NTT Annual Report 2018 Accelerating our self-transformation to become Your Value Partner Nippon Telegraph and Telephone Corporation ANNUAL REPORT 2018 For the year ended March 31, 2018 Contents Message from the CEO 2 Operation Operations in Review Overview Overview Regional Communications Business 74 Long Distance and International History of NTT Group’s Communications Business 76 Self-Transformation 10 Mobile Communications Business 78 Path of NTT Group’s Data Communications Business 80 Self-Transformation 12 Other Businesses 82 NTT Group Formation 14 NTT Group Topics 84 Performance Highlights 16 Non-Financial Highlights 18 Financial Section 86 Shareholder Returns 19 Strategy Consolidated Subsidiaries 98 Glossary of Terms 99 Strategy Stock Information 101 Value Creation Process 20 Outline of New Medium-Term Management Strategies 22 Special Feature: Next-Generation Smart City Initiatives 24 Research and Development 30 Accelerating our ESG Management for Corporate Value Improvements 36 Operation Value Creation through Social and Environmental Contributions 38 self-transformation to become Initiatives for Addressing Material Issues 1 Reduction of Environmental Impact 38 2 Reinforcement of Information Security and Personal Information Protection 44 Your Value Partner 3 Development of Frameworks for Encouraging of Participation by Diverse Human Resources 48 NTT Group’s Basic Policy for Stakeholder Engagement 54 Corporate Governance 56 Forward-Looking Statements Editorial Policy Other Materials The forward-looking statements and projected figures This is an integrated report that combines information Presentation Materials concerning the future performance of NTT and its sub- that is important to shareholders and investors, including http://www.ntt.co.jp/ir/library_e/presentation/ sidiaries and affiliates contained or referred to in this not only such information as growth strategies and Shareholders’ Meeting Materials report are based on a series of assumptions, projections, financial results but also environmental (E), social (S), http://www.ntt.co.jp/ir/shares_e/shareholders_meetings.html estimates, judgments, and beliefs of the management and governance (G) information. The report focuses of NTT in light of information currently available to it on explanations of NTT Group’s initiatives targeting Financial Results regarding the economy, the telecommunications industry increases in corporate value over the medium to long http://www.ntt.co.jp/ir/library_e/results/ in Japan, and other factors. These projections and term. In editing this report, reference was made to the Securities Report estimates may be affected by the future business International Integrated Reporting Framework of the http:/www.ntt.co.jp/ir/library_e/yuho/ operations of NTT and its subsidiaries and affiliates, International Integrated Reporting Council (IIRC). Sustainability Report the state of the economy in Japan and abroad, possible The report is intended to help readers to understand http://www.ntt.co.jp/csr_e/report.html fluctuations in the securities markets, the pricing of NTT Group, which is accelerating the process of services, the effects of competition, the performance of business structure transformation to be a “Your Value new products, services and new businesses, changes to Partner” and working to increase corporate value by laws and regulations affecting the telecommunications contributing to the realization of a sustainable society. industry in Japan and elsewhere and other changes in circumstances that could cause actual results to differ materially from the forecasts contained or referred to in this report. ANNUAL REPORT 2018 1 Message from the CEO Overview My name is Jun Sawada, and it is a pleasure to introduce myself. I have succeeded Hiroo Unoura as the president and chief executive officer of NTT. I am committed to helping NTT Group to contribute to the creation of a prosperous society through the acceleration of its self-transformation to become “Your Value Partner” and the provision of reliability and impeccable quality services September 2018 to customers, shareholders, partners, local communities. Jun Sawada President and Chief Executive Officer, Representative Member of the Board Strategy Leading by Example, Performance Tracking, and Speed decision-making and action can heighten organizational I joined Nippon Telegraph and Telephone Public Corporation capacities. Though my position as president of the holding roughly 40 years ago. In the years that followed, I was largely company has taken me away from the front lines, this has involved in research and development, taking part in design- not changed the importance I place on frontline operations. ing the structures of telephone poles and manholes. Later, In this position, I will track performance based on quantita- I became the manager of a telephone exchange where I was tive results while fostering work habits that instill a funda- responsible for performing facility maintenance and interact- mental element of speed into the organization as I lead the ing with customers on the front lines of operations. The transformation of NTT Group by example. majority of the other employees at that exchange had been Operation situated longer than I was. This experience made me pain- Mission of Acting Simultaneously as a Public Utility and fully aware of the difficultly of leading an organization. In this a Private Company position, I tried to always lead by example. At the same Some may say that NTT Group, with its long history and time, I took steps to track the performance of our organiza- massive scale, cannot change. While there is some truth tion from various perspectives. Whether it be the number of to this statement, it is not completely accurate. telephone poles installed, the length of cables laid, or the The privatization of Nippon Telegraph and Telephone number of customers at which installations were performed, Public Corporation in 1985 led to the formation of I would track these metrics and compare them with figures NIPPON TELEGRAPH AND TELEPHONE CORPORATION from other organizations. I thereby aimed to foster employee and NTT Group. At this time, the Group joined the ranks of ambition and drive transformation. many organizations requiring a unique approach toward NTT Group is accelerating its self-transformation In 2000, I transferred to NTT Communications Corporation. management to act simultaneously as a public utility and During the period when I served as executive manager of the as a private company, two hats that are said to be difficult to become “Your Value Partner” based on our Corporate Strategy Planning Department, I was involved in to wear at once. Important tasks needing to be addressed over 10 M&As, many of which were for overseas companies. include the ongoing provision of reliable communications It was in 2014 when I became a Representative Member of infrastructure, the installation of communications infrastruc- Shared Values of “Connect,” “Trust,” and “Integrity.” the Board of the Company. Later, I held a concurrent posi- ture in underpopulated areas and isolated islands, and tion as the president of NTT Security Corporation, where effective responses to natural disasters. If there is anyone I spearheaded the integration of the Group’s cybersecurity in Japan that is going to address these tasks, it should be companies. Over the years, I have held many concurrent NTT Group. In fact, we see this as our mission. This pride titles at various companies. Faced with limited time to fulfill in our role as a public utility and our commitment to fulfilling my duties in concurrent positions, I naturally came to this role are aspects of NTT that cannot change. This is the emphasize speed in my work. Today, I consider manage- reason why I see the very act of management as being a ment as adhering to the formula of mass (m) × acceleration CSR activity for NTT Group. At the same time, so long as we (a) = force (F). As illustrated by this formula, swift are a private company, we will also be obligated to continue 2 NIPPON TELEGRAPH AND TELEPHONE CORPORATION ANNUAL REPORT 2018 3 Message from the CEO generating profits. Fulfilling this obligation is also critical to Society expects NTT Group to support social infrastruc- this goal, we are working toward our vision of becoming business entities requires that we win trust, and trust must Overview our ability to function as a public utility. This obligation ture and to help resolve social issues. It was the process of “Your Value Partner” by offering value to and being chosen be earned by always maintaining a sense of integrity. These necessitates ongoing change. self-transformation with the goal of living up to these expec- by customers, shareholders, communities, employees, and three Shared Values contribute to and enhance one another. In truth, the business structure of NTT Group has changed tations—during which we have always been mindful of the all of our other stakeholders. Our Shared Values are also a factor differentiating NTT greatly over the years. At the time of our privatization in 1985, future social changes predicted from a long-term perspec- Upon assuming the position of president, I sought to Group from its competitors that informs how we position voice related revenues accounted for more than 80% of our tive—that has enabled us to continue evolving up until explain “Your Value Partner,” our vision for the future, in an ourselves and the direction of our management strategies. operating revenues. In the fiscal