orotherforeign courts ties laws,andastotheenforceability inJapanofjudgments offed- solely uponthelawsofforeign countries,including theU.S.securi- enforceability, inactions originatedinJapan,ofliabilitiespredicated advised byitsJapanesecounselthat there isuncertainty astothe courts intheUnitedStatesorotherforeign courts.NTThasbeen civil liabilityprovisions oftheU.S.securitieslaws,infederalorstate ments predicated uponthelawsofforeign countries,includingthe Japan uponsuchpersonsorNTTtoenforce againstthemjudg- possible forinvestorstoeffect legalserviceofprocess outside persons orNTTare locatedinJapan.Asaresult, itmaynotbe reside inJapan.Allorasubstantialportionoftheassetssuch under thelawsofJapan.AllNTT’s directors andmanagement NTTisalimitedliability, joint-stock corporationestablished regarding thecivilliabilitiesofNTT. laws offoreign countries,includingtheU.S.securitieslaws Investors mayhavediffi and ADSs. transactions) couldhaveanimpactonthemarketpriceofShares other disposaloftreasury stockbyNTT(orthepotentialforsuch ThesaleofSharesortheissuance, saleor bytheGovernment allowed tosellwouldincrease. cancels treasury stock,thenumberofSharesis theGovernment requirements regarding ownershipofShares, Government orifNTT the eventNTTLawisrevised againinorder toeaseorrepeal the (36.50% ofNTT’s outstandingShares excludingtreasury stock).In ernment’s ownershipofShares was35.65%ofNTT’s issuedShares NTT’s Share repurchase programs, asofMarch 31,2014,theGov- toNTTaspartof the publicandsalesofShares bytheGovernment Shares ofNTT. Asaresult ofsalesSharesto bytheGovernment owned100%oftheissued UntilOctober1986,theGovernment may affect thetradingpriceofNTTShares andADSs. regarding additionalsupplyofNTTShares inthestockmarket The issuanceorsaleofadditionalNTTShares orconcerns Operating andFinancialReviewProspects direct themanagementofNTT. hasnothistoricallyuseditspowerasashareholderernment to as ashareholder todirect themanagementofNTT. Infact,theGov- culty enforcing judgmentsunderthe fi xed lineservicesprovided byotherbusinesses. larity ofmobilephones,competitionwithopticalIPtelephonesand phone subscriberlinesandINS-Netcausedbytheincreasing popu- due toacontinueddeclineinthenumberofsubscriptionsfortele- billion, accountingfor14.5%oftotaloperatingrevenues. Thiswas 2014 decreased 7.8%from theprevious fi Fixedvoicerelated revenues forthefi scal yearto¥1,578.9 scal yearendedMarch 31, leased circuits andhighspeeddigital. segment, suchastelephonesubscriberlines,INS-Net,conventional communicationsbusiness ment andlongdistanceinternational services itprovides intheregional communicationsbusinessseg- NTTGroup’s fi xed voicerelated servicesincludeaportionofthe • FixedVoice RelatedServices ended March 31,2014are summarizedasfollows: Operatingrevenues foreachservicecategorythefi scal year voice related revenues. increase inoverseassales,partiallyoffset byacontinueddeclinein increase insystemintegrationrevenues inconjunctionwithan sales revenues resulting from anincrease insmartphonesales,an This increase wasduetosuchfactorsasanincrease inhandset slightly due tofactorssuch asthemigration tolow-pricedservices in mobile communications business segment, revenues decreased segment andan increase inthe numberofsmartphoneusersin the Hikari and Denwa intheregional communicationsbusiness operating revenues. Inspiteofincreased subscriptions forFLET’S previous fi scal yearto¥3,711.9billion, accountingfor34.0%oftotal packet communicationsservicesdecreased veryslightly from the Inthefi scal yearendedMarch 31,2014,revenues from IP/ and FOMApacketcommunications services. vides inthemobilecommunications businesssegment,suchasXi area andOCN,aswell aportionoftheservicesitpro- Ethernet tional communicationsbusinesssegment, suchasIP-VPN,wide portion oftheservicesitprovides inthelongdistance andinterna- ness segment,suchasFLET’SHikari andFLET’SADSL,a tion oftheservicesitprovides intheregional communications busi- NTTGroup’s IP/packetcommunications servicesincludeapor- • IP/PacketCommunicationsServices age monthlyminutesofusepersubscriber. Protection &DeliveryServicesubscriptions.MOUrefers totheaver- increase inrevenues resulting from anincrease inMobilePhone grams inconjunctionwithincreased smartphonesales,despitean MOU andthepenetrationof“MonthlySupport”discountpro- due toadecrease invoiceARPUarisingfrom adecrease inbillable billion, accountingfor9.6%oftotaloperatingrevenues. Thiswas 31, 2014decreased 16.3%from theprevious fi Mobilevoicerelated revenues forthefi scal yearto¥1,052.6 scal yearended March ment, suchasXiandFOMA. NTT Group provides inthemobilecommunicationsbusinessseg- Mobilevoicerelated servicesincludeaportionofthe • MobileVoice RelatedServices (2) (1) The fi RESULTS OFOPERATIONS increase wasduetofactorssuchasanincrease inoverseassales. billion, accountingfor20.8%oftotaloperatingrevenues. This integration increased 13.2%from theprevious fi In thefi scal yearto¥2,275.0 scal yearendedMarch 31,2014,revenues from system segment andtheregional communicationsbusinesssegment. communicationsbusiness vides inthelongdistanceandinternational munications businesssegmentandaportionoftheservicesitpro- NTTGroup’s systemintegration servicesincludeitsdatacom- • SystemIntegration smartphones inthemobilecommunicationsbusinesssegment. revenues. Thisincrease wasduetosteadysalesofhandsetssuchas fi scal yearto¥969.7billion,accountingfor8.9%oftotaloperating munications equipmentsalesincreased 14.8%from theprevious Inthefi scal yearendedMarch 31,2014,revenues from telecom- mobile communicationsbusinesssegment. provides intheregional communicationsbusinesssegmentandthe ThiscategoryincludesaportionoftheservicesNTTGroup • SalesofTelecommunications Equipment Years endedMarch 31 mobile communicationsbusinesssegment. ment andtheimpactof“MonthlySupport”discountprograms inthe communicationsbusinessseg- the longdistanceandinternational prtn noe1,202.0 Other income(expenses) Operating income prtn xess9,498.8 Operating expenses Net income esnticm trbtbet ocnrligitrss185.7 Net incomeattributable toNTT Less—net incomeattributabletononcontrolling interests (losses) ofaffiEquity inearnings liated companies Income taxexpense(benefi t) In ae ftlcmuiain qimn 844.9 Other System integration Salesoftelecommunicationsequipment IP/Packetcommunicationsservices Mobilevoicerelated services prtn eeus ¥10,700.7 Fixedvoicerelated services Operating revenues: of affi liated companies (losses) come before incometaxesandequityinearnings (losses) ofaffi liated companies,”“Net income,”and“NetincomeattributabletoNTT” forthefi scal year ended March 31,2013 2013, theabovefi gures for“Otherincome (expenses),”“Incomebefore (losses)ofaffi incometaxesandequity inearnings liate As aresult oftheapplicationequity methodforNTTGroup’s investmentinPhilippine LongDistanceTelephone Companyfr revenues” as“Systemintegrationrevenues.” Results forthefi scal year endedMarch 31,2013refl ect suchreclassifi cation. NTT hasreclassifi ed, amongotherthings,part ofits“Mobilevoicerelated servicesrevenues” and“IP/Packetcommunications se Beginning April1,2013, inconnectionwithNTTGroup’s current stateofbusinessand initiativessuchasefforts toexpandint scal yearendedMarch 31,2014,compared withthefi (1) (2) (1) (2) (2) (2) (1) (1) (2) (1) (2) scal yearendedMarch 31,2013 tive expensesintheconsolidatedstatementsofincome. sold, costofsystemintegration,andselling,generaladministra- expenses beloware includedincostofservices,equipment and expensesforpurchase ofgoodsandservicesother reasons fortheincrease are discussedbelow. Personnelexpenses increased 2.2%from theprevious fi Operatingexpensesinthefi scal yearto¥9,711.5billion.The scal yearendedMarch 31,2014 Operating Expenses business andconstructionelectricitybusinesses. business segmentandanincrease inrevenues from thereal estate operations innewbusinesssectorsthemobilecommunications increase wasduemainlytoanincrease inrevenues associatedwith billion, accountingfor12.2%oftotaloperatingrevenues. This services increased 15.0%from theprevious fi Inthefi scal yearto¥1,337.0 scal yearendedMarch 31,2014,revenues from other and development. estate rentals, systemsdevelopment,leasingactivitiesandresearch Otherservicesprincipallycomprisebuildingmaintenance,real • Other 1,197.6 1,162.8 2,010.0 3,712.8 1,257.5 1,712.9 521.9 707.6 474.0 (16.1) 2013 (4.3) ¥10,925.2 o newbusinessareas inthemobilecommunicationsbusiness, d companies,” “Income tax expenses,” “Equity in earnings d companies,”“Income taxexpenses,”“Equityinearnings have beenrevised retrospectively. 1,213.7 9,711.5 1,337.0 2,275.0 3,711.9 1,052.6 1,578.9 1,294.2 rvices revenues” as“Otherrevenues,” andpartofits“Other om thebeginningof three months endedJune30, 969.7 585.5 756.9 486.5 171.4 (50.8) 2014 80.5 Billions ofyen hnePercent Change Change 249 (16.3)% (7.8)% (204.9) (133.9) 212.7 2.2% 124.8 14.8% 174.3 15.0% 265.1 13.2% 224.4 2.1% 3.)— (34.7) 1.)(7.7)% (14.3) 11.7 1.0% 63.5 12.2% 49.3 7.0% 12.6 2.7% 96.5 8.1% 84.9 — 09 (0.0)% (0.9) ANNUAL REPORT 2014 ANNUAL REPORT 111 Operating and Financial Review and Prospects 112 NIPPON TELEGRAPH AND TELEPHONE CORPORATION among other things,thetax ratesforconsolidated accounting fi scal Act” and otherlawsbeing enactedonMarch 20,2014, changing, increase wasduetothe “LawRevising aPortionofthe Income Tax increased 2.7%from theprevious fi In thefi scal yearto¥486.5billion.The scal yearendedMarch 31,2014,incometaxexpense • IncomeTax Expense (Benefi billion forthereasons discussed above. 31, 2014increased 8.1%from theprevious fi Netincomebefore incometaxes inthefi scal yearto ¥1,294.2 scal yearendedMarch • on valuationofsecuritiesfrom theprevious fi scal year. acquire thebuildingitoccupiesandadecrease of¥8.3billion inloss ing from theexchangeofNTT’s leaseholdinterest fortherightto vious fi scal year. Thiswasmainlyduetoagainof¥60.0billionresult- ¥80.5 billion,compared tootherexpensesof¥4.3 billioninthepre- Otherincomeforthe fi scal yearendedMarch 31,2014was • OtherIncome(Expenses) Other OperatingRevenuesandExpenses over theprevious fi scal year. ended March 31,2014was¥1,213.7billion,anincrease of1.0% Asaresult oftheforegoing, operatingincomeforthefi scal year Operating Income expected usefullifeofmetalcables. and areduction of¥23.3billionasaresult oftherevision ofthe investments asaresult ofmakingmore effi cient capitalinvestments ¥1,880.3 billion.Thisdecrease wasmainlyduetoareduction in March 31,2014decreased 1.0%from theprevious fi Depreciation andamortizationexpensesinthefi scal yearto scal yearended • Depreciation andAmortizationExpenses the effect ofexchangeratefl uctuations onoverseassubsidiaries. phone salesinthemobilecommunicationsbusinesssegmentand communications handsetsresulting from theexpansionofsmart- things, anincrease of¥21.0billioninthewholesaleunitprices compared withtheprevious fi scal yearasaresult of,amongother tions businesssegment.However, overallexpensesincreased national communicationsbusinesssegmentandmobilecommunica- regional communicationsbusinesssegment,longdistanceandinter- billion. Improving operationaleffi ciency reduced expensesinthe collectively increased 4.6%from theprevious fi scal yearto¥5,259.5 equipment soldandselling,generaladministrativeexpenses Inthefi scal yearended March 31,2014,costofservicesand • on overseassubsidiaries. increase wasmainlyduetotheeffect ofexchangeratefl uctuations increased 1.3%from theprevious fi Personnelexpensesinthefi scal yearto¥2,158.6billion.This scal yearendedMarch 31,2014 • PersonnelExpenses Operating andFinancialReviewProspects Affi Income before IncomeTaxes (Losses)of andEquityinEarnings Other Expenses Expenses forPurchase ofGoodsandServices liatedCompanies t) equity in earnings (losses)ofaffiequity inearnings liated companies. ible fortaxpurposes,thenetchangeinvaluationallowance,and among otherthings,thedecrease inexpensesthatare notdeduct- 31, 2014.Thedecrease intheactualeffective taxrateisdueto, ended March 31,2013,and37.59%inthefi scal yearendedMarch income. Theactualeffective taxratewas39.57%inthefi scal year expenses (benefi t): Deferred” intheconsolidatedstatementsof decreased by¥12.6billion,whichamountisincludedin“Incometax approximately 36%.Asaresult, netdeferred incometaxes tax assetsandliabilitiesdecreased from approximately 38%to utory taxrateappliedtothecalculationofamountdeferred years startingonorafterApril1,2014.Duetothischange,thestat- increase inexpenditures from acquisitions ofnew consolidated ments of greater thanthree months’duration, anda¥172.7 billion ments in conjunctionwith fundmanagement investmentsin instru- billion incashproceeds from theredemption ofshort-terminvest- This increase wasdueto,among otherthings,adecrease of¥221.9 billion from ¥1,776.3billioninthe fi scal yearendedMarch 31,2013. March 31,2014amountedto ¥2,106.8 billion,anincrease of¥330.6 Net cashusedininvestingactivities duringthefi scal yearended bearing debtandpaydividends. mainly toacquire property, plantand equipment,repay interest- NTTGroup usedthenetcashprovided byoperating activities to thefi scal yearendedMarch 31,2014. that hadaccruedduringtheprevious fi scal yearbeingcarriedover the collectionofaportiontelephone andcertainothercharges previous fi scal yearhaving beenabankholiday, whichresulted in in thepaymentofdistributorcommissions andthelastdayof collection oftelephoneandcertain otherchargesduetoadecrease 31, 2013.Thisincrease wasprimarilytheresult ofanincrease inthe ¥274.2 billionfrom ¥2,453.7billioninthefi scal yearendedMarch ended March 31, 2014 amountedto¥2,727.9billion,anincrease of Netcashprovided byoperatingactivitiesduringthefi scal year Financing, CapitalResources andUseofFunds LIQUIDITY ANDCAPITAL RESOURCES ¥585.5 billion,anincrease of12.2%from theprevious fi scal year. noncontrolling interests) forthefi scal yearendedMarch 31,2014was Net incomeattributabletoNTT(excludingtheportion was ¥756.9billion,anincrease of7.0%from theprevious fi Asaresult, netincomeforthefi scal year. scal yearendedMarch 31,2014 • NetIncomeandAttributabletoNTT Indian telecommunicationscarrierTata Teleservices Limited(“TTSL”). year) recognized on“Investmentinaffi liated companies”related to 2014 to¥51.2billion(compared to¥6.8billionfortheprevious fi scal increase inimpairmentlossesforthefi scal yearendedMarch 31, previous fi scal year).Thiswasdueto,amongotherthings, an March 31,2014were ¥50.8billion(compared to¥16.1billionforthe Equityinlossesofaffi liated companiesforthefi scal yearended (Losses)ofAffi • EquityinEarnings liatedCompanies ant todepositaryagreements. cial Statements,aswell¥21.5billionindepositsreceived pursu- and long-termdebt,asshowninNote9totheConsolidatedFinan- March 31,2013).Interest-bearing debtcomprisesshort-term stood at49.3%asofMarch 31,2014(compared to49.0%*asof 31, 2013.Theratioofinterest-bearing debttoshareholders’ equity Group was¥4,200.0billion,anincrease of¥164.0billionfrom March AsofMarch 31,2014,thetotalinterest-bearing debtofNTT fiinstitutions. nancial bond offerings andanaggregate of¥385.4billioninloansfrom 31, 2014includes¥251.9billioninnetproceeds from corporate from theissuanceoflong-termdebtinfi scal yearended March the issuanceofshort-termandlong-termdebt.Thecapitalraised partially offset bya netincrease of¥347.5billioninproceeds from ¥256.6 billioninexpenditures associatedwithstockrepurchases, The decrease wasdueto,amongotherthings,anincrease of billion from ¥745.2billioninthefi scal yearendedMarch 31,2013. March 31,2014amountedto¥622.4billion,adecrease of¥122.7 Netcashusedinfi nancing activitiesduringthefi scal yearended in themobilecommunicationsbusiness. regional communicationsbusinessand¥703.1billionwasinvested on anaccrualbasis,ofwhich¥722.8billionwasinvestedinthe March 31,2014,capitalinvestmentsamountedto¥1,892.8billion the regional communicationsbusiness.Forthefi scal yearended addition tothecompletionofinvestmentsrelated toIPmigrationin network constructioninthemobilecommunicationsbusiness, 31, 2014resulted from, amongotherthings,improved effi ciency in equipment andinintangibleassetsforthefi Thedecrease ininvestmentspaymentsforproperty, scal yearendedMarch plantand on acashbasis. for property, plantandequipmentinintangibleassetscomputed subsidiaries, partiallyoffset bya¥81.5billiondecrease inpayments therefore diffi cult topredict. its future performance,marketconditionsandotherfactors,is addition, theactualamountofNTTGroup’s fundingwilldependon trends indemand,thecompetitiveenvironment andotherfactors.In expected levels,sincecapitalinvestmentsmaybeinfl uenced by business. Theactualamountofcapitalinvestmentsmayvaryfrom and approximately ¥690.0billionbythemobilecommunications communications business(aggregate ofNTTEastandWest) investments includesapproximately ¥640.0billionbytheregional communications business.Thetotalamountofexpectedcapital improved effi ciency intheconstructionofbasestationsmobile opening ofHikarilinesintheregional communicationsbusinessand 31, 2014,dueto,amongotherthings,improved effi ciency inthe basis, adecrease of¥42.8billionfrom thefi scal yearendedMarch to makecapitalinvestmentstotaling¥1,850.0billiononanaccrual Forthefi scal yearendingMarch 31,2015,NTTGroup expects its present requirements. Management believesNTTGroup’s workingcapitalissuffi cient for investment andexpenditure needsanddebtservicerequirements. fi nancial resources tomeetNTTGroup’s currently anticipatedcapital or debtsecuritiesinthecapitalmarketswillprovide therequisite from banksandotherfi nancial institutionsand/orofferings ofequity from operatingactivities,fi NTTGroup believesthatthenetcashitexpectstogenerate nancing madeavailabletoNTTGroup on particularfundingandworkingcapital requirements. the balanceofcashequivalentsfl uctuates eachfi scal yeardepending among otherthings,andare usedforworkingcapital.Accordingly, rary cashsurplususedtorepay debtsandmakecapitalinvestments, billion asofMarch 31,2013).Cashequivalentsrepresent atempo- less thanthree months)of¥984.5billion(compared with¥961.4 lents (includingshort-terminvestmentswithprincipalmaturitiesof AsofMarch 31,2014,NTTGroup hadcashandequiva- Liquidity * Distance Telephone Company. Refl ects theretroactive applicationoftheequitymethodaccountingforPhilippineLong ANNUAL REPORT 2014 ANNUAL REPORT 113 Operating and Financial Review and Prospects 114 NIPPON TELEGRAPH AND TELEPHONE CORPORATION degree ofjudgmentor complexity. signifi cant accounting policies,the followingmayinvolve ahigher preparation ofthesefi nancial statements. NTT believes that,ofits includes asummary ofsignifi cant accountingpoliciesusedinthe United States.Note 2totheConsolidatedFinancial Statements accordance withaccountingprinciples generallyacceptedinthe NTT Group’s consolidated fi nancial statementsare prepared in CRITICAL ACCOUNTINGPOLICIES the effect ofthestandard onNTTGroup’s ongoingfi nancial reporting. NTT hasnotyetselectedatransition methodnorhasitdetermined Group’s consolidatedfi NTTisevaluatingtheeffect thattheASUwillhaveonNTT nancial statementsandrelated disclosures. NTT Group onApril1,2017.Earlyadoptionisnot permitted. it becomeseffective. Thenewstandard willbecomeeffective for most existingrevenue recognition guidanceunderU.S.GAAP when promised goodsorservicestocustomers.ThisASUwillreplace nize theamounttowhichitexpectsbeentitledfortransferof from ContractswithCustomers,”whichrequires anentitytorecog- OnMay28,2014,theFASB issuedASU2014-09 “Revenue NOT YETADOPTED APPLICATION OFNEWACCOUNTINGSTANDARD guaranteed loansandothertotaled¥54.3billion. AsofMarch 31,2014,NTTGroup’s contingentliabilitiesfor OFF-BALANCE SHEETARRANGEMENTS approximately ¥1,015.7billion.NTTGroup expectstofundsuchcommitmentswithcashprovided byoperatingactivities. AsofMarch 31,2014,NTTGroup hadoutstandingcommitmentsforthepurchase ofproperty, plantandequipmentotherassets (3) Purchase obligations includeoutstandingcommitmentsforthepurchase ofproperty,(2) plantandequipmentotherassets. Capital leaseobligationsincludeinterest. (1) ThefollowingtablesummarizesNTTGroup’s existingcontractualobligationsasofMarch 31,2014: Contractual Obligations Operating andFinancialReviewProspects O eaigl ae 116,89731,38641,56921,04122,901 Purchase obligations Operating leases neetpyet nln-emdb 7,3 4,5 8,1 5,3 91,735 ¥ 711,807 ¥ 600,906 57,331 ¥ 485,830 ¥ 179,997 80,110 ¥1,978,540 47,456 ¥5,386,231¥1,300,931¥1,227,271¥1,166,321¥1,691,708 276,632 1,930,484245,354358,164471,489855,477 Otherlong-termobligations Total contractual Capitalleaseobligations Interest paymentsonlong-termdebt obligations Bonds Long-term debt Contractual Obligations Bank loans expects tocontributeatotalamountof¥16,807millionitspensionplansinthefi scal yearendingMarch 31,2015(seeNote The amountofotherlong-termobligationsisnotshownintheabovetable,duetoimmateriality ofcertainobligationsand (2) (1) (3) 1,015,685 775,674 233,196 4,4732,342 7932,6 8421,8 7,446 67,993 21,06428,40211,081 oa 1yearorless Total ————— resellers havetakentitle totheproduct, andtherisks andrewards of resellers, whichisconsidered tohave occurred when theagent are recognized as revenue upon deliveryoftheequipment toagent certain amountsof agencycommissionsandcustomer incentives phone card usage.Salesoftelecommunications equipmentless use andexperience andare affected bychanges intrends oftele- Estimates ofexpected future usageare based onpastrecords of and are recognized asrevenue asofthetimetheyare actuallyused. future usageoftelephonecards issuedbyNTTGroup are deferred impact offuture eventsandcircumstances. Revenuesforexpected experience ofNTTanditssubsidiaries, adjustedfortheestimated zation periodsare basedonananalysisofhistorical trends andthe anticipated products, servicesandtechnologies. Thecurrent amorti- ratesandnewlyintroducedamortized includesubscriberchurn or customer relationship periodoverwhichsuch feesandcostsare period. Factorsthataffect management’s estimateoftheaverage related direct costsandtheestimatedaveragecustomerrelationship affected bythelevelofrevenues from non-recurring upfront feesand income, thereported amountsofrevenue andcostofservicesare period. Whilethispolicydoesnothaveamaterialimpactonnet recurring upfront feeamountandare amortizedoverthesame The related direct costs are deferred onlytotheextentofnon- estimated averageperiodofthecustomercontractforeachservice. activation fees,are deferred andrecognized asrevenue over the tomers. Revenuesfrom non-recurring upfront fees,suchas vices are recognized atthetimetheseservicesare provided tocus- related services,IP/packetcommunicationsservicesandotherser- Revenuesarisingfrom fi xed voicerelated services,mobile voice Revenue recognition Payments DuebyPeriod through 3years Millions ofyen After 1year uncertainty ofcertainpayments.Inaddition,NTTGroup 10totheConsolidatedFinancialStatements). hog er After5years through 5years After 3years of become known. income intheperiodwhichfactsthatgiverisetorevision gresses tocompletion.Revisionsinlossestimatesare chargedto Recognized lossesare subjecttorevision asthecontractpro- revenues andcoststobemadeatvariousstagesofacontract. method becauseitpermitsreasonably dependableestimatesof revenues andcostsuponcompletion.NTTGroup followsthis nizes suchlossesbasedonestimatesoftotalexpectedcontract becomes probable andreasonably quantifi able. NTTGroup recog- losses, ifany, ismadeinthefi scal yearinwhichthelossfi rst revenues from systemintegrationprojects, provision forestimated ownership havebeensubstantiallytransferred. Inconnectionwith ¥5.7 billion,respectively. March 31,2012,2013and2014were ¥9.6billion,¥5.4billionand sary. NTT Group’s total“Impairment losses”inthefi scal yearsended value andthird-party independentappraisals,as considered neces- techniques, includingdiscountedcash fl ow models,quotedmarket of theassetanditsfairvalueasmeasured through variousvaluation ment lossisrecognized forthedifference betweenthecarryingvalue cash fl ow islessthanthecarryingamount of theasset,animpair- not berecoverable. Ifthetotalofexpectedfuture undiscounted changes incircumstances indicatethattheircarryingamountmay Group alsoreviews suchassetsforimpairmentwhenevereventsor ment chargetorefl ect awrite-downinthevalueofassets. NTT technological changescouldresult intherecognition ofanimpair- amortization expensesinfuture periods.Alternatively, thesetypesof shortened, resulting intherecognition ofincreased depreciation and pated, theusefullivesassignedtotheseassetsmayneedbe occur more rapidly thananticipatedorinadifferent formthanantici- technological orotherchanges.Ifchangeswere to cal experiencewithsimilarassetsaswellanticipated mated atthetimeassetsare acquired andare basedonhistori- reporting period.Theusefullivesandtheresidual valuesare esti- depreciation andamortizationexpensetoberecorded duringany gibles withfi nite usefullives,inorder todeterminetheamount of property, plantandequipment,software andcertainotherintan- NTTGroup estimatestheusefullivesandresidual valuesof intangibles plant andequipment,software andcertainother Estimated usefullivesandimpairmentsofproperty, carrying amounts (including goodwill).The determinants used forthe such as discounted cash fl ow projections, iscompared with its of thereporting unit,which iscalculated basedonassumptions the fairvalueof reporting unit. Underthefi rst step,thefairvalue ment, usingatwo-step process thatbeginswithanestimationof least annuallyand more frequently ifthere are indicationsofimpair- which iseitherat the operatingsegmentlevelorone levelbelow, at Goodwill istestedforimpairment atthereporting unitlevel, Goodwill andindefi nite lifeintangibleassets amounts by8.9%and14.0%,respectively. communications businesssegmentexceededtheircarrying value ofthereporting unitattributabletoGlobalBusinessinthedata communicationsbusinesssegmentandthefair and international reporting unitattributabletoDimensionDatainthelongdistance ducted forthefi scal yearendedMarch 31,2014,thefairvalueof billion, respectively. Asaresult oftheannualimpairmenttestcon- communications businesssegmentwere ¥235.2billionand¥213.6 amounts ofgoodwillattributabletoGlobalBusinessinthedata communicationsbusinesssegmentandthe carrying international goodwill attributabletoDimensionDatainthelongdistanceand 2014, outofthematerialreporting units, thecarryingamountsof billion, ¥31.3billionand¥6.2respectively. AsofMarch 31, in thefi scal yearsendedMarch 31,2012,2013and2014were ¥5.5 NTT Group’s total“Goodwillandotherintangibleassetimpairments” changes occurinthebusinessoperationenvironment inthefuture. stated intheconsolidatedfi nancial statementsifunexpected rently reasonable. However, actualvaluesmaydiffer from those value basedoncertainassumptionsthatare determinedtobecur- tested forimpairmentatleastonceayear. NTTGroup measures fair unit. Intangibleassetswithindefi nite livesare notamortizedandare required toperformthetwo-stepimpairmenttestforthatreporting reporting unitislessthanitscarryingamount,itwouldnotbe cludes thatitisnotmore likelythannotthatthefairvalueofa the reporting unittoNTT’s businessobjectives.Ifanentitycon- and cashfl ows infuture periods,andthestrategicsignifi cance of reporting unit’s continuingabilitytogenerateincomefrom operations fair valuemeasurement includemanagement’s estimateofthe and terminal values.NTT Group’s total impairment lossfor ogy changes, capitalinvestments, marketgrowth and share, ARPU rates, etc.),technol- penetration ratesandpenetration speed,churn estimates involving, amongothers,demographics(e.g., population, evaluations. Such projections and valuationsnecessarilyrequire valuations and,if applicable, stockpriceanalyses,in performingits variety ofinformation, includingcashfl ow projections, independent investment maynotberecoverable. Further, NTTGroup utilizesa changes incircumstances indicatethatthecarrying amountofan NTT Group performsareview forimpairmentwhenevereventsor operates, andNTTGroup’s abilityorintenttoretain the investment. tion oftheinvesteecompany, thestrength oftheindustry inwhichit the valuehasbeenbelowcarrying amounts,thefi nancial condi- the declineinvaluebelowcarrying amounts,thelengthoftime rary, NTTGroup considers, among otheritems,themagnitudeof ment. Whendeterminingifthedecline invalueisotherthantempo- temporary, which thenestablishesanewcostbasisintheinvest- in valuebelowthecarryingamountofinvestmentisotherthan value. NTTGroup recognizes an impairmentlosswhenthedecline Group accountsforunderthecostmethod,equitymethodoratfair NTTGroup holdsinvestmentsinothercompanies,whichNTT Investments ANNUAL REPORT 2014 ANNUAL REPORT 115 Operating and Financial Review and Prospects 116 NIPPON TELEGRAPH AND TELEPHONE CORPORATION fi nancial statements related to employees’retirement benefi ts and and 2014, respectively. Theamounts recognized in theconsolidated total operatingexpenses forthefi scal yearsendedMarch 31,2013 plans represented approximately 1.6%and1.2%ofNTT Group’s The totalcostsofemployees’retirement benefi ts andpension Employees’ retirement benefi Operating andFinancialReviewProspects the saleofinvestments. future. NTTGroup mayalsoexperiencematerialgainsorlosses on investments” and“Investmentsin affi liated companies”againinthe lar impairmentswithrespect to“Marketablesecurities andother hensive incomeforrelevant years.NTTGroup mayexperience simi- companies” initsconsolidatedstatements ofincomeandcompre- affi liates thatwere (losses)ofaffi includedin“Equity inearnings liated material impairmentsinthevalueof itsinvestmentsinequitymethod 2013 and2014,respectively. Inthepast,NTTGroup experienced ¥25.9 billionand¥51.3forthefi scal yearsendedMarch 31, including TTSL,andrecognized impairmentchargesaggregating other-than-temporary declinesinthevaluesofcertaininvestments, this review andevaluation,NTTGroup determinedthatthere were Group recognized anadditionalimpairmentcharge.Asaresult of the declineinvaluewasotherthantemporary. Consequently, NTT these revised estimatedcashfl ows, andNTTGroup concludedthat average costofcapitalincreased to12.6%,whichwasapplied business riskandTTSL’s recent operatingresults, theweighted auction priceoffrequency spectruminIndia.Refl ecting thisgrowing taining oracquiringfrequency spectrumduetoasteepriseinthe ators inIndia,includingasaresult ofanincrease inthecostofmain- cash fl ows duetothegrowing businessriskofmobile network oper- DOCOMO furtherrevised downward itsestimateofTTSL’s future charge. Duringthefi scal yearendedMarch 31,2014, NTT temporary. Consequently, NTTGroup recognized animpairment below thecarryingamountandthatthisimpairmentwasotherthan Group concludedthattherecoverable amountwassignifi cantly DOCOMO’s views ofitslong-termoutlookatthattime,andNTT tariff competitionamongmobilenetworkoperatorsinIndiaandNTT its estimatedfuture cashfl ows ofTTSLasaresult oftheintensifying fi scal yearendedMarch 31,2013,NTTGroup adjusteddownward nomic andfi nancial environment surrounding itsindustry. Duringthe decline thatwasotherthantemporarybecauseoftherecent eco- determine ifthevalueofitsinvestmentinTTSLhadsuffered a NTTGroup reviewed thebusinessoutlookofTTSLinorder to rounding theindustryofthoseequitymethodinvestees. porary duetotherecent economicandfi nancial environment sur- investments inthemhassuffered adeclinethatwasotherthantem- those investeesinorder todetermineifthevalueofanyour factors suchasthefi nancial conditionandnear-term prospects of billion, ¥11.0billionand¥3.0respectively. NTTGroup reviews ended March 31,2012,2013and2014wasapproximately ¥4.0 “Marketable securitiesandotherinvestments”inthefi scal years ts tions. In determining thenet periodiccosts, NTTGroup used a annual actuarial valuationof netperiodiccosts andbenefi Another criticalassumption isthediscount rateusedinthe t obliga- plan measurement date. market valueofplan assetsismeasured usingfairvaluesonthe may varyinfuture periods,depending onmarketconditions.The and 8.0%,respectively. onpensionplanassets Theactualreturns years endedMarch 31,2013and2014were approximately 11.0% projected allocationsstatedabove.Theactualreturns forthefi scal the actualallocationsofassetswere generallyconsistent withthe pension planassetreturnsandreduce risks. AsofMarch 31,2014, general accounts,respectively, tomoderatethelevelofvolatilityin stocksandlifeinsurancecompany bonds,international international plan assetswillbeallocatedtodomestic bonds,domesticstocks, 42.9%, 20.9%,10.0%,14.4%and 11.8%(weighted-average)of the NTTCorporateDefi ned Benefi t PensionPlan, approximately and lifeinsurancecompanygeneralaccounts,respectively, andfor stocks bonds,international bonds, domesticstocks,international 10.0% and20.0%oftheplanassetswillbeallocatedtodomestic type corporatepensionplan,approximately 47.0%,13.0%,10.0%, assets. Forlump-sumretirement allowancesandforthecontract- the expectedlong-terminvestmentreturnsforeachcategoryofplan projected allocationofplanassetsisdevelopedinconsideration of planassetsbasedonNTT’s analysisofhistoricalresults. The expected long-terminvestmentreturnsandrisksforeachcategory siders thecurrent andprojected assetallocations,aswell expected long-termrateofreturnonpensionplanassets,NTTcon- 31, 2013andMarch 31,2014,respectively. Indeterminingthe sion planassetsof2.0%to2.5%forthefi NTTGroup usedanexpectedlong-termrateofreturnonpen- scal yearsendedMarch increase future pension costs. employee service(approximately 10years).Thatamortizationwill assets willbeamortizedovertheaverageremaining yearsof greater oftheprojected benefi t obligationorthefairvalueofplan loss was¥289.3billion.Thenetactuarialexceeding10%ofthe expenses. AsofMarch 31,2014,thetotalamountofnetactuarial future periods,thereby reducing theyear-to-year volatilityinpension NTT Group’s assumptionsare accumulatedandamortizedover erally acceptedintheUnitedStates,actualresults thatdiffer from critical assumptions.Inaccordance withaccountingprinciplesgen- or circumstances changethatmayhaveasignifi cant effect onthe Assumptions are evaluatedatleastannually, andeventsmayoccur on assetsandthediscountrateare twocriticalassumptions. and otherfactors.Specifi cally, theexpectedlong-termrateofreturn increase incompensationlevels,averageremaining yearsofservice, term rateofreturnonplanassets,adiscountrate,the retirement benefi ts andpensionplansincludetheexpectedlong- assumptions usedindeterminingnetperiodiccostsandliabilitiesfor certain assumptionsinthecalculationofsuchamounts.The pension plansare determinedonanactuarialbasis,whichutilizes Change inAssumption income and availabletaxplanning strategies. Iffuture taxable Group takesintoaccount thelevelofexpected future taxable be realized. Indeterminingthe appropriate valuationallowance,NTT to refl ect theamountoffuture taxbenefi ts thatare notexpectedto NTT Group recognizes avaluationallowance ondeferred taxassets decreased ¥9.6billionforthefi scal year endedMarch 31,2014. year endedMarch 31,2014.Netincomeattributable toNTT Deferred” intheconsolidatedstatementsofincome forthefi scal billion, whichamountisincludedin “Incometaxexpense(benefi t)— deferred taxassetsexistingontheenactmentdate decreased ¥12.6 on orafterApril1,2014.Asaresult ofthischangein taxrate,net adjusted startingfrom consolidatedaccounting periodsthatbegin Act” wasenactedonMarch 20,2014.Theincome taxratewillbe March 31,2012.“TheActtoAmendSectionsof theIncomeTax utable toNTTdecreased ¥80.2billionforthefi scal yearended income forthefi scal yearendedMarch 31,2012.Netincomeattrib- expense (benefi t)—Deferred” intheconsolidatedstatements of ¥89.9 billion,andtheseadjustmentsare includedin“Incometax net deferred taxassetsexistingontheenactmentdatedecreased began onorafterApril1,2012.Asaresult ofthischangeintaxrate, tax rateswere adjustedforconsolidatedaccountingperiodsthat Japan Earthquake”were enactedonNovember30,2011.Income Reconstruction andRehabilitationinResponsetotheGreat East Economic SocialStructure” and“TheActonSpecialMeasures for Income Tax ActforTax ReforminAccordance withChangestothe includes theenactmentdate.“TheActtoAmendSectionsof in taxratesisrecognized inincometaxexpensestheperiodthat utilizable. Theeffect ondeferred taxassetsandliabilitiesofachange existing temporarydifferences reverse andlosscarryforwards are rates thatare expectedtobeapplicableduringtheperiodsinwhich Deferred taxassetsandliabilitiesare measured usingenactedtax bases ofassetsorliabilitiesandoperatinglosscarryforwards. ences betweenthefi nancial statementcarrying amountsandthetax expected future taxconsequencesattributabletotemporarydiffer- NTTGroup recognizes deferred taxassetsandliabilitiesforthe Income taxes 31, 2014.Indeterminingtheappropriate discount discount rateof1.5%asMarch 31,2013and1.4%asofMarch 31, 2014.Indeterminingthebenefi t obligations,NTTGroup useda discount rateof1.9%asMarch 31,2013and1.5%asofMarch all otherassumptionsconstant,forNTTGroup’s pensionplansasofMarch 31,2014: Thefollowingtableillustratesthesensitivitytochangesindiscountrateandexpectedreturnonpensionplanassets 0bsspitices eraei xetdrtr nast /1. — +/–150.0 +/–5.0 –/+10.0 –/+230.0 — 50 basispointincrease /decrease inexpectedreturnonassets 50 basispointincrease /decrease indiscountrate expired unused. expense andrefl ected thewrite-off ofdeferred taxassetsthat valuation allowancedidnothaveamaterialimpactonincometax purposes thatare notexpectedtoberealized. Thechangeinthe and certainsubsidiarieswithoperatinglosscarryforwards fortax The valuationallowancemainlyrelated todeferred taxassetsofNTT respective valuationallowanceof¥253.7billionand¥259.9billion. tax assetsof¥1,557.7billionand¥1,532.6billion,whichincluded AsofMarch 31,2013and2014,NTTGroup hadgross deferred in whichsuchjudgmentismade. tional valuationallowancethrough incometaxexpenseintheperiod are notavailableasanticipated,NTTGroup mayrecognize anaddi- income islowerthanexpectedoriftax-planningstrategies to theexpecteddurationofpensionbenefi t obligations(“PBO”). high-quality fi xed-income investmentswithmaturitiescorresponding rate, NTTconsidersavailableinformationaboutthecurrent yieldon Accrued liabilitiesforpointprograms held constant. liability accrual ofapproximately ¥1.4billion,ifall otherfactorsare increase inthepointutilization ratewouldresult inanadditional Group estimatesthatasofMarch 31,2014, aone-percent Indetermining theaccruedliabilitiesfor point programs, NTT or accruedliabilities inthefuture. tion ratescouldresult intheneedtorecognize additionalexpenses future subscriptioncancellations.Higherthanestimated pointutiliza- account theforfeitures causedby, amongotherthings,expected Group estimatessuchfactorsasthepointutilization rate,takinginto Indeterminingtheaccrued liabilitiesforpointprograms, NTT ¥81.8 billionand¥79.0billion,respectively. years endedMarch 31,2012,2013and2014were ¥103.6billion, ¥134.6 billion,respectively. Pointprogram expensesforthefi scal liabilities asofMarch 31,2013and2014was¥160.0 billionand liabilities forpointprograms recognized as short-termandlong-term Theaggregate totalamountofaccrued points thatcustomersearn. Group records “Accruedliabilitiesforpointprograms” relating tothe be exchangedforbenefi ts, includingdiscounts onhandsets.NTT the usageofmobile,FLET’SHikariandotherservices.Pointsmay NTTGroup offers mobile servicessubscribers“points”basedon Change inPBO Pre-Tax Pension Billions ofyen Expenses Change in , whileholding Change inEquity ANNUAL REPORT 2014 ANNUAL REPORT (NetofTax) 117 Operating and Financial Review and Prospects 118 NIPPON TELEGRAPH AND TELEPHONE CORPORATION March 31 Nippon Telegraph andTelephone Corporationanditssubsidiaries Consolidated BalanceSheets Cashandcashequivalents Current assets: ASSETS Short-term investments oe n consrcial,tae2,428,099 Accountsreceivable, other Allowancefordoubtfulaccounts Notesandaccountsreceivable, trade Inventories rpi xessadohrcretast 338,794 Deferred incometaxes Prepaid expensesandothercurrent assets Total current assets eeomnctossrielns15,143,239 Buildingsandstructures Telecommunications servicelines Telecommunications equipment Property, plantandequipment: Machinery, vesselsandtools Land e rpry ln n qimn 9,776,687 Investmentsinaffi liated companies Investments andotherassets: Netproperty, plantandequipment Accumulated depreciation Constructioninprogress aktbescrte n te netet 357,222 Goodwill Marketablesecurities andotherinvestments Software Otherintangible assets Other assets Deferred incometaxes oa netet n te ses5,103,092 Total Total investmentsand otherassets assets ¥ 961,433 ¥ 19,549,067 (28,134,748) 13,432,047 37,911,435 4,669,288 5,993,215 1,868,972 1,139,636 1,340,682 357,255 350,721 224,194 551,883 334,326 824,216 278,272 997,989 752,828 (44,961) 53,753 2013 Millions ofyen ¥ 984,463 ¥ 20,284,949 (28,136,268) 15,408,604 12,959,564 37,975,956 2,509,030 4,861,011 6,060,129 1,949,903 9,839,688 1,238,742 1,086,636 1,309,912 1,195,608 5,584,250 345,197 394,294 415,309 220,662 407,766 521,634 359,014 401,194 661,500 (46,893) 38,949 2014 Total liabilitiesandequity Commitments andcontingentliabilities: Total equity oa T hrhles qiy 8,231,439 (192,932) (568,459) Total NTTshareholders’ equity Noncontrolling interests 137,822,603 shares in2013and26,650,807shares in2014 Treasury stock,atcost— Accumulated other comprehensive income(loss) Retained earnings sud1331725sae n21 n ,3,9,3 hrsi 04937,950 Additionalpaid-incapital Issued—1,323,197,235shares in2013and1,136,697,235shares in2014 Authorized—6,192,920,900 Commonstock,noparvalue— shares NipponTelegraph andTelephone Corporation(“NTT”)shareholders’ equity Equity: Redeemablenoncontrolling interests: Total long-termliabilities Other cre iblte o on rgas156,233 1,505,571 3,234,631 36,254 Deferred incometaxes Accruedliabilitiesforpointprograms Liabilityforemployees’retirement benefi ts Obligationsundercapitalleases(excludingcurrent portion) Long-termdebt(excludingcurrent portion) Long-term liabilities: Total current liabilities Other Advances received Accruedconsumptiontax Accruedtaxesonincome Accrued interest urn oto folgtosudrcptllae 16,368 Accrued payroll Current portionofobligationsundercapitalleases Accountspayable,trade Current portionoflong-termdebt Short-term borrowings Current liabilities: LIABILITIES ANDEQUITY ¥19,549,067 ¥ 77,455 10,522,003 2,290,564 5,227,268 2,827,612 5,527,675 3,499,389 1,436,643 396,162 198,824 351,913 183,723 228,736 437,609 703,304 54,667 8,971 2013 Millions ofyen — ¥20,284,949 ¥ 269,444 10,924,806 ANNUAL REPORT 2014 ANNUAL REPORT 2,413,452 8,511,354 4,808,361 2,827,010 5,657,407 1,327,873 3,483,673 3,676,824 1,540,249 (156,933) 937,950 446,293 233,151 130,466 397,752 266,743 256,994 448,061 425,351 94,966 25,912 35,951 47,376 16,929 7,925 2014 119 Consolidated Balance Sheets 120 NIPPON TELEGRAPH AND TELEPHONE CORPORATION Consolidated StatementsofIncome Year endedMarch 31 Nippon Telegraph andTelephone Corporationanditssubsidiaries Consolidated StatementsofIncomeandComprehensive Income e noeatiual oNT(e)¥6.7 ¥430.68 ¥366.67 ¥160.00 ¥140.00 1,211,880,769 1,275,519,400 Consolidated StatementsofComprehensive Income Cash dividendstobepaidshareholders ofrecord date(yen) Net incomeattributabletoNTT(yen) Weighted averagenumberofshares outstanding(shares) Per share ofcommonstock: 1,899,245 31,341 2,992,588 1,910,698 2,009,953 5,470 2,981,734 1,935,952 844,883 1,257,490 3,712,766 2,303,672 864,251 1,712,877 ¥ 1,402,259 1,523,309 580,900 1,895,458 3,556,726 ¥ 2,244,070 787,681 1,345,188 Goodwill andotherintangibleassetsimpairments Selling, generalandadministrativeexpenses Impairment losses Depreciation andamortization Cost ofsystemintegration(excludingitemsshownseparatelybelow) Cost ofequipmentsold(excludingitemsshownseparatelybelow) Cost ofservices(excludingitemsshownseparatelybelow) Operating expenses: Other System integration Sale oftelecommunicationequipment IP /packetcommunicationsservices Mobile voicerelated services Fixed voicerelated services Operating revenues: qiyi anns(oss fafilae opne 752 (16,093) 185,668 (7,552) 180,850 Net incomeattributabletoNTT (54,339) Less—Net incomeattributabletononcontrolling interests Net income (losses)ofaffiEquity inearnings liated companies (losses)ofaffiIncome before equity inearnings (56,326) Deferred Current Income taxexpense(benefi I Other, net Interest income Interest andamortizationofbonddiscountsissuecosts Other income(expenses): Operating income eso iblt dutet 852 35,646 190,807 (8,542) 47,509 112,388 (71,904) (4,736) 8,238 (69,369) 211,564 (2,231) 163,081 Total comprehensive income(loss) attributable toNTT Less—Comprehensive incomeattributable tononcontrolling interests Total comprehensive income(loss) Total other comprehensive income(loss) Pensionliabilityadjustments Foreign currency translation adjustments Unrealized gain (loss)onderivativeinstruments Unrealized gain (loss)onsecurities Other comprehensive income(loss),netoftax Net income companies ncome before(losses)of affi incometaxesandequityinearnings t): liated companies liated 6,0 ¥ 521,932 ¥ 467,701 10,507,362 10,700,740 1,015,017 1,162,771 1,239,330 1,197,647 9,284,396 9,498,772 1,222,966 1,201,968 ¥413,566 ¥686,843 ¥648,551 ¥707,600 648,551 707,600 583,227 473,954 132,273 11,959 450,954 461,995 656,103 723,693 576,647 898,407 16,364 (4,321) 53,392 32,380 19,298 17,638 9,555 5,416 022013 2012 2013 2012 2013 2012 Millions ofyen Millions ofyen Share oryen 1,149,758,214 ¥ 1,578,941 ¥ 585,473 10,925,174 ¥ 873,371 ¥ 756,857 2,929,111 1,880,293 1,643,988 2,360,916 1,337,047 2,275,034 3,711,866 1,052,622 1,294,195 9,711,521 1,213,653 1,087,731 ¥170.00 ¥509.21 885,288 969,664 756,857 486,546 483,113 171,384 807,649 110,594 214,360 330,874 163,241 156,471 (50,792) (47,684) 80,542 17,632 16,057 (4,895) 5,738 3,433 6,187 2014 2014 2014 Year endedMarch 31 Nippon Telegraph andTelephone Corporationanditssubsidiaries Consolidated StatementsofChangesinEquity Cs iied 1790 1790 8,4)(255,420) (87,440) 648,551 (167,980) 180,850 (71,904) 467,701 (17,769) (54,135) (167,980) 467,701 (54,135) ¥10,080,932 ¥2,060,198 ¥8,020,734 ¥(603,133) ¥(303,708) ¥5,155,596 ¥2,834,029 ¥937,950 C Cash dividends Othercomprehensive income(loss) Net income At beginningofyear Year EndedMarch 31,2012 Cs iied 1345 1345 9,1)(275,417) (92,012) 707,600 (183,405) 185,668 109 521,932 190,807 — 25,896 164,911 109 (183,405) 521,932 129 164,911 — 566,551 ¥10,047,729 ¥2,165,142 ¥10,047,729 ¥7,882,587 ¥2,165,142 (20) ¥(418,431) ¥7,882,587 ¥(418,431) ¥(357,843) (566,551) ¥(357,843) ¥4,888,746 ¥2,832,165 ¥4,888,746 ¥937,950 ¥2,832,165 ¥937,950 C Cash dividends Othercomprehensive income (loss) Net income At beginningofyear Year EndedMarch 31,2013 At endofyear Cancellationoftreasury stock Resaleoftreasury stock Acquisitionoftreasury stock eaeo rauysok()3 3 33 33 38 (5) ¥10,522,003 ¥2,290,564 ¥8,231,439 ¥(568,459) ¥(192,932) ¥5,227,268 ¥2,827,612 ¥937,950 C Cash dividends Othercomprehensive income (loss) Net income At beginningofyear Year EndedMarch 31,2014 At endofyear Resaleoftreasury stock Acquisitionoftreasury stock At endofyear Cancellationoftreasury stock Resaleoftreasury stock Acquisitionoftreasury stock Stockcompensationtransactions hanges inNTT’s ownershipinterest hanges inNTT’s ownershipinterest hanges inNTT’s ownershipinterest nsbiire 184 184 933 27,439 29,303 (1,864) (1,864) in subsidiaries nsbiire 453 453 ,7 1,317 5,870 (4,553) (4,553) in subsidiaries in subsidiaries
9790¥,2,1 52728 (9,3)¥5849 82149 22054 ¥10,522,003 ¥2,290,564 ¥8,231,439 ¥(568,459) ¥(192,932) ¥937,950 ¥2,827,612¥5,227,268 9790¥,2,1 48831 9,6 ¥1693 85134 24342 ¥10,924,806 ¥2,413,452 ¥8,511,354 ¥ ¥(156,933) ¥937,950 ¥2,827,010¥4,808,361 94,966 Common stock Additional 109 109 4,7313,662 (1,069) (1,069) paid-in capital 467 467 3 8826 1,0 — 818,209— (818,206) (3) 3 13 16 16 1614 1614 9,0)(282,377) (96,203) (186,174) (186,174) 585,473 171,384 756,857 earnings Retained NTT shareholders’ equity comprehensive income(loss) Accumulated 287,898 42,976 330,874 other Millions ofyen Treasury stock, 4666 4666 (406,696) (406,696) (406,696) 3198 3198 (381,978) (381,978) (381,978) 1006 1006 (150,066) (150,066) (150,066) a otTotal atcost Noncontrolling itrssTotal Equity interests
ANNUAL REPORT 2014 ANNUAL REPORT
121 Consolidated Statements of Income and Consolidated Statements of Comprehensive Income / Consolidated Statements of Changes in Equity 122 NIPPON TELEGRAPH AND TELEPHONE CORPORATION Year endedMarch 31 Nippon Telegraph andTelephone Corporationanditssubsidiaries Consolidated StatementsofCashFlows Dvdnspi 1790 (183,405) (745,181) 1,020,143 (167,980) (15,558) (58,710) (948,058) 1,435,158 9,042 (2,914) (415,015) (3,029,279) (675,295) 3,015,099 402,271 (4,010) (1,520,909) (1,776,253) 1,261,125 (719,232) 680,055 (1,971,246) (446,588) Cashandcash equivalentsatbeginningofyear (38,490) Netincrease (decrease) incashand equivalents 936,211 (458,176) (682,359) Net cashusedinfi Effect ofexchangeratechanges oncashandequivalents nancing activities (35,309) (47,632) Other 1,048,024 (1,181,657) 38,929 Acquisitionof treasury stock bysubsidiary Proceeds from saleof(paymentsfor (1,538,115) 19,812 2,453,682 (59,400) Dividends paid Paymentsfor settlementofshort-termdebt 64,789 Proceeds from (1,395,087) issuanceofshort-term debt (50,234) 4,489 Paymentsforsettlementoflong-termdebt 2,508,299 14,756 (1,089) Proceeds from issuanceoflong-termdebt (9,770) Netcashusedininvestingactivities 28,449 Cash fl (36,923) (2,139) 17,873 Other 7,236 (973) Proceeds from redemptions ofshort-terminvestments (17,330) 26,476 (90,565) Paymentsforpurchases ofshort-terminvestments (10,883) — Acquisitionsofsubsidiaries,netcashacquired 11,959 Proceeds from salesandredemptions ofnon-current investments (13,353) 5,416 7,975 Paymentsforpurchases ofnon-current investments (19,382) (9,877) Proceeds from salesofproperty, plantandequipment 16,093 132,273 Paymentsforintangibles ¥707,600 Paymentsforproperty, plantandequipment 9,555 — (81,297) (18,469) Netcashprovided byoperatingactivities Cash fl (119,381) 31,341 ¥648,551 1,899,245 7,552 Other Increase (decrease) inotherlong-termliabilities 106,215 23,499 (31,083) Increase (decrease) inliabilityforemployees’retirement benefi ts 1,910,698 (175,606) Increase (decrease) inothercurrent liabilities 5,470 Increase (decrease) inaccruedtaxesonincome 85,452 Increase (decrease) inadvancesreceived Increase (decrease) inaccruedinterest Increase (decrease) inaccruedconsumptiontax Increase (decrease) inaccountspayable,tradeandaccruedpayroll (Increase) decrease inothercurrent assets (Increase) decrease ininventories (Increase) decrease innotesandaccountsreceivable, trade lossesofaffi Equityin(earnings) liated companies Gainsresulting from theexchangeofrights Gainsonsalesofproperty, plantandequipment Lossesondisposalsofproperty, plantandequipment Goodwillandotherintangibleassetimpairments Deferred taxes Impairment Depreciation andamortization losses Adjustments toreconcile netincometocashprovided byoperatingactivities— Net income Cash fl aclaino rauysok 6,5 — 433,344 449,405 566,551 24,022 ¥ — ¥ 20,299 — 961,433 ¥ ¥1,020,143 Assets acquired through exchange Cancellationoftreasuryof stock rights Capitalleaseobligationsincurred duringthe year Noncash investing andfi Incometaxes,net Interest Cash paidduringtheyearfor: Cashandcash equivalentsatendofyear ows from fi ows from investing activities: ows from operatingactivities: nancing activities: nancing activities: acquisition of)treasury stock, net 863 ¥ 55,200 ¥ 58,683 3189 (150,033) (381,869) 9,3)(108,981) (96,334) (17,893) (25,189) 43,137 (30,344) 022013 2012 Millions ofyen ¥ 756,857 ¥ 48,836 ¥ 62,221 ¥ 984,463 (4,713,795) (2,106,806) (1,486,651) 4,872,714 2,727,904 1,880,293 (622,440) (406,680) (186,174) (735,894) (211,195) (416,583) 637,253 818,209 462,349 961,433 (84,030) (39,840) (60,485) (50,517) (43,389) (33,122) (20,351) (11,621) (16,658) (38,913) (59,996) (33,119) 23,030 24,372 92,396 15,444 50,625 42,964 20,909 37,691 66,032 17,415 50,792 98,317 14,933 (5,834) (1,555) 6,187 3,433 5,738 2014 Reconciliation ofCapitalInvestment Reconciliation ofCapitalInvestment Note 1.Operatingcapitalemployedistotalofaveragevalueshareholders’ equityandinterest-bearing liabilities forthec Reconciliation ofManagementIndices Reconciliation ofManagementIndices Reference Information 1 Notes: of operations. The revenue itemsincludedinthenumeratorsof NTTGroup’s ARPUfi NTTbelievesthatits ARPUfi gures are basedonitsfigures calculatedinthiswayprovide usefulinformation regarding themonthlyaverage usageofit nancial results comprisingitsU.S. representative ofmonthlyaverageusage,suchastelecommunications equipmentsales,activationfeesanduniversalservicechar mission charges),bythenumberof ActiveSubscriberstotherelevant services.Thecalculationofthesefi gures excludes reven phone servicesandXimobile services,thatare incurred consistentlyeachmonth(i.e.,basicmonthlychargesandvoice/p items includedinoperatingrevenues from NTTGroup’s mobilecommunicationsbusiness segment, suchasrevenues from FOMAmobile number ofActiveSubscriberstotherelevant services.Inthecaseofmobilecommunications business,ARPUiscalculatedbydiv revenues ofNTTGroup’s regional communicationsbusiness segment,thatis,telephonesubscriberlines,INS-NETandFLET’SHikar vice onaperuserbasis.InthecaseofNTTGroup’s fi Average monthlyrevenue perunit,orARPU,isusedtomeasure averagemonthlyoperating revenues attributabletoeachdesignat xed-line business,ARPU iscalculatedbydividingrevenue itemsincluded Calculation ofARPU
ifrne ewe aia netet(08 49 9.)14.7 ¥1,916.3¥1,895.0¥1,853.3 ¥1,984.7 (93.3) 24.9 (70.8) Differences betweencapitalinvestment Total custo fitnil sesadohrast — — 446.6 ¥1,538.1 — 458.2 ¥1,395.1 484.2 — ¥1,410.8 545.4 ¥1,370.9 Acquisition ofintangibleassetsandother Payments foracquisitionofintangiblefi xed assets Payments forproperty, plantandequipment OE54 .%58 6.1% 5.8% 5.8% 5.4% ROCE tttr a ae4%4%4%38% 41% 1,202.0 41% 1,223.0 742.1 1,970.0 1,237.5 1,214.9 1,946.6 722.5 41% 1,272.5 1,117.7 1,870.1 1,412.1 717.8 1,987.1 1,253.7 660.3 Operating capitalemployed Operating incomex(1–Statutorytaxrate) Statutory taxrate Operating income Operating free cashfl ow Capital investment BTAmri 18 19 06 30.0% 1,202.0 30.6% 1,223.0 3,240.83,282.23,219.13,207.4 10,700.7 1,214.9 31.9% 10,507.4 1,117.7 31.8% 3,240.83,282.23,219.13,207.4 10,305.0 ¥1,202.0 ¥1,223.0 10,181.4 ¥1,214.9 ¥1,117.7 EBITDA D Operating income EBITDA margin Operating revenues EBITDA D Operating income ln n qimn ,2. 2073 ,9. 2,005.5 1,996.2 2,067.3 2,005.5 2,123.1 1,996.2 2,067.3 2,123.1 plant andequipment epreciation andlossondisposalofproperty, plant andequipment epreciation andlossondisposalofproperty, • West, usingthefollowingmeasures: NTT separatelycomputes thefollowingfourcategories ofARPUforthefi xed-line businessconductedbyeachofNTTEastand •
operating revenues from IPServices. from Voice Transmission Services(excluding IPServices),andrevenues from FLET’SADSLand FLET’SISDN,whichare includedin charges andcall charges forTelephone SubscriberLinesandINS-NET SubscriberLines,whichare includedinoperatingrevenues Aggregate Fixed-lineARPU(Telephone Subscriber Lines+INS-NETSubscriber Lines):Calculatedbasedonrevenues from monthly Lines andrevenues from FLET’S ADSL. Telephone Subscriber LinesARPU:Calculated basedon revenues from monthlycharges andcall charges forTelephone Subscriber 1 ¥12,238.6 ¥12,427.0¥12,365.4¥12,255.8 2010 201120122013 2010 201120122013 urrent term,andtheprevious term. Billions ofyen Billions ofyen ues thatare not intheoperating GAAPresults acket trans- s subscribers. iding revenue ges. ANNUAL REPORT 2014 ANNUAL REPORT ¥12,489.4 ¥ 1,213.7 i, bythe 10,925.2 ¥1,903.2 ¥1,486.7 ed ser- 1,213.7 1,299.5 1,892.8 3,192.3 1,978.6 1,213.7 3,192.3 1,978.6 29.2% 416.6 749.3 6.0%
38% 10.5 2014 2014 —
123 Consolidated Statements of Cash Flows / Reference Information 124 NIPPON TELEGRAPH AND TELEPHONE CORPORATION –FYResults/FYForecast: Sumofnumber ofactivesubscribers*foreachmonthfrom Apr. to Mar. Numberofactivesubscribersusedin theARPUcalculationofNTTDOCOMOare asbelow. 10 –FYResults:Sumofnumber ofactivesubscribers*foreachmonthfrom Apr. toMar. – Numberofactivesubscribers usedintheARPUcalculationofNTTEastandWest are asbelow. 9 8 7
NTTcomputesARPUforDOCOMOasfollows: 6 5 4 3 2 –
Reference Information therefrom are notincludedinthecalculationsofmobileARPU. Communications moduleservicesubscribers,“PhoneNumberStorage” and“MailAddress Storage”services,andtherevenues Aggregate ARPU,Voice ARPUandPacketfortheyearendedMar. 31,2012. “mova” serviceswere terminatedasofMarch 31,2012.“mova”servicesubscriptionsare includedinthecalculations ofMOU,Mob • • • NTT West). AccessprovidedFLET’S HikariPremium, by FLET’SHikariMytown,Next,LightandWiFi Accessprovided byNTTEastandBFLET’S, (including BFLET’S,FLET’SHikariNext,Lightand HikariWiFi For purposesofcalculatingFLET’SHikariARPU,numbersubscribersisdeterminedbasedonsubscriber than INS-Net64.Forthisreason, oneINS-Net1500subscriptioniscalculatedasten64subscriptions. In termsofnumberchannels,transmissionrate,andlineuserate(baserate),INS-Net1500isinallcasesroughly tentime for eachservice. Subscriber LinesARPUandINS-NETARPU,thenumberofsubscribersisdeterminedusinglines For purposesofcalculatingAggregate Fixed-lineARPU(Telephone SubscriberLines+INS-NETLines),Telephone + INS-NETSubscriberLines),Telephone SubscriberLinesARPU,INS-NETandFLET’SHikariARPU. Revenues from interconnection chargesare excludedfrom thecalculationofAggregate Fixed-lineARPU(Telephone SubscriberLine • •
March 31,2012and80yenoutofPacketARPUrevenues fortheyearendedMarch 31,2013. formerly includedinPacketARPUwillnowbereclassifi ed asSmartARPU:80yenoutofPacketARPUrevenues fortheyearended will nowbeincludedinMobileAggregate ARPU.Inaddition,thefollowingamounts(contentservicesrelated revenues) thatwere NTT DOCOMOstartedtousetheSmartARPUmetricduringthree monthsended September30,2012.Asaresult, SmartARPU services related revenues, feecollectionagencycommissions,handsetwarrantyservicerevenues, advertisingrevenues, etc.). based onoperatingrevenues from providing servicesincidentalto“FOMA”and“Xi”wireless communicationsservices(content charges, fl at monthlyfeesandpacketcommunication chargesattributabletoits“FOMA”and“Xi”servicesSmartARPUis communication charges,anditsPacketARPUisbasedonoperating revenues related topacketservices,suchasbasicmonthly NTT DOCOMO’s Voice ARPUisbasedonoperatingrevenues related tovoiceservices,suchasbasicmonthlychargesand Mobile Aggregate ARPU=Voice ARPU+PacketSmartARPU. device connectionchargesforHikariDenwa,whichare includedinoperatingrevenues from IPServices. included inoperatingrevenues from IPServicesandSupplementaryBusiness,revenues from monthlycharges,callchargesand FLET’SHikariARPU:Calculatedbasedonrevenues from FLET’SHikari(includingoptionalservices),whichare Lines andrevenues from FLET’SISDN. INS-NET SubscriberLinesARPU:Calculatedbasedonrevenues from monthlychargesandcallforINS-NETSubscriber Mar. 31,2012 +NumberofexpectedsubscribersatMar. 31, 2013)/2)x12 FY Forecast: Sumoftheaverageexpectedactive numberofsubscribersduringthefi scal year((Numberofsubscribersat Hikari WiFi Accessprovided byNTTWest.Hikari WiFi East, andBFLET’S,FLET’SHikariPremium, FLET’SHikariMytown,Next,Lightand Accessprovided byNTT FLET’S HikariincludesBFLET’S,Next,LightandWiFi s greater ile s s
As ofMarch 31,2014 Consolidated Subsidiaries opn aia oigrgt ai Mainline(s)ofbusiness Votingrightsratio Capital % Millionsofyen CORPORATION NIPPON TELEGRAPHANDTELEPHONEEAST REGIONAL COMMUNICATIONS BUSINESSSEGMENT Consolidated subsidiaries Company NTT COMMUNICATIONS CORPORATION LONG DISTANCE ANDINTERNATIONAL COMMUNICATIONS BUSINESSSEGMENT TelWel West NipponCorporation NTT WESTASSETPLANNINGCORPORATION NTT SOLMARECORPORATION INC. NTT EASTPROPERTIES, NTT CARDSOLUTIONCORP. NTT SolcoCorporation TelWel EastJapanCorporation NTT QuarisCorporation NTT DIRECTORY Co. SERVICES NTT FIELDTECHNOCORPORATION NTT MARKETINGACTCORPORATION NTT NEOMEITCORPORATION NTT BUSINESSSOLUTIONSCORPORATION CORPORATION NTT INFRASTRUCTURENETWORK NTT-ME CORPORATION NTT EAST-TOKYO CORPORATION WEST CORPORATION NIPPON TELEGRAPHANDTELEPHONE RagingWire DataCenters, Inc. RagingWire TechnologyVirtela ServicesIncorporated NTT ComSecurityAG Verio Inc. NTT AUSTRALIAPTY. LTD. NTT EUROPELTD. NTT America,Inc. NTT ResonantInc. NTT PlalaInc. NTT PCCommunicationsIncorporated Dimension DataHoldingsplc USD7,489.91 USD1,878.17 GBP153.83 USD433.38 AUD218.73 USD388.52 EUR35.94 USD511 312,000 100.00 335,000 100.00 1,6 100.00 211,763 500100.00 95.39 25,000 12,321 million million million million million million million million 3,000 100.00 5,000 100.00 3,000 100.00 3,500 100.00 2,000 100.00 ,0 100.00 4,000 110 100.00 100 100.00 100 84.54 100 100.00 558 100.00 100 100.00 100 100.00 100 100.00 100 100.00 100 100.00 50 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 80.13 Staffi ng, telegraph,andoffi ce solutionservices Real estateleasingandbrokerage, aswellmaintenanceandmanagement phones Various contentdistributionbusinesses,including ofcomicstomobile effective use of commercial real estate Real estateoperationsrelated totheeffective useofandthepromotion ofthe pre-paid card production andsales Electronic money settlementoperations;solutionsoperationsusingICcards, etc.; Telemarketing services,workerdispatchoperations security, nursingcare anddininghallservices,retail store salesoperations Offi ce-related operations, outsourcing business,telegrams,buildingcleaningand Printing oftelephonedirectories andcommercial printing telephone numberdatabases Publishing oftelephonedirectories, directory assistance,andoperationsusing telephone support;in-homemaintenance;supportservices Call centeroperations,suchasreceipt ofproblem reports andprovision of and humanresources dispatchbusiness Sales andhandlingofinquiriesforvariousservices,operationcontactcenters, development, andsalesofITsolutions Maintenance andoperationofinformationsharingnetworks,planning, Proposal, construction,andsupportofICTsystemsforbusinessusers leasing oftelecommunicationsfacilitiesandpublicworks Survey, engineering,installation,maintenance,operation,andmanagement maintenance IT-related consulting,products andservicesplanning,development,sales, Construction, maintenance,andmanagementoftelecommunicationsfacilities, Consigned salesoftelecommunicationsservicesprovided byNTTEast is makinglong-termcapitalloanstoNTTWest. Japan.NTT(HoldingCompany) Regional telecommunicationsservicesinwestern is makinglong-termcapitalloanstoNTTEast. Japan.NTT(HoldingCompany) Regional telecommunicationsservicesineastern Provision ofdatacenterservices inNorthAmerica Provision ofnetworkservices Consulting onsecuritysolutions,provision ofintegration,andsecurity services Provision solutionservicesin theU.S. ofInternet Provision ofArcstar servicesinAustralia Provision ofArcstar servicesinEurope Provision ofArcstar servicesintheU.S. Development andprovision ofbroadband portalservicesandsearch services Provision connectionandvideo distributionservices ofInternet Telecommunications businessasdefi ned intheTelecommunications Business Law Management ofDimensionDataGroup NTT Communications. network services.NTT(HoldingCompany)ismakinglong-termcapitalloansto telecommunicationsservices,andmultimedia Long distanceandinternational ANNUAL REPORT 2014 ANNUAL REPORT 125 Reference Information / Consolidated Subsidiaries 126 NIPPON TELEGRAPH AND TELEPHONE CORPORATION Consolidated Subsidiaries Japan InformationProcessing ServiceCo., Ltd. XNET Corporation NTT DATA KANSAICORPORATION NTT DATA iCORPORATION DOCOMO interTouch Pte.Ltd. net mobileAG S.p.A. Buongiorno DOCOMO DeutschlandGmbH ABC HOLDINGSCo.,Ltd. NTT DOCOMOVentures, Inc. Tower Records JapanInc. OAK LAWN MARKETING,INC. mmbi, Inc. D2C Inc. MCV GuamHoldingCorp. DOCOMO GuamHoldings,Inc. DOCOMO BusinessNetInc. DOCOMO Technology, Inc. DOCOMO Systems,Inc. DOCOMO SupportInc. DOCOMO MobileInc. DOCOMO EngineeringInc. DOCOMO ServiceInc. Dimension DataNorthAmerica,Inc Dimension Data(US)Inc Dimension Data(US)IIInc Dimension DataCommerce Centre Ltd Spectrum HoldingsInc SAS Arkadin International Midco,Inc. RW NTT DATA CORPORATION INTRAMART opn aia oigrgt ai Mainline(s)ofbusiness Votingrightsratio Capital % Millionsofyen Holdco,Inc. RW Consolidated subsidiaries Company NTT DATA CORPORATION DATA COMMUNICATIONS BUSINESSSEGMENT NTT DOCOMO,INC. MOBILE COMMUNICATIONS BUSINESSSEGMENT USD1,420.02 USD4,019.82 USD433.41 USD218.71 USD161.27 USD375.56 USD480.24 USD822.86 USD346.97 EUR337.61 EUR133.66 USD83.16 EUR88.66 EUR89.91 142,520 54.21 66.66 949,679 48060.45 24,890 million million million million million million million million million million million million million million 2,460 80.00 50.25 51.00 6,545 1,467 54.00 3,480 738 56.92 783 51.00 400 100.00 100 100.00 100.00 100.00 100 100.00 100 652 100.00 100.00 100 100 0100.00 30 0100.00 50 100.00 20 51.00 1 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 87.36 92.21 80.05 Management ofDimensionDataHoldingsplc’s subsidiarycompaniesintheU.S. Investment intheU.S. Sales ofcommunicationsequipmentsintheU.S. Management ofDimensionDataHoldingsplc’s subsidiarycompaniesinEurope conferencing services Provision ofvoiceconferencing services,webconferencing services,video Holdco,Inc. Holding companyforRW DataCenters,Inc. Holding companyforRagingWire Sales ofsystems Design, development, andsalesofsystems Design anddevelopmentofsystems Systems integration,andnetworksystems services accessforhotels High-speed Internet Provision tocarriersofplatformformobilecontentdistribution andbilling Provision ofplatformforB-to-Cdistributionmobile contentandbilling S.p.A.,netmobile AG,andfiHolding companyforBuongiorno ne tradegmbh Holding companyforABCCookingStudioCo.,Ltd. Fund management Sales ofmusicandvisualproducts aswellmusic-related goods Mail-order salescentered onTVmedia related services Provision ofbasic broadcasting businessspecifi ed bytheBroadcast Lawandits Advertising creation andmanagementusingmobilecontentsitesasmedia MarianaIslands the Northern Provision servicesinGuamandtheCommonwealthof ofcable TVandInternet Holding companyforDOCOMOPACIFIC, INC.andMCVGuamHoldingCorp. Marketing andsalesofmobilephones Research and developmentoftelecommunicationssystems Development andoperationofinformationsystems,software, andequipment Consignment oftelephonereception, transactions,etc. Repair ofmobiletelecommunicationsterminalsandperipherals Construction, maintenance,andoperationoftelecommunicationsequipment Mobile telephonemarketsupportoperations mobile telecommunications Mobile telecommunicationsservices,development,maintenance,andsalesof conferencing services Provision ofvoiceconferencing services,webconferencing services,video Sales ofpackagedsoftware Design anddevelopment ofsystems NTT URBANDEVELOPMENTCORPORATION OTHER BUSINESSES Mainline(s)ofbusiness Votingrightsratio Capital % Millionsofyen JSOL CORPORATION Consolidated subsidiaries Company NTT COMWARE CORPORATION NTT FACILITIES, INC. NTT FINANCECORPORATION UD EUROPELIMITED Everis Participaciones,S.L. NTT DATA AsiaPacifi c Pte.Ltd. NTT DATA EnterpriseServicesHolding,Inc. NTT DATA EMEALtd. NTT DATA ItaliaS.p.A. NTT DATA, Inc. NTT DATA Services,Inc. International NTT DATA DeutschlandGmbH itelligence AG NTT DATA EUROPEGmbH&Co.KG NTT DATA INTERNATIONAL L.L.C. CORPORATION NTT DATA CUSTOMERSERVICE NJK Corporation T rabn ltom n.10 0.0 Installationofbase stationsforsharedwirelessLANs,wholesale operationsfor 100.00 100 Other 853companies NTT BroadbandPlatform, Inc. NTT LOGISCOInc. NTT BUSINESSASSOCIECorporation NTT LEARNINGSYSTEMSCORPORATION NTT HumanSolutionsCorporation InfoCom Research, Inc. INC. NTT ADVERTISING, NTT Software Corporation NTT Electronics Corporation CORPORATION NTT ADVANCED TECHNOLOGY USD1,683.96 USD1,236.44 USD1,529.67 SGD146.65 USD143.56 EUR404.11 EUR308.04 EUR72.99 EUR34.23 EUR98.88 EUR82.78 GBP81.8 12,400 100.00 16,770 100.00 48,760 67.30 20,000 100.00 million million million million million million million million million million million million 2,000 100.00 4,222 51.20 5,000 50.00 4,000 100.00 7,750 100.00 3,220 100.00 6,576 95.76 5,000 100.00 100 100.00 100 100.00 115 100.00 500 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 power facilities Design, management,andmaintenanceofbuildings,equipment,electric services forcommunicationsservicecharges,etc. Leasing andinstallmentsalesofcommunicationsequipment,billingcollection Investment andoperationofreal estateintheU.K. Acquisition, construction,management,andrental ofreal estate Consulting anddesigndevelopmentofsystems Responsible forNTTDATA’s APAC operatingsubsidiaries Consulting anddesigndevelopmentofsystems Management ofNTTDATA CORPORATION’s subsidiarycompaniesinEurope Consulting anddesigndevelopmentofsystems Consulting anddesigndevelopmentofsystems Consulting anddesigndevelopmentofsystems Consulting anddesigndevelopmentofsystems Consulting anddesigndevelopmentofsystems Responsible forNTTDATA’s SAPoperatingsubsidiariesoverseas Responsible forNTTDATA’s operatingsubsidiariesinNorthAmerica System operationsandmaintenance Design anddevelopmentofsystems Design anddevelopmentofsystems Comprehensive logisticsservices management, managementsystems,and settlementservices Real estate-related business, consignedbusinessforcompanyhousing Training anddevelopment Staffi ng andplacementbusiness industry Investigation andresearch theinformation andcommunications concerning Advertising andrelated businesses consulting; product developmentandsales; ofadvancedtechnologies Systems development;systemsintegration; totalsolutionsande-commerce and systems components forcommunicationsapplications andrelated electronic installations Development, design,manufacture, andsales ofcustomLSIsandoptical technical consulting computing /telecommunicationssystems;analyticalresearch ontechnicaltrends; Technology transfer;designanddevelopment ofhardware, software, and systems andsoftware Development, production operation,andmaintenanceoftelecommunications wireless LANbasestation equipment ANNUAL REPORT 2014 ANNUAL REPORT 127 Consolidated Subsidiaries 128 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ GENERAL IT-RELATEDTERMS Explanations ofspecializedtermsasusedinthisreport Glossary ofTerms
operation and management services, including Internet connectivity.operation andmanagement services,includingInternet A facilityentrustedwith serversandothersystemsbycustomers thatprovides Data Center destruction, oralteration ofdata. unauthorized accessofatargetcomputer ornetworkresulting intheft, Attack thatcausesthefunctionalityof target systemtofailaswell Cyber Attack Network oftrunkcircuits thatcanhandlelargevolumesoftraffi c. Core Network characteristics ofeffective processes tosatisfy thematuritylevelsare defi ned. from theU.S. DepartmentofDefense.Maturityisexpressed inlevels, andthe MellonUniversity'sCMMIInstitutewithassistance was developedbyCarnegie Model thatindicatesthematurityoforganizations thatdevelopsystems.CMMI CMMI (CapabilityMaturityModelIntegration) clouds toshowcomputernetworks. term “cloudservices”issaidtohaveresulted from thefrequent useofimages network, ratherthanowningandmanagingthemontheirown.Theuseofthe hardware, software, oranother data,etc.,asaservice through theInternet Confi guration underwhichusers(companies,individuals,etc.)utilizecomputer Cloud /Services systems anditsuseincorporatemanagementdecision-making. The collection,analysis,andprocessing ofinformationaccumulatedinbusiness Business Analytics Services provided aspackagesofmultipleservices. Bundled Services communications. connectionservicecompatible with largevolume As usedinthisreport, Internet Broadband Outsourcing certainbusinessprocesses toanoutsidecompany. BPO (BusinessProcess Outsourcing) data, thatare diffi cult tomanageorprocess withconventionaltechnology. Large-scale, complexcollectionsofdata,includingtext,graphic,chart,andvoice Big Data phones. Antenna andothernetworkdevicesthatcommunicatedirectly withmobile Base Station Transactions betweencompaniesandconsumers. B2C (BusinesstoConsumer) Operations thatsupporttheconsumer-focused businessesofothercompanies. B2B2C (BusinesstoBusinessConsumer) Monthly averagetelecommunicationsrevenue persubscriber. ARPU (Average RevenuePerUser) handle thevarioustasksprovided byITservicecompanies,etc. of businessinformationsystemsandadministrativesoftware. Also,contractingto The outsourcing ofsuchtasksastheoperation,maintenance,andmanagement AMO (ApplicationManagementOutsourcing) resolution ofissuesutilizingspecializedknowledgeand technologies. Services entailingtheprovision ofadviceandproposals tocustomersandthe Advisory Line thatlinkstelecommunicationsoperatorsandsubscribers. Access Line ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Malware telecommunication in amobilephoneatspeedsonparwithoptical fi ber. large capacity, effi cient useofradiowaves,andlowdelay. Achieveshigh-speed Telecommunications standard withfeatures includinghightransmissionspeeds, LTE (LongTerm Evolution) layers. For example,applications/solutions,managed ICT, datacenters/networks are Layer Outsourcing of operationsrelated toinformationsystems. IT Outsourcing (ITO) Formulated bytheU.K.government. Systematic guidelinesrelated tocomputersystemoperation andmanagement. ITIL (ITInfrastructure Library) connection services. Company providing Internet ServiceProvider)ISP (Internet the Internet. Backbone networkforthedistributionofdatathroughout theworldover IP Backbone Event thatthreatens safetyinregard tomanagementorsystemoperation. Incident communications. functions ofcomputers,andtechnologiesusedinITsystemsdata including hardware andsoftware usedforinformationandcommunications Collectively refers totechnologiesrelated toinformationandcommunications, ICT (InformationandCommunicationsTechnology) needs. services, inaccordance withthecustomer'sindividualbusinessandapplication combinations ofserversoperatedbythecustomerin-houseandpubliccloud Cloud servicesthatcanbeusedfl exibly fordifferent purposesthrough Hybrid Cloud volts. equipment intheformofdirect current athighvoltagesintherangeof300to400 In thefi eld ofinformationcommunications,systemsthatsupplyelectricitytoICT HVDC (HighVoltage Direct Current System) Display thatismountedontheuser’s head. Head-Mounted Display Bases atwhichbusinessactivitiesare conducted. Footprint systems toconductbusinessoperationsinfrontline settings, suchasatcompanies. software byemployeesandorganizationalunits(endusers) thatutilizeinformation In-house development,construction,operation,andmanagementofsystems End-User Computing Electronic signsthatuseLCDs,etc.,todisplayimages and information. Digital Signage as graphicdata. Electronic devicethattransfershandwrittencharacters and diagramstoPCs,etc., Digital Pen Data Offl inappropriate orharmfulactions. Malicious software orcodethatwas created withtheintentionofconducting Offl oad oading ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
premises. Installation anduseofsoftware, etc.,onfacilitiesinstalledacompany’s own On Premises management, etc. administrative workorsystemsdevelopment,operation,maintenance, Commissioning overseascompaniestohandlevarioustasks,suchas Offshore to facilitatemore-convenient, high-speedcommunications. Dispersion ofmobilephonecommunicationsdatatonon-mobilenetworks Offl operation forcorporations,etc. Integrated provision ofsuchoperationsasnetworkdesign,construction,and NI (NetworkIntegration) realized through theuseofdedicated hardware. Usedwithgeneral-purposeservices. Technology fortheprovision insoftware ofnetworkfunctionsthathadpreviously been NFV (NetworkFunctionsVirtualization) etc., toanearbyforeign countryorregion ortoaremote domesticlocation. Contracting outcomputersystemdevelopment,operation,maintenance,management, Near Shore mobile telecommunicationsoperator. phone infrastructure, from othercompaniesandusesittoprovide services.Virtual Company thatborrows mobilecommunicationsinfrastructure, suchasmobile NetworkOperator) MVNO (MobileVirtual their phonenumbers. Service thatenablesuserstochangemobilephonecompanieswithoutchanging MNP (MobileNumberPortability) from thoseproducts andservices. are presented byfi eld inmore than10categories,andthetopprizeisselected recognition ofsuperiorproducts andservicesinthefi eld ofIT. Eachyearawards the objectiveofcontributingtodevelopmentITindustrythrough the Created in2004byMMResearch Institute,aJapaneseresearch company, with MM Research InstituteAwards and management,whichare essentialintheuseofcommunicationsservices. Integrated provision ofcommunicationsequipmentinstallation andset-up,maintenance, Managed ICTService brand nameoftheservices. Japanesecorporationwasestablished in2000. systems andcustomer managementsystemsasonlineservices. Alsousedasthe Worldwide software company, U.S.A.Provides basedinCalifornia, salessupport Salesforce.com Robot engineeringor variousscientifi c research activitiesrelated torobots. Robotics Cloud serviceoffered tothegeneralpublic. Public Cloud Cloud serviceexclusivelyforin-houseuse byacompanyororganization. Private Cloud and devices,suchasthoseforauthentication, billing,intermediation,andcredit. A shared platformforproviding variousapplicationsbylinkingnetworks Platform individual smallpackets. Method ofcomputertelecommunicationin whichdataissentandreceived as Packet Telecommunications comparison withgrowth achievedthrough M&Atransactions,etc. Growth achievedthrough the useofexistingmanagementresources. Usedin Organic Growth companies andthevisualizationofproduct development processes. in-house technologiesincombinationwiththeandideasofother A methodofcreating newproducts andbusinessmodelsthrough theuseof Open Innovation oad ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
Ubiquitous Backbone networkthattransferscommunicationsdata,suchaspackets. Transport Network Volume ofinformationfl owing through acommunicationsnetwork. Traffi Total costofcomputersysteminstallation,maintenance,and management. TCO (Total CostofOwnership) or organization. of importantinformationfrom a designatedtarget,suchasacompany Cyber attackimplementedwiththeobjectiveofunauthorizedacquisition Targeted Attack can resolve thoseissues. Identifi cation ofissuesfacedbycustomersandtheprovision ofsystems,etc.,that Solution Services offering asocialnetworkingthrough exchangeontheInternet. Social NetworkServices people. relative easeinwhichindividualscansendinformationto largenumbersofother newspapers andbroadcast media,adistinctivefeature ofsocialmediaisthe Unlike Media comprisingconnectionsamongpeopleovertheInternet. Social Media functionality.Enhanced versionofaconventionalTVthatincludesPCandInternet Smart TV accordance withcustomeroperations. Comprehensive provision ofsystemplanning,construction,operation,etc.,in SI (SystemIntegration) communications functions. Network thatcollectsdatausingsmallsensornodesincorporatewireless Sensor Network Not havingseams. Seamless operation ofnetworkequipment. Technology fortheuseofsoftware toimplementintegratedcontrol ofthe SDN (Software Defi people whowanttouseit,withoutregard totheirusageenvironment, etc. The problem-free accessibilityoftheinformation provided forall ontheInternet Web Accessibility orintranets. the Internet Technology forsending andreceiving voicedataoverTCP/IPnetworks, suchas VoIP (Voice Protocol) overInternet the installationanduseofoperatingsystems oneachofthevirtualcomputers. Technology forthe creation ofmultiplevirtualcomputersonasinglecomputer and TechnologiesVirtualization or service. General termfortheexperience,etc.,ofa userwhentheyuseaproduct UX (UserExperience) communication, suchasvoicecalls,e-mail,instantmessaging,VoIP, etc. Service ofnewcommunicationsmethodthatintegratesmultiplemeans Unifi anywhere. andotherinformationnetworksanytime, The abilitytoaccesstheInternet edCommunications cVolume nedNetworking) ANNUAL REPORT 2014 ANNUAL REPORT 129 Glossary of Terms Glossary of Terms Stock Information As of March 31, 2014
TERMS RELATED TO NTT GROUP SERVICES Corporate Information Principal Shareholders Company name NIPPON TELEGRAPH AND TELEPHONE Number of Ratio of the number of shares shares held held to the total number CORPORATION Name (Thousands) of shares issued (%) ■ Arcstar UCaaS ■ FLET’S Hikari Date of establishment April 1, 1985 The Minister of Finance 405,221 35.65 Cloud service offered by NTT Communications. Integrates multiple functions, Term that refers collectively to optical-fi ber broadband services provided by NTT Japan Trustee Services Bank, Ltd. including IP telephony, messaging, presence (confi rmation that someone is in East and NTT West, such as FLET'S Hikari Next, FLET'S Hikari Light, and Head offi ce Otemachi First Square, East Tower, (Trust Account) 39,280 3.46 the offi ce, etc.), and telephone, video, and web-based conferencing. B FLET'S. 5-1, Otemachi 1-Chome, Chiyoda-ku, The Master Trust Bank of Japan, Ltd. http://www.ntt.com/a_ucaas_e/ http://www.ntt-east.co.jp/en/product/internet_fl ets_hikari.html Tokyo 100-8116, Japan http://fl ets-w.com/english/fl ets_hikari/ (Trust Account) 32,138 2.83 Arcstar Universal One ■ Telephone 81 (3) 6838-5111 Moxley and Co LLC 17,102 1.50 New VPN service for clouds provided by NTT Communications that enables ■ FLET’S TV The Bank of New York Mellon SA/NV 10 10,404 0.92 fl exible packaging of different telecommunications layers and access line qualities. Service provided by NTT East and NTT West that enables subscribers to receive Common stock ¥937,950,000,000 NTT Employee Share-Holding Association 10,357 0.91 http://www.ntt.com/universalone_e/ terrestrial / BS digital broadcasts using FLET’S Hikari optical fi ber. Total number of shares authorized to Japan Trustee Services Bank, Ltd. Area Mail Disaster Information Service FLET'S Hikari Next ■ ■ be issued by NTT 6,192,920,900 shares (Trust Account 1) 8,834 0.78 Service that enables users to receive earthquake early warnings and disaster / A service offered by NTT East and NTT West that provides high-speed The Chase Manhattan Bank, N.A. London Total number of shares issued 1,136,697,235 shares evacuation information. Not affected by traffi c load. transmissions with maximum uplink and downlink transmission speeds of Secs Lending Omnibus Account 8,648 0.76 approximately 1 Gbps. Aggregate voting rights 11,083,622 Japan Trustee Services Bank, Ltd. ■ Biz Hikari Cloud https://fl ets.com/english/next/ Number of shareholders (Trust Account 9) 8,591 0.76 Cloud service offered by NTT East and NTT West that is based on http://fl ets-w.com/english/fl ets_hikari/next/ telecommunications-carrier fi ber-optic networks and data centers. (including holders of fractional shares) 1,041,008 State Street Bank and Trust Company 505225 8,407 0.74
■ Green Data Center n Notes: 1. The number of shares held is rounded down to the nearest thousand. ■ Biz Hosting Cloud Environmentally friendly data centers that promote the green initiatives and Stock Exchanges on Which the Company is Listed 2. NTT’s holdings of 26,650,807 shares of treasury stock are not included in the Public cloud service offered by NTT Communications. Highly fl exible service that environment-focused management of customers and Group companies. Provided Tokyo (Stock Code: 9432) above list of principal shareholders. can be used with an upper limit on monthly charges. by NTT DATA. New York (Ticker Symbol: NTT) http://www.ntt.com/cloudn_e/ Distribution of Ownership among Shareholders
■ Hikari Denwa The number of shares is rounded down to the nearest thousand. ■ Biz Hosting Enterprise Cloud Investor Relations Figures in parentheses represent the composition ratio in percentage terms. A value-priced IP- and optical fi ber-based telephone service using FLET’S Hikari. Cloud service for corporate customers offered by NTT Communications. World’s http://fl ets-w.com/english/hikari_denwa/ http://www.ntt.co.jp/ir/contact_e/ fi rst cloud service to incorporate network virtualization technology, not only in data Telephone: 81 (3) 6838-5481 Government and Public Bodies 405,231 (35.70) centers but also on networks connecting data centers. ■ Hikari TV Japanese Financial Institutions 171,441 (15.10) http://www.ntt.com/enterprise_cloud_e/ A service that allows users to enjoy multi-channel broadcasting, video, karaoke, Depositary for NTT American Depositary Receipts (“ADRs”) Japanese Securities Firms 12,071 (1.06) and other services by connecting FLET’S Hikari links to their TVs. Other Japanese Corporations 15,638 (1.38) ■ BizXaaS CRM JPMorgan Chase Bank, N.A. Foreign Corporations, etc. 309,799 (27.29) One of the services in the Biz XaaS series of comprehensive cloud services offered ■ Monthly Support 1 Chase Manhattan Plaza, Floor 58 Japanese Individuals and Others 194,180 (17.11) by NTT DATA. Based on Dynamics CRM, a customer information management Service provided by NTT DOCOMO that provides a discount from the monthly New York, NY 10005, U.S.A. Treasury Stock 26,651 (2.35) application. With the addition of a mobile application with customized functions usage fees, with the discount varying in accordance with the model of handset Inquiries developed by NTT DATA, facilitates solutions offering functions that match the purchased. Notes: 1. The composition ratio is the ratio of shares relative to the total number of issued smart device usage scenarios of each user. http://www.nttdocomo.co.jp/english/charge/discount/monthly_support/index.html JPMorgan Service Center shares, excluding fractional shareholdings less than one unit share (1,683,935 http://www.bizxaas.com/application/crm_e/ P.O. Box 64504 shares). Remote Support Service ■ 2. “Other Japanese Corporations” includes 15,000 units nominally held by Japan ■ dmarket Service provided by NTT East and NTT West in which a specialist operator St. Paul, MN 55164-0504, U.S.A. Securities Depository Center, Inc. Smartphone content marketplace operated by NTT DOCOMO. Comprises provides support in response to customer inquiries regarding set-up and use of Telephone: 1-800-990-1135 (General) 3. There are 228,705 odd-lot shareholders who hold only odd-lot shares. content stores and the “Applications and Reviews” section, which introduces PCs and peripherals (routers, printers, software). 1-651-453-2128 (From outside the U.S.A.) recommended applications. http://fl ets.com/english/service/index.html Restrictions under the NTT Law http://www.nttdocomo.co.jp/english/service/entertainment/index.html The NTT Law requires the government to own at least one-third of the total number of issued shares*. Pursuant to the NTT Law, the proportion of voting rights of foreign nationals and foreign corporations is limited to less than one- third of the total voting rights. If the proportion of voting rights of foreign nationals and foreign corporations should exceed one-third, pursuant to the NTT Law, NTT is prohibited from registering ownership of shareholders in excess of such limit. As of the end of March 2014, 3,097,992 of the voting rights were owned by foreign nationals and foreign corporations.
* For the time being, pursuant to Article 13 of the NTT Law, any increase in the number of shares attributable to the issuance of new shares is not included in calculating the total number of issued shares for the purposes of the NTT Law. NTT’s Share Price on the Tokyo Stock Exchange
(Yen) (Points) 9,000 3,000
6,000 2,000
3,000 1,000
0 0 (Thousands of Shares) 150,000
100,000
50,000
0 / Stock Information Glossary of Terms 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
NTT’s share price (upper left scale) TOPIX Index (right scale) NTT’s trading volume (lower left scale) Notes: 1. NTT’s stock price and TOPIX Index are the simple average closing prices on the last trading day every month. 2. NTT’s trading volume refers to the number of NTT shares traded every month. 3. Figures have been adjusted to refl ect the 100-for-1 stock split that NTT conducted on January 4, 2009. 130 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 131 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2014 For the year ended March 31, 2014
Value for Shareholders
Value Partner
Value for Society
Printed in Japan http://www.ntt.co.jp/